Why AI has a long way to go and totalitarianism is never total

Early in his film career Matthew Broderick got the actor's opportunity of a lifetime. He was cast in a movie with Marlon Brando and even had a scene in the film in which he would be exchanging lines with the great Brando. Broderick was so nervous when the time came to shoot the scene that the director felt compelled to give him a pep talk. He told him to gather his wits because Brando had a tendency to improvise his lines; he needed to be ready to improvise replies if the script didn't fit with what Brando said to him.

Came the momentous moment. With the camera rolling, Brando leaned toward Broderick, looked him straight in the eye, and said, "I can't understand a word you're saying. Are you eating a tuna fish sandwich?"

For the life of him Broderick couldn't think how to improvise a reply to what was gibberish to begin with, and which bore no relation to the script, story line, or Brando's character or his.

Only a very seasoned actor such as Dustin Hoffman, who told the Brando story on the Charlie Rose show earlier this year, would have had the wits and nerve to land a swing. Broderick wasn't seasoned or nervy. He was tongue tied. Then the pitcher took pity and threw the curve ball again:  Brando continued looking at him and slowly repeated: "I can't understand a word you're saying. Are you eating a tuna fish sandwich?"

Broderick couldn't even try to take a swing because he'd frozen.

Cut! Cut!

After the camera shut off Brando went to find the technician. It turned out that even though he was looking at Broderick while he spoke, Brando was talking to a technician offstage who was supposed to read Brando his lines, which Brando picked up through a hidden microphone in his ear. (Brando famously hated memorizing lines.) But the technician was chewing while he was reading the line meant for Broderick. Brando, knowing the technician's favorite lunch food, asked if he was eating a tuna fish sandwich.

Now there are many ways of looking at this story. Maybe it was Brando's way of telling the technician, 'Don't mind us, it's only costing the company $10,000 a minute while you chew in my ear.'

But I would file the story under "Saving Grace." I figure we can count on one thing in this uncertain world.  When it comes time to activate the Final Hour there will be some fool at the controls taking an unauthorized lunch break. World without end.

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When charitable money talks nobody walks

"The United States ranks No. 1 in the Charities Aid Foundation's most recent World Giving Index, with proportionally more Americans giving than the population of any other country.  [Cardinal] Dolan said that the pope has expressed gratitude for American philanthropy."

Regarding this passage in yesterday's post (God and Caesar and Americans) that pertained to supposedly anti-capitalist or pro-socialist comments made by Pope Francis:

"I haven't studied any of Pope Francis' statements but if he's lost the thread of Jesus' teachings, it would be necessary for Catholic religious scholars and the order of the religious preceptors he leads to point this out to him; if not, he should be prepared to defend his interpretations of the teachings."

This brought forth a comment that the Pope had indeed made specific remarks about economics that were clearly anti-capitalist and which specifically related to the 'trickle down' economic theory, and that this was what the uproar was about in the media.

Well these things have a way of ironing themselves out, particularly when seven figure donations to the Archdiocese of New York are involved. Hours after I published the post CNBC published the following report. It turns out that much of the Pope's criticism of the rich is simply a misunderstanding, and that once again in recent days a translator is in trouble. To repeat myself: if the Pope has lost the thread, it would be up to religious scholars and the order of the religious preceptors he leads to point this out to him.

Before I turn over the floor to Michelle Caruso-Cabrera, another comment about yesterday's post was that "Some would argue this was God's work." The commenter didn't elaborate, but if the reference is to my remarks about Christianity's rise: to say it's God plan -- it's only human to want to know some of the operational details of the plan. That is the great contribution of the PBS series on the early Christians that I highlighted in yesterday's post.
Pope's sharp words make a wealthy donor hesitate
Published: Monday, 30 Dec 2013 - 7:07 PM ET
By: Michelle Caruso-Cabrera, CNBC Chief International Correspondent

CNBC's Michelle Caruso-Cabrera talks to Cardinal Timothy Dolan about concerns following the pope's recent comments.

Pope Francis' critical comments about the wealthy and capitalism have at least one wealthy capitalist benefactor hesitant about giving financial support to one of the church's major fundraising projects.

At issue is an effort to raise $180 million for the restoration of St. Patrick's Cathedral in New York being spearheaded by billionaire Ken Langone, the investor known for founding Home Depot, among other things.
Langone told CNBC that one potential seven-figure donor is concerned about statements from the pope criticizing market economies as "exclusionary," urging the rich to give more to the poor and criticizing a "culture of prosperity" that leads some to become "incapable of feeling compassion for the poor."

Langone said he's raised the issue more than once with Cardinal Timothy Dolan, archbishop of New York, most recently at a breakfast in early December at which he updated him on fundraising progress.

"I've told the cardinal, 'Your Eminence, this is one more hurdle I hope we don't have to deal with. You want to be careful about generalities. Rich people in one country don't act the same as rich people in another country,' " he said.

Some of the statements in question are from Francis' first teaching, or "exhortation," a 224-page document issued in late November. In it, the pontiff criticizes what he calls "an economy of exclusion and inequality," blaming ideologies that "defend the absolute autonomy of the marketplace and financial speculation."

Dolan told CNBC that he had heard from Langone and said, " 'Well, Ken, that would be a misunderstanding of the Holy Father's message. The pope loves poor people. He also loves rich people.' ... So I said, 'Ken, thanks for bringing it to my attention. We've gotta correct to make sure this gentleman understands the Holy Father's message properly.' And then I think he's gonna say, 'Oh, OK. If that's the case, count me in for St. Patrick's Cathedral.' "

Neither Langone or Dolan revealed the name of the potential donor. The cardinal said he didn't know the person's identity, and Langone declined to name him, saying only that the individual was upset about the pope's comments about the rich being insensitive to the poor.

In a speech in Brazil in July, Francis appealed "to those in possession of greater resources," saying that they should "never tire of working for a more just world, marked by greater solidarity. No one can remain insensitive to the inequalities that persist in the world."

It was unclear when Dolan may speak with the individual donor.

Langone, who describes himself as a devout Catholic who prays every morning, said he has told the cardinal that "you get more with honey than with vinegar." He said he also wants to make clear that wealthy Americans are some of the biggest donors in the world.

"There is no nation on earth that is so forthcoming, so giving," he said, adding that he hopes the pope can "celebrate a positive point of view rather than focusing on the negative."

The United States ranks No. 1 in the Charities Aid Foundation's most recent World Giving Index, with proportionally more Americans giving than the population of any other country.

Dolan said that the pope has expressed gratitude for American philanthropy.

"In the one long sit-down that I had with him, the Holy Father told me that he has a lot of gratitude for the generosity of the Catholic Church in the United States. He's aware of our help to the missions, to the poor of the world, to international development, to peace and ... justice," he said. "So, I know that he's very grateful for the ... legendary generosity of the Catholic Church in the United States."

Langone said he is also on a campaign to explain "the vast difference between the pope's experience in Argentina and how we are in America."

Francis is from Argentina, a country that suffered tremendous economic upheaval in early 2001 in what was then the largest sovereign default in history. Poverty rates skyrocketed overnight when the country refused assistance from the International Monetary Fund.

Arthur Brooks, head of the American Enterprise Institute, a think tank that promotes free markets, said he agrees that the pope's beliefs are likely informed by his Argentine heritage.

"In places like Argentina, what they call free enterprise is a combination of socialism and crony capitalism," he said.

Brooks, also a practicing Catholic who has read the pope's exhortation in its original Spanish, said that "taken as a whole, the exhortation is good and right and beautiful. But it's limited in its understanding of economics from the American context."

He noted that Francis "is not an economist and not an American."

END REPORT

God and Caesar and Americans

"Render unto Caesar the things that are Caesar's, and unto God the things that are God's."
-- Jesus Christ

Last year around this time I watched the final two episodes of a groundbreaking six-part series made for PBS (U.S. public broadcast television) titled God in America, first aired in October 2010. A co-production of FRONTLINE -- famous for its investigative reports -- and the PBS American history show, "American Experience," the production combines "documentary footage, historical dramatization, and interviews with religious historians" to trace the impact of religion on American public life over a period of four centuries -- from the days of the Puritans to the 2008 presidential campaign.

Even though the episodes I saw ("Soul of a Nation" and "Of God and Caesar") deal with events in my lifetime, I was surprised by how much I learned from them. What rose to the top for me was that for a segment of American Christians it was their interpretation of Jesus' teachings, not socialism or an antiwar political agenda, which informed their backlash against socially conservative American Christians who'd been drawn into politics during the Reagan era. Yet the theological basis for their argument with these newly politicized Christian conservatives wasn't evident from the daily news and policy debates in Congress. Instead, the debate was cast by the media as Liberal Democrats vs. right-wing Christians.

After seeing the two episodes of God in America I realized there was a simple explanation for this: modern America's obsessively secular public life suppressed disputes among Americans that are based in theology. While a political Liberal could cite his faith for support of say, civil rights legislation and a political Conservative could cite the same for his opposition to abortion, it was off limits in the public forum to dispute or even question the theological assumptions informing the political stances.

One result is that much of what is actually in the province of religion was loaded onto politics. This greatly overburdened and distorted the American political system with issues that are best hashed out in theological debates. Yet these debates can't take place in American public forums so as not to offend any American's religious sensibilities!

