Q2 ’16:   Artificial Intelligence – Blessing or Curse?

2016 has already been an outlier for unexpected events. Political turbulence and violent outbursts globally are on the rise. At home, the ambush murders of police officers in Dallas and Little Rock have shocked the nation. Politically, the ascendance of Donald Trump as the Republican nominee for President is enough to let us know that we’re not in Kansas any more.

But behind the turbulence and media driven distractions, the big trends continue to unfold. Chief among them is the transformation of our society by technology, especially the emergence of artificial intelligence (AI).


John McCarthy, who coined the term “artificial intelligence” in 1956, defined it as “the science and engineering of making intelligent machines.”

“Basically, we’re talking about computer systems and algorithms that can form conclusions and determine their actions without direct human intervention. That doesn’t mean that they have human-like minds, but they may be capable of equaling—and often exceeding—human cognitive capacities with regard to specific tasks. In the broadest sense, Google Maps is employing A.I. when it helps you find a route to your destination. And the self-driving cars that might soon carry us along those routes are using A.I. to evaluate road conditions and otherwise keep us safe.” —Jacob Brogan


AI is opening virtually every field to new possibilities. Medical technology is transforming the practice of medicine—giving hearing to the deaf, sight to the blind, replacement body parts, cures for previously untreatable diseases. Engineering, robotics, education, financial management, manufacturing, publishing, communications, entertainment are all being impacted.

AI expert systems are providing medical diagnosis, strategic planning, voice recognition, face recognition, market analysis, real-time process control for space missions, developing plans for clean energy solutions and environmental clean-up, and support for education such as test assessment and AI tutors.

As the technology continues to mature, there are no fields of human activity that will not be transformed. Ultimately, the very nature of what it means to be human will be changed as we enter into the predicted Singularity, when humans merge with their technology, creating a new life form with extraordinary powers and indefinite lifespan. For the latest on the Singularity, Ray Kurzweil, the oracle of technology development, has published a new title, “The Singularity is Near.”

The Problem

One after another, some of our brightest and most successful citizens have been raising the alarm about the potential dangers of artificial intelligence (AI).

“When it (evolved AI) eventually does occur, it’s likely to be either the best or worst thing ever to happen to humanity, so there’s huge value in getting it right.”
Stephen Hawking

“I think we should be very careful about artificial intelligence. If I were to guess what our biggest existential threat is, it’s probably that.
Elon Musk

“I am in the camp that is concerned about super intelligence… I agree with Elon Musk and some others on this and don’t understand why some people are not concerned.”
Bill Gates

“This is the first moment in the history of our planet when any species, by its own voluntary actions, has become a danger to itself – as well as to vast numbers of others.”
Bill Joy

Those quoted above are the “high priests” of our machine culture: premier scientists and tech entrepreneurs—the people who are most intimately familiar with technology. If they are concerned that there is a problem with AI, we should probably listen to their concerns.

But what are the specific concerns of our techno-elites? Given the vague, yet existential nature of the threat, we can conjure up some pretty terrifying images…Terminator, Matrix, Ex Machina. Hollywood has taken the concept to the bank.

Are they actually worried about sentient killing machines rising up to wipe out humanity? Not really. Not in the near term anyway.

The Future of Life Institute, an Elon Musk initiative, published a letter in 2015 co-signed by thousands of researchers and scientists and other tech savvy citizens raising their concern about “autonomous weapons.” The letter is really a plea to world governments to forego the development of autonomous weapons systems, and the AI arms race that would inevitably result.

In other words, the issue raised is not about what the machines will do to humans; it’s about what humans will do to each other with the machines, and about the misdirection of resources away from the development of benefic applications.

Longer term, if there is something that gives the high priests of machine culture bad dreams, it IS the prospect of their creations becoming self-aware and rising up against humanity. Why would they think this is even possible?

For the most part, the creators of AI are steeped in a materialistic world view holding that life emerged from the primordial void by spontaneous combustion, and that all life forms and the human brain evolved over eons from that first spark of life, and most importantly, that intelligence and consciousness are emergent features of the computational complexity of the brain. (It is notable that this world view also holds that if you were to give a chimp a keyboard and enough iterations, it would eventually pound out “War and Peace.”)

Given their world view, it is not so surprising that our elite technologists have bad dreams about their creations becoming sentient beings that might consider biological humans a threat.

But is this a scientific world view? Or is it a belief system? Is it any more or less scientific than the belief that all creation—from the void of interstellar space to star systems to human life—is one great whole that is life, and is inherently conscious?…or even the Creationist notion that there is a deity somewhere in the heavens who created the world by his (His!) will, fully formed, in 6 Earth days?

We all adopt beliefs regarding the origins of life and our place in the universe to give us some sense of comfort about the great mystery of our very existence in this incomprehensibly vast universe. The technologists are no different in this regard.

Even so, opinion on this matter in the tech sector is not monolithic. See “The Myth of Sentient Machines” by Bobby Azarian in Psychology Today, which points out that even “a perfectly accurate computer simulation of a brain would not have consciousness like a real brain, just as a simulation of a black hole won’t cause your computer and room to implode.” Also, see “The Fascinating Truth About Why Artificial Intelligence Won’t Take Over the World” by Sean Miller. Miller’s takedown of the “cult of scientism…practicing algorythmancy” is a classic.

If, however, the machines were to become superintelligent, autonomous, sentient beings, when would this be likely to happen? The following chart shows the trajectory of computing power. By 2030 a single $1,000 computer will exceed the computing power of the human brain. By 2050 that single computer will exceed the computing capacity of ALL human brains combined.

This is the time frame in which Kurzweil is predicting the Singularity. Alternately, this is when machines might become self-aware and decide to strike out on their own.

Economic and Political Implications

AI is giving us the means to create the world we choose…IF we step up to the responsibility.

If humans achieve the Singularity, war will be unthinkable. It’s not likely humanity would survive the destructive power available to combatants. But can we survive the transition?

Presently, our society is enamored of the machines, so much so that we have lost the broader sense of life. Our culture has come to be all about machine values; repeatability, reliability, certainty, efficiency…efficiency above all.

We normal humans exhaust ourselves trying to compete with the machines, to become machine-like, while our civilization is careening off into chaos as a result of the economic disparity created by our primitive economic system running on the steroids of advanced technology.

The lack of balance in life is reflected in our leadership and public policy across the board, highlighted by the following post at the Bulletin of the Atomic Scientists, which maintains the Doomsday Clock, presently set at 3 minutes to midnight:

“Unchecked climate change, global nuclear weapons modernizations, and outsized nuclear weapons arsenals pose extraordinary and undeniable threats to the continued existence of humanity, and world leaders have failed to act with the speed or on the scale required to protect citizens from potential catastrophe. These failures of political leadership endanger every person on Earth.”

The real challenge of AI is economic and political. It is not autonomous killing machines, as frightening as they are. We are quite capable of wiping ourselves out without such tools. The atom bomb will do just fine. If we continue in our primitive ways, the machines will just make the killing more efficient.

We have been raised on the false premise of binary choices…management OR labor, Capitalism OR Socialism, conservative OR liberal, this religion OR that religion. These are false choices—primitive models that divide us and lead to endless conflict. The truth of the matter is that we need both management AND labor, Capitalism AND Socialism, conservatives AND liberals. And we need the essence of ALL religions.

Like our primitive politics, our economic system is a vestige of a world that is no more. When emerging from a more primitive world, it made sense that the fruit of economy should accrue to those who had the means and knowledge to organize society and put capital to productive use. Today the means and knowledge are ubiquitous, but capital is still aggregating to the few, who increasingly don’t know what to do with it.

Excessive concentrations of capital are creating asset bubbles ($100 million NY penthouse) and turning to non-productive rent seeking while our infrastructure is crumbling and our schools are graduating students unprepared for the world they are entering. (The tools and processes required to build a house are not the same as those required to operate and maintain a house.)

Big corporations are deploying big data and advanced algorithms to know our every interest and tendency more intimately than we know ourselves, and using that information to front run our every move, at the same time shifting assets and loyalties around the world to minimize taxes and responsibilities, thus vacuuming up the fruit of economy for the benefit of a relatively small number of families, to the detriment of the remaining billions who compete for the leftover crumbs.

Our technology driven winner-take-all, “creative destruction” casino economy has enabled early adapters to suck the general wealth out of the economy, and destroy the great American middle class in a single generation.

However, just applying stale Socialist thinking to this problem is not going to solve our dilemma. Take a good look at Russia, or Venezuela, or Cuba, to see where that kind of thinking gets you. We need to transcend the old left/right, liberal/conservative paradigm. Our technology is enabling us to transcend the limitations of the physical world; it can also enable us to transcend the limitations of this stifling old binary political theology. The truth of the matter is that left/right, conservative/liberal are the left and right legs of the body politic. They are both needed to move forward.

We have a choice: we can use our rapidly expanding technology to create a better world for everyone, or we can descend into a techno-dystopia (think Elysium), where elites live in luxurious walled off compounds and the vast majority live in soul crushing poverty. That world will eventually erupt into revolution, or worse, and, given the destructive capabilities bestowed by our advancing technology, quite possibly hasten the end of human civilization on Earth.

Seems like a pretty obvious choice. And it is. But presently we are headed in precisely the wrong direction. We need a global awakening and a transformation of our politics to meet this challenge and fashion a positive outcome. See my upcoming book, The Politics of Unity.

Predicting the Future

Those who were present in the late 50’s and 60’s might remember the projections of the impact that developing technology would have on humans, often featured in the cartoon section of the Sunday paper. Chief among the benefits was…wait for it…leisure time…Hahahahaha! Hahahahaha!!!

As Yogi Berra put it: “It’s tough to make predictions, especially about the future.”

The future never works out the way we think it will. But problems are mitigated first by our awareness of them, followed by action to solve the problem. The fact that we are increasingly aware of the potential danger from AI is a positive sign in itself, and gives us hope that the dangers presented will be met and mitigated, although we don’t yet know just how, because we don’t really know yet how or in what form the greatest threats will present themselves, or the kinds of tools that AI will provide us to do so.

In the real world, the greater danger lies not in sentient, autonomous AI coming into conflict with biological humans, but in malefic actors, human actors, applying the vast problem solving ability and potentially planet destroying power bestowed by AI within the context of our primitive, tribal, violent politics. In other words, WE are the real existential threat to ourselves, not the technology.

As Albert Einstein noted, “The splitting of the atom changed everything, except our thinking.” I say it’s long past time to complete the change.

I’ll give Ray Kurzweil the last word:

“Ultimately, the most important approach we can take to keep AI safe is to work on our human governance and social institutions. We are already a human machine civilization…The best way to avoid destructive conflict in the future is to continue the advance of our social ideals, which has already greatly reduced violence.”


Q1 ’16:   WMD Proliferation: India-Pakistan Edition

The border of India and Pakistan has been a toxic zone of conflict for decades, but the situation there has taken a turn for the worse. Pakistan has recently deployed tactical nukes on their border, under the control of local commanders. This hair-trigger situation is such that the slightest miscalculation could set off a nuclear conflagration.

The deployment of tactical nukes and the devolution of central control over these weapons demonstrates the inevitable trajectory of WMD proliferation. This trend will accelerate with the availability of newer, equally lethal technologies not requiring the huge investment and infrastructure of nuclear technology.

Global leadership is seriously behind the eight ball on this matter, and U.S. “modernization” of its nuclear arsenal to include lower yield “precision guided atom bombs” is radically worsening the situation.

Greater awareness and attention to the situation at the India-Pakistan border may help to bring pressure on these nations to back away from the brink, and perhaps wake up global leadership to the urgency of dealing with WMD proliferation. Please distribute widely.

Dilip Hiro recently posted “The Most Dangerous Place on Earth” detailing the alarming situation on the India-Pakistan border. Reprinted below with permission from TomDispatch.com.

The Most Dangerous Place on Earth

A Nuclear Armageddon in the Making in South Asia

By Dilip Hiro

Undoubtedly, for nearly two decades, the most dangerous place on Earth has been the Indian-Pakistani border in Kashmir. It’s possible that a small spark from artillery and rocket exchanges across that border might — given the known military doctrines of the two nuclear-armed neighbors — lead inexorably to an all-out nuclear conflagration. In that case the result would be catastrophic. Besides causing the deaths of millions of Indians and Pakistanis, such a war might bring on “nuclear winter” on a planetary scale, leading to levels of suffering and death that would be beyond our comprehension.

Alarmingly, the nuclear competition between India and Pakistan has now entered a spine-chilling phase. That danger stems from Islamabad’s decision to deploy low-yield tactical nuclear arms at its forward operating military bases along its entire frontier with India to deter possible aggression by tank-led invading forces. Most ominously, the decision to fire such a nuclear-armed missile with a range of 35 to 60 miles is to rest with local commanders. This is a perilous departure from the universal practice of investing such authority in the highest official of the nation. Such a situation has no parallel in the Washington-Moscow nuclear arms race of the Cold War era.

When it comes to Pakistan’s strategic nuclear weapons, their parts are stored in different locations to be assembled only upon an order from the country’s leader. By contrast, tactical nukes are pre-assembled at a nuclear facility and shipped to a forward base for instant use. In addition to the perils inherent in this policy, such weapons would be vulnerable to misuse by a rogue base commander or theft by one of the many militant groups in the country.

In the nuclear standoff between the two neighbors, the stakes are constantly rising as Aizaz Chaudhry, the highest bureaucrat in Pakistan’s foreign ministry, recently made clear. The deployment of tactical nukes, he explained, was meant to act as a form of “deterrence,” given India’s “Cold Start” military doctrine — a reputed contingency plan aimed at punishing Pakistan in a major way for any unacceptable provocations like a mass-casualty terrorist strike against India.

