Saturday, June 26, 2010

The Chimera of the Internet

So imagine the scenario, ten years down the road, where ALL communications (email, voice, data) gets lumped under "the internet", and one day the President decides there is a "crisis" (maybe after a terrorist attack, maybe not), and orders it shut down, or orders filtering of all communications that involves certain keywords (which they can automatically detect, even for voice calls).

Imagine the airline shutdown after 9/11 to grasp this: for 4 days, they only way you could get anywhere was driving. (I know -- I had to drive back to Denver from L.A.)

But imagine it taken a step further:  suppose they shut down ALL the roads.  Or perhaps, just all the major roads.  What happens?  People drive, but start taking the back roads.  They need food, at least.  But if the government has made it a crime to do this without "authorization"?    You'd better have your domestic travel papers.

Same for communications -- don't attempt an unauthorized call.  Better have that special access code, because otherwise, you get the automated message, "We are sorry, but you do not have authorization to make this call.  Goodbye!".

But before we get to that point, imagine the first few days after the "crisis" is announced:  You're sitting at home.  Your phone doesn't work, except for "911".  Your internet doesn't work. You've got no communications for anything except the TV signal coming in -- with government approved content ("The Brady Bunch" and "Gilligan's Island").   You still have U.S. mail.  Unless mail censors are screening every letter (probably part of a full employment plan.) You can still drive.  Unless the newly hired cops are checking your travel permits.

How do you make your voice heard to oppose the new government policy?   How do you get the word out that it's a sham, rationalized on "national security" grounds?   (Anything can be rationalized on "national security" grounds, even a financial crisis -- see http://robbservations.blogspot.com/2009/10/unbridled-authority-of-presidential.html)

Maybe you try to use some form of shortwave or other wireless communications -- but the government is monitering it.  They quickly find you with a directional antenna.

Maybe people raise bloody hell -- that's when the "communications permits" come into being.

I could project this out ad infinitum.

The point is, everyone talks about the liberating effect of the internet that makes it impossible for the government to suppress dissenting voices.  The truth is, those dissenting voices can be stopped very easily, depending only on the will of those in power and whatever rule of law is left.   (Most traffic goes through very few portals, the major telcos, which have long been de facto nationalized in the sense that they will do anything the government demands.)  I don't say we are there yet where this would be attempted -- I'm simply saying: if we get there, it can happen.

http://news.techworld.com/security/3228198/obama-internet-kill-switch-plan-approved-by-us-senate/?olo=rss


Obama Internet kill switch plan approved by US Senate


President could get power to turn off Internet

By Grant Gross
Published: 11:02 GMT, 25 June 10

A US Senate committee has approved a wide-ranging cybersecurity bill that some critics have suggested would give the US president the authority to shut down parts of the Internet during a cyberattack.

Senator Joe Lieberman and other bill sponsors have refuted the charges that the Protecting Cyberspace as a National Asset Act gives the president an Internet "kill switch." Instead, the bill puts limits on the powers the president already has to cause "the closing of any facility or stations for wire communication" in a time of war, as described in the Communications Act of 1934, they said in a breakdown of the bill <http://hsgac.senate.gov/public/?FuseAction=home.Cybersecurity>  published on the Senate Homeland Security and Governmental Affairs Committee website.

The committee unanimously approved an amended version of the legislation by voice vote Thursday, a committee spokeswoman said. The bill next moves to the Senate floor for a vote, which has not yet been scheduled.

The bill, introduced earlier this month, would establish a White House Office for Cyberspace Policy and a National Center for Cybersecurity and Communications, which would work with private US companies to create cybersecurity requirements for the electrical grid, telecommunications networks and other critical infrastructure.

The bill also would allow the US president to take emergency actions to protect critical parts of the Internet, including ordering owners of critical infrastructure to implement emergency response plans, during a cyber-emergency. The president would need congressional approval to extend a national cyber-emergency beyond 120 days under an amendment to the legislation approved by the committee.

The legislation would give the US Department of Homeland Security authority that it does not now have to respond to cyber-attacks, Lieberman, a Connecticut independent, said earlier this month.

"Our responsibility for cyber defence goes well beyond the public sector because so much of cyberspace is owned and operated by the private sector," he said. "The Department of Homeland Security has actually shown that vulnerabilities in key private sector networks like utilities and communications could bring our economy down for a period of time if attacked or commandeered by a foreign power or cyber terrorists."

Other sponsors of the bill are Senators Susan Collins, a Maine Republican, and Tom Carper, a Delaware Democrat.

One critic said Thursday that the bill will hurt the nation's security, not help it. Security products operate in a competitive market that works best without heavy government intervention, said Wayne Crews, vice president for policy and director of technology studies at the Competitive Enterprise Institute, an anti-regulation think tank.

"Policymakers should reject such proposals to centralize cyber security risk management," Crews said in an e-mail. "The Internet that will evolve if government can resort to a 'kill switch' will be vastly different from, and inferior to, the safer one that will emerge otherwise."

Cybersecurity technologies and services thrive on competition, he added. "The unmistakable tenor of the cybersecurity discussion today is that of government steering while the market rows," he said. "To be sure, law enforcement has a crucial role in punishing intrusions on private networks and infrastructure. But government must coexist with, rather than crowd out, private sector security technologies."

On Wednesday, 24 privacy and civil liberties groups sent a letter <http://www.cdt.org/files/pdfs/20100624_joint_cybersec_letter.pdf>  raising concerns about the legislation to the sponsors. The bill gives the new National Center for Cybersecurity and Communications "significant authority" over critical infrastructure, but doesn't define what critical infrastructure is covered, the letter said.

Without a definition of critical infrastructure there are concerns that "it includes elements of the Internet that Americans rely on every day to engage in free speech and to access information," said the letter, signed by the Center for Democracy and Technology, the American Civil Liberties Union, the Electronic Frontier Foundation and other groups.

"Changes are needed to ensure that cybersecurity measures do not unnecessarily infringe on free speech, privacy, and other civil liberties interests," the letter added.

Tuesday, June 22, 2010

Metaphysics of a Thug

I was asked for an elevator pitch to explain why someone like Obama acts like a thug and resorts to thuggery.

In brief, it's his metaphysics -- Obama views reality as totally malleable, yet himself as utterly impotent in that reality, and the only control he sees himself possessing are lies and threats.

Reality to Obama is purely social relationships.  He views the choices of human beings as arbitrary, and being arbitrary himself in all things, he believes a strong enough person of sufficient "will" (in the Nietzchean sense) can make anything real.  He denies any objective reality of facts or principles outside his control.  He doesn't believe he has to conform to any facts.  Oil leaks in the Gulf?   He simply has to "kick ass" to stop it.  It doesn't matter that the oil is 1 mile below the surface, or under 1000 pounds per square inch of pressure, or that the nature of geologic formations can't be fully predicted, or that hardened steel pipe has a finite breaking point or anything else -- Obama just has to "kick ass" and the problem will be solved by generating enough fear.

At the same time, Obama feels completely impotent to exist himself and suffers a complete lack of self-esteem--which he conceals from himself with a form of megalomania.  He's never done anything productive his entire life except manipulate people.  He's never made anything, designed anything, conceived anything to prove he is efficacious or independent.  All his ideas are second-hand hand-me-downs from his communist parents, his communist grandparents, his communist mentor, his communist friends, and an endless assortment of the usual suspects in his network of Leftist associates who consort regularly at cocktail parties, church socials and golf course meetings to congratulate themselves on their own brilliance.

His pursuit of self-esteem is the epistemological method of a self-licking ice-cream cone.   His brain is filled with cliches and bromides and slogans and a littany of lies which he has mouthed his whole life and heard repeated back to him by friends and acquaintences and gullible groupers swimming along after him.  He counts on looks, style, race, smile, a smooth voice, cliches of public speaking ("look stern, lower your chin, look left, look right, chop the air with your hand to punctuate each word") and a lot of moxy and chutzpah to carry him forward with the illusion of competence and strength, while he clings to a teleprompter in public and and profanity in private like a lifeline.

