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Time For Sanity

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Amid all of the television news specials, turgid essays and grim pictorials we have seen on the tenth anniversary of the September 11 attacks – there have been a few encouraging glimpses of sanity.  Several commentators have pointed out that Osama Bin Laden got exactly what he wanted when America reacted to that tragedy by spending trillions on military assaults, which ended up killing unknown thousands of innocent Muslims – also known as “collateral damage”.

How many otherwise peace-loving Muslims will be attracted to Islamist extremism because of outrage over a “war on terror” they perceive as a “war on Islam”?  How badly has our economy been damaged because a military invasion of Iraq was sold as an effective way to prevent another 9/11?

Another tragic change Bin Laden brought to America was the inflammation of a pre-existing National Security Gestapo, which had always been hell-bent on having its way – individual freedom and privacy be damned!  We have witnessed how Barack Obama has been more than happy to accommodate those forces – many of which are private contractors – deliberately placed out of the reach of that pesky Freedom of Information Act.

How did we get to this deteriorated situation?  The mass media bear a large share of the responsibility.  Their need to out-sensationalize the competition helped fuel a consensual mindset, ginned-up with rage and ready to support whatever junta could strike back at our enemy with unrestrained force.  We were told that this enemy was terrorism itself – a tactic.  Our government had declared war against a tactic.  Anyone who questioned that battle was characterized as weak or unpatriotic.

It is only now – ten years after the tragedy – when people are willing to take a rational look at how our political leaders and our media establishment reacted to (or took advantage of) these events.

Spencer Ackerman wrote an article for Wired with the title, “How to Defeat Terrorism:  Refuse to Be Terrorized”.  In the political world, the refusal to be terrorized requires the courage to stand up to intimidation and accusations of being “weak on terror”.  In fact, our political leaders have been rendered weak from terror.  That weakness has resulted in significant deterioration of our personal liberties as well as capitulation to those lobbyists and pressure groups demanding unlimited expenditures in the name of “homeland security”.  Spencer Ackerman provided this explanation:

Look at the charts that Danger Room’s Lena Groeger compiled.  She tallies $6.6 trillion in defense spending after 9/11.  There is nothing that al-Qaida could possibly do to justify even a slice of such a monster expenditure.  Why did it happen?

Former White House counterterrorism chief Richard Clarke has an answer.  “There’s going to be a terrorist strike some day,” Clarke told Frontline for its “Top Secret America” documentary this week.  “And when there is, if you’ve reduced the terrorism budget, the other party, whoever the other party is at the time, is going to say that you were responsible for the terrorist strike because you cut back the budget.  And so it’s a very, very risky thing to do.”

*   *   *

It’s much harder to be the one to stand up and say the threat of terrorism is too minor for such expanded surveillance, and the government needs to stop.  When libertarian Sen. Rand Paul (R-Kentucky) made precisely that case, Democratic Senate leader Harry Reid (D-Nevada) subjected him to cheap, hypocritical demagoguery.

The only way this changes is if citizens change the political incentives for politicians.  Two-bit terrorists will always be around, sadly.  But when the Harry Reids get major political blow-back for attacking the Rand Pauls, then – and only then – will the 9/11 Era be truly over.

Another important theme of Ackerman’s essay is the absence of an “end game” for this war on terror.  After conceding that Defense Secretary Leon Panetta may be entirely justified in claiming that al-Qaida is on the verge of strategic collapse, Ackerman emphasizes that “it would be foolish” to relent at this point:

But all of that is only justifiable if the new U.S. Shadow Warsundeclared, largely covert wars in Pakistan, Yemen, Somalia and beyond – actually end soon.

*   *   *

When Barack Obama ran for president, his national security team told me, in an extensive series of interviews, that a major focus of his presidency would be to confront what they called the “politics of fear” – the national-security freakout that led to counterproductive post-9/11 moves like invading Iraq.  But since coming to power, Obama has accommodated himself to the politics of fear far more than he’s confronted it.

*   *   *

Only when citizens make it acceptable for politicians to recognize that the threat of terrorism isn’t so significant can the country finally get what it really needs, 10 years later:  closure.

President Obama created a new challenge for himself:  By killing off Bogeyman Bin Laden and with the imminent destruction of the world’s largest terrorist organization, he is now faced with the duty to lead America out of this dark age of terrorphobia.


 

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Well-Deserved Scrutiny For The Fed

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In the wake of the 2010 elections, it’s difficult to find a pundit who doesn’t mention the Tea Party at least once while discussing the results.  This got me thinking about whether the man referred to as “The Godfather” of the Tea Party movement, Congressman Ron Paul (father of Tea Party candidate, Senator-elect Rand Paul) will become more influential in the next Congress.  More important is the question of whether Ron Paul’s book, End The Fed will be taken more seriously – particularly in the aftermath of the Fed’s most recent decision to create $600 billion out of thin air in order to purchase even more treasury securities and mortgage-backed securities by way of the recently-announced, second round of quantitative easing (referred to as QE2).