New Delhi refuses to acknowledge the existence of Cold Start. Its denials are hollow. As early as 2004, it was discussing this doctrine, which involved the formation of eight division-size Integrated Battle Groups (IBGs). These were to consist of infantry, artillery, armor, and air support, and each would be able to operate independently on the battlefield. In the case of major terrorist attacks by any Pakistan-based group, these IBGs would evidently respond by rapidly penetrating Pakistani territory at unexpected points along the border and advancing no more than 30 miles inland, disrupting military command and control networks while endeavoring to stay away from locations likely to trigger nuclear retaliation. In other words, India has long been planning to respond to major terror attacks with a swift and devastating conventional military action that would inflict only limited damage and so — in a best-case scenario — deny Pakistan justification for a nuclear response.

Islamabad, in turn, has been planning ways to deter the Indians from implementing a Cold-Start-style blitzkrieg on their territory. After much internal debate, its top officials opted for tactical nukes. In 2011, the Pakistanis tested one successfully. Since then, according to Rajesh Rajagopalan, the New Delhi-based co-author of Nuclear South Asia: Keywords and Concepts, Pakistan seems to have been assembling four to five of these annually.

All of this has been happening in the context of populations that view each other unfavorably. A typical survey in this period by the Pew Research Center found that 72% of Pakistanis had an unfavorable view of India, with 57% considering it as a serious threat, while on the other side 59% of Indians saw Pakistan in an unfavorable light.

This is the background against which Indian leaders have said that a tactical nuclear attack on their forces, even on Pakistani territory, would be treated as a full-scale nuclear attack on India, and that they reserved the right to respond accordingly. Since India does not have tactical nukes, it could only retaliate with far more devastating strategic nuclear arms, possibly targeting Pakistani cities.

According to a 2002 estimate by the U.S. Defense Intelligence Agency (DIA), a worst-case scenario in an Indo-Pakistani nuclear war could result in eight to 12 million fatalities initially, followed by many millions later from radiation poisoning. More recent studies have shown that up to a billion people worldwide might be put in danger of famine and starvation by the smoke and soot thrown into the troposphere in a major nuclear exchange in South Asia. The resulting “nuclear winter” and ensuing crop loss would functionally add up to a slowly developing global nuclear holocaust.

Last November, to reduce the chances of such a catastrophic exchange happening, senior Obama administration officials met in Washington with Pakistan’s army chief, General Raheel Sharif, the final arbiter of that country’s national security policies, and urged him to stop the production of tactical nuclear arms. In return, they offered a pledge to end Islamabad’s pariah status in the nuclear field by supporting its entry into the 48-member Nuclear Suppliers Group to which India already belongs. Although no formal communiqué was issued after Sharif’s trip, it became widely known that he had rejected the offer.

This failure was implicit in the testimony that DIA Director Lieutenant General Vincent Stewart gave to the Armed Services Committee this February. “Pakistan’s nuclear weapons continue to grow,” he said. “We are concerned that this growth, as well as the evolving doctrine associated with tactical [nuclear] weapons, increases the risk of an incident or accident.”

Strategic Nuclear Warheads

Since that DIA estimate of human fatalities in a South Asian nuclear war, the strategic nuclear arsenals of India and Pakistan have continued to grow. In January 2016, according to a U.S. congressional report, Pakistan’s arsenal probably consisted of 110 to 130 nuclear warheads. According to the Stockholm International Peace Research Institute, India has 90 to 110 of these. (China, the other regional actor, has approximately 260 warheads.)

As the 1990s ended, with both India and Pakistan testing their new weaponry, their governments made public their nuclear doctrines. The National Security Advisory Board on Indian Nuclear Doctrine, for example, stated in August 1999 that “India will not be the first to initiate a nuclear strike, but will respond with punitive retaliation should deterrence fail.” India’s foreign minister explained at the time that the “minimum credible deterrence” mentioned in the doctrine was a question of “adequacy,” not numbers of warheads. In subsequent years, however, that yardstick of “minimum credible deterrence” has been regularly recalibrated as India’s policymakers went on to commit themselves to upgrade the country’s nuclear arms program with a new generation of more powerful hydrogen bombs designed to be city-busters.

In Pakistan in February 2000, President General Pervez Musharraf, who was also the army chief, established the Strategic Plan Division in the National Command Authority, appointing Lieutenant General Khalid Kidwai as its director general. In October 2001, Kidwai offered an outline of the country’s updated nuclear doctrine in relation to its far more militarily and economically powerful neighbor, saying, “It is well known that Pakistan does not have a ‘no-first-use policy.’” He then laid out the “thresholds” for the use of nukes. The country’s nuclear weapons, he pointed out, were aimed solely at India and would be available for use not just in response to a nuclear attack from that country, but should it conquer a large part of Pakistan’s territory (the space threshold), or destroy a significant part of its land or air forces (the military threshold), or start to strangle Pakistan economically (the economic threshold), or politically destabilize the country through large-scale internal subversion (the domestic destabilization threshold).

Of these, the space threshold was the most likely trigger. New Delhi as well as Washington speculated as to where the red line for this threshold might lie, though there was no unanimity among defense experts. Many surmised that it would be the impending loss of Lahore, the capital of Punjab, only 15 miles from the Indian border. Others put the red line at Pakistan’s sprawling Indus River basin.

Within seven months of this debate, Indian-Pakistani tensions escalated steeply in the wake of an attack on an Indian military base in Kashmir by Pakistani terrorists in May 2002. At that time, Musharraf reiterated that he would not renounce his country’s right to use nuclear weapons first. The prospect of New Delhi being hit by an atom bomb became so plausible that U.S. Ambassador Robert Blackwill investigated building a hardened bunker in the Embassy compound to survive a nuclear strike. Only when he and his staff realized that those in the bunker would be killed by the aftereffects of the nuclear blast did they abandon the idea.

Unsurprisingly, the leaders of the two countries found themselves staring into the nuclear abyss because of a violent act in Kashmir, a disputed territory which had led to three conventional wars between the South Asian neighbors since 1947, the founding year of an independent India and Pakistan. As a result of the first of these in 1947 and 1948, India acquired about half of Kashmir, with Pakistan getting a third, and the rest occupied later by China.

Kashmir, the Root Cause of Enduring Enmity

The Kashmir dispute dates back to the time when the British-ruled Indian subcontinent was divided into Hindu-majority India and Muslim-majority Pakistan, and indirectly ruled princely states were given the option of joining either one. In October 1947, the Hindu maharaja of Muslim-majority Kashmir signed an “instrument of accession” with India after Muslim tribal raiders from Pakistan invaded his realm. The speedy arrival of Indian troops deprived the invaders of the capital city, Srinagar. Later, they battled regular Pakistani troops until a United Nations-brokered ceasefire on January 1, 1949. The accession document required that Kashmiris be given an opportunity to choose between India and Pakistan once peace was restored. This has not happened yet, and there is no credible prospect of it taking place.

Fearing a defeat in such a plebiscite, given the pro-Pakistani sentiments prevalent among the territory’s majority Muslims, India found severalways of blocking U.N. attempts to hold one. New Delhi then conferred a special status on the part of Kashmir it controlled and held elections for its legislature, while Pakistan watched with trepidation.

In September 1965, when its verbal protests proved futile, Pakistan attempted to change the status quo through military force. It launched a war that once again ended in stalemate and another U.N.-sponsored truce, which required the warring parties to return to the 1949 ceasefire line.

A third armed conflict between the two neighbors followed in December 1971, resulting in Pakistan’s loss of its eastern wing, which became an independent Bangladesh. Soon after, Indian Prime Minister Indira Gandhi tried to convince Pakistani President Zulfikar Ali Bhutto to agree to transform the 460-mile-long ceasefire line in Kashmir (renamed the “Line of Control”) into an international border. Unwilling to give up his country’s demand for a plebiscite in all of pre-1947 Kashmir, Bhutto refused. So the stalemate continued.

During the military rule of General Zia al Haq (1977-1988), Pakistan initiated a policy of bleeding India with a thousand cuts by sponsoring terrorist actions both inside Indian Kashmir and elsewhere in the country. Delhi responded by bolstering its military presence in Kashmir and brutally repressing those of its inhabitants demanding a plebiscite or advocating separation from India, committing in the process large-scale human rights violations.

In order to stop infiltration by militants from Pakistani Kashmir, India built a double barrier of fencing 12-feet high with the space between planted with hundreds of land mines. Later, that barrier would be equipped as well with thermal imaging devices and motion sensors to help detect infiltrators. By the late 1990s, on one side of the Line of Control were 400,000 Indian soldiers and on the other 300,000 Pakistani troops. No wonder President Bill Clinton called that border “the most dangerous place in the world.” Today, with the addition of tactical nuclear weapons to the mix, it is far more so.

Kashmir, the Toxic Bone of Contention

Even before Pakistan’s introduction of tactical nukes, tensions between the two neighbors were perilously high. Then suddenly, at the end of 2015, a flicker of a chance for the normalization of relations appeared. Indian Prime Minister Narendra Modi had a cordial meeting with his Pakistani counterpart, Nawaz Sharif, on the latter’s birthday, December 25th, in Lahore. But that hope was dashed when, in the early hours of January 2nd, four heavily armed Pakistani terrorists managed to cross the international border in Punjab, wearing Indian Army fatigues, and attacked an air force base in Pathankot. A daylong gun battle followed. By the time order was restored on January 5th, all the terrorists were dead, but so were seven Indian security personnel and one civilian. The United Jihad Council, an umbrella organization of separatist militant groups in Kashmir, claimed credit for the attack. The Indian government, however, insisted that the operation had been masterminded by Masood Azhar, leader of the Pakistan-based Jaish-e Muhammad (Army of Muhammad).

As before, Kashmir was the motivating drive for the anti-India militants. Mercifully, the attack in Pathankot turned out to be a minor event, insufficient to heighten the prospect of war, though it dissipated any goodwill generated by the Modi-Sharif meeting.

There is little doubt, however, that a repeat of the atrocity committed by Pakistani infiltrators in Mumbai in November 2008, leading to the death of 166 people and the burning of that city’s landmark Taj Mahal Hotel, could have consequences that would be dire indeed. The Indian doctrine calling for massive retaliation in response to a successful terrorist strike on that scale could mean the almost instantaneous implementation of its Cold Start strategy. That, in turn, would likely lead to Pakistan’s use of tactical nuclear weapons, thus opening up the real possibility of a full-blown nuclear holocaust with global consequences.

Beyond the long-running Kashmiri conundrum lies Pakistan’s primal fear of the much larger and more powerful India, and its loathing of India’s ambition to become the hegemonic power in South Asia. Irrespective of party labels, governments in New Delhi have pursued a muscular path on national security aimed at bolstering the country’s defense profile.

Overall, Indian leaders are resolved to prove that their country is entering what they fondly call “the age of aspiration.” When, in July 2009, Prime Minister Manmohan Singh officially launched a domestically built nuclear-powered ballistic missile submarine, the INS Arihant, it was hailed as a dramatic step in that direction. According to defense experts, that vessel was the first of its kind not to be built by one of the five recognized nuclear powers: the United States, Britain, China, France, and Russia.

India’s Two Secret Nuclear Sites

On the nuclear front in India, there was more to come. Last December, an investigation by the Washington-based Center for Public Integrity revealed that the Indian government was investing $100 million to build a top secret nuclear city spread over 13 square miles near the village of Challakere, 160 miles north of the southern city of Mysore. When completed, possibly as early as 2017, it will be “the subcontinent’s largest military-run complex of nuclear centrifuges, atomic-research laboratories, and weapons- and aircraft-testing facilities.” Among the project’s aims is to expand the government’s nuclear research, to produce fuel for the country’s nuclear reactors, and to help power its expanding fleet of nuclear submarines. It will be protected by a ring of garrisons, making the site a virtual military facility.

Another secret project, the Indian Rare Materials Plant, near Mysore is already in operation. It is a new nuclear enrichment complex that is feeding the country’s nuclear weapons programs, while laying the foundation for an ambitious project to create an arsenal of hydrogen (thermonuclear) bombs.

The overarching aim of these projects is to give India an extra stockpile of enriched uranium fuel that could be used in such future bombs. As a military site, the project at Challakere will not be open to inspection by the International Atomic Energy Agency or by Washington, since India’s 2008 nuclear agreement with the U.S. excludes access to military-related facilities. These enterprises are directed by the office of the prime minister, who is charged with overseeing all atomic energy projects. India’s Atomic Energy Act and its Official Secrets Act place everything connected to the country’s nuclear program under wraps. In the past, those who tried to obtain a fuller picture of the Indian arsenal and the facilities that feed it have been bludgeoned to silence.

Little wonder then that a senior White House official was recently quoted as saying, “Even for us, details of the Indian program are always sketchy and hard facts thin on the ground.” He added, “Mysore is being constantly monitored, and we are constantly monitoring progress in Challakere.” However, according to Gary Samore, a former Obama administration coordinator for arms control and weapons of mass destruction, “India intends to build thermonuclear weapons as part of its strategic deterrent against China. It is unclear, when India will realize this goal of a larger and more powerful arsenal, but they will.”

Once manufactured, there is nothing to stop India from deploying such weapons against Pakistan. “India is now developing very big bombs, hydrogen bombs that are city-busters,” said Pervez Hoodbhoy, a leading Pakistani nuclear and national security analyst. “It is not interested in… nuclear weapons for use on the battlefield; it is developing nuclear weapons for eliminating population centers.”

In other words, as the Kashmir dispute continues to fester, inducing periodic terrorist attacks on India and fueling the competition between New Delhi and Islamabad to outpace each other in the variety and size of their nuclear arsenals, the peril to South Asia in particular and the world at large only grows.

Dilip Hiro, a TomDispatch regular, is the author, among many other works, of The Longest August: The Unflinching Rivalry between India and Pakistan (Nation Books). His 36th and latest book is The Age of Aspiration: Money, Power, and Conflict in Globalizing India (The New Press).

Copyright 2016 Dilip Hiro


Q4 ’15:   Uncertainty

The world is in a state of confusion, reflected in markets across the board, which went nowhere for all of 2015 (see BloombergThe Year Nothing Worked”). The new year started off with a sharp, but historically normal, selloff in stocks (Dow -13%, S&P -11%). Market fundamentals suggest more downside but the selloff precipitated a level of pessimism usually only seen at significant market bottoms.

