Let me make a secret confession right here. For years, the producer of my radio talk show and I would draw straws each January to see who would “have the high privilege and distinct honor” of watching the president’s State of the Union address.

Do I have to clarify that the loser had to watch?

In case the president said something important – which almost never happened – I felt an obligation to play some audio clips and talk about it on the show the next morning. But, personally, watching Republican and Democrat presidents recite their laundry list of promised giveaways for the year ahead was more than I could bear.

I learned early on that I could avoid all of the ovations and applause, save time, and still capture what substance there might have been in a written paragraph or two. Soon, I’ll give you such a written account, a perennial synopsis that will allow you to watch something else – like American Idol – and still have a handle on what the president says.

And you might even have time left over to keep an eye on the real news.

While We Were Watching…

The State of the Union is treated with utmost seriousness by the dominant news media. All four major TV networks and the cable news channels carry the event. My local newspaper devoted most of the front page and big chunks of the inside pages to its coverage: photos, accounts, sidebars, response, and analysis.

But it’s actually a spectacle that crowds out the real news. News about the impact American diplomacy is having on our future standard of living. News about the U.S. dollar’s reserve status winding down.

On the day of the State of the Union address, news flashed around the world – but not on your favorite network or in your morning paper – that India and Iran have agreed to end-run the U.S.-imposed sanctions on Iran.

They will use gold to do so.

Those [U.S.] sanctions, which have now been agreed to by the European Union as well, will ratchet up in July. Their enforcement means that banks and financial institutions involved in oil transactions with Iran will be barred from doing any business with financial institutions in the United States and Europe.

According DEBKAfile, a news source based in Israel, Iran has taken steps to bypass American and European banks and their currency desks altogether, agreeing instead to sell its oil to India for gold. China is expected to soon agree to use gold in buying oil from Iran as well. It’s a move that would leave the long-standing global dollar pricing of petroleum in tatters.

The gold-for-oil agreement means a three things:

1. It hastens the unwinding of the U.S. dollar’s global reserve currency status.

The rest of the world is actively developing alternatives to the U.S. dollar. Although it will mean a falling standard of living for the American people, U.S. policies and secretaries of state, like Condoleezza Rice and Hillary Clinton, have spurred what will become a stampede away from the dollar. DEBKAfile also reports that both China and Russia have secret mechanisms already in place to pay Iran in non-dollar currencies for its oil. And only a month ago, China and Japan, the world’s second- and third-largest economies, agreed to develop direct yen/yuan trading, forgoing the dollar as the reserve currency intermediary.

2. It accelerates the global monetization of gold.

Both China and India have been aggressively adding to their gold reserves. Other countries are following suit. The Keynesians, who have been in charge of American monetary policy, having destroyed the value of the dollar and enabled our ruinous debt, may actually believe that gold is a “barbarous relic.” But it is clear that their opinions have little functional value in the real world. The world is turning to gold more and more as U.S. debt continues to mount. Indeed, is there a better alternative monetary unit to be found? Certainly, it’s not the euro. Jim Grant of Grant’s Interest Rate Observer says gold is the only answer to the question, “if not the dollar, then what?”

3. It reveals the growing global impotence of the U.S.

Long able to enforce reluctant countries to adhere in its missions and embargoes around the world, the U.S. is finding its will frustrated. Nations that once had to weigh the favor of the U.S. against their own commercial and domestic political interests are increasingly ignoring the global dictates of the U.S. State Department. In 2003, Turkey, where the prospect of a U.S. invasion of Iraq was wildly unpopular, refused even bribes to allow the U.S. to stage the invasion from its soil. Today, the threat of a U.S. or Israeli strike on Iran is meeting with growing disapproval, especially from countries like China and India which rely heavily on Iranian oil.

Routine. Tired. Repetitive.

It may be that the State of the Union’s falling ratings – Obama’s speech the other night was down 12 percent from the year before, and was down 21 percent from 2010 – are a sign that people in large numbers have discovered there are better sources of important news than network television and Washington’s lapdog press.

Or, even better, maybe they’ve had about enough of the Washington party.

Or, maybe it’s simply because it’s all so routine, so tired, so repetitive. Even American Idol, entering its 11th season, has more surprises than the State of the Union. Consider:

Obama, who clearly doesn’t understand anything about markets, offered to have the government interfere with the real estate market in brand new ways in 2012. What could be more predictable than some president announcing a scheme to screw up the real estate market again in the new year?

It’s so routine. So tired. So repetitive.

And while the contestants on American Idol are fresh every year, the promises that make up the State of the Union are just reruns, season after season.

Now, if you’d like to be free to pay attention to the real news that actually affects your freedom and prosperity, let me provide you the following short, beginning-to-end account of this year’s State of the Union. You’ll be able to refer to it year after year, so that while you’ll still be informed about the president’s address, you can skip the show and save yourself time.

Time to follow the real news. Or to watch American Idol.

“Thank you so much. Thank you very much. Thank you. Thank you.”

The president agreed to do something for (to?) homeowners. He also has decided to help teachers. And students. And women. Workers, too. The president wants to help workers, for sure. And jobs galore. The president is all about creating jobs in 2012. And more jobs in energy. Oh, they’ll be clean ones for sure!

Plus, he’s going to reform regulations so that regulators will be able to regulate better. And he wants to get a handle on the bureaucracy. And he wants to reform education. And both make government more effective and still grow the economy. Did he forget men and women in uniform? The president most certainly did not!

“Thank you, God bless you, and may God bless the United States of America.”

Regards,

Charles Goyette

Source

The State of the Union, Just Another Reality Show was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I’ve given it a lot of thought, drawing on my decades of market-watching experience. In the end, I came up with three predictions for 2012, one of which I will talk about in today’s article.

[ Michael also tied these predictions to three new trade recommendations, currently only available to Agora Financial Reserve members, but which we are working on making available to Whiskey Shooters for an unbelievable discount. More on this later in the week. Keep an eye out of it. -- Ed.]

But be warned: While I believe these events have a very high probability of occurring next year, the mainstream media will likely disagree. Expect them to say I’m being absurd, or at the very least ascribe to them a very low probability of happening.

Let them whine — they were wrong in 2011, and they will be wrong in 2012. So these predictions will catch most investors off guard [...which means you have an opportunity to buy into the matching recommendations for a relatively low price. -- Ed.]

And remember, I’m not a “doom and gloom” guy. In fact, I actually hope all of my predictions do not come to fruition, as they will prove yet more detrimental to this already-anemic economy and country.

But I can’t ignore what I see…and it is my charge to find a way for you to prosper amid the coming chaos. Even if what I see isn’t 100% on the money, the plays I’ve selected should still do all right.

So sit down, strap in and prepare to be surprised, starting with my first recommendation.

It’s pretty clear that we’re going to see some sort of military action against Iran’s nuclear infrastructure, either by Israel, the United States or even NATO. Recent words from Israeli policymakers, U.S. military action and even signals from the markets made that abundantly clear.

In a pre-Thanksgiving interview on CNN, former prime minister and current defense minister of Israel Ehud Barak spelled out his country’s position:

“People understand now that Iran is determined to reach nuclear weapons. No other possible or conceivable explanation for what they have been actually doing. And that should be stopped. And under nuclear Iran, the whole region will turn nuclear — Saudi Arabia, Turkey, Egypt will have to turn nuclear. The countdown toward nuclear materials in the hands of terrorists will start, even if you take out the generation. But more than this, they will use the nuclear umbrella to kind of intimidate neighbors all around the Gulf, to sponsor terror. Try to think what happens if at a certain moment you wake up after Iran turns nuclear, three years down the stream, and you end up with a Bahrain overwhelmed by Iran — who will come to rescue? Who would have come to rescue Kuwait when it was taken by Saddam Hussein 20 years ago, if Saddam could have said credibly enough that he had three or four crude nuclear devices?”