But he knows, at some level -- conscious or not -- that it's all a sham.  He knows that he himself is a sham.  He knows he doesn't know anything about existing except manipulating people.  So how do you control them when they don't cooperate?  You've only one tool:  you threaten them. His lack of ability and lack of self-esteem are reflected in the psychology of a bully:  do it or I'll knock your teeth in.  It's his only control over existence.

Again, Atlas Shrugged is illustrative.  In the scene leading up to the Taggart Tunnel disaster, a second-rate politician, Kip Chalmers, on a trip to San Francisco for a political rally, is held up in the Colorado mountains for lack of a diesel locomotive -- so he threatens the railroad workers until they do the only thing they can do:  use a coal-burning locomotive. Kip orders them to proceed without caring about the facts of a coal-burning locomotive traveling 6 miles through a tunnel under the Continental Divide without adequate tunnel ventilation to protect the passengers from the exhaust.  All he cares is that he wants to get to San Francisco:
        Kip Chalmers swore as the train lurched and spilled his cocktail over the table top. He slumped forward, his elbow in the puddle, and said: "God damn these railroads! What's the matter with their track? You'd think with all the money they've got they'd disgorge a little, so we wouldn't have to bump like farmers on a hay cart!"

        ...Kip Chalmers had curly blond hair and a shapeless mouth. He came from a semi-wealthy, semi-distinguished family, but he sneered at wealth and distinction in a manner which implied that only a top rank aristocrat could permit himself such a degree of cynical indifference. He had graduated from a college which specialized in breeding that kind of aristocracy. The college had taught him that the purpose of ideas is to fool those who are stupid enough to think. He had made his way in Washington with the grace of a cat-burglar, climbing from bureau to bureau as from ledge to ledge of a crumbling structure. He was ranked as semi-powerful, but his manner made laymen mistake him for nothing less than Wesley Mouch.

        For reasons of his own particular strategy, Kip Chalmers had decided to enter popular politics and to run for election as Legislator from California, though he knew nothing about that state except the movie industry and the beach clubs. His campaign manager had done the preliminary work, and Chalmers was now on his way to face his future constituents for the first time at an over publicized rally in San Francisco tomorrow night. The manager had wanted him to start a day earlier, but Chalmers had stayed in Washington to attend a cocktail party and had taken the last train possible. He had shown no concern about the rally until this evening, when he noticed that the Comet was running six hours late.

        "God damn these railroad people!" said Kip Chalmers. "They're doing it on purpose. They want to ruin my campaign. I can't miss that rally! For Christ's sake, Lester, do something!"

        "I've tried," said Lester Tuck. At the train's last stop, he had tried, by long-distance telephone, to find air transportation to complete their journey; but there were no commercial flights scheduled for the next two days.

        ....Kip Chalmers sat staring at his glass. "I'm going to have the government seize all the railroads," he said, his voice low.

        ...It was half-past two when the Comet, pulled by an old switch engine, jerked to a stop on a siding of Winston Station. Kip Chalmers glanced out with incredulous anger at the few shanties on a desolate mountainside and at the ancient hovel of a station.
        "Now what? What in hell are they stopping here for?" he cried, and rang for the conductor.
        With the return of motion and safety, his terror had turned into rage. He felt almost as if he had been cheated by having been made to experience an unnecessary fear. His companions were still clinging to the tables of the lounge; they felt too shaken to sleep.
        "How long?" the conductor said impassively, in answer to his question. "Till morning, Mr. Chalmers."

        ..."Damn your tunnel!" he screamed. "Do you think I'm going to let you hold me up because of some miserable tunnel? Do you want to wreck vital national plans on account of a tunnel? Tell your engineer that I must be in San Francisco by evening and that he's got to get me there!"
        "How?"
        "That's your job, not mine!"
        "There is no way to do it."
        "Then find a way, God damn you!"
        The conductor did not answer.
        "Do you think I'll let your miserable technological problems interfere with crucial social issues? Do you know who I am? Tell that engineer to start moving, if he values his job!"
        "The engineer has his orders."
        "Orders be damned! I give the orders these days! Tell him to start at once!"
        ...In the dilapidated office of Winston Station, he confronted a sleepy man with slack, worn features, and a frightened young boy who sat at the operator's desk. They listened, in silent stupor, to a stream of profanity such as they had never heard from any section gang.         "--and it's not my problem how you get the train through the tunnel, that's for you to figure out!" Chalmers concluded. "But if you don't get me an engine and don't start that train, you can kiss good-bye to your jobs, your work permits and this whole goddamn railroad!"
        The station agent had never heard of Kip Chalmers and did not know the nature of his position. But he knew that this was the day when unknown men in undefined positions held unlimited power--the power of life or death.
And there we have Barack Hussein Obama: a little boy who never grew up, who conned his way into a man's job, with only one tool at his disposal: a fist.  And where are we?
        It is said that catastrophes are a matter of pure chance, and there were those who would have said that the passengers of the Comet were not guilty or responsible for the thing that happened to them.
        The man in Bedroom A, Car No. 1, was a professor of sociology who taught that individual ability is of no consequence, that individual effort is futile, that an individual conscience is a useless luxury, that there is no individual mind or character or achievement, that everything is achieved collectively, and that it's masses that count, not men.
        The man in Roomette 7, Car No. 2, was a journalist who wrote that it is proper and moral to use compulsion "for a good cause," who believed that he had the right to unleash physical force upon others--to wreck lives, throttle ambitions, strangle desires, violate convictions, to imprison, to despoil, to murder-for the sake of whatever he chose to consider as his own idea of "a good cause," which did not even have to be an idea, since he had never defined what he regarded as the good, but had merely stated that he went by "a feeling"--a feeling unrestrained by any knowledge, since he considered emotion superior to knowledge and relied solely on his own "good intentions" and on the power of a gun.
        The woman in Roomette 10, Car No. 3, was an elderly schoolteacher who had spent her life turning class after class of helpless children into miserable cowards, by teaching them that the will of the majority is the only standard of good and evil...
        The man in Drawing Room B, Car No, 4, was a newspaper publisher who believed that men are evil by nature and unfit for freedom, that their basic instincts, if left unchecked, are to lie, to rob and to murder one another-and, therefore, men must be ruled by means of lies, robbery and murder, which must be made the exclusive privilege of the rulers, for the purpose of forcing men to work, teaching them to be moral and keeping them within the bounds of order and justice.
        The man in Bedroom H, Car No. 5, was a businessman who had acquired his business, an ore mine, with the help of a government loan, under the Equalization of Opportunity Bill.
        The man in Drawing Room A, Car No. 6, was a financier who had made a fortune by buying "frozen" railroad bonds and getting his friends in Washington to "defreeze" them.
        The man in Seat 5, Car No, 7, was a worker who believed that he had "a right" to a job, whether his employer wanted him or not.
        The woman in Roomette 6, Car No. 8, was a lecturer who believed that, as a consumer, she had "a right" to transportation, whether the railroad people wished to provide it or not.
        The man in Roomette 2, Car No. 9, was a professor of economics who advocated the abolition of private property, explaining that intelligence plays no part in industrial production, that man's mind is conditioned by material tools, that anybody can run a factory or a railroad and it's only a matter of seizing the machinery.
        The woman in Bedroom D, Car No. 10, was a mother who had put her two children to sleep in the berth above her, carefully tucking them in, protecting them from drafts and jolts; a mother whose husband held a government job enforcing directives, which she defended by saying, "I don't care, it's only the rich that they hurt. After all, I must think of my children."
        The man in Roomette 3, Car No. 11, was a sniveling little neurotic who wrote cheap little plays into which, as a social message, he inserted cowardly little obscenities to the effect that all businessmen were scoundrels.
        The woman in Roomette 9, Car No. 12, was a housewife who believed that she had the right to elect politicians, of whom she knew nothing, to control giant industries, of which she had no knowledge.
        The man in Bedroom F, Car No. 13, was a lawyer who had said, "Me? I'll find a way to get along under any political system."
        The man in Bedroom A, Car No. 14, was a professor of philosophy who taught that there is no mind--how do you know that the tunnel is dangerous?--no reality--how can you prove that the tunnel exists?-- no logic--why do you claim that trains cannot move without motive power?--no principles-why should you be bound by the law of cause-and-effect?--no rights--why shouldn't you attach men to their jobs by force?--no morality--what's moral about running a railroad?--no absolutes--what difference does it make to you whether you live or die, anyway? He taught that we know nothing--why oppose the orders of your superiors?--that we can never be certain of anything--how do you know you're right?--that we must act on the expediency of the moment--you don't want to risk your job, do you?
        The man in Drawing Room B, Car No. 15, was an heir who had inherited his fortune, and who had kept repeating, "Why should Rearden be the only one permitted to manufacture Rearden Metal?"
        The man in Bedroom A, Car No. 16, was a humanitarian who had said, "The men of ability? I do not care what or if they are made to suffer. They must be penalized in order to support the incompetent. Frankly, I do not care whether this is just or not. I take pride in not caring to grant any justice to the able, where mercy to the needy is concerned."
        These passengers were awake; there was not a man aboard the train who did not share one or more of their ideas. As the train went into the tunnel, the flame of Wyatt's Torch was the last thing they saw on earth.