Some good things are happening…notably the global climate agreement and the nuclear deal with Iran. At the same time there is plenty to be concerned about.

Global deaths from terrorist activity rose 80% in 2015 to the highest level ever. And the long running conflicts in the Middle East have boiled over into a geopolitical bar fight. Refugees from the conflict have thrown the European Union into chaos. The long overdue correction in China threatens to swamp the global economy. Disputes over the South China Sea and North Korean provocations are simmering in the background.

In the U.S., mass shootings (4 or more casualties) occurred on a daily basis in 2015. Black communities (Black Lives Matter) are venting their anger at aggressive police tactics that leave too many of their young men dead. A victim cult is roiling campuses with demands for “safe spaces” where they won’t be subjected to anything that offends them (see “The Real Victims of Victimhood”). And in this presidential election year the usual hyperbolic political rhetoric has ramped into outright hysteria.

If you’re not confused, you’re not paying attention.

Is this the calm before the storm? Or is this an ugly but relatively stable transition to a new normal? Stay tuned.


Financial markets are now all about the Fed, which finally began raising the Fed Funds rate for the first time in 7 years (1/4% in December). Market commentators are endlessly opining on what the Fed did, might do, might not do, should do, must do, must not do…”how could they; it’s madness,” “how could they not; it would be catastrophic.”

Market participants are equally confused. Credit Suisse recently posted a piece based on a survey of clients in the U.S., Asia and Europe entitled “Client perspectives: lost and bearish.” The bottom line…”Never have we seen so many clients who just do not know what is happening…” This pretty much sums up the state of the marketplace.


Fed confidence notwithstanding, the economy is pretty uninspiring. Job growth has been steady but the economic value of the jobs created is a fraction of the value of jobs lost. The result is stagnant growth in wages along with steady increases in cost of living…persistent, low-grade stagflation for wage earners!

Investors increasingly need to take a global view of economic developments. Monty Guild, President of Los Angeles based Guild Investment Advisors, offers an expanded and generally upbeat perspective on the global economy.

“Many market participants look at manufacturing data to get a picture of the economy…So when manufacturing data is slowing in the U.S., Europe, and China, some uninformed and shallow researchers begin to panic.

Of course it is slowing down and it can slow more in coming years. Why? Because China especially, and the developed world as well, are not on a manufacturing trajectory to economic growth. Software, services, consumer spending, and technology are all the drivers of these economies. China is in the midst of an epochal transition from an economy driven by manufacturing to one driven by the domestic consumer…

Accordingly growth is in these areas, and there is no problem with the economy if it shifts partly from metal fabrication to services and software. The changes require investors to decipher which metrics to follow in order to understand the new economy.


America was treated to a rare example of balance and honesty in a public figure when Pope Francis descended on the mad state of American public life, sending a breath of fresh air across the toxic landscape, and a brief pause in the relentless focus of our media on dysfunction and catastrophe.

The enlightened Pope gave American politicians an example of honorable public discourse. He demonstrated a combination of balance, compassion and integrity along with a deft political sensibility that communicated readily across the political spectrum to all but the rabid ideologues on the extremes. His well considered positions on divisive social issues demonstrated compassion and inclusiveness without compromising his core beliefs.

I hope that some among our political elite actually took note of the Pope’s demonstration and committed themselves to a higher path.

Beltway “wisdom” is that this is a naïve and foolish sentiment. I think the American people are weary of beltway “wisdom” and hungry for some integrity in our political process.

In fact, it is the virtually universal disdain for the corrupt and inbred beltway culture that has resulted in the election of two consecutive unqualified candidates as President, in a desperate attempt by the American people to choose a leader who will bring real change to Washington. Frustration has now turned to anger, manifest in the popularity of Fascist leaning Donald Trump on the right and Socialist Bernie Sanders on the left.

Meanwhile, actions in Washington continue to erode any remaining semblance of our government as a representative democracy. E.g. After several failed attempts (due to widespread bi-partisan opposition) to extend and expand the profoundly un-American Patriot Act, the deed was accomplished by slipping the Cybersecurity Information Sharing Act (CISA) into the must-pass 2,000 page year end Omnibus spending bill so it could become law without debate.

So who is benefiting from our national dis-integration? For a clear and concise picture of what is really happening behind the scenes, read Bill Moyers’ recent essay “The Plutocrats Are Winning.”


The “Arab Spring” inspired civil war in Syria along with the dismantling of neighboring Iraq created the perfect environment for the rise of ISIS, a medieval Islamic cult with 21st Century social media skills. ISIS is eager to provoke another U.S. invasion of the region so as to usher in The Day of Judgement (Armageddon) and the Final Victory of Islam. This of course has Republicans clamoring for…you guessed it…another U.S. invasion in the Middle East!

President Obama is trying to keep the U.S. out of it, but at the same time has ordered Special Forces “advisors” into Syria after repeatedly stating unequivocally “no American troops in Syria.” For those with memory of Vietnam, this will sound very familiar.

Ironically, the U.S. is huddling with Iran and Russia to coordinate a campaign against ISIS, even as both of those nations continue to pursue multiple agendas in opposition to the U.S. And President Obama’s nuclear deal with Iran is now a done deal, freeing up $100 billion in frozen assets for Iran. Our allies in the region, the Saudi’s in particular, are extremely unhappy over both of these developments, and are trying to galvanize opposition to Iran by inflaming regional sectarian conflicts. And for the icing on the Mideast FUBAR cake…U.S. ally Turkey’s President Erdogan recently praised Hitler’s Third Reich as “an example of effective government.”


The best opportunity these days, as it has been for quite some time, is to play defense and try to avoid losses. Continuous central bank intervention has rendered market fundamentals irrelevant, so it is difficult to take a position in anything with any degree of confidence. Bonds of all stripes are the most important area to avoid. The U.S. dollar and the U.S. stock market, especially stock in large cap global companies that can move assets globally and are in a position to take advantage of the massive growth in Asian markets, are generally seen as the preferred safe haven. These assets are currently in a correction and may soon offer a buying opportunity.

Precious metals, a traditional safe haven, have been constrained by deflationary pressures but when that cycle completes, which could be very soon — even as soon as right now — precious metals will provide excellent safety and value.

With no reliable fundamental drivers and so many potential triggers for turmoil, expect volatility and BE CAUTIOUS. Lost opportunity is far easier to endure and recoup than lost capital.


Q2 ’15:   Green Shoots

“Two things have always been true about human beings. One, the world is always getting better. Two, the people living at that time think it’s getting worse.” Penn Jillette

Political, economic and technological changes are rapidly changing the face of human civilization on planet Earth. At such a time it is easy to become overshadowed by the destruction of the old and miss the “green shoots” of the new, manifesting simultaneously.

I recently had a takeout lunch from Chipotle and to my amazement I discovered a short essay on the bag by one of my favorite public intellectuals, Steven Pinker, who frames the situation perfectly. Kudos to Chipotle management! The piece follows:

“It’s easy to get discouraged by the ceaseless news of violence, poverty, and disease. But the news presents a distorted view of the world. News is about things that happen, not things that don’t happen. You never see a TV crew reporting that a country isn’t at war, or that a city hasn’t had a mass shooting that day, or that millions of 80 year-olds are alive and well.

“The only way to appreciate the state of the world is to count. How many incidents of violence, or starvation, or disease are there as a proportion of the number of people in the world? And the only way to know whether things are getting better or worse is to compare those numbers at different times: over the centuries and decades, do the trend lines go up or down?

“As it happens, the numbers tell a surprisingly happy story. Violent crime has fallen by half since 1992, and fiftyfold since the Middle Ages. Over the past 60 years the number of wars and number of people killed in wars have plummeted. Worldwide, fewer babies die, more children go to school, more people live in democracies, more can afford simple luxuries, fewer get sick, and more live to old age.

““Better” does not mean “perfect.” Too many people still live in misery and die prematurely, and new challenges, such as climate change, confront us. But measuring the progress we’ve made in the past emboldens us to strive for more in the future. Problems that look hopeless may not be; human ingenuity can chip away at them. We will never have a perfect world, but it’s not romantic or naïve to work toward a better one.”

Following are links to inspiring developments toward the creation of a better world.


The Rodale Institute has been quietly conducting research into what they call “regenerative agriculture.” Not just organic and healthy for the consumer; this is systemically organic and healthy for the entire planet.

Rodale has conducted a 30 year test of regenerative vs chemical farming and demonstrated that regenerative agriculture not only revitalizes the soil and eliminates toxic chemicals from our food, air, water and land; it produces better yields than chemical agriculture, and restores balance to the general ecology in the process.

But according to Rodale, the big surprise is that if adopted widely, regenerative agriculture will solve the problem of carbon pollution, a major contributor to global warming…as a side effect!

“Simply put, we could sequester more than 100% of current annual CO2 emissions with a switch to widely available and inexpensive organic management practices, which we term “regenerative organic agriculture.”

This research has been incorporated into The Carbon Underground to promote the adoption of broad-scale regenerative agriculture.

Meanwhile, alternative energy has been making steady gains in market share, efficiency and cost. 32% of all new electric generating capacity in the U.S. in 2014 came from solar. Lots of interesting data on the growth of solar at SEIA and Clean Technica. It is noteworthy that the U.S. Department of Defense is a leader in alternative energy development and deployment. Keep up to date with the latest developments in alternative energy at Alternative Energy News and E2 Environmental Entrepreneurs.


Geometrically expanding computing power is generating change much faster than we can grasp. The nature and variety of future applications are difficult — if not impossible — to predict, as leapfrogging technologies and the intersections of various technologies create new realities, from which even newer technologies and applications will spring. Following are a few items providing some insight into the magnitude of changes on the horizon.

  • Researchers in the U.S. and Germany have made major progress on a “brain to text” system that converts speech brainwave patterns to text, opening up direct mind to computer communications.
  • Researchers at Stanford have created an inexpensive water splitter that operates 24/7. Conventional water splitters require precious metals that make the process too costly. The new splitter uses inexpensive base metals, raising the prospect of a cheap and virtually unlimited supply of locally generated hydrogen fuel.
  • Recent advances in 3D printing are bringing real efficiencies and innovation to major industries, offering the promise of distributed economy and bringing manufacturing back home. See recent trade articles here and here, including a video of a 3D printed Shelby Cobra. “Print Thyself,” in the November 24, 2014 issue of The New Yorker, highlights the amazing array of applications already spawned by 3D printing.


Driven by technology, the field of medicine is being transformed through research and new tools and tactics. Following are a few amazing stories from the cutting edge of medical research and practice.

  • Heart attack treatment. The 6/21/15 New York Times featured “A Sea Change in Treating Heart Attacks” resulting in a 38% reduction in the death rate from coronary heart attacks.
  • Cancer treatment. 60 Minutes dedicated two segments to an amazing cancer treatment using the polio virus engineered to make it harmless to normal cells but deadly for cancer cells. Immunotherapy has become a hot area of cancer research, utilizing a variety of viruses.
  • “Electrocutical” drugs could induce growth of new brain tissue, addressing birth defects or brain injury. Early clinical trials have also demonstrated positive results for pain management and insulin regulation.
  • Australian researchers have created a non-invasive ultrasound treatment for Alzheimers that restores memory function.
  • General good news to set your mind at ease…cell phones do not cause brain cancer.

Fresh Thinking

The pace and scope of change is creating a need for fresh thinking about how we organize our affairs and interact with each other. Following are some fresh ideas on a number of fronts.

“Everyone is looking for a purpose in life…We are always wondering why we’re here. But I’ve learned that we have to create that purpose for ourselves. My purpose, which I finally found thanks to social media, is helping all of these people find their purpose.”

  • And for those obsessing over inevitable annihilation into a black hole, a new theory proposes that black holes create a carbon copy hologram of anything they touch. So rest easy. Your other self will survive. In fact, you may already have numerous other selves from previous contact with black holes.

If the daily news is getting you down, you can always log on to SunnySkyz.com for regular confirmation that the better angels of human nature have not gone away. Or you can go to KurzweilAI.net to check in on the latest amazing developments at the cutting edge of technology.

There is no arguing that we are living in challenging times. The pace of change is beyond the comfort level for most humans. You may find it useful to print the quotes above by Penn Jillette and Steven Pinker and tape them to your refrigerator, and heed the advice of Lao Tzu…

“Life is a series of natural and spontaneous changes. Don’t resist them – that only creates sorrow. Let reality be reality. Let things flow naturally forward in whatever way they like.”


Q1 ’15:   Rationalizing Lunacy

The title of this quarter’s letter is taken from an article by Andrew Bacevich, professor emeritus of International Relations and History at Boston University. “Rationalizing Lunacy: The Intellectual as Servant of the State,” reprinted below with permission, addresses the impact of policy intellectuals on our foreign policy….characterizing them as “a blight on the Republic.”

Mr. Bacevich is a prolific author on the topics of foreign policy, national security and military affairs. He is an advocate for the Army and for the professional soldier. He both graduated from and taught at West Point, and served in Vietnam, retiring from the Army with the rank of Colonel. He lost his son, who was serving as an Army officer in Iraq, in 2007.

President Obama recently concluded a tentative interim Agreement with Iran to prevent Iranian development of a nuclear weapon. Obama makes his case in an interview with Thomas Friedman, “Iran and the Obama Doctrine,” in the April 5th New York Times. The opposition to that Agreement from Israel and the U.S. war lobby is intense. See the March 26th New York Times op-ed by perma-hawk John Bolton, “To Stop Iran’s Bomb, Bomb Iran,” and a more thoughtful analysis by Henry Kissinger and George Shultz, “The Iran Deal and its Consequences” in the April 7th Wall Street Journal.

Given the high stakes involved in the negotiations with Iran and the likelihood that a war that possibly should be fought will not be because too many wars that should not have been fought have been, it is a good time to consider the historical perspective and wise counsel of Mr. Bacevich. If we are lucky we might find him occupying the office of Secretary of Defense in the next administration.

