Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Wasted Energy
By Ken Silverstein
Director, Energy Industry Analysis
Wasted energy is an awful use of resources. That's the message from those who espouse reusable energy as a way to limit the need to build power plants and to reduce the level of pollutants released into the atmosphere.
“Reusable energy” refers to the re-use of waste heat generated from the combustion of fossil fuels. It's an area full of possibility. Consider that for every BTU of coal or natural gas burned in a combustion turbine only 35 percent is converted into useful power. The other 65 percent is lost forever in the form of waste heat that is discharged into the environment. Interestingly, the technology exists to convert that waste heat into power or other useful forms such as steam. But the incentives that would compel industry to make the needed investments is lacking. Those in the reusable energy sector want to see federal legislation similar to what is given to the renewable sector—legislation that they say would improve the efficiency of power plants by 30-50 percent.
“We use trillions of BTUs every hour of every day,” says Daniel Stinger, CEO of WOW Energies. “That's a lot of energy that could be recaptured and reused but instead it is going up smoke stacks and into the atmosphere.”
That air is going out the stack at between 300 degrees Fahrenheit and 800 degrees Fahrenheit. It's all available to reuse and to convert to mechanical power, says Stinger. Combined cycle and co-generation power plants do just that but they perform best when the steam coming out the other end is 800 degrees Fahrenheit or more. So, there's a huge window of opportunity to capture energy in those refineries and industries where the wasted heat is released at 300-700 degrees Fahrenheit.
Put simply, it is like boiling water and then using the steam to power other things in the house. But for all practical purposes, the steam is just released and lost forever. Moreover, it takes a lot of energy to create that steam. So, the idea is to not just recapture and reuse the steam but to use less energy to produce it. In the case of WOW Energies, it vaporizes propane in multiple heat exchangers, which are similar to steam boilers. It then expands that vapor across multiple steam turbines to generate power. It is then condensed into a liquid and pumped backed into the system. The propane is not consumed; rather, it is used to convert thermal energy to mechanical energy.
“We take the throwaway heat and use it to drive another expander,” says Stinger. “If there were a heat source that was being thrown up the stack, the technology could improve efficiency by 30-50 percent.” The process works and is already being applied worldwide by many industrials, he adds. California-based Mafi Trench Corp., for example, manufacturers such “expander generators.” Its clients include Magma Electric Co. in Holtville, Calif., Mobil Chemical Co. in Beaumont, Texas and Amoco Production Co. in Wyoming.
Two Paths
Reusing energy in the form of waste heat recovery has been popular in Europe for years. Much of it comes in the form of combined heat and power systems. In the United States, where energy has been inexpensive and readily available, waste heat recovery has rarely been a priority. With high natural gas prices and involvement from some key states such as California, the combined heat and power systems are expanding. Those systems, however, are often restricted to the recovery of low temperature waste heat—releases of less than 200 degrees Fahrenheit—and then used for cooling and heating buildings and hot water.
The major thrust for waste heat recovery in the United States began in the early 1980s when Congress forced utilities to purchase excess power generated by such companies as Dow and DuPont. These companies wanted to re-use the steam in their plants but at the time, most were not allowed to sell the excess power produced by their facilities to their utilities or in some cases they wouldn't receive a high enough price for the surplus to make those projects viable. Their ingenuity and the subsequent congressional action taken ultimately spawned the creation of independent power producers that used high efficiency technologies such as combined cycle and co-generation power systems. Federal and state government participation is necessary if the concept is to be taken to the next level, advocates say.
“There are only two paths toward achieving big reductions in greenhouse gas emissions,” says Paula Dobriansky, U.S. undersecretary of state for global affairs, in an interview with the Financial Times. “One is to use existing technologies at the expense of economic growth. The other is to use breakthrough technologies that transform how we produce and consume energy and allow us to reduce emissions, while continuing to grow and to improve the world's living standards. The second course is the only acceptable, cost-effective option.”
WOW Energies, for example, has approached BP about implementing the idea. Its emphasis is on reducing pollution and not on power generation. The pitch: The waste heat is released at 600 degrees Fahrenheit. But, turning the thermal energy into electrical output can reduce the heat intensity. The vaporized propane that spins the turbine can bring the heat down to 100 degrees Fahrenheit. By cutting that heat to near ambient temperatures, the level of pollutants drops dramatically. Greenhouse gases are naturally reduced because the reliance on fossil fuels is diminished.
Energy is wasted daily. And a marketplace void now exists to recapture waste heat and to apply it to create electricity. Proponents of the concept say that the technology is available today to do just that but that the costs are a deterrent. If the government gets more involved, then they say that fewer power plants will ultimately be necessary and that the air will be much cleaner.
The New Bill of Rights
Nearly everything has changed in the United States since the Bill of Rights was written and adopted. We still see the original words when we read those first 10 Amendments to the Constitution, yet the meaning is vastly different now.
And no wonder. We've gone from a country of a few million to a few hundred million. The nation's desire to band together was replaced by revulsion of togetherness. We exchanged a birthright of justice for a magic bullet, and replaced the Pioneer Spirit with the Pioneer Stereo.
We're not the people who founded this country and our Bill of Rights should reflect this.
As we approach the 21st Century, it's time to bring the wording up to date showing what we are and who we are.
--------------------------------------------------------------------------------
Amendment I
Congress shall make no law establishing religion, but shall act as if it did; and shall make no laws abridging the freedom of speech, unless such speech can be construed as "commercial speech" or "irresponsible speech" or "offensive speech;" or shall abridge the right of the people to peaceably assemble where and when permitted; or shall abridge the right to petition the government for a redress of grievances, under proper procedures.
It shall be unlawful to cry "Fire!" in a theater occupied by three or more persons, unless such persons shall belong to a class declared Protected by one or more divisions of Federal, State or Local government, in which case the number of persons shall be one or more.
Amendment II
A well-regulated military force shall be maintained under control of the President, and no political entity within the United States shall maintain a military force beyond Presidential control. The right of the people to keep and bear arms shall be determined by the Congress and the States and the Cities and the Counties and the Towns (and someone named Fred.)
Amendment III
No soldier shall, in time of peace, be quartered in any house without the consent of the owner, unless such house is believed to have been used, or believed may be used, for some purpose contrary to law or public policy.
Amendment IV
The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures may not be suspended except to protect public welfare. Any place or conveyance shall be subject to search by law enforcement forces of any political entity, and any such places or conveyances, or any property within them, may be confiscated without judicial proceeding if believed to be used in a manner contrary to law.
Amendment V
Any person may be held to answer for a crime of any kind upon any suspicion whatever; and may be put in jeopardy of life or liberty by the state courts, by the federal judiciary, and while incarcerated; and may be compelled to be a witness against himself by the forced submission of his body or any portion thereof, and by testimony in proceedings excluding actual trial. Private property forfeited under judicial process shall become the exclusive property of the judicial authority and shall be immune from seizure by injured parties.
Amendment VI
In all criminal prosecutions, the accused shall enjoy the right to avoid prosecution by exhausting the legal process and its practitioners. Failure to succeed shall result in speedy plea-bargaining resulting in lesser charges. Convicted persons shall be entitled to appeal until sentence is completed. It shall be unlawful to bar or deter an incompetent person from service on a jury.
Amendment VII
In civil suits, where a contesting party is a person whose private life may interest the public, the right of trial in the Press shall not be abridged.
Amendment VIII
Sufficient bail may be required to ensure that dangerous persons remain in custody pending trial. There shall be no right of the public to be afforded protection from dangerous persons, and such protection shall be dependent upon incarceration facilities available.
Amendment IX
The enumeration in The Constitution of certain rights shall be construed to deny or discourage others which may from time to time be extended by the branches of Federal, State or Local government, unless such rights shall themselves become enacted by Amendment.
Amendment X
The powers not delegated to the United States by the Constitution shall be deemed to be powers residing in persons holding appointment therein through the Civil Service, and may be delegated to the States and local Governments as determined by the public interest. The public interest shall be determined by the Civil Service.
The art of taxation consists of so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.
--Jean-Baptiste Colbert
In general the art of government consists in taking as much money as possible from one class of citizens to give to the other.
--Voltaire
The time to guard against corruption and tyranny is before they have gotten hold of us. It is better to keep the wolf out of the fold than to trust to drawing his teeth and talons after he shall have entered.
--Thomas Jefferson
Find out just what the people will submit to and you will have found out the exact amount of injustice and wrong which will be imposed upon them; and these will continue until they are resisted with either words or blows, or both. The limits of tyrants are prescribed by the endurance of those whom they oppress.
--Frederick Douglass
Forget about drug deaths, and acquisitive crime, and addiction, and AIDS. All this pales into insignificance before the prospect facing the liberal societies of the West. The income of the drug barons is greater than the American defense budget. With this financial power they can suborn the institutions of the State, and if the State resists ... they can purchase the firepower to outgun it. We are threatened with a return to the Dark Ages.
--former Columbian high court judge Gomez Hurtado
The Erosion of Rights
The natural progress of things is for Government to gain ground and for Liberty to yield.
--Thomas Jefferson
Rights do not disappear suddenly and noticeably, but slowly and often subtly. The price of democracy is eternal vigilance, but not all people are vigilant all the time, and most are willing to see various freedoms erode and even disappear. This is the unsurprising result of the usual weaknesses of human nature:
Eternal Vigilance is the Price of Liberty.
--Thomas Jefferson, inscribed on the National Archives building
Fear drives people to consciously give up rights in exchange for security.
Apathy permits one group that does not value a particular freedom to stand by and watch while it is taken away from another group that does value it.
Out of Hate one group will actively try to oppress another and take away their rights.
Out of Selfishness one group will infringe on another's rights for their own economic benefit.
Ignorance lets some people sleep while the rights they never knew they had slowly disappear.
Conceit describes the justification of the 'elite' to make decisions for the masses as a parent does for a child.
Friedrich Hayek called this the 'fatal conceit' because of the impossibility for a bureaucracy, however smart and well-educated, to be better informed than the people collectively.
Distrust of others' judgment and motivations makes us willing to give up our own freedom in order to restrict theirs.
Impatience with the pace of non-coercive solutions to very real and troubling problems leads people to reach for the easiest solution: pass a law.
A democracy is measured by how it treats its minorities, but great energy and will are required to defend the rights of other groups with which you don't personally identify. The Holocaust was not an aberration, but is repeated all around us on a smaller scale every day.
Perceived Crises
The only thing we have to fear is
Fear itself.
--Franklin Delano Roosevelt
Fear is the most interesting cause of the erosion of rights, because the others are, if not admirable, at least rational and understandable. Fear is quite often irrational, based on distortions of perception and judgment of the likelihood of a threat. Human beings evolved to live in bands of no more than one hundred individuals, never venturing far beyond their immediate surroundings, so any information about potential threats was relevant; information was scarce, and the threats were real and close to home.
Now, our hyper-vigilance is counterproductive: our heritage leaves us ill prepared to filter out news reports of distant natural disasters, criminal acts, terrorists bombings, disease outbreaks, or freak accidents (e.g. plane crashes).
