Reactions to Bernanke

I'm a little late in blogging my reactions to Bernanke's press conference, or rather, my reactions to the reactions to Bernanke's press conference. It struck during the press conference that most people don't realize that tapering is not equivalent to tightening. The question from the reporter from Marketwatch.com was a particularly stark reminder of that. Tapering from $85 billion/month to $50 billion/month is not a tightening of monetary policy; the balance sheet continues to expand. It's expansionary monetary policy, just not as expansionary as markets are expecting. But from the reaction of the stock and bond markets, you'd have thought that Bernanke was going to slash his balance sheet 50% overnight. This is the same type of thinking that causes people to claim that government spending growing 1% instead of 4% is a "spending cut" and to wail and gnash their teeth over the "cuts" brought about by sequestration. Cuts are cuts; cuts in the rate of growth are not cuts.

But what really struck me in reading press accounts of the press conference was how strongly most writers misinterpreted Bernanke's comments and answers. A few samples below: From Reuters:

"Asian shares tumbled to nine-month lows on Thursday as slowing Chinese manufacturing activity exacerbated sentiment already unnerved by the U.S. Federal Reserve Chairman Ben Bernanke confirming the Fed would begin reducing its stimulus spending later this year."

From the Financial Times:

"European stocks join sell-off seen across Asia and the US after Federal Reserve signals it will begin tapering asset purchases later this year."

From the Frankfurter Allgemeine:

"America's central bank has bought much government debt. That will end next year. That has enormous consequences for the whole world."

From the Washington Post (via AP):

"Stocks extended their slide after the Federal Reserve said it could start scaling back its economic stimulus program later this year and end it by the middle of next year."

It's as though all of these writers are writing from the same script. Bernanke didn't confirm anything about any tapering or end to quantitative easing. He merely laid out a hypothetical scenario under which the Fed might begin to slow down the expansion of its balance sheet. And look at the market reaction! Gold and silver down, stocks down, bond yields spiking, just all around chaos and panic all over. Not as bad as '08, thankfully, but look at what just the possibility of slowing down QE3 will do.

It wouldn't surprise me if this were all a movement on the part of markets to force the Fed's hand and force them to continue or even ramp up quantitative easing. After all, Bernanke promised that the Fed would continue to try to keep long-term interest rates low, so if tapering QE3 means that yields will spike, then he really has no choice but to continue or even increase the amount of money he is pumping into the system. The markets lust after the Fed's easy money, and the banks would hate to see that gravy train of large scale asset purchases come to an end.

What the recent market activity has shown is that Bernanke really can't control interest rates to the extent that he thought he could, no matter how much money he pumped into the system. He hasn't begun to taper QE (we think) and yet interest rates are rising. I always knew that markets would eventually reassert themselves and overcome the Fed's attempts to push interest rates downwards. Fundamentals will always trump fiat. Could this be the beginning of the end of low interest rates? Looking back over the past two months, rates on 30-year mortgages have risen nearly 150 basis points, this during a period of continued monetary easing. Eventually Bernanke and the Fed will hit a wall. They'll keep pumping and pumping and it will have no effect, or at least not the effect they want it to have. I can only hope that the Fed will draw the obvious lesson from that and stop the printing presses, but we'll see. That time may be rapidly approaching.

First Thoughts on L'Affaire Snowden

I sincerely hope that one of the lasting consequences of Edward Snowden's decision to blow the whistle is to lay bare the reality of how deeply American society is held captive by the intelligence state. During the Cold War Americans were told that the only way to defeat the Soviets was to become like them, and so the US government underwent a radical transformation. The excuse was that it would only be temporary, until the Soviet threat was vanquished, and then things would return to normal. But after 45 years of existence, the massive security apparatus built to counter the Soviets was not about to let go. In fact, the US had become just like the Soviet Union, where the key to wealth was to latch onto the intelligence apparatus and its accomplices.

How many rich Russians have pasts with the KGB? And how many of Russia's largest firms are full of executives with KGB backgrounds? Of course we can't forget the once and current Russian President, Vladimir Putin, who himself was a KGB agent. Yet for all the wailing and gnashing of teeth in the US over these facts, Americans seem to forget that the former head of the US intelligence services was himself president from 1989-1993, and that his son served as president from 2001-2009. I don't know whether American arguments against Putin's KGB past are merely from ignorance or from hypocrisy, but they hold no water with me. Because the fact is that the US is likely infiltrated by elements of the intelligence-industrial complex to the same extent that Russia is.

