Friday, January 10, 2014

How Can I Possibly Be Free?

Without baggage, there would be no content
By Raymond Tallis
This essay is an attempt to persuade you of something that in practice you cannot really doubt: your belief that you have free will. It will try to reassure you that it is not naïve to feel that you are responsible, and indeed morally responsible, for your actions. And it will provide you with arguments that will help you answer those increasing numbers of people who say that our free will is an illusion, or that belief in it is an adaptive delusion implanted by evolution.
The case presented will not be a knock-down proof — indeed, it outlines an understanding of free will that is rather elusive. It is of course much easier to construct simple theoretical proofs purporting to show that we are not free than it is to see how, in practice, we really are. For this reason, the argument here will take you on something of a journey.
That journey will provide reasons for resisting the claim that a deterministic view of the material universe is incompatible with free will. Much of the apparent power of deterministic arguments comes from their focusing on isolated actions, or even components of actions, that have been excised from their context in the world of the self, so that they are more easily caught in the net of material causation.
There is another challenge arising from a deeper argument, which seems to hold even if the universe is not deterministic — namely, that unless we are self-caused, we cannot be held responsible for what we do. To answer this challenge, we must find the key to freedom in first-person being — in the very “I” for whom freedom is an issue, the “I” who is capable of orchestrating the sophisticated intentions, choices, and actions required to, for instance, publish an essay denying its own freedom. The demand for complete self-causation places impossible requirements upon someone before he can count as free — requirements, what is more, that would actually empty freedom of its content and hence of any meaning.
Central to the defense of freedom against the challenges of determinism and the requirement for total self-determination will be to see how it is that we are, rather, self-developing — as when we consciously train the mechanisms of our own bodies to carry out our wishes even without conscious thought — so that we are able to make natural events pushed by natural causes the result of human actions led by human reasons.
We must start by characterizing the freedom that we are concerned with. First, if I am truly free, I am the origin of those events I deem to be my actions. Consequently, I am accountable for them: I have ownership of them; I own up to them. Second, they are expressive of me, in the sense that they cannot be separated from that which I feel myself to be. In this regard, they are connected with my motives, feelings, and expressed aims. My actions can be made sense of biographically.
But it is not enough that my actions originate with, and are expressive of, me. I would not be free if all my willing just brought about what was already inevitable. A truly free act is also one that deflects the course of events. So I am free if, as a result of many actions that are themselves free to deflect the course of events, and of which I am the origin, I have an important hand in shaping my life. This is what is meant by “being free.”
Freedom, Determinism, and Moral Responsibility
There are many versions of the deterministic argument against free will, but the most straightforward one is as follows. Since every event has a cause, actions, which are simply a subcategory of events, also have causes. Furthermore, the causal ancestry of actions is not confined to what we would regard as ourselves, because we ourselves are the products of causes that are in turn the products of other causes ad infinitum. The passage from cause to effect is determined by unalterable laws of nature. For a determinist, even intentions are simply another means by which the laws of nature operate through us. In short, we are not the origins of our actions and we do not deflect the course of events, but are merely conduits through which the processes of nature operate, little parishes of a boundless causal web arising from the Big Bang and perhaps terminating in the Big Crunch.
Most philosophers, then, think that physical determinism is incompatible with free will. The incompatibilists fall into two camps: the libertarians who save freedom by denying determinism, and the skeptics who affirm determinism and so deny freedom. As we will see, however, there is reason to believe that determinism and free will are compatible, since determinism applies only to the material world understood in material terms.
The traditional deterministic arguments against free will have recently been dressed up in some very fancy clothes. Evolutionary theory, genetics, and neuroscience have been invoked in combination to create what we might dub “biodeterminism.” According to biodeterministic thinking, our behavior originates in the evolutionary imperative of survival: it is the unchosen result of the fact that we, and in particular our brains, are so designed as to maximize the chances of replicating our genome. Primarily through their phenotypical expression in our brains, it is our genes, not we, that call the shots.
The attacks on free will that arise from neuroscience go beyond evolutionary psychology, and any adequate account of them would require far more than the space of this essay. But there is one particular set of observations that has captured the deterministic imagination and deserves special scrutiny: those made by the late University of California, San Francisco neurophysiologist Benjamin Libet on the relationship between intention and action. For a long time, it has been known that the mental preparation to act is correlated with a particular brain wave — the so-called “readiness potential.” In Libet’s experiment, the action studied was very simple. Subjects were asked to flex their wrists when they felt inclined to do so. They were asked also to note the time on a clock when they experienced the conscious intention to flex their wrists. Libet found that the readiness potential, as timed by the neurophysiologist, actually occurred before the conscious decision, as timed by the subject. There was a consistent difference of over a third of a second.
The interpretation of these findings has been a matter of intense controversy, much of it over the methodology. Some have argued that, since the brain activity associated with certain voluntary actionsprecedes the conscious intention to perform the actions, we therefore do not truly initiate them. At best, we can only inhibit ongoing activity: we have “free won’t” rather than “free will.” But many others have denied even this margin of negative freedom and have seen Libet’s experiments as confirming what we feared: that our brains are calling the shots. We are merely the site of those events we call “actions.”
Another attack on the notion of free will, from Galen Strawson, a professor of philosophy at the University of Reading, goes beyond the arguments from determinism and purports to prove the inherent impossibility of freedom and moral responsibility so long as we are not self-caused. Strawson’s basic argument, articulated in numerous articles and books, can be understood as a syllogism: First, in order to be truly morally responsible for one’s actions, one would have to be causa sui, the cause of oneself. Second, nothing can be causa sui, the cause of itself. Therefore no one can be truly morally responsible. Performing acts for which one is morally responsible requires, Strawson argues, that we should be self-determining — but this is impossible because the notion of true self-determination runs into an infinite regress.
Strawson’s argument is flawed, as we shall see, because its premises are flawed. But it is nevertheless useful because it clarifies the underlying force of deterministic arguments: that whatever I am has been caused by events, processes, and laws that I am not — and that in order to be free, I have to escape having been caused. Strawson’s argument is the reduction to absurdity of deterministic assumptions, for in the end such arguments require that in order to be free, I have to escape being determined, and in order to escape being determined, I have to have brought myself into being — but in order to have brought myself into being, of course, I have to be God. If I am to be responsible for anything that I do, I have to be responsible for everything that I am, including my very existence. Since I cannot pre-exist my own existence so as to bring my existence about, this is a requirement that cannot be met.
This argument from self-determination will be dealt with by looking a little harder at the question of whether or not a self is causa sui, and, closely related, at whether a self’s actions can be seen as expressing itself. A self is certainly not the cause of itself overall and ultimately — but it is the cause of itself in a way that is sufficient to underpin free will.
The Origins of Actions in the Contents of Consciousness
The case for determinism will prevail over the case for freedom so long as we look for freedom in a world devoid of the first-person understanding — and so we will have to reacquaint ourselves with the perspective that comes most naturally to us. Recall that, if we are to be correct in our intuition that we are free, the issue of whether or not we are the origin of our actions is central. Seen as pieces of the material world, we appear to be stitched into a boundless causal net extending from the beginning of time through eternity. How on earth can we then be points of origin? We seem to be a sensory input linked to motor output, with nothing much different in between. So how on earth can the actor truly initiate anything? How can he say that the act in a very important sense begins with him, that he owns it and is accountable for it — that “The buck starts here”?
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Embarrassed Global Warming Alarmists Sink To Comedic Lows With 'Polar Vortex' Excuse

