Germany opts out

October Fest

By Dr Pippa Malgren

News to expect in the coming days and weeks:

• Greece defaults
• Germany protects German banks but other countries cannot do the same thus quickly provoking multiple sovereign defaults and or bank failures, all of which may easily lead to a payments crisis in the global banking system. Derivatives are particularly at risk in terms of operation and execution.
• The Euro falls in value especially against the US dollar
• The Germans announce they are re-introducing the Deutschmark. They have already ordered the new currency and asked that the printers hurry up.
• The Euro falls even more on any news that Germany is withdrawing from the Euro.
•  Legal wrangling begins as to the legality of Germany’s decision. Resolution takes years.
• Germany insists that the Euro continues to exist even they do not use it any longer. They emphasize that European unification will continue and suggest new legal instruments to strengthen European Unification including new EU Treaties.

The markets are focused on the imminent default by Greece. But, this is not the most important issue now. The historic development the markets have not priced in as that Germany is preparing to exit the Euro. The markets are very likely to have to contend with the re-introduction of Deutsche Marks in the near future. This is bound to mean a collapse in the value of the Euro for those countries that will remain in it (devaluation for the rest of Europe). This step may seem unthinkable but, I believe that the German government is telling us in multiple ways that there is no other solution from their point of view. It is also why you will hear various policymakers at the G7 meeting his weekend echo Christine Lagard’s comment that the world economy is entering a "dangerous new phase."[i] This was certainly the atmosphere at Jackson Hole where policymakers openly talked about entering a period of history where we would face challenges beyond the scope of anything we have seen in our careers.

The Vice Chancellor of Germany, Philip Roesler[ii], gave a speech on September 11th in which he said there will be no more bailouts and any German politician who approves a single Euro for the debt problem of another European nation will not survive in office.  This is consistent with a German poll over the weekend that shows more than 70% of Germans oppose any more transfer of German wealth to nations with debt problems.

Please note his specific language: "Roesler told the Monday edition of Germany's Welt daily there should be "no limits to thinking" of possible scenarios of how to end the euro crisis."[iii]

The Germans have already concluded that if they are going to write any further checks then they are going to write them to their domestic institutions and protect their domestic investors.  Necessarily, this means that many Eurozone countries will default on their debt. It now seems this will happen within a matter of days. Germany has, therefore, already announced its intention to ring-fence and support their own banks and only their own. This may ultimately involve the nationalization of some or even all the German banks. This is necessary because a falling Euro will further weaken the ability of the other Eurozone members to meet their commitments and thus increases the risk of multiple sovereign defaults. Eurozone countries that are going to default will do so virtually simultaneously rather than sequentially.

Eurozone countries may or may not have the resources to nationalize their banks. Therefore, we have to expect that bank failures are a real possibility. Apparently, the Europeans are warning the US to come up with a plan to nationalize Bank of America given that it is already in a precarious position, despite the injection of capital from Warren Buffet. The multiple lawsuits against Bofa and other banks alone will render the US banking system vulnerable to any dramatic announcement out of Europe. But, no doubt US banks have immense exposures to European institutions and some may even have sovereign credit risk directly on their balance sheets.

It is hard to overestimate the shock that this will bring to the financial markets.  Risk aversion will set in quickly as people start to consider the multiple possible consequences, some unintended, of such a decision. Huge fortunes will be made and lost in this moment in history.

It is worth providing a review of the evidence that led me to this conclusion.

Christine Lagarde’s speech at Jackson Hole revealed the recognition that there was a risk that Germany might not “write a check” to bailout the Eurozone members. She said, to paraphrase, “somebody needs to write a check or we are going to have historic multiple bank failures.” Everyone in the audience understood that no check is coming. The ESFS is not yet funded and a number of the contributors will not hand over cash if there is no collateral. Of course, the only collateral available is the insufficient gold reserve, or handing over ownership of the nations industrial assets[iv], which amounts to having a nationalization of industry, which is then put under the control of a foreign government. So, there really is no meaningful collateral. Also, there is no international party, including China, that can write a check large enough to fill the cumulative debt hole that exists across the various Eurozone countries.

Apparently, Lagarde and Trichet spent a day after Jackson Hole, in a heated argument with Lagarde pushing for a more realistic assessment of the Eurozone debt and of the true condition of Eurozone bank exposures to the debt. Trichet, in contrast, believes that it is possible to buy time and lead the market to believe a resolution is possible. Lagarde’s view is that many European banks are fundamentally insolvent and that’s why they are taking liquidity directly from the ECB. This is before the defaults even occur. Trichet’s view is that the banks might be able to earn their way back to health if they had more time.  The cynical view is that Trichet does not want the Euro to end or a bank crisis on his watch. It is said that this was the principal issue that led to Jurgen Stark’s resignation: Stark and Lagarde favor facing the facts as soon as possible whereas Trichet does not want his legacy marred and or he believes that it is always worth buying a little more time.

Meanwhile, the German Finance Minister recently gave a historic interview with Der Speigel[v] where he said this: Still, we would be a strange government if we didn't prepare ourselves for all eventualities, however unlikely they may be.”  What eventualities might he mean? Well, he spells it out later in the interview:

SPIEGEL: In historical terms, there have been only two solutions to these kinds of problems: either inflation, which devalues a country's debts more or less by stealth, although it does the same to citizens' assets …

Schäuble: … or, in the past, a war, which is nowadays, thank God, impossible -- precisely because of the process of European unification …

SPIEGEL: … or at least a monetary reform.

His reference to “monetary reform” is telling. He did not say “fiscal reform”. Fiscal reform would potentially cure the problem. Instead he says “monetary reform” meaning Germany pulls out of the Euro and prints DMarks again. He totally rules out either Eurobonds and or bailouts when he says, “There is no collectivization of debt, and there is no unlimited support.” This is consistent with the views expressed by Otmar Issing to Bloomberg back on August 15th[vi] when he said in reference to Eurobonds, "That is a catastrophe," adding “that he does not understand why politicians in Germany would agree to such a thing given that they would threaten Germans with higher taxes or cuts in government spending.” It is clear to Shauble that this debt crisis threatens the institutions and agreements that hold the Euro and the European Union in place. If you want an EU to survive this impending blow then you need to start thinking about new agreements that can replace the ones that will be damaged or destroyed by these events. This is why he is talking about a new EU Treaty[vii].