Daytime talk shows vye to bring us the most horrific stories, all totally irrelevant. The parasitic fear-mongering class that derives its money and power from trafficking in fear (e.g. overpopulation, immigrants stealing jobs, destruction of family values, unsafe consumer products, genetically-modified foods) exploits the media to spread its message of doom to every living room, keeping the collective adrenaline level permanently maxed. If you really want to know your chances of dying from some threat, check out the statistics from the National Safety Council.
http://www.nsc.org/lrs/statinfo/odds.htm
There are no solutions, only trade-offs.
--Thomas Sowell
A few voices of reason try to restore perspective, but of course, good news is no news. In a country the size of the USA, improbable events happen every day, some of them bad.
In Hoodwinking the Nation, Julian Simon explains how bad news is manipulated into a perceived crisis, and how good things really are, and getting better.
http://www.cato.org/pubs/pas/pa-364es.html
http://www.elsol.org/f_liberosion.html
The Greatest Century That Ever Was:
25 Miraculous Trends of the Past 100 Years
by Stephen Moore and Julian L. Simon
Stephen Moore is director of fiscal policy studies at the Cato Institute. Julian L. Simon (1932–98) was a professor of business administration at the University of Maryland and a senior fellow at the Cato Institute. Most of the research findings come from Simon's lifetime of work showing how life on earth is getting better, not worse. The research assistance of Stephen A. Slivinski and Philip Kerpen is gratefully acknowledged.
--------------------------------------------------------------------------------
Executive Summary
There has been more material progress in the United States in the 20th century than there was in the entire world in all the previous centuries combined. Almost every indicator of health, wealth, safety, nutrition, affordability and availability of consumer goods and services, environmental quality, and social conditions indicates rapid improvement over the past century. The gains have been most pronounced for women and minorities.
Among the most heartening trends discussed in this study are the following: life expectancy has increased by 30 years; infant mortality rates have fallen 10-fold; the number of cases of (and the death rate from) the major killer diseases—such as tuberculosis, polio, typhoid, whooping cough, and pneumonia—has fallen to fewer than 50 per 100,000; air quality has improved by about 30 percent in major cities since 1977; agricultural productivity has risen 5- to 10-fold; real per capita gross domestic product has risen from $4,800 to $31,500; and real wages have nearly quadrupled from $3.45 an hour to $12.50.
During the course of this century, the affordability and availability of consumer goods have greatly increased. Even most poor Americans have a cornucopia of choices that a century ago the Rockefellers and the Vanderbilts could not have purchased. Today more than 98 percent of American homes have a telephone, electricity, and a flush toilet. More than 70 percent of Americans own a car, a VCR, a microwave, air conditioning, cable TV, and a washer and dryer. At the turn of the century, almost no homes had those modern conveniences. And although Americans feel that they are more squeezed for time than ever, most adults have twice as much leisure time as their counterparts did 100 years ago.
By any conceivable measure, the 20th century has truly been the greatest century of human progress in history.
http://www.cato.org/pubs/pas/pa-364es.html
Be braced for a bust as bubbles look set to burst
By Marc Faber
Published: March 29 2004 5:00 / Last Updated: March 29 2004 5:00
Credit has to be given to Alan Greenspan, the Federal Reserve chairman.
He is the first head of a monetary authority who has not only managed to create a series of bubbles in the domestic economy but has also managed to create bubbles elsewhere - in the New Zealand and Australian dollars, emerging market debts, government bonds, commodities, emerging market equities and capital spending in China.
In fact, over the last 18 months, US monetary policies have boosted all asset classes. This is most unusual since it ought to be obvious that in the long run commodities and real estate inflation is incompatible with a bond bull market.
Mr Greenspan's monetary tribulations mark an achievement no one else in the history of capitalism has accomplished. It is also one investors will never forget once this credit-driven, universal bubble bursts and it will fill entire chapters of financial history books with economic and financial horror stories.
We simply don't know how the end game of the current speculative wave will be played out and when the bust will occur but a painful resolution of the current asset inflation and global imbalances is as certain as night follows day.
I used to believe that sometime in 2004 we would see the beginning of diverging trends in the performance of different asset classes, since bonds, commodities and real estate cannot continuously rally in concert.
[Uh, we just had the biggest crash in bonds ever in the history of bonds didn't we?]
After all, one characteristic of a strong secular bull market in one asset class is the simultaneous occurrence of a bear market in another. The commodities bull market of the 1970s was accompanied by a vicious bond bear market. The equities and bond bull markets of the early 1980s were accompanied by a persistent bear market in commodities and, in the 1990s, stocks of developed Western markets soared while Japan and emerging stock markets collapsed.
So, I was leaning towards the view that some assets would continue to increase in value in 2004 while others, such as bonds, would begin to fall by the wayside and enter longer-term bear markets. After further consideration, I am now increasingly concerned that sometime soon "everything" could begin to unravel. When interest rates rise, it is conceivable that bonds, stocks, commodities and real estate will all decline in value at the same time.
[I doubt highly that commodities will crash in concert with the other nor do I think they'll all crash at once, I think this guy may have a problem with crack or maybe ice or perhaps justs wants you to buy his book...crashes will occur but it will be years between them...for example stocks crash then a couple years later real estate etc...sooner or later the fiat goes down too..]
In the past I have had the tendency to dismiss the deflationist views of some reputed economists and strategists as unlikely. I now feel the current universal asset inflation and overheated Chinese economy will be followed by a serious bust and asset deflation, which will kill consumption in the US. The only question is when.
[Or as I posted before the chinese could sell their dollars for commodities they need...I assure you they don't care if the dollar crashes but they do need metals food etc...and they won't be wiped out if our fiat goes tubesville. As much as we'd like to think so.]
I'm at a loss as to when this bust will occur. But given the overbought condition of the US stock market, the extremely high bullish consensus (indicative of market tops in the past), the rising commodity markets and the tendency of markets to defeat central bankers who entertain the same erroneous beliefs that central planners under the socialist ideology had when they thought they could plan the best possible economic outcomes, the bust could come sooner rather than later.
[I think sooner rather than later too, especially if something blows up, like the Sears Tower or what have you.]
Moreover, we know from the experience of Japan in the late 1980s and Hong Kong in the mid-1990s that consumption booms, driven by asset inflation, end with a colossal bust. That can result from rising interest rates, or because stagnating household incomes no longer support the asset bubble as affordability diminishes, or additional supplies coming to the market and exceeding demand.
So, given that consumption driven by asset inflation is unsustainable in the long run and always ends badly, what should the contrarian investor do?
The least desirable asset in the world is US dollar cash. The investment community can take everything in stride - even a 70 per cent decline in Nasdaq stocks. But interest rates, as low as they are now, compel people to speculate on everything from commodities, homes and bonds to equities.
[The least desirable asset in the world is US dollar cash. Am now hearing this everywhere...see it on websites, see it from Sorros, Buffet, Templeton...]
Therefore, investors in the current speculative environment should be extremely defensive and not be tempted by short-term gains, which could be swiftly erased. Daily moves of 5 per cent in investment markets will become common. Nickel recently fell 8 per cent in a day, copper by 5 per cent, and the euro by 5 per cent within a week. Gold and, especially, silver may offer some protection but, once the current asset inflation bubble ends, they could also be in for a rough time.
[Or not.]
Obviously, as I experienced in Asia in the 1990s, it wasn't important to be "asset-rich" before the crisis of 1997 but to be "cash-rich" after the crisis when financial asset values had tumbled by 90 per cent and when incredible bargains across all asset classes were available. The author is editor and publisher of 'The Gloom, Boom & Doom Report' and author of Tomorrow's Gold
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=107....
Bottom line bubbles burst; not if but when...be prepared if it happens "suddenly"...
We no longer live in a republic, we no longer live in a democracy under a constitution, instead we live in a centrally planned government controlled autocracy regulated by the military industrial financial mass media complex as evidenced by how we got here below:
The history of the United States in the 20th century provides strong evidence that derogations from private property rights in a liberal democracy occur chiefly during national emergencies and that, once curtailed, private rights seldom regain their previous scope. The pattern should not be surprising. Crisis clearly alters the expected benefits and costs of curtailment of private rights on both sides of the political equation. A fearful public, ideologically predisposed to believe in the efficacy of governmental action, insists that the government “do something” to diminish the threat, perceiving the benefits of such action to be immediately and direct and the costs to be removed and largely external. This public perception is nurtured by those who, for material or ideological reasons, would use the occasion to further their economic or political aims. From a cost-benefit perspective, governmental officials experience reduced political costs and increased political benefits from curtailing private rights in crisis as compared to non-crisis conditions.
As people adjust to the crisis-expanded role of government, many variables change in ways that diminish the likelihood that the post-crisis retrenchment of the government will restore private rights to their previous scope. Private citizens discover that governmental action in a liberal democracy need not lead to the establishment of totalitarianism, as some conservatives have predicted. Governmental officials develop the bureaucratic technology to administer their controls less abrasively and more effectively. Many people find the politically and economically rewarding paths to personal advancement unique to systems powered by discretionary governmental authority. Thus, history is irrevocably altered by the crisis-induced expansion of governmental authority. The change is consolidated and compounded as new generations never experience the broader realm of private rights that once prevailed. For the younger generations, the status quo is the current, high degree of governmental power; for them there is no personal experience and, therefore, no genuine appreciation of the old regime.
The legal legacies of the crisis tilt the polity in the same direction: Statutes, regulations, and judicial decisions expressing and facilitating expanded governmental powers become embedded in the law as well as the public’s consciousness. The plethora of crisis-engendered statutes and judicial decisions attests to the magnitude of this aspect of the politico-economic dynamics. The discretionary nature of governmental powers thereby created provides an easy avenue to their expanded use in future situations that the public perceives, or can be induced to perceive, as “crises.”
Thus, private property rights, historically truncated during national emergencies, remain vulnerable to further erosion during future crises. Attempts to restrain the abuse of emergency powers have not eliminated the ratcheting effect of actual or purported emergency in augmenting governmental power. Only the respite of non-crisis affords time to contemplate and forestall the threat to liberty and private property rights inherent in the emergency psychology of the public and its exploitation by governmental officials.
Footnotes:
http://www.independent.org/tii/news/870100Higgs.html
National Emergency and the Erosion of Private Property Rights
By Robert Higgs and Charlotte Twight*
“Only an emergency can justify repression.” —Justice Louis D. Brandeis
The scope of private property rights in the United States has been greatly reduced during the 20th century. Much of the reduction occurred episodically, as governmental officials took control of economic affairs during national emergencies—mainly wars, depressions, and actual or threatened strikes in critical industries. Derogations from private rights that occurred during national emergencies often remained after the crises had passed. A “ratchet” took hold. People adjusted first their actions, then their thinking, to accommodate themselves to emergency governmental controls. Later, lacking the previous degree of public support, private property rights failed to regain their pre-crisis scope.
Emergency restrictions of private property rights are by no means of concern only to historians of the growth of governmental power. Today, emergency restrictions limit many private rights, and many more sweeping restrictions could be lawfully imposed at the President’s discretion. The possibility is real. Like several presidents before him, Ronald Reagan has dipped repeatedly into the government’s reservoir of emergency economic powers. The potential exists for the greatly expanded use—and abuse—of such powers.