Monday, June 21, 2010

Grounds for Impeachment?

Just where in the Constitution of the United States does it say that a president has the authority to extract vast sums of money from a private enterprise and distribute it as he sees fit to whomever he deems worthy of compensation? Nowhere.
Sowell is exactly right, and if BP doesn't have the backbone or balls to oppose Obama in U.S. court, someone else should, on the grounds that Obama is now guilty of "high crimes and misdemeanors" in the blatantly unconstitutional execution of his job -- violation of the constitutional guarantee of due process -- and this should lead to his impeachment if enough of a majority can be achieved after the election.  I would love to see the testimony in court on what happened when Obama threatened BP.

http://www.investors.com/NewsAndAnalysis/Article/537967/201006211813/Is-US-Now-On-Slippery-Slope-To-Tyranny-.aspx
 

Is U.S. Now On Slippery Slope To Tyranny?

When Adolf Hitler was building up the Nazi movement in the 1920s, leading up to his taking power in the 1930s, he deliberately sought to activate people who did not normally pay much attention to politics.
Such people were a valuable addition to his political base, since they were particularly susceptible to Hitler's rhetoric and had far less basis for questioning his assumptions or his conclusions.

"Useful idiots" was the term supposedly coined by V.I. Lenin to describe similarly unthinking supporters of his dictatorship in the Soviet Union.

Put differently, a democracy needs informed citizens if it is to thrive, or ultimately even survive.
In our times, American democracy is being dismantled, piece by piece, before our very eyes by the current administration in Washington, and few people seem to be concerned about it.

The president's poll numbers are going down because increasing numbers of people disagree with particular policies of his, but the damage being done to the fundamental structure of this nation goes far beyond particular counterproductive policies.

Just where in the Constitution of the United States does it say that a president has the authority to extract vast sums of money from a private enterprise and distribute it as he sees fit to whomever he deems worthy of compensation? Nowhere.

And yet that is precisely what is happening with a $20 billion fund to be provided by BP to compensate people harmed by their oil spill in the Gulf of Mexico.

Many among the public and in the media may think that the issue is simply whether BP's oil spill has damaged many people, who ought to be compensated.

But our government is supposed to be "a government of laws and not of men."

If our laws and our institutions determine that BP ought to pay $20 billion — or $50 billion or $100 billion — then so be it.

But the Constitution says that private property is not to be confiscated by the government without "due process of law."

Technically, it has not been confiscated by Barack Obama, but that is a distinction without a difference.
With vastly expanded powers of government available at the discretion of politicians and bureaucrats, private individuals and organizations can be forced into accepting the imposition of powers that were never granted to the government by the Constitution.

If you believe that the end justifies the means, then you don't believe in constitutional government.

Life Trying Really Hard to Imitate Art

The story below is the face of things to come...
Mountains of rotting food found at a government warehouse, soaring prices and soldiers raiding wholesalers accused of hoarding: Food supply is the latest battle in President Hugo Chavez's socialist revolution.

Venezuelan army soldiers swept through the working class, pro-Chavez neighborhood of Catia in Caracas last week, seizing 120 tons of rice along with coffee and powdered milk that officials said was to be sold above regulated prices.

...Critics accuse him of steering the country toward a communist dictatorship and say he is destroying the private sector.

They point to 80,000 tons of rotting food found in warehouses belonging to the government as evidence the state is a poor and corrupt administrator.
...unless Obama, the Democrats, and a good number of Republicans are booted out of office.  To borrow a favorite Obama phrase, that's whose "ass we have to kick".  But you can substitute almost any "commodity" for "food".   Under National Health Care that could be mountains of decaying medical equipment and soldiers raiding private health clinics, seizing "essential" drugs and arresting doctors who charge more than than the Health Czars allow.

Recall a previous post of mine:
Life imitates art: Hugo Chavez just got through nationalizing the Venezuelan metals industries. If you want to see the full scope of this imitation, google "chavez nationalizes", and you'll get a frightening crystal ball into the course of the United States under Comrade Barack. Here is how it looks:
Chavez nationalizes French-owned retailer
Chavez seizes U.S. food giant unit
Chavez Nationalizes University
Chavez nationalizes Venezuela's iron-makers
Chavez nationalizes Bauxite producers
Chávez Nationalizes Oil Service Companies
Chavez Nationalizes Bank of Venezuela
Chavez nationalizes two more private banks
Chavez Nationalizes Cement Industry
Chavez may nationalize gold mines
Chavez Nationalizes Last Venezuelan Oil Fields
Chavez seizes Hilton resort
Chavez nationalizes coffee
Chavez nationalizes French Supermarket Chain
Chavez nationalizes ports, airports
Chavez nationalizes steel sector
Chavez nationalizes small shops...
There's some good material in Atlas Shrugged describing this phenomena.  But back to the original news story. I'm reminded of  how all those nationalizations led to (from Atlas):
...But thirty million dollars of subsidy money from Washington had been plowed into Project Soybean---an enormous acreage in Louisiana, where a harvest of soybeans was ripening, as advocated and organized by Emma Chalmers, for the purpose of reconditioning the dietary habits of the nation.
Ma Chalmers could be Mayor Bloomberg of New York.
Emma Chalmers, better known as Kip's Ma, was an old sociologist who had hung about Washington for years, as other women of her age and type hang about barrooms. For some reason which nobody could define, the death of her son in the tunnel catastrophe had given her in Washington an aura of martyrdom, heightened by her recent conversion to Buddhism. "The soybean is a much more sturdy, nutritious and economical plant than all the extravagant foods which our wasteful, self-indulgent diet has conditioned us to expect," Kip's Ma had said over the radio; her voice always sounded as if it were falling in drops, not of water, but of mayonnaise.

"Soybeans make an excellent substitute for bread, meat, cereals and coffee--and if all of us were compelled to adopt soybeans as our staple diet, it would solve the national food crisis and make it possible to feed more people. The greatest food for the greatest number--that's my slogan. At a time of desperate public need, it's our duty to sacrifice our luxurious tastes and eat our way back to prosperity by adapting ourselves to the simple, wholesome foodstuff on which the peoples of the Orient have so nobly subsisted for centuries. There's a great deal that we could learn from the peoples of the Orient."
Of course, soybeans are ubiquitous today. Making people sick and fish androgenous everywhere.
...In Minnesota, farmers were setting fire to their own farms, they were demolishing grain elevators and the homes of county officials, they were fighting along the track of the railroad, some to tear it up, some to defend it with their lives--and, with no goal to reach save violence, they were dying in the streets of gutted towns and in the silent gullies of a roadless night.