Rationalizing Lunacy
The Intellectual as Servant of the State

By Andrew J. Bacevich

Policy intellectuals — eggheads presuming to instruct the mere mortals who actually run for office — are a blight on the republic. Like some invasive species, they infest present-day Washington, where their presence strangles common sense and has brought to the verge of extinction the simple ability to perceive reality. A benign appearance — well-dressed types testifying before Congress, pontificating in print and on TV, or even filling key positions in the executive branch — belies a malign impact. They are like Asian carp let loose in the Great Lakes.

It all began innocently enough. Back in 1933, with the country in the throes of the Great Depression, President Franklin Delano Roosevelt first imported a handful of eager academics to join the ranks of his New Deal. An unprecedented economic crisis required some fresh thinking, FDR believed. Whether the contributions of this “Brains Trust“ made a positive impact or served to retard economic recovery (or ended up being a wash) remains a subject for debate even today. At the very least, however, the arrival of Adolph Berle, Raymond Moley, Rexford Tugwell, and others elevated Washington’s bourbon-and-cigars social scene. As bona fide members of the intelligentsia, they possessed a sort of cachet.

Then came World War II, followed in short order by the onset of the Cold War. These events brought to Washington a second wave of deep thinkers, their agenda now focused on “national security.” This eminently elastic concept — more properly, “national insecurity” — encompassed just about anything related to preparing for, fighting, or surviving wars, including economics, technology, weapons design, decision-making, the structure of the armed forces, and other matters said to be of vital importance to the nation’s survival. National insecurity became, and remains today, the policy world’s equivalent of the gift that just keeps on giving.

People who specialized in thinking about national insecurity came to be known as “defense intellectuals.” Pioneers in this endeavor back in the 1950s were as likely to collect their paychecks from think tanks like the prototypical RAND Corporation as from more traditional academic institutions. Their ranks included creepy figures like Herman Kahn, who took pride in “thinking about the unthinkable,” and Albert Wohlstetter, who tutored Washington in the complexities of maintaining “the delicate balance of terror.”

In this wonky world, the coin of the realm has been and remains “policy relevance.” This means devising products that convey a sense of novelty, while serving chiefly to perpetuate the ongoing enterprise. The ultimate example of a policy-relevant insight is Dr. Strangelove’s discovery of a “mineshaft gap” — successor to the “bomber gap” and the “missile gap” that, in the 1950s, had found America allegedly lagging behind the Soviets in weaponry and desperately needing to catch up. Now, with a thermonuclear exchange about to destroy the planet, the United States is once more falling behind, Strangelove claims, this time in digging underground shelters enabling some small proportion of the population to survive.

In a single, brilliant stroke, Strangelove posits a new raison d’être for the entire national insecurity apparatus, thereby ensuring that the game will continue more or less forever. A sequel to Stanley Kubrick’s movie would have shown General “Buck” Turgidson and the other brass huddled in the War Room, developing plans to close the mineshaft gap as if nothing untoward had occurred.

The Rise of the National Insecurity State

Yet only in the 1960s, right around the time that Dr. Strangelove first appeared in movie theaters, did policy intellectuals really come into their own. The press now referred to them as “action intellectuals,” suggesting energy and impatience. Action intellectuals were thinkers, but also doers, members of a “large and growing body of men who choose to leave their quiet and secure niches on the university campus and involve themselves instead in the perplexing problems that face the nation,” as LIFE Magazine put it in 1967. Among the most perplexing of those problems was what to do about Vietnam, just the sort of challenge an action intellectual could sink his teeth into.

Over the previous century-and-a-half, the United States had gone to war for many reasons, including greed, fear, panic, righteous anger, and legitimate self-defense. On various occasions, each of these, alone or in combination, had prompted Americans to fight. Vietnam marked the first time that the United States went to war, at least in considerable part, in response to a bunch of really dumb ideas floated by ostensibly smart people occupying positions of influence. More surprising still, action intellectuals persisted in waging that war well past the point where it had become self-evident, even to members of Congress, that the cause was a misbegotten one doomed to end in failure.

In his fine new book American Reckoning: The Vietnam War and Our National Identity, Christian Appy, a historian who teaches at the University of Massachusetts, reminds us of just how dumb those ideas were.

As Exhibit A, Professor Appy presents McGeorge Bundy, national security adviser first for President John F. Kennedy and then for Lyndon Johnson. Bundy was a product of Groton and Yale, who famously became the youngest-ever dean of Harvard’s Faculty of Arts and Sciences, having gained tenure there without even bothering to get a graduate degree.

For Exhibit B, there is Walt Whitman Rostow, Bundy’s successor as national security adviser. Rostow was another Yalie, earning his undergraduate degree there along with a PhD. While taking a break of sorts, he spent two years at Oxford as a Rhodes scholar. As a professor of economic history at MIT, Rostow captured JFK’s attention with his modestly subtitled 1960 book The Stages of Economic Growth: A Non-Communist Manifesto, which offered a grand theory of development with ostensibly universal applicability. Kennedy brought Rostow to Washington to test his theories of “modernization” in places like Southeast Asia.

Finally, as Exhibit C, Appy briefly discusses Professor Samuel P. Huntington’s contributions to the Vietnam War. Huntington also attended Yale, before earning his PhD at Harvard and then returning to teach there, becoming one of the most renowned political scientists of the post-World War II era.

What the three shared in common, apart from a suspect education acquired in New Haven, was an unwavering commitment to the reigning verities of the Cold War. Foremost among those verities was this: that a monolith called Communism, controlled by a small group of fanatic ideologues hidden behind the walls of the Kremlin, posed an existential threat not simply to America and its allies, but to the very idea of freedom itself. The claim came with this essential corollary: the only hope of avoiding such a cataclysmic outcome was for the United States to vigorously resist the Communist threat wherever it reared its ugly head.

Buy those twin propositions and you accept the imperative of the U.S. preventing the Democratic Republic of Vietnam, a.k.a. North Vietnam, from absorbing the Republic of Vietnam, a.k.a. South Vietnam, into a single unified country; in other words, that South Vietnam was a cause worth fighting and dying for. Bundy, Rostow, and Huntington not only bought that argument hook, line, and sinker, but then exerted themselves mightily to persuade others in Washington to buy it as well.

Yet even as he was urging the “Americanization” of the Vietnam War in 1965, Bundy already entertained doubts about whether it was winnable. But not to worry: even if the effort ended in failure, he counseled President Johnson, “the policy will be worth it.”

How so? “At a minimum,” Bundy wrote, “it will damp down the charge that we did not do all that we could have done, and this charge will be important in many countries, including our own.” If the United States ultimately lost South Vietnam, at least Americans would have died trying to prevent that result — and through some perverted logic this, in the estimation of Harvard’s youngest-ever dean, was a redeeming prospect. The essential point, Bundy believed, was to prevent others from seeing the United States as a “paper tiger.” To avoid a fight, even a losing one, was to forfeit credibility. ”Not to have it thought that when we commit ourselves we really mean no major risk” — that was the problem to be avoided at all cost.

Rostow outdid even Bundy in hawkishness. Apart from his relentless advocacy of coercive bombing to influence North Vietnamese policymakers, Rostow was a chief architect of something called the Strategic Hamlet Program. The idea was to jumpstart the Rostovian process of modernization by forcibly relocating Vietnamese peasants from their ancestral villages into armed camps where the Saigon government would provide security, education, medical care, and agricultural assistance. By winning hearts-and-minds in this manner, the defeat of the communist insurgency was sure to follow, with the people of South Vietnam vaulted into the “age of high mass consumption,” where Rostow believed all humankind was destined to end up.

That was the theory. Reality differed somewhat. Actual Strategic Hamlets were indistinguishable from concentration camps. The government in Saigon proved too weak, too incompetent, and too corrupt to hold up its end of the bargain. Rather than winning hearts-and-minds, the program induced alienation, even as it essentially destabilized peasant society. One result: an increasingly rootless rural population flooded into South Vietnam’s cities where there was little work apart from servicing the needs of the ever-growing U.S. military population — hardly the sort of activity conducive to self-sustaining development.

Yet even when the Vietnam War ended in complete and utter defeat, Rostow still claimed vindication for his theory. “We and the Southeast Asians,” he wrote, had used the war years “so well that there wasn’t the panic [when Saigon fell] that there would have been if we had failed to intervene.” Indeed, regionally Rostow spied plenty of good news, all of it attributable to the American war.

“Since 1975 there has been a general expansion of trade by the other countries of that region with Japan and the West. In Thailand we have seen the rise of a new class of entrepreneurs. Malaysia and Singapore have become countries of diverse manufactured exports. We can see the emergence of a much thicker layer of technocrats in Indonesia.”

So there you have it. If you want to know what 58,000 Americans (not to mention vastly larger numbers of Vietnamese) died for, it was to encourage entrepreneurship, exports, and the emergence of technocrats elsewhere in Southeast Asia.

Appy describes Professor Huntington as another action intellectual with an unfailing facility for seeing the upside of catastrophe. In Huntington’s view, the internal displacement of South Vietnamese caused by the excessive use of American firepower, along with the failure of Rostow’s Strategic Hamlets, was actually good news. It promised, he insisted, to give the Americans an edge over the insurgents.

The key to final victory, Huntington wrote, was “forced-draft urbanization and modernization which rapidly brings the country in question out of the phase in which a rural revolutionary movement can hope to generate sufficient strength to come to power.” By emptying out the countryside, the U.S. could win the war in the cities. “The urban slum, which seems so horrible to middle-class Americans, often becomes for the poor peasant a gateway to a new and better way of life.” The language may be a tad antiseptic, but the point is clear enough: the challenges of city life in a state of utter immiseration would miraculously transform those same peasants into go-getters more interested in making a buck than in signing up for social revolution.

Revisited decades later, claims once made with a straight face by the likes of Bundy, Rostow, and Huntington — action intellectuals of the very first rank — seem beyond preposterous. They insult our intelligence, leaving us to wonder how such judgments or the people who promoted them were ever taken seriously.

How was it that during Vietnam bad ideas exerted such a perverse influence? Why were those ideas so impervious to challenge? Why, in short, was it so difficult for Americans to recognize bullshit for what it was?

Creating a Twenty-First-Century Slow-Motion Vietnam

These questions are by no means of mere historical interest. They are no less relevant when applied to the handiwork of the twenty-first-century version of policy intellectuals, specializing in national insecurity, whose bullshit underpins policies hardly more coherent than those used to justify and prosecute the Vietnam War.

The present-day successors to Bundy, Rostow, and Huntington subscribe to their own reigning verities. Chief among them is this: that a phenomenon called terrorism or Islamic radicalism, inspired by a small group of fanatic ideologues hidden away in various quarters of the Greater Middle East, poses an existential threat not simply to America and its allies, but — yes, it’s still with us — to the very idea of freedom itself. That assertion comes with an essential corollary dusted off and imported from the Cold War: the only hope of avoiding this cataclysmic outcome is for the United States to vigorously resist the terrorist/Islamist threat wherever it rears its ugly head.

At least since September 11, 2001, and arguably for at least two decades prior to that date, U.S. policymakers have taken these propositions for granted. They have done so at least in part because few of the policy intellectuals specializing in national insecurity have bothered to question them.

Indeed, those specialists insulate the state from having to address such questions. Think of them as intellectuals devoted to averting genuine intellectual activity. More or less like Herman Kahn and Albert Wohlstetter (or Dr. Strangelove), their function is to perpetuate the ongoing enterprise.

The fact that the enterprise itself has become utterly amorphous may actually facilitate such efforts. Once widely known as the Global War on Terror, or GWOT, it has been transformed into the War with No Name. A little bit like the famous Supreme Court opinion on pornography: we can’t define it, we just know it when we see it, with ISIS the latest manifestation to capture Washington’s attention.

All that we can say for sure about this nameless undertaking is that it continues with no end in sight. It has become a sort of slow-motion Vietnam, stimulating remarkably little honest reflection regarding its course thus far or prospects for the future. If there is an actual Brains Trust at work in Washington, it operates on autopilot. Today, the second- and third-generation bastard offspring of RAND that clutter northwest Washington — the Center for this, the Institute for that — spin their wheels debating latter day equivalents of Strategic Hamlets, with nary a thought given to more fundamental concerns.

What prompts these observations is Ashton Carter’s return to the Pentagon as President Obama’s fourth secretary of defense. Carter himself is an action intellectual in the Bundy, Rostow, Huntington mold, having made a career of rotating between positions at Harvard and in “the Building.” He, too, is a Yalie and a Rhodes scholar, with a PhD. from Oxford. “Ash” — in Washington, a first-name-only identifier (“Henry,” “Zbig,” “Hillary”) signifies that you have truly arrived — is the author of books and articles galore, including one op-ed co-written with former Secretary of Defense William Perry back in 2006 calling for preventive war against North Korea. Military action “undoubtedly carries risk,” he bravely acknowledged at the time. “But the risk of continuing inaction in the face of North Korea’s race to threaten this country would be greater” — just the sort of logic periodically trotted out by the likes of Herman Kahn and Albert Wohlstetter.

As Carter has taken the Pentagon’s reins, he also has taken pains to convey the impression of being a big thinker. As one Wall Street Journal headline enthused, “Ash Carter Seeks Fresh Eyes on Global Threats.” That multiple global threats exist and that America’s defense secretary has a mandate to address each of them are, of course, givens. His predecessor Chuck Hagel (no Yale degree) was a bit of a plodder. By way of contrast, Carter has made clear his intention to shake things up.

So on his second day in office, for example, he dinedwith Kenneth Pollack, Michael O’Hanlon, and Robert Kagan, ranking national insecurity intellectuals and old Washington hands one and all. Besides all being employees of the Brookings Institution, the three share the distinction of having supported the Iraq War back in 2003 and calling for redoubling efforts against ISIS today. For assurances that the fundamental orientation of U.S. policy is sound — we just need to try harder — who better to consult than Pollack, O’Hanlon, and Kagan (any Kagan)?

Was Carter hoping to gain some fresh insight from his dinner companions? Or was he letting Washington’s clubby network of fellows, senior fellows, and distinguished fellows know that, on his watch, the prevailing verities of national insecurity would remain sacrosanct? You decide.