“Cold as Hell: The Chilling Effect of Global Warming” – Huffington Post
By james taylor
Confronted with the embarrassment of historic cold gripping the nation just as the Obama administration launches a new offensive on the mythical global warming crisis, global warming activists and their media allies just invented their most knee-slapping assertion yet; that global warming causes winter cold outbreaks. Global warming activists, after giving us about 48 hours of silence after the cold temperatures hit while they scrambled to come up with an explanation, now say they have always predicted that global warming would cause more frequent and severe winter cold spells.
It is quite amusing how the global warming propaganda machine works. For about 24 hours after the cold temperatures descended, the alarmists were enforcing radio silence on global warming. Then, when the global warming jokes were too widespread to ignore, they spent the next 24 hours telling us that occasional cold outbreaks are still “consistent” with a rapidly warming planet. Another 24 hours later, they morphed into the “we predicted this all along” meme.
Here are some of the latest headlines along that narrative:
“How frigid ‘polar vortex’ could be result of global warming” –Christian Science Monitor
“Polar Vortex: Climate Change Could Be the Cause of Record Cold” – Time
“US polar vortex may be example of global warming” – The Guardian
“Thank Global Warming for Freezing You Right Now” – The Daily Beast
“Cold as Hell: The Chilling Effect of Global Warming” – Huffington Post
What is really interesting among these and most of the other media accounts on the cold outbreak, is they address the topic like it is long-settled science that global warming causes more frequent and severe winter cold outbreaks. In other words, “It is really, really, really cold throughout the nation, global warming causes everything that people might think is bad, so global warming must cause cold temperatures. Now let’s quickly invent some scientific-sounding mumbo-jumbo explanation for how that might be the case.”
The latest explanation/mythical creature creation is a mutant polar vortex; first cousin of Big Foot, the Abominable Snowman, Mutant Teenage Ninja Turtles, and the Loch Ness Monster. (By the way, global warming alarmists, are Big Foot and the Abominable Snowman the same? You would know better than I….)
Oh, and for kicks and giggles, check out how global warming alarmists and their media allies blame global warming for a future UFO invasion.
According to this newest warming fad, global warming allegedly causes a weakening of Arctic air currents that keep cold air trapped in the far north. As a result, cold Arctic air can now break out and savage previously warm climates like a crazed zombie apocalypse.
Of course, if global warming alarmists really had predicted that it would cause more frequent and severe cold outbreaks (via Mutant Polar Vortexes, Mutant Teenage Ninja Turtles, Yeti, or whatever), we should see such predictions all throughout the latest United Nations Intergovernmental Panel on Climate Change (IPCC) report. The problem is, it’s not there. Nowhere. Nada. Nunca. Nein. Nyet.
Here is what IPCC has to say on the topic of global warming and winter cold outbreaks: In IPCC’s Working Group II: Impacts, Adaption and Vulnerability, we are told there will be “warmer winters and fewer cold spells, because of climate change.”

This is the IPCC. The alarmists constantly preach that IPCC is the unified position – the settled science – of nearly all the world’s climate scientists. And IPCC says exactly the opposite of what global warming alarmists now tell us they “always predicted” about global warming and winter cold outbreaks.
So we have global warming alarmists consistently telling us global warming will mean an end to winter cold outbreaks. Then, when we have severe winter cold outbreaks, the alarmists say it is caused by global warming and they predicted it all along. It is like in the movie “A Christmas Story,” when Ralphie’s father repeatedly claims the green string of Christmas tree lights blew out, but then changes his story after he has been proven wrong.
Ralphie’s Father“The green string is out!”
Ralphie’s Mother: “No, the green is on. It’s the blue that’s out.
Ralphie’s Father: “Don’t tell me what color it is. I’m not color blind.”
Ralphie’s Mother: “I’m not color blind, either.”
(After replacing one of the light bulbs, the blue string of lights comes back to life.)
Ralphie’s Father: “See, I told you it was green!”
Somebody please tell the global warming alarmists to hole up in a room somewhere, debate each other about whether global warming causes more frequent or less frequent severe cold spells, and then let us know when they have a consistent answer. In the meantime, the rest of us will wait up for Sasquatch, the Abominable Snowman, and the global warming-induced UFO invasion.