The defense minister continued:

“It’s true that it wouldn’t take three years…probably three-quarters, before no one can do anything practically about it because the Iranians are gradually, deliberately entering into what I call a zone of immunity, by widening the redundancy of their plan, making it spread over many more sides.”

He then reiterated the time frame in which Israel has to take military action: “I cannot tell you for sure, nor can I predict whether it’s two-quarters or three-quarters. But it’s not two or three years.”

In case you couldn’t read between the lines, Mr. Barak has given us a time frame for a pre-emptive attack — sometime within the next nine months!

And that’s overt military action. The covert options may have already begun… with the United States providing a hand.

The Drone Wars

You’ve probably heard about the RQ-170 unmanned American spy plane that Iran claims to have shot down. After weeks of denial, the United States has admitted it was hunting suspected Iranian nuclear sites.

Now Iran has claimed it was able to take control of the drone during its flight, forcing it to land exactly where Iran wanted it.

Spy flights are one thing. Actual hostility would be something completely different. But the fact is that might have already started too.

Israeli newspapers declared that Israel’s war with Iran already had begun, in the form of covert action in cooperation with other groups. The Miami Herald has information backing this up.

It reports that there have been a series of “mishaps” at Iranian nuclear facilities and weapons sites. They may be part of a covert organized attack on Iran’s nuclear weapons program, according to the paper.

A recent occurrence outside Iran’s third-largest city, Isfahan, is thought to be the most-recent strike, though details on the intended target are still unclear. Intelligence officials across the Middle East say there is strong evidence that an explosion at a sprawling military base and nuclear facility outside Isfahan had done some “significant structural damage.”

But it’s not just the promises from Israel, scattered newspaper reports or signs of U.S. surveillance that indicate an attack on Iran is imminent. It’s the market indicators as well.
Consider oil prices. Logic dictates that if the global economy were slowing, the demand for oil would drop, along with its price. In fact, that’s what has been happening with most industrial commodities. But oil remains a glaring exception.

Take a look at the following charts:

The first shows the year-over-year change in oil and copper prices, and the second shows the change in both those commodities over the last 30 days.

We can see that oil prices are up 12% over the last 52 weeks and have surged 13% in the last month. But copper prices are down nearly 10% YOY and have dropped about the same amount in just the last month. As I alluded to in the last issue, falling copper prices are a signal that a global recession is just around the corner. However, oil prices are telling us that something other than just a global economic funk is in the cards.

I believe oil prices have begun to factor in the removal of the world’s third-largest exporter of oil from the market. But I think the markets are actually being too optimistic. There is much more at stake here than the 2.2 million barrels of oil that Iran exports each day.

If you know Middle Eastern geography, you know Iran sits alongside the Strait of Hormuz, a narrow body of water that connects the Persian Gulf to the Arabian Sea and, ultimately, the Indian Ocean.

Oil tankers from Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates all travel through the strait. In fact, 33% of the world’s tanker traffic and a mind-blowing 17% of the world’s oil pass through the strait.

So with just a little effort, Iran could effectively block nearly one-fifth of the world’s oil supply. And the country knows it.

This is not speculation. This is 100% fact. As Fox News reported, Parviz Sarvari, a member of the Iranian parliament’s National Security Committee, recently warned, “Soon we will hold a military maneuver on how to close the Strait of Hormuz… If the world wants to make the region insecure, we will make the world insecure.”

Wall Street cannot ignore that threat much longer. The increasing likelihood of an overt attack on Iran will not make the situation any better. Remember that when Saddam Hussein invaded Kuwait in 1990, oil prices doubled. And that was just a fraction of the world’s oil at stake, compared with what closing down the Strait of Hormuz could mean.

But even if the world manages to avoid a confrontation with Iran, there are other reasons to have exposure to rising oil prices in your portfolio next year.

For one thing, there’s still the ever-present proclivity of global central bankers to print unlimited amounts of money. After all, oil has traditionally been a fairly good hedge against inflation. Remember back in the late ’70s when gold and oil prices soared together when the Fed under Arthur Burns sent inflation to 15%.

But couple Fed chief Ben Bernanke’s love affair with counterfeiting, er, creating new cash with the credible threat of oil shortages, and you can clearly see why owning oil-producing stocks may be a great asset in 2012.

Regards,

Michael Pento

Iran’s Desperate Gamble to Push Oil Up to $200 was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The whole European currency scheme was both brilliant and crazy. It was brilliant because Europe should have a united currency. In fact, the whole world should have a united currency. Once upon a time, it did. It was called the gold standard. National currencies were just another name for the same core thing — a nationalist spin on a global consensus. If some country had waved around an unbacked piece of paper and called it money, no one would have taken it seriously.

And the gold standard was internally policing. If one country debauched the currency, gold would flow out, the thing would lose credibility and capital would flee to places that took sound finance seriously. Governments were restrained, the hands of politicians were tied (they could only spend what they could overtly steal) and markets ruled the day. The politicians hated it, but markets were free, stable and growing.

So yes, there is a case for single currencies in regions, or even the entire world. Truly, why should people and multinational commercial institutions have to go through the ridiculous headache of changing currencies at the border? This is just pointless. Imagine if an inch meant something different in every country, and you had to come to a new understanding of its meaning in order to build on this, versus on that side of the border? Markets don’t like this kind of pointless exercise. The natural market tendency is toward unity in what matters (money) and disunity where it matters (competition and entrepreneurship).

So the European elites who cobbled together the euro after many decades of planning played to that sense, and developed a reasonable expectation of a wonderful Europe united with peace and free trade, all with a single currency. It seemed like a recreation of an older, freer, more-wonderful world. So why not?

Here’s why not: The gold standard no longer exists. It hasn’t existed since the politicians destroyed the last remnants of it in the early 1970s. And it was in 1970 that the idea of a single currency for Europe went from the dream stage to the planning stage. At the end of the gold standard, the idea should have been dropped, but it was not. The planning elites had it in their heads that this was the only way forward, and nothing would stop them.

A single currency seemed like a great idea to the relatively weak economies of Europe. The lira, peseta, escudo, franc and drachma would no longer suffer at the hands of traders who seemed to forever cling to the German mark. They could inflate without consequence. Knowing this to be a problem, the pro-euro planners cobbled together certain safeguards. There would be a single central bank, and sovereign countries would have to give up autonomous control over monetary policy. The same would apply to national finance: no more endless running of deficits, and no more free-spending legislatures.

As a condition of entering the currency union, countries would have to agree to all these terms and more, including harmonized regulatory systems. Governments would have to confess their prior sins and swear on a holy copy of the EU Constitution that they would be good from now on. Well, that didn’t happen, but the planners were so dead set on the notion of a single currency that they decided to look the other way. All these entered the union with debt and broken banking systems, all in a sort of collective hope that the whole could cover the sins of the parts.

Sure enough, the southern countries experienced a wonderful boon following the introduction of the euro. Interest rates on government bonds fell dramatically — not because their citizens were suddenly saving, and the banks were flush with capital. The reason was the new perception that the European Central Bank would operate as a guarantor of the debt of all eurozone countries. In other words, rates fell in Europe for the same reason they fell in the United States: The centralization was creating a moral hazard.

This set off a lovely economic boom that later led to bust, there just as here. The central bank, however, had already promised that it would not be involved in any bailout schemes, that it would only fight inflation. This was a strange repeat of history because this is precisely what the Fed had claimed when it was created too. Central banks always say this at the outset: We will sleep with the money, but we won’t actually do anything. We will resist every temptation!

The problems here are incredibly obvious. Countries had not actually given up all their fiscal authority. Most importantly, their banking systems still had control and, thanks to fractional reserve banking, they still could create money, and in a way that the central bank could not control. This too is a consequence of not being on a gold standard that automatically regulates and restrains the banking systems.