The fact that the Troika (ECB, IMF and EU examiners) had to suspend their assessment of Greece was another important sign. The IMF wanted to be much more realistic about the magnitude of the Greek problem than the ECB wanted to be. Suspension of the mission merely confirms for Germans that the problems in the periphery are bigger than is understood and cannot be dealt with through austerity.

The Federal Constitutional Court Press Release[viii] has also been misinterpreted by those who want to believe that bailouts will occur. The FT reported that the court ruled in favor of Chancellor Merkel. But, the reality is that the court took the authority to decide away from the Chancellor and gave it to the Budget Committee in the Bundestag. This committee has 48 members and each is certainly driven by the polls and cares about re-election. The Budget Committee is deeply likely to oppose any bailouts that will cost German taxpayers, just as Dr. Issing says.

The next thing you know Dr. Joseph Ackerman gives a speech on September 5th[ix] that has been described as “terrifying”. Business Insider[x] provides a reasonably comprehensive account in English. He said, "It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels." He continued: "Most institutions have a rating of "below the book value or at best". He then spelled out the choice Germany’s politicians must make: bailout Europe or bailout us, the German Banks. But he tried to make the case based on a cost analysis (typical financial market guy). He said, "The costs of supporting weak member states, particularly from the German perspective, are less than the costs of disintegration.... It is a dangerous illusion to believe that a country could do better should it reclaim the sovereignty it has delegated to the EU." The issue for the German politicians is not the cost. The issue is the principal of sovereignty and protecting the German population from any return to their horrific experience with inflation. Eurobonds and bailouts to peripheral countries are all ways of increasing the money in circulation as a means of filling the hole. But, no politician in Germany can accept that path given their history, as Wolfgang Schäuble says so clearly in his interview. Ackerman knows that failure to go down the inflation path will probably result in a partial of full nationalization of the German banks, his own bank included. At the very least, the leadership of banks in the new world will have to be less focused on profits and more focused on safety. This is why he says, “"We must in my opinion, check all our work in all areas thoroughly again to ascertain whether we prioritize our genuine tasks as servants of the real economic needs." But, I fear it is too late for him or any other German bank leader to claim that they can be a “trusted good guy” going forward.If any doubts remain about the German inclination to return to the DMark then consider these announcements. Switzerland announces a peg to the Euro. It was crystal clear at Jackson that the Swiss leadership expected an historic event to occur which would culminate in a rush into Swiss Francs. They tested the water by announcing a “fee” which would be applied to all non-Swiss purchasers of their currency. Within a few days they announce the peg. In short, Switzerland knows what is coming and has just barred the door to anyone who might try to escape the demise of the Euro by leaping into Swiss Francs.

The statement by the central bank in Canada is similar. I happened to be in Canada when the statement was made. Canadians were deeply confused. After all, to paraphrase, the central bank said, “all the bad things we thought might happen, are now happening, so we are going to maintain a highly defensive position”. In other words, Canada is also gently warning the markets that it will do what it has to do to prevent the currency from suddenly accelerating in the event of a European currency implosion. The Japanese are hinting at this as well. According to Reuters the Finance Minister, “Azumi also said he was ready to step into the currency market to counter speculative moves, although Japan would likely struggle to gain G7 support for intervention.”[xi]

It therefore seems likely the US Dollar and US Treasuries will be a major net beneficiary of any failure to bailout Europe. As an aside, this means the market would undertake QE3 as it were. The Fed won’t have to do “operation twist” or consider QE3. They will be able to focus their attention on the inflation “target” and finding ways to justify letting it rise.

It is fascinating that Jurgen Stark’s resignation[xii] has caused people to think the chances of a bailout are increased when in fact his resignation signals that the risk is increased that no bailout will occur AND Germany will withdraw from the Euro. Stark has been a board member at the ECB until his resignation.

The day before Jean Claude Trichet became rattled at a press conference when a journalist asked him if Germany might return to the DMark[xiii]. He used it as an opportunity to point out that Germany had experienced better price stability under the ECB than it had under the Bundesbank. I view this defence (which took six minutes) as a telling signal. Trichet could have said, “no, don’t be ridiculous”. Instead, he says Germany gets better price stability with me at the ECB than it got for fifty years with the Deustche Bundesbank. This is a plea for Germany to please stick with the ECB and not return to national monetary policy.

But, that was not enough to stop Stark’s resignation. When we look back in history we will see that all the important German policymakers resigned from the ECB before Germany formally returned to Deutschemarks, just as one would expect. It also seems too much of a coincidence to my mind that former Head of the Deutcshe Bundesbank and ECB board member Axel Weber leaves the ECB just before all the proverbial starts hitting the fan, goes to UBS as Chairman, and the next thing you know that describes the ways in which countries could leave the Euro including the potential costs if Germany left.

The Greek debt problem cannot be contained with the CDS spreads blowing out at the current speed. Many European countries have huge debt issuance plans for October and November. Germany is not only thinking about the risk of a Greek default, but also the risk that many other countries will need a lifeline very shortly. The only solution that meets the needs of German taxpayers and citizens is to protect their own interests first.

Banking and Payments System Crisis

The nationalization of the German banks, or the creation of a purely German Bailout mechanism, will immediately cause the markets to blow out the spreads on all debt instruments around the world with the possible exception of certain G7 countries like the US and the UK. Note that even the UK has massive bank exposures to the continent especially in Ireland. Ireland may get a bailout from the UK (again) but it is hard to imagine the UK writing a check to anybody else. This would force other Eurozone members to consider how to deal with their own bank debt problems: France, Italy, Belgium all leap to mind but the market will be bound to pressure others from Cypress and Eastern European countries to Bank of America. In fact, the entire banking and payments systems will be subject to entirely unknown shocks and logistical problems should this announcement be made.