Some articles in the early days of the Snowden controversy highlighted the deep ties between Booz Allen and the intelligence agencies. The fact that Booz Allen is owned by the Carlyle Group, whose current and former board members and employees read like a Who's Who of the Washington foreign policy, defense-industrial, and intelligence-industrial complexes, and that Booz Allen, one of the DC area's largest and best-known names, is so heavily involved in intelligence contracting for the US government, is an indicator of where much of the money is to be made in government. I have yet to read Confessions of an Economic Hitman, but I have no reason to believe that it's not factual. That the CIA and its cronies attempt to place talented people in Fortune 500 companies, use them as sources of information, and attempt to profit or enable others to profit from the information they acquire from their espionage is a fact that I don't believe can be denied any longer.

The US economy is the goose that lays the golden egg, and the Stasi types who have infiltrated corporate America realize the extent to which they can take advantage of that goose. But I fear that we may be past the point of no return and not even know it. The intelligence-industrial complex is so embedded into so many areas of American society today that it risks strangling the lifeblood of the economy. At some point, some higher ups will demand total control, and the turn-key authoritarian state that Snowden warned about will spring to life. Spies won't be running things behind the scenes anymore; now their control will be out in the open.

I fear that Snowden's revelations have only scratched the surface of what the NSA, CIA, and their ilk are up to. I can only hope that the full extent of their shenanigans is ultimately revealed as a result of this affair and that it can be combated and overcome. If the fact that intelligence bigwigs are using their knowledge and connections to enrich themselves and their cronies at the expense of the American people isn't enough to get people off the couch and motivated to change the direction the US is headed in, then there's probably not much hope left for this country.

The Post-humanity of the Postmodern World

I am tremendously backed up on writing for this blog. But I do have a laundry list of topics about which to write. I thought I would break my hiatus by posting a story that CNN publicized back in March about a German fighter pilot who chose not to blow an American bomber out of the sky.

It's not dissimilar from the stories you read about troops leaving the trenches during Christmas of 1914, singing carols and playing football with one another before returning to their respective bunkers and continuing the attempt to annihilate the other side. The author of this particular article chalks up the reason for this type of behavior to the warrior code: "What is this bond that surfaces between enemies during and after battle? It's called the warrior's code, say soldiers and military scholars."

No, actually, it's not a warrior code at all. It's just plain old humanity; conscience; morality. It's the realization that the other guy doesn't want to kill you, nor do you want to kill him. You're both there fighting someone else's war under pain of imprisonment or death. Try as the military did, it couldn't eradicate every shred of decency from its soldiers, and thank God for that. Sometimes basic human decency triumphed over the best-laid plans of butchers.

It's amazing that behavior as basic as not killing other people is lauded so highly. I don't recall hearing stories exclaiming how amazing it is that policemen who pull over attractive women for speeding end up not raping them. Or how hundreds of people enter banks every day without robbing them.

Perhaps it is because the nature of warfare has changed that we find such stories remarkable. World War II was fought among large masses of conscripted adult men, forced against their will to serve dictatorial regimes and fight other armies to the death. Nowadays militaries are nominally volunteer armies, and the wars they fight are wars of naked aggression in which Western powers engage in fights against guerilla armies and men keen on defending their homelands against foreign invaders. It would be hard to imagine an American sniper not pulling the trigger to blow out the brains of a 14-year old Pashtun boy, just as it would be hard to imagine a Taliban fighter looking into the eyes of an American soldier and not detonating his suicide vest.

Or is it perhaps an indication of how far our society has fallen over the past few decades from its long-established cultural and moral mores that we find these stories remarkable? I have to imagine that this is perhaps the primary reason. Just as common sense is no longer so common, so too the values that shaped middle class society are no longer held in esteem. Thrift, hard work, and academic accomplishment are denigrated. Selfishness, rudeness, envy, slovenliness, are no longer just tolerated but in some quarters even promoted. Attempting to criticize someone for being lazy, boorish, or uncouth will result in denunciatory epithets regarding judgementalism, etc. Everyone is a princess and must be affirmed in his behavior, no matter how bizarre, abhorrent, or downright evil. It really is as though society has degenerated into a post-human morass in which nothing separates humans beings from beasts.

Yet despite the breakdown of society, the fact that stories such as the above are highlighted as some sort of ideal do give one hope that not all is lost. After all, if our society were past the point of no return then the fighter pilot would be castigated for being a p***y. I'm sure there were some comments of that nature made to that article. But by and large I think that the majority of people do see the pilot's behavior as an ideal to be held in high regard.

I've always believed that the overwhelming majority of people are inherently good. Even if it is just out of pure self-interest rather than fidelity to moral teachings or conscience, most people do not want to murder, rape, and steal. They realize that cooperation with others will lead to better societal outcomes than the use of force. Those of us who understand this need to do a better job of pointing this out to our comrades and urging them to live this way in every facet of their daily lives, while we ourselves must not fail to set a good example for others to follow.