Another result is that the White House has been put in an ungainly position, in the manner of Caesars sermonizing on the fine points of Christian doctrine to explain a tax. (This might help explain why the last U.S. President who wasn't called a hypocrite by a great many Americans was Truman.)

The story of the Roman emperor Constantine, who probably persecuted more Christians than all his pagan predecessors combined while imposing on Roman subjects his idea of proper Christianity, is ample evidence that the state should stay out of religious matters. I venture this was one of Jesus' points when he said to render unto God that which is God's.

Can the situation get any more ironic? On the one hand Americans won't debate religion with each other in the public forum; on the other hand they never tire of saying that there must be a division between church and state. But once religious matters are placed on the shoulders of the state, there is no way to maintain a separation of church and state -- much less a separation of church and taxation.

And so the rationale for suppressing theological disagreements in American public forums -- to ward against intolerance -- has in practice imbued American politics with such intolerance that today, as pollsters and media pundits never tire of telling us, the United States is a bitterly divided nation!

What is the solution to this problem? A part of the solution is education -- a point made by Stephen Prothero, professor of religion at Boston University, author of Religious Literacy: What Every American Needs to Know -- And Doesn’t, and chief editorial consultant for the God in America series:

Americans are awash in a sea of faith, but their knowledge about religious faiths and religious history often runs as shallow as their commitment to religion runs deep. A series like God in America can help correct that imbalance and provide the basis for a common understanding of the role religion has played in American public life.

Of course Americans are not the only peoples whose knowledge of their nation's religious history is sparse. We could all do with a great deal more education in that regard. However, learning about a religion is not the same as debating about it. Even for the experts, debating theological matters is sort of like bouncing around at the end of a slender branch above a pit of quicksand. And so historically Americans have intelligently left this perilous exercise mostly to scholars and religious leaders.

Yet in this era of hyperlinked online encyclopedias, a reasonably intelligent and literate layperson can with determination cram in a matter of hours on a subject that earlier would have taken divinity students months if not years of mucking around with the Dewey Decimal System to learn well enough to debate. So it's now within reach of many to have their cake and eat it too: stay within the bounds of religious tolerance while questioning interpretations of religious doctrine.

This said, how much religious literacy does it require to spot a lopsided argument and debate it on that level? Take, for instance, the criticism leveled by an evangelical Christian who reviewed a PBS series on the early Christians. "Beware," cautioned the reviewer, of the "seductive but dangerously inaccurate" film series

... The series was developed by a producer who appears to enjoy using his position to promote left-wing, liberal beliefs. ... It is worthy of note that no evangelical scholars were used in the series. Rather, the emphasis was on people from such liberal institutions as Harvard, Yale, Princeton, Duke, Brown, Union, etc. ...

Let me see if I understand this correctly: is the reviewer implying that Christian evangelical scholarship equates with politics?

Yet this kind of lopsided argument is reaching troubling proportions in the United States. I'm not going to dig up links but one doesn't have to look far on a search engine to find discussions that either approvingly or disapprovingly tag Pope Francis as a socialist or anti-capitalist. Yet what does this have to do with Catholic theology?

I haven't studied any of Pope Francis' statements but if he's lost the thread of Jesus' teachings, it would be necessary for Catholic religious scholars and the order of the religious preceptors he leads to point this out to him; if not, he should be prepared to defend his interpretations of the teachings. What a Pope shouldn't have to do is answer lopsided arguments in kind.

There is another term for lopsided argument; it's called pseudo logic. But that's why God invented the syllogism. Pseudo logic depends on getting the hearer to accept contradictory or specious statements. It is child's play for anyone with a reasonable mastery of syllogistic reasoning to point out the contradictions or their inappropriateness to the discussion at hand. Oh but wait I forgot! American public education doesn't teach children syllogistic reasoning.

That, I submit, is the larger part of the problem, and the solution, of Caesar playing God in America.

For those who would say that religion has always been politicized: there is no way to read politics into the teachings of Siddhartha Gautama -- the Buddha -- or Jesus. Both men established paths to liberation from existential suffering: in the case of Siddhartha, a path of pure technique; in the case of Jesus a devotional path based on faith in the compassionate aspect of God.

While they were working from different metaphysics and thus had different concepts of hell, both teachers saw existential suffering as impossible to avoid by trying to make the furniture in hell more comfy. Because of this, neither teacher saw an improved social order or better government as the means to liberation from a situation they considered hellish.

Jesus, to make sure there was no misunderstanding on this point, told Pontius Pilate, the Governor of Judea, "My kingdom is not of this world."

That the paths created by Siddhartha and Jesus did become politicized after many people adopted those paths, that the body of doctrines that sprouted along the paths became state-backed religions, is not saying that the paths are political. It's saying only that human nature and the governments it evolves are political. So to argue that religion has always been politicized -- it depends on what is meant by religion.

Finally, last December I also watched the entire PBS series that the Christian reviewer criticized. The reviewer didn't mention that the work of the scholars to reconstruct the history of the early Christians was admittedly speculative in parts. The speculation takes nothing away from their historic collaboration for public television and its importance. As with God in America, the series is an important contribution to an understanding of Christianity's impact on history, although it's no more free of controversy than the New Testament itself.

The four-hour series, produced by FRONTLINE, first aired in April 1998 and is titled From Jesus to Christ: The Early Christians.

The series was created in the attempt to explain how a small, renegade Jewish sect in the far reaches of the Roman Empire came to rule the empire in what was the most unlikely triumph of ideas in history. The four hours fly by as historians, archeologists, and Biblical scholars -- 12 in all -- and FRONTLINE's investigative reporting-oriented production team working with video of the lands of Judaism and models and paintings of ancient Rome, barrel into the journey of Jesus' teachings from Judea to Rome. After a very short teaching mission Jesus left his disciples to stumble forward with his teachings. What one learns from Jesus to Christ is that they stumbled well.

The series can be viewed for free in its entirety on the PBS website, as can the God in America series. No matter what your religious faith or lack thereof, I think you owe it to yourself to watch both productions if you want a basic understanding of how Christianity arose from the teachings of Jesus, and how the religion influenced the United States of America. Of course both series should be considered a starting point, not the final word on either topic.

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What comes around goes around: Collectivism: deeply embedded in American economic development backed by government

Those who read the 'Tofu and Police State' post know I went to some effort to clearly distinguish my use of the term "economic collectivism" from the general understanding of collectivism and its best known historical usage. If the effort seems like overkill I'll ask you to read Collectivism: Deeply Embedded In "Economic Development" by Cheryl Pass at Freedom Outpost, published in September 2012.

It's very easy to mistake the kind of economic collectivism I'm talking about for the topic of the essay, even though the topic is important and also significant to my own discussion. Here's an excerpt from essay. See the website for the photograph of the dilapidated Firestone /Loray Mill:

[...] Our taxes are committed to saving the Firestone / Loray Mill, whether we wanted to or not. If this were just one instance, it might be viewed as an anomaly, but it isn't. Every town in America now has an "Economic Development" office that is a quasi-government agency combined with private sector interests. Our city and county have committed our taxes to many of these "Economic Development" schemes. We have bought land and given it away. We have spent money on site preparation. We have forgiven taxes. We have given utility credits. We have guaranteed loans.

In short, we in the private sector are forced to prop up certain chosen business ventures collectively. Just like Solyndra at the Federal level, this situation is occurring every day all over the country.

We are on the hook. All of us. While we get poorer, the chosen few run away laughing all the way to the bank. Our bank. Taking our money. And politicians just keep doing this, over and over again at all levels of government. I can label this as Fascism or Communism. Either way, it isn't the American way of life as I know it is supposed to be. It is tragic, frankly.

So how collectivist are we today? Deeply embedded. Somehow government has given itself permission to steal from all, to favor the few. Who are these people? They have convinced themselves collectivism is O.K., as long as it is for "Economic Development."
[...]

I hope you'll read the entire essay; I found it very moving because she's just trying to explain what happened to her, to her town. I came across the essay while I was mining the internet in search of the general understanding of the term "collectivism."

But I'll tell you my first reaction to Cheryl's story. It was the same reaction I had to the news that ordinary working Cypriots, suddenly and with no warning, found their savings deposits had been frozen by their government at the direction of the Troika, which includes the International Monetary Fund.

I blurted, "How does it feel?"

You see, what was done to Cheryl Pass and the other sensible people in her town, what was done to the Cypriots, is simply the kind of one size fits all prescription that has long been inflicted by the World Bank and the International Monetary Fund on the world's downtrodden in the name of economic development. So what Cheryl talked about is also what's known as the chickens come home to roost.

Americans and West Europeans helped fund the World Bank and IMF for generations, yet what happened to the funding, how it was it used, didn't affect the funders because the economic prescriptions weren't applied to their own countries. They were applied to 'underdeveloped' countries. Then, a historic recession happened, one that converged with a vastly changed world. So now Americans and West Europeans must be treated as if they're underdeveloped peoples in order to save their economies.

Yes of course it was always done with the best of intentions, but you know what they say about the road to Hell. So when Cheryl observes that the situation she described isn't the American Way as she knows it, she's inadvertently speaking the literal truth. Actually it is the American Way, it's been the American Way for more than a half century; it's just that until recently few Americans were aware of exactly what that way entails -- not until it was imposed on them.

However, I too am an American, born and raised, so in March I didn't engage in schadenfreude after I listened to Zen Master Larry Summers convey the bottom line for Americans in the wake of the Troika's Cypriot Solution.