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How Did The Democrats Become The Party Of The Rich?

The dog that isn’t barking in the current liberal crusade against economic inequality

By Stephen Hayward
If you brought back either of the Roosevelts—Teddy or Franklin—from the grave, the most astonishing thing they would find is that the “malefactors of great wealth” have become the benefactors of today’s liberalism, and Democrats have become the party of the rich. In the economic crisis of the 1930s, the rich hated FDR. Most of today’s rich love Barack Obama—so much so that Washington D.C. area airports ran out of space to handle all of the private jets flying in the well-heeled for both of his inaugurals. Forget the “limousine liberals” of the 1960s and 1970s, sending their own kids to private schools while advocating forced busing for everyone else; behold today’s burgeoning class of “Gulfstream liberals,” who jet about the globe while fretting about global warming.
What accounts for this astonishing state of affairs, and what does it mean for our politics in this age of supposed concern over economic inequality?
To be sure, labor unions (along with trial lawyers) still provide the majority of the Democratic Party’s campaign funds and organizational muscle on election day, but it is the super rich of Silicon Valley and Wall Street, combined with the super rich of Hollywood, who command the priority attention of Democratic Party leaders these days. Of the ten richest zip codes in the U.S. eight gave more money to Democrats than Republicans in the last two presidential cycles. President Obama doesn’t go to union halls to host fundraisers; he goes to posh Wall Street townhomes, the Hollywood hills, or to Tom Steyer’s house in Pacific Heights. Steyer, a billionaire investor and wannabeGeorge Soros, is the perfect model of today’s rich liberal, and shows where the balance of power on the Left rests today. Organized labor wants the Keystone pipeline built; Steyer, who imbibes deeply the green Kool Aid, is adamantly against Keystone. Note who Obama is siding with.
Yes, but haven’t many of the leading plutocrats, such as Warren Buffett and Bill Gates, embraced higher income taxes? Yes, they have, but one important fact has escaped notice: higher income tax rates will not touch the bulk of the fortunes of today’s plutocrats, for the simple reason that the great bulk of the accumulated wealth of Gates, Buffett, Silicon Valley and Wall Street consists of appreciated asset values—not ordinary income. Few seem to be aware that most of this wealth has never been taxed, and in the case of Buffett and Gates, who are taking advantage of the charitable foundation laws, will never be taxed. Even a return to Paul Krugman’s nirvana of 90 percent marginal income tax rates of the 1950s would do little to reduce the wealth gap in the nation.
At a time when the Democratic Party is moving leftward, away from Bill Clinton’s relatively centrist economic outlook, what explains the growth in the ranks of super-rich liberals? (Or, to flip the Thomas Frank title, what’s the matter with Connecticut?) It is worth noting that many of today’s leading liberal super-rich are not heirs of fortunes, like Stewart Mott and various Rockefellers of previous decades, whose liberalism could be attributed to personal guilt over unearned wealth. Most of today’s super rich liberals are financiers and entrepreneurs, like Google founders Larry Page and Sergei Brin. Liberal guilt is not entirely absent from the mindset of the new rich, as can be seen especially in the mindless mantra that the rich have an obligation to “give back,” as though they “took” something in creating wealth by serving the marketplace with dazzling innovations like computer software and internet marketplaces.
There are several parts to this story, but perhaps the most significant is the presumption of the new rich today that they’re simply smarter (look at how fast I got rich?, they think), and today’s elitist, technocratic liberalism appeals to their superficial intellectual vanity. As a one-time critic of the new super rich once put it, “they found it hard to imagine that there might be any social ill that could not be cured with a high SAT score.” (That critic was Barack Obama, in The Audacity of Hope.)
The dependence—if not slavishness—of Democrats on the new super rich is best revealed by the dog that isn’t barking in the current liberal crusade against economic inequality: where is the call for a straight up wealth tax? Where is today’s Huey Long, who in 1935 proposed that no one should be allowed to keep any wealth beyond $50 million—or perhaps, he suggested, only $10 million. Whatever the figure, Long said, “it will still be more than any one man, or any one man and his children and their children, will be able to spend in their lifetimes; and it is not necessary or reasonable to have wealth piled up beyond that point where we cannot prevent poverty among the masses.”
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Fallujah’s lessons for Afghanistan

The alternative of western occupation can only be a recipe for the eventual deluge