Greece defaults and Germany will shore up the German banks. Other countries will either have to do the same or the market’s will discern which countries cannot bailout their banks due to lack of funds. The UK will be asked whether it is going to support the Irish banks. I suspect the UK will say yes but they may not be ready to answer the question when it comes. Any delay will force the UK government to reveal that the UK banks are cash rich. This will raise questions about their lack of lending. Bank failures will probably occur. Small institutions may bring significant consequences. We will see if the French have the resources to manage their banks. Christian Noyer insists that they do, but he would.

The Federal Reserve will have no choice but to make unlimited liquidity available to the market. They won’t need to announce QE3. The market will do it for them. But, the Chairman really wants to announce QE3 and may use these events as a reason to do so.

Gold, diamonds, agricultural assets, energy prices and mined asset prices will rise. Default reduces the debt burden and allows growth and inflation to return. If central banks (other than the ECB) throw huge liquidity out into the market because of this event then the liquidity is going to lean away from paper financial assets other than the most trusted and liquid (US Treasuries), and lean toward hard assets.

I would expect a major unscheduled speech from the President of Germany once it is decided to leave the Euro. After all, this step will mark the first independent move by Germany since the European Union project began with the European Iron and Steel Community after World War Two. A Germany that is not tied into monetary union requires an explanation. I imagine the Germans will emphasize their total commitment to European Unification and explain why the loss of monetary union is either temporary or can be overcome. To reiterate, the Germans will find it inconsistent to remain inside the Euro if the value of the currency plummets because the markets have no confidence about the financial position of most of the members. The idea that Germany would tie its manufacturing base and economy to a devaluing currency that has no fiscal discipline is unthinkable in Germany.

A European Bank “holiday” might be required to deal with the payments problems and with sudden and dramatic changes to valuations and therefore to the true balance sheet position of many banks and other financial institutions.

I disagree with Jim Rogers’ view. He says, "the euro will go down a fair amount. But I would buy all the Euro I could at that point because then that would mean that Europe is going to have a very strong, sound currency”. "People can not lie about their finances anyone, people have to run a tight ship."[xv] This might make sense if Greece is the only defaulting country, but it won’t be. It would make sense if Germany stayed in the Euro. But, I believe the risk is that Germany will not stay in.

Europe is about to become a very cheap place to go on holiday or to buy a beach house or a ski chalet or a vineyard.

Countries that already have inflation can expect much more once these events unfold. This is going to make the policy problem for Australia and Canada substantially more difficult. The cost of living will rise but no central bank can raise rates against the backdrop of a crisis environment.

The world is about to experience deeper stagflation. The cost of living will now rise even more but growth remains stunted. Policymakers will start to veer back and forth between dealing with unemployment and dealing with inflation. The years ahead will be referred to as “stop go” years because policy will at times try to stop price hikes and at other times policy will try to push growth.  Luckily, the world has seen this movie before in the 1970’s. Hopefully, we have learned something from the past and it ends rather more quickly this time around.

Anarchists for Big Government.

Big Sloth And The American Autumn

By MARK STEYN
Michael Oher, offensive lineman for the Baltimore Ravens, was online on Wednesday night when his Twitter feed started filling up with tributes to Steve Jobs. A bewildered Oher tweeted: "Can somebody help me out? Who was Steve Jobs!"

He was on his iPhone at the time.

Who was Steve Jobs? Well, he was a guy who founded a corporation and spent his life as a corporate executive manufacturing corporate products. So he wouldn't have endeared himself to the "Occupy Wall Street" crowd, even though, underneath the patchouli and lentils, most of them are abundantly accessorized with iPhones and iPads and iPods loaded with iTunes, if only for when the drum circle goes for a bathroom break.

The above is a somewhat obvious point, although the fact that it's not obvious even to protesters with an industrial-strength lack of self-awareness is a big part of the problem.

But it goes beyond that: If you don't like to think of Jobs as a corporate exec (and a famously demanding one at that), think of him as a guy who went to work, and worked hard. There's no appetite for that among those "occupying" Zuccotti Park. In the old days, the tribunes of the masses demanded an honest wage for honest work. Today, the tribunes of America's leisured varsity class demand a world that puts "people before profits."

If the specifics of their "program" are somewhat contradictory, the general vibe is consistent: They wish to enjoy an advanced western lifestyle without earning an advanced western living. The pampered, elderly children of a fin de civilization over-developed world, they appear to regard life as an unending vacation whose bill never comes due.

So they are in favor of open borders, presumably so that exotic Third World peasants can perform the labor to which they are noticeably averse. Of the 13 items on that "proposed list of demands," Demand Four calls for "free college education" and Demand Eleven returns to the theme, demanding debt forgiveness for all existing student loans.

I yield to no one in my general antipathy to the racket that is American college education, but it's difficult to see why this is the fault of the mustache-twirling robber barons who head up Global MegaCorp Inc. One sympathizes, of course. It can't be easy finding yourself saddled with a six-figure debt and nothing to show for it but some watery bromides from the "Transgender and Colonialism" class.

Americans collectively have north of a trillion dollars in personal college debt. Say what you like about Enron and, er, Solyndra and all those other evil corporations, but they didn't relieve you of a quarter-mil in exchange for a master's in Maya Angelou. So why not try occupying the Dean's office at Shakedown U?

Ah, but the great advantage of mass moronization is that it leaves you too dumb to figure out who to be mad at. At Liberty Square, one of the signs reads: "F**k your unpaid internship!" Fair enough. But, to a casual observer of the massed ranks of Big Sloth, it's not entirely clear what precisely anyone would ever pay them to do.

Do you remember Van Jones? He was Obama's "green jobs" czar back before "green jobs" had been exposed as a gazillion-dollar sinkhole for sluicing taxpayer monies to the president's corporate cronies.

Oh, don't worry. These cronies aren't "corporate" in the sense of Steve Jobs. The corporations they run put "people before profits": That's to say, they've figured out it's easier to take government money from you people than create a business that makes a profit.