But walking back from where we are now will require Americans understanding the kind of thinking that's supported the reign of economists since the Great Depression and the Mandarins of the Future, as author Nils Gilman termed the U.S. government's economic initiative to save Third World peoples from the Soviet threat by modernizing them.

To return to Cheryl Pass, in one respect I think she's wrong. As I've pointed out in the 'Economic Collective' posts, the thinking that supports the economic developers isn't communist or fascist even though it can inform both types of government. It can inform any type of political or economic stance because it's rooted in over-application of statistical reasoning.

And so in my view the great irony is that the self-termed capitalists who've backed indiscriminate applications of modernization theory have done more to give capitalism a bad name than all the communists combined. Before these people are capitalist they are economic collectivists. Yet because they can't think outside the paradigm they don't get it, even when you shout in the effort to explain that the economy doesn't actually exist, any more than the statistical person exists, except as a concept.

Because they can't be shaken from their spell, they can't see the difference between a cause and an effect. To explain the import of this mental blindness:

1. Economics is called a science, a social science. Science asks, 'How did X phenomenon occur?'

2. Once scientific observations about the economic behavior of groups is applied; i.e., used with the intention to create a desired economic effect, this risks confusing observed effects with a path for achieving desired effects.

3. Once the risk is institutionalized at the level of government and backed by the guns of the state, then is when you can see horrors. Real horrors. Not conceptual ones.

As to whether there's any way to stop the madness -- I would guess that there has to be a revolution in economics, which became reliant, obsessively so, on mathematics during the post World War Two era. The Austrian School doesn't rely so much on math, but the mainstream economists do, unless you want to argue they've all been co-opted by the Keynesians, who do rely on math.

Beyond that, governments need to be pried from their obsession with acting Scientifical -- before they Scientificalize humanity back to the Dark Ages.

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Squeak and Awe

May 3, 2013

MICHAEL WRIGHT: What's this about the European Central Bank charging a negative interest rate on bank deposits?

PUNDITA: Squeak and Awe.

MICHAEL: [laughing] Squeak and Awe?

PUNDITA: That was the snap analysis from a British reporter for CNBC. God bless British wit. It turned out he nailed it; the next day someone from the European Central Bank said that the talk about a negative interest rate at the Bratislava conference was just tossing around ideas, thinking aloud.

MICHAEL: Thinking aloud in front of a public microphone. The euro fell against the dollar on [ECB President Mario Draghi's] talk about a negative interest rate.

PUNDITA: It rebounded once currency traders deciphered Draghi's statements.

MICHAEL: What was his point? Was it a shot across the Federal Reserve's bow? Are we looking at a currency war?

PUNDITA: There are two different types of interest rates in play here. The ECB did make another cut in the interest it charges banks to borrow money from it. Maybe this cut was in part a reaction to the Fed's continued quantitative easing. But Draghi's talk about a negative interest rate relates to the interest the European Union's central bank pays to Eurozone banks that stash a big chunk of their money at the ECB. The interest the ECB currently pays is already at zero percent.

The zero rate is due to pressure on the central bank from Eurozone governments. They don't want the ECB encouraging Eurozone banks to sit on mountains of money; they want them lending the money to businesses to help kickstart the Eurozone economies. This is on the theory that with rapid business expansion will come rapid hiring of many people. This on the theory that with more people employed they'll spend more on making purchases, which will fatten the starving revenues from the Value Added Tax.

MICHAEL: I know there's high unemployment across the Eurozone.

PUNDITA: Yes. It's about 17 percent, and in some Eurozone nations it's much higher than the overall figure. If I recall the unemployment rate in Spain is around 50 percent. So the governments want these unemployed people off the dole and into stores to buy stuff.

All this depends on making the banking system the tip of the spear in EU recession-era fiscal policy. The position of Europe's bankers is, 'Hey! We're not employment agencies.' So their response to the zero interest rate has been to stick their fingers in their ears and chant, 'Lalalalalala we're not listening.'

Draghi's rumination in front of an open mike about a negative interest rate, which works out to a penalty fee, was his way of saying 'Read my lips.'

To show how shocked and awed Europe's bankers were by the threat, another idea to come from the Bratislava confab is that the ECB will directly extend credit to small and medium-size businesses. This is an acknowledgment that if a zero interest rate doesn't scare bankers into putting on a suicide vest, a penalty fee on top of that isn't going to turn them into martyrs either.

However, there are actually a few teeth in Draghi's Squeak and Awe moment. The ECB is saying to the bankers, 'If you won't lend to the little guy, we'll lend out the money you stashed with us. This means we'll collect the interest on the loans, not you. On top of this we just might charge you a fee for lending out your stash.'

MICHAEL: Where are the teeth in this?

PUNDITA: The implication is if the European Union's central bank has to act like a neighborhood lender, what does it need neighborhood banks for? The real threat is always the unspoken one.

MICHAEL: What's the real threat? That they'll nationalize all the banks?

PUNDITA: Many of Europe's banks are already nationalized, or at least partly supported by taxpayers. But these nationalizations are local to each sovereign government in the Eurozone. The real threat, the unspoken one, is that the banking system of each Eurozone country will be put under the control of the European Parliament, with the monetary policy for the entire Eurozone controlled by just one central bank -- the ECB.

MICHAEL: Rahm Emanuel's dictum. Never let a crisis go to waste. Is the fear that they're using the banking system as a backdoor way to force Eurozone nations into a United States of Europe?

PUNDITA: Well if there are sovereign governments that're afraid of this, it's a little late in the day for the fear to manifest. If the friendly neighborhood heroin dealer is handing out free samples, people should realize this isn't going to work out to their benefit. In the same manner, the GIPS governments got into the habit of turning to the ECB for cheap loans after they spent themselves into an impossible load of debt. So they should have seen the Cyprus solution coming a mile away. The solution being that when a government claims it has no collateral whatsoever to put up for another loan, the ECB asks, 'What about the pension funds?'

However, that's the view of EU Skeptics and those who believe in Them. Them being a SMERSH-like organization of fabulously wealthy evil geniuses who're plotting to take over the world. The other side of the story is Benjamin Franklin's advice to American revolutionaries during the war against the British crown: If we don't hang together we'll surely hang separately. Even many Europeans who hate the ECB and the EU Commission support a united Europe on that very same argument. It's just that forging sovereign nations into a single nation is a messy and unpleasant process -- one that can crash governments and lead to much violence.

MICHAEL: I'm with the bankers on this one. European business can't expand into weak consumer demand. It's the same problem we have in the U.S.

PUNDITA: Apple computer's bond offering is to buy up more of their stock, supposedly ahead of returning a big chunk of the cash they're sitting on to their shareholders. That's great for shareholders and especially for funds that have a large position in Apple shares. But this is Apple's way of saying that they're not going to throw their mountain of cash into business expansion because there's not enough consumer demand to expand into, not anywhere on the horizon. Same problem in Europe. Same in China. Same everywhere. And what consumer demand exists is in exports, which run into the stiff headwind of protectionism and the locals doing their own versions of the imported good and services.

MICHAEL: Isn't the Federal Reserve's quantitative easing supposed to solve the problems of slow business growth and weak consumer demand?

PUNDITA: No. It's to export U.S. debt and flush scared money out of bank deposits and into the investment markets and from there into purchases of big-ticket consumer goods and houses. QE is an effort to appease the Ghost of 1929.

MICHAEL: It looks to me as if all it's done is set up currency wars between central banks. Every major central bank is slashing the interest it charges to lend to its banks. What's this doing, besides cheapening every nation's currency? QE isn't encouraging business expansion. It's not putting people back to work. The better than expected [U.S.] job figures released today are a joke when you drill down into the numbers. The spike in the stock market today was just relief that the unemployment figure was not as bad as everyone feared.

All I'm seeing is, you cut your interest rate by so many points, I'll cut mine. Where's this leading? You talk about the Ghost of 1929. Maybe governments are so focused on the ghost they're not seeing the Ghost of 1939 gaining on them.

PUNDITA: Well, I don't think we have immediate worries on that score, not unless Europe and Asia can materialize big blue water navies out of thin air. The problem with doing this is that a big blue water navy costs big money, and it so happens that quantitative easing is meant to flood the banking system with cheap money, not the 'real' economy -- the one that builds blue water navies.

If you want to build a real ship you have to do it with real raw materials that are mined and shipped by companies which have employees who can't pay their bills with quantitative easing. They want to be paid in real money.

MICHAEL: The companies also want to be paid in real money. They aren't going to take on big debt to build those ships; not on the deal that if they build the ships government promises to raise enough in taxes during a recession to buy them.

PUNDITA: Right! [laughing] There's a certain circularity in this situation. The Federal Reserve doesn't actually print money to finance government debt. It creates money -- actually, "near money" -- when it buys government bonds. It does this when the amount of the purchase is recorded in electronic ciphers. Bing! So many more millions of dollars appear on the computer screen.

The Fed does the same thing every time it lends to banks within the Fed's banking system. Same happens when the banks lend money to each other to keep their rate of lending in line with fractional reserve banking regulations. Each loan and repayment creates more near money, which expands the money supply within the banking system. But at the very end of this process of near money creation is a person who can't take the Federal Reserve with him every time he wants to buy school clothes for his kids.

MICHAEL: The individual is expected to act like a government only up until the point where he can't pay his bills.