Presuppositions
Rulers prefer more power to less, but in a liberal democracy the rulers are constrained by institutions that sustain private rights.1 Specifically, private property rights place the power of resource allocation in the hands of private citizens, thereby limiting the capacity of governmental officials to shape the economy. Governmental officials have interests of their own, which are not necessarily representative of or even in harmony with the interests of people outside government. Therefore, the rulers and the ruled normally struggle in various ways to determine who will control the use of resources. The greater the scope of private property rights, the more limited is the capacity of the rulers to achieve the ends they prefer at the expense of those preferred by the citizenry.
But citizens rely on the government for certain essential services, especially for the maintenance of social order and the protection of life and property; this dependence episodically creates opportunities for governments to take over previously private rights. If national emergencies did not just happen from time to time, governmental officials would be tempted to create them. In a genuine emergency, citizens are exceptionally willing to surrender their rights to governmental officials who offer plausible promises that they will restore social order, national security, or economic prosperity by wielding extraordinary powers. War, as Randolph Bourne aptly expressed it, is “the health of the state.” Business depressions also promote robust government, as do nationwide strikes in strategic industries, especially those involving essential means of transportation or communication. Under modern ideological conditions—that is, if people insist that governments “do something” to rectify perceived socio-economic problems—national emergencies invariably witness a transfer of economic rights from private citizens to governmental officials.
For several reasons, rights taken over by governmental officials during an emergency are unlikely to revert fully to their previous holders when normal times return. First, during the emergency the government learns how to operate its command-and-control system more successfully; that is, how to get necessary information, how to resolve competing claims on resources, and how to placate and respond to the complaints of politically influential aggrieved parties. Second, the imposition of a less-than-comprehensive system of controls—for example, regulating the economy but not the exercise of religious or political rights—discredits the conservative all-or-nothing warnings that normally inhibit governmental takeovers of private economic rights by representing them as steps toward totalitarianism. Third, many people discover, not only in the government’s bureaus but in the more regulated “private” sector, that the controlled economy offers its own characteristic avenues to personal success. Those who travel happily along these avenues naturally come to regard the entire system in which they thrive as essentially desirable. Some who adapt only out of necessity are eventually won over. Of course, during the emergency the government does all it can to justify its exercise of new powers, trumpeting the necessity and virtues of its controls, belittling the attendant costs and inequities, and defaming those who criticize its policies. Such propaganda is especially likely to hit its targets during a crisis, when the dogs of patriotism howl at their loudest and citizens rally more closely round the flag. Opponents of the government’s emergency measures can be stigmatized as “slackers” or “draft-dodgers” or worse; in extreme cases, they may be imprisoned, deported, or deprived of normal civil liberties.
A great emergency, therefore, produces a ratchet: At an early stage the government, responding to an urgent and widespread insistence that it “do something,” takes over rights previously held by private citizens; when the crisis wanes, public attitudes—the dominant ideology, some would say—have been so altered by the experience of governmental controls and the pervasive adaptations of behavior and thinking to those controls that public support for the recovery of the private rights is insufficient to produce their full restoration. While the hard residues of crisis-spawned laws, administrative agencies, and constitutional pronouncements are important, ultimately the most significant consequence of the emergency experience is the ideological change it fosters. As William Graham Sumner (1934, p. 473) wrote, “it is not possible to experiment with a society and just drop the experiment whenever we choose. The experiment enters into the life of the society and never can be got out again.”
How Emergencies Eroded Private Rights Historically
At the turn of the 20th century, Americans enjoyed a wide scope of private property rights.2 The prevailing ideology of both elites and masses greatly emphasized economic liberty. As James Bryce (1895, pp. 536-37) observed, the typical American regarded the “right to the enjoyment of what he has earned” as “primordial and sacred.” Most American believed that all governmental authorities “ought to be strictly limited” and “the less of government the better.”
Federal officials and judges typically acted in conformity with the belief that government ought to be confined to protective functions, refraining from redistributionist policies and leaving citizens free to conduct their economic affairs as they pleased. There were exceptions, of course, but they only highlight how limited the government, especially the federal government, was as a rule. In Allgeyer v. Louisiana (165 U.S. 578 [1897] at 589), the Supreme Court articulated the prevailing sentiment, declaring that the Constitution protects
not only the right of the citizen to be free from the mere physical restraint of his person . . . but . . . the right of the citizen to be free in the enjoyment of all his faculties; to be free to use them in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; to pursue any livelihood or avocation, and for that purpose to enter into all contracts which may be proper, necessary, and essential to his carrying out [these purposes] to a successful conclusion.
When citizens were guaranteed such extensive freedom of contract, governments had little ability to fix prices and wages, restrict hours or other conditions of employment, compel collective bargaining, regulate the locations of enterprises, or set aside the terms of private agreements; nor did governments have much justification for increasing the burden of taxation. Although governments, especially at the state and local levels, increased their economic functions somewhat during the late 19th and early 20th centuries and, more importantly, the dominant ideology gradually became more sympathetic to more-than-minimal government, the economy remained essentially a market system as late as 1914.
In a violent break with American tradition, private property rights were suppressed on a wide scale during World War I. In 1916, in anticipation of a future state of war, Congress granted the President emergency powers to seize materials, plants, and transport systems. During the year and a half of official U.S. belligerency that followed, the federal government took over the railroad, ocean shipping, telephone, and telegraph industries; suspended the gold standard and controlled all international exchanges of goods and financial assets; commandeered hundreds of manufacturing plants; entered into massive economic enterprises on its own account in such varied departments as shipbuilding, wheat and sugar trading, and building construction; lent huge sums to businesses directly or indirectly; regulated the private issuance of securities; established official priorities for the use of transport facilities, food, fuel, and many other goods; fixed the prices of dozens of important commodities; intervened in hundreds of labor disputes; and conscripted nearly three million men into the army. In short, the government extensively attenuated or destroyed private rights, creating what some contemporaries called “war socialism.” The Supreme Court did nothing to restrain the government’s suppression of private rights; evidently, constitutional war powers covered all cases.
Although most private rights were restored after the war, not all were. Tax rates remained higher, the tax structure was more “progressive,” and the income tax became a much more important source of federal revenues relative to traditional consumption taxes. The Transportation Act of 1920, by which the government relinquished its emergency control of the railroads, came close to nationalizing them; government remained in the ocean-shipping business; and the War Finance Corporation episodically participated in the credit markets until 1925. Most significantly, the war left a legacy of ideological change. As Bernard Baruch (1960, p. 72) observed, the war experience convinced many prominent businessmen and others that “government direction of the economy need not be inefficient or undemocratic, and suggested that in time of danger it was imperative.”
The next “time of danger” was occasioned not by war but by the Great Depression, a national catastrophe that Justice Brandeis called “an emergency more serious than war.” After three years of widespread bankruptcies, foreclosures, and bank failures, and of rapidly falling income and massively rising unemployment, it seemed that the market economy would never recover. All classes of Americans increasingly clamored for relief.
Recalling how government had wielded sweeping emergency powers to manage the economy during the war, many politically influential people believed that similar governmental controls could be used effectively to “fight” the depression. In 1933, the federal government launched a fleet of emergency measures: huge work-relief projects; a program to cartelize virutally all industries; abandonment of the gold standard and prohibition of private domestic monetary transactions in gold; price and production controls in agriculture; detailed regulation of securities markets; extensive federal intrusion into labor markets and union-management relations; federal production and sale of electrical power; and, before the New Deal had spent itself in 1938, a multitude of federal insurance and credit programs, Social Security pensions and welfare payments, the minimum wage, national unemployment insurance, and many other forms of governmental intervention in the market economy.
For a while the Supreme Court resisted. The National Industrial Recovery Act and the first Agricultural Adjustment Act, centerpieces of the early New Deal, were declared unconstitutional. But the Court was of two minds. In 1934, in Nebbia v. New York, it upheld an emergency-inspired state law fixing milk prices and imposing criminal sanctions on those who transacted at lower prices. The Court ruled (291 U.S. 502 [1934] at 523) that “neither property rights nor contract rights are absolute.” In 1935, in the Norman case, sustaining the government’s crisis-induced abrogation of the gold standard, the Court put private contractual rights in a clearly inferior position (294 U.S. 240 [1935] at 309-10): “There is no constitutional ground for denying to the Congress the power expressly to prohibit and invalidate contracts although previously made, and valid when made, when they interfere with the carrying out of the [monetary] policy it is free to adopt.”
After vacillating during 1934-36, sometimes sustaining and sometimes striking down the government’s unprecedented derogations from private property rights, the Court caved in completely in 1937. Since then it has maintained that virtually any state or federal governmental interference with private property rights is constitutional. Only a law that is manifestly arbitrary and lacking any imaginable relation to a public purpose will be disallowed. In a bloodless revolution, the U.S. Supreme Court overturned constitutional protections of private property rights that had existed for 150 years.3
The justices were only registering the ideological transformation going on around them. The Great Depression deeply discredited longstanding beliefs in individualism, private property rights, free markets, and limited government. The New Deal gave desperate people money, jobs, and protection from market competition, for which they were grateful. More importantly, it taught many people, including a new generation of Americans who had no personal experience with anything else, to value collectivist policies and governmental promises of economic security.
Drawing on the collectivist programs and sentiments of World War I and the New Deal, the federal government during World War II built an unprecedented apparatus of economic control. Clinton L. Rossiter (1948, p. 279) concluded: “Of all the time-honored Anglo-Saxon liberties, the freedom of contract took the worst beating in the war.” Governmental authorities drafted 10 million men for service in the armed forces; allocated strategic materials; established priorities for the use of transport, food, fuel, and other goods; commandeered plants and sometimes whole industries; fixed prices and rents; rationed many consumer goods; and built and operated entire new industries. In short, the free market virtually disappeared during 1942-45.
While private property rights were being suppressed, the Supreme Court only approved. As Justice Douglas wrote in Bowles v. Willingham (321 U.S. 503 [1944] at 521), a case involving rent controls, “where Congress has provided for judicial review after the regulations or orders have been made effective it has done all that due process under the war emergency requires.” But Justice Roberts, dissenting in a related case, Yakus v. United States (321 U.S. 414 [1944] at 458), correctly described the judicial review as “a solemn farce.” The government simply did as it pleased, showing no regard for private property rights. As Rossiter (1976, p. 91) commented, “the Court, too, likes to win wars.” Even when the government herded some 110,000 persons of Japanese descent, two-thirds of them U.S. citizens, into concentration camps, the Court stood aside, declaring the peremptory imprisonment of these innocent persons “in the crisis of war” to be “not wholly beyond the limits of the Constitution” (Hirabayashi v. United States, 320 U.S. 81 [1943] at 101). Where, one wonders, are the constitutional limits on governmental invasion of private rights during emergencies? During World War II, not even the most elementary private rights could withstand the government’s determination to exercise emergency powers.