Now, each national banking system, and even each bank, ran its own discretionary policy, with the implicit (but never stated) guarantee from the central bank that it would never let the system fail. Worse, every country in Europe had to accept this money.

Economist Philipp Bagus of Juan Carlos in Madrid observes that the whole system embedded a kind of monetary imperialism from unsound economies to sound economies, dragging down economic structure and poisoning the whole system with the viruses of the worst states. If this story sounds familiar to Americans, it should. This is the same problem that gave rise to the crazy real estate boom in the U.S. and the subsequent meltdown. It’s our old friend Mr. Moral Hazard, but operating across the entire eurozone.

Hans-Hermann Hoppe, the economist who predicted this whole scenario in the early 1990s, observes that this centralization is the inevitable path of paper money regimes, as governments constantly seek higher and higher authorities to expiate their sins. With each step, the money gets qualitatively worse and the imposition of economic controls becomes ever more tyrannical.

What is the way out? Everyone is now talking about the restoration of national currencies, and while that is a better approach than standing by as the entire system collapses and the contagion spreads around the world, it is not as easy as it seems. Every country that wants to reassert its national currency will have to give up its debt addictions and clean up its fiscal house. The banking system will have to be deleveraged. Industries sustained by the euro subsidy will have to go belly up.

If this fantasy actually became true, it would be entirely possible for any one country (hint: Germany) to adopt an authentic gold standard, perhaps inspiring others to do the same. The end result — we are talking about a decade-long process here — could, in fact, be another single European currency, a sound currency rooted in reality and not the hallucinations of politicians and financial elites.

How much tolerance is there in the world today for such pain? You need only look at the U.S. situation to get an idea. The technocrats in charge today are completely unlike those of yesteryear. They will not permit wholesale deleveraging. They believe that they have to tools to prevent all pain, and the political systems of the world are structured to punish anyone who thinks about long-term gains over short-term pain. If you doubt that, take off an evening and watch the Republican presidential debates.

Regards,

Jeffrey Tucker

The Euro Crackup was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

“Economists blame China’s inflation on the dual pressures of consumer demand that is outstripping food supplies and a bank-lending boom they say Beijing allowed to run too long after it helped the country rebound quickly from the 2008 global crisis.”

The fact is that both the “lending boom” and “consumer demand” are simply the manifestations of monetary inflation, and originate solely from the PBOC’s expansion of the money supply.

Real consumer demand results in falling, not rising, prices. The only component of consumer demand that is pushing prices higher is artificial monetary demand in the form of more paper bills in consumers’ hands driving up prices, not in an increased desire to consume a greater physical quantity of goods.

As for a bank-lending boom, a boom in lending can occur only when an increase in money available to be lent is increased dramatically. So to say that inflation is caused by a lending boom is to say that inflation is caused by the printing of money (but without actually saying it). Though this cause and effect is obvious, reporters — and economists — choose to circumscribe the real explanation.

So what has the Chinese government done about the lending-boom and consumer-demand problems?

Concerning the lending boom, the article says:

“The government has clamped down on lending, but analysts say it will be months before the effects of that and other curbs are felt. They say inflation should climb further through at least midyear before easing.”

The government has “clamped down,” mainly by raising interest rates, as shown in Figure 2:

Mainstream economists believe this will do the trick, as they think that interest rates are the primary means of growing and slowing an economy. They ignore, or are not aware, that the money supply is what is driving inflation, “demand” and GDP growth. Manipulating the interest rate alone, without — as happens in most central-bank-run economies — simultaneously changing the money supply will usually have little effect.

Sure, with higher interest rates, borrowing costs are higher. But inflation also raises the rate of profit, which means business can profitably pay a much higher rate to borrow. But even when interest rates exceed the height of the rate of profit and cause businesses to quit borrowing and investing, all the money that has been pouring into the economy will still push prices higher. Economic activity might slow or stop, but prices will still rise. The only thing that will stop inflation is ceasing to expand the money supply. And even that will have a delayed effect.

Using Price Controls to Stop Inflation

As for the “consumer demand” component, the article says:

“Attempts at price controls, subsidies for the poor and orders to local leaders to guarantee adequate vegetable supplies have had mixed results. Beijing also has resorted to the blunt tool of freezing prices of electricity and some other basic goods, but that is starting to backfire.”

In other words, the government has tried to further manipulate the economy to compensate for the adverse effects of its printing of money. It should be no surprise the results are “mixed” and are “starting to backfire,” as shortages are the natural result of price controls.

Economic Growth as a Problem

The report also says that not only is inflation a problem, so is economic growth:

“Beijing also is struggling to control an overheated economy that expanded by a rapid 9.7% in the first quarter of this year, barely slowing from the previous quarter, despite Beijing’s efforts to steer growth to a sustainable level after 2010′s double-digit gains.”

Though the news report says “also,” in reality, this is the same monetary issue we’ve been discussing. There is no such thing as an overheated economy. “Overheating” is the Keynesian term for price inflation arising as a result of too much monetary pumping into the economy. It is the monetary pumping that has pushed China’s GDP into double-digit gains. As for sustainable growth, it is only monetary GDP growth that is unsustainable. Real, true economic growth is always sustainable and could never exceed what Keynesians call an economy’s “potential long-term growth rate.”

Speculative Money Flows

A different Associated Press article, referring to China’s artificially undervalued currency and the trade imbalances it causes, claimed that another problem could be speculative money flows:

“Many countries worry about speculative money flooding their economies and inflating assets like real estate or stocks.”

The notion of capital flows and money crossing borders is misunderstood by most people. Except for physical paper bills belonging to tourists, to drug dealers or to foreign workers sending cash earnings home to relatives, money does not cross borders. Money generally remains in the country to which it belongs — and merely changes ownership. As this section will show, “speculative” money “flowing across borders” really consists only of the domestic central bank trying to keep its currency artificially priced.

So-called “capital” or “hot money” does not “flow” from one country of origin into another country. However, money created in one country can be — and is to a limited degree — used to buy the currency of another country and direct it into the purchase of asset prices in that country (bidding asset prices higher in the process). If a disproportionate amount of local currency is channeled into asset prices in a country, less currency is being spent on goods and services in the economy, causing consumer prices to fall.

But in reality, consumer prices in countries with booming asset markets do not usually fall while asset prices rise; both usually rise in tandem. This is because the local money supply is increasing and pushing up both classes of prices (i.e., financial assets and consumer prices), even though one is rising faster than the other. It is therefore local money, not foreign money, inflating assets.

Also, in order for foreign demand to redirect purchasing power from local consumer prices to asset markets, there would need to be quite an overwhelming demand for domestic investment from abroad, resulting in a very large portion of local currency being purchased by foreigners. It seems fairly unrealistic that, in absence of already-rising foreign markets, such a strong desire for investment in a foreign country would exist on the part of these overseas investors.

Additionally, such a massive redirection of purchasing power would cause consumer goods to drop so low relative to their previous purchasing-power parity that foreign consumers, as opposed to foreign investors, would then purchase local consumer goods — because they would be so cheap in local-currency terms to those consumers — for the purposes of importing to their home country (i.e., being exported from the local country). This would increase the value of the local currency.

But again, we do not witness consumer prices falling or currencies rising (because they’re usually fixed) in the various countries experiencing asset-price booms. Therefore, the usual originating cause of booming asset prices in a country is that country’s central bank creating more money, pushing up both consumer prices as well as asset prices, not foreigners directing the local currency they purchase into asset prices.

What’s seldom noted is that when a country does not print money at rapid rates, it — almost categorically — does not experience “speculative money flows.” International investors and speculators usually take part in investing as a mass movement only in local asset markets that are already booming. The asset markets are booming because a large amount of the money being printed in that country is inserted into financial assets. Otherwise, if the money supply were not expanding, those same asset prices could not rise in price.