Then there was only the acrid stench of grain rotting in half-smouldering piles--a few columns of smoke rising from the plains, standing still in the air over blackened ruins--and, in an office in Pennsylvania, Hank Rearden sitting at his desk, looking at a list of men who had gone bankrupt: they were the manufacturers of farm equipment, who could not be paid and would not be able to pay him.

The harvest of soybeans did not reach the markets of the country: it had been reaped prematurely, it was moldy and unfit for consumption.
Or not so ubiquitous, before long.  I'm not say we're near this stage;  I'm saying that if Obama gets his way, we will be, eventually.

Hugo Chavez Spearheads Raids as Food Prices Skyrocket

Published: Friday, 18 Jun 2010 | 5:18 PM ET
By: Reuters
Mountains of rotting food found at a government warehouse, soaring prices and soldiers raiding wholesalers accused of hoarding: Food supply is the latest battle in President Hugo Chavez's socialist revolution.
Venezuelan army soldiers swept through the working class, pro-Chavez neighborhood of Catia in Caracas last week, seizing 120 tons of rice along with coffee and powdered milk that officials said was to be sold above regulated prices.

"The battle for food is a matter of national security," said a red-shirted official from the Food Ministry, resting his arm on a pallet laden with bags of coffee.
It is also the latest issue to divide the Latin American country where Chavez has nationalized a wide swathe of the economy, he says to reverse years of exploitation of the poor.
Chavez supporters are grateful for a network of cheap state-run supermarkets and they say the raids will slow massive inflation.
Critics accuse him of steering the country toward a communist dictatorship and say he is destroying the private sector.
They point to 80,000 tons of rotting food found in warehouses belonging to the government as evidence the state is a poor and corrupt administrator.
Jose Guzman, an assistant manager at a store raided in Catia, watched with resignation as government agents pored over the company's accounts and computers after the food ministry official and the television cameras left.
"The government is pushing this type of establishment toward bankruptcy," said Guzman, who linked the raid to the rotten food scandal. "Somehow they have to replace all the food that was lost, and this is the most expeditious way."
Wasted Food
Much of the wasted food, including powdered milk and meat, was found last month in the buildup to legislative elections in September. The scandal is humiliating for Chavez, who accuses wealthy elites of fueling inflation and causing shortages of products such as meat, sugar and milk by hoarding food.
"They are not going to stop us in the plan, which is to give the people what is their right," Chavez said Friday during the inauguration of a supermarket chain the government bought this year from French retailer Casino.
Food prices are up 41 percent in the last 12 months during a deep recession, government figures show, despite the government's growing network of state-run supermarkets that sell at discounts of up to 40 percent and are popular with his poor supporters.
South America's top oil exporter, Venezuela imports about 70 percent of its food and analysts say the economic hardships could give the opposition a boost at the ballot box—although most expect Chavez to retain a reduced parliamentary majority.
Fighting back, Chavez says he is in an economic war against the "parasitic bourgeoisie"      that tries to convince Venezuelans that socialism does not work by twisting facts and taking advantage of honest mistakes.
"They know where we are headed, we are going to take from the Venezuela bourgeoisie the hegemony of dominance in this country," Chavez, who calls himself a Marxist, said to applause from supporters on his TV show on Sunday.
The president rushed to give public support to Oil Minister Rafael Ramirez, who as the boss of PDVSA is also responsible for food unit PDVAL, over the case of the rotting food.
Two former PDVAL managers have been jailed in the scandal, but that has not stifled opposition charges of government incompetence.
A string of expropriations and buyouts of companies during the last couple of years means the government now controls between 20 percent and 30 percent of the distribution of staple foods.
"We are bringing order to prices," Trade Minister Richard Canan told Reuters during the Catia raid. "There are traders who are taking these products to the black market ... That is a crime and our government will continue to target these stores."

Friday, June 18, 2010

Reader Comment to "The Hand of Soros?"

Blogger won't allow comments longer than 4096 characters, so I publish this as a post from reader Wendy...

----- Begin comment -----
Nice find and good question, Robb.

When the financial crisis happened, I made a serious inquiry into its causes and determined that the mark-to-market accounting regime was the absolute and sole cause of the crisis, that factor without which there would have been no financial crisis. The evidence is overwhelming. I won't go into the model here because I hope to publish it in more detail soon on RealClearMarkets.com. It is true that mark-to-market is just an accounting method, there is nothing wrong with it per se, and it is appropriate for certain types of situations. The problem is that it was made mandatory on the private sector and encompassed a significant portion of all securities. The regime causes a positive feedback loop of financial losses, which is essentially synonymous with a self-reinforcing contraction of the credit supply. The IMF has done a simulation of the regime and verified this effect as well.

I regard every other model of the crisis, including the housing bust, the Fed, the GSEs, the CRA, deregulation, etc., to be phony, irresponsible, and extremely damaging to the cause of capitalism. It is widely believed among actual market players that the mark-to-market regime was responsible for the crisis, but the incompetariat has largely ignored the story (with some notable exceptions, including Steve Forbes). Here is a history.

The Financial Accounting Standards Board (FASB), a quasi-autonomous non-governmental organization, is the authority which sets the accounting rules and put the mark-to-market regime in place. It operates under the aegis of the SEC, which enforces the accounting dictates uncritically on the financial industry. Early adoption of the regime was effective for all years beginning after September 2006, i.e., starting January 1, 2007. Most of the major commercial and investment banks did adopt it early out of reputational concerns, apparently oblivious to the threat. Asset prices began dropping immediately, and though most big banks gamed the new regime fairly well that year, a credit crunch still ensued. You may remember the sudden market plunge on August 19 of that year as institutions sold off assets in a scramble for capital. The regime became mandatory for everyone on November 15, 2007. Then there was serious trouble. Sometime in Q2:2008, losses began to exceed capital raisings in the financial system. The financial system as a whole was effectively insolvent. The critical event occurred when John Thain decided to look out for his investors and sell the failing Merrill Lynch's assets for 22 cents on the dollar in the last week of July 2008, forcing everyone else to mark down their assets to the same catastrophic level. A crisis was formally recognized when Lehman collapsed a little over a month later, causing between $100 and $200 billion in lost value.

Mark-to-market as a method has been around for ages. I haven't researched its history yet, but I do know it was in effect as a regime during the Great Depression until Roosevelt suspended it in 1938. It was enforced by the New York Federal Reserve in those days. Given that the Great Depression and the Great Recession seem to belong to the same category of crisis based on their characteristics, I highly suspect that the mark-to-market regime caused the former as well, although there were certainly other aggravating factors brought into play, including the Smoot-Hawley Tariff Act.

The mark-to-market ideological movement revived several decades later and has been taking hold since at least the late 1980s. Alan Greenspan among others warned against it in 1993, so when the FASB decreed mark-to-market in effect in 1994, the moral force was not with them. They thus had to concede the practical execution to the pro-market factions, who quickly adopted a discounted cash-flow method, used to reflect the long-term economic value of the asset, on the theory that since markets are efficient, market prices should be the same as the economic value anyway. When leftists try to tell you that mark-to-market has been in place since 1994 and hasn't caused any problems so why would it be responsible for the crisis, remember that leftists shamelessly lie like rugs. This is out-and-out deception on their part. They can call it whatever they want, but it was a discounted cash-flow method, not mark-to-market, that was in place prior to 2007.

Mark-to-market was eased significantly when Congress intervened and threatened the FASB. When conditions became undeniably hopeless during Q1:2009, the anti-regime factions, both among the financial industry and the general public, gained political momentum. Warren Buffett, previously a cavalier supporter of the regulatory state, had become noticeably more humble as he watched his investment in Goldman Sachs inexplicably going toward zero. Despite the Goldman Sachs CEO's psychotic and suicidal support for the mark-to-market regime, Buffett decided to face reality and, along with other key players, testified against it to Congress. On March 10, 2009, Fed Chairman Bernanke reversed his previous unconditional support for the regime, announcing that substantial improvements needed to be made. These developments caused the sudden reversal of the crisis seen in March 2009 as markets began pricing in relief and write-ups.