Soon thereafter, Carter’s first trip overseas provided another opportunity to signal his intentions. In Kuwait, he convened a war council of senior military and civilian officials to take stock of the campaign against ISIS. In a daring departure from standard practice, the new defense secretary prohibited PowerPoint briefings. One participant described the ensuing event as “a five-hour-long college seminar” — candid and freewheeling. “This is reversing the paradigm,” one awed senior Pentagon official remarked. Carter was said to be challenging his subordinates to “look at this problem differently.”

Of course, Carter might have said, “Let’s look at a different problem.” That, however, was far too radical to contemplate — the equivalent of suggesting back in the 1960s that assumptions landing the United States in Vietnam should be reexamined.

In any event — and to no one’s surprise — the different look did not produce a different conclusion. Instead of reversing the paradigm, Carter affirmed it: the existing U.S. approach to dealing with ISIS is sound, he announced. It only needs a bit of tweaking — just the result to give the Pollacks, O’Hanlons, and Kagans something to write about as they keep up the chatter that substitutes for serious debate.

Do we really need that chatter? Does it enhance the quality of U.S. policy? If policy/defense/action intellectuals fell silent would America be less secure?

Let me propose an experiment. Put them on furlough. Not permanently — just until the last of the winter snow finally melts in New England. Send them back to Yale for reeducation. Let’s see if we are able to make do without them even for a month or two.

In the meantime, invite Iraq and Afghanistan War vets to consider how best to deal with ISIS. Turn the op-ed pages of major newspapers over to high school social studies teachers. Book English majors from the Big Ten on the Sunday talk shows. Who knows what tidbits of wisdom might turn up?

Andrew J. Bacevich, a TomDispatch regular, is a professor of history and international relations emeritus at Boston University’s Pardee School of Global Studies. He is writing a military history of America’s War for the Greater Middle East. His most recent book is Breach of Trust: How Americans Failed Their Soldiers and Their Country.

Copyright 2015 Andrew Bacevich


Q4 ’14:   The Tao of Washington

On January 22nd 2015 the Bulletin of the Atomic Scientists updated the Doomsday Clock, moving it up three minutes to 11:57PM — three minutes from Armageddon — accompanied by the following statement:

“Unchecked climate change, global nuclear weapons modernizations, and outsized nuclear weapons arsenals pose extraordinary and undeniable threats to the continued existence of humanity, and world leaders have failed to act with the speed or on the scale required to protect citizens from potential catastrophe. These failures of political leadership endanger every person on Earth.”

Meanwhile, in the “thought free zone” that comprises our nation’s Capitol, the national security state continues to gather resources and momentum, responding to every potential terrorist or national security threat with “more money, more infrastructure, more private contractors, more surveillance, more weaponry, and more war.”  No thought whatsoever is given to the possibility that our actions might be contributing to the problems we face.

This letter’s title is taken from an article entitled “More and War: The Tao of Washington” by Tom Engelhardt, originally published at TomDispatch.com.  As a public service to promote some rational thought and debate about our foreign policy, this article is reprinted in its entirely with permission below.

More and War: The Tao of Washington

By Tom Engelhardt

When it comes to the national security state, our capital has become a thought-free zone. The airlessness of the place, the unwillingness of leading players in the corridors of power to explore new ways of approaching crucial problems is right there in plain sight, yet remarkably unnoticed. Consider this the Tao of Washington.

Last week, based on a heavily redacted 231-page document released by the government in response to a Freedom of Information Act lawsuit, Charlie Savage, a superb reporter for the New York Times, revealed that the FBI has become a “significant player” in the world of warrantless surveillance, previously the bailiwick of the National Security Agency. The headline on his piece was: “FBI is broadening surveillance role, report shows.”

Here’s my question: In the last 13 years, can you remember a single headline related to the national security state that went “FBI [or fill in your agency of choice] is narrowing surveillance role [or fill in your role of choice], report shows”? Of course not, because when any crisis, problem, snafu or set of uncomfortable feelings, fears, or acts arises, including those by tiny groups of disturbed people or what are now called “lone wolf” terrorists, there is only one imaginable response: more money, more infrastructure, more private contractors, more surveillance, more weaponry, and more war. On a range of subjects, our post-9/11 experience should have taught us that this — whatever it is we’re doing — is no solution to anything, but no such luck.

More tax dollars consumed, more intrusions in our lives, the further militarization of the country, the dispatching of some part of the U.S. military to yet another country, the enshrining of war or war-like actions as the option of choice — this, by now, is a way of life. These days, the only headlines out of Washington that should surprise us would have “narrowing” or “less,” not “broadening” or “more,” in them.

Thinking outside the box may seldom have been a prominent characteristic of Washington, but when it comes to innovative responses to problems, our political system seems particularly airless right now. Isn’t it strange, for instance, that being secretary of state these days means piling up bragging rights to mileage by constantly, frenetically circumnavigating the globe? The State Department website now boasts that John Kerry has traveled 682,000 miles during his time in office, just as it once boasted of Hillary Clinton’s record-breaking 956,733 miles, and yet, like the secretary of defense or the chairman of the Joint Chiefs or the CIA director or the national security advisor or the president himself, when it comes to rethinking failing policies, none of them ever seem to venture into unknown territory or entertain thoughts that might lead in unsettling directions. No piling up of the mileage there.

In a sense, there are only two operative words in twenty-first-century Washington: more and war. In this context, there really is just one well-policed party of thought in town. It matters not a whit that, under the ministrations of that “party,” the Pentagon and the rest of the national security state have grown to monstrous proportions, even though American war and security policies don’t have a significant success to their name.

Four Words That Rule Washington (and Two Words That Don’t)

Here then are four key words — security, safety, intelligence, and war — essential to present-day Washington. Add in two others, peace and bases, that for very different reasons are missing in action. Now, put together both the chatter and the silences around those six words and you can begin to grasp why our nation’s capital is such a dead zone in terms of new ideas or ways of acting in our world.

Let’s start with two words so commonplace that no serious player would bother to question them: security (as in “national”) and safety (as in “American”). On those two words alone, the new Washington has been funded and expanded endlessly in the post-9/11 era. They are the soil in which has grown just about every action that put the state intrusively in our lives, sidelined the citizenry, and emboldened a spirit of impunity in the national security bureaucracy, a sense that no one will ever be held accountable for any action, including kidnapping, torture, murder, the destruction of evidence, assassination, and perjury. Both words have an implied “from” after them, as in “from terrorism.”

And yet it has been estimated that an American’s annual fatality risk from terrorism is only one in 3.5 million. When it comes to your security and safety, in other words, don’t focus on local lone wolf jihadists; just put your car in the garage and leave it there. After all, your odds on losing your life in a traffic accident in any year are about one in 8,000.

Put another way, Americans have learned how to live with, on average, approximately 38,000 traffic deaths a year in the post-9/11 era without blinking, without investing trillions of dollars in a network of agencies to protect them from vehicles, without recruiting hundreds of thousands of private contractors to help make them safe and secure from cars, trucks, and buses. And yet when it comes to the deaths of tiny numbers of Americans, nothing is too much for our safety and security. More astonishing yet, almost all of this investment has visibly led not to the diminution of terrorism, but to its growth, to ever more terrorists and terror organizations and ever greater insecurity. This, in turn, has spurred the growth of the national security state yet more, even though it has shown little evidence of offering us significant protection.

Imagine that the government suddenly decided to build high-tech shark fences off every American beach to protect bathers from another kind of headline-inducing predator which strikes even more rarely than terrorists. Imagine as well that an enormous bureaucracy was created to construct and oversee the maintenance of those fences and the launching of armed patrols to take out the global shark population. And imagine as well that the result was a rise in the threat of shark attacks off those coasts, as well as endless claims from the officials in that bureaucracy that they were doing a completely bang-up job. Wouldn’t their word be doubted? Wouldn’t the whole program be reconsidered? Wouldn’t there be a debate in this country about what it means to be safe and secure, and about where our tax dollars were going?

Life itself is a danger zone. It’s not possible to live in total safety and security. So any system that aims to offer that, even for one phenomenon, and then feeds off the very opposite, should be open to question. Certainly, sacrificing things that have long been considered important to American life for protection from the rare and random chance that you might be injured or die is a decision that should be rethought from time to time. In this case, however, it seems that we can no longer imagine what life without a looming national security state might be like.

Now, here’s another word closely associated with the last two: intelligence. Consider it sacrosanct, representing as it does the religion of the national security state. There is only one rule when it comes to intelligence: you can’t have too much of it. Hence, our 17 ever-expanding, intertwined “intelligence” agencies, a vast, still proliferating apparatus for conducting covert ops and gathering information on everyone from presidents and chancellors to peasants in the rural backlands of the planet in every form in which anyone could possibly communicate or simply express themselves or even engage in public play.

This vast world of information overload has, in turn, been plunged into a world of secrecy in which, if it weren’t for leakers and whistleblowers, we would never have any intelligence that they didn’t want us to have. Over these last years, this system has proven intrusive in ways that even the totalitarian states of the previous century couldn’t have imagined, as well as abusive in ways degrading almost beyond imagination. It has also collected more information about all of us than can even be grasped; and yet, as far as we can tell, it has also been eternally a step behind in delivering actionable information to the government on just about any subject you want to mention.

However, whether what it does works or not, is legal or not, is useful or not, doesn’t matter in Washington. There, the American intelligence community is unassailable. It emerges from every imbroglio, including the recent one over torture, stronger, not weaker. Its leadership, having made howling mistakes from 9/11 on, is never held accountable for any of them and is always promoted and honored. Oversight of what it does is on the wane. The visibly Orwellian nature of American intelligence is now widely accepted, at least in Washington, as a necessity of our age, of our need for… you guessed it… safety and security.

As a result, its bureaucratic expansion, secret wars, global kill lists, and other activities are largely beyond challenge. In response, for instance, to the disaster of 9/11, a new post, the director of national intelligence, was created to better coordinate the “U.S. intelligence community.” The director’s “office,” which started with a staff of 11, now has an estimated 1,750 employees, the sort of growth that can be seen just about everywhere in the intelligence world.

We no longer have the slightest idea what life might be like if, instead of 17 significant intelligence outfits, we had just two of them, or even one. Or whether an intelligence agency operating purely on open-source information might not offer a more useful view of how our world works to American leaders than the vast, secretive, privatized crew of the present moment. We have no idea what our world would be like if the president no longer had his private army, the CIA (not to mention his second private army, the Joint Special Operations Command). None of this could possibly be brought up in the halls of power in Washington.

And here’s another word that’s had its way in the capital in these years: war (and related terms like intervention, counterinsurgency, surge, and raid). It has become the option of choice in situation after situation, while the Pentagon has reached monumental proportions and its elite operatives have become a massive secret military within the military. In any crisis, even essentially civilian ones such as the Ebola outbreak in Western Africa, that military is invariably called upon to ride to the rescue.

You could, in fact, think of these last 13 years in Washington as a sweeping, all-encompassing experiment in modern warfare. The denizens of that city now live in an eternal “wartime,” while from Pakistan to Libya across the Greater Middle East and now much of Africa, U.S. military personnel are eternally engaged in a range of wars, war-like activities, and preparations for future conflicts, while the skies are filled with U.S. planes and drones. At a moment when war seems to be the only go-to option (other than sanctions) in the U.S. foreign policy tool box and a high official can even talk about declaring war on scattered deranged individuals, the results of this military-first global strategy should be considered definitively in. Since 9/11, it has led to a series of well-publicized failures of the first order without a single genuine success, not one instance where anything like a goal Washington set was actually met. Yet a military-first policy remains the unquestioned, unchallenged option of choice and the military budget is largely sacrosanct even for a budget-cutting Congress.

Here, on the other hand, is a word you won’t see in Washington: peace. Once, it was part of the American political lexicon; now, it’s essentially been banished. You’d have to be a wuss to use it.

And here’s another word that’s essentially forbidden: bases. Since World War II, the U.S. has garrisoned the planet in a way achieved by no other imperial power. In the twenty-first century, when even the largest powers have only a few or no military bases outside their national territories, the U.S. still has hundreds scattered around the world. Included in the tally should be the 11 floating towns, loaded with air power — we call them aircraft carriers — that regularly cruise the high seas.

The Greater Middle East is packed to the seams with U.S. military bases and drone bases have been spreading rapidly as well. This is a living reality in much of the world. In the U.S., it goes essentially unnoticed and almost completely unmentioned. It’s so fundamental to Washington’s military-first policies that, while taken for granted, it is beyond discussion or even public acknowledgement. The very idea of beginning to dismantle this empire of bases, which would automatically change Washington’s military stance in relation to the rest of the planet, is similarly beyond consideration, discussion, or thought.

Who knows what it would mean to abolish the CIA, slash the defense budget, scale down American intelligence, dismantle that empire of bases, or return peace to its first-option status? We know nothing about this because we haven’t seen any of it tried, or even seriously discussed, in twenty-first-century Washington.

Decades of the Living Dead

In the title of his prophetic pre-9/11 book Blowback, Chalmers Johnson brought that term of CIA tradecraft out of the closet. He focused on the way covert Agency operations in distant lands carried the seeds of future retaliation on this country. Because those operations were so secret, though, ordinary Americans were incapable of making the connection between what we did and what hit us. Today, in a world filled with blowback, the connections between Washington’s acts and what follows are no longer in the shadows but regularly in plain sight. Yet they are seldom acknowledged, particularly by policymakers in Washington.

In the wake of the 2014 midterm elections, the capital is said to be a big government town being taken over by smaller government types — not, however, if you’re talking about the national security state. With the rarest of exceptions, the “small government” folks, aka Republicans, have never seen an oppressive state power they wouldn’t bow down before and champion. Hence, whatever the situation at hand — Iraq, Afghanistan, Iran, Ukraine, surveillance — Republican war hawks, now in control of Congress, will invariably demand more.