Also rarely explained is that “speculative money flows” usually occur between countries that have pegged or partially pegged currencies. Otherwise, as explained above, if the currencies of two different countries are freely floating, as one country expands its money supply, its currency will fall in price against its paired currency. Therefore, as a country’s asset markets rise in price, its currency would fall in price, largely in inverse proportion. This would cause the rising asset prices in the country to appear less appealing to foreign investors, as their gains would be offset — upon conversion back to their own currency — by a depreciating currency. Also, if investors just kept buying a currency whose supply was not expanding, its price would rise. This too would cause local asset prices to become less appealing. By contrast, speculators usually keep piling into currencies that are expanding and that are held artificially low, not ones floating freely.

Here is the real cause of so-called “money flows”: When a country keeps its currency artificially low relative to the opposing or “paired” currency, it does so, as we have seen, by its central bank buying the paired currency with newly created domestic currency. Thus, there is foreign currency “flowing into the country,” and the new domestic currency created for the purpose of purchasing the foreign currency is channeled into asset prices (and to a lesser extent, usually, consumer prices). It’s true that the domestic central bank takes ownership of foreign currency, but only the domestic currency circulates domestically. Thus, it is local currency, not foreign “speculative money,” that both causes and sustains local asset prices.

The Coming Bust

It has been shown that China is now letting its currency rise because it needs to stop printing money in order to tame inflation. Its currency has been artificially low (i.e., below the market price) for many years due to the fixing of its price to the U.S. dollar by way of printing the money that it uses for selling yuan (the printed money) and buying dollars. But such actions have resulted in price inflation.

Therefore, letting its currency rise will cause a recession, since reduced money supply and credit growth rates are the usual initiating factors that bring on recessions (reduced rates of spending alone can cause recessions, but they are usually preceded by prior reductions in money and credit). It has been rapid increases in money and credit that have driven the current boom in China, and it will be the reduction in the growth rate of those variables that causes the bust.

The economic boom in China has consisted of rapid increases in true economic growth accompanied by — but not driven by — an increase in monetary spending. The increase in monetary spending, in turn, has been driven by wild credit growth, and has resulted in massive overinvestment in particular industries. There has been no shortage of commentaries and videos highlighting building booms, mania-type herd-mentality home buying and the mass creation of buildings, shopping malls and even multiple entire cities in China that stand unoccupied — all dramatic, yet classic symptoms of credit bubbles.

The signs of bubbles are common, and date back to the 1600s. Even if we knew nothing about money and credit and their causing of financial bubbles, we should by now recognize the typical bubble-oriented characteristics — i.e., exponentially rising prices, investment and purchasing manias, exuberance over a new and unusual trend, etc. — and know that they are symptoms representing an actual bubble.

Given the lag effect of money and credit on the financial system and its transmission to the real economy, it is difficult to tell exactly when the rising interest rates and slowing money supply will result in reductions in the rate of spending and a reversal of the money multiplier, but when they do, a Chinese credit contraction, financial meltdown and economic malaise won’t be far behind.

Conclusion

Mainstream economists and the financial press are usually Keynesian. This means that they like to hide the true cause of economic problems. Their explanations, therefore, are ones that try to show how the tail can wag the dog. But these fallacious explanations have been around so long and are so widely taught that most people who do not know real economics — including most of these same Keynesians — easily believe these improbable explanations.

With respect to their explanations of the Chinese economy, it is not true that China imports inflation and that merely letting its currency rise will solve the problem. The real story is that the inflation is due to the printing of money that keeps its currency artificially low, and that the rising currency is a side effect of doing what’s necessary to stop inflation — stopping (or merely slowing) the printing presses. The rub is that a slower rate of money growth will also cause a reduction in spending and a credit contraction, which in turn will cause financial and economic problems.

Regards,

Kel Kelly

The China Bust: Tic Toc Part II was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

This article explains the real story behind the commonly espoused explanations regarding the taming of China’s inflation. It also breaks down many of the peripheral issues on the topic that are regularly discussed in the press, and exposes the false theories associated with these issues.

Currencies and Prices

In explaining how a rising currency will help tame inflation, most pundits relay that revaluing a currency to a higher price will cause import prices to be cheaper, thereby lowering domestic prices. For example, Credit Agricole CIB economist Dariusz Kowalczyk stated:

“Policymakers have sent a clear message that currency appreciation will be used as a tool to counter imported inflation [due to near-record global prices for oil and other commodities].”

Similarly, Bloomberg News reported…

“Chinese officials may also seek to speed up gains in the currency, also known as the renminbi, to fight inflation, lowering the cost of imported U.S. goods such as Boeing Co. aircraft and Microsoft Corp. software.”

The truth is that there is no such thing as importing or exporting inflation, because each country or currency area has its own individual currency, which is separate from another region’s currency. Prices within a particular currency area can rise only when that particular currency is inflated. (A rare exception is when other currencies also circulate within the same currency area, and an increase in the quantity of the other currencies causes prices to rise in that currency. But even in this case, the depreciating currency will likely soon stop circulating, as it will be shunned for the stronger currency.)

But currency changes can indeed affect prices by way of changes in the supply of goods. A country whose currency is artificially undervalued — such as China — will artificially export more and import less. If the currency is allowed to rise toward the market exchange rate, it will begin to export less and import more.

All else being equal, a higher-priced currency will indeed result in a lowered price of imported goods. When imported goods cost less, consumers have more money to spend on domestic goods; purchasing power increases. Or if the amount saved from spending less on imports is spent on acquiring greater amounts of the imported goods, there will be less demand for domestic goods, causing domestic prices to be lower. In either case, what has lowered prices is a stronger currency.

The previous explanation applies only to cases where “all else remains equal.” But a currency that rises with all else remaining equal is one that was previously artificially weak, for the purpose of exporting as much as possible and is, thus, being revalued by the marketplace to its true market price. Otherwise, excluding short-term fluctuations, one currency moves against another because of changes in the relative supply of currency units, and corresponding changes in relative consumer prices between the two currency regions in question. Currency movements absent these fundamental changes are due to government manipulation of the currencies.

The flip side of the rise in the price and purchasing power of a currency is that goods in that currency are then more expensive in terms of foreign currencies, resulting in fewer goods exported. Exporting less is economically beneficial, as it leaves more goods remaining inside the country, increasing the supply and lowering the price of domestic goods.

Therefore, it would seem that higher-priced currencies are better, since they result in cheaper imports and lower domestic prices. But if the currency is too expensive and artificially overvalued, fewer goods are exported, causing less foreign exchange to enter the country. An artificially high currency will, eventually, cause the country to run out of foreign exchange. This, and goods too expensive from the view of other countries, will cause trade to cease, resulting in lower standards of living.

The essence of the trade-off is that a country can have a weak currency and increase exports so as to obtain more foreign currency, or it can have a strong currency and increase imports so as to obtain more goods.

So what is the optimal level of a currency’s price? Does a country want a stronger currency or a weaker one? Does it want more cash or more goods? The fact is that a country is not an “it.” A country consists of millions or tens of millions of individuals, each having different goals and different valuations. Government bureaucrats cannot set an ideal currency price that is optimal for everyone. Thus, the only optimal currency price is that which is set by all market participants jointly, by way of their supplying and demanding both goods and currency based on their needs and desires.

And in reality, the optimal currency price they, the market, will settle on will be the price that, adjusting for transportation costs, causes domestic prices of internationally traded goods to approximate the price of those same goods in other countries. In other words, they will make relative prices equilibrate across countries, just as individuals do within a country. Otherwise, arbitrage opportunities would exist, and the result would be a leveling of relative prices and real currency valuations. That optimal currency price will also result in the country exporting about the same amount as it imports; the balance of payments will tend toward zero. Trade surpluses and deficits derive from mispriced currencies arising from government manipulation.