The ruling and the market reversal precipitated a bout of existential rage among the left, who had been hoping for a total collapse and who wanted to use a collapse as a pretext to nationalize the banks. The humiliated FASB, headed by a malicious crypto-Marxist named Bob Herz, quickly determined to bring mark-to-market back with a vengeance in 2012-2013. It is a religion for them, and a FASB board member has actually labelled it as such. The FASB intends to force not only all the securities that were previously covered back into the regime, but all loans as well. Combined with the worldwide implementation of the new Basel II capital accounting regime, I can say in all seriousness and with no exaggeration that if they succeed, it will cause the collapse of Western civilization.

George Soros cannot possibly be ignorant of the effects of mandatory mark-to-market, and neither can the FASB. I do not know if they have some sort of closet relationship, but because they share the same ideology, they can probably be counted on to cooperate in this endeavor without a word spoken between them.

Wendy

The Hand of Soros?

“Regime change” in the United States entails a paradigm shift away from free enterprise capitalism and the establishment of a socialist government  ...will make it forever impossible for the U.S. to reinstate the free enterprise capitalist system, as every political and social act will be dictated by the elite in Washington."

"Such “regime change” was facilitated by the government’s stealth regulatory change on November 9, 2007, from "hold to maturity" accounting to “mark-to-market” accounting, which caused the collapse in private sector capital formation and access to credit in 2008 and 2009..."

"Without the mark-to-market regulatory change, the markets would not have collapsed and we would still have a booming economy. Instead, we have a loss of over $10 trillion in private sector wealth and a shifting of private sector ownership and control of capital to the government and Fed... "
It would be really interesting to do some investigation into the origins of the the "mark to market" accounting rules change.   Who initiated the idea?   Who promoted it?  I would not in the least be surprised that a puppetmaster like George Soros was behind it, because only someone like him could fully appreciate the devastating effects it would have.  I emphasize "fully". 

Many people could see it would be "bad".  But not many could predict the detailed consequences and timing of events.  I would bet hard money that Soros was positioned to make a lot of money on the collapse when it finally happened -- and I'm sure he could pull the strings of Bush's treasury chief Paulsen (a Democrat) to trigger the crisis once he determined the conditions were ripe.  (If you go public with a request for a trillion dollars to "save" the economy, I submit that you know you're going to trigger a wave of selling and destroy it.)

As I said, it would take someone of Soros's sophistication to know that "mark to market" rules would cripple American businesses and precipitate a severe banking crisis. If Soros made a boatload on the collapse, I'd bet our intelligence agencies could determine that very quickly, and it would be a smoking gun for going after him -- if you didn't have a communist in the White House, a communist in the Justice Department, etc.

http://www.aim.org/aim-column/obama%E2%80%99s-%E2%80%9Cregime-change%E2%80%9D-of-socialist-control/

Obama’s “Regime Change” of Socialist Control

By Pieter Samara  |  June 17, 2010

Cap & Trade, involving a Chicago carbon exchange and other companies that Obama and/or his associates may have financial interests in, was all but dead in the water until the BP oil blowout crisis renewed “hope” that he could revive it again.

With all the solutions available from the private sector and from around the world since day one, to deal with the oil spill, President Obama has stalled on allowing any of these going forward for the following reasons:

To increase the power of government over the private sector. To allow the private sector to solve the problem would defeat and undermine Obama’s assertion that only government and government-owned companies, bureaucracies and labor unions can provide the solution. Obama sees the private sector as inherently evil, as reflected in the fact that he refused to meet with BP to establish a working relationship with the company to cut through all the bureaucratic red tape.

While BP attempts to cap the Deep Water Horizon well, it has to be remembered that the government forced BP to drill at a depth of 5,000 feet, one of the deepest wells ever drilled, creating the crisis. BP had wanted to drill at a depth of 500 feet. The result of the blowout has been that the government, Obama, and Democrats in Congress have threatened and talked down BP and its efforts. On the one hand, they require BP to obtain approvals from the government to move forward, while on the other hand they vilify the BP president and CEO during Congressional hearings, due to the government’s own delays.

Meanwhile, the Obama Administration failed to grant requested waivers to the 1920 Jones Act that would allow foreign ships and skimmers to enter U.S. water, refusing international assistance from 33 countries and stalling and minimizing Louisiana’s creation of sand barriers, as well as stalling numerous private sector solutions that the Administration has refused to take heed of. One such example offered on May 3 was from Dr. Henry Crichlow, the leading oil blowout specialist worldwide, who developed the blowout engineering after Gulf War I for 800 or more wells in Kuwait, who provided quick relatively inexpensive solutions to either recover the oil with the Crichlow connector  from the pipe a mile down or to “Kill the Spill” completely.

As part of the orchestration of the crisis, liberals in Congress threatened to put BP into receivership, while Obama played to the radical left with a threat to take over BP’s assets, if they could not force BP to allocate $20 billion in an escrow for a government appointee to administer. The result was that despite BP’s balance sheet, the U.S. government has succeeded to cause a FITCH downgrade of BP’s unsecured debt from AA to BBB, with BP shares losing a market cap value of $90 billion. The Obama Administration demanded that BP make payments it had already agreed to make, thus financially weakening the very company the government asserts it wants to be able to shoulder the burden of the fines, the oil cleanup and claims of lost revenues for the Gulf states.

Force Obama’s Cap & Trade bill and energy tax through Congress. Under the Obama policy of “don’t let a good crisis go to waste,” such stalling and delaying mentioned above allowed the crisis to get bad enough for Obama to have the “audacity” in his Oval Office speech to the nation to contrive and justify his Cap & Trade climate bill. Since the beginning of the blowout, the private sector and the States have been fighting with the Administration to get approvals to take action. However, the longer the Administration could stall, the worse the situation would become for BP, the States and Gulf coast businesses, exacerbating a crisis further by creating a moratorium on current and new shallow water drilling threatening hundreds of thousands of jobs.

Cap & Trade, involving a Chicago carbon exchange and other companies that Obama and/or his associates may have financial interests in, was all but dead in the water until the BP oil blowout crisis renewed “hope” that he could revive it again. Cap & Trade is designed to increase the cost of energy to the private sector by more than 10 percent, lowering GDP in the process.

Organization for Economic Cooperation and Development (OECD) studies have demonstrated that for every 1% reduction in the cost of energy there will be a 3% increase in manufacturing and industrial output. This occurred when President Reagan deregulated the oil industry, creating an economic boom. Obama is moving in the opposite direction—that of higher taxes and more federal government control on a permanent basis.

To effect “regime change” toward statism. Why would the Administration willfully let the Coastal region be damaged, destroying revenues and lives to create a crisis, as an “end justifies the means” call for Cap & Trade? The answer is that we just need to look at the cause of the systemic financial crisis itself, which was intended to achieve, as Mohamed El Erian, CEO of PIMCO, himself called it , “regime change” in the U.S. and globally. “Regime change” in the U.S. means an inexorable shift of control and ownership of private sector capital and productivity of the populous to the federal government and Federal Reserve.

“Regime change” in the United States entails a paradigm shift away from free enterprise capitalism and the establishment of a socialist government which assumes ownership and control of capital and human resources. Its projected culmination to a “New Normal” of slow economic growth and bigger government within four years will make it forever impossible for the U.S. to reinstate the free enterprise capitalist system, as every political and social act will be dictated by the elite in Washington.

Such “regime change” was facilitated by the government’s stealth regulatory change on November 9, 2007, from "hold to maturity" accounting to “mark-to-market” accounting, which caused the collapse in private sector capital formation and access to credit in 2008 and 2009, unless accompanied by government ownership or guarantees that allow such debt to be reclassified under the government’s sole right hold to maturity valuation.