Nor should you imagine, as the 2016 campaign revs up, that any of this is likely to change in the years to come. If we end up with the much-ballyhooed dynastic contest between Hillary and Jeb (or, if you prefer, Hillary and that eternal presidential wannabe Mitt), here’s what you should already know: whichever candidate steps into the Oval Office in January 2017 will bring along a whole host of suitably retread personalities toting a jostling crowd of retread ideas.

Some of the people the new president will nominate for office or appoint as advisors will be familiar faces, since that’s the way of the world in Washington. Naturally, they will carry with them the most familiar of Washington mindsets. Just recall January 2009, when the hope candidate entered the White House bringing with him those economic retreads from the reign of the man from Hope, Larry Summers and Robert Rubin; in foreign and war policy, there was the ur-Clintonista Hillary, Bush military appointee General David Petraeus, and the director of the CIA under George H.W. Bush and secretary of defense under his son, the former cold warrior Robert Gates. Others who weren’t household names or faces from previous administrations might as well have been. In foreign, war, and economic policy, it was a cast of characters eminently suitable for (as I wrote at the time) a political zombie movie.

Similarly, none of the retreads Hillary, Jeb, or Mitt would bring with them will have a new idea or entertain a thought that wanders off the Washington reservation. And that essentially guarantees one thing: Republican or Democrat, it’ll be dead air to 2020 — and if either a Bush or a Clinton is then reelected, until 2025, by which time the U.S. would have been led by those two families for 28 of the last 36 years. Washington is, in this sense, the land of the walking policy dead and war, safety, security, and intelligence (that is, failure and disaster) are ours to the horizon.

Tom Engelhardt is a co-founder of the American Empire Project and the author of The United States of Fear as well as a history of the Cold War, The End of Victory Culture. He runs the Nation Institute’s TomDispatch.com. His new book is Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World (Haymarket Books).

Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Rebecca Solnit’s Men Explain Things to Me, and Tom Engelhardt’s latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.

Copyright 2015 Tom Engelhardt


Q3 ’14:   A Time for Downsizing

One of the big issues for conservatives in recent years has been the size of government, at least when Democrats are in power. Grover Norquist summed it up in his stated desire to “shrink government to the size where we can drown it in the bathtub.” Conservatives are not entirely wrong in their concern with the problems of big government, but the emphasis should be more on “big” and less specifically on “government.”

Organizations become large by delivering value. Without any moderating influences, however, these large entities grow to dominate their respective fields, suppressing competition, and eventually constricting change and innovation.

Conservatives who really want to do something good for America and free us from onerous government regulations would do well to target the excesses of large corporations in equal measure. Given the perverse incentives for bad behavior and lack of legal or cultural accountability for the typical large corporate executive, the regulatory function of government is often the only thing standing in the way of corporate pillaging, and the only mechanism to balance out the excesses of large corporations.

The first hopeful sign I have seen on this front is the recent FTC application of anti-trust law to slow down the wave of hospital mergers. See the article “FTC Wary of Mergers by Hospitals” by Robert Spear in the 9/17 New York Times.

Corporations themselves are beginning to recognize that size can be an impediment to their own profitability. Hewlett Packard recently announced plans to split into two companies, separating its printing and personal computer business from corporate hardware and services operations. The companies will now be known as HP Inc. and Hewlett-Packard Enterprises.

We might all benefit by some downsizing across the board.


The U.S. has been exhibiting schizophrenic behavior on the global front. On the one hand, we continue to follow an expansionist foreign policy that is generating conflict with both Russia and China by failing to acknowledge their legitimate regional concerns. On the other hand, the Obama administration has been trying to distance the U.S. from the chaos in the Middle East, much of it the direct result of previous U.S. actions in the region.

The American public is receiving a rather narrow view of the dynamics contributing to the increasing global tensions and conflicts. Russia and China, for example, have been portrayed in our media as “unprovoked aggressors.” Certainly neither nation is without fault, but the media portrayal is incomplete at best.

For those interested in an expanded perspective on the conflict with Russia, John Mearsheimer recently published an article in Foreign Affairs entitled “Why the Ukraine Crisis is the West’s Fault” relating the policies and actions by the U.S. and the European Union that precipitated the crisis in Ukraine.

And for those interested in a broader perspective of the growing conflict with China this article in Global Research by Yoichi Shimatsu helps to illuminate the historical context and complexities of territorial issues in the South China Sea.

In the Middle East the U.S. is increasingly irrelevant, waffling on its commitment to Israel and uncertain who to back in the free for all ignited by the ironically named Arab Spring. The sudden rise of ISIS has brought some temporary focus into U.S. policy in the region, but the policy response continues to be confused, dependent on an air campaign to support fragmented “moderate” Syrian rebels to fight both ISIS and Assad. Our engagement against ISIS has brought us into literal, if not formal, alliance with Iran, Syria and even Al Queda in opposing them. How’s that for irony?

All of this conflict and warfare has studiously avoided dealing with the primary source of chaos throughout the Muslim world — Salafi jihadism — sponsored by our good friends at the House of Saud. See the New York Times op-ed “Saudis Must Stop Exporting Extremism” by Ed Husain for illumination on the source of inspiration and financial support for ISIS, Al Queda, Boco Haram and global jihadi culture. Also, see this insightful and unusually clear assessment of the trajectory of political Islam, “Let’s Talk About How Islam Has Been Hijacked” by Aly Salem in the Wall Street Journal.

Obama has been trying to withdraw from Pax Americana gracefully, an historical inevitability, but like market operators who corner a market, imperial nations pay a price when they try to withdraw from their increasingly burdensome commitments. Read the rather stunning and probably prescient article, “Are We Ready for the Fall of Baghdad?” by Ron Holland at the Daily Bell predicting a replay of the fall of Saigon.

America has weakened itself with 10 years of misguided and futile military engagements in Muslim countries. This relentless warfare has fueled the fire of the Salafi movement, creating chaos from Libya to Pakistan, threatening to morph into a generational war between Islam and the West.

They say if you want to know the true source of any conflict, follow the money. At the top of the military industrial heap: Lockheed Martin, Boeing, Northrop Grumman, General Dynamics and Raytheon account for $142 billion in annual sales to the Pentagon and approximately $12 billion in annual profits. Here are the top 25 beneficiaries of endless war from Business Insider.


Ever since Ronald Reagan was successful selling voodoo economics to America, Republicans have simply been repeating the winning formula over and over…keep saying it long enough, with great certainty and righteousness, along with diversionary smears against the “liberal press” and divisive campaigns on social wedge issues, and the people will follow. Why bother doing real analysis and offering honest solutions when a con is so easy to pull off?

Rick Perlstein published an excellent piece at The Nation entitled “There Are No More Honest Conservatives, So Stop Looking For One,” expressing his frustration with liberal editors looking for honest conservatives to debate, and pleading for public recognition that 21st Century conservatism is an outright fraud…right down the line.

Meanwhile, our President makes excellent speeches, but he often seems disconnected, conflicted and confused by the real world. Despite occupying the most powerful office in the world he doesn’t seem to have much appetite for wielding power, especially when it comes to the hands-on political leadership required to advance an agenda. By abdicating his duty to lead, he has effectively given us 8 more years of the disastrous Bush era policies, and has allowed the most extreme elements both domestically and globally to control the agenda.

President Obama seems to be the embodiment of a collective American denial of the consequences of our political dysfunction. Jedidiah Purdy has published an insightful article entitled “Time Bomb” in the 7/3/14 edition of Politico Magazine, stating that America has been consumed and systematically degraded by “cultural vitriol stirred up by cynical posturing.” Purdy suggests that we may need a period of even more intense conflict to resolve the political degradation that is threatening our future. I encourage all of my readers to read this important article.

According to Nate Silver the latest polls on the mid-term election indicate that Republicans will retain control of the House, and take over the Senate.  Princeton’s Sam Wang gives calls the Senate race a toss-up and gives a slight edge to Democrats in the Gubernatorial races.

Markets & Economy

Markets have been trending over the last few months. At press time, the stock market is testing its all-time highs. Metals and commodities have been trending lower, reflecting cyclical deflation flowing from fiscal austerity and troubles in Europe. Bonds have been rallying in response to the soft economic numbers and the assumption that the Fed will continue to maintain a low interest rate environment regardless of what they say.

At the same time the real economy continues to struggle. The total number of jobs has recovered to 2008 levels, but the economic value of present day jobs lags far behind the value of 2008 jobs. A recent report from the Pew Research Center demonstrates that real wages peaked in 1973, and today’s wages have the same purchasing power as in 1979.

The employment numbers relative to the population have barely moved off the recessionary bottom. See the 9/9/14 Wall Street Examiner article posted at Yves Smith’s NakedCapitalism.

There is no question but that there will eventually be a big price to pay for all the money printing. In fact we have already been paying, but it’s more like the drip, drip, drip of a leaky faucet instead of the sudden breach of the dam that many, including this author, expected. See the Futures Magazine interview with the always insightful Jim Rogers.

The Fed learned something from Alan “keep it slow and no-one will know” Greenspan. The purchasing value of the dollar is draining away, just more slowly than one would expect, with the biggest impact cleverly offset into the future.

Paul Krugman’s assurances to the contrary notwithstanding, there will eventually be a grand finale to the dollar devaluation, but when that will be, and what it will look like, is not possible to know at this time.

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose.”  John Maynard Keynes


Opportunity is scarce these days. Assets are overvalued, reflecting Fed liquidity operations; demand is generally soft, reflecting fiscal austerity and the difficulties of American consumers generally. For the most part any opportunities are narrow, one-off situations, demanding specialty knowledge. General themes will continue to be security, alternative energy, local agriculture and servicing the growing tide of boomer retirees…10,000 a day…75 million over the next 15 years.

Some are finding opportunities offshore. Eastern Europe and Southeast Asia offer strong growth and attractive opportunities, but these are far away lands for Americans. Latin America offers similar opportunities, and is much closer to home. The cost of living there is generally 1/3rd or even less than in the states. Real estate is a bargain and development is proceeding. Careful due diligence is required, however. Latin America presents a wide variety of local conditions. Panama is especially attractive for Americans due to its political stability, first world infrastructure and healthcare, and healthy dollar based economy. Soon there will likely be opportunities in Cuba. See the October 11th New York Times editorial, “End the U.S. Embargo on Cuba.”

A wealth of information regarding offshore opportunities can be found at Kathleen Peddicord’s Live and Invest Overseas website.


The world is an increasingly fragile place. Conflicts have broken out around the globe and the economic malaise is not showing any signs of lifting. The Fed dream of “escape velocity” that was supposed to be generated by quantitative easing is nowhere on the horizon, and in fact the Fed is gradually reducing its growth projections.

Meanwhile, China is flexing its geopolitical muscle, the jihadi movement that spawned Al Queda is metastasizing, and the transatlantic alliance that has for so long been the foundation of global stability and economic growth is experiencing unprecedented distress. As Henry Kissinger put it, “The concept of order that has underpinned the modern era is in crisis.” See Kissinger’s new book “World Order.”

In the global world of Realpolitik Obama is seen as a weak and indecisive leader, so I expect that both Russia and China will push hard over the next two years to maximize their advantage while he is in office, as will the growing array of our enemies in the Middle East. It is not lost on them that whomever will come after Obama will likely be more decisive.

No-one knows how this is going to play out; whether the world will settle down and re-order itself peacefully, or whether the downward spiral into increasing chaos and conflict will continue. War cycles are not encouraging…predicting increased conflict until 2020.

For the time being, capital is flowing to the U.S. and into the dollar for safety.


Q1 ’14:   A Model for Leadership

It has been a long time since America has had leadership that puts nation before partisanship. Perhaps we have forgotten what that looks like.

This quarter’s letter features the January 17, Farewell Address of Dwight Eisenhower. I would like to draw attention to Eisenhower’s emphasis on the need for balance in national affairs. Balance – the central principle of natural law – is the foundation of wisdom, and is dangerously lacking in public life today.

The Farewell address of President Dwight D. Eisenhower

“Good evening, my fellow Americans: First, I should like to express my gratitude to the radio and television networks for the opportunity they have given me over the years to bring reports and messages to our nation. My special thanks go to them for the opportunity of addressing you this evening.

Three days from now, after a half century of service of our country, I shall lay down the responsibilities of office as, in traditional and solemn ceremony, the authority of the Presidency is vested in my successor.

This evening I come to you with a message of leave-taking and farewell, and to share a few final thoughts with you, my countrymen.

Like every other citizen, I wish the new President, and all who will labor with him, Godspeed. I pray that the coming years will be blessed with peace and prosperity for all.

Our people expect their President and the Congress to find essential agreement on questions of great moment, the wise resolution of which will better shape the future of the nation.

My own relations with Congress, which began on a remote and tenuous basis when, long ago, a member of the Senate appointed me to West Point, have since ranged to the intimate during the war and immediate post-war period, and finally to the mutually interdependent during these past eight years.

In this final relationship, the Congress and the Administration have, on most vital issues, cooperated well, to serve the nation well rather than mere partisanship, and so have assured that the business of the nation should go forward. So my official relationship with Congress ends in a feeling on my part, of gratitude that we have been able to do so much together.

We now stand ten years past the midpoint of a century that has witnessed four major wars among great nations. Three of these involved our own country. Despite these holocausts America is today the strongest, the most influential and most productive nation in the world. Understandably proud of this pre-eminence, we yet realize that America’s leadership and prestige depend, not merely upon our unmatched material progress, riches and military strength, but on how we use our power in the interests of world peace and human betterment.

Throughout America’s adventure in free government, such basic purposes have been to keep the peace; to foster progress in human achievement, and to enhance liberty, dignity and integrity among peoples and among nations.

To strive for less would be unworthy of a free and religious people.

Any failure traceable to arrogance or our lack of comprehension or readiness to sacrifice would inflict upon us a grievous hurt, both at home and abroad.