The Soviet Union Won the Cold War

The Soviet Union won the Cold War, and most people in the United States are completely oblivious to that fact. Every time I read an article like this one, or this one, or this one, I'm reminded of just how many people buy into the mindset of central planning.

The government decides that it wants a certain neighborhood to look a certain way so, by Jove, that's how it's going to look. If it wants retail stores, then it will only allow retail stores; if it wants restaurants, then it will only allow restaurants. The desires of consumers are irrelevant, it is only the desire of those in government that is important, and government will mold society according to its own wants. Government officials treat the world around them like a giant game of SimCity or Civilization. You want to open a hardware store? Too bad, zoning won't allow it. Want to build townhouses? Too bad, you can't get occupancy permits. And when governmental restrictions on what can be built where end up leading to an increase in housing prices or to a dearth of grocery stores, hardware stores, or gas stations, who gets blamed? I'll give you a hint: it's not the government.

The market will always be blamed for the failures of government. After all, didn't you know that we live in an unfettered, laissez-faire, free market society? It's practically the Wild West we live in today. Banks are completely unregulated and corporations are running around trampling on the rights of citizens because government fails to intervene. The fact that the financial sector is completely and utterly in bed with government is ignored. TARP never happened. Regulations A through YY (yes, there really are that many) are overlooked. The barriers to entry into banking or to any business, the most burdensome of which are direct result of government intervention to protect existing market players are taken as a given, rather than as obstacles to be dismantled. Progressives have thrown Brer Rabbit corporations into the briar patch and pat themselves on the back for a job well done.

How many states and localities have planning commissions and economic development boards? I doubt there's a city or county out there that doesn't have one or the other. And if they decide they want a certain area to look a certain way, they will do whatever it takes, right down to seizing property through eminent domain, in order to do it. The people who engage in and support this centralized planning seem to believe that if the government wasn't around to tell us what to do, half of us would do nothing but sit around in our underwear drinking beer and getting high, while the other half would run around on murderous rampages. They seem to believe that if it weren't for government telling us how to tie our shoelaces, how to brush our teeth, etc., etc., civilization would come to a total and complete collapse.

In fact, it's just the opposite. It is the state that is the greatest threat to civilization. The state is built on one principle: might makes right. It uses force or the threat of force to try to make people act the way it wants to, and we currently live in an era in which the reality of the state's brutality is more and more evident every day. It is also the state whose failed central planning leads to economic failures that are blamed on the market, the solution to which is -- surprise, surprise! -- yet more central planning. And there's almost no one who questions any of this. Society is so inured to government intervention into and dictation of every facet of our lives that no one gives it a second thought. Just read the comment sections under most of these articles and most people quibble about the details and aims of these government plans, but almost no one takes issue with the fact that government is getting involved in this stuff in the first place. I realize that most people are busy living their own lives, which is great, but that's not incompatible with enhanced awareness of the depredations of governments.

How Far Gone is the US?

National Journal this afternoon published an execrable piece of bootlicking. In a short editorial, Jill Lawrence proclaimed that:

Rand Paul’s drone filibuster, while admirable as an expression of principle, took place in a theoretical world of civil liberties. Presidents operate in the real world of Americans under continuing threat – just ask President Obama or George W. Bush – and their top priority is to avoid terrorist killings on their watch.

As is usual with Big Government's sycophants, Mrs. Lawrence has things completely backwards. The erosion of civil liberties is a practical, everyday reality, while terrorist attacks are the theoretical possibility. How many rights have Americans given away since 9/11, all for the Sisyphean quest for complete security? The right to travel, the right to bear arms, the right to be safe and secure in our persons and possessions, and every other God-given right that is supposed to be recognized and protected by the government is under attack, each and every day. The only terrorist attacks we might face are those resulting from blowback from the United States' continuing meddling overseas. And yet our leaders imagine themselves as the protagonists of "24," making excuses for torture and unchecked murder both at home and abroad.

Mrs. Lawrence ends her piece by stating "let's not tie our presidents' hands." I can't think of a statement that is more ludicrous. Of all government officials, the president's hands are those which are most in need of tying. It is precisely because the executive is the one person who can bring the enormous power of the government to bear that his exercise of that power must be strictly limited and severely counteracted in the event that he oversteps those limits. The Founding Fathers knew as much, which is why they sought to check the power of the federal government, setting up a set of checks and balances among the federal government, state governments, and the people. But so much of that framework has, not surprisingly, been eroded away over time as the people gladly gave up their liberty in order to suck on the government teat. Have we reached the point of no return? I sincerely hope not, and the wave of young people joining the liberty movement does give some cause for optimism.