By M K Bhadrakumar
The stunning occupation of the Iraqi cities of Fallujah and Ramadi in Anbar province by the al-Qaeda-affiliated Islamic State of Iraq and Lebanon over the weekend carries grim warnings for Afghanistan. Yet, it is important that the lessons learnt should be the correct ones.  
Unfortunately, despite the vehement opposition in the US public opinion to continued US troop presence in Afghanistan beyond 2014, a body of dissent is surfacing that the Iraq developments underscore the importance of the US and NATO sticking it out in the Hindu Kush. 
Unsurprisingly, this outlandish opinion dovetails with the no-holds-barred campaign against US president Barack Obama by the Republican Right who would like to caricature the White House as having ‘lost’ Iraq. Prima facie, this opinion, also seems a logical conclusion. 
As the editorial comment in Britain’s conservative newspaper Telegraph argues, here, it may seem that the western troop presence is what actually stands between Afghanistan and the deluge. In India, too, there are many votaries to this thesis.  
However, if one were to dig deeper, the real comparison between Iraq and Afghanistan is the US’ comprehensive failure in what can be called ‘nation-building’. On the one hand, the political elites whom the US sponsored after the ‘regime change’ in both countries failed to deliver, while on the other hand, the western occupation in the two Muslim countries generated alienation among the people and created pockets of resistance that incrementally expanded over time into full-blown insurgencies. In sum, the failure is both political and military. 
Fallujah, paradoxically, underscores the futility of western military involvement. Iron entered into that old city’s soul following those brutal campaigns by the US forces in 2004. What else could one expect when white phosphorous bombs, cluster bombs and nuclear-tipped artillery shells were used against unarmed civilians? Put differently, the answer to Iraq’s fragmentation does not lie in permanent western occupation. 
Clearly, in Afghanistan too, Obama should consider taking the same approach that he seems to be inclined to take over the situation in Fallujah. Secretary of State John Kerry put it nicely, “We are not, obviously, contemplating returning. We’re not contemplating putting boots on the ground. This is their [Iraqi] fight, but we’re going to help them in their fight.” [CNN]  
There are any number of regional powers who’d dearly wish to see in their self-interests that the US troops are back again in Iraq — beginning with Saudi Arabia. In the case of Afghanistan, too, Russia and the Central Asian states keep an ambivalent stance toward US-NATO involvement. But objectively speaking, Kerry’s stance is the wisest under the circumstances. 
If the US troops go into Fallujah now, they might as well prepare themselves for the long haul. Afghanistan cannot be any different, either. A continued western presence in that Muslim country, which is in an advanced stage of fragmentation on ethnic lines, will generate popular resistance and a new insurgency will take shape. And at some late stage, as the western forces are finally forced to cut and run, leaving things in such royal mess as in Fallujah today, we might get to see the black flags of the al-Qeda getting unfurled in Jalalabad or Kandahar. 
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Thursday, January 9, 2014

Facing the Future

Mitigating a Liquidity Crunch 

by Nicole Foss
Despite the media talking up optimism and recovery, people are not seeing the supposed good news playing out in their own lives. As we have discussed here many times before, the squeeze continues on Main Street, while QE has generated asset bubbles at the top of the financial food chain. Complacency reigns, but this is the endgame. Increasingly delusional collective optimism, based on illusory wealth for the few, has been the driving force for 2013, even as the smart money has been selling everything not nailed down for most of the year – cheerfully handing the empty bag to a public that demands it. It’s been a five year long party, where, demonstrably, no lessons were learned from the excesses preceding the previous peak, and the consequences that followed from it.
Now, as a result of throwing caution to the wind again (mostly with other people’s money of course), we face another set of consequences, but this time the hangover will be worse. Timely warnings are rarely credible, as they contradict the prevailing wisdom of the time, but it is exactly at this time that warnings are most needed – when we are collectively irrationally exuberant on a grand scale. We need to understand the situation we are facing, in order to see why this period of global excess will resolve itself as a global credit implosion, what this means for ourselves and our societies, and what we can hope to do about it, both in terms of preparing in advance and mitigating the impact once we are confronted with a new, sobering, reality.
We are facing an acute liquidity crunch, not the warning shot across the bow that was the financial crisis of 2008/2009, but a full-blown implosion of the house of cards that is the global credit pyramid. Not that it’s likely to disappear all at once, but over the next few years, credit will undergo a relentless contraction, punctuated by periods of both rapid collapse and sharp counter-trend rallies, in a period of exceptionally high volatility. The primary impact will stem from the collapse of the money supply, the vast majority of which is credit – a mountain of IOUs constituting the virtual wealth of the world.
This has happened before, albeit not on this scale. Since humanity reached civilizational scale we have lived through cycles of expansion and contraction. We tend to associate these with the rise and fall of empire, but they typically have a monetary component and often involve a credit boom. Bust follows boom as the credit ponzi scheme collapses. Mark Twain commented on one such episode in 1873:
“Beautiful credit! The foundation of modern society. Who shall say that this is not the golden age of mutual trust, of unlimited reliance upon human promises? That is a peculiar condition of society which enables a whole nation to instantly recognize point and meaning in the familiar newspaper anecdote, which puts into the mouth of the speculator in lands and mines this remark: 
— ”I wasn’t worth a cent two years ago, and now I owe two million dollars.””
Few recognized at the time that the ensuing financial panic of 1873, at the culmination of a period of speculative excess, was going to lead to a long and grinding depression. The signs were there, as they are today, but few connected the dots in advance and understood what was about to unfold and why. Few ever do at comparable points in time.
Unfortunately, humans are not good at remembering, let alone learning from, and applying, the lessons of history. The information is available for those who care to look – far more information than people had access to at previous junctures – but not in the mainstream media. The media’s role is to reflect and amplify the mood of the time, spinning events in accordance with it in a self-reinforcing feedback loop. Real information – the kind we need if we are to face a future more challenging than anything most of us have ever experienced – is found elsewhere, with independent voices contradicting received wisdom when it most needs to be contradicted. That has been our task at The Automatic Earth for the last six years. We cover the events of the day, placing them in the context of the bigger picture we have developed since January 2008.
We aim to make complexity comprehensible, so that people can identify the most immediate and most significant threats and prepare themselves to face them. At the present time, the threat people most need to appreciate is a liquidity crunch, hence this is a major focus of our most recent Video Download release – Facing the Future. It is well underway in some parts of the world already and many more countries will find themselves affected in the not too distant future.
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Iraq: Deeper in Trouble or Eerie Result of US 2003 «Cakewalk»