In an amusing inversion of the Russian model, Van Jones became a czar after he'd been a communist. He became a commie in the mid-90s — i.e., after even the Soviet Union had given up on it. Needless to say, a man who never saw a cobwebbed collectivist nostrum he didn't like no matter how long past its sell-by date is hot for "Occupy Wall Street". Indeed, Van Jones thinks that the protests are the start of an "American Autumn".

In case you don't get it, that's the American version of the "Arab Spring." Steve Jobs might have advised Van Jones he has a branding problem. Spring is the season of new life, young buds and so forth. Autumn is leaves turning brown and fluttering to the ground in a big dead heap. Even in my great state of New Hampshire, where autumn is pretty darn impressive, we understand what that blaze of red and orange leaves means: they burn brightest before they fall and die, and the world turns chill and bare and hard.

So Van Jones may be on to something! American Autumn. The days dwindle down to a precious few, like in whatever that old book was called, "The Summer And Fall Of The Roman Empire."  

If you'll forgive a plug for my latest sell-out to my corporate masters, in my new book I quote H G Wells' Victorian Time-Traveler after encountering far in the future the soft, effete Eloi: "These people were clothed in pleasant fabrics that must at times need renewal, and their sandals, though undecorated, were fairly complex specimens of metalwork. Somehow such things must be made."

And yet he saw "no workshops" or sign of any industry at all. "They spent all their time in playing gently, in bathing in the river, in making love in a half-playful fashion, in eating fruit and sleeping. I could not see how things were kept going."

The Time-Traveler might have felt much the same upon landing in Liberty Square in the early 21st century, except for the bit about bathing: It's increasingly hard in America to "see how things are kept going," but it's pretty clear that the members of "Occupy Wall Street" have no plans to contribute to keeping things going.

Like Michael Oher using his iPhone to announce his ignorance of Steve Jobs, in the autumn of the republic the beneficiaries of American innovation seem not only utterly disconnected from but actively contemptuous of the world that sustains their comforts.

Why did Steve Jobs do so much of his innovating in computers? Well, obviously, because that's what got his juices going. But it's also the case that, because it was a virtually non-existent industry until he came along, it's about the one area of American life that hasn't been regulated into sclerosis by the statist behemoth. So Apple and other companies were free to be as corporate as they wanted, and we're the better off for it.

The stunted, inarticulate spawn of America's educrat monopoly want a world of fewer corporations and lots more government. If their "demands" for a $20 minimum wage and a trillion dollars of spending in "ecological restoration" and all the rest are ever met, there will be a massive expansion of state monopoly power. Would you like to get your iPhone from the DMV?

That's your "American Autumn": an America that constrains the next Steve Jobs but bigs up Van Jones. Underneath the familiar props of radical chic that hasn't been either radical or chic in half a century, the zombie youth of the Big Sloth movement are a paradox too ludicrous even for the malign alumni of a desultory half-decade of Complacency Studies: they're anarchists for Big Government.

Do it for the children, the Democrats like to say. They're the children we did it for, and, if this is the best they can do, they're done for.

Speaking in a different language

Meet the PC oligarchy that now rules Britain

The Tory conference confirmed that politics has been colonised by experts, hacks and snobs who are utterly insulated from the madding crowd.

By Brendan O’Neill

You couldn’t have asked for a better snapshot of the unbridgeable chasm that now separates politicians from the public than the Tory Party conference. This weird, media-oriented, stage-managed display of pragmatism and bluster confirmed that politics has become completely disassociated from ordinary people’s lives and concerns. The conference showed that the political class and the only other section of society that has any interest in what it thinks and says – the media – are now so insulated from the madding crowd that they not only think in a different way and have different outlooks on life, but seem to speak in a different language entirely. The rarefication of British politics is complete.

The most striking thing about the Conservative Party conference was the extent to which its agenda was determined by what is not happening in the real world rather than what is. Surreally, this was a supposedly political gathering at which the big issues of the day – from the economy to the future of Europe – were either skirted around or given the deeply unconvincing Cameron-as-plucky-bulldog treatment, while issues that have no traction whatsoever amongst the public – from sexist language to gay marriage – were put centre stage by both Tory spokespeople and political reporters. (See Rob Lyons on Cameron’s economics here.) The conference revealed that political issues are very rarely generated from below these days, but rather are the creations of tiny cliques of think-tankers and professional advisers who are paid to come up with eye-grabbing ‘talking points’.

The power of small numbers of professionals to set the political agenda has reached an extraordinary level. So as the conference kicked off, and as the world economy continued to shake and the Euro continued to go down the pan, the key issue was Tory leader David Cameron’s use of sexist language. Cameron made a grovelling apology for having said ‘calm down, dear’ to a female Labour MP in parliament earlier this year and for having referred to his fellow Tory Nadine Dorries as ‘extremely frustrated’. In effect, he was bowing to pressure from minuscule numbers of influential women – primarily highly paid newspaper columnists and expert pollsters – who have been warning him to speak in a way they consider to be ‘appropriate’. That such a dinner-party spat can take centre stage at a party conference in an era of recession is a searing indictment of the hermetically sealed nature of modern British politics. This unedifying clash between professionals over how the fairer sex should be addressed brings to mind the old court system, in which mannerisms of speech and the depth of one’s curtseying were also treated as the be-all and end-all, elbowing aside burning political issues. The return of speech ritualism is further evidence of the isolation of the political class.

Two other issues that got the media class excited – as those who are paid by the Tories to fabricate Big Political Issues no doubt knew they would – were gay marriage and the possibility of introducing a fat tax to wean people off their alleged addiction to junk food. Again, neither of these issues is a grassroots one; neither exercises the hearts and minds of everyday people. Rather they’re artificially created problems, the products of either elite agitation or think-tankers’ brainstorming, which are then latched on to by politicians in the hope that talking about them will help to garner some positive coverage from the media class at least. Cameron’s comments about a fat tax – which would target those great scourges of our age: ‘milk, cheese, pizza, meat, oil and processed food’ – were particularly striking, because they gave an insight into what this oligarchical political class thinks of those who live outside its bubble. We are not political subjects to be engaged with, apparently, but rather bovine objects to be physically tampered with, punished for our gluttony, pressured to ditch those gastro-pleasures which the political and media elites, as they discuss the horrors of sexist language over wine and vol-au-vents, have decreed to be ‘fattening’.