Enduring legacies of the war include the employment Act of 1946, which committed the federal government to a policy of ongoing macroeconomic management; the Taft-Hartley Act of 1947, which preserved many of the federal powers first stipulated in the War Labor Disputes Act of 1943; and the Selective Service Act of 1948, which extended into peacetime the military conscription by which the government had coercively obtained the bulk of its military manpower at below-market rates during the war. The emergency rationale held sway. As a congressman (quoted by Gillam 1968, p. 509) said during the debate on the peacetime draft bill, “What we propose to do today is, under ordinary conditions, contrary to our traditions. . . . We are not living in an ordinary time. . . . We are living in a world of fear, of chaos, of uncertainty. . . . ”
Most significantly, as Calvin B. Hoover (1959, p. 212) observed, the war experience “conditioned [businessmen] to accept a degree of governmental intervention and control after the war which they had deeply resented prior to it.” Even under the pro-business Eisenhower administration, no serious attempt was made to overthrow the economic controls inherited from past emergencies. Having so greatly adjusted their actions and their thinking to the emergency suppression of private property rights, most Americans seemed to fear a return to a free market regime more than they feared the denial of private rights, actual and potential, under the postwar politico-economic arrangements.
A Case in Point: The Labor Market
The inverse relation of national emergency and private property rights seems clear enough. Can a closer inspection of the historical record sustain the same conclusion? We think so. Elsewhere we have described and analyzed in much greater detail the economic policies adopted during the world wars and the Great Depression (see Higgs 1987, chaps. 7-9), and we have documented the emergency ratchet with regard to private rights in international trade, a glaringly clear case (see Twight 1985).
Here we shall extend our examination of the historical record by looking at the emergency ratchet as it pertains to private rights in labor markets. Before World War I, private transactors possessed extensive freedom of contract in labor markets. Today, such rights are greatly attenuated by, inter alia, many federal restrictions: minimum wage law, wage-and-hour laws, compulsory collective bargaining laws, retirement and pension laws, anti-discrimination laws, and others. How did the American people get from there to here?
So far as federal restrictions are concerned (state and local restrictions have a much longer and more complicated history), the first significant step was taken in 1916 with the passage of the Adamson Act. The railroad-operating brotherhoods had demanded a reduction of the standard working day from 10 to 8 hours without any reduction in daily pay. Caught between the unions’ impending increase of railroad labor costs and the Interstate Commerce Commission’s (ICC’s) stubborn restraint of railroad rates and fares, the employers refused to accept the proposal; the unions scheduled a nationwide strike. The prospect of such a calamitous work stoppage terrified President Wilson, who decided to intervene. Failing to bring the two sides into agreement, Wilson induced Congress, which was controlled by his fellow Democrats, to enact legislation establishing the eight-hour day with daily pay unchanged, that is, mandating a 25 percent increase in the wage rates of operating employees of interstate railroad companies (39 Stat. 721, 3, 5 Sept. 1916). With this legislative action, as Jonathan R. T. Hughes (1977, pp. 138-39) wrote, the nation began a “long and irregular movement away from the ideal of the wage bargain as a sacred bond between the employer and the individual employee”—in particular, a movement away from federal support for private rights of contract in the labor market.
The emergency of the threatened railroad strike in the winter of 1916-17 merged immediately into the emergency of economic mobilization after the American declaration of war the following April. Unsatisfied with their recently mandated wage increase, the railroad-operating brotherhoods renewed their threat to strike toward the end of 1917. The railroad companies, still caught between the unions’ wage pressure and the ICC’s rate restraint (with threats of antitrust prosecution further complicating the situation and impeding cooperation among the companies) struggled ever more unsatisfactorily to meet the extraordinary demands for service occasioned by the government’s massive, ill-coordinated procurement program. Traffic slowed and facilities grew increasingly snarled. Knowing no other way to break the impasse, which was almost entirely of the government’s own creation, President Wilson took over the railroad industry under the powers granted to him by the Army Appropriations Act of 1916. “It was done,” wrote Treasury Secretary William G. McAdoo (1931, p. 458), only “as an imperative war measure.” McAdoo, who became the Director-General of the Railroad Administration, soon ordered substantial increases of railroad wage rates. The Railroad Administration’s resulting losses were conveniently covered by drawing on the U.S. Treasury.
Beyond the railroad industry, the government faced the same threat that strikes might cripple its mobilization of resources for war purposes. During 1917, there were an unprecedented 4,450 work stoppages (U.S. Bureau of the Census 1975, pp. 178-79). To allay the threat, the Wilson administration adopted a policy of supporting union organization and compulsory collective bargaining, the eight-hour day, and union work rules. If necessary, employers could be indemnified by cost-plus contracts with governmental procurement agencies. In 1918, a National War Labor Board was created to intervene in labor-management bargaining and bring the collective agreements into forms acceptable to the government. In extreme cases, the President and his lieutenants threatened to draft recalcitrant unionists or to commandeer plants owned by recalcitrant employers. Legacies of the government’s wartime labor policies included the Railroad Labor Board, an agency created by the Transportation Act of 1920, and the Railway Labor Act of 1926 and 1934.
When the Great Depression of the early 1930s prompted the Roosevelt administration to devise an emergency industrial relief program, the labor provisions of the Wilsonian war policy reappeared—a sop to unionists to keep them from opposing the cartels being established for producers. Along with clearly specified collective bargaining rights, the labor provisions of the National Industrial Recovery Act (48 Stat. at 198-99) provided “that employers shall comply with the maximum hours of labor, minimum rates of pay, and other conditions of employment, approved or prescribed by the President.” So much for freedom of contract in the labor market. The Supreme Court invalidated the NIRA early in 1935, but Senator Robert Wagner and his congressional colleagues quickly enacted the National Labor Relations Act to preserve governmental support for compulsory collective bargaining. Three years later the Fair Labor Standards Act established minimum-wage and wage-and-hour provisions similar to those lost when the NIRA was struck down.4
The next great emergency, World War II, brought much greater attenuation of private rights in the labor market. Ten million men were drafted into the armed forces. A War Manpower Commission made various attempts to impede labor mobility, reallocate workers, and control hiring practices; at one point it issued a “work-or-fight” order, threatening men in “nonessential” jobs with conscription. The National War Labor Board intervened extensively in collective bargaining negotiations, generally supporting union demands for representation and backing up its authority with dozens of seizures, some involving entire industries (coal mining and, no surprise, railroads). Irritated by strikes in strategic industries and most of all by John L. Lewis’s plain defiance of the President, Congress enacted the War Labor Disputes Act of 1943. This law, inter alia, expanded the President’s power to seize production facilities. (The Taft-Hartley Act of 1947 drew heavily on the provisions of the wartime labor law.)
Proposals for compulsory universal service received serious consideration during 1943-45 (FDR himself favored such a system) but Congress never enacted any of the proposed bills. Military conscription, on the other hand, became firmly entrenched. After the war, “temporary, emergency” extensions of the draft followed in succession. Not until the early 1970s did the government abandon its use of coercion to secure the manpower deemed necessary for national defense. Today’s registration requirement makes clear, however, that the government stands ready to reinstate the military draft whenever political authorities deem it expedient. Young men no longer hold a constitutionally guaranteed right of ownership over their bodies, their labor power, or their lives.
It would not be difficult to relate the additional federal attenuation of private labor-market rights during 1964-74 (Civil Rights Act, Age Discrimination in Employment Act, Economic Stabilization Act of 1970, Occupational Safety and Health Act, Equal Employment Opportunity Act, Employee Retirement Income Security Act) to the quasi-emergency conditions that prevailed during the Great Society-Vietnam War era, a time of race riots, antiwar protests, massive public demonstrations, and political assassinations. But enough has already been shown to establish a clear historical link between national emergency and the attenuation of private property rights in the labor market. The landmark federal intrusions in this area occurred when governmental officials undertook to “do something” to deal with conditions widely regarded as national emergencies—great strikes, war mobilization, deep depression. And doing something almost always meant transferring rights from private citizens to governmental officials.
How Emergency Powers Continue to Be Exercised
Until the late 1970s, unrevoked presidential declarations of national emergency, left over from long-past crises, continued to sustain extraordinary governmental authority. As late as 1976 the national emergencies declared by Roosevelt in 1933 and by Truman in 1950 had not been terminated. After the end of the Korean War, even though economic and political conditions in the United States were often as normal as possible in an age of Cold War and nuclear weapons, the government continued to use a fictitious emergency rationale to augment its statutory power—and thereby to diminish the scope of private property rights.
Few people worried about the emergency-spawned powers until the Nixon years. President Nixon himself added to the perpetual official crisis by declaring national emergencies in order to deal with the postal workers’ strike in 1970 and the balance-of-payments “crisis” in 1971. These declarations remained unrevoked when their precipitating crises passed. Only when the Watergate scandal and Nixon’s impoundment of congressionally authorized funds engendered widespread fear of an imperial presidency did Congress begin to investigate seriously the web of governmental authority spun on the pillars of unrevoked executive declarations of national emergency.
In 1973, the Senate created a Special Committee on the Termination of the National Emergency (subsequently redesignated the Special Committee on National Emergencies and Delegated Emergency Powers) to investigate the matter and to propose reforms. Ascertaining the continued existence of four presidential declarations of national emergency, the Special Committee (U.S. Senate 1973, p. iii) reported:
These proclamations give force to 470 provisions of Federal law. . . . taken together, [they] confer enough authority to rule the country without reference to normal constitutional processes. Under the powers delegated by these statutes, the President may: seize property; organize and control the means of production; seize commodities; assign military forces abroad; institute martial law; seize and control all transportation and communications; regulate the operation of private enterprise; restrict travel; and, in a plethora of particular ways, control the lives of all American citizens.
Yet, there was not statutory definition of what constitutes an emergency; as with the fabled emperor’s clothes, the assertion could belie the reality. As its investigation proceeded, the committee repeatedly voiced concern about both the longevity of the claimed emergencies and the use of a single national emergency decree to effectuate widely scattered emergency powers wholly unrelated to the emergency at hand.
The ultimate outgrowth of the committee’s work was the enactment of two significant laws: the National Emergencies Act (NEA) of 1976 and the International Emergency Economic Powers Act (IEEPA) of 1977.5 The NEA represented an attempt to reassert congressional control over burgeoning national emergency authority. Terminating all existing national emergencies two years after its enactment, it permits future presidential declarations of national emergency only under strict procedures guaranteeing periodic executive and congressional review of each emergency decree. The act also requires that no statutory authority contingent on a state of emergency be triggered by a national emergency decree unless the President specifically states his intent to exercise authority under that particular statute. Moreover, the act declares that national emergencies may be terminated by concurrent resolution of congress as well as by presidential proclamation or automatic lapse if not renewed annually by the President.
As originally enacted, the NEA exempted Section 5(b) of the Trading with the Enemy Act (TWEA) from its provisions, simultaneously mandating immediate congressional review of national emergency powers and programs under that authority. The exemption was significant because since 1917 the TWEA had given the President virtually unlimited power during war or (since 1933) other national emergencies to regulate or prohibit transactions in foreign exchange or international credit as well as purely domestic banking activities. As Representative Jonathan Bingham (U.S. House of Representatives 1977a, p. 5) later described it, “the TWEA was so broad that the President could do virtually what he wanted under it under any kind of an emergency and it did not have to involve war or hostility or anything else.” The congressman believed these powers to be “enormously broad” and potentially “dictatorial” and worried that they could be employed “without any restraint by the Congress.”
In the 1977 TWEA committee hearings, the clash between members of Congress seeking to control this executive power and officials of the executive branch intent on sustaining it became intense. Incredulous congressmen learned the full reach of executive encroachments on private property rights undertaken in the name of obsolete emergency decrees, as the exchange between Representative Bingham and State Department official Julius Katz illustrates (U.S. House of Representatives 1977b, p. 110):
Mr. BINGHAM. Mr. Katz, what is the national emergency currently facing us which warrants the use of powers under the Trading with the Enemy Act? . . . What is the national emergency today?