The year 2013 has distinctively been a blessing for Islamist parties and fundamentalist Islamic governments throughout the Middle East
By Andrei AKULOV
Instability in Iraq has grown steadily over the recent months. The Iraqi government has lost control of the strategic city of Fallujah, west of Baghdad. For the first time since the American troops' withdrawal in 2011, fighters from a group affiliated with Al Qaeda and Sunni tribesmen have seized parts of the two biggest cities in Anbar province bordering Syria.
The fighting erupted after troops broke up a protest camp by Sunni Arabs in the city of Ramadi. They were protesting marginalizing the Sunnis by the Shia-led government. When Prime Minister Maliki dispatched the Iraqi army to quell a protest in Ramadi over a week ago, local tribes fought back. Maliki ordered the troops to withdraw. As a result Islamic militants appeared in Ramadi, Fallujah and Tarmiya triggering combat actions across the whole Anbar province. The Islamic State of Iraq and the Levant (ISIL) asserted control over the western Iraqi city of Fallujah on January 3 declaring an Islamic state there. They had received a boost from some local Sunni tribesmen, who had joined them to fight the forces of Iraq's Shiite-led government, while others turned against the jihadists. Local tribes, Iraqi security forces and al-Qaeda-affiliated militants fought one another for days in a kind of free-for-all messy three-way fray. Hundreds of Fallujah residents have fled. The Prime Minister reversed his decision sending army units back to Anbar. Now the Iraqi army is bracing up for a real tough fight ahead. In case of failure the whole country will be threatened with Syria-like scenario.
Root of problem
The current violence is rooted in the sectarian disputes left unresolved when U.S. troops withdrew and inflamed by the escalating conflict in neighboring Syria. Many Iraqi Sunnis claim they are being marginalized by Mr. Maliki's Shia-led government. Mr. Maliki's drive to restore control is being seen by many Sunnis as an attempt at domination and oppression, and it is taking Iraq back to the brink of a sectarian civil war. In recent months Sunni militants have stepped up attacks across the country, while Shia groups retaliated with deadly reprisals bringing the situation to the brink of full-scale sectarian conflict. On January 1 the United Nations said at least 7,818 civilians and 1,050 members of the security forces had been killed in in 2013. Islamist militants benefit from these deep-seated grievances. The upheaval testifies to the soaring capabilities of the Islamic State of Iraq and Levant (ISIL), the rebranded version of the al-Qaeda which has expanded into Syria while escalating its activities in Iraq. In the past year al-Qaeda has bounced back there killing more than 8,000 people in 2013, according to the United Nations. ISIL has become one of the main components of the so-called «rebels» fighting in the Western-backed war for regime-change in neighboring Syria. Having seized control of territory in northern Syria, it has proven capable of moving forces back and forth across the Syrian-Iraqi border to stage car bombings, assaults on military and police units, and sectarian attacks. Its stated aim is the establishment of a Sunni Muslim caliphate spanning both countries. A backdrop of near continuous urban bombings against Shi’a and government targets continues in northern Iraq and Baghdad. ISIL hopes to link its holdings in Eastern Syria with corresponding areas of control in Iraq’s majority Sunni Arab northwest. In September it bombed four key bridges linking important Iraqi border towns with urban centers closer to Baghdad. In late November, ISIL fighters paraded through a main square of Ramadi to rally support. The recent capture of positions in Ramadi and large parts of Fallujah was the first time in years that Sunni insurgents had taken ground in the province's major cities and held their positions for days.
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Wednesday, January 8, 2014

The Street Keynesians

Spreading the Keynesian benefits of the riots throughout the French economy and population
by Theodore Dalrymple
According to a poll carried out by the Figaro newspaper, only 17% of the French believe that 2014 will be a good year, but in fact it started very well for France. Only 1,064 cars were burned by youths in the banlieues this New Year’s Eve—about a hundred fewer than last year. Who says that there is no progress? The French Minister of the Interior congratulated the 57,000 policemen throughout the country who were on duty that night for their preventive work (one fewer cars1 burned per 570 policemen), but he still won’t publish the number of cars burned in France annually for fear of provoking youth to an attempt to beat the record. Yes, youth is the idealistic springtime of man’s life.
Another optimistic way of looking at the figures is to compare the number of cars burned with the number of cars not burned. This will put the figure into better perspective. About 19,999,000 cars in France were not burned on New Year’s Eve; that is to say, 99.995% of them. Surely this is the way the figures should be presented to improve the population’s morale? Instead of the murder rate, then, we should have the non-murder rate. The result is even better for most European countries: About 99.999% of people are not murdered in any given year.
“As Bakunin pointed out a long time ago, the destructive urge is a creative urge.”
We should always remember the story of the Soviet commissar who, when asked by a soldier in the audience he was addressing whether it was true that there were more cars in the United States than in the Soviet Union, thought for a moment and then replied, “Yes, comrade, but we in the Soviet Union have more parking spaces.”
However, we must not be too optimistic that optimism can be instilled in this way, for almost any statistic can be viewed in a dark light. From the point of view of supposedly Keynesian economics, for example, the decline in the number of cars burned in France on New Year’s Eve was a change in precisely the wrong direction. As everyone knows the European economy is in the doldrums, suffering from a lack of aggregate demand. Government spending cannot take up the slack because governments such as that of the French have been running deficits for forty years, and if they were to try to increase their expenditure yet further there would be another debt crisis (if the first such crisis has ever gone away, that is).
No, the solution can come only from real growth; that is to say, from the private sector. The French have been accused, because of their immemorial Colbertian dirigiste economic culture, of lacking economic initiative. (They were famously even once accused by a great American thinker of lacking a word for entrepreneur.) That is why the ambition of so many of them is to be a fonctionnaire, a civil servant.
This view of the French, however, is in complete contradiction with the initiative shown by youth in the banlieues. Having read Mr. Krugman in The New York Times, they have been persuaded that there is a chronic lack of demand in the French economy that they have decided to stimulate by burning cars. What better stimulation, indeed, could be imagined? The roughly 40,000 cars burned a year (as I have said, no one knows the precise figures) provide employment for thousands of people. The cars have to be replaced, so manufacturing is encouraged; service industries such as sales and insurance are likewise given a fillip. When M. (soon to be president) Sarkozy called the rabble who rioted in 2005 “scum,” he should really have thanked them for their presciently Keynesian conduct.
But M. Chirac, the then-president, was the hero of the hour. He wisely decreed that the insurance companies, whose policies had hitherto excluded damage caused by civil riot, revolution, and war as grounds for claim, that henceforth (and retrospectively in this case) these exclusions should not hold; and he thereby spread the Keynesian benefits of the riots throughout the French economy and population. Equity and justice required no less; the costs and the benefits were spread equally. Furthermore, government debts were completely unaffected by this. No more perfect way of stimulating demand could be imagined. It was not only effective; it was the very instance of liberty, equality, and fraternity in action.
I regret to say, however, that the French government, completely lacking in imagination, has since taken no advantage of the method of stimulating the economy with which it was so selflessly provided by the idealistic youth of the banlieues in 2005. Instead of encouraging those youth, it has taken measures to dissuade them—for example, by posting policemen all around the country and arresting those whom they catch in the process of stimulating the economy. Some of them it even punishes, thus discouraging the very kind of entrepreneurial activity for which it should be thankful.