PUNDITA: That's it. He can't take the pile of school clothes to the checkout counter at Target and tell the clerk, 'Let's do our part to prevent another Great Depression. I don't have the money to pay you. But for the sake of liquidity, you take my handshake as assurance that if you simply ring up the amount of this merchandise and I walk out of the store with it, you'll be keeping the velocity of money going.'

MICHAEL: The clerk will call for the security guards. But nobody's going to put the Fed in jail for shoplifting.

PUNDITA: Yes, well, it's not considered shoplifting when governments and a nation's central banks do it. Any rate, I don't see another world war looming. Right now the Ghost of 1929 rules -- fear of the ghost.

The Ghost

As to a currency war, maybe the ECB's latest bout of QE was partly in reaction to the Fed's May Day announcement that their cheap cost of lending to US banks will get even cheaper or maybe it will get expensive, circumstances warranting.

Now what would these circumstances be? In March, Ben Bernanke pulled a magic number of the air: QE would ease up if the U.S. unemployment number fell below 6.5 percent -- or 6.6 percent; I don't recall -- and stayed below that number for a few months. On May Day -- two days before the latest jobs number was released to the public -- the wording of the announcement was a little different. It boiled down to saying that QE will increase or decrease depending on circumstances that only The Shadow knows.

So until The Shadow speaks, the Fed will continue to pump 85 billion dollars every month into the U.S. banking system. And if other central banks have to keep up by continuing to slash the interest they charge to lend to their own banks, that's their problem. India's central bank is already complaining that it's cut the lending rate so many times it's running out of room to cut.

MICHAEL: This is insanity.

PUNDITA: It's antiquated monetary and economic theories running headlong into the era of mega populations, mega global trade, and floating currency exchange rates. A standard economic theory is that it's possible for a nation to export its way out of a recession. On paper that works, but only when it's just one country or one small world region that's creating the flood of exports and driving down the cost of its currency to make its exports very attractive to foreign buyers. The theory falls apart when currencies float against each other in worth, as they have since 1973, and when much of the world is trying to export its way out of recession, as it is now.

The upshot is not so much a currency war as a chain reaction.

MICHAEL: If they can see this, if they know these old policies don't work today, why do they keep using them?

PUNDITA: Why did high priests keep throwing virgins off a cliff when it was obvious that this was no longer producing a bumper harvest? I once wrote an essay for my blog on this topic. The answer is, 'How do you know that if you stop throwing virgins off a cliff, this won't make the weather gods even angrier?'

Same argument applies when it comes to defending fiscal and monetary policies that were originally designed to ward off a replay of the Great Depression. Have we had another collapse of the banking system since the 1930s? No. If you tell them, 'Yeah but we had a collapse of the shadow banking system in 2007,' they'll tell you, 'That's not the banking system.'

You can't get there from here, Michael. The road is littered with sacred cows -- talismans to ward off the Ghost of 1929.

MICHAEL: Okay, so what are we waiting for? A modern day version of the Conquistadors? A gang of trillionaires with AR-15s to come along and say it's nuts to throw virgins off cliffs?

PUNDITA: [laughing] Listen, I got up at 4 in the morning to watch the news from Europe. I need chocolate and caffeine.

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THX 1138 Society

I can't remember the exact month in 2012 when this conversation with Michael Wright took place but I'd guess it was around July-August. At the time I was blowing off steam, saying I was going to quit the USA for good.
*******

MICHAEL: Why don't you just stock up on guns and MREs? This way, if the worst case doesn't materialize you'll have saved yourself the hassle of relocating to another country.

PUNDITA: It's not going to happen that way, if you're visualizing a society descending into anarchy. The Department of Homeland Security is going to make sure of that. Washington, DC ain't Cairo. Metro is already preparing to install eyes in the sky on every subway car in the Washington, DC system -- and not just one per car. A local reporter asked some people on the street what they thought about putting cameras in subway cars. They thought it was a great idea. The buses will be next. We have the Black Bloc and other professional mayhem makers to thank for that. Law enforcement has gotten very efficient at containing mass violence, and they're getting more efficient by the day.

MICHAEL: I think you said at the time that the CCTVs blanketing London weren't any help in stopping the [2011] riots there. And you told me there were so many rioters the justice system was overwhelmed when they finally did catch people through the camera system. Most of them were never arrested, few of the cases the police could make went to trial.

PUNDITA: Scotland Yard was sucker punched. I'd like to see the rioters try a second time. Law enforcement is a fast learner these days because of the terrorism angle. Of course there are cities like Oakland where the mayor sees rioters as exercising their constitutional rights, but those are in a tiny minority. We might see a few hot spots, but there will never again be another Rodney King Riots in the USA, or even the widespread looting that happened in Manhattan during the second blackout there.

MICHAEL: What about the looting in New Orleans when Katrina struck?

PUNDITA: Again, law enforcement is a fast learner. The last time the city was emptied ahead of a hurricane there wasn't a replay of 2005; the mayor put the city on lockdown. Bloomberg put New York City on lockdown ahead of Superstorm Sandy. He did the same for the last hurricane that threatened the city.

We're not heading into a "Mad Max" future. We're heading to THX 1138.

Workers at Google and several other big U.S. companies are happy with benefits like health club, child care, grocery delivery, and maid and laundry service and a bunch of other perks in lieu of hefty pay raises.
Safety. Security. Convenience. The company insuring that its employees can live above their means. What more could one ask of a rule of the people?

As for the drugs aspect of THX 1138, it just hasn't been melded yet into the workforce system except in a roundabout fashion. If an employee exhibits behavior that clearly interferes with his work or with coworkers, it can be cheaper to recommend in a nice way that he see a psychologist if he wants to keep his job. The psychologist sends him to a psychiatrist, where he learns that he needs antidepressant or anti-anxiety medication or both and maybe anti-psychotic medication as well and toss in sleeping pills -- and often the psychologist step can be skipped.

As for the nasty police robots in THX 1138, that won't be necessary once Americans have graduated from the U.S. college system as it's evolving. You get 'em used to the good life young. Free health clubs, free beauty spas, free gourmet coffee -- well, not exactly free, but part of the college education that an applicant's student loan pays for.

MICHAEL: The coal mining company store, updated.

PUNDITA: Yes; someone should dust off that old song. How did it go? "I owe my soul to the company store?"

MICHAEL: It's called Sixteen Tons. It wasn't just the company store. The coal miners weren't paid in money; they were paid in chits, scrip, for everything, including housing. They couldn't save any money. The coal town stores jacked up the prices, so the miners were always in debt, borrowing against their next pay period. It was indentured servitude. I know you don't like labor unions but the unions put a stop to that.

PUNDITA: Then what happened? The pension fund. Then there was still no need to save. So transfer your revolving debt from the company store to Penny's and Sears.  This wasn't only the union funds.  The big white collar employers set up pension funds they paid for.  No need to save; you go get yourself up to your eyeballs in debt and we'll look after you in your old age. 

MICHAEL: It was a big step up from debt bondage.

PUNDITA: Really? How long did the pension system last before it crashed? A quarter century? You don't see the sleight of hand? The cage keeps getting prettier but it's still the same cage. Then Americans ask, 'What's happening to our freedom?' What do you need freedom for, if the company provides your dog with free pedicures?

MICHAEL: Man, someone had too much prune juice for breakfast.

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A Brief Look Back

I wrote this post in August or September of 2012.

Most of the deaths from climbing K2 to the summit occur when the climbers descend because they're so exhausted by the climb up that they easily lose their footing on the way down.

In Afghanistan, in 2009, the newly installed Obama administration and the U.S. defense establishment climbed a mountain called the 2008 Financial Meltdown. Despite the fierce recession, saved only by a few percentage points from being an economic depression, the administration backed a wildly expensive nation building/ counterinsurgency effort that extended to Pakistan.

If you want to extract lessons from the experience you're welcome to try, but mountains don't care whether you learn or not.

The bottom line for the Afghan War is that the U.S. government didn't learn its lesson from the Vietnam War. That's because it had an out called U.S. dollar hegemony. Back then, when it looked as if the U.S. dollar was going to crash, the West European governments panicked. They were afraid the Nixon administration's continuation of the war was going to bring the entire international financial system crashing down. In response to the panic, which included repatriation of gold holdings, Nixon ordered the Federal Reserve to shut the gold window.

The act ended the Bretton Woods Agreement of 1945 and the system of fixed exchange rates, which had been teetering on the edge of collapse since 1968. What replaced the agreement was floating exchange rates.

The new international monetary system lurched along with liberal applications of duct tape and Crazy Glue applied by quick-witted currency traders working for the major international oil companies. But the U.S. banking system, the canary in the coal mine, began experiencing a series of crises, one crisis feeding off the next. These were patched over with reams of red tape representing increasingly crippling regulations.

Desperate to survive, the American banks became big players in very risky and exotic investment schemes -- massive junk bond trades and the burgeoning derivatives markets;  many of these investments were nothing more than spins of a roulette wheel.

Meanwhile, the international monetary system that had replaced Bretton Woods was crumbling under the weight of the fully globalized era of trade. What had started out post-Bretton Woods as a few major currencies confined to the USA and the "core" West European countries had morphed into a veritable bazaar of currency markets that included "emerging" economies. The launch of the euro, meant to keep international order through consolidation, only added to the melee.