Mr. KATZ. It continues to be the emergency involving the threat of Communist aggression which was declared in 1950 at the time of the aggression in Korea.
Mr. BINGHAM. Are you serious?
Moments later, referring to “this ‘Alice in Wonderland’ situation that we are in today with the Trading With the Enemy Act,” Bingham (pp. 111-12) complained that
The administration wants to continue exercising powers which in the mind of any fair-minded observer . . . are totally unrelated to the purposes of the act. We don’t know who the enemy is that we are talking about. We don’t have an emergency that is current. . . . we are playing fast and loose with the Constitution. We are relying on an emergency that does not exist to justify a taking, or actions taken by the administration.
Ultimately, even administration witnesses acknowledged the historical vulnerability of private rights to the political imperatives of crisis as reflected in the evolution of the TWEA. Treasury official C. Fred Bergsten, a key administration spokesman on the issue, said that he was “keenly aware” that “on several occasions section 5(b) had been hurriedly broadened during moments of national crisis, such as the banking emergency in 1933 and World War II breakout in 1941, during which cases very little attention, frankly, was given to procedural safeguards consonant with the constitutional balance of power” (U.S. Senate 1977, p. 2).
To narrow the TWEA’s exemption from the NEA, Congress passed the IEEPA in 1977. Viewed broadly, the effect of its enactment is to separate presidential power over transactions previously covered by Section 5(b) into two categories. The TWEA is amended to authorize presidential action exclusively during wartime, while the IEEPA becomes a repository for executive economic power wielded during other national emergencies. Significant also is the IEEPA’s restriction that the emergency powers it authorizes apply to international transactions only. Withheld are the purely domestic emergency powers previously exercised under the all-inclusive TWEA.
Presidential emergency authority over international transactions, however, remains virtually unchanged. In language parallel to the wartime provisions of the TWEA, the IEEPA grants the President emergency authority to
(A) investigate, regulate or prohibit–
(i) any transactions in foreign exchange,
(ii) transfers of credit or payments between, by, through, or to any
banking institution, to the extent that such transfers or payments
involve any interest of any foreign country or a national thereof,
(iii) the importing or exporting of currency or securities; and
(B) investigate, regulate, direct and compel, nullify, void, prevent
or prohibit, any acquisition, holding, withholding, use, transfer,
withdrawal, transportation, importation or exportation of, or dealing
in, or exercising any right, power or privilege with respect to, or
transaction involving any property in which any foreign country or a
national thereof has any interest; by any person, or with respect to
any property, subject to the jurisdiction of the United States.
These copious powers are to be used “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.”6
Although the President’s emergency authority over international transactions retained its previous scope, the power to effect the requisite emergency was narrowed. In enacting the IEEPA, Congress repealed the exemption that had shielded Section 5(b) of the TWEA from the NEA. The IEEPA thus guaranteed that future declarations of national emergency within its scope would be subject to the NEA and that current “emergencies” could be terminated as specified in that statute. Nevertheless, existing uses of Section 5(b) powers continued to be insulated from the NEA by provisions enabling the President to extend current Section 5(b) programs annually upon executive determination that such extension “is in the national interest”—that is, without the necessity of a continuing national emergency. Existing Section 5(b) programs included the Foreign Assets Control Regulations (restricting American citizens’ rights to enter into trade or financial transactions with citizens of North Korea, Vietnam, Cambodia, and, to a lesser extent, China), Cuban Assets Control Regulations, Transactions Control Regulations (prohibiting U.S. citizens from engaging in certain transactions involving strategic goods of foreign origin), and Foreign Funds Control Regulations (affecting assets of citizens of East Germany, Czechoslovakia, Latvia, Lithuania, and Estonia that were blocked during World War II).
How well have the NEA and IEEPA served their intended purpose? In the decade since their enactment, the attempted curtailment of executive power has proved to be significantly less successful than the statutory language suggested it would be.
In one sense, the dramatic and frequent use of executive emergency power that persists under the two statutes speaks for itself. President Carter and President Reagan have declared national emergencies repeatedly to impose sweeping economic restrictions on the dealings of Americans with citizens of other nations, including Iran, Nicaragua, South Africa, and Libya. Most recently, invoking the NEA and the IEEPA, President Reagan declared a national emergency to warrant a prohibition of the economic activities of Americans in Libya and ordered all U.S. citizens residing in Libya to leave or face criminal sanctions. Also under claim of national emergency, President Reagan recently used the IEEPA to sustain an important trade restriction, the Export Administration Act, for more than a year during which Congress had allowed it to expire.
The Libyan episode is particularly revealing of the fundamental issues involved in recent emergency declarations. Although the President and the popular press invite us to view the restrictions as impinging on the Libyan government, in reality the emergency decrees restrict the rights of American citizens. In his Executive Order 12543 of January 7, 1986 (51 Fed. Reg. 875, Jan. 9, 1986), President Reagan explicitly forbade U.S. citizens to engage in
(a) The import into the United States of any goods or services of Libyan origin . . . ;
(b) The export to Libya of any goods, technology (including technical data or other information) or services from the United States . . . ;
(c) Any transaction by a United States person relating to transportation to or from Libya; . . . or the sale in the United States by any person holding authority under the Federal Aviation Act of any transportation by air which includes any stop in Libya;
(d) The purchase by any United States person of goods for export from Libya to any country;
(e) The performance by any United States person of any contract in support of an industrial or other commercial or governmental project in Libya;
(f) the grant or extension of credits or loans by any United States person to the government of Libya, its instrumentalities and controlled entities;
(g) Any transaction by a United States person relating to travel by any United States citizen or permanent resident alien to Libya, or to activities by any such person within Libya, after the date of this Order, other than transactions necessary to effect such person’s departure form Libya . . . ; and
(h) Any transaction by any United States person which evades or avoids, or has the purpose of evading or avoiding, any of the prohibitions set forth in this Order.
Whatever one’s views of the events that prompted the President’s actions, one cannot escape the conclusion that the economic activities of Americans, not Libyans, are controlled directly by the emergency restrictions. It became evident that the valuable investments of Americans in plant and equipment stood a good chance of being relinquished to the Libyan government, without compensation, by the terms of the President’s executive order (see Kempe 1986a).
Caught in its own snare, the Reagan administration changed the program, making exceptions to and deferrals of its original orders in hopes of avoiding the enormous financial gains to Qadhafi’s regime that rigid enforcement of the edicts would create (see Greenberger 1986 and Kempe 1986b). While observing the government’s confused thrashing, one might well have reflected on who was supposed to suffer as a result of the emergency economic sanctions and on whether or not such suffering could reasonably be expected to result from such restrictions of American rights. These events prompt one to wonder about what events might provoke a charismatic President to impose sanctions that selectively restrict the property rights of an unpopular subgroup of Americans—such as the Japanese-Americans in 1942—under the pretext of emergency.
The Constitutionality of Emergency Powers
Are emergency powers constitutional? The short answer is yes. One sense of “constitutional” is whatever the government makes a practice of doing. Since the federal government took emergency action to head off the threatened railroad strike in 1916, it has repeatedly exercised emergency powers. To conduct a practice for 70 years is to establish that it is not simply an aberration.
Another meaning of “constitutional” is whatever accords with the U.S. Constitution. Ours is a written document that completely enumerates the powers that may be exercised by the federal government. The Tenth Amendment guarantees that powers not explicitly assigned to the central government nor prohibited to the state governments belong to the states and the people. The Constitution makes no provision for the exercise of emergency powers. Evidently, it was meant to govern the actions of federal authorities in foul weather as well as in fair. How, then, has it been possible for federal officials to exercise—eventually as a matter of routine—extraordinary powers for which the Constitution provides no warrant?
The answer lies in a third meaning of “constitutional”; that is, whatever the Supreme Court allows. The Court has ruled on several occasions on the permissibility of emergency powers; these decisions constitute a melancholy chapter of constitutional history, a record of evasion and capitulation of the judicial function against which many justices on the minority side have objected.
The first modern ruling, still a leading precedent, was handed down in Wilson v. New (243 U.S. 332 [1917]), a case arising from a challenge to the government’s emergency appeasement of the railroad unions in 1916. By a 5-4 margin, the justices upheld the government’s actions. Speaking for the Court, Chief Justice White (pp. 350-51) argued that the Adamson Act was a legitimate exercise of the legislative will “to the end that no individual dispute or difference might bring ruin to the vast interests concerned in the movement of interstate commerce. . . .” The dispute, he observed, “if not remedied, would leave the public helpless, the whole people ruined and all the homes of the land submitted to a danger of the most serious character.”
The Chief Justice (pp. 348, 352) repeatedly emphasized the gravity of the circumstances prompting the Adamson Act: “the impediment and destruction of interstate commerce which was threatened” and “the infinite injury to the public interest which was imminent.” Oddly, he took pains to deny that the emergency per se gave rise to the government’s authority under the act: “although an emergency may not call into life a [constitutional] power which has never lived,” he reasoned, “nevertheless emergency may afford a reason for the exertion of a living power already enjoyed.” In view of the unprecedented character of the government’s actions, White’s distinction was a most delicate one; not everyone could see the sense of it.
The dissenting justices declared that emergency conditions, however threatening, could not excuse the denial of constitutional rights. In their view, the Constitution had been adopted to protect private property especially under such conditions. “The suggestion,” wrote Justice Pitney (pp. 376-77), that the Adamson Act “was passed to prevent a threatened strike . . . amounts to no more than saying that it was enacted to take care of an emergency. But an emergency can neither create a power nor excuse a defiance of the limitations upon the powers of the Government.” Despite their strong arguments, the dissenters could do no more than register their dissatisfaction. The majority’s curious doctrine, that emergencies may call forth extraordinary powers from some previously untapped yet still legitimate reservoir, carried the day and established the precedent.
A broad construction of the war powers excused the government’s suppression of private rights during World War I, but legal challenges persisted into the postwar era. In the spring of 1921, the Supreme Court ruled that a rent-control ordinance that Congress had imposed in late 1919 in the District of Columbia—“its provisions were made necessary by emergencies growing out of the war”—“was not, in the prevailing circumstances, an unconstitutional restriction of the owner’s dominion and right of contract or a taking of his property for a use not public.” The ruling, which emphasized the temporariness of the disputed rent controls, seemed to the dissenters to open the door to all kinds of governmental restrictions of the private right of contract. “As a power in government,” wrote Justice McKenna, “if it exist at all, it is perennial and universal. . . . necessarily, if one contract can be disregarded in the public interest every contract can be. … other exigencies may come to the Government making necessary other appeals.”7 Indeed they would.
Early in 1934 the Court issued what is perhaps the classic decision on the emergency powers of government and the protection to be afforded or withheld from private property rights during economic crises (Home Building and Loan Association v. Blaisdell, 290 U.S. 398 [1934]). The case involved a legislative moratorium—one of 25 such state laws enacted during 1932-33—on mortgage foreclosures (see Aston 1984). A statute approved by the government of Minnesota on April 18, 1933, under ominous pressures by indebted farmers, declared an economic emergency and extended temporarily the period during which creditors were prevented from foreclosing on and selling mortgaged real estate. At the discretion of local courts the owners of foreclosed property could be allowed up to two years to redeem their property. During the extended redemption period the mortgagor was required to pay the mortgagee what amounted to rent, but the mortgagee was deprived of the right to take control over the property. The Home Building and Loan Association of Minneapolis challenged the law as an unconstitutional impairment of the obligation of contract. Its position was upheld by a county court but overturned by the state supreme court; the case then came before the U.S. Supreme Court on appeal.