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Any Real Difference Between Keynesianism And Counterfeiting?

The Piranha Of Portugal: Greatest Counterfeiter Of All Time
By Bryan Taylor
The new US $100 bill is out, as you may have seen this holiday season. Our dear old Uncle Ben is a technological wonder with a dozen different anti-counterfeiting devices on it. Since there are more $100 bills circulating outside of the United States than inside, the U.S. Government has to insure that counterfeiters are unable to replicate the government’s most treasured export. This raises the question, who was the greatest counterfeiter of all time?
Government Counterfeiting
Although governments have done more to destroy their own currencies than all the counterfeiters in the history of mankind put together, the government is not the correct answer. Governments have debased their own currency for millennia. Historical examples of government-induced debasement include:
§     The Roman Empire replacing its silver Denarii with billon Antonininii;
§     The Khans of China creating the first paper inflation in the 1300s;
§     The United States making its first currency, the Continental Dollar, worthless;
§     Germany hyperinflating out of its debts by creating trillions of marks;
§     Or the US Federal Reserve blowing up its balance sheet.
In holding governments accountable, we are also not talking about one government counterfeiting the currency of another government as the
§     Barbarians did of the Roman gold Aureus
§     British did of Continental Dollars and French Assignats during the 1700s
§     Germans did of British Pounds during World War II in Operation Bernhard
§     United States did of Japan’s Occupation currency of the Philippines
§     North Koreans did of US Dollars, making them one of their principle exports.
Governments have consistently destroyed their own currency and those of other countries without ever being held accountable for their “crime” the way a counterfeiter is punished. No, we are not talking about governments; we are talking about individual counterfeiters.
It is one thing for the government to expand the money supply in order to stimulate the economy and help the unemployed. It is quite another for counterfeiters to do the same – albeit on a much smaller scale – to benefit themselves. Counterfeiters provide competition to the government, and though government officials are applauded when they inflate the economy, counterfeiters are condemned to prison when caught.
A Classy Counterfeiter
Our vote for the greatest counterfeiter of all time goes to Artur Alves dos Reis whose story was recounted by Murray Teigh Bloom in The Man Who Stole Portugal. Reis was both smart and classy, and his criminal operation reflected these qualities. To my knowledge, Reis put together the most audacious counterfeiting scheme in history. He conceived his master plan while he was in jail in Oporto for embezzling the funds of a company he had taken over. Some criminals sit in jail and try to avoid repeating their misfortunes. Others, like Reis or Tony de Angelis, think-up bigger, more foolproof schemes. While he was sitting in his cell, Reis put together his master plan that would make him the richest, and possibly the most influential man in Portugal in only one year.
Counterfeiting is a very complex operation. To be successful, (i.e. not get caught), be able to spend your money, and not receive free room and board from the government, you have to do three things successfully. First, you have to create counterfeit currency that can’t be detected. Second, you need a way of laundering the money and converting it into real assets so you can enjoy the fruits of your ill-begotten labors. Third, you must make sure that you avoid the triple curse of detection, arrest and conviction. Let’s see what Reis’s solution was to this age-old problem.
Step One: Create an Undetectable Banknote
First, create a counterfeit that can’t be detected. During the 1920s, the Banco do Portugal had the exclusive right to print currency in Portugal. The bank used foreign printing companies with superior anti-counterfeiting technology to protect their banknotes. The English company, Waterlow & Sons, printed the 500 and 1000 Escudo notes (equal to about $25 and $50 in 1923) for the Banco do Portugal. So why not get Waterlow & Sons to print the notes for Reis as well?
Reis was a natural-born forger. He forged his diploma as an engineer from Oxford as a “joke,” but this helped land him a job as a government railroad inspector in Angola at the age of twenty-two. In 1924, he forged $100,000 worth of checks and used the money to take over control of Ambaca, the Royal Trans-African railway Company of Angola. He then used the money in the company’s treasury to cover his own checks. He was arrested in July 1924 for embezzlement, but was released two months later when a court decided his was a civil and not a criminal case.
It was during the two months he was the guest of the Oporto police that he conceived his infamous counterfeiting scheme. The key was to find someone with a respected name who could help him convince Waterlow & Sons to print banknotes secretly for Reis. He found three men of questionable repute, but with connections to help Reis: Jose Bandeira, Gustav Adolf Hennies and Karel Marang.