But reading articles like this makes me wonder if I'm in 1930s Germany. The embracement of the police state and the "it can't happen here" mentality is so entrenched, and especially among people in Washington, that it's sickening. Politics has always been the exercise of war by other means, but normally politicians have taken great care to hide the unseemly bits from plain view. Nowadays the façade is being stripped away more and more every day and revealing the naked aggression and deadly consequences of political decisions, yet so many in DC continue to treat politics like a game. As long as Team A beats Team B and makes Team B look bad in the press, it's mission accomplished and damn the consequences. They'd rather gloat that "their guy" won the election than challenge his dictatorial policies. And by the time George Bush IV begins to use those policies to eliminate his domestic enemies, it'll be too late for them to stop anything.

To people such as Mrs. Lawrence I have but one thing to say, quoting the great Samuel Adams:

If ye love wealth better than liberty, the tranquility of servitude than the animated contest of freedom — go home from us in peace. We ask not your counsels or arms. Crouch down and lick the hands which feed you. May your chains sit lightly upon you, and may posterity forget that you were our countrymen!

Contra Bitcoin

Bitcoin has been a hot topic for the past few days, particularly because of the news of bitcoin ATMs which will accept Federal Reserve Notes and exchange them for bitcoins. What are bitcoins? Bitcoins are a digital currency that are created by a computer program which harnesses computing power to "mine" units of the currency. As additional units of the currency are created, each marginal bitcoin requires more and more computing power to create, until the total number of bitcoins in existence reaches 21 million.

Proponents and early adopters of bitcoin are touting bitcoin as a revolution in currency, a decentralized peer-to-peer currency system which will help to break the state/banking monopoly on currency issuance. But is bitcoin really all it's cracked up to be?

While I like the decentralized aspect of bitcoin and the fact that it seeks to work outside the banking monopoly, I believe that those who promote it lack an understanding of the origins and nature of money. I also believe that bitcoin does not in fact live up to its hype.

The Nature of Money

What is money? Money is a commonly accepted medium of exchange, a store of value, and a unit of account. That means that money can be used to facilitate indirect exchange; it can be held as a store of value; and it enables basic accounting and the calculation of profit and loss. Money has certain properties: divisibility, portability, recognizability, uniformity and scarcity. These mean that units of money are easily divided into smaller units to facilitate smaller transactions; money can be easily carried from place to place; it is easily recognized as money by many people; each monetary unit is identical to every other one; and money is not available in quantities such that if fulfils everyone's demand for money simultaneously. The ideal money is one which possesses all these properties and characteristics.

Traditionally, money has always been a commodity, the most widely accepted commodity in a society. In some societies it was goats, in others beads or tobacco, or for the past several centuries, gold and silver. But it was always a commodity that had a non-monetary use as well, something that had some non-monetary utility. Should the monetary order break down, or should the demand for non-monetary uses of money be greater than the demand for its monetary use, money could be consumed rather than saved. Goats can be eaten, tobacco smoked, and gold and silver fashioned into jewelry. Even Federal Reserve Notes can be burned for heat. But what can you do with a bitcoin?

The Nature of Bitcoin

Bitcoin is just a representation of energy expended. It is a function of a certain amount of electricity powering a computer processor running a particular program that creates these bitcoins. The energy used to create bitcoins is energy which can no longer be put towards any productive purpose, it has ceased to exist. Bitcoins therefore are backed by nothing and represent nothing. In comparison to dollars that are created out of thin air on bank ledgers by the Federal Reserve, bitcoins differ only in degree, not in kind. The creation of a trillion dollars by the Fed may not require as much computing power, but is essentially operating under the same principle as bitcoins: energy powering a computer processor that is operated by a human being in order to create a digital currency that is (hopefully) widely accepted. You could use a similar principle to create a currency that is based on the energy given off by feces and it would have the same backing as bitcoin. It would be called Buttcoin. And it would be extremely popular.

If you look at the Wikipedia page for bitcoin, you'll see this under the description:

"...bitcoin attempts to build upon the notion that money is any object, or any sort of record, accepted as payment for goods and services and repayment of debts in a given country or socio-economic context."

It is true that anything can be used as money, but in the absence of legal tender laws or other similar state-imposed restrictions, societies have always chosen commodity money. Unbacked trust-based monetary systems such as the one that currently exists are historical anomalies which will eventually go by the wayside. It makes no sense to tout a new monetary unit that merely replicates the current system on a smaller scale, even if it is slightly more decentralized and bypasses the current banking system. Eliminate legal tender laws and all other government-imposed barriers to currency competition and we'll see just how viable bitcoin really is.

The Wikipedia description also states that:

"Unlike most currencies, bitcoin does not rely on a central issuer, like a central bank or government."

Actually, it does. The central issuer of bitcoin is the original program, the original genesis block that started this whole project. And each of the miners is a participant in the creation of this new currency. An analogy that comes to mind is Satoshi and the original genesis block as the Fed, and the miners as the banks. There may not be a monopoly on who can become a bank/miner, but the miners are still active participants in currency creation just like banks are in today's monetary system.