By the turn of the century, the big ticket currency traders here and abroad, following in the path of the bankers here (and by then, abroad), were engaging in increasingly risky plays in order to balance their daily book. This had brought the currency speculators out in force. This time the normal ploys used by central banks to quash the speculators and harry the banks into line weren't working. There were now too many gates to cover, too many players. A vast globe-spanning "shadow" banking system had sprung up, impossible to monitor let alone regulate, and this system was feeding on the go-go derivatives markets and wild currency carry trades -- buying low in one currency and dumping the currency into a runup in its price.

Then one day it all came crashing down. Western Europe, the core of the Eurozone and European Union, took the full brunt of the crash. Germany, which had been carrying the European Union, was especially hard hit. Beside themselves with fury, the leaders of France and Germany wanted blood. I think if they could have attacked the United State militarily, they would have, they were that angry. I suspect it was the nimble British government, with its 'special' relationship with Washington, which proposed a more realistic stopgap measure.

In any case the massive U.S. bailout program called TARP quietly funneled, by circuitous routes, billions in U.S. taxpayer monies to busted European financial firms.

TARP wasn't enough to mollify the French and German governments. They wanted a complete, total, absolute, totalitarian, international regulatory regime extending to every African and Himalayan village and the next galaxy as well, so that never, ever, ever again would a crash in the U.S. financial markets touch off a catastrophe in Europe.

That was the situation Barack Obama was handed on his first day as the President of the United States of America. So you'd best believe he signed every document slammed on his desk that pertained to an international financial stability review board.

But now there are no more outs, no more rabbits to pull out of a hat. Just the long, harrowing climb down the highest mountain.

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When a republic becomes a rule of individual failings

I wrote this essay on February 25, 2013.

A republic -- rule by the people -- is meant to replace the rule of an individual, in particular a king, or the rule of a few. The naysayers among historians warn that a republic inevitably degenerates into tyranny or anarchy, and generally with the first following on the second as surely as night follows day. Neither has happened in the U.S. republic, a point of justified pride amongst Americans. However, something else happened; in a way it's worse than tyranny because its action has been so subtle and incremental that by the time a great many Americans noticed something had gone terribly wrong with their system of government U.S. society was already badly corroded.

What happened is that the way a preponderance of American individuals conducted their personal business came to reflect how the U.S. government conducted its business. And so just around the time the White House realized it could use the U.S. dollar's reserve status with foreign central banks as an endlessly revolving line of credit, the American middle class realized it could live far above its means through the miracle of an endlessly revolving line of credit.

And here we are, decades later, with millions of Americans yelling at their government for its profligate spending and frantically paying down their student loan and credit card debt. Economist Paul Krugman -- a self-termed Keynesian -- is having none of this mea culpa of the masses; he's urging the government to increase its spending as the way to jump-start the moribund American economy. Yet Lord Maynard Keynes did not live to see the day that the masses were strutting around in designer jeans and driving cars that only the rich should be able to afford; if he had, I think he would have told Krugman to put a sock it in it.

The ad agency that created two TV ads for Dodge Acura's third "Season of Reason" campaign showed that it was a better judge of the mood of the body politic than Krugman. The ads, which first aired in November 2012, featured money guru Suze Orman and commonsense psychologist Dr Phil spiriting (in an Acura car) members of the American middle class away from the temptation of overspending on expensive stuff they don't need. When the man in the Dr Phil version of the ad whines that he has his heart set on buying an outlandishly glamorous, gigantic Christmas tree, Phil snarls, "Well tough tinsel" after depositing him at a lot that sells normal-sized and perfectly respectable Christmas trees at a reasonable price.

The ads are also marketing genius because the way Suze and Phil drive the Acuras demonstrates that the car can corner just as well at 60 mph as a Lexus. This demonstration brought forth complaints from some viewers (maybe ones who work for luxury car dealerships?) that the ads promote reckless driving. But everything about the ads projects the message that it's more chic to be smart about money than stupid about it
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The message is percolating through American society, although the confused and confusing ads aired during this year's Super Bowl indicate that some major companies have yet to acknowledge the message much less act on it.  And the American body politic is still a few minutes away from acknowledging that in a republic a rule of the people comes to mirror how individuals act. This aspect of republicanism explains why switching political party dominance through the democratic voting process has changed nothing of substance about the way Washington conducts itself.

The Washington Way has gotten more corrupt, incoherent and ineffective with every decade that's passed. Yet this state of affairs has simply mirrored the way that a preponderance of Americans have conducted themselves.

The huge number of confidence games in the USA, which are on view every week on CNBC cable TV's American Greed: Scams, Scoundrels and Suckers is ample evidence that a great many Americans have gotten corrupt in their ways. As the CNBC documentaries illustrate, often participants in the scams victimize each other with no pricking of conscience long before they themselves fall victim to the con. As Ponzi schemer Bernie Madoff put it after he was behind bars, "I carried those people for years."

Yes he did carry them -- until the music stopped. And his victims knew, every time they received one of his dividend checks, that there was something wrong with a consistent and extraordinarily high rate of return on an investment year after year.

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Vladimir Putin isn't God; he can't keep intervening to save Americans from Hell.

Most of the essays I wrote in 2012 I didn't publish. This is one of them; the only change I've made is the title, which was originally "On the Road to Perdition With U.S. Foreign Policy."

Monday, June 18, 2012

In a voice positively trembling with emotion Senator John McCain told an audience at the American Enterprise Institute the other day that America's founders believed that the Creator endowed Man with certain inalienable rights and that these rights applied to all humankind. This was Mr McCain's fallback rationale for strong U.S. intervention in Syria; this after his verbal house of cards, which built the entire edifice of the Middle East's problems on Assad's regime, became so shaky it risked collapse.

The only major dissenting voice on the Syria panel that followed Mr McCain's speech belonged to one Brian Fishman, a counterterrorism specialist who found himself in the fool's role when he injected clear thinking into Mr McCain's arguments. Did Washington have a Plan B, much less a Plan A, for further U.S. intervention in Syria in case Assad's fall had unintended consequences? Was there a plan for securing the numerous bio-chem WMD sites around Syria in the event Assad was toppled? Had Washington made heads or tails yet of the various opposition groups fighting Assad? These and several other embarrassingly basic questions Mr Fishman believed needed answering before the U.S. waded any deeper into Syria.

Yet it was left to a member of the audience, who identified himself as a teacher, to ask for clarification on Mr McCain's interpretation of the founding fathers' fundamental rationale for disputing the English monarchy's rule of the American colony. The moderator passed the question to the panel; two took a stab at a reply but neither addressed the question head on, and the moderator quickly asked for another question from the audience before the clear-headed Mr Fishman had a chance to weigh in.

The clarification, of course, is that it's a perversion of the intent and meaning of the Declaration of Independence to wrest from it a rationale for U.S. intervention in Syria. However, perverting the meaning of American values to rationalize American intervention in the affairs of foreign countries has become the signature foreign policy of the United States of America. To blame this on President Obama or even the Responsibility to Protect crowd is to be ignorant of history. Over the course of 70 years American foreign policy went from making the world safe from the Nazi Axis to making the world safe from Communism to making the world safe from Soviet Russia to making the world safe from Vladimir Putin but because that last didn't look quite right on the letterhead the proper application of American ideals to foreign policy was recast as making the world safe from authoritarian heads of state.

Makes no matter if the authoritarians have no special truck with the United States, or even that they're al Qaeda's natural enemies or that they hold the line against radical Islamic groups in their nations. (Mr McCain confided to another confused AEI audience member, who was under the impression that the Muslim Brotherhood was an implacable enemy of the United States, that there are "certain layers" of the Muslim Brotherhood the U.S. government can "work with")

Nor does it matter that when it comes to certain authoritarian leaders the U.S. government studiously refrains from invoking the Responsibility to Protect doctrine no matter how many atrocities the strongman carries out against defenseless civilians in his country -- a point raised by another confused AEI audience member.

Yet another confused member of the audience asked Mr McCain how U.S. policymakers were squaring the Islamist leanings of Turkey's government with the country's participation in NATO. Mr McCain explained that Turkey was one of America's staunchest allies and that one shouldn't confuse Islamism with authoritarianism; although he said he was disturbed by the government's detention of many Turkish journalists and about other authoritarian actions such as arresting 100 members of the country's military, he insisted that these actions had nothing to do with Islam.

It would be naive to dismiss John McCain as a crackpot or warmonger; he's become the darling of the American news show circuit since he began advocating for the right to protect Syrian dissidents.  His views are very useful to a large number of players.  Last week U.S. public television's PBS NewsHour, which is the veritable U.S. branch of the BBC when it comes to reporting on foreign affairs and a supporter of the Democratic Party when reporting on domestic affairs, gave Mr McCain, a Republican, a platform to criticize Mr Obama for what Mr McCain considered his recent 'in your face' attitude toward Pakistan's generals.

Mr McCain is doing a lot of talking on the airwaves these days -- C-SPAN television snapped up his speech at AEI -- and in the process revealing more about the present state of U.S. foreign policy thinking than State Department press conferences.

Mr McCain is the ranking Republican member of the Senate Armed Services Committee, which means he's in a position to know how the winds are blowing in Washington's defense/foreign policy establishment. So, confused Americans need to study the C-SPAN airing of Mr McCain's remarks at AEI and the riveting panel discussion and Q and A session AEI provided so they can stop being confused and get with the program.