The announcement by the Federal Open Market Committee to proceed with QE2 drew immediate criticism.  The best rebuke against QE 2 came from economist John Hussman, whose Weekly Market Comment – entitled, “Bubble, Crash, Bubble, Crash, Bubble …” was based on this theme:

We will continue this cycle until we catch on.  The problem isn’t only that the Fed is treating the symptoms instead of the disease.  Rather, by irresponsibly promoting reckless speculation, misallocation of capital, moral hazard (careless lending without repercussions), and illusory “wealth effects,” the Fed has become the disease.

One issue raised by Mr. Hussman – which should resonate well with supporters of the Tea Party – concerns the fact that the Fed is undertaking an unconstitutional exercise of fiscal policy (rather than monetary policy) most notably by its purchase of mortgage-backed securities:

In this example, the central bank is not engaging in monetary policy, but fiscal policy.  Creating government liabilities to acquire goods and assets, unless those assets are other government liabilities, is fiscal policy, pure and simple.

Hussman’s analysis of how the “the economic impact of QE2 is likely to be weak or even counterproductive” was best expressed in this passage:

We are betting on the wrong horse.  When the Fed acts outside of the role of liquidity provision, it does more harm than good. Worse, we have somehow accepted a situation where the Fed’s actions are increasingly independent of our democratically elected government.  Bernanke’s unsound leadership has placed the nation’s economic stability on two pillars:  inflated asset prices, and actions that – in Bernanke’s own words – should be “correctly viewed as an end run around the authority of the legislature” (see below).

The right horse is ourselves, and the ability of our elected representatives to create an economic environment that encourages productive investment, research, development, infrastructure, and education, while avoiding policies that promote speculation, discourage work, or defend reckless lenders from experiencing losses on bad investments.

On November 6, another brilliant critique of the Fed came from Ashvin Pandurangi (a/k/a “Ash”) of the Simple Planet website.  His essay began with a reminder of what the Fed really is:

The most powerful, influential economic policy-making institution in the country, the Federal Reserve (“Fed”), is an unelected body that is completely unaccountable to the people.

*   *   *

The Fed, by its own admission, is an independent entity within the government “having both public purposes, and private aspects”.  By “private aspects”, they mean the entire operation is wholly-owned by private member banks, who are paid dividends of 6% each year on their stock.  Furthermore, the Fed’s decisions “do not have to be ratified by the President or anyone else in the executive or legislative branch of government” and the Fed “does not receive funding appropriated by Congress”.  In 1982, the Ninth Circuit Court of Appeals confirmed this view when it held that “federal reserve banks are not federal instrumentalities … but are independent, privately owned and locally controlled corporations”.

As we all know:  “Absolute power corrupts absolutely”.  At the end of his essay, Ash connected the dots for those either unable to do so or unwilling to face an ugly reality:

In the last two years, the almighty Fed has printed trillions of dollars in our name to buy worthless mortgage assets from “too big to fail” banks.  It has lent these banks our hard-earned money at about 0% interest, so they could lend our own money back to us at 3%+.  These banks also used our free money to ramp equity and commodity markets, which mostly benefited the top 1% of our population who owns 43% of financial wealth [2], and conveniently, also owns the Fed.  The latter has kept interest rates at next to nothing to punish savers and encourage speculation, making everything less affordable for average Americans who have seen their wages stay the same, decrease or disappear.  What’s left standing is the perniciously powerful, highly secretive and entirely unaccountable Fed, who now epitomizes the state of American democracy.

At least we still have freedom of speech!  As part of the Fed’s roll-out of QE2, Chairman Ben Bernanke found it necessary to write a public relations piece for The Washington Post – perhaps as an apology.  Stock market commentator Bill Fleckenstein had no trouble ripping Bernanke’s article to shreds:

Bernanke goes on to say:  “Although low inflation is generally good, inflation that is too low can pose risks to the economy — especially when the economy is struggling.  In the most extreme case, very low inflation can morph into deflation.”

Oh, yeah?  Says who?  I have not seen any instance where a “too low” inflation rate led to deflation.  When deflation is caused by new inventions or increased productivity (or in the old days, bumper crops), which we might term “good” deflation, it was not a consequence of too little inflation; it was due to progress.  Similarly, the “bad” deflation isn’t created via inflation that is too low; it tends to come from burst bubbles.  In other words, misguided policies, not low inflation, are the cause of deflation.

Because the timing of the Fed’s controversial move to proceed with QE2 dovetails so well with the “energizing” of the Tea Party movement, it will be interesting to observe whether life will become more uncomfortable for Chairman Bernanke.  A recent article by Joshua Zumbrun of Bloomberg News gave us this hint:

Six out of 10 self-identified Tea Party supporters who said they were likely to vote supported overhauling or abolishing the Fed, according to a Bloomberg News national poll conducted Oct. 7-10.

The article made note of the fact that Ron Paul’s ill-fated effort to Audit the Fed (HR 1207) received bipartisan support:

“You had a really strange alliance last year that supported the audit of the Fed and that may come back into play,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

Here’s to bipartisanship!


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