Bitcoin is also limited in its size. Again according to Wikipedia:

"There is a hard limit of 21-million bitcoins in total, which are released at a scheduled rate until the year 2140."

This is just an arbitrary limit, but one which bitcoin miners and users are powerless to change. Once all bitcoins have been mined, that's it, no more. If bitcoins are stolen or lost, that's a permanent loss to the money supply, unlike other monies like gold and silver which can be continually mined to replace losses from circulation. I'm not really sure what the benefit of a hard limit like this is, but it's not all what would be encountered in a free market monetary system.

Conclusion

The more I read about bitcoin, the more I think about John Law and his scheme to issue notes backed by land. Or more recent schemes to monetize intangibles such as goodwill and patents. There has never been a shortage of people who proclaim that there is a shortage of money, and that they have the solution to all of our monetary ills if we can just create more money. I know that bitcoin wasn't really intended for that purpose but I can't help but think of that, especially given all the hoopla surrounding bitcoin. If people want to use it, great, but I would hope that libertarians and sound money activists, rather than wasting time promoting some flash in the pan, would put their effort into promoting real sound money.

You Can't Handle the Truth!

As Ron Paul once said, "Truth is treason in the empire of lies." Or as Jesus said, "Amen I say to you, no prophet is accepted in his own country." (Luke 4:24). I could probably go on, but the point is that sometimes the truth is inconvenient, and very often we don't want to hear it. We're so set in our ways, even if those ways are wrong, that we don't want to hear that we're wrong. We want positive affirmation, even of our misbehavior, and we get upset if people call us out.

I heard someone recently talk about how children have an innate sense of truth. If you're fat, they'll tell you so, that's just what they do. They're not conditioned to lie. Only as we grow older do we begin to hide the truth, sugarcoat uncomfortable things, and eventually tell lies and untruths.

Governments today have a particularly hard time dealing with the truth. Those in positions of power want to surround themselves with sycophants and yes-men. In their minds, they can do no wrong. Only they know what's best for the poor, benighted sods who vote them into office. This is the attitude that breeds the Bloombergs, Bushes, and Obamas of the world. This is what breeds the nanny statists who want to outlaw the consumption of marijuana and Big Gulps, ban guns, and regulate how low a man is legally allowed to wear his trousers. There is nothing too picayune for these busybodies in which to involve themselves.

But I digress. The important thing is that our "leaders" don't want to hear the truth. They want to hear that they are always right. And if somebody should dare to tell them otherwise, they fly off the handle. For the most part, they get their way. But every now and then, the truth has a funny way of making itself known.

This is particularly true in the field of economics. You can only do so much to suppress reality in economics before the force of the market makes itself known. It may take 75 years as in the case of the Soviet Union, but it will happen. And all the talk of green shoots and the economy rebounding is just that, empty talk. It's an attempt to assuage the everyday man whose investment cash is used by the big Wall Street banks to play their financial games. Lull the sheeple into thinking that everything is hunky dory so that they'll be easier to slaughter. God forbid anyone should realize just how screwed up our financial system is and badly our economy will tank once the Fed's reflation bubble bursts.

Look at the transcripts of the Federal Open Market Committee that were just recently released. How many economists, Austrian and non-Austrian, were pointing out the dangers of what was clearly a housing bubble even before the financial crisis, yet even by the end of 2007 the policymakers tasked with economic central planning were completely clueless. I suppose one can't blame them, since they're only human, but it would be nice if someone would draw the obvious lesson from that and realize that it is completely senseless to put 12 people in charge of a multi-trillion dollar economy. Hayek's Nobel Prize acceptance lecture ought to be required reading.

I'm reminded too of how Treasury Secretary Geithner was laughed at by Chinese students when he told them that dollar-denominated assets were a safe investment. He was parroting the company line that is swallowed hook, line, and sinker by American government leaders and mainstream investment advisers. The dollar is safe and strong, and Treasuries are a great investment backed by the full faith and credit of the United States government. You know, the government that promised land to its soldiers and reneged; the government that signed treaties with the Indians and then slaughtered them mercilessly; the government that defaulted on its gold bonds in the 1930s. It's no wonder the Chinese students laughed, they can see right through the lies. They're like children, they can see right through the deception, unlike Americans who will themselves to swallow these lies rather than risk the destruction of their entire worldview.

And how do those in power and their sycophants treat those who tell the truth? Just look at Peter Schiff and how he was treated before the financial crisis. Look at how the Greek government is going after the head of the statistics service ELSTAT for publicizing the true size of the Greek government's fiscal deficit. Or how Argentina is cracking down on the publication of private measures of inflation which show inflation rising at nearly 30% per annum, a rate far higher than that reported by official government sources. And then of course we have the exchange rate of the Venezuelan bolivar, which even after the recent devaluation is still far more undervalued on the black market than on official markets.