Confused Americans can start on their journey of comprehension by noting that few members of the American Enterprise Institute's audience were Americans. The audience represented a cross-section of the International Community; Mr McCain's first questioner was a member of Sweden's Green Party.

So how did we get from the Treaty of Westphalia to the doctrine that any sovereign nation is a candidate for invasion by the International Community if its government inflicts alleged atrocities on its civilian population?

How did we get from the Declaration of Independence to U.S. Secretary of State Hillary Clinton's announcement of U.S. economic sanctions against Uganda's government and any other national government (excluding Pakistan and Afghanistan's, of course, and other --er -- Sharia-compliant governments) if it trampled the human rights of lesbians, homosexuals, bisexuals and gender-switching people?

How we got from there to here is a long story, and if you don't want to walk the cat all the way back to events that led to U.S. involvement in World War One, you can pick up the thread by starting with the boast of a White House official during the Reagan presidency that the U.S. had gotten so skilled at peacefully toppling regimes that it no longer needed the CIA to mount soft coups.

The skill was based on the application of Gene Sharp's codification of tactics for nonviolent protestors. It sounded good on paper, the idea that the American government could create at least the appearance of major internal organized opposition to a foreign government by translating the 'divide and rule' stratagem the English colonizers perfected into one of 'instigate and divide' in order to manage outcomes at the voting booth.

Thus, even though roughly half of Ukrainians wanted good relations with Russia, through divide and instigate tactics in combination with media manipulation, the U.S. government and its NATO allies were able to create the impression that all of Ukraine was protesting against human rights abuses by the Russia-tolerant government, and then ram through a Russia-unfriendly candidate. (The "Orange Revolution.")

The American-backed Ukrainian regime soon collapsed under the weight of reality but the biggest downside of a foreign power weaponizing civil rights protests became evident when the internet era got off the ground: with the widespread dissemination of detailed information about Sharp's codified tactics, authoritarian heads of state were able to study the tactics then deploy countermeasures, which invariably translated into even greater losses of freedom for the populace.

By the time of the botched Green Revolution, which found Iran's Revolutionary Guard positioning snipers on rooftops to pick off Tweeting and Texting civil rights activists who were wielding their cell phone cameras like weapons, it was clear to the International Community that it needed to deploy more muscular ways of unseating authoritarian leaders.

Thus, the ascendency of the argument that with Rwanda and Darfur as the grim examples, it was necessary to codify the right of the International Community to ignore the sovereign rights set forth in the Treaty of Westphalia in order to save populations at the mercy of a government's genocidal campaign.

The argument got complicated when Gamal Mubarak acted to strip Egypt's military of its hold on the Egyptian economy -- a move quietly backed by Gamal's father, Hosni, the titular head of Egypt's government. No genocide was being committed, no democide. But the military, considered by the United States and its NATO allies to be key in upholding Egypt's peace deal with Israel and holding the line against Iran, needed help in dealing with the Gamalists. The Gamalists, for their part, were very determined to free Egypt of its dependence on American handouts and saw a genuinely improved Egyptian economy as the means -- a goal that couldn't be achieved with Egypt's generals standing in the way.

And so U.S. gongos -- the same ones that figure prominently in orchestrating 'color revolutions' -- and hordes of American and European 'activists' were dispatched to help whip up unrest in Egypt, already widespread because of bad economic conditions in the country, in the name of protecting Egyptian human rights.

The Tahrir Square production, or Cecil B. DeMille on the Nile, which didn't require overt NATO military intervention, was so successful in toppling the Gamalists that the U.S. government and its EU/NATO allies turned their sights on Bashar al-Assad's regime. The problem was that most in the Syrian Allawite minority supported Mr Assad and few in the majority wanted an Islamist regime. Some means had to be found to instigate serious trouble and sharply divide the Syrians.

A few days ago the means were inadvertently revealed to CNN viewers by a young American blogger at TIME magazine. I've blanked out the blogger's name, in horror at the fact that she was very proud of the means -- although clearly she hadn't thought.  Tech-savvy American and European activists were sent into Syria to show human rights activists there how to flummox the Syrian military's countermeasures against the use of cellphone technology to relay information about civil rights protests.  If the instigators had just stopped there, it might have worked out to a standard Gene Sharp-type stage production, but they didn't stop there. They also told the activists that they would arrange with their governments to publicize in their national media outlets every video of Syrian government atrocities that the activists could create.

In other words, all the activists had to do was film instances of the military firing on protesters, and these would be edited and shipped to Western audiences. This was as much telling the activists that there were setting up a kind of global reality television show. Surely, one would hope, they left unspoken that the activists simply had to instigate instances of Syrian military oppression in order to get the footage on global TV, but they didn't need to spell this out to people who wanted Assad gone at any cost.

Do you understand? The Gene Sharp approach, which was perverted by the U.S. and EU governments to serve a variety of geopolitical aims, was about peaceful regime change through the voting booth -- and to achieve this through foreign powers engaging in rather simple media manipulation and the staging of nonviolent civil rights protests. But once the Responsibility to Protect doctrine jelled, once it became acceptable to use military invasion to unseat a regime, Mr Sharp's approach looked old-fashioned. Now, all that's necessary is to create conditions where the International Community could cite mass murder of civilians as the justification to invade a country.

So. Here we are today. Where, exactly, is "here?" On the road to perdition.

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The Afterlife and Marxist History

December 13 1:00 AM

Regarding the December 12 post (Zhen Huan, Deadly Beauty -- a reader was offended by my characterization of Zhen Huan's ruthless, murderous rise to power as "adventures" and didn't see Scarlett O'Hara and her life as an apt comparison.

I was making what I thought was a broad point when I mentioned Scarlett. Actually, there can be no apt American comparison because this nation, and even this land going back to 'native' tribes before the arrival of Europeans, never had the kind of government that produced women like Zhen. But such women were by no means limited to China and its imperial eras.

If you want hair-raising reading check out the harim (harem) system in ancient Egypt. The harim wives who had any chance for one of their sons to take the throne were not only murderous and ruthless, they thought and acted like generals. Only the smartest, nastiest wives and sons survived that battlespace.

There were so many plots and counter-plots that finally one pharaoh couldn't take it any longer. He ordered that the entire harim be moved out of the palace -- and out of the capital city. He had a city built just for the harim. That only made things worse because distance from the capital meant it was even easier for the wives to plot and scheme with military brass and courtiers.

From what I read of the harim plots I think it's open to question whether any of the Egyptian kings died a natural death. It seems the choices were death on the battlefield or be murdered by a son or the son's mom. Maybe that explains the elaborate tombs the kings built and the elaborate tales about the afterlife. Are we sure it was really the afterlife?

That's what I would have done, if I'd been a pharaoh trying to survive into my golden years. I would have built the biggest tomb I could afford. Outfitted it with all the comforts of home including an escape hatch and canoe, and enough food and wine to last until the hubbub died down from my funeral and the ascension of a dear son to my throne. Then I would have told my favorite wife,"Okay it's time to move into the tomb now."

My favorite wife being barren, ugly, and smart enough to spend her downtime in the harim gym because she knew I wasn't going to do much of the rowing.

All right, Pundita, back to the salt mines. You'll never guess how I came across that report on Zhen Huan's popularity with Chinese TV audiences. I was following a trail from an article that related to non-conflict aspects of swarming. By the way after I get that essay done on swarming I never want to see or hear the word 'swarm' again.

As to who would end up in the sarcophagus, then -- well remember that I myself am a survivor of the harim system of choosing rulers; how do you think I got on the throne? So I'm not exactly the fountain of compassion. But how much would it take, given stories about the afterlife that the tomb-building industry generated in Egypt? Just say to the favorite faithful retainer, the one with the mind of a five year old, "How would you like the honor of playing me at my funeral? You'll be well compensated in the afterlife."

And notice that these afterlife journeys featured the pharaoh's boat laden with treasures while sailing on the celestial version of the Nile -- treasures small enough to fit into a boat. So while it's said that some pharaohs broke the treasury to build their tombs, are we certain that's exactly what happened in all cases? Were they all complete idiots, these mothers who built a great civilization with the help of their sons?

No, this isn't revisionist history. I'm having fun with fragments of circumstantial evidence based on what I think of human nature. What I think is that it's been a very long time since human nature was born yesterday. I also think there is a tendency for later generations to assume earlier ones were peopled entirely by idiots. This tendency has reached epidemic proportions ever since Marxists took over the telling of history. But see I stop and think: was everyone who lived before Karl Marx an idiot?

The reality is that when you mix together absolute monarchism, polygamy, and inheritance through the male line, you have a brutal system of politicking. Surviving that system must have taken great cunning in addition to ruthlessness.

All right, that's enough. Back to work. Oh wait! -- I've been jabbering so much about ancient Egypt I didn't notice the time. Drat, I'll have to put off writing about swarming again because now I need my beauty sleep. Anyhow, I suppose I wasn't shocked by Zhen Huan given my readings on the harim plots. It was indeed an adventure, triumphing in imperial China's courts.

And speaking of the tomb-building industry, it was big business supporting many trades, many artisans. It wasn't only the tomb; the afterlife was big business. You couldn't just show up in the afterlife with your cat wearing a ratty everyday jeweled collar. It had to be a special collar. Everything had to be special, right down to the dinner plates and toothpicks. All right somebody get the hook.