Progress toward these noble goals is persistently threatened by the conflict now engulfing the world. It commands our whole attention, absorbs our very beings. We face a hostile ideology global in scope, atheistic in character, ruthless in purpose, and insidious in method. Unhappily the danger it poses promises to be of indefinite duration. To meet it successfully, there is called for, not so much the emotional and transitory sacrifices of crisis, but rather those which enable us to carry forward steadily, surely, and without complaint the burdens of a prolonged and complex struggle – with liberty the stake. Only thus shall we remain, despite every provocation, on our charted course toward permanent peace and human betterment.

Crises there will continue to be. In meeting them, whether foreign or domestic, great or small, there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties. A huge increase in the newer elements of our defenses; development of unrealistic programs to cure every ill in agriculture; a dramatic expansion in basic and applied research – these and many other possibilities, each possibly promising in itself, may be suggested as the only way to the road we wish to travel.

But each proposal must be weighed in light of a broader consideration; the need to maintain balance in and among national programs – balance between the private and the public economy, balance between the cost and hoped for advantages – balance between the clearly necessary and the comfortably desirable; balance between our essential requirements as a nation and the duties imposed by the nation upon the individual; balance between the actions of the moment and the national welfare of the future. Good judgment seeks balance and progress; lack of it eventually finds imbalance and frustration.

The record of many decades stands as proof that our people and their Government have, in the main, understood these truths and have responded to them well in the face of threat and stress.

But threats, new in kind or degree, constantly arise.

Of these, I mention two only.

A vital element in keeping the peace is our military establishment. Our arms must be mighty, ready for instant action, so that no potential aggressor may be tempted to risk his own destruction.

Our military organization today bears little relation to that known by any of my predecessors in peacetime, or indeed by the fighting men of World War II or Korea.

Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United States corporations.

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence – economic, political, even spiritual – is felt in every city, every Statehouse, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

Akin to, and largely responsible for the sweeping changes in our industrial-military posture, has been the technological revolution during recent decades.

In this revolution, research has become central, it also becomes more formalized, complex, and costly. A steadily increasing share is conducted for, by, or at the direction of, the Federal government.

Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers.

The prospect of domination of the nation’s scholars by Federal employment, project allocations, and the power of money is ever present – and is gravely to be regarded.

Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite.

It is the task of statesmanship to mold, to balance, and to integrate these and other forces, new and old, within the principles of our democratic system – ever aiming toward the supreme goals of our free society.

Another factor in maintaining balance involves the element of time. As we peer into society’s future, we – you and I, and our government – must avoid the impulse to live only for today, plundering for, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without asking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.

Down the long lane of the history yet to be written America knows that this world of ours, ever growing smaller, must avoid becoming a community of dreadful fear and hate, and be, instead, a proud confederation of mutual trust and respect.

Such a confederation must be one of equals. The weakest must come to the conference table with the same confidence as do we, protected as we are by our moral, economic, and military strength. That table, though scarred by many past frustrations, cannot be abandoned for the certain agony of the battlefield.

Disarmament, with mutual honor and confidence, is a continuing imperative. Together we must learn how to compose differences, not with arms, but with intellect and decent purpose. Because this need is so sharp and apparent I confess that I lay down my official responsibilities in this field with a definite sense of disappointment. As one who has witnessed the horror and the lingering sadness of war – as one who knows that another war could utterly destroy this civilization which has been so slowly and painfully built over thousands of years – I wish I could say tonight that a lasting peace is in sight.

Happily, I can say that war has been avoided. Steady progress toward our ultimate goal has been made. But, so much remains to be done. As a private citizen, I shall never cease to do what little I can to help the world advance along that road.

So – in this my last good night to you as your President – I thank you for the many opportunities you have given me for public service in war and peace. I trust that in that service you find some things worthy; as for the rest of it, I know you will find ways to improve performance in the future.

You and I – my fellow citizens – need to be strong in our faith that all nations, under God, will reach the goal of peace with justice. May we be ever unswerving in devotion to principle, confident but humble with power, diligent in pursuit of the Nations’ great goals.

To all the peoples of the world, I once more give expression to America’s prayerful and continuing aspiration:

We pray that peoples of all faiths, all races, all nations, may have their great human needs satisfied; that those now denied opportunity shall come to enjoy it to the full; that all who yearn for freedom may experience its spiritual blessings; that those who have freedom will understand, also, its heavy responsibilities; that all who are insensitive to the needs of others will learn charity; that the scourges of poverty, disease and ignorance will be made to disappear from the earth, and that, in the goodness of time, all peoples will come to live together in a peace guaranteed by the binding force of mutual respect and love.

Now, on Friday noon, I am to become a private citizen. I am proud to do so. I look forward to it.

Thank you, and good night.”


Q4 ’13:   History Repeats Itself

Karl Marx got some things right. “History repeats itself: first as tragedy, then as farce.” The spectacle emanating from Washington in recent months is nothing if not a farce.

Republican neo-Confederate nihilists pushed the limit over the debt limit in October, causing a 16 day shutdown of government services and threatening to drive the U.S. into default on its obligations if they didn’t get their way on spending issues. Threatening default, as Warren Buffet put it, is “an economic weapon of mass destruction” and should be “off the table for everyone, for good.”

The near term damage of this action has been mostly to the Republican Party, which is finally beginning to wake up to that fact and start to push back against the lunatic wing of the party. But the real damage this action has done to America will only be known over the long term. As Larry Summers put it, “future historians may well see today’s crisis as the turning point at which American democracy was shown to be dysfunctional – an example to be avoided rather than emulated.” That would be unfortunate, considering the historic contributions that American democracy has made to human dignity around the world.

Obama held the line against the insurgency. The hostage was released and the matter resolved at the 11th hour. After five years of disengaged leadership, it was bracing to see Obama acting Presidential. Regardless of policy differences, as Bill Clinton put it, the people prefer a President who is “wrong and strong to one who is right but weak.”

Obama then promptly made his own contribution to the farce, snatching political defeat from the jaws of victory with an epic display of incompetence in the rollout of the Affordable Care Act, otherwise known as Obamacare. The result was a solid month of Chicken Little hysteria that has erased the memory of malfeasance by House Republicans over the debt ceiling.

For those who would like to get a handle on the reality of Obamacare, which, for better or worse, is absolutely not going away, I would suggest two recent balanced articles: “A Realist’s Take on Obamacare” by Josh Marshall at Talking Points Memo, and “The Healthcare Reality Conservatives Ignore” by Paul Waldman at CNN.

It’s a shame that Republicans have refused to try to make health care reform actually work, instead of trying by any means to prevent any change in the indefensible status quo. In fact, it’s more than a shame; it’s a betrayal. Americans pay twice the price for an inferior health care outcome relative to every other developed nation on the planet. Republicans should be as concerned about this as Democrats are. As Warren Buffet put it, “Healthcare costs are the tapeworm of American business.” The following chart sums it up.


So far, markets seem to be treating the madness in Washington as theater, keeping a wary eye on the Fed and a steady bid under the stock market. The resolution of the debt limit hostage episode only kicked the can down the road a few months so we will probably have an attempt at a replay of some sort in January or February. But the “burn the house down” caucus will not have the support of party leadership this time, so the odds of a repeat crisis over the debt limit are not high.

The real test for the markets will probably come with the installation of the new Fed Chairman, Janet Yellen. Stocks are overdue for a good correction and regardless of the trigger, the marketplace may want to test Yellen’s commitment to QE.

It is worth noting that every change in Fed Chairmanship has been accompanied by a market correction of at least 7%, and most of them were complete in the first six months. (Data Courtesy Ned Davis Research).

Meanwhile, the recognition that the 30 year bond bull market is finished is gradually penetrating a reluctant marketplace. Selling is quickly forming above any bond rallies and with few options for spare cash, going into stocks, giving support to the Fed driven rally.

Gold and commodities continue to sell off. Fiscal austerity has extended the cyclical deflation that continues to undermine Fed efforts to re-flate.


The economic “recovery” continues to chug along, weak but persistent, and lately picking up speed. Q3 GDP was 4.1%, housing starts are back over the 1 million mark, at a five year high, and inflation remains muted at 1.2%. The lack of jobs is still the big problem. Official unemployment is down to 6.7%, but the improvement is mostly from people leaving the labor force, not new hiring. Real unemployment (U6) is almost double the official rate at 13.1%.

We can’t dismiss the possibility that our “leaders” in Washington will do something truly destructive, but the stock market is a leading indicator and it appears to be saying that something good this way comes. Stocks continue to climb the wall of worry and all major stock indexes are making new all-time highs, without the irrational exuberance normally seen at a major top.

If the stock market’s discounting function is indeed alive and well, then it is entirely possible that Republicans, who have persistently and aggressively log rolled in front of the recovery so as to undermine Obama, nation be damned, are going to be totally routed in the by election, clearing the way for fiscal stimulus in the form of funds for research and education, desperately needed infrastructure investment and jobs programs, perhaps a national service corp…the kind of things that generate real economic growth.

Policy changes are coming that will finally bring some moderation to the big banks’ untouchable status. The banks have pretty much kneecapped the much anticipated Volker rule, intended to limit the banks’ risk taking. But Elizabeth Warren is leading the charge for a revival of Glass-Steagall to separate commercial and investment banking, noting that the too big to fail banks are now 30% larger than they were in 2008…the five largest controlling half the nation’s banking assets.

In another telling sign, William Dudley, President of the Federal Reserve Bank of New York and a former Chief Economist at Goldman Sachs, delivered a speech entitled “Ending Too Big to Fail” at the Global Economic Policy Forum in November, highlighting Wall Street’s “deep seated cultural and ethical failures.” While commenting on regulatory efforts to deal with the problems of too big to fail banks, Dudley made this astonishing statement…

“Collectively, these enhancements to our current regime may not solve another important problem evident within some large financial institutions — the apparent lack of respect for law, regulation and the public trust.”

Quantitative Easing, initially necessary as triage, is also coming in for some changes. QE has become increasingly ineffective over its iterations and is widely viewed as a growing liability. For his role in QE, former Fed Governor Andrew Huszar made a public apology to the American people in a November 11th Wall Street Journal op-ed piece entitled “Confessions of a Quantitative Easer.” A must read…beginning “I can only say: I’m sorry, America.”


“Suppose you were an idiot, and suppose you were a member of Congress. But I repeat myself.”

Not much has changed in the 120 years since Mark Twain penned this observation, except that the condition seems to have spread to the other branches of government.

The political scene in America is pretty grim these days. However, lately there have been some signs that democracy is not totally dead. The growing indignation over NSA dragnet spying and demands for reform are heartening. Also, Democrats have finally overcome their cowardice long enough to put an end to the serial abuse of the filibuster by Senate Republicans. Over half of all filibusters since the founding of the republic have occurred in the past five years. Enough is enough.

While the spectacle of nihilism and incompetence in Washington is sucking up all the media oxygen, the political cutting edge has manifested in the election of liberal dark horse Bill DeBlasio as mayor of New York City on his campaign of “two New Yorks,” which is echoing across the political landscape.

There has been virtually no left wing in American politics for the last 30 years. It is now coming back to life. This is the next major trend in American politics. In this two minute video, Elizabeth Warren gives voice to the issues that will define the next era of political discourse in America.

Given the massive amounts of money and effort expended by political operatives to spin the daily news cycle, you would think that there is political gold to be mined from it. This interesting article by Ed Kilgore suggests that it’s all pretty much wasted effort, and that elections are really decided by fundamentals like incumbency, economy and demographics.


The global scene has been a tinderbox for a long time, with nascent upheavals around the world held in check by an assertive U.S. military presence. With the U.S. fiscally challenged and war weary after long, inconclusive campaigns in Iraq and Afghanistan, that stabilizing influence is in question, and the world is getting even more unstable.

Cycles analysts are pointing to long term cycles of war that indicate rising conflicts over the next decade or so. The Middle East and Asia are the most likely places for a major conflict to erupt. The Ukraine is also spiraling into civil war, and Africa has spawned one more in its seemingly endless and brutal wars, this one in Sudan.

On the Asian front, China and Japan have been increasingly in conflict over the disputed Diaoyu/Senkaku islands, which are also claimed by South Korea and Taiwan. China has recently deployed an air defense zone around the islands. In response, Japan’s Prime Minister, Shinzo Abe, has pushed through a new Secrecy Law giving his government sweeping powers to define what constitutes state secrets and impose draconian punishments on bureaucrats who leak them and journalists who publish them. This move is widely seen as providing cover for his plans to remilitarize Japan. China and Japan appear firmly on a track to war, which would be extremely disruptive to the global economy.

In the Middle East, the ironically named Arab Spring has generated chaos throughout the region. The Obama administration’s vacillating policy in the region has angered America’s Arab allies, and Israel as well. The Syrian civil war in particular continues to metastasize, poisoning the entire Middle East. Egypt appears to be on the path to civil war. Iraq is spiraling into civil war and a resurgent Al Queda is now in control of Falluja!

Iran’s quest for nuclear power is especially troublesome. While the mainstream media have played up Obama’s negotiations with Iran, many observers worry that Obama’s desire to make a deal is blinding him to the bad faith of his negotiation partners. In other words, that Obama is being played by the Iranians just as he has been played by Republicans at home.

Israel views the Iranian nuclear project as an existential crisis, and rightly so. Even worse, if Iran goes nuclear, the entire region will quickly follow, and then it will only be a matter of time until some religiously inspired lunatic presses the button and the entire region goes up in a series of mushroom clouds. Worse yet, the region is rife with militias and access to nuclear weapons by terrorist groups would become much more likely.

The U.S. military — once seen gratefully in most quarters as a global stabilizing force — has gradually become deeply resented almost everywhere. The drone wars in particular, and the endless reports of “collateral damage,” (read, dead children and other civilians) are an ongoing PR disaster for the U.S. The blatant dishonesty of Administration claims that there have been zero civilian casualties just adds insult to injury and further degrades America’s moral standing.

It is interesting to note the internal unease about the drone program. Pentagon brass floated a plan to award combat medals to drone jockeys, and it was shouted down by front line officers. The redeeming value in the soldier’s trade is in the courage of those facing death and the honor with which they execute their task. Blowing people up with a joystick from thousands of miles away just doesn’t sit right on that score.