The Conservative conference brought to a head a trend that has been evident at all the mainstream party conferences over the past five to 10 years: a sense that these people are only talking to and amongst themselves; a powerful feeling that the political scene consists of tiny clubs of people perfectly insulated from the masses. Indeed, it’s wrong even to refer to the various things discussed at the Tory conference as ‘political issues’, since most of them were not really political at all, but rather were shallow moralistic obsessions foisted on to the agenda by inside agitators, and most of them were not issues either, in the sense that if you stopped the average man or woman in the street and asked them what they thought about the scourge of sexist language they would wonder if you were mad. These are entirely fake issues, designed to give the cut-off political and media classes something to tussle over.

The otherworldly nature of party conferences is a consequence of some huge political shifts in recent years. It is the hollowing-out of the mainstream parties, their speedy and profound jettisoning of members and grassroots supporters and their subsequent disconnection from the public, which creates today’s strange and alien political culture. The absence of pressure-from-below on the political parties leads to a situation where small groups of influential people can set the party political agendas, from academics obsessed with inequality to the illiberal theoreticians of the nudge industry to newspaper hacks who felt personally offended when Cameron used the word ‘dear’. It is the slow-motion withdrawal of everyday people from a political scene that no longer has anything to say to them that nurtures today’s courtly atmosphere, the rise of speech codes and apologetics and issues that matter little to the masses.

Even Tory-bashers play the same game as the party they claim to loathe. One criticism that has been made again and again of Cameron and Co. is that they are ‘re-toxifying the Tory brand’. Apparently Cameron has failed to ‘decontaminate’ his brand – what Theresa May once referred to as a general view that the Tories are ‘the nasty party’ – as evidenced in the fact that at this week’s conference some of his people dared to criticise the Human Rights Act and talk about immigration. Not only do these kinds of criticisms contain a powerfully censorious component, where all discussion of human rights or immigrants is instantly judged to be ‘toxic’ and ‘contaminated’ – they are also firmly rooted in the same narrow brand-obsession and image-obsession that passes for Tory politics these days and for politics in general.

So where a Tory party desperately trying to discover some purpose rebrands itself as ‘nice’ rather than ‘nasty’, its critics simply shout back ‘Your brand is being recontaminated!’, like executives at an advertising firm. The myopic concern with party branding is also a product of the disassociation of politics from the public: parties that have no real connection with a significant section of the masses also have no real raison d’être, and thus must try to magic one up courtesy of an army of brand-minded experts. Politics has been colonised by experts, hacks and snobs who are utterly cut off from normal people.

The Tories’ conference, like Labour’s and the Lib Dems’ before it, was a weirdly stultified affair. There was no real debate, no attempt at policy formation, not even any real policy proposals. It all rather confirmed that parties with no base of support, with no roots in society, quickly become ideas-free zones, since there is no pressure on them to embody certain ideals and to argue the toss for those ideals on a public platform. It’s not even accurate to refer to the public as mere spectators to politics these days, since most of us didn’t spectate – we had far better things to do than watch these self-serving PR exercises disguised as party conferences. Rather, today there is simply the oligarchy and its friends on one side of the metaphorical canyon, having noisy but substanceless discussions about matters of etiquette and branding, and the masses on the other side, who are looked upon as a bovine blob whose temperature must occasionally be taken through opinion polls or stage-managed focus groups. By ignoring the party conferences, we committed a small but important act of rebellion against the oligarchy. More and better acts of rebellion will be required.

Approaching her moment of truth

The End of 'Pax' Americana

by Patrick J. Buchanan

Observing the correlation of forces in this city and the intensity of conviction in the base of each party, the outcome of the ongoing fiscal fight between Barack Obama and the Tea Party Republicans seems preordained.

Deadlock. There will be no big jobs-for-taxes deal. The can will be kicked down the road into the next administration.

A second truth is emerging. When the cutting comes, as it shall, the Pentagon will be first to ascend the scaffold.

Why so? Consider.

The Republican House cannot agree to tax increases without risking retribution from the base and repudiation by its presidential candidates. All have pledged to oppose even a dollar in tax hikes for 10 dollars in spending cuts.

For his part, Obama has refused to lay out any significant cuts in the big Democratic entitlement programs of Social Security and Medicare.

As for the hundreds of billions in Great Society spending for Medicaid, food stamps, Head Start, earned income tax credits, aid to education, Pell grants and housing subsidies, neither Harry Reid's Senate nor Obama, in trouble with his African-American base, will permit significant cuts.

That leaves two large items of a budget approaching $4 trillion: interest on the debt, which must be paid, and national defense.

Pentagon chief Leon Panetta can see the writing on the wall.

Defense is already scheduled for $350 billion in cuts over the decade. If the super-committee fails to come up with $1.2 trillion in specified new cuts, an automatic slicer chops another $600 billion from defense.

House Armed Services Committee Chair Buck McKeon has issued an analysis of what that would mean: a U.S. Army and Marine Corps reduction of 150,000 troops, retirement of two carrier battle groups, loss of one-third of Air Force fighter planes and a "hollow force" unable to meet America's commitments.

Also on the chopping block would be the Navy and Marine Corps versions of the F-35 Joint Strike Fighter. If the super-committee trigger has to be pulled, says Panetta, "we'd be shooting ourselves in the head."

That half defense-half domestic formula for automatic budget cuts was programmed into the slicer to force Republicans to put tax hikes on the table. They will refuse. For tax hikes would do more damage to the party than the slicing would the Pentagon.

Thus America approaches her moment of truth.

Thanks to the irresponsibility of both parties, of the Bush as well as Obama administrations, we are facing unavoidable and painful choices.