6:35 AM December 14
More snow in the forecast for this morning. Yes yes I'm hard at work on the swarming post.

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Zhen Huan, Deadly Beauty

Television antiheros have been popular in places like the United States decades, but in China, where the government sits in final judgment on the moral correctness of television content, Zhen is something new and potentially threatening. Chinese censors have not moved to quash Empress in the Palace: the show is an “historical drama,” a permitted typology unlike “time travel” dramas, which are banned for their “frivolous” treatment of history.

Zhen is anything but frivolous -- but to a Communist Party trying to promote positivity, she may simply be too nasty.

The above quotes are from a report on supervillaness Zhen Huan's wild popularity in China and the headaches this is giving Chinese authorities. The report, written for the Tea Leaf Nation e-zine by Jianyu Hou and titled China’s Favorite Villainess: Why Chinese TV Viewers Can’t Get Enough of a Qing-era Concubine, outlines Zhen's adventures and raises these fun questions: Does Zhen represent an "ethical race to the bottom," or a blunt statement on the harshest realities of human society, or an editorial on the hypocrisy of China's government?

Not being Chinese, and not having seen the series, I can't offer an opinion. But I have read Gone With the Wind. Is Scarlett O'Hara a creature of the Antebellum South, or the Civil War, or was she always hell on wheels? I suppose she's all those things, but she is also a Survivor, in my view, and one I hope would reside in my breast under the worst circumstances. Maybe many people think the same way. Maybe that's her perennial and universal appeal.

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Oh shut up, Barry

The weather is not good in Punditaland, literally and figuratively. Days of glop here in Washington -- snow and sleet and rain and fog and drizzle. Meanwhile I've had a devil of a time getting a writing about Swarm Theory into final form. To top it off --

Financial Illiteracy

America's Windbag-in-Chief wasted 49 minutes of air last week in portraying "income inequality" as the defining issue of our time. Actually the defining issue is that the vast majority of Americans don't know anything about money, much less wealth creation and preservation. This point came home to a number of U.S. state governors after the 2008 financial crash. So they set up what they called "financial literacy" programs for seniors in public high schools in their states -- programs that quickly became mired in controversy.

While something is better than nothing, from what I've read about the programs they aren't going to get Americans far in an understanding of money. And while financial gurus such as Suze Orman are trying to educate the American public about money, much of their advice works out to making prudent investment decisions. That plus 50 cents won't move the needle much on Americans' catastrophic ignorance about money.

If Barry or anyone else asks what use is to know about money if you don't have a job that pays a decent wage: most of the Americans who tell their sad stories to Suze on her weekly show are not only employed, they're also making a good salary -- either as single or two-person family earners. Many of them earn a single or combined income of $100,000+ a year -- a figure that outside a handful of cities in the USA is considered upper income. Yet all of them are deeply in debt, maxxed out on lines of credit, and many are facing eviction from their homes because they can't keep up the mortgage payments. In addition, most are carrying crippling loan payments on debt they racked up to pay for college.

In the USA if you play your cards right you can pull in $40,000/yr in government benefits -- nothing to sneeze at when the benefits include 'affordable' housing. So why bother with a job? And what use it to get a good-paying job when the money you earn slips through your fingers because you don't know anything about money?

Tell me the use, Barry. Go ahead, talk more trash. I would especially enjoy hearing the rap that America is a capitalist society. The American banking system was destroyed, converted to a tool of "monetary" policy. So how can you have a capitalist system after you've killed the banking system? Explain that part to me.

And how can you have a capitalist society when all but a handful of its citizens don't know about money on account of the education system -- public and private -- never taught children about money? Not even at the college level is money a required course in this country, which explains why so many American MBAs lost their shirts in the 2008 financial crash after they fell prey to investment schemes that were barely legal versions of the Ponzi scheme -- or they were outright Ponzi schemes.

Capitalist society, my ass.

A Worker Society, Not a Capitalist One

The United States of America is not a capitalist society. It's a worker society. Taking a shot in the dark, I'd guess that might be a major reason the nation's education system hasn't taught children about money all these generations: if we teach children about money, they'll get rich when they grow up, then they won't want to work, then who will fill all the job slots in the country?

If that was indeed the reasoning, it was based on a fallacy -- the same kind of fallacy Bernard de Mandeville sent up in his "Fable of the Bees" and Paradox of Thrift. I've talked so much this year on my blog about the paradox I'm sick of the topic. But in one sentence, the fallacy is that when left to their own devices everyone in a society will do the same thing with his money. Only by divine fiat, as Mandeville pointed out, could there exist a society in which everyone hoards money to the point of self-destruction.

The same principle would apply to any argument that economically well-off people won't want to work. Many Americans who win lotteries in the millions of dollars continue working at their jobs. Most people enjoy working, and even many filthy rich people work themselves ragged organizing charity events and overseeing philanthropic organizations.

It's Supposed to be a Pool of Menial Jobs, Not an Underclass

That said, it's true that the poorest people are the most willing to do the kind of work that the better off refuse. But what is that saying, when translated into an analysis of America's present financial woes? That you can't educate American children about money because the country needs a permanent underclass of the poor to provide a labor pool for menial jobs?

I believe that is also saying that you need to keep shooting yourself in the foot to improve your health. I believe that's also tripe, given that many of the most menial jobs, such as trash collection, pay good money in the United States because they're unionized. And because America is stuffed with immigrants, legal and illegal, who will fill jobs that better off Americans won't take.

But it's a funny thing about those immigrants. While I lived in New York City decades ago I noticed that many immigrants who flooded into the city had an odd habit of not staying very long in the underclass. They worked at menial jobs, pinched their pennies, pooled their pennies with immigrants of the same background, started small businesses, then larger businesses, then moved to the suburbs and sent their kids to college.
There is a big difference between a permanent pool of menial jobs and a underclass. The pool should be fluid -- watered by new arrivals in the country and those just starting to earn money, such as teenagers, and those Americans who can't afford to start out in the workforce with a college education. But as the experience for many immigrants to the USA illustrates, there is no need for Americans to form a permanent underclass of the poor.

I realize this leaves the problem of how to sell socialist political agendas if there's no underclass to use as a marketing tool. I'll leave that vexing problem to the political pundits.

As for America's self-termed capitalists who preach more capitalism as the solution -- first raise the U.S. banking system from the dead. Then blither to me about capitalism saving the USA.

Capitalist society, my ass. Yes I know I already wrote that. I tend to repeat myself when I reach my limit for listening to tripe.

Let's see, what else before I close out this rant?

Sleight of Hand

For those who don't believe that most Americans don't know the first thing about money -- I'll prove it, right now. Let me ask American readers this: Do you have an insurance policy? A mortgage? A college loan? How about a retirement fund?

If you answered 'Yes' to all or any of those questions, you don't understand money. All those terms -- insurance policy, etc. -- are actually different types of an investment. If you can really afford those investments; i.e., if you've paid into them after all your expenses are met, what you've done is convert monetary wealth to an investment.

If you show me pieces of paper documenting that those investments are part of your wealth, no they're pieces of paper documenting that you've made an investment. Once any part of your wealth is converted to an investment, that part of your wealth ceases to exist. Yes, you can borrow against the pieces of paper and even draw income from some of them. But unless you cash out on the investments the wealth you plowed into them is gone.

To understand why this is so: first realize that wealth, monetary wealth, is not a number, such as million dollars. It's an abundance. It's what money you have left over, after all your expenses including taxes are paid. And no, your savings for a rainy day are not part of your wealth. That money is a projected expense. But if you've already saved, say, six months of salary for the expenses you'd have to meet if you had no income for that long a period, then what you've saved over and above for the rainy day fund is your monetary wealth.

This is why it's perfectly possible for a person in the lowest income bracket to be wealthy, whereas someone in the highest bracket can have nothing but piles of paper instead of wealth.

Yet if people don't understand the meaning of wealth, their wealth are is easy prey for every kind of investment scheme, and outright fraud, that promises to make them wealthy.

All investment frauds operate according to the same verbal sleight of hand: 'Give me your savings to invest, and I'll make you wealthy' -- or wealthier. Time after time the scam works, even with intelligent people. But these people are unaware that if they have money to fork over for investment above all their expenses, they are actually converting their wealth to an investment.

Victims of Ponzi or "pyramid" schemes rarely see more than pennies on the dollar of their investment when the scheme collapses. As to the legitimate investment schemes, some of them are barely legal and several are unethical. I would count college student loans in the latter category. I see little difference between a fraud and a scheme that says, 'You take out a loan against your earnings when you graduate college.' Not unless the student has a legal document stating that on X date he will be hired at X salary by X company. Because there is no company stupid enough to give such a guarantee, any child (and his parents) that signs onto the college loan investment scheme is being misled.

Yet the child isn't even told he's gotten involved in an investment scheme; he's told that he's taking out a loan. He's actually taking a huge financial risk, more an outright gamble than an investment. And yet as an adult he will be held legally responsible for the debt he incurs from the scheme -- even if he fails to find employment or can't bring home a salary that's enough to cover the loan payments. But because the scheme is legal nothing much can be done until Americans wise up about money.

Income inequality, eh? How about talking first about knowledge inequality?