Bandeira got his brother, the Portuguese Minister to the Netherlands, to give Marang a letter introducing him as a respected Dutch citizen who had a power-of-attorney for Alves Reis to negotiate the printing of the banknotes. Marang went to Waterlow & Sons in London, and presented his letter of introduction as the “Consul General of Persia” on forged Banco do Portugal stationary to Sir William Waterlow.
Marang spun the story Reis had instructed him to give. A private syndicate was being formed to save the colony of Angola from its current dire financial condition with a $5,000,000 investment. In return for the loan, the syndicate would be allowed to print and circulate banknotes in Angola. Waterlow & Sons would print the banknotes for the syndicate, and once the notes reached Angola, the banknotes would be supercharged with the word ANGOLA so they wouldn’t be confused with notes from the mother country. The whole affair had to be kept secret lest Angola fall into further financial difficulties due to ill-placed rumors of pending economic ruin.
Sir William knew that supercharging notes was normal practice for Portugal’s colonies, and that the Banco Ultramarino had the exclusive right to print banknotes for the Portuguese colonies. This was an opportunity for Waterlow & Sons to get this business away from Bradbury, Wilkinson & Co., the current printer of banknotes for the Banco Ultramarino in Angola.
Marang asked Waterlow to print the 500 Escudo note with Vasco da Gama on it. The deal was signed on January 6, 1925, and for the printing cost of $7,200, Reis and his conspirators would receive $5,000,000 in banknotes, a 70,000 percent return on their investment. Bandeira picked up the first group of notes from Waterlow & Sons on February 10, and by March 20, they had 100 million Escudos ($5,000,000) in Portuguese banknotes. Bandeira used his orange diplomatic card to transport the bills in luggage marked the “Legation of Portugal” across the borders without detection. After the first step had been successfully completed, they placed an order for an additional 190 million Escudos in banknotes ($9,500,000). Of course, the banknotes never made it to Angola.
The greatest risk in the scheme was having banknotes with duplicate numbers discovered, but this was the lesser of two evils. If Reis and Marang had requested banknotes outside the numerical range of the 500 Escudo notes, the spurious notes would have been quickly discovered. The lower risk lay in duplicating the existing serial numbers, and hoping the counterfeiters were able to successfully release all the banknotes before the law of large numbers caught up with them.
Step Two: Laundering Money with Your Own Bank
Step One of the plan was complete, now for Step Two: laundering the money. A small-scale counterfeiter can pass bills through petty criminals, but the notes Reis and friends had were equal to almost 1% of Portugal’s GDP. This was the equivalent of over $150 billion if the same amount had been released in the United States today. Even if Reis hired every petty criminal in Lisbon and Oporto, he wouldn’t be able to unload a fraction of the banknotes.
Reis was going first class with his counterfeiting scheme, and he decided the only way to launder the money was to have his own bank. Reis used his newly printed banknotes to encourage corrupt Portuguese officials and politicians to grant him his bank charter, and on June 15, 1925, the Banco Angola e Metropole’s application was approved by the government. Of course, the bank would have multiple branches in Lisbon and Oporto to speed up the distribution of their treasure.
Want to exchange foreign currency? The Banco Angola e Metropole provides the best rates. Want to borrow money for a business or mortgage? The Banco Angola e Metropole will be happy to extend you the loan in cash. Want high interest rates on your deposits? Go to the Banco Angola e Metropole? In the meantime, Reis, his wife, and their compatriots spent their money freely, buying jewelry, cars, real estate, and sending money abroad.
Reis flooded Portugal with his freshly minted banknotes, and the economy of Portugal was booming. And as Reis would rationalize, how was this any different from what a real government did? Was there really any difference between Keynesianism and counterfeiting?
Step Three: Avoid Detection (For a While)
Step Three and the most important of all was how to avoid detection, arrest and imprisonment. For this, Reis had a brilliant solution. Since they were counterfeiting Banco do Portugal banknotes, only the Bank could initiate proceedings to prosecute them. But what if – just what if – Reis controlled the shares in the Banco do Portugal? The bank had already exceeded its statutory banknote limit many times over and the directors of the Banco do Portugal had never been prosecuted, so why should they prosecute Reis? Or as Reis put it, “How can they arrest us when they’re us and we’re them?”
Like most European countries, Portugal had suffered inflation after World War I. Prices had increased 48% per annum between 1919 and 1924, and the Escudo had depreciated by 87% against the Pound Sterling. Although the Banco do Portugal was only supposed to issue banknotes thrice its capital, it had, in fact, issued banknotes a hundred times its capital. Reis’s monetary manipulations were minor by comparison. The chart below shows the depreciation of the Portuguese Escudo against the U.S. Dollar after World War I.
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"Bubbles Always Pop"