Government will do everything they can to keep the lies going, because they are constitutionally incapable of facing the truth. They would rather deceive themselves and others than acknowledge what is plainly true. In fact, you can pretty much assume that the truth is the opposite of whatever a government agency is telling you. Government says GDP is up and unemployment is down? That means we're probably in a recession. Afghanistan is under control? That means the Taliban is running everything. So what to do about it? Good question. But it's late, I'm tired, and I'm probably rambling at this point. Maybe I'll delve into this further once I can keep my thoughts straight.

Currency Wars

The topic of currency wars has come into the spotlight recently, particularly with the threat of Japanese devaluation, comments by French President Hollande, and the devaluation of Venezuela's currency. The G7 just put out a statement on currency devaluation and exchange rates, the full statement below.

"We, the G7 Ministers and Governors, reaffirm our longstanding commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets. We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates. We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will continue to consult closely on exchange markets and cooperate as appropriate."

The first sentence is confusing. They affirm a commitment to market exchange rates but then are also committed to consulting closely regarding actions in exchange markets. So they do intervene in exchange markets (actions in exchange markets) and will consult (consulting closely) with each other about their actions, but they consider that fully in line with the free market (commitment to market exchange rates).

Then in the third and fourth sentences they talk about the negative effects of volatility and say that they will consult closely and cooperate as appropriate. So they're worried about exchange rate volatility (which is good for currency traders) but will consult and cooperate as appropriate(which means they'll manage exchange rates if necessary.)

This is typical of just about any government press release. Vague, confusing, contradictory. It says nothing and everything at the same time. Ignore the words on the paper, just realize that world governments are ready to intervene at a moment's notice. Switzerland has been maintaining a peg to the euro for over a year, and don't bet that other countries won't start reintroducing pegs either. With luck, maybe we'll move back to fixed exchange rates, then back to a Bretton Woods-type system, then to a 1930s-style gold exchange standard, and then back to the classical gold standard. Hey, I can dream, can't I?

But all of this is just really bringing out into the open what has been happening surreptitiously for years. Most people haven't been paying attention, but these currency wars have been fomenting for a decade or more. Japan has been keeping low interest rates for decades, hence the yen's popularity in the carry trade until the onset of the financial crisis, when the rest of the world also pushed overnight rates to zero. Brazil was thought to have engaged in competitive currency devaluation a few years ago, and of course the United States government has been ragging on China for years for pegging the yuan to the dollar.

In the case of the yuan, it was not in fact China that was the currency manipulator, but the United States. Sure, China probably shouldn't be pegging to the dollar, but put yourself in their shoes. The world's largest economy is flooding the world with debased currency, most of which is ending up in your country, to buy your exports. If you don't peg to their currency, your domestic currency appreciates, making your exports more expensive abroad, hurting the export industry upon which your country depends. So the understandable reaction is to peg your domestic currency to this debased currency, the dollar, flooding into your country. The reason the US was pissed off was because it didn't want China to maintain this peg.

Just as in the 1960s, the US wanted to create new dollars and buy goods from abroad. But then this monetary inflation would cause foreign currencies to appreciate, making US goods cheaper abroad. So you get cheap foreign goods with dollars created out of thin air plus you boost your own export sector, what could be better? But that requires other countries to play along and not depreciate their currencies along with you. China, by pegging the yuan to the dollar, essentially inflated its currency along with the dollar. Inflows of dollars were mopped up with yuan, and those dollar holdings were plowed back into purchases of Treasuries. Great for the US government, which was able to rack up huge deficits as a result, but they definitely tried to look that gift horse in the mouth. In fact, there's still pressure on to try to name China as a currency manipulator. A clearer case of the pot calling the kettle black there has never been.

But this is what happens in a world of government fiat currencies. Government fiat currencies are proxies for their national governments. As long as you have nationalized currencies, the likelihood of currency war is just as likely as that of military war. Governments seek to monopolize the monetary system specifically so they can engage in monetary policy. And by engaging in monetary policy, they attempt to achieve both domestic goals (increased employments, erosion of the value of their debts) as well as international goals (achieving a more competitive position for national exports.)

The only way to break this and eliminate the possibility of currency war is to break these national monopolies. It will have to start in one country, and hopefully that will be the domino that gets things moving. Once consumers have a choice of an actual sound, stable monetary unit, I can't see them wanting to return to monopoly money.