The main issue was whether emergency conditions justified the exercise of otherwise unconstitutional powers by a state government. The most compelling precedents for an affirmative answer were Wilson v. New and the 1921 rent-control cases. The force of the rent-control decisions was uncertain, however, as Justice Holmes had previously declared that “they went to the very verge of the law” (Pennsylvania Coal Company v. Mahon, 260 U.S. 393 [1921]). Counsel for the state of Minnesota conceded (290 U.S. at 409) that “in normal times and under normal conditions” the state’s moratorium law would be unconstitutional. “But these,” he urged, “are not normal times nor normal conditions. A great economic emergency has arisen in which the State has been compelled to invoke the police power. . . . ” The justices would have to decide again whether or not an emergency altered the protections of the Constitution and, if so, what qualified as an emergency. Their decision could have wide repercussions, because virtually all of the important federal statutes enacted during Franklin D. Roosevelt’s first 100 days had appealed to emergency conditions, evidently with an eye toward the Supreme Court (see Clark 1934 and Belknap 1983).
Although the Court upheld the Minnesota moratorium law and by implication all the others, it failed to clarify whether or not an emergency justified setting aside the constitutional protection of private property rights. Perhaps the most important aspect of the decision is simply that state infringement of contractual obligations was validated. Paradoxically, however, the Court denied that it had sustained the Minnesota statute because of emergency (290 U.S. at 425, 426, 428, 437, 440-41, 444). “Emergency does not create power,” said Chief Justice Hughes, speaking for the five-man majority. “Emergency does not increase granted power or remove or diminish the restrictions imposed upon power granted or reserved.” What could be plainer? Yet, wrote Hughes, referring to the slippery doctrine enunciated in Wilson v. New, “while emergency does not create power, emergency may furnish the occasion for the exercise of power.” The prohibition of governmental intervention guaranteed by the Contracts Clause, he added, “is not an absolute one and is not to be read with literal exactness like a mathematical formula. . . . The economic interests of the State may justify the exercise of its continuing and dominant protective power notwithstanding interference with contracts.” Any doubts about the capaciousness of the police powers of the state government and the implied limitation on the protection of private contractual rights, he believed, should have been removed by the rent-control decisions—decisions, where “the relief afforded was temporary and conditional . . . sustained because of the emergency.” The Chief Justice insisted that “the reservation of the reasonable exercise of the protective power of the State is read into all contracts. . . . ” He concluded: “An emergency existed in Minnesota which furnished a proper occasion for the exercise of the reserved power of the State to protect the vital interests of the community.”
The four dissenting justices disagreed emphatically (pp. 448, 465, 471). “He simply closes his eyes to the necessary implications of the decision,” said their spokesman, Justice Sutherland, “who fails to see in it the potentiality of future gradual but ever-advancing encroachments upon the sanctity of private and public contracts.” The correct doctrine, they believed, was to be found in the classic decision of Ex parte Milligan (1866), which declared constitutional guarantees and restrictions to be absolutely invariant with respect to emergencies or any other social conditions. Quoting from a considerable collection of historical works, Sutherland established that the framers had intended the Contracts Clause to apply “primarily and especially” during economic crises; a crisis similar to the current depression had provoked them to add it to the Constitution in the first place. “The present exigency is nothing new,” Sutherland pointed out. The rent-control decisions were dismissed as too weakly justified at the time and as dealing with a matter too dissimilar to the present one to afford a binding precedent.
The dissenters on the Court rejected Hughes’s sophistical distinction between genuine emergency powers and reserved powers brought into play by emergency conditions (pp. 473-74):
The question is not whether an emergency furnishes the occasion for the exercise of that state power, but whether an emergency furnishes an occasion for the relaxation of the restrictions upon the power imposed by the contract impairment clause; and the difficulty is that the contract impairment clause forbids state action under any circumstances, if it have the effect of impairing the obligation of contracts. . . . The Minnesota statute either impairs the obligation of contracts or it does not. If it does not, the occasion to which it relates becomes immaterial, since then the passage of the statute is the exercise of a normal, unrestricted, state power and requires no special occasion to render it effective. If it does, the emergency no more furnishes a proper occasion for its exercise than if the emergency were non-existent. And so, while, in form, the suggested distinction seems to put us forward in a straight line, in reality it simply carries us back in a circle, like bewildered travelers lost in a wood.
The dissenting opinion concluded: “If the provisions of the Constitution be not upheld when they pinch as well as when they comfort, they may as well be abandoned.” The dissenters feared that the Court, to facilitate the extraordinary governmental measures being implemented at all levels, had begun to abandon the Constitution by embracing a reinterpretation so sweeping as to effectively destroy the traditional understanding and force of the constitutional protection of private rights.
During the Korean War, the Court had another occasion to consider its doctrine regarding emergency powers. President Truman, placed in an uncomfortable political position by a deadlocked union-management dispute that threatened a nationwide strike, directed the Secretary of Commerce in April 1952 to seize and operate several steel mills. The owners obtained an injunction to prevent the seizure. The Supreme Court upheld the injunction by a 6-3 vote in the Youngstown case decided June 2, 1952 (343 U.S. 579).
Although the Court denied Truman—by that time a very unpopular President—a power previously exercised freely by Wilson and FDR, the decision did not impose a restriction of the government’s power to take private property in an emergency; it restrained only a presidential taking without specific statutory authorization (pp. 587, 653, 700). As Justice Black said in announcing the majority’s opinion, “This is a job for the Nation’s lawmakers, not for its military authorities.” In a concurring opinion, Justice Jackson emphasized “the ease, expedition and safety with which Congress can grant and has granted large emergency powers.” Neither the majority nor the minority gave any weight to private property rights. While the majority objected only to Truman’s presidential high-handedness, the minority grumbled that “such a [presidential] power of seizure has been accepted throughout our history.” The Constitution was read in this case, as in many orders, not as a bulwark against governmental oppression of private citizens but as the institutional setting within which high officials in the different branches of government conduct their internecine struggles for supremacy.
By enacting the NEA and IEEPA, Congress sought to institutionalize its regulation of the presidential exercise of emergency powers, but the Supreme Court has recently breathed new life into those powers, countermanding restraints codified in the 1976 and 1977 statutes. In 1983, the Court ruled in Immigration and Naturalization Service v. Chadha (103 S. Ct. 2764) that Congress may not use a one-house resolution or any other method short of the full constitutional requirements for enactment of legislation to overturn a decision delegated to the President. By implication, the ruling invalidated the use of a concurrent resolution, as provided in the NEA, as a restraint on the presidential exercise of emergency authority. Congress might have foreseen this outcome. In hearings on national emergency legislation in 1977, members of Congress were warned by administration witnesses and legal scholars that the proposed use of the concurrent resolution was constitutionally vulnerable. Against this background, skeptics might argue that Congress adopted the provision in order to achieve the appearance rather than the reality of congressional control. Whatever the congressional intention may have been, in Chadha one potential counterweight to the President’s use of emergency powers was demolished by the judicial interpretation of the doctrine of separation of powers.
More significantly, the Supreme Court’s two recent decisions directly involving the IEEPA all but gutted certain congressional constraints on presidential power set forth in the NEA. In Dames & Moore v. Regan (101 S. Ct. 2972 [1981]), the Court gave broad construction to the President’s power to act under the IEEPA, endorsing President Carter’s use of that act first to block Iranian funds and later to compel their return to Iran (thereby nullifying certain attachments issued by U.S. courts) as part of his effort to secure the release of American hostages. Noting other disputes over Carter’s attempt to nullify Americans’ legal claims to Iranian assets, the Supreme Court quoted approvingly a lower court’s ruling in upholding these powers that “the language of IEEPA is sweeping and unqualified.”8 The Supreme Court (101 S. Ct. at 2983) ruled that the President did have the power to nullify the judicial attachments of Iranian assets secured by the American petitioners: “We . . . refuse to read out of Section 1702 [of the IEEPA] all meaning to the words ‘transfer,’ ‘compel,’ or ‘nullify.’ . . . both the legislative history and cases interpreting the TWEA fully sustain the broad authority of the Executive when acting under this congressional grant of power.”
Equally significant was the Court’s ruling on the scope of executive power to deal with such foreign policy disputes in the absence of statutory authority. While holding that President Reagan lacked statutory authority under the IEEPA to “suspend” U.S. citizens’ claims against Iran pursuant to President Carter’s agreement with the Iranian government, the Court nevertheless ruled that the President did not lack constitutional power to terminate the claims. Citing with approval Justice Frankfurter’s statement in Youngstown that “a systematic, unbroken, executive practice, long pursued in the knowledge of the Congress and never before questioned … may be treated as a gloss on ‘Executive Power,’” the Court held that “where, as here, the settlement of claims has been determined to be a necessary incident to the resolution of a major foreign policy dispute between our country and another, and where, as here, we can conclude that Congress acquiesced in the President’s action, we are not prepared to say that the President lacks the power to settle such claims” (pp. 2990-91).
Lest anyone think that the judges did not understand the economic consequences of their decision, the Court rationalized its invalidation of the property rights involved by referring to the Iran-United States Claims Tribunal as an alternative forum established to provide relief in these cases. While unabashedly admitting that the American claimants had scant chance of success before the Claims Tribunal, the justices offered the consolation that the deprived parties “may well recover something on their claims” (p. 2990).
Further erosion of the NEA and the IEEPA came in Regan v. Wald (104 S. Ct. 3026), decided by the Supreme Court on June 28, 1984. At issue was the scope of the “grandfather” provision of the IEEPA, which exempts “existing uses” of Section 5(b) powers from the NEA’s restrictions. The dispute arose over the use of the Cuban Assets Control Regulations, first promulgated under the old TWEA, to prohibit Americans from engaging in economic transactions related to tourist and business travel to Cuba. At the time of the IEEPA’s enactment, such transactions were permitted under a general license issued by the Treasury Department. In 1982, without a presidential declaration of national emergency or executive compliance with the procedures of the NEA and the IEEPA, the Treasury Department changed the regulations to prohibit most of the transactions. The issue before the Court was whether or not the dramatic change in the regulations was covered by the grandfather provision of the IEEPA and, therefore, exempt from the NEA procedures.
The issue had been discussed in congressional hearings on the IEEPA. The original grandfather proposal contained language that would have grandfathered not only existing uses of statutory authority but also any other authority exercised to deal with the same set of circumstances. Representative Bingham balked at such a broad formulation: he wondered “why it should be necessary to give [the President] authority to expand what has already been done.” His understanding was that “grandfathering applies to what has been done to date, and what should be ample authority.” The subcommittee’s staff director, Roger Majak, responded that “it boils down to a question of whether we are grandfathering a particular situation, and all the powers that may be necessary to deal with the situation, or whether we are grandfathering the particular authorities themselves and their usage” (U.S. House of Representatives 1977b, p. 167, emphasis added). The upshot of the discussion was that the language of the grandfather provision was changed, eliminating any reference to the use of other authorities relevant to existing situations. A stripped-down clause emerged, grandfathering only “existing uses” of Section 5(b) authorities.