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Two Myths: Reverse migration of offshored US manufacturing firms, The Lazy Mexican

From the schedule for John Batchelor's radio show (emphasis mine; see the JBS website for links and podcast of the discussion

Wednesday 27 November 2013 / Hour 2, Block C: Alan Tonelson, Research Fellow at the U.S. Business & Industry Council Educational Fdn, in re: "You name it, Foxconn makes it."
[...]
[China's] Foxconn also contributed $10 million to Carnegie-Mellon's robotic program. In the US automotive sector, now booming: inflation-adjusted wages have been falling faster since the recession trick at the end of 2007, faster even than retail wages have. In China, wages rising four times faster than productivity is. The field is still much skewed by Chinese govt subsidies plus Chinese currency manipulation.

In the US, govt regulatory capture driving industry out of much of the Eastern US, many parts of which are industrial wastelands. Washington State losing Boeing to South Carolina. Inshoring: mfg operations return to the US after having migrated overseas -- it's overwhelmingly imaginary!

Foxconn Sends a manufacturing message with New Pennsylvania plant last week, the international electronics mega-manufacturer Foxconn announced plans to invest $30 million in a new robotics plant in Harrisburg, PA. Foxconn, the notorious Chinese low-wage manufacturer of Apple’s iPhone, has become the poster child of U.S. outsourcing in the face of ruinous global labor cost competition. The calculus of manufacturing supremacy is seemingly simple: Low labor costs and taxes, proximity to a large consumer base, and manageable corruption levels equal a sure strategy to attract global firms. [more]

Hmmmm. Why does that calculus sound familiar to me? Oh -- Mexico! As to what Americans will do when their Mexican gardeners, nannies, lettuce pickers, and construction workers return in droves to Mexico to work on assembly lines there -- maybe they can make up the shortfall for a few years with workers further south than Mexico. But then hordes of upper- and middle-income Mexicans will be scooping up cheap labor from further south to work as their gardeners, nannies, etc.

As to whether Americans themselves can make up the shortfall: in a televised exchange in 2011, a passerby asked a white Wall Street Occupier (virtually all WSOs were white) and jobless college graduate whether he'd ever considered exerting himself to get a job, any kind of job. The Occupier snarled that he wasn't going to work for minimum wage.

And a few hours ago I heard a clip on Majic 102.3 -- a 'black' radio station in the DMV (Greater Washington, DC). The clip was from a recent Tom Joyner morning radio show, which is syndicated in big cities throughout the USA. The clip poked fun at Mexicans working at Wal-Mart on Thanksgiving Day. (Many Americans are protesting any store policy that requires employees to work on the holiday; Wal-Mart is one of the stores but it pays employees an extra day's pay for working on Thanksgiving.) The comedy bit was replete with the kind of phony Mexican accent that would bring forth the wrath of political correctness watchdogs if uttered by a white instead of a black. The reaction to the bit from the other blacks on the show was laughter.

And laughter from a black American audience was the reaction to a black standup comedian's routine more than a year ago, in which he played a black American construction worker trying to persuade a Mexican co-worker to slow down and not work so hard because he was showing him up.

From these and many other indications, somehow I don't think a majority of Americans will want to make up the shortfall in the event of a large reverse diaspora of Mexicans.

Oh well, there's always robotics.

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"Anything's Possible Now"

The best portrait of the brave new global order I've come across was published in a column in the April 2013 edition of France's Le Monde Diplomatique magazine. The writer makes no mention of the larger issues surrounding the historic events that unfolded this March in Nicosia, the capital of the tiny island nation of Cyprus, issues which hadn't become apparent at the time.  None of this takes away from the writing, which shook up a lot of people.  There is just something about it, a quiet finality:    

Anything’s possible now
by Serge Halimi

Everything was becoming impossible. It was impossible to increase taxes because that would discourage “entrepreneurs”. It was impossible to protect a country against commercial dumping by low wage countries, as that would contravene free trade agreements. It was impossible to impose even the tiniest tax on financial transactions; most states would need to support it in advance. It was impossible to reduce VAT, as Brussels would have to agree to that.

On 16 March, everything changed. Those orthodox institutions, the European Central Bank (ECB), the International Monetary Fund, the Eurogroup and the German government led by Angela Merkel forced the reluctant Cyprus authorities to take a step which, had it been taken by Hugo Chávez, would have been deemed dictatorial, tyrannical, a blow to liberty, and would have prompted angry editorials.

The step? Automatic withdrawals from bank deposits. The rate of confiscation, initially set at 6.75% to 9.90%, was almost a thousand times as much as the Tobin tax that has been a hot topic for 15 years.

So in Europe, where there’s a will there’s a way. Provided of course that the right target is chosen: not shareholders, not creditors, but the holders of deposit accounts in debt-ridden banks. It is so much easier to rob a pensioner in Cyprus (on the pretext that the real target is a Russian mobster hiding in a tax haven) than it is to extract money from a German banker or a Greek armaments manufacturer or a multinational with dividends tucked away in Ireland, Switzerland or Luxembourg.

Angela Merkel, the IMF and the ECB are forever talking about the imperative need to restore creditors’ “confidence” and the impossibility of increasing public expenditure or renegotiating sovereign debts: the financial markets would come down on any deviation. But how much confidence is it possible to have in the single currency and the sacrosanct guarantee of bank deposits when customers of a European bank can wake up to find that part of their savings has disappeared overnight?

So the 17 member states of the Eurogroup took the unthinkable step. And they will do it again: all citizens of the European Union must realise they are the target of a financial policy determined to rob them of the fruits of their labours on the pretext of balancing the books. Local puppets in Rome, Athens and Nicosia appear resigned to carrying out orders from Brussels, Frankfurt or Berlin with the reward of public rejection (1).

But events in Nicosia should have left the people in Italy, Greece and Cyprus with more than a deep sense of bitterness: they now have the liberating knowledge that, for them too, anything is possible.

Perhaps the embarrassment of some European ministers after their attempt to use force betrayed a fear that they had unwittingly obliterated 30 years of lectures that government should be powerless. Now that we have been reminded government can act forcefully, we are free to contemplate other harsh measures. Germany might not like them. Their targets might be wealthier than modest savers in Nicosia.


(1) See “Fate of Island Depositors was Sealed in Germany”, Financial Times, London, 18 March 2013. None of the Cypriot members of parliament voted for the Eurogroup plan.

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Reign of terror

I want to return to Bloomberg/Business Week Economics Editor Peter Coy's observation, "Good-bye globalization, hello balkanization," which he made in his report on the Federal Reserve's proposed regulation to force U.S. branches of major European banks to concede to the same high capitalization rates that are being imposed on U.S. banks. (The Fed Wants Bigger Cushions For Units of Deutsche Bank and Others, September 19, 2013.) I quoted without comment from the report around the time it was published (and discussed with Peter Coy on John Batchelor's radio show). Here I want to discuss a part of the report I didn't quote earlier:

Coy details the rationale for the proposed regulation, which was largely crafted by attorney and Federal Reserve Governor Daniel Tarullo:

Economists on the staff of the Federal Reserve have documented what looks like genuine harm to the U.S. economy from a 2011 episode in which foreign banks operating in the U.S. were temporarily starved of cash. The Fed economists found that in the spring of 2011, investors began to fret that a Greek default would damage European banks that had lent to Greece. Money-market mutual funds that had lent to the European banks by buying certificates of deposit were forced to cut back their loans because their own customers were withdrawing deposits.

What happened next never made the newspapers. According to the latest version of a working paper by three Fed staff economists, published in July, the European bank branches in the U.S. appealed to their home offices for funds to replace what they’d lost, but they didn’t get all they needed. They were forced to cut back lending in the U.S. by about $20 billion, the working paper said. That’s not a lot in an almost $16 trillion U.S. economy, but to the Fed it was a taste of what might happen in a more serious funding squeeze.

I suspect that every economist at the Federal Reserve lives in fear of Daniel Tarullo, so I question the working paper's calculations and conclusions. But taking the paper at face value, how is that foreign banks cutting back lending to Americans harmed the U.S. economy? In other words, how is that Americans who tried to borrow $20 billion from foreign banks couldn't turn to American banks for the loans?

Peter Coy did not put the question to Daniel Tarullo during their discussion, which he details in the report -- or if he did, the question was off the record. But there really is no answer, except the truth.

The truth is that first the American banks were tied up with regulatory red tape, then the regulations were used by government to force them to write mortgage loans that had "default" written all over them. Then the banks speculated in junk investment vehicles in the attempt to offset the floods of defaults.

When it call came crashing down, then the Fed and White House wanted the banks to write loans to American big business to stimulate hiring -- at a time when the businesses were slashing costs and payrolls in an attempt to stay afloat. When the banks wouldn't strap on suicide vests, the Fed and White House backed the writing of even more regulations in the form of the Dodd-Frank Act, which isn't even half written yet! So the banks still don't know what they're facing in terms of more regulations.

In the midst of all this madness there were European and other foreign banks willing to take risks to loan to Americans -- risks that American banks would not take, could not take. But after hearing about the proposal to force them under the rule of the Federal Reserve, they're having second thoughts.

Peter Coy reported:

Deutsche Bank Chief Financial Officer Stefan Krause told analysts in July that rather than raise more capital to comply -- say, by selling shares to the public -- the German bank would book some operations in other countries.

I would think, I would hope, that such statements caused the Fed to reconsider its proposed regulation, but I'm not seeing evidence that rational actions are informing American monetary or fiscal policy. What I'm seeing is a reign of terror.

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