We are going to have to reduce the benefits and raise the age of eligibility for Social Security and Medicare. Cut and cap Great Society programs. Downsize the military, close bases and transfer to allies responsibility for their own defense. Or we are going to have to raise taxes – and not just on millionaires and billionaires, but Middle America.

And if our leaders cannot impose these sacrifices, the markets will, as we see in Europe, where the day of reckoning is at hand. Ours is next.

But if defense cuts are unavoidable, where should they come? What should our future defense posture be? Which principles should apply?

Clearly, the first principle should be that the United States must retain a sufficiency, indeed, a surplus of power to defend all of its vital interests and vital allies, though the defense of those allies must be first and foremost their own responsibility. They have to replace U.S. troops as first responders.

During the Cold War, America was committed to go to war on behalf of a dozen NATO nations from Norway to Turkey. Eastern Europe under Moscow's boot was not considered vital.

Thus we resisted the Berlin Blockade, but peacefully. We did nothing to rescue the Hungarian revolution in 1956, or the Prague Spring in 1968, or the Polish Solidarity movement in 1981, when all three were crushed.

Now that the Red Army has gone home, Eastern Europe is free, and the Soviet Union no longer exists, what is the argument for maintaining U.S. Air Force, Army and naval bases and thousands of U.S. troops in Europe?

Close the bases, and bring the troops home.

The same with South Korea and Japan. Now that Mao is dead and gone and China is capitalist, Seoul and Tokyo trade more with Beijing than they do with us.

South Korea has 40 times the economy and twice the population of North Korea. Japan's economy is almost as large as China's. Why cannot these two powerful and prosperous nations provide the troops, planes, ships and missiles to defend themselves? We can sell them whatever they need.

Why is their defense still our responsibility?

In the Persian Gulf we have a strategic interest: oil. But the oil-rich nations of the region have an even greater interest in selling their oil than we do in buying it. For, without oil sales, the Gulf has little the world needs or wants.

Let the world look out for itself for a while. Time to start looking out for America and Americans first. For if we don't, who will?

The American dystopia is here.

Obama’s Very Real Death Panel

by Anthony Gregory

It’s official. The American dystopia is here. Obama administration officials admit that the CIA assassination program that snuffed out Anwar al-Awlaki last Friday is guided by a secret panel that decides who lives and dies. According to Reuters:

American militants like Anwar al-Awlaki are placed on a kill or capture list by a secretive panel of senior government officials, which then informs the president of its decisions, according to officials.

There is no public record of the operations or decisions of the panel, which is a subset of the White House's National Security Council, several current and former officials said. Neither is there any law establishing its existence or setting out the rules by which it is supposed to operate.

Let that sink in. The U.S. presidency, supposed leader of the free world, has a clandestine committee that chooses American citizens to assassinate. This from the administration that promised unprecedented transparency and a ratcheting back of Bush-era civil liberties abuses. This from the president who vowed to restore habeas corpus and subject executive war powers to judicial scrutiny. This from the Nobel Peace Prize laureate.

What’s more striking, however, is the deafening silence. Sure, the ACLU opposes all this, as do a smattering of public voices. Yet it seems for everyone expressing proportional concern about this, there are a thousand leftist protesters whining about the top one percent, and a thousand conservatives whining about the leftist protesters.

How fitting that the presidency that Tea Partiers accused of planning to convene death panels to handle health care rationing has openly admitted to having created such a panel whose declared purpose is not simply to withhold socialized medical resources, but to direct the cold-blooded murder of citizens who are sufficiently bothersome enemies of the regime. Yet in a majestic irony, many of the conservatives who feared Obama’s life-and-death bureaucracies are cheering on his most explicit and frightening seizure of dictatorial power in all his presidency, and perhaps one of the greatest of all presidential power grabs in the sweep of U.S. history.

Meanwhile, Obama’s millions of supporters still think the idea that this man is a fascist, a tyrant, a threat to liberty, is hysterical hate speech and itself a danger to American democracy. Yet Barack Obama appears dedicated to out-Bushing Bush when it comes to shredding the Bill of Rights and sticking his middle finger at the very idea that he ought to be accountable to anything but his own power.

Make no mistake. We are witnessing a defining moment in America’s transformation into a totalitarian nation. Not because the murder of al-Alwaki, or even the death panel that sealed his fate, is some sort of anomaly in terms of morality or even presidential power. The U.S. presidency has already sentenced millions to death with its wars, its sanctions, its bombings, its terrorism, its covert ops, its torture chambers. The nukings of Hiroshima and Nagasaki, to take a couple of famous examples, long ago revealed the awesome and murderous power of the Oval Office, whether or not these bombings were as "illegal" as the offing of al-Alwaki. And the families of thousands of innocent Afghans and Pakistanis killed in drone strikes had no doubts about Obama’s imperial touch, even before this latest atrocity.

But the circumstances surrounding this particular hit job, and the death panel behind it, deserve more than a footnote. There is the brazenness of it all – the audacity, as a younger Obama might say – of the administration just coming clean about its mysterious council that serves as judge and jury behind closed doors. There is the frank admission of its existence with all else being kept secret. There is also the precision – the fact that this program is one focused on offing political enemies, rather than just bombing neighborhoods in an ad hoc attempt to weaken another government in a war. There is also the open-ended nature of this conflict, a war on terrorism that can last even longer than the clash with the USSR, a war whose immortality seems even more possible now that Barack the law professor is in charge, rather than George the rancher.

Taken together, this is just the kind of creepy atmosphere befitting of a total state, a Communist or fascist government or a nightmarish bureaucracy contrived in the mind of a Cold War-era novelist imagining what America would look like in the 21st century after taking one too many wrong turns. It is almost as if the administration is trying to preempt the conspiracy-minded by giving them something that would be unbelievable only fifteen years ago, but is today easily taken for granted because of course the president has a secret death panel that deliberates on the secret, unchecked executions of American citizens, to be conducted by robots flying in the sky.