The Real Relation Between China’s Rising Currency and Inflation

A manipulated currency can cause domestic prices to be artificially higher or lower than they would otherwise be, but it cannot cause prices to rise on a sustained basis; it cannot cause price inflation. Aside from rising prices due to a continual reduction of goods produced and existing in a country, the only thing that can cause price inflation is that country’s expansion of the money supply, which results in increases in demand. Aggregate prices rise only with reduced supply or increased (monetary) demand. Thus, contrary to the popular perception displayed in the quotes above, China’s re-pricing of its currency — alone — will not reduce price inflation.

[Ed note: Our currency expert, Abe Kaufman, weighs in with his insight on the Chinese/U.S. currency war discussion.

"We need China to keep buying our bonds, so politically, it's really risky to escalate the tensions. Still, the uncertainty regarding China -- whether we have a trade war or not -- will cause sentiment swings in the markets. Then add China's real problem…not the trade war, but whether China's economic slowdown will be controlled or severe. As fears ebb and flow, we could see the effects in several currencies, such as the Australian dollar, the Brazilian real and more.

"Luckily, all that volatility is the perfect environment for the sphere I operate inside -- a relatively new way to play currency moves easily and inexpensively.

"Unlike the mainstream currency markets, this new market gives you a chance to turn 2% moves in currencies into potential 150% gains in less than a week. And as China worries continue, we could continue seeing those kinds of gains again and again."

Check out Abe's most recent report here.]

What will reduce China’s price inflation is ceasing the activity that is holding its currency artificially low: money printing. As Figure 1 shows, it is doing just that.

In general, China can keep its exchange rate even with the dollar only by creating new money at as fast of a rate as the Federal Reserve creates dollars. In addition to the rate of creation of one currency versus another, the amount of currency actually on the market available for exchange makes a difference as well. In this respect, China reinvests the dollar reserves it obtains from its trade surplus — which come about from an artificially low yuan and an artificially high dollar — into U.S. Treasuries, instead of selling them in the foreign exchange market, so as to prevent the dollar from falling (and yuan rising) from the increased supply.

But additionally, in order to keep the yuan artificially lower against the dollar than it would otherwise be — given the market supply and demand for each currency — the Chinese central bank, the Peoples Bank of China (PBOC), actively buys dollars and sells yuan in the marketplace. It pays for the dollars by creating yuan with which to buy them.

When the PBOC creates yuan, it expands the money supply. It is, therefore, this expansion in the money supply, not an artificially low currency per se, that is creating price inflation in China.

Exchange Rate vs. Money Supply as the True Cause of Inflation

When one has knowledge of the true nature of China’s currency and inflation situation, it can be very frustrating to hear mainstream economists focus on the currency as a cause and solution for inflation, instead of focusing on the originating cause of money creation. Even the World Bank misstates the problem:

“‘Strengthening the exchange rate can help reduce inflationary pressures and rebalance the economy,’ the World Bank said in its latest quarterly update on the world’s third-largest economy.”

But to its credit, it also separately said:

“Inflation expectations can be contained by a tighter monetary policy stance and a stronger exchange rate.”

While the comment is still vague in terms of giving the real link between monetary policy and the exchange rate, it at least notes the monetary-policy issue.

Regards,

Kel Kelly

The China Bust: Tic Toc Part I was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

We’d only been trying to help. We were passing through Houston on our way from Acapulco to the Agora Financial Symposium in Vancouver.

We’d opted out of the Rapiscan irradiation machine and so had to be felt up by an agent. We meant to call attention to how absurd the entire security theory was by playing the part of compliant victim with scorn in his eyes. So we slowly stripped until we were told to stop. We only got as far as unbottoning our shirt.

Our host in Acapulco had been Jeff Berwick of The Dollar Vigilante. Jeff had been to something like 140 countries in the past few years. He’d sailed his own boat to quite a few of those and only used a plane after the shipwreck. He had found the closest thing to freedom in agreeable surroundings in Acapulco.

“The U.S. is toast, amigo,” he’d told us, “You need to take advantage of your status as a mobile, contract internet writer and get out while the getting’s good…

“And Canada is even worse, by the way.”

Jeff wasn’t kidding, especially about that last part as I would discover upon entering Canada today. (More on that later).

We could tell things had gotten a lot worse with the border patrols this year from the very start of our international travels several days ago. The TSA thug who checked our passport on the way from Las Vegas to Acapulco was a hatchet-faced twentysomething with a buzzcut. His eyes bulged slightly but he kept them hooded as he looked back and forth with suspicion between our passport photo and us. He reminded us of a lizard: predatory and untroubled by higher thought.

After twenty seconds of the back and forth reptilian gazing, we inclined ourselves slightly toward him and slowly raised an eyebrow. He waved us through.

“Welcome to freedom,” Jeff had told us on our first day in Mexico. He was spot on there too. If there was something you couldn’t do in Mexico–as long as you didn’t molest anyone else–we certainly didn’t discover it. Relevant to this part of the story is how spoiled Mexico had gotten us. In only a week we’d gotten used to not having to worry terribly much about the state’s goons telling us how to behave.

Then we made the mistake of reading some quotes from Albert Jay Nock among others in Jeffery Tucker’s Bourbon For Breakfast en route between Houston and Vancouver.

The personal freedom experienced in Acapulco…reading hours of anti-state musings…and then being faced with state thugs at a couple of borders. It was a dangerous mix. By the time we landed in Canada, we were fairly seething. Good thing we hadn’t been drinking too.

After telling us to button our shirt back up the Houston TSA agent asked if we wouldn’t rather have him feel us up in private.

“No, no…right out here is fine,” we said.

He instructed us to hold our arms out to the side with palms up and then he began. We tried our best to maintain eye contact the entire time. Some people stopped to watch.

But that’s nothing compared to what happened when we actually got into Canada. If the U.S. is bad, Canada is worse.

At least in the U.S. they pretend to care about things like personal sovereignty. There remains outrage over things like the TSA and more nationalization of medical services.

Mexico seems to have real liberty where it counts. (If it weren’t for the U.S.-led Prohibition-style war on drugs, Mexico’s cartels would be no more powerful or violent than Rite Aid and Mexico itself could be a paradise.) The U.S. pays liberty some lip service.

In Canada we find no such sentiment about liberty. It seems things just get worse the farther north you go, as if freedom can’t stomach the cold.

Canadians have gleefully committed their lives to the care and direction of the state as far back as anyone cares to remember. Perhaps that long-nurtured nationally socialist spirit is why Canada’s border guards are the scariest we’ve yet encountered.

They were to a one young, wearing bullet-proof vests over their crisp uniforms and serious as heart attacks. If the USA’s thugs seem a little bumbling as they do their government’s dirty work, the Canadian versions make up for it. Those young men and women processing passengers gave us the impression that they’d just as efficiently process undesirables into concentration camps.

It was 1 am local time when we had our turn with an unsmiling Canadian border guard. Perhaps we didn’t answer snappily enough. Perhaps we were a bit surly after having read those selections from Nock. Whatever the reason, we were marked for further processing, something we didn’t find out till after waiting another 45 minutes to get our luggage. At that point we were not in the right frame of mind to deal with state agents docilely.

And sure enough there was trouble.

“Sir, you seem to have a problem with me,” said the not un-pretty customs lady in the backroom after she’d asked us the same questions the first customs agent had asked us an hour ago.  We were having tremendous trouble hiding the anger in our voice even though we’d managed to speak slowly and quietly so far. We probably looked pretty wound up too, like someone ready to swing at a square off in a bar.

“I don’t like being treated like this,” we answered, “Don’t you think I should be bothered by it? Doesn’t it bother you? The way the state is bringing down the hammer lately?” Stupid questions, especially the last one.

We had already long ago resigned ourselves to going to jail and being sent back to the U.S. So we continued, “I am going to the same conference in the same hotel I’ve been coming to for the past three years. Why treat me like this now? Why treat anyone like this? I mean, here I am trying to go about my business and now anything I say wrong can land me in jail.”