An Austrian Wolf In Keynesian Sheep's Clothing
by Guy Haselmann
The world has been kept on life support mostly by government spending of trillions of dollars  and central bank printing of trillions more. Both have boosted asset prices and given the allure of economic progress. Over-zealous regulators, market rule changes, and aggressive policy stimulus have temporarily stabilized markets. Market vigilantes have been hibernating, because unclear investment rules and uncertainties around the ultimate magnitude of stimulus have prevented them from attacking bad policies or distorting asset price valuations.
It is difficult to know the extent that markets and the global economy have benefited from official policy stimulus; however, five years after the crash, economic growth and the labor recovery remain subpar. Strong growth should have been ignited by now.
Most economists still believe in the ‘official position’ that growth is edging sustainably higher and that interest rates will slowly rise to reflect it. They could be correct, but should it fail to unfold as expected, confidence in the efficacy of official policy will diminish and the social contract will break down further. Since markets require confidence, they will also react accordingly.
Some argue that economic benefits to stimulus have run its course, while the costs from looming unintended consequences have not yet been unleashed. Many believe (and I am one) that the risks and costs of current Fed policy outweigh the benefits.
Most economists still believe in the ‘official position’ that growth is edging sustainably higher and that interest rates will slowly rise to reflect it. They could be correct, but should it fail to unfold as expected, confidence in the efficacy of official policy will diminish and the social contract will break down further. Since markets require confidence, they will also react accordingly.
Some argue that economic benefits to stimulus have run its course, while the costs from looming unintended consequences have not yet been unleashed. Many believe (and I am one) that the risks and costs of current Fed policy outweigh the benefits.
* * *
The Fed’s asset purchase program (QE) and Zero Interest Rate Policy (ZIRP) are the foremost factors that have widened wealth inequalities. The richest few have benefited the most, simply because the 10% richest Americans own 80% of US stocks. The FOMC believe that its asset-price-inflation-trickle-down-policy leads to spending which ultimately leads to job creation, especially for the poor.
However, several FOMC members themselves have questioned Fed policies, citing that they have not worked as well as had been hoped, and pointing out that aggregate demand has been weak throughout the recovery. To his credit Fed Governor Jeremy Stein broached the subject of unintended consequences of Fed policies when he mentioned in his February paper, “A prolonged period of low interest rates, of the sort we are experiencing today, can create incentives for agents to take on greater duration or credit risk, or to employ additional financial leverage in an effort to ‘reach for yield’”.
Zero interest rates have incentivized corporations to issue debt in order to capitalize on the historically low interest rates; however, corporations have primarily used the money to pay greater dividends, buyback shares, or modernize plant and equipment. There is a strong case to be made that holding interest rates at zero for a prolonged period is actually counter-productive to the Fed’s efforts to achieve either of its dual mandates. This is because increasing productivity through modernization typically exposes redundancies: it allows firms to lay-off workers, while the improvement in competitiveness allows firms to drop prices.
Furthermore, and as I referenced in my 2013 paper, “Should the marginal propensity to consume of creditors exceed that of debtors, the net effect of redistribution could be to lower household spending rather than raise it. There are some conservative savers who have a predetermined goal in mind for the minimum amount of savings they wish to accumulate over time. Those investors may refuse to move out the risk curve in search of higher yields (likely widening the wealth divide). To them, lower interest rates simply mean a slower rate of accumulation, which likely will jeopardize their minimum goal. The only recourse for this investor is to save more, which is the exact opposite intention of the Fed’s policy. For example, if interest rates fall from 4% to
3%, an investor would have to increase savings by more than 20% each year to reach the same goal over 30 years.”
Another negative result of ZIRP is that banks and other lenders are discouraged from lending due to puny return levels; and, therefore, the Fed’s desire to expand lending is compromised. Are lower (or negative) interest rates supposed to increase the incentive to lend money? To assume such is absurd. Although somewhat counter-intuitive, if interest rates rose, then the supply of money willing to be lent would increase due to wider interest margins.
Policies are so unprecedented and unproven that it is possible that the Fed itself has now become a source of financial instability. This could be the case either through the potential fueling of asset bubbles, through its compromised ability to conduct future monetary policy (due to it  unwieldy $4 trillion balance sheet), or due to “unknown unknowns.”
* * *
In a low to zero interest rate policy (ZIRP) environment, investors desperately search for yield. This frequently chases investors into assets to which they are ill-suited and to which they will miscalculate liquidity and downside potential. Under ZIRP paradigms, riskier assets become the best-performing. Credit spreads collapse and equities soar.
Massive monetary ‘printing’ by global central banks has not just emboldened investors, but these actions have collectively changed their behavior and psychology. There is evidence that policies have led to mis-allocation of resources. Investors are emboldened to take what many critics believe is inappropriate or reckless levels of risk. The motto, “Don’t fight the Fed” has taken on added meaning. Moral hazard and a deep-seated bullish psychology have become rampant.
Extended Fed promises of lower rates and a continuation of asset purchases even as the economy heals, are conspiring to propel prices ever-upward. Investing today has become mostly about seeking relative yield, rather than assessing value or determining if the investment’s return is sufficient compensation for the risk.
Simply stated, investors and speculators receive ever-lower returns for ever-higher levels of risks. Over time, the ability of an investor to assess an asset’s fundamental value becomes ever-increasingly impaired. It should a warning sign to portfolio manager’s fiduciary responsibility to maximize return per unit of risk (see market liquidity section).
There have been persistent cycles of asset booms (bubbles) that eventually turned to ‘busts’. Very low or negative real rates (seen recently) always create economic distortions and the mispricing of risk, thereby creating asset bubbles. Each ‘boom’ had some differences, but the common factor has always been easy money which the Fed was too slow to withdraw. Providing liquidity is always easier than taking it away, which is one reason why the Fed has hit the “Zero Lower Bound” in the first place.
Eventually (un-manipulated) asset prices always return to their fundamental value, which is why bubbles always pop. The FOMC has backed itself into a corner. Current changes in policy are being designed around efforts to manage the unwind process seamlessly. Central bank (and government official’s) micro-management appears based on a belief that they can exert an all-encompassing central control over markets and peoples’ lives. Those in power have come to believe that policies have a precise effect that can be defined and managed. This is highly unlikely.
In ‘normal’ times there is a more discernable connection between cause and effect. However, the usual relationships particularly break down during periods of over-indebtedness, unprecedented regulatory changes, and official rates reaching the zero lower bound. Today, the world is far from ‘normal’. It is not difficult to imagine the looming fallout from policies that have promoted asset price inflation, and which have materially compromised market liquidity.
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