Without the mark-to-market regulatory change, the markets would not have collapsed and we would still have a booming economy. Instead, we have a loss of over $10 trillion in private sector wealth and a shifting of private sector ownership and control of capital to the government and Fed. Thus, clearly, if the government and “special interests” are willing to orchestrate an unmitigated economic collapse allowing over $10 trillion in private sector savings to be lost to effect a “regime change” to a “New Normal” culminating in their total ownership and control of financial and human resources, then government stalling in its response to the oil spill to create a crisis to justify the resurrection of Cap & Trade to further such “regime change” is small potatoes by comparison.

To start the nationalization of oil and other major industries. An outright government takeover of BP and other oil companies could be the next phase of Obama’s “regime change” policy.

To read a longer version of the points covered in this article, please go to “Regime change <http://admc24-7city.com/files/V/the_new_normal_which_completes_the_regulatory_regime_change_that_started_november_9_2007_8.5x11_061710.doc> .”

________________________________

Pieter Samara is a citizen of the United States of America who currently lives in Bangkok, Thailand, and has been an entrepreneur his entire working career, developing and managing his own businesses. He is currently the CEO of Asset Development and Management Company Private Limited and Chairman & CEO of American Asset Acquisition Corporation.

Thursday, June 17, 2010

Obama's communist past

A link to a youtube video was passed on to me, summarizing in a rather chilling way the main facts about Obama's long association with communists and killers.  The facts I knew about in this video are correct, and other facts I was pretty sure about.  The video also alleges a history of identity fraud which I am otherwise unfamiliar with.  Verified or not, the video is worth watching and provocative, and because some people I know in other regions of the country seem unable to view it directly at youtube for some reason, I'm embedding it here. (I have to keep replacing the embed on this video because youtube keeps removing the video. If you can't see it, search youtube for "OBAMA DOESN'T WANT YOU TO SEE THIS" and someone will probably have re-uploaded it.)

Sunday, June 13, 2010

The Pied Piper of DC

The document at bottom is one of the scariest things I have ever read.  I looked it up while researching my "turkey" post, and realized it had to be read.  It does.  In here, in 2002, Federal Reserve Chairman Ben Bernanke outlines a very broad range of means the Federal Reserve and the U.S. Government will use to stop an economic collapse, which he charitably calls "deflation", meaning, a severe drop in "aggregate demand" -- meaning, no one is buying any damned thing because they got no jobs and no money.  He describes the exact conditions of our current crisis, but says the chances of it happening are "extremely remote".  He is clearly sympathetic to every single policy measure he outlines, even though he often hedges by saying they might be "undesirable".

There isn't one single correct principle of sound economics that Bernanke endorses in this document.  He holds up 1934, in the midst of the lowest point of the Great Depression, as the single greatest moment in stock market history!   I kid you not. 
Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market.
It hardly gets worse than that, until you realize that Bernanke is now in charge of the most powerful monetary agency in the world, and every single one of the "anti-deflationary" means he outlines is now being implemented.   I include
the Fed has the authority to buy foreign government debt, as well as domestic government debt. Potentially, this class of assets offers huge scope for Fed operations,
In other words, if things aren't bad enough over here, let's buy the bad debt of Greece, Spain, Portugal, Britain, ad infinitum, with the paper dollars we're printing out of thin air.  They aren't admitting it, but as I said in a previous post, I'd bet hard money that they're already doing it. (And now you know the real meaning of "credit default swaps", even though it's not called that when governments do it.) 

The paragraph that earned him the title "Helicopter Ben" caps this:
Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
Do you understand what he's saying?  It's a theme in his entire speech.  He regards reducing the value of the dollar as a *good* thing in the pursuit of achieving inflation to increase demand.  To say that this man is a moron is being unkind to morons everywhere.  This can only be the product of advanced higher education.

I've highlighted the scariest comments, and if you don't understand them, try to, because the real meaning isn't always obvious.  View everything in light of this fact:  in a healthy, pure capitalist, gold-backed economy, long-term interest rates are very low, and the general rate of "inflation" (as measured by an average of all prices) is always mildly negative as production efficiencies accrue.  Bernanke, however, calls this a threatening "deflation" that must be attacked with monetary policy such as the TARP bill.   For instance, he refers to the terrible debts piled on people in 1896 as
the result of a sustained deflation that followed America's post-Civil-War return to the gold standard.4
The fault is the gold, you see.  The poor devils needed a Federal Reserve to save them. 

Now, some of you might be thinking, "but we don't have deflation.  Aren't we at risk for inflation?"

What is inflation?  It is *NOT* simply increasing prices of things.  You can have inflation with falling prices.  "Inflation" is one of those loaded terms with a lot of baggage from intellectual incompetents like Bernanke.  A proper definition means:  falling value of the dollar (or whatever currency).  That can cause a new car to be more expensive... but if demand is falling and incomes are falling, the price of the car could still be falling, cause no one can afford the damned thing.  


I don't want to go into a treatise on economics here, but the key is always to keep your mind focused on *real* value of things rather than surrogates like paper bills:  how much of your productive effort does it take to buy a car?   Say, a percent of your annual income.  If that percentage is going up, you have inflation in real terms.  And note:  inflation (in the absence of credit expansion) always means you have declining demand.   What gets so scary (and what we've experienced) is the government created phenomena of people getting artificially high present incomes by borrowing against the future. Artificial demand created by artificial ability to buy.  Only we get insulated from cause and effect (truth and consequences) because the government has been artificially reducing prices for years by borrowing in a giant game of monetary musical chairs.  Gross oversimplification, but it points you in the right direction.


What does this mean for the future?  Contemplate:  Every single instance of monetary policy by our government is in exactly the wrong direction. Every one. You can decide whether Bernanke is Wrong Way Corrigan (http://en.wikipedia.org/wiki/Douglas_Corrigan) who did it intentionally, or Wrong Way Marshall (http://en.wikipedia.org/wiki/Jim_Marshall_%28American_football%29) who was just really, really confused, but either way, you know something really bad has to happen before long.

Whither goest thou, America?  After the pied piper, Helicopter Ben Bernanke.

(P.S.:  The real pied piper was a serial killer of children.  http://en.wikipedia.org/wiki/Pied_Piper_of_Hamelin  "In 1284, while the town of Hamelin was suffering from a rat infestation, a man dressed in pied clothing appeared, claiming to be a rat-catcher. ...One hundred thirty boys and girls followed him out of the town, where they were lured into a cave and never seen again."  Or 300 million.)

 

 

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm#fn18


Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002
Deflation: Making Sure "It" Doesn't Happen Here
Since World War II, inflation--the apparently inexorable rise in the prices  of goods and services--has been the bane of central bankers. Economists of various stripes have argued that inflation is the inevitable result of (pick your favorite) the abandonment of metallic monetary standards, a lack of fiscal discipline, shocks to the price of oil and other commodities, struggles over the distribution of income, excessive money creation, self-confirming inflation expectations, an "inflation bias" in the policies of central banks, and still others. Despite widespread "inflation pessimism," however, during the 1980s and 1990s most industrial-country central banks were able to cage, if not entirely tame, the inflation dragon. Although a number of factors converged to make this happy outcome possible, an essential element was the heightened understanding by central bankers and, equally as important, by political leaders and the public at large of the very high costs of allowing the economy to stray too far from price stability.

With inflation rates now quite low in the United States, however, some have expressed concern that we may soon face a new problem--the danger of deflation, or falling prices. That this concern is not purely hypothetical is brought home to us whenever we read newspaper reports about Japan, where what seems to be a relatively moderate deflation--a decline in consumer prices of about 1 percent per year--has been associated with years of painfully slow growth, rising joblessness, and apparently intractable financial problems in the banking and corporate sectors. While it is difficult to sort out cause from effect, the consensus view is that deflation has been an important negative factor in the Japanese slump.

So, is deflation a threat to the economic health of the United States? Not to leave you in suspense, I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small, for two principal reasons. The first is the resilience and structural stability of the U.S. economy itself. Over the years, the U.S. economy has shown a remarkable ability to absorb shocks of all kinds, to recover, and to continue to grow. Flexible and efficient markets for labor and capital, an entrepreneurial tradition, and a general willingness to tolerate and even embrace technological and economic change all contribute to this resiliency.