Needless to say, anyone who defends this, especially if given the opportunity to think through the implications, is surely no friend of liberty, whether they be fair-weather "civil libertarian" liberals who would rather cheer for their president than wake up and smell the fascism, or conservatives who claim to distrust government except when it exercises the most lethal powers in the most lawless way imaginable. We must recognize that the movement for freedom and against true oppression is clearly no majority, regardless of what Tea Party Republicans and Wall Street occupiers might say.

There is a more fundamental lesson to be learned, however, and one to remember for the ages: This is the nature of the state. It is, by its institutional nature, always and everywhere seeking to expand power in any way it can. To claim and practice the power to kill on its own unreviewable prerogative is simply the fulfillment of its very design. At times of crisis, especially concerning national security, states almost always tend toward aggrandizement toward their realization as totalitarian entities.

For all who find Obama’s death panel frightening – and all of us should – let us remember that this is simply what governments do when they can get away with it. We are only now seeing the American state achieving its maturity. At the founding of the Federal Government, the Framers unleashed a monster that could never easily be restrained, even creating a presidency with all too much power over military affairs. Then came Jackson, Polk, Lincoln, Wilson, Roosevelt, Truman, LBJ, Nixon, Bush and Obama, each one building on the horrible precedents of past American despots, each reaching further toward the ideal of a completely unencumbered presidential hand, one that could snap its fingers and order death to anyone anywhere on the globe.

There is a silver lining, however, albeit one circumscribing a large and dark cloud indeed. A government can develop and come of age, but it is a mortal institution. As it grows it puts strain on the public ideology it requires to live, wrecks the economy it feeds on, and alienates the allies that allow it to be a global empire. To be a total state is the dream of all regimes, but it is an unsustainable reality, and certainly so at the size the U.S. government has become. The more the U.S. presidency and American nation-state morph into an Orwellian version of themselves, the closer they will come to finally expose themselves as being no different from the tyrannies that have enslaved mankind for millennia. For generations much of the world has been under the spell of the lie of American democracy, the propaganda that the brutality of power politics can be tempered through elections and an eloquent piece of parchment. We can hope that the day this great lie is universally seen as a tragic joke, the true significance of Obama’s CIA death panel will be remembered.

The Case for Personal Freedom

It Is Dangerous to Be Right When the Government Is Wrong

by Andrew P. Napolitano

Where Do Our Rights Come From?

After a trip to the American Midwest in 1959, Nikita Khrushchev, then the ruler of the Soviet Union, became convinced that corn could solve many of the USSR’s economic woes. Russia had long struggled with miserably inadequate food supplies, the result of years of inept Communist agricultural policies. Having witnessed the wild success of corn production in America, Khrushchev reasoned that the grain could be equally successful in Russia, and thus support increased meat and dairy production necessary to feed the population. He therefore commanded that vast swaths of land, including the frigid tundra of Siberia, be converted to corn crops. As it turned out, corn was entirely unsuitable to the Russian climate, and the plan was a complete disaster.

The reason, of course, that the policy failed was Khrushchev’s ignorance of the immutable fact – the self-evident truth – that corn can only be grown under certain conditions, and Russia’s climate did not provide them. The cost of this misjudgment was wasted resources and prolonged hunger. It is obvious that politicians must enact laws which are in accord with such "truths." If they do not, then the inevitable consequence is human suffering. There are some things which humans and their constructed governments simply cannot change; that is to say, those things transcend our human capacities and cannot be the object of our will. Individuals and governments are thus always secondary and subject to these truths.

What are these truths, but "natural laws"? What other laws are there, with which human commands must accord? As we shall see, there are natural rights every human possesses by virtue of being human which protect our essential "yearnings" from government interference. And as we shall also see, manmade laws are only valid to the extent that they comport with and are subject to these natural rights. This is all known as the Natural Law.

This scheme is in contrast to the legal philosophy of Positivism, which says that laws need not pass any kind of moral muster to be considered valid. In other words, laws are purely "posited" by human beings, and governments are not constrained by principles such as human rights, fairness, and justice when making those laws. Not only is this philosophy that "law is whatever the government says it is" untrue, but it has facilitated mankind’s biggest catastrophes and legitimized the most malevolent regimes in human history. Why were Hitler and his policies "evil"? After all, they were enacted by a popularly elected government that followed its own procedures to acquire power and enact lawful laws. Positivists have no answer to this question, because they cannot tell us why killing millions of innocent civilians is wrong: For Positivists, the Final Solution was just as valid as a law prohibiting jaywalking. Thus, under the Positivist scheme, our rights to life, liberty, and the pursuit of happiness are only as safe as our government would care to have them.

Why do we even care whether a law must comport with the Natural Law to be considered valid? After all, if the consequence of not obeying a law is imprisonment, then we will obey that law regardless of whether it is valid or not. The answer is because, like Khrushchev’s corn plan, every time the government’s commands flout the Natural Law, evil occurs, and we lose sight of the dream which our Founders enshrined for us in the Declaration of Independence and the Constitution. We must hold the government accountable for its violations of our natural rights if we are ever to have liberty. As Jefferson once said, "Eternal vigilance is the price of liberty." And as St. Augustine said and St. Thomas Aquinas taught, "An unjust law is no law at all."

This Congress Hereby Declares Gravity to Be Illegal: It Is Too Much of a Downer

Before we can discuss what precisely the Natural Law encompasses, we must examine its basis in the Eternal Law. The Eternal Law can essentially be thought of as those laws which govern the functioning of the universe, such as the laws of physics, anatomy, chemistry, mathematics, and biology. These laws are imprinted into the very order and nature of things. As an example, molecules of water can only ever be comprised of two hydrogen atoms and one oxygen atom. Change that composition, and you no longer have water. Moreover, the laws of chemistry also dictate that when water is cooled to below thirty-two degrees Fahrenheit, its molecular structure shifts, and it turns into ice. Whether one thinks of these laws as scientific rules, or the product of the divine and infallible will of God, it cannot change the following: These "truths" are immutable, and the universe is and always will be subject to them.