Now that the entire world has basically reached the zero bound, with no sign of return to growth, countries are going to strat resorting to drastic monetary measures to boost their economies. Domestic issues take precedence at this point, and if these monetary measures require beggar thy neighbor policies, then so be it. Belarus and Venezuela have already depreciated, but no large countries have yet. The fear is that one country or bloc will attempt to buck the system, and once that first country has defected from the consensus, everyone else will follow suit. Hence the fear of a hot currency war. Will a currency war be the 2010s version of Smoot-Hawley? Could very well be. And the only way to avoid it is to break national monopolies over the creation and issuance of money.

Weighing In on Ron Paul vs. ronpaul.com

Now that the Grammys are over, and without any breaking news about Kim Kardashian or Lindsey Lohan, the event grabbing everyone's attention is the fact that Ron Paul is finally taking action against the operators of ronpaul.com. What's disappointing is the sensationalistic and misleading headlines accompanying all the news articles, accusing Ron Paul of invoking the United Nations to steal someone else's private property.

Unfortunately, it's typical of too many even within libertarian circles that they shoot their mouths off before doing any thinking about an issue. They're too interested in pulling a gotcha or expressing Schadenfreude about exposing hypocrisy to actually analyze what is going on. Particularly disappointing to me was the glibness with which people such as the Center for a Stateless Society (C4SS) publicized this issue. You would think that they, of all people, would have done a little more research. Instead, in trying to gloat about their ideological purity, they really stepped in it.

I'm not even going to touch the part about "Ron Paul appealing to the UN", since that has already been described in great detail by other people in multiple comment threads across the Internet. To make a long story short, when registering a domain name with ICANN, you agree to arbitration in case of a dispute, and WIPO is one of the authorized arbitrators. So Dr. Paul's lawyers are just following the rules based on the system as it is currently set up. We all have to deal with the world as it is, not as we'd like it to be.

What I'm concerned about is the characterization that Dr. Paul is seeking to seize a piece of private property. Not true. The .com top level domain (TLD) was created by the federal government. Websites with .com endings were first awarded to companies that were closely cooperating with the government in the development of the Internet, and only gradually were able to be registered by private entities. The management of the .com TLD was initially managed by the Department of Defense, later the National Science Foundation, and then a series of companies.

Once the .com TLD was created, every single .com URL able to be created was brought into existence. Ronpaul.com, ronpaul1.com, ronpaul14876.com, x13ytu78z.com and infinite permutations based on words, names, and characters all exist. Even though they may not be registered, they still exist, and because they exist someone has a right to register and control them. The question then becomes, who has that right? Since you're privatizing a domain name that originated as something the government created, does the domain name rightfully belong to the first person to register the URL or to the person who already owns the trademark, has that name, does business under that name, etc.?

Consider the case of patents. We may disagree with the system's existence, how the system was created, and the fact that it's now first to file, but from a moral perspective, if one person comes up with an idea, but another is the first to file for a patent, the proper patent holder should be the creator, not the filer.

Or look at privatization of government-owned concerns in the Soviet Union, France, the US and other socialist countries. Do those government companies that are privatized rightfully belong to the politically connected or to those who paid big bucks at rigged government-run auctions, or do they belong to the citizens/taxpayers/workers? I lean towards the Rothbardian syndicalist position on that one. When state governments in the US turn public highways into toll roads, are those really examples of free market privatization or are they in fact public-private partnerships, a.k.a. fascism?

The domain name system is similar to those examples. Not every domain name is analogous to a parcel of pre-existing land that is available for homesteading. Instead there are a combination of domain names with pre-existing claims on them mixed in along with homesteadable domain names. The government and the later managers of the TLDs realized that there would be inevitable disputes due to the registration of domain names incorporating trademarks, personal names, business names, etc. that would infringe on the rights of third parties. But rather than creating a system that protected those existing rights from the outset, the government went ahead with the creation of a nationalized domain name system, bringing into existence a system in which there would be property rights disputes and then punting on resolution of those disputes.

The domain name system was eventually "privatized" by turning it over to a select few companies, although the federal government still remains ultimate control over the domain name system. The system allows anyone to register a domain name, regardless of whether or not a potential dispute exists. Any disputes have to go to court or to arbitration. Perhaps this could have been avoided had there a multiplicity of TLDs in existence from the creation of the domain name system, such as .person or .name, or had there been a different means of addressing websites. But again, we have to deal with the system as it was created, not as we wish it should be.

There are a lot of people claiming that Dr. Paul should have been the first person to register ronpaul.com and that it's just his tough luck that someone scooped him. Had we a truly free market Internet, that would be true; but we don't. Think of the dispute this way: the government creates ronpaul.com and says that it alone has the sole authority to determine who gets to own it, trademarks be damned. It then allows a free-for-all, allowing anyone to register it, even if it's not actually Ron Paul. The owners of ronpaul.com have benefited from the government's creation of ronpaul.com, and like any other cybersquatter their actions aren't that different from any other "entrepreneur" who seeks to profit from some government action. From Hamilton's cronies purchasing government bonds to defense contractors selling overpriced, underperforming military hardware, there's always someone out there looking to make a quick buck off the taxpayers. That doesn't mean that their actions are in any way an example of the free market.