A particularly important protective factor in the current environment is the strength of our financial system: Despite the adverse shocks of the past year, our banking system remains healthy and well-regulated, and firm and household balance sheets are for the most part in good shape. Also helpful is that inflation has recently been not only low but quite stable, with one result being that inflation expectations seem well anchored. For example, according to the University of Michigan survey that underlies the index of consumer sentiment, the median expected rate of inflation during the next five to ten years among those interviewed was 2.9 percent in October 2002, as compared with 2.7 percent a year earlier and 3.0 percent two years earlier--a stable record indeed.

The second bulwark against deflation in the United States, and the one that will be the focus of my remarks today, is the Federal Reserve System itself. The Congress has given the Fed the responsibility of preserving price stability (among other objectives), which most definitely implies avoiding deflation as well as inflation. I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief.

Of course, we must take care lest confidence become over-confidence. Deflationary episodes are rare, and generalization about them is difficult. Indeed, a recent Federal Reserve study of the Japanese experience concluded that the deflation there was almost entirely unexpected, by both foreign and Japanese observers alike (Ahearne et al., 2002). So, having said that deflation in the United States is highly unlikely, I would be imprudent to rule out the possibility altogether. Accordingly, I want to turn to a further exploration of the causes of deflation, its economic effects, and the policy instruments that can be deployed against it. Before going further I should say that my comments today reflect my own views only and are not necessarily those of my colleagues on the Board of Governors or the Federal Open Market Committee.

Deflation: Its Causes and Effects
Deflation is defined as a general decline in prices, with emphasis on the word "general." At any given time, especially in a low-inflation economy like that of our recent experience, prices of some goods and services will be falling. Price declines in a specific sector may occur because productivity is rising and costs are falling more quickly in that sector than elsewhere or because the demand for the output of that sector is weak relative to the demand for other goods and services. Sector-specific price declines, uncomfortable as they may be for producers in that sector, are generally not a problem for the economy as a whole and do not constitute deflation. Deflation per se occurs only when price declines are so widespread that broad-based indexes of prices, such as the consumer price index, register ongoing declines.

The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand--a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers.1 Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending--namely, recession, rising unemployment, and financial stress.
However, a deflationary recession may differ in one respect from "normal" recessions in which the inflation rate is at least modestly positive: Deflation of sufficient magnitude may result in the nominal interest rate declining to zero or very close to zero.2 Once the nominal interest rate is at zero, no further downward adjustment in the rate can occur, since lenders generally will not accept a negative nominal interest rate when it is possible instead to hold cash. At this point, the nominal interest rate is said to have hit the "zero bound."

Deflation great enough to bring the nominal interest rate close to zero poses special problems for the economy and for policy. First, when the nominal interest rate has been reduced to zero, the real interest rate paid by borrowers equals the expected rate of deflation, however large that may be.3 To take what might seem like an extreme example (though in fact it occurred in the United States in the early 1930s), suppose that deflation is proceeding at a clip of 10 percent per year. Then someone who borrows for a year at a nominal interest rate of zero actually faces a 10 percent real cost of funds, as the loan must be repaid in dollars whose purchasing power is 10 percent greater than that of the dollars borrowed originally. In a period of sufficiently severe deflation, the real cost of borrowing becomes prohibitive. Capital investment, purchases of new homes, and other types of spending decline accordingly, worsening the economic downturn.

Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation. This burden arises because, even if debtors are able to refinance their existing obligations at low nominal interest rates, with prices falling they must still repay the principal in dollars of increasing (perhaps rapidly increasing) real value. When William Jennings Bryan made his famous "cross of gold" speech in his 1896 presidential campaign, he was speaking on behalf of heavily mortgaged farmers whose debt burdens were growing ever larger in real terms, the result of a sustained deflation that followed America's post-Civil-War return to the gold standard.4

The financial distress of debtors can, in turn, increase the fragility of the nation's financial system--for example, by leading to a rapid increase in the share of bank loans that are delinquent or in default. Japan in recent years has certainly faced the problem of "debt-deflation"--the deflation-induced, ever-increasing real value of debts. Closer to home, massive financial problems, including defaults, bankruptcies, and bank failures, were endemic in America's worst encounter with deflation, in the years 1930-33--a period in which (as I mentioned) the U.S. price level fell about 10 percent per year.

Beyond its adverse effects in financial markets and on borrowers, the zero bound on the nominal interest rate raises another concern--the limitation that it places on conventional monetary policy. Under normal conditions, the Fed and most other central banks implement policy by setting a target for a short-term interest rate--the overnight federal funds rate in the United States--and enforcing that target by buying and selling securities in open capital markets. When the short-term interest rate hits zero, the central bank can no longer ease policy by lowering its usual interest-rate target.5

Because central banks conventionally conduct monetary policy by manipulating the short-term nominal interest rate, some observers have concluded that when that key rate stands at or near zero, the central bank has "run out of ammunition"--that is, it no longer has the power to expand aggregate demand and hence economic activity. It is true that once the policy rate has been driven down to zero, a central bank can no longer use its traditional means of stimulating aggregate demand and thus will be operating in less familiar territory. The central bank's inability to use its traditional methods may complicate the policymaking process and introduce uncertainty in the size and timing of the economy's response to policy actions. Hence I agree that the situation is one to be avoided if possible.

However, a principal message of my talk today is that a central bank whose accustomed policy rate has been forced down to zero has most definitely not run out of ammunition. As I will discuss, a central bank, either alone or in cooperation with other parts of the government, retains considerable power to expand aggregate demand and economic activity even when its accustomed policy rate is at zero. In the remainder of my talk, I will first discuss measures for preventing deflation--the preferable option if feasible. I will then turn to policy measures that the Fed and other government authorities can take if prevention efforts fail and deflation appears to be gaining a foothold in the economy.
 
Preventing Deflation
As I have already emphasized, deflation is generally the result of low and falling aggregate demand. The basic prescription for preventing deflation is therefore straightforward, at least in principle: Use monetary and fiscal policy as needed to support aggregate spending, in a manner as nearly consistent as possible with full utilization of economic resources and low and stable inflation. In other words, the best way to get out of trouble is not to get into it in the first place. Beyond this commonsense injunction, however, there are several measures that the Fed (or any central bank) can take to reduce the risk of falling into deflation.

First, the Fed should try to preserve a buffer zone for the inflation rate, that is, during normal times it should not try to push inflation down all the way to zero.6 Most central banks seem to understand the need for a buffer zone. For example, central banks with explicit inflation targets almost invariably set their target for inflation above zero, generally between 1 and 3 percent per year. Maintaining an inflation buffer zone reduces the risk that a large, unanticipated drop in aggregate demand will drive the economy far enough into deflationary territory to lower the nominal interest rate to zero. Of course, this benefit of having a buffer zone for inflation must be weighed against the costs associated with allowing a higher inflation rate in normal times.

Second, the Fed should take most seriously--as of course it does--its responsibility to ensure financial stability in the economy. Irving Fisher (1933) was perhaps the first economist to emphasize the potential connections between violent financial crises, which lead to "fire sales" of assets and falling asset prices, with general declines in aggregate demand and the price level. A healthy, well capitalized banking system and smoothly functioning capital markets are an important line of defense against deflationary shocks. The Fed should and does use its regulatory and supervisory powers to ensure that the financial system will remain resilient if financial conditions change rapidly. And at times of extreme threat to financial stability, the Federal Reserve stands ready to use the discount window and other tools to protect the financial system, as it did during the 1987 stock market crash and the September 11, 2001, terrorist attacks.

Third, as suggested by a number of studies, when inflation is already low and the fundamentals of the economy suddenly deteriorate, the central bank should act more preemptively and more aggressively than usual in cutting rates (Orphanides and Wieland, 2000; Reifschneider and Williams, 2000; Ahearne et al., 2002). By moving decisively and early, the Fed may be able to prevent the economy from slipping into deflation, with the special problems that entails.