Furthermore, these rules are self-evident, which is to say that although we may attempt to understand their workings, their truthfulness requires no explanation or proof. When humans study science, they are essentially trying to recognize and explain those rules to which we are subject, and thus be able to predict the future outcome of an interaction between two or more "things." The field of medicine, for example, tries to understand how a bacterial infection will respond to a particular antibiotic. If we do so, then we can know when and under what circumstances a particular antibody should be prescribed to restore the body to its normal, healthy state. We are therefore operating within the Eternal Law; and as any scientist will tell you, scientific rules don’t change. Only man-made theories for what those rules are and how they operate may change.

However, without an explanation or understanding, those rules remain just as "true": Penicillin will combat certain infections, and gravity will always pull things toward the center of the earth, regardless of whether or not we understand how. In other words, explanation and human understanding cannot make those truths more "true": They rely on nothing human for their existence. If they did, then they would change along with all of the vagaries in taste and flaws in reasoning of the human mind. Thus, these laws transcend the temporal human mind and all of its imperfections. Although this may seem abstract now, it will make more sense when we explore other kinds of laws which do require an explanation for their truth, and a basis for their existence.

A fading Republic

As Federal Crime List Grows, Threshold of Guilt Declines

By GARY FIELDS And JOHN R. EMSHWILLER

For centuries, a bedrock principle of criminal law has held that people must know they are doing something wrong before they can be found guilty. The concept is known as mens rea, Latin for a "guilty mind."

This legal protection is now being eroded as the U.S. federal criminal code dramatically swells. In recent decades, Congress has repeatedly crafted laws that weaken or disregard the notion of criminal intent. Today not only are there thousands more criminal laws than before, but it is easier to fall afoul of them.

As a result, what once might have been considered simply a mistake is now sometimes punishable by jail time. When the police came to Wade Martin's home in Sitka, Alaska, in 2003, he says he had no idea why. Under an exemption to the Marine Mammal Protection Act, coastal Native Alaskans such as Mr. Martin are allowed to trap and hunt species that others can't. That included the 10 sea otters he had recently sold for $50 apiece.

Mr. Martin, 50 years old, readily admitted making the sale. "Then, they told me the buyer wasn't a native," he recalls.

The law requires that animals sold to non-Native Alaskans be converted into handicrafts. He knew the law, Mr. Martin said, and he had thought the buyer was Native Alaskan.

He pleaded guilty in 2008. The government didn't have to prove he knew his conduct was illegal, his lawyer told him. They merely had to show he had made the sale.

"I was thinking, damn, my life's over," Mr. Martin says.

Federal magistrate Judge John Roberts gave him two years' probation and a $1,000 fine. He told the trapper: "You're responsible for the actions that you take."

Mr. Martin now asks customers to prove their heritage and residency. "You get real smart after they come to your house and arrest you and make you feel like Charles Manson," he says.

The U.S. Attorney's office in Alaska didn't respond to requests for comment.

Back in 1790, the first federal criminal law passed by Congress listed fewer than 20 federal crimes. Today there are an estimated 4,500 crimes in federal statutes, plus thousands more embedded in federal regulations, many of which have been added to the penal code since the 1970s.

One controversial new law can hold animal-rights activists criminally responsible for protests that cause the target of their attention to be fearful, regardless of the protesters' intentions. Congress passed the law in 2006 with only about a half-dozen of the 535 members voting on it.

Under English common law principles, most U.S. criminal statutes traditionally required prosecutors not only to prove that defendants committed a bad act, but also that they also had bad intentions. In a theft, don't merely show that the accused took someone's property, but also show that he or she knew it belonged to someone else.

Over time, lawmakers have devised a sliding scale for different crimes. For instance, a "willful" violation is among the toughest to prove.

Requiring the government to prove a willful violation is "a big protection for all of us," says Andrew Weissmann, a New York attorney who for a time ran the Justice Department's criminal investigation of Enron Corp. Generally speaking in criminal law, he says, willful means "you have the specific intent to violate the law."

A lower threshold, attorneys say, involves proving that someone "knowingly" violated the law. It can be easier to fall afoul of the law under these terms.

Reflection on Steve Jobs

How to Be Removed from Polite Company

by wintercow20

I am extremely saddened by the passing of Steve Jobs, as seems to be most people I know. I think half the tweets and facebook statuses I follow are making some reference to what Steve Jobs meant to them in terms of his inspirational qualities and of course the wonders of the products he delivered. I agree. The world is a poorer place without him in it. I can only hope that he inspires millions of others to take risks, understand what his fellow man wants, and to be amiable through it all (or so he appeared to be).

Now, here’s how to get oneself banned from polite company – use the occasion of someone’s death to score points.

But reflect for a moment on Steve Jobs. He took resources from no one. He coerced no one. He pandered to no one. He made hundreds of millions of people happy. He ended up being responsible for the creation of tens if not hundreds of thousands of jobs, and inspired countless others to mimic him, or to beat him, or to otherwise complement his work. He asked for no special favors. He was adopted, and certainly was not dealt the best hand in the lottery of life. He blamed no one else for his failures. He shared in his successes. I would argue that this one man’s short life was far more important than a century’s worth of politicians who claim to be working in your interest.

Sure, tears are shed at the passing of “great” political leaders, and indeed some leaders have done a fine job of representing their constituents. But even the best political leaders are best at laying the foundations and groundwork so that remarkable people like Steve Jobs can flourish. That does not mean the work of good political leaders is unimportant – of course not — a cursory look across the planet to some dysfunctional countries confirms that. But it does mean that the general scorn applied to the entrepreneurs who have done so much to help us become healthy, wealthy and wise is disproportionately large given the scorn applied to a political class whose exclusive tool is to employ coercion (which again, is perhaps necessary, if unfortunate). Why are we able to appreciate the life of a Steve Jobs and to ignore the millions of others doing the same thing? And why is the default view of the political class more like the way Jobs himself is being treated today? Contrast what Jobs has done for the world with what Ted Kennedy did for the world. The reaction to Senator Kennedy’s death reminded me a bit of the reaction we are seeing today. Am I crazy for hearing these two reactions as discordant when played together?