“Sir, I don’t know you. You don’t know me. There’s no reason to be upset with me,” she said.

Ah, but there was. While we rant about the state, it all really comes down to individuals. It’s individuals who have rights, not groups. It is individuals who are are responsible for their actions. She was enforcing the bad laws, imposing the duty, the fines, the forced detention. She was the low-level muscle helping run a protection racket for the state.

She took our passport and U.S. resident alien card and disappeared into a secured office with a couple of her cronies. She returned about five minutes later and told us that we were free to go.

“So why did this happen?” we asked. “What did I do to call attention to myself and make you guys want to detain me? Is there a way to avoid this and go about my business (without molestation) in the future?”

“No, nothing,” she said, “This was random and we have the power to stop anyone we wish upon their entry into this country.”

We couldn’t stop hearing Jeff’s words in our head:

“Give up the green card. Go live for cheap in Asia or Latin America and live your life as free from government interference as you can. Stay the hell away from the U.S…Canada too. And Western Europe. What’s going on in New Hampshire with the Free State Project is exciting, but I don’t know if it’s worth sticking around when you have the opportunity to get out entirely.”

We’ve been entertaining the same thoughts on expatriation for years, with the same sorts of destinations in mind. We’re not under the delusion that any of these places are perfect. But the little bit we’ve seen tells us that they are…different…And in the ways that matter to us better.

Albert Jay Nock wrote in Memoirs of a Superfluous Man:

“As a general principle, I should put it that a man’s country is where the things he loves are most respected. Circumstances may have prevented his ever setting foot there, but it remains his country.”

Too true. And what a shame it would be for circumstances to allow a man to live where it suits him and for him to remain instead where it doesn’t.

Fun with Customs and Border Guards in the U.S. and Canada was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Americans long ago settled for convenience over freedom: Paved roads and more commercial space per capita than any other nation on earth… to go along with various prohibitions on personal behavior, expanded domestic spying by police, the TSA and the biggest prison population per capita in the world.

Why be concerned with the prison population? Because the state is caging a lot of people who have neither killed, nor raped nor stolen. According to Wikipedia:

Perhaps the single greatest force behind the growth of the prison population has been the national “war on drugs.” The number of incarcerated drug offenders has increased twelvefold since 1980. In 2000, 22 percent of those in federal and state prisons were convicted on drug charges.

But don’t drugs get to the enduser by criminal means that often involve violent cartel conflict somewhere along the line? Absolutely, but only because the state makes drugs illegal, resulting in extralegal black markets. The state says it’s for own good, but we can’t help but notice that it also serves to increase the power of the state to monitor and to police.

It’s bad enough that inflation-fueled nationalizations have become the norm in the U.S., that the government crowds out real job growth by stifling small business while bailing out failed big ones.

But what about the other legal indignities, all the other ways the authorities remind you that you and your property aren’t really yours?

Why can’t we drink on the sidewalk? Or smoke in bars? They manage to do it in other parts of the world without civilization collapsing around their ears…or even an increase in violence or cancer rates!

In Acapulco at night the streets are crowded both with parents, their young children, the elderly and tipsy young men holding bottles of Corona. It is lively but peace reigns. Perhaps people are just nicer when they aren’t constantly stressed out by being over-regulated.

People smoke in restaurants and as long as the air is circulating, no one else seems to be bothered.

Since 2006 it has been legal to possess varying amounts of “hard” drugs for personal use–though, comically, selling these drugs technically remains illegal.

Prostitution is also technically illegal, but pretty open. Every strip club doubles as a bordello, and of course there are the actual bordellos!

A mark of true civilization is civility. The people peacefully seeking their own enjoyment are able to mingle with people raising their families, all without discomfort or conflict. Sure their officials are all probably to a one thieving criminals–this is still Latin America–but the people of Acapulco themselves live blissfully free of the state’s heavy handed interference in their personal goings-about.

“All well and good for the rest of the world,” says the American conservative who claims to love “freedom” (as long as it’s done his way), “but I don’t want to be surrounded by drug use and prostitution!”

But, dear conservative control freak, you already are! This stuff goes on all around you anyway. It’s probably going on in at least one house within a couple miles of yours as you read this. And it manages not to bother you because it really isn’t any more your business than other habits and pleasures your neighbors may have.

No amount of “war” on the arbitrarily declared vice crimes (alcohol is okay, but marijuana is not?) by the state with your blessing will end practices you don’t like…unless maybe you turn the joint into a theocratic tyranny of the Middle East variety.

Criminalization just drives the behavior underground while giving the state the authority to regulate more and to seize property and cage any of us in an effort to fight “wars” against personal practices. Such laws are just prejudices backed by guns.

And in the U.S. we get it with both barrels, both financial and personal interference a la the state. They overtax us, steal from us by means of inflation and then tell us what we can do with willing partners and with ourselves. The liberals cheer on the seizure of property for redistribution while the conservatives cheer the government’s ownership of our bodies.

Yet Americans are still convinced that they love freedom. Personally we scarcely know anyone in the States who has a clue what that particular word means. And most of that small number who do are heading for the exits so they can experience it.

When they leave they leave the white, white world of Western Civilization entirely. They head for Asia…or Latin America. The latter seems to be especially popular.

Maybe it’s something just basic to the essence of the West. It’s the West after all that prides itself on being the birthplace of democracy. As if that’s something to crow about! Democracy is just a system of mass mutual slavery. Everybody owns everybody else and this power of ownership is represented by the vote. Woe be to the people–and their property–in the minority group when it’s time to count those votes.

Maybe it’s genetic. The typical American comes from European stock and though he reflexively yells “liberty” and “freedom”, he has a hard time letting go of slavery. He stopped thrusting it on imported Africans, but seemed to miss it so much that he started inflicting it on himself and his kin.

He enslaves the unborn to debt, the worker to the unproductive, the hedonist to the moralist, and so on.

Yet it’s this same set of hypocrites who gave us a higher standard of living due to technological innovation in robust free markets. It was their European ancestors who gave the world most of the advances in the hard sciences in the first place.

We’re not entirely sure what to make of it. It warrants further consideration. We suspect this would best be undertaken on beach somewhere south of the U.S. border.

Regards,

Gary Gibson
Managing editor, Whiskey & Gunpowder

Slavery, A First World Tendency was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

For those that missed it, the Vancouver Canucks hockey team lost game 7 of the Stanley Cup Finals and soon after much of downtown Vancouver was on fire – cars flipped, shops burned, fights and
more.

I was there, living downtown, for the last hockey riot, in 1994.  I remember well the smell of tear gas and watching the battle below from my apartment.

Anarchists

As I watched the Twitter feeds and the “Vancouver Riot Pics” Facebook page I was waiting for the inevitable.

“This is anarchy!” they shouted.  Vancouver’s police chief even blamed the entire riot on anarchists in a Vancouver Province article.

As with most things, people were immediately searching for someone to blame.

Those to blame were obvious:  Roberto Luongo and the Sedins!

Just kidding.  (But, really, Luongo was terrible – he was pulled countless times in the playoffs – and the Sedins were -11 and -9 for the playoffs (compared to Bruin’s players Bergeron (+15) and Marchand (+12)) – the real question was how did Vancouver even come so close to winning?)

However, as bad as the Canuck’s star players were they were not to blame for the riot.

And, even less to blame, are “anarchists”.

The word anarchist has been skewed over time – mostly by the government and the media – to try to make those who do not like governments out to be people who bomb places and light cars on
fire.

The word anarchy comes from the Greek, anarchos, meaning “having no ruler,” an-, not, and archos, ruler.  And, all anarchism is, is a form of political organization that does not put one ruler, or ruling body, over everyone in a society.

When you understand that, then calling the people rioting in Vancouver “anarchists” makes no sense.

In fact, the people rioting are products of the state and are the opposite of anarchists.