When the bill was presented for markup before the full House Committee on International Regulations, Bingham stated unequivocally: “. . .we have grandfathered in those actions currently being taken under the Trading With the Enemy Act” (U.S. House of Representatives 1977a, p. 2, emphasis added). Under questioning by Representative Cavanaugh, Assistant Treasury Secretary Bergsten, the administration’s spokesman for the IEEPA, reiterated the narrow purpose of the revised grandfather provision (p. 21):
Mr. CAVANAUGH. First of all, Mr. Bergsten, would it be your understanding that [the grandfather clause] would strictly limit and restrict the grandfathering of powers currently being exercised under 5(b) to those specific uses of the authorities granted in 5(b) being employed as of June 1, 1977.
Mr. BERGSTEN. Yes, sir.
Mr. CAVANAUGH. And it would preclude the expansion by the President of the authorities that might be included in 5(b) but are not being employed as of June 1, 1977.
Mr. BERGSTEN. That is right.
Notwithstanding this unmistakably explicit legislative history, the Supreme Court ruled by a vote of 5-4 that the grandfather provision does encompass changes in existing restrictions if they pertain to the same general “authority” previously exercised under the TWEA. The four dissenting justices (104 S. Ct. at 3046) could only observe that “there is nothing in the language of the statute to suggest . . . that Congress intended the grandfather clause to provide a President with the authority to increase the restrictions applicable to a particular country without following the IEEPA procedures.”
The immediate result of the Court’s decision was that a major new curtailment of private travel to Cuba was implemented under the Cuban Assets Control Regulations without a declaration of national emergency or compliance with NEA procedures. With the stroke of a judicial pen, an apparent pinprick in the statutory armor against the abuse of emergency powers became a gaping hole.
Conclusion
The history of the United States in the 20th century provides strong evidence that derogations from private property rights in a liberal democracy occur chiefly during national emergencies and that, once curtailed, private rights seldom regain their previous scope. The pattern should not be surprising. Crisis clearly alters the expected benefits and costs of curtailment of private rights on both sides of the political equation. A fearful public, ideologically predisposed to believe in the efficacy of governmental action, insists that the government “do something” to diminish the threat, perceiving the benefits of such action to be immediately and direct and the costs to be removed and largely external. This public perception is nurtured by those who, for material or ideological reasons, would use the occasion to further their economic or political aims. From a cost-benefit perspective, governmental officials experience reduced political costs and increased political benefits from curtailing private rights in crisis as compared to non-crisis conditions.
As people adjust to the crisis-expanded role of government, many variables change in ways that diminish the likelihood that the post-crisis retrenchment of the government will restore private rights to their previous scope. Private citizens discover that governmental action in a liberal democracy need not lead to the establishment of totalitarianism, as some conservatives have predicted. Governmental officials develop the bureaucratic technology to administer their controls less abrasively and more effectively. Many people find the politically and economically rewarding paths to personal advancement unique to systems powered by discretionary governmental authority. Thus, history is irrevocably altered by the crisis-induced expansion of governmental authority. The change is consolidated and compounded as new generations never experience the broader realm of private rights that once prevailed. For the younger generations, the status quo is the current, high degree of governmental power; for them there is no personal experience and, therefore, no genuine appreciation of the old regime.
The legal legacies of the crisis tilt the polity in the same direction: Statutes, regulations, and judicial decisions expressing and facilitating expanded governmental powers become embedded in the law as well as the public’s consciousness. The plethora of crisis-engendered statutes and judicial decisions attests to the magnitude of this aspect of the politico-economic dynamics. The discretionary nature of governmental powers thereby created provides an easy avenue to their expanded use in future situations that the public perceives, or can be induced to perceive, as “crises.”
Thus, private property rights, historically truncated during national emergencies, remain vulnerable to further erosion during future crises. Attempts to restrain the abuse of emergency powers have not eliminated the ratcheting effect of actual or purported emergency in augmenting governmental power. Only the respite of non-crisis affords time to contemplate and forestall the threat to liberty and private property rights inherent in the emergency psychology of the public and its exploitation by governmental officials.
Footnotes:
http://www.independent.org/tii/news/870100Higgs.html
Reappointing Alan Greenspan as chairman of the Federal Reserve Board is like inviting the Titanic's captain back to the helm for another cruise.
The financial markets and the punditocracy continue to believe that Greenspan is the closest thing to God on Earth -- witness the market rally on April 22, when the White House announced the reappointment. But this faith in Mr. Greenspan says more about their continued lack of contact with reality than his merits as Fed chairman. After all, these are some of the same people who thought a 5,000 NASDAQ index made sense (it's now below 1,500).
Do they forget that Greenspan ignored the largest financial bubble in history, which led to a loss of more than $8 trillion in stock wealth? It should have been clear by 1997 that the stock market had entered a bubble, as at least a few economists were saying at the time. As a result of its bursting, the economy remains mired in stagnation.
It would not have been difficult for Greenspan to deflate this bubble, as he inadvertently demonstrated in late 1996, when he made his famous comment about the market's "irrational exuberance." The comment sent the market plummeting. If Greenspan hadn't reversed his position two days later, his comment might have, by itself, prevented further expansion of the bubble. If he had consistently berated the markets with "irrational exuberance" comments and supported his case with charts and graphs, it is unlikely the market would have reached the dizzying heights of 1999 and 2000. If talk proved insufficient, he could have raised the margin requirement (which restricts borrowing to buy stock), and if necessary, he could have raised interest rates.
But he didn't do any of that -- and arguably, he even may have promoted expansion of the bubble with his "new economy" rhetoric. The economy will suffer for years to come as a result.
The bad news is not all behind us. Greenspan continues to ignore a housing bubble, the collapse of which is likely to have even larger repercussions for the economy and the retirement security of millions of Americans. People are currently buying homes in the bubble-infected markets (mostly on the east and west coasts), which could lose 30 to 40 percent of their value in a drop. For most families, their home is their biggest investment. Tens of millions of baby boomers are counting on equity in their home to support them in retirement now that their 401(k) plans have suffered so drastically from the stock market retreat. Instead of warning of a housing bubble, Greenspan testified before Congress last summer that there is no such thing.
He also supports an over-valued dollar that is causing the nation to borrow more than $1.5 billion every day from abroad. This process cannot continue for long. At some point the country literally will run out of things to sell -- in about 20 years at the current rate, if foreigners don't lose interest in the United States long before that. Whenever it happens, the dollar will drop, sending import prices and inflation soaring, and U.S. living standards will plummet. Again, Greenspan could act now, but he seems happy to let this debt continue to grow, happy to pass this problem on to future generations.
Those generations will suffer, too, from his endorsement of Bush's first round of draconian tax cuts. It's not clear why Greenspan did it -- after all, the head of the Fed shouldn't be influenced by the political climate -- because it was crystal clear from the start that those cuts were reckless.
Yet, unlike the custodian or the factory worker who get fired for poor performance, Greenspan just keeps drawing praise and getting reappointed. Nice work, if you can get it.
Greenspan May Not Go On
WHITE HOUSE MAY SEE GREENSPAN AS LIABILITY FOR ELECTION
By JOHN CRUDELE
March 30, 2004 -- WHO'S going to be the next one to hear the immortal words, "You're fired"? It just might be Alan Greenspan.
Granted, I'm a bit early on this conjecture. The Federal Reserve chairman's term doesn't expire until June, and the last word from the Bush Administration is that he can stay on.
But a few weeks ago, I started hearing a story from a very well-connected Washington insider that the White House is peeved at Greenspan for some stuff that appeared in "The Price of Loyalty," the best-selling book by former Bush Treasury Secretary Paul O'Neill.
As I said in a column in late January, at one point O'Neill has Greenspan lamenting that "capitalism is not working" because of corporate corruption. And there are stories in the book about secret alliances between O'Neill and Greenspan.
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=107....
http://www.investorshub.com/boards/read_msg.asp?message_id=2707661
etc etc etc
But what is really tweaking the administration's cheek is the fact that some of the other information in the book could only have come from Greenspan. And Greenspan and the now-despised O'Neill were, and are, tight.
"O'Neill is very friendly with Greenspan," says this source, who has worked in previous Republican administrations. "And the White House is [not happy with]" the Fed chairman.
Disloyalty is a sin in this White House. And being a friend to the administration's enemy makes you the enemy.
If that was all, the administration might get over it and allow the 78-year-old to serve another four-year term - although I personally don't know why anyone would want to stay in a high-pressure job until the age of 82.
But there is also a very tricky economy that is likely to cause Greenspan to butt heads with the administration over the next few months.
The White House, of course, wants what every incumbent administration wants - a Federal Reserve that will roll over and play dead.
If interest rates could go any lower, that's what the Bush Administration would want. But since they can't, the next best thing would be for Greenspan not to do anything.
But therein lies the problem.
Even though the economy isn't exactly booming, prices - thanks only in part to a big jump in energy costs - are rising enough so that the Fed will soon have to start paying lip service to inflation.
The Fed won't raise interest rates in a presidential election year unless some global crisis forces its hand. But the words about inflation that Greenspan will have to utter won't sit well with the White House.
I wrote in this column a few weeks ago that private inflation data would soon cause Greenspan to worry. And just last week, Fed Governor William Poole said in a speech that the risk of inflation has increased - a shocking deviation from the Fed's script.
This is typical of how the Fed works.
Next you will hear other Fed representatives bringing up the issue of inflation and then, finally, Greenspan himself. And if he weighs in, he'll probably be out.
*
Don't get too excited about the big rally in stock prices yesterday and last Thursday.
It's the end of the quarter and professionals - when they can - jack up stock prices so they can report to customers like you how well they are investing your money.
Some pros have to allow three days for the paperwork to clear for trades to be counted in the current quarter. That's why these rallies start before the last day of the month.
The real test will be when April 1 arrives. Then we'll see if there is enough conviction to keep the rally going - especially since this Friday's employment figures could prove a major problem.
The December rally that this column expected gave way to weakness in the early part of 2004, which I also expected.
And with all the problems in the U.S. economy and world politics, there's no reason to think that an already overpriced stock market can continue a heroic rise.
* Please send e-mail to:
jcrudele@nypost.com
http://www.nypost.com/business/22084.htm
I'm not holding my breath...there are some who try to do good and make mistakes and get killed for them, and then there are those who know what they are doing is wrong and then keep doing it despite their awareness of the fact of the errors.
More evidence for the public jury:
Scandal Monger
While jurors in the Tyco corporate-looting case may be spending the weekend in recess on the verge of a mistrial, executives involved in America’s corporate scandals are hardly breathing easier after last week’s crushing 24-year sentence of a former executive of energy giant Dynegy.
The six-month trial of two ex-Tyco men, accused of stealing $600 million, was hurtling to an impasse on Friday. Jury deliberations had turned ugly, threatening the outcome of the case.
New York State Judge Michael Obus finally agreed to let the jurors out early after they sent him a note saying they could not continue “in good faith”.
They reconvene tomorrow.