As I have indicated, I believe that the combination of strong economic fundamentals and policymakers that are attentive to downside as well as upside risks to inflation make significant deflation in the United States in the foreseeable future quite unlikely. But suppose that, despite all precautions, deflation were to take hold in the U.S. economy and, moreover, that the Fed's policy instrument--the federal funds rate--were to fall to zero. What then? In the remainder of my talk I will discuss some possible options for stopping a deflation once it has gotten under way. I should emphasize that my comments on this topic are necessarily speculative, as the modern Federal Reserve has never faced this situation nor has it pre-committed itself formally to any specific course of action should deflation arise. Furthermore, the specific responses the Fed would undertake would presumably depend on a number of factors, including its assessment of the whole range of risks to the economy and any complementary policies being undertaken by other parts of the U.S. government.7

Curing Deflation
Let me start with some general observations about monetary policy at the zero bound, sweeping under the rug for the moment some technical and operational issues.

As I have mentioned, some observers have concluded that when the central bank's policy rate falls to zero--its practical minimum--monetary policy loses its ability to further stimulate aggregate demand and the economy. At a broad conceptual level, and in my view in practice as well, this conclusion is clearly mistaken. Indeed, under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.
 
The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
 
Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior).8 Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys. Alternatively, the Fed could find other ways of injecting money into the system--for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities.

Each method of adding money to the economy has advantages and drawbacks, both technical and economic. One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

So what then might the Fed do if its target interest rate, the overnight federal funds rate, fell to zero? One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure--that is, rates on government bonds of longer maturities.9

There are at least two ways of bringing down longer-term rates, which are complementary and could be employed separately or in combination. One approach, similar to an action taken in the past couple of years by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero for some specified period. Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time--if it were credible--would induce a decline in longer-term rates. A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.

Lower rates over the maturity spectrum of public and private securities should strengthen aggregate demand in the usual ways and thus help to end deflation. Of course, if operating in relatively short-dated Treasury debt proved insufficient, the Fed could also attempt to cap yields of Treasury securities at still longer maturities, say three to six years. Yet another option would be for the Fed to use its existing authority to operate in the markets for agency debt (for example, mortgage-backed securities issued by Ginnie Mae, the Government National Mortgage Association).

Historical experience tends to support the proposition that a sufficiently determined Fed can peg or cap Treasury bond prices and yields at other than the shortest maturities. The most striking episode of bond-price pegging occurred during the years before the Federal Reserve-Treasury Accord of 1951.10 Prior to that agreement, which freed the Fed from its responsibility to fix yields on government debt, the Fed maintained a ceiling of 2-1/2 percent on long-term Treasury bonds for nearly a decade. Moreover, it simultaneously established a ceiling on the twelve-month Treasury certificate of between 7/8 percent to 1-1/4 percent and, during the first half of that period, a rate of 3/8 percent on the 90-day Treasury bill. The Fed was able to achieve these low interest rates despite a level of outstanding government debt (relative to GDP) significantly greater than we have today, as well as inflation rates substantially more variable. At times, in order to enforce these low rates, the Fed had actually to purchase the bulk of outstanding 90-day bills. Interestingly, though, the Fed enforced the 2-1/2 percent ceiling on long-term bond yields for nearly a decade without ever holding a substantial share of long-maturity bonds outstanding.11 For example, the Fed held 7.0 percent of outstanding Treasury securities in 1945 and 9.2 percent in 1951 (the year of the Accord), almost entirely in the form of 90-day bills. For comparison, in 2001 the Fed held 9.7 percent of the stock of outstanding Treasury debt.

To repeat, I suspect that operating on rates on longer-term Treasuries would provide sufficient leverage for the Fed to achieve its goals in most plausible scenarios. If lowering yields on longer-dated Treasury securities proved insufficient to restart spending, however, the Fed might next consider attempting to influence directly the yields on privately issued securities. Unlike some central banks, and barring changes to current law, the Fed is relatively restricted in its ability to buy private securities directly.12 However, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window.13 Therefore a second policy option, complementary to operating in the markets for Treasury and agency debt, would be for the Fed to offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral.14 For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral. Pursued aggressively, such a program could significantly reduce liquidity and term premiums on the assets used as collateral. Reductions in these premiums would lower the cost of capital both to banks and the nonbank private sector, over and above the beneficial effect already conferred by lower interest rates on government securities.15

The Fed can inject money into the economy in still other ways. For example, the Fed has the authority to buy foreign government debt, as well as domestic government debt. Potentially, this class of assets offers huge scope for Fed operations, as the quantity of foreign assets eligible for purchase by the Fed is several times the stock of U.S. government debt.16

I need to tread carefully here. Because the economy is a complex and interconnected system, Fed purchases of the liabilities of foreign governments have the potential to affect a number of financial markets, including the market for foreign exchange. In the United States, the Department of the Treasury, not the Federal Reserve, is the lead agency for making international economic policy, including policy toward the dollar; and the Secretary of the Treasury has expressed the view that the determination of the value of the U.S. dollar should be left to free market forces. Moreover, since the United States is a large, relatively closed economy, manipulating the exchange value of the dollar would not be a particularly desirable way to fight domestic deflation, particularly given the range of other options available. Thus, I want to be absolutely clear that I am today neither forecasting nor recommending any attempt by U.S. policymakers to target the international value of the dollar.

Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation.

Fiscal Policy
Each of the policy options I have discussed so far involves the Fed's acting on its own. In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.18

Of course, in lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets. If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open-market operations in private assets.

Japan
The claim that deflation can be ended by sufficiently strong action has no doubt led you to wonder, if that is the case, why has Japan not ended its deflation? The Japanese situation is a complex one that I cannot fully discuss today. I will just make two brief, general points.

First, as you know, Japan's economy faces some significant barriers to growth besides deflation, including massive financial problems in the banking and corporate sectors and a large overhang of government debt. Plausibly, private-sector financial problems have muted the effects of the monetary policies that have been tried in Japan, even as the heavy overhang of government debt has made Japanese policymakers more reluctant to use aggressive fiscal policies (for evidence see, for example, Posen, 1998). Fortunately, the U.S. economy does not share these problems, at least not to anything like the same degree, suggesting that anti-deflationary monetary and fiscal policies would be more potent here than they have been in Japan.

Second, and more important, I believe that, when all is said and done, the failure to end deflation in Japan does not necessarily reflect any technical infeasibility of achieving that goal. Rather, it is a byproduct of a longstanding political debate about how best to address Japan's overall economic problems. As the Japanese certainly realize, both restoring banks and corporations to solvency and implementing significant structural change are necessary for Japan's long-run economic health. But in the short run, comprehensive economic reform will likely impose large costs on many, for example, in the form of unemployment or bankruptcy. As a natural result, politicians, economists, businesspeople, and the general public in Japan have sharply disagreed about competing proposals for reform. In the resulting political deadlock, strong policy actions are discouraged, and cooperation among policymakers is difficult to achieve.

In short, Japan's deflation problem is real and serious; but, in my view, political constraints, rather than a lack of policy instruments, explain why its deflation has persisted for as long as it has. Thus, I do not view the Japanese experience as evidence against the general conclusion that U.S. policymakers have the tools they need to prevent, and, if necessary, to cure a deflationary recession in the United States.

Conclusion
Sustained deflation can be highly destructive to a modern economy and should be strongly resisted. Fortunately, for the foreseeable future, the chances of a serious deflation in the United States appear remote indeed, in large part because of our economy's underlying strengths but also because of the determination of the Federal Reserve and other U.S. policymakers to act preemptively against deflationary pressures. Moreover, as I have discussed today, a variety of policy responses are available should deflation appear to be taking hold. Because some of these alternative policy tools are relatively less familiar, they may raise practical problems of implementation and of calibration of their likely economic effects. For this reason, as I have emphasized, prevention of deflation is preferable to cure. Nevertheless, I hope to have persuaded you that the Federal Reserve and other economic policymakers would be far from helpless in the face of deflation, even should the federal funds rate hit its zero bound.19

(See original link for references and footnotes. )