How The Government Caused the Riots

(Only 1 copy remaining!)

Almost every facet of what happened in Vancouver was caused by the government.

First, many of the rioters were young people – prisoners in the public education indoctrination camps for the first 18 years of their lives.  Is it any wonder that, after 18 years of not being allowed to do anything, that a few people might take advantage of a few moments where they overwhelm/overpower their oppressor’s force (the police) to kick over a garbage can or break a window?

Second, the Government has made almost all forms of intoxication illegal – EXCEPT one of the most dangerous ones: alcohol.

Is it not bizarre that your average older person is adamantly against marijuana legalization but does not want to ban alcohol after seeing 100,000 drunken individuals rampage through an entire city?  Imagine if those rioters were all “wild and crazy” because they were high on crack cocaine – the outcry against crack would be ear-splitting.

If people had free choice of substances there would, almost unquestionably, be much less alcohol use.  Marijuana would likely be used much more regularly – and there is one guarantee that can be made here: If that crowd of goons in Vancouver last night were all stoned on marijuana not one garbage bin would have been tipped over.  More likely is that a number of them would go to the park to hold hands and sing some hymns about love – and then eat some potato chips.

Third, Canada is a massive welfare state.  Vancouver, being one of the only livable cities in Canada (it rarely gets too cold or snows as opposed to most Canadian cities which regularly see -40C/F temperatures for six months of the year) attracts throngs of Canadian welfare recipients who find their monthly welfare checks can be enjoyed much more in the rain rather than in the freezing cold.

Because of this welfare state there are very large amounts of people in Vancouver who are basically homeless and live off the system.  In fact, of the thousands of cities I have visited in more than a hundred countries, I can’t remember any place as shady, squalid and dangerous as Vancouver’s “East Hasting” area – an area which is only a few blocks from the riots last night.  (The photo to the right is just an average day in that part of town – this is not a photo of the riots!)

Many Vancouverites stated that many of the people rioting looked like “poor people from places like East Hasting and Surrey”.  And, they are probably right.

But, the thing that they don’t understand is that the system which they support (socialism/welfare) has created all those people.

In most non-western countries there are no homeless people… for two main reasons.  1) Welfare creates poor people as people decide to forget or not learn any skills and live off the system and, 2) All of the rules, regulations and laws – such as building codes – and inflation have priced many people out of the market for a home.

Who Really Caused The Vancouver Riot?

So, it is clear who is to blame: the government and its policies.  Yet, the government police chief and the media which just parrots government propaganda blame the exact opposite… people who weren’t even there and who had nothing to do with the riots: Anarchists.

Yes, it must be the anarchists, bellow the people!  We wouldn’t ever want to actually look in the mirror and see the real cause is the government and its policies which the majority of people support.

And what will be the outcry?  You can already guess.  We need MORE government!  MORE police!

They never learn.

Regards,

Jeff Berwick
The Dollar Vigilante

There Were No Anarchists In The Vancouver Riots was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Consider the timing of this attack by U.S. Navy SEALs, and then consider recent events. First, the economy is in shambles, unemployment is sky high, price inflation is excessive, and the U.S. military has been bombing civilians in an attempt to assassinate Gaddafi, including murdering innocent little children. Our money is being destroyed before our eyes. The wars are not going well for the ruling elite, and Obama’s ratings are horribly low at the beginning of his presidential crusade. One very important factor is that criticism of these wars has been growing at an accelerated pace. Hatred of the insidious TSA is also becoming much more evident. While civil liberty destruction is still rampant, it is being questioned more often, and with increased intensity.

What better reason then for an event to solidify the masses, and put them on guard for the now coming “terrorist” attacks due to the death of bin Laden. This stone kills a lot of birds it seems, and in my opinion this is no coincidence. In a matter of a few hours, the serfs were in the streets carrying flags, and screaming “God bless the U.S.A.” All the media was abuzz with fervent displays of renewed patriotism.

But what came next should have been expected. We were told that the scourge of the east was dead. One would think that the head of the monster had been forever severed, and that the war would end, but that would not be the case. The politicians and talking heads in the media immediately went on the offensive, and stated that we should be even more vigilant in the war on terror because there will be more attacks due to bin Laden’s death.

Hillary Clinton began her talk this morning by praising the troops for their “courage and commitment.” Yes, the troops had once again become our saviors, literally pulling us from the mouth of the beast. In her next statement she strongly exclaimed “we will continue taking the fight to al Qaeda and their Taliban allies.” She next talked about even more massive interference and imperialistic goals. “All over the world we will press forward, bolstering our partnerships, strengthening our networks, investing in a positive vision of peace and progress, and relentlessly pursuing the murderers who target innocent people.” (Emphasis added) Really! The U.S. killing machine is going after all those who target innocent people, and all over the planet? That is hypocrisy beyond understanding.

These events are shaping future foreign policy, and the window of opportunity in my opinion is short. All that is necessary is to rally the sheep around the flag, and that was accomplished by the charade in Pakistan.

Police in some areas have already increased security measures, and intelligence gathering has intensified. In New York, more police have been sent to patrol subways, airports, and bridges. This is just the beginning. More fear has been instilled in the minds of Americans once again, and conditions are ripe for a false flag event staged by those who would gain power and money with more war. Certainly, Obama has an obvious incentive to be the protector of the country given his current presidential run. But many others stand to gain from such an event as well.

All that is now necessary to prosecute the next war by the U.S. Empire is an attack or threat of an attack. Whether manufactured by our own government or not, that event would serve as the lynchpin of yet more U.S. aggression. Aggression not just against those in far away lands, but aggression here at home aimed at our liberty and our freedom.

Nothing is what it seems, and the risk to us all is great. Much scrutiny should be evident concerning anything coming out of Washington D.C. or the mainstream media. Lies abound, but this set up is obvious, and is staring us square in the face. Believing otherwise is foolish as far as I’m concerned, and this is no time for gullibility or flag waving.

What the triggering event will be is not easy to discern, but whatever it is will be obvious once it occurs. Any event that heightens the terror alert or brings calls for retaliation should be examined carefully. It could be a downed airliner, an attack on a U.S. embassy, a bomb inside our borders, or any number of other things. Regardless of the type of aggression, take heed, and don’t assume anything. The government lies continuously, and any attack is in this government’s, its military, and its corporate partner’s best interests.

I understand that many are afraid, but we should not fear any foreign invader. We should only fear our own government because the threat will come from within. We are in a very precarious situation, but because this new threat is so conspicuous, we should be able to see it coming. We are moving inexorably toward the next false flag, but this time even more could be at stake. Nothing should be taken for granted, and none should be surprised by anything that happens.

The monster of the east is gone, but the beast that is the U.S. government is alive and well, and planning chaos. Our eyes should be open and our minds clear, for what is coming is vile. War is criminal and it is unholy, and our government is planning even more aggression. This bin Laden farce is evidence enough. Those who purposely cause and wage war, and do so to gain money and power, are savage, depraved, and evil. But those who applaud the murdering of others in the name of false defense are the enablers. Without the consent of the people, the government would be forced to stand down. It is time to stand up and stop this insanity!

Naturally the common people don’t want war… Voice or no voice, the people can always be brought to the bidding of the leaders… All you have to do is to tell them they are being attacked and denounce the pacifists for lack of patriotism.

~ Herman Goering

Regards,
Gary D. Barnett
Whiskey & Gunpowder

May 4, 2011

In Death Osama bin Laden Causes Another War was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

A suicide bomber has caused the death of nearly three dozen people in Moscow’s Domodedovo Airport by attacking a crowded area not subject to rigorous security measures.

Mr. Greenwald expected the next terrorist bombing to take place in the crowded lines just before the security checkpoint. Instead, they went for a soft target just outside of the hard target, but it wasn’t quite the soft target Mr. Greenwald expected…

The suicide bomber went to the back door instead of the front. The other unguarded end of the airport was attacked: the part just beyond the security line where passengers crowd together to pick up their bags and find ground transportation or meet relatives and friends.