The NSA spying scandal has further undermined America’s position in the world. Not that there is anything new about spying, but the sheer magnitude and pervasiveness of it is shocking, and the apparent lawlessness of it. Enemies and allies alike are reevaluating their relationship with the U.S., and with U.S. technology companies. Germany is especially incensed that Angela Merkel‘s cell phone was bugged, apparently since 2001, and that Obama knew about it and allowed it to continue. Israel is also angry over reports that a former Prime Minister and Defense Ministers have been tapped. Yes, it is true that all countries spy on each other and always have, but phone tapping the German Chancellor and Israeli Prime Minister goes a bit far.


The economy is generally weak, but still expanding. Private equity has been very active in the housing sector, but I think this is probably not going to work out so well for them, and especially not for their renters. If you have the resources, it seems like a good time to buy a home, but real estate as an investment is going to have issues going forward.

In this cycle, advantage is being sought primarily by investing in stocks. Gold is still selling off, but it we are approaching levels that are starting to look attractive for the long term. 50% of the move up from 2001 is $1,063 and the old high from 1980 is $800. Gold is presently hovering just above $1,200.

In the real economy there is a very strong and rapidly growing trend toward Made in America products. If the global scene erupts in conflict, then Made in America will become imperative overnight. Those companies with deep ties to Asia, especially with major investment in mainland China, are at great risk. Economic, social, political and geopolitical developments are all supporting this trend, and policy will increasingly be favoring companies that manufacture in America.


The economic recovery is gaining steam, and even though the Fed surprised with its December mini-taper, the Fed is not going anywhere and will continue to support at the first sign of weakness. The stock market is at all-time highs without any signs of irrational exuberance or other indications of a major top. In fact, sentiment is surprisingly tepid, arguing for a continuation of the rally.

At the same time, the seating of a new Fed Chairman has historically been the signal for a market correction. This would coincide with the Presidential Cycle, which also indicates a selloff into the spring, and possibly into October of 2014. The selloff could be triggered by a new round of debt limit madness in Washington, or by the eruption of military conflict in the Middle East or Asia.

All things considered, a market selloff in the first half of 2014 should be a buying opportunity, as long term indicators are all in favor of a continuation of the bull market.

Jobs continue to be the big problem economically, and that problem is not going away. Overcapacity and technology, combined with fiscal austerity will continue to undermine any substantial improvement in the employment situation for the foreseeable future.

Geopolitically, cycles of war argue for an increase in global conflicts over the coming decade, and growing economic pressure will give political leaders traditional thoughts of relieving political pressure at home by creating conflicts with external enemies. Given the delicate condition of the global economy and the dollar based monetary system, an outbreak of hostilities could quickly spiral into another major economic crisis. Caution is recommended.


Q2 ’13:   On the Bank of the Rubicon

The revelation that the U.S. government is vacuuming up, storing and data mining virtually all communications of U.S. citizens is probably not a huge surprise to anyone who has been paying attention to policy trends since 9/11. Just the same, Edward Snowden has done the country a great service by sparking a public discussion of these practices. The American people are in the process of choosing their fate. They will no longer be able to say “I didn’t know” or to blame anyone but themselves for what will come if they allow these practices to continue.

A remarkable element of the debate on this matter is how little of it dwells on the implications of pervasive government invasion of privacy.

To put these operations in perspective, McClatchy interviewed Wolfgang Schmidt, former head of the Stasi, East Germany’s secret police. “You know, for us, this would have been a dream come true,” said Schmidt. And for those who think that because they don’t have anything to hide, they have nothing to fear, Schmidt had this to say:

“It is the height of naivete to think that once collected this information won’t be used…This is the nature of secret government organizations. The only way to protect the people’s privacy is not to allow the government to collect their information in the first place.”

On August 4th the Sunday New York Times reported that other agencies are in fact “clamoring” for NSA data, and the next day Reuters reported that they are already getting it, courtesy of a “secret” DEA division that is funneling data from the NSA dragnet to other agencies, who are then systematically covering up the source of their information.

The wisdom of Benjamin Franklin comes to mind:

“Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.”

Thus the title of this quarter’s letter. Like Caesar in 49BC, we are collectively camped on the bank of the Rubicon, debating the fate of the republic. If we do not turn away from this path and reject the paranoid principles of the surveillance state, we will soon be a republic no more. A recent Pew poll (7/26) indicates that sentiment continues to swing against the government position as information about the NSA programs proliferates. New revelations are surfacing daily in what is shaping up to be a Watergate level scandal. Glenn Greenwald at The Guardian is the go-to source for the latest information on this escalating scandal.


Since the intervention to save Long Term Capital Management in 1998, the Fed has enabled a series of asset bubbles…the dotcom bubble, the housing bubble, the gold bubble, most recently the bond bubble, presently deflating, and it appears that the bubble du jour is stocks.

The recent selloff in bonds cut through major support, signaling the formal end of the 30 year bull market in bonds and a general trend of rising rates for the foreseeable future. There has been a lot of talk on the street about the Great Rotation, out of bonds and into stocks. Who knows how far stocks will run, but they are running on the back of Fed policy. When QE is finished, the bull market will be finished. That could still be a long way away. The notion that the Fed will be able to back away from QE and then unwind it when the economy gets strong enough is a fantasy. They are all-in now and they will continue until the dollar is toast.

On June 20th, the markets demonstrated their addiction to ongoing Fed support, throwing a collective hissy fit when Fed Chairman Ben Bernanke suggested that the Fed might begin withdrawing the monthly fix stimulus at the end of the year if the economy appears strong enough. The panic was short lived, however, as one Fed governor after another stepped up to declare that the Fed is not going to abandon the market. Complacency quickly returned and stocks have rallied straight up to new all time highs. With few exceptions, market prognosticators are predicting an open field ahead.

The Bernanke mini-panic also demonstrated the futility of trying to manage risk by diversification in this age of universal correlation. Everything across the board was down sharply on June 20th. From a macro risk management perspective, we have only one market to trade these days. Our only choice is which flavor we want to work with.

Gold and commodities have been selling off. Gold has been especially hard hit, as long liquidation has taken hold of this market. After an 11 year bull market, gold is finally correcting its 700% advance in earnest. 50% of the entire move up from 2001 is $1061. My point and figure downside target is $1050. Most professional traders remain long term bullish on gold. Jim Rogers, a buyer at $1200, gives his thoughts on gold in this interview at Hard Asset Investor.


The June 15th Sunday New York Times featured this front page article…”Even Pessimists Feel Optimistic About the American Economy,” citing the near unanimity of economists over the improving prospects for the economy. As a natural contrarian, I find this article a prompt for caution. Economists have a dismal track record at prediction, highlighted by John Mauldin in his recent newsletter “Economists Are (still) Clueless,” coincidentally also published on June 15th.

If you want a hint of where the problems are going to come from to upset the prevailing rosy view, read this July 21st New York Magazine article by Jonathan Chait, entitled “Anarchists of the House” on the nihilistic agenda of House Republicans. Also, see this insightful July 27th Guardian article by John Naughton on the consequences of the NSA revelations for the free and open flow of information on the Internet and for American technology corporations.

Employment numbers have been gradually sloping upwards, but at the slowest pace since the ‘30’s. The following chart tells the story…posted as “The Scariest Jobs Chart Ever” at Business Insider.

Of course that chart only tells you the story on the number of jobs being created. The following chart gives you some color on the quality of the jobs being created.

On the plus side, housing appears to have made an important bottom. Housing starts this year have been steadily creeping back toward the 1 million annual rate, before dropping sharply in June primarily in response to the uptick in mortgage rates, demonstrating the headwinds that housing will face as, and if, the economy continues to grow and rates climb.

A bigger problem in the housing sector is the large presence of private equity groups such as Blackrock who have been buying up huge swaths of depressed housing for rentals. Private equity sometimes performs a great service, especially when a languishing business or sector is ripe for revamping and renewal. But private equity can also be predatory, and this venture into housing is purely about maximizing rent extraction while the banks are not lending. Predictably, rents are soaring to record highs even as home ownership is hitting 18 year lows. These rental units will also remain as overhanging stock, limiting future gains.

China has become a very big part of the interconnected global economy, and has in fact been the big driver of economic growth for some time. But no market goes up in a straight line forever, and China has accumulated an enormous amount of dead wood. Could we be entering the long awaited consolidation of the massive growth China has seen over recent decades?

Martin Wolf puts China’s situation in perspective:

“The new Chinese government is, in effect, now engaged in the task of redesigning the jumbo jet, as it comes into land, with half of the engines working poorly. The market is most unlikely to deliver such a huge change smoothly…”


“An enlightened citizenry is indispensable for the proper functioning of a republic. Self-government is not possible unless the citizens are educated sufficiently to enable them to exercise oversight. It is therefore imperative that the nation see to it that a suitable education be provided for all its citizens.”
Thomas Jefferson

Self-governance is a noble ideal, difficult enough to realize under the best of conditions; impossible to when half of the political establishment is committed to undermining government and dividing and confusing the citizens with a strategy of deliberate distortions and misinformation, and the other half is too corrupt and cowardly to oppose them on principle.

Der Speigel reports that on July 16th President Jimmy Carter told an audience in Atlanta that “America does not at the moment have a functioning democracy.” That’s a pretty shocking statement coming from a former President, and it’s a rather telling statement on the condition of the U.S. media that the American people have to learn what a former U.S. President thinks about the current state of affairs in America from a German publication.

Our representatives spend most of their time fundraising and tending to the needs and wishes of their financiers, and the balance posturing for their constituents. Remarkably, despite the lowest approval ratings on record, the Congressional Management Foundation reports that members of Congress think they are doing a great job! How checked out can you possibly be?

We are like the addict who refuses to come clean. We elect…and re-elect…and re-elect these people, and we are getting the government that we deserve.

A group called No Labels has been doing heroic work in Washington on a virtual No Budget, sponsoring a variety of initiatives to try to bridge the partisan divide and promote good process. They call their primary initiative the Problem Solvers. This is a very positive effort from a group of very capable people, but unless and until the system is released from the death grip of its financiers, I doubt that much of real substance that will come of No Labels’ laudable efforts.

Most of us are distracted by the propaganda and misinformation that is rained down on us daily by our news media. However, if you take the time to dig, you can find thoughtful commentators, such as Max Frankel who published a good editorial in the June 26th New York Times entitled “Where Did Our Inalienable Rights Go?” Frankel illustrates well enough where they went, and where they are headed, and makes sensible suggestions as to how to fend off the threat we face.


The U.S. role globally is on the wane, and will soon become a full scale retreat. The next financial crisis will usher in many changes. There will be a few outposts of influence, such as the Middle East, where the flow of oil and our deeply rooted relationship with Israel will likely keep us in place for decades.

China’s dominance in the Far East will soon be undeniable, and once North Korea has rejoined the family of nations via Chinese influence, South Korea will ask us to leave. Okinawa and the Philippines have been chaffing at our presence for a long time and will be happy to see us leave. Japan will re-militarize, which is a scary proposition, but inevitable, given the rise of China. In fact it has already begun.

It’s amazing how quickly it is happening. The invasion of Iraq, followed by Abu Ghraib and Guantanamo, destroyed America’s moral standing in the world and set in motion a downward spiral in U.S. influence. And now the NSA spying debacle. Witness the public humiliation of the President of the United States over the Snowden Affair, and the pathetic spectacle of the U.S. abandoning its embassies in response to a threat from al-Queda, a rag-tag foe that we have spent 12 years and trillions of dollars pursuing.

In the other major development in the Middle East, the Egyptian military has lowered the boom on Mohamed Morsi and the Muslim Brotherhood, and their efforts to hijack the fledgling Egyptian democracy and turn Egypt into an infinitely more dangerous version of Gaza. Egypt is the intellectual birthplace of the global Islamic jihadi movement. Events there should be closely monitored. This could be the beginning of the end for the jihadi movement, or it could be the beginning of a total conflagration in the Islamic world. One thing both sides agree on is that they hate America.


Technology is coming of age on Main Street. There is something of a feeding frenzy going on in the retail sector that is reminiscent of the dot-com craze. Investors are hot for new “disruptive” technology in retail, and merchants are adopting new technology at a blistering pace. Technology is enabling retailers to connect with their customers and promote their products in very targeted ways. Omni-channel marketing is the latest buzzword in retail.

In general, real opportunity is hard to come by these days. Since the election of Ronald Reagan, we have been in an Ayn Rand economy. The combined influences of policy and technology have promoted the flow of the fruit of economy increasingly to the top and away from the general population…a reverse redistribution of wealth. The disparity in wealth and income is reaching crisis levels, as the American dream is fading into history. This chart from the Cleveland Fed puts the situation in perspective.


We are in the midst of a phase transition in our global economy. Persistent central bank intervention has disrupted the natural cycles, so it’s hard to get a solid feel for where we are in the transition, or how it is going to unfold going forward…only that we are in the middle of it somewhere. There will eventually be a reset, a new order, and eventually…new organic growth. But there is still a lot of dead wood to be cleared.

The world has become such a complex and interconnected place. We need an elevation of our political process and public ethics to equal the elevation in our technological capabilities. Otherwise, the story just is not going to end well.

Most importantly we need to accept the inadequacy of the existing paradigm going forward and the damage that has been done, and start addressing that reality. Unfortunately, Republican insurgency and the appalling corruption of our political process is making it difficult to see any substantive measures being taken without another crisis to force action. It’s difficult to find a solution if you can’t even have an honest discussion about the problem. Even given another crisis, how bad will it have to get to force meaningful action? In 2008 we had a truly world class crisis, but nothing has been done to address the underlying causes of that crisis or to hold those responsible accountable. In fact, those underlying problems are even worse. The “too big to fail” banks are even bigger, the derivative bonfire is piled even higher, the rating agencies are still being hired by issuers, swarms of lobbyists are unleashed to defeat any effort at meaningful reform, and regulators are still revolving from government to industry.

Perhaps the ensuing consequences of these combined dislocations will eventually give way to a higher order and a more equitable society. We can only pray for a good outcome. Reason and honor seem to have lost out for the time being.