What would a true free market in computer networks, network addresses, and domain names look like? I'm certainly not the person to ask, as my knowledge of the technical know-how behind the Internet is necessarily limited. But I don't think it would be beyond the realm of possibility to imagine multiple competing Internets, networks that compete based on access price, amount of information able to be accessed, network speed, etc. Networks could develop their own methods of addressing, and domain names would in fact originate as a creation of the market, not of government fiat. And hopefully we wouldn't have these types of trademark disputes. But that's not what we have today. We have a system that was created by the government, that is still controlled by the government, and which is still trying to sort through the myriad problems forced on it by government. We have to deal with this system as it is, not as we wish it to be.

Don't Reform Government

I'll start my first substantive post by linking to a great recent article by Steven Greenhut, entitled "Trying to Reform Government Is Largely a Waste of Time." The title really says it all, and echoes a lot of what you hear discussed in Washington.

Everything is reform this, reform that, eliminate waste, fraud, and abuse, etc. Everyone wants to focus on making government efficient, which is pointless. As Greenhut says, "government is a vast force-based enterprise designed to take as much money from the public and give as much of it as possible to the clients of government."

Everything the state [NB: I prefer "state" to "government," perhaps the subject of a future post] has is taken by force, everything it does relies on the threat of force, so why do we want it to be more efficient in applying that force? The right thing to do is to reduce the scope of the state, especially at the federal level, but also at the state and local levels. Focusing on efficiency ignores and obscures the nature of the state and distracts attention away from substantive matters.

Discussion of efficiency and reform focuses on marginal issues and making marginal improvements. People get irate that the federal government spends a hundred thousand dollars to find the perfect Christmas tree but then don't bat an eye when it spends a hundred billion dollars to make war. But getting people focused on these picayune little details gets them fired up. They get vocal, they donate money to political campaigns and activist groups, and they ignore the big issues facing this country.

From the perspective of the average politician, it's relatively costless. You can sacrifice a few minuscule programs, divert attention from the big picture, and gain a reputation as a reformer or a fiscal hawk. What's not to like? Just look at budget "cuts" that don't actually cut spending, just the projected rate of growth.

I've never seen "Mr. Smith Goes to Washington," but every time I hear some Congressman get up there and talk about reform, or hear someone campaigning to "clean up Washington," I think about Mr. Smith. That movie was filmed in 1939 and here we are almost 75 years later still talking about reforming and fixing Washington. It really is a great theme for the Establishment to keep dragging in front of us in order to distract us from what's really going on. Everybody talks earnestly about reform, but nothing ever gets done. "Washington is broken." Uh huh, what else is new? "Washington is more divided than ever." Oh really? "If we just adopt X program, then everything will work again." Yeah, right, we've heard that one a few dozen times before, and guess what: we're in the same mess. Imagine that?

Nothing will change because no one is serious about real change. Where's the next Ron Paul? Dr. Paul spent years lecturing America about what was wrong, and did anyone ever listen? No, at least, no one in a position to do anything about anything. There are too many people invested in the status quo. They want the federal government involved in areas that they care about. Most on the left want the government to provide health care, welfare, and a safety net. Those on the right want a strong military to engage in endless foreign wars. And both sides want a strong police state at home (which they in their ignorance think will never ensnare them, only those they disagree with.) I realize that the left/right paradigm is not terribly accurate, but I'll use it here just for the sake of argument.

In short, I don't have high hopes for this country. I think Ron Paul has done a great job in waking up young people, but the message needs to be carried on. I know that he'll continue with his websites, foundations, and speaking tours, but where he really shined was in using his position as a Congressman as a bully pulpit for the cause of freedom. I don't see anyone in Congress stepping into his shoes in the immediate future.

It's a shame, really, because he more than anyone never missed the forest for the trees. End the Fed, end the wars, end the welfare state. Yeah, they're big projects and they'll cause a lot of upheaval, but that's the only thing that will save this country from an even worse fate. We need abolition, not reform.

First Post

The purpose of this blog is to share my thoughts on matters of politics, economics, and current events. It's not that I have anything particularly earth-shattering or ground-breaking to say, but it can't hurt to get my thoughts out there. You never know who will read what you've written, take it to heart, and run with it.

I'm also hoping to keep my mind fresh and my writing ability active. I have a feeling the the next few years will not be quite the same as the last few, and I don't want my writing skills to atrophy.

My hope is to write at least one post a day, focusing on something that's current or relevant, or linking to an interesting article. And with that being said, my post for today is done. Welcome to anyone who reads this.