“Medvedev Orders Bomb Probe, Threatens Sackings,” reads an Associated Press headline this morning. The article continues…

“Medvedev lashed out at law enforcement and airport authorities over the attack at Domodedovo, an international hub and major gateway to Russia, which killed at least eight foreigners…

“‘It is clear that there is a systemic failure to provide security for people’ at Domodedovo, said Medvedev.

“He ordered the Interior Ministry to recommend transport security officials for dismissal and said authorities found culpable would be held responsible, suggesting they could face prosecution.”

Exactly what were security officials supposed to do?:

“Domodedovo Airport said it was not responsible for the blast. ‘We fully met all the requirements in the sphere of air transport security for which we are responsible,’ spokeswoman Yelena Galanova said in televised comments.”

Domodedovo Airport is like just about every other airport in the world. That is to say, there is no protocol to stop random people from wandering into the baggage claim area. Now I suppose there may be. But I’m not sure it will help.

You can “harden” one target all you want; there will still be an unprotect zone just beyond your securest point. Medvedev doesn’t want to accept that…

“He urged officials to develop a system that would provide for ‘total checks’ on people and bags at airports.”

I’m not sure what this is supposed to mean. Wherever these “total checks” start, there will be people congregating somewhere prior to being totally checked. These people will be vulnerable to terrorist bombings. We will be back to square one.

From a follow-up article from AP…

“Most airports in the West don’t restrict access to the terminals, which are considered public areas. Security screening only takes place once the passengers enter the departure areas.

“But in some countries, like Israel, Jordan, or Pakistan, police roadblocks situated several kilometers from the airport parking lots prescreen arriving passengers and others, before allowing them to proceed.

“Analysts said the Domodedovo attack appeared to be the first time terrorists have tried to exploit unrestricted public access to the terminals since the failed bombing of the airport in Glasgow, Scotland, in 2007. Attackers there tried to crash a Jeep loaded with explosives through the entrance doors, but the bomb did not go off.

“Philip Baum, editor of Aviation Security International, a London-based publication dedicated to security issues, said expanding the airport’s security perimeter as in Tel Aviv was desirable but would be difficult to replicate in Europe or America.”

The West would have a hard time adopting those kind of extreme security measures. Airports are commercial centers, open to the public and concerned with maximizing profits.

But even if we turned our airports into terrorist-proof lockdown zones a la Israel, that leaves several million more acres of crowded commercial areas that will ever be easy pickings for suicide bombers.

You don’t really stop terrorists by screening or with security. You just displace them. They just find something else to attack where security isn’t as big a problem.

You can’t secure everywhere, only a few concentrated spots — like airports or special buildings. That leaves everything in between wide open. And there is a lot of in between.

A terrorist doesn’t have to actually enter an airport or a building to do harm. Anywhere on the street in a crowd will do.

In fact, suicide bombers in Israel have indeed blown themselves up just outside of mall entrances where security might have proven too troublesome. They wind up killing at least as many innocents in the street as they would have inside the mall, often more.

We can’t stop terrorists. But could we stop terrorism?

How you answer that will depend on where you think terrorism comes from. After all, you treat a disease differently depending on whether you think it comes from microbes or from a witch’s curse.

Senior fellow at the Cato Institute Doug Bandow reminds us…

“Terrorism is not new. It was used against Russian tsars, the Austro-Hungarian monarchy, and British colonial officials. Algerians employed terrorism against the French and later Algerian governments. Basque and Irish separatists freely relied on terrorism. Until Iraq, the most promiscuous suicide bombers were Tamils in Sri Lanka. In none of these cases did the killing occur in response to freedom, whether in America or elsewhere.

In an interview with The American Conservative, Robert Pape, a University of Chicago political science professor of terrorism says:

“Islamic fundamentalism is not as closely associated with suicide terrorism as many people think. The world leader in suicide terrorism is a group that you may not be familiar with: the Tamil Tigers in Sri Lanka.

“This is a Marxist group, a completely secular group that draws from the Hindu families of the Tamil regions of the country. They invented the famous suicide vest for their suicide assassination of Rajiv Ghandi in May 1991. The Palestinians got the idea of the suicide vest from the Tamil Tigers.”

But it’s the Muslims who are monopolizing the terrorist biz these days. It’s awfully conspicuous. The U.S. is used to hearing about how brown Islamists in the Middle East regularly blow people up. But it’s happening with yellowish people in the Philippines with Muslim terrorists too. In Russia, it’s white Muslim separatists from the Northern Caucasus. All over the world, Muslims are blowing themselves up in order to blow up as many non-Muslims as possible.

There are those who like to ignore history while believing fervently what their politicians tell them. I often get emails from these people whenever the subject of terrorism comes up.

“It’s Islam itself,” they helpfully inform me. “The very religion is one of subjugation and eradication. They want to destroy all those who won’t subject themselves to the rule of Islam. In fact, Islam is a political ideology, not a religion in any true sense.”

Funny. Indigenous pundits from all over the Americas might have written the same thing of Christians from the late 15th century on.

“But look at the Quran…it’s full of exhortations to do awful things to nonbelievers.”

But so is the Old Testament. God’s Chosen People subjected any number of non-Hebrew cities to horrible violence at God’s command. No one calls Judaism or Christianity out on that.

And well they shouldn’t. (Granted Christianity has a hall pass in the form of the New Testament.) In less-troubled times, we tend not to hold people to the fire about the glorification of religious violence and ethnic cleansing that forms a good chunk of their holy books.

But after Chinese troops start putting boots on U.S. soil, some radicalized Christian movement may start taking that “eye for an eye” stuff very seriously again when it comes to repelling the Huns. And become martyred heroes in the process.

Then the Chinese civilian population would likely be aghast to hear about the gweilo suicide bombings that kill Chinese national settlers in the Far Western Colonial Province (formerly the United States).

Violently themed fundamentalism may serve as the tie that binds when it comes time to expel invaders from the homeland, but it’s not really about religion then, is it?

But maybe you’re still convinced it is…

Either you honestly believe that Muslims want all infidels dead, that they hate us for being free Christians, Jews, and other assorted non-Muslim types…that that is the simple reason behind all the bombs…

Or you believe that Islamists are merely reacting to the bombs the U.S. has dropped, to the children who have died because of U.S. sanctions, and especially to the big ones: U.S. occupation of Iraq and Afghanistan along with Israel’s occupation of Palestine.

Terrorism is either the means to expand a maniacal empire…or it’s the reaction to imperial expansion. Take your pick.

Again, Robert Pape:

“The central fact is that overwhelmingly, suicide-terrorist attacks are not driven by religion as much as they are by a clear strategic objective: to compel modern democracies to withdraw military forces from the territory that the terrorists view as their homeland. From Lebanon to Sri Lanka to Chechnya to Kashmir to the West Bank, every major suicide-terrorist campaign — over 95% of all the incidents — has had as its central objective to compel a democratic state to withdraw.”

No matter how much data support that view, and no matter how often the painfully obvious point is made, much of the popular imagination still clings to the notion that “they hate us because of who we are,” and not because of what “we” (our government) is doing in our name.

Our government gives comfort to Islam’s enemies…starves their children and occasionally blows those children up by accident…pregnant women, wives, daughters, sons, etc., are all collaterally damaged regularly too.

And then there’s the very presence of foreign troops on their soil. How would you react to that situation? What might you do?

But it’s not you or anyone you know. It’s the foreign enemy, and your trusty political leaders tell you that this enemy is shooting first.

Except the evidence strongly suggests that they’re not shooting first, just shooting back. History also tells us that the violence won’t stop till the interloper packs up and goes home.

Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder and Laissez Faire Books

January 26, 2011

How Not to Stop a Terrorist was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.