In one of the biggest cases of alleged corporate corruption, former Tyco chief Dennis Kozlowski and chief financial officer Mark Swartz are accused of taking unauthorised bonuses, illegal loans and selling artificially inflated stock from 1995 to 2002.
The trial is the first of a series in which high-flying executives with lavish lifestyles are accused of fixing the books or securities fraud from the late-1990s bubble economy. If the jurors are unable to reach a unanimous verdict, prosecutors face the difficult task of deciding whether or not to re-try it at massive taxpayers’ expense.
On Thursday, jurors sent three notes to the judge suggesting they were leaning toward guilty verdicts. But at least one juror appeared to be disagreeing.
“Many incendiary accusations have been exchanged that we believe have compromised the fairness of the process,” said one note. Another described deliberations as “poisonous” If found guilty, the ex-executives face up to 30 years in prison.
Two thousand miles away, in Houston, the tough new federal rules to discourage white collar crime led to a breathtaking sentence on Thursday for former Dynegy tax director Jamie Olis, 38, for accounting fraud.
By illegally disguising debt in 2001, he helped cause more than $500m in stock losses. That same year, Enron, also with a Houston HQ, collapsed.
There is no parole in the federal system, so Olis will be behind bars until he is 62. After Federal Judge Sim Lake read the verdict, Olis and his wife, holding their six-month old daughter, wept. He had gambled and lost in choosing a jury trial over cutting a deal.
His own boss Gene Foster, a co-conspirator, pled guilty to one count and testified against him in his November trial. The sentence dwarfs that of Enron executives such as Andrew Fastow, former finance chief. Fastow pled guilty and is expected to get 10 or fewer years behind bars. Enron’s former treasurer is serving five years, also after pleading guilty.
Meanwhile, Richard Grasso, former chairman of the New York Stock Exchange, is apparently the latest target in the sweep against white- collar crime. The New York Times reported on Friday that the securities and exchange commission is questioning whether a meeting, in which Grasso was given a $140m payout, broke the Big Board’s own by-laws.
The issue of his compensation was added at the last minute to the agenda of a meeting in August. He apparently faces being forced to repay $120m.
In on the Grasso probe is the office of crusading New York attorney- general Eliot Spitzer, which is reportedly bringing yet another scandal to the surface. According to the Financial Times, Spitzer has served Royal Bank of Canada with legal papers. The bank allegedly withheld overpayments from clients and tried to halt an internal probe.
Meanwhile, the UK’s watchdog agency – the Financial Services Authority – has questioned allegations that the bank’s foreign exchange trading desk in London withheld tens of thousands of dollars in over-payments.
The bank says the transactions were routine. On Friday it confirmed Spitzer “made an inquiry in response to the story”, according to the Canadian Broadcasting Corporation. The allegation is “based on innuendo, blown out of proportion and sensationalised,” added the bank.
Ros Davidson
28 March 2004
http://www.sundayherald.com/40779
It's The Depression, Moron...
Borrowing and slightly twisting a quote from a past and somewhat colorful character from American history, “It’s the depression, moron…” True – Arkansas Billy said “It’s the economy, stupid”, but, in the end, his point is still exactly the same. In fact, Bill Clinton’s logic and powerful insight into all-things-political was so on the mark, so profound and so accurate that he stole a presidency on the sheer weight of its prevailing simplicity.
Regardless of what you may personally think about Clinton, he was, in fact, right. He was right for the moment and the deep wisdom in his little quip stands unchallenged today. The upcoming election will be determined by many confluent political forces, but none so powerful as the economy. The wit and wisdom of this single testimonial by our former Chief Executive will turn out to be his long sought after place in history just because of the sheer power of its truth.
By 2004, based solely upon the utter brilliance of this profound precision of thought, we all should have been thoroughly tutored by those four little words that comprise the bulk of the Clintonian legacy. So much so that if any American has not figured it out yet, then they have simply not been listening. Or they have been so distracted by the DNA on the blue dress that have not had the presence of mind to stop their moralistic yammering, listen and finally admit that Bill got it right at least once. It has become such an indelible fact of our culture that if anyone had not learned it by now, then they are truly, well, ...a moron.
Bill Clinton and I will agree that he was correct then about his single economic truth and he remains so today. However, at this juncture, our understanding of the meaning of the economy, moron, radically diverges. You see, Bill was talking about the economy of right now. But the real economy of the nation is not right now, it has never been, not even in the so-called new paradigm. The true economy is based on tomorrow. It is future based, future oriented and future mortgaged in every single respect. Hence, to truly understand the economy that is right at or doorstep and what it is doing, we need to see where it is actually headed.
The truth is, fellow morons, the Emperor of the economy is, at this very moment, butt naked. He sold his clothing, all of it. He had to. And there he stands out on Wall Street, grinning and flashing his wares to everyone who wants to actually open their eyes and see. But the Emperor has managed to print up enough money and pass it around to an army of people who can speak the contemporary financial vernacular. Working together, this vast sea of conflicted financial professionals have managed to convince an entire population of reasonably intelligent, public school educated, neo-Darwinian evolved humans that this economy that our former President referenced is robust and ready to roll onto new decades of boom and bubble.
http://www.usatoday.com/money/economy/2004-03-29-survey_x.htm
The fact is, winter is coming and the Emperor is about to freeze his exposed rear off. The unmistakable signs are all around us, including ice crystals forming on both red cheeks. We are being systematically lied to by the army of economic prevaricators bought and paid for by the ones who will lose their political and economic shirts and perhaps hung in public ceremonies if (when) the populace ever finds out they have been purposefully duped.
This jolly troop of lying jesters have watched so much football that they have learned to ply their trade like a football coach on ESPN. With a carefully constructed language that stems from a short dictionary of less than 100 actual words, they have learned by proper chained-link-lingo-speak to convince the population that today’s game is somehow unconnected to the end game or even rest of the season. Or, that today’s economy is somehow unlinked to tomorrow’s sheer fiscal realities.
They are all lying and they all know it. They are successfully convincing the population that the Emperor’s clothing is exquisite because if they fail, they all will be trading in their six-digit paychecks for a victory garden planted in 5-gallon buckets on their Manhattan terraces.
What does the economy have in store, right around the corner?
The truth is, a planetary wide economic depression is right at our doorstep.
A hush settles over the normally jubilant crowd of economic revelers - the news is received as undisguised sacrilege by all...
It will be a depression so profound and so deep that there has never been one in history that has ever rivaled it before. And it is only a matter of time. Indeed, the financial disaster itself has already happened, its effects are simply delayed, waiting for the creditors bills to hit the mailboxes. The party is over. We have spent the money. The plastic won’t swipe anymore and the clerk is giving us funny looks. Now we have to pay the bills. Unfortunately, we don't have that kind of money and we don't make that much money. Our creditors will not be amused when they find this out.
There is much denial here, obviously. The worst disaster that can ever befall a culture based on capitalism is economic depression. It is such an unmitigated disaster that we have done an historically masterful job at totally denying its reality. We have passed laws against it (National Industrial Recovery Act of 1933 and the The Social Security Act of 1935). We have renamed it (severe economic downturn). We have successfully delayed it (lowering interest rates and printing up money simultaneously). We have convinced ourselves it is acceptable to borrow against it – even though that makes its ultimate effects even worse (relaxing credit and actively encouraging a refinance mania in the face of a mounting immoral deficit). And we have finally managed to jargon ourselves around it. The whole happy parade is led by Wall Street talking heads who are, in fact, nearly all paid lackeys of firms that make their money on a robust market (manufactured or not) and plenty of gullible investors that suck up their every confident word and literally bet the farm on charged and/or refinanced laptops.
Depression is inevitable because of the historic and mind-boggling debt, because of the total lack of fiscal integrity, restraint and control of the government and because everyone has lied to so many people for so long, no one knows the truth anymore and certainly no one believes anyone else, particularly about the new paradigm economy of instant gratification. Our culture is propped up on toothpicks and our in-basket is loaded down with tons and tons of debt, all of it about to be called in. In case you have not heard, there are funny popping sounds emanating from just beneath where we are all comfortably seated enjoying our lattes and cappuccinos at our favorite hi-tech computer bars.
I am fairly certain that Alan Greenspan probably knows what is ultimately coming down. Regardless of what his detractors may say about him, Greenspan is truly an economic genius and has masterfully delayed disaster and using tricks of monetary manipulation that should win him some historic prize one day, many generations from now. Unfortunately, his genius will probably end up turning against him while he lives. He has not saved us from depression, he has only staved it off and ultimately, made it worse. When the coming depression happens, it will almost certainly be pinned on him and, almost without question named after him! Why? Because the rest of the jolly liars will need a scapegoat, and it will either happen on his watch or shortly thereafter. One day sooner than later, Greenspan (if he is as smart as I believe him to be) will simply disappear, leaving them and the freezing Emperor of the economy standing out on the street all alone and fully exposed with the snow blowing up into uncomfortable places. When they finally figure it out, they are all going to be livid. And when they announce, as they will, that Alan Greenspan has left the building, get ready to hunker down.
What is next? Get ready for a triple punch soon and make your plans accordingly.
Punch one: watch for the markets to slide to new lows this summer and particularly this fall. This will cascade into four linked effects: the dollar will tumble as the Euro will mount a real challenge as the world currency of choice, convincingly displacing the dollar. Gold will soar, approaching $800 to $1000 mark within a year or two. (You heard it here first.) International confidence will begin to fail resulting in loss of significant foreign investments and our international debts could be called in at ever increasing levels. Forget the bond markets (snore). Wait till you witness the inevitable, predictable and powerful political effect of the declining economy in the November elections. The administration’s only hope for survival or even circumventing a massacre at the polls will be leveraging the Greenspan genius and delaying the inevitable market convulsion this fall.
Punch two: the government will have to begin printing money in unprecedented volume by the coming, long hot summer of 2005. A new administration, emboldened by its mandate to “fix the economy” will naively respond to the evolving crisis by reversing the Bush tax cuts and raising them even beyond previous levels. This will only exacerbate the economic dilemma, of course. Eventually, interest rates will spike considerably higher than even on Carter’s watch. Inevitably, jobs will be lost and productivity will spiral down the government’s fiscal toilet as the economy cannot possibly sustain the stress. Perot’s ‘great sucking sound’ will emanate not from our southern border, but from Wall Street itself.
Punch three: As the tax base implodes, as the debt is called in and as the deficit spikes through the stratosphere, somebody somewhere will finally declare the Emperor the pervert that he is. He will then sit on Wall Street in sackcloths and ashes, but it will be way too late. It already is.
One of my Internet heroes, Jim Puplava, has been publicly calling the Emperor a pervert for over a decade. He has mounted an interesting theory that while all this economic insanity is hanging over our heads that it is conceivable that the nation could be hit with an unpredictable event that he calls a Rouge Wave or a “ten sigma event” that would either trigger an uncontrolled economic meltdown or make an ongoing economic disaster even worse. Such an occasion could be a terrorist attack on par with or worse than 911, or an international incident of such magnitude that it would inevitably adversely affect every civilized nation’s economy. Such rogue waves, Jim writes, are totally unpredictable and play on the weaknesses already inherit in the world’s invariably linked financial systems, weakened by historic excesses and apalling debt.
So what do we do now?
Don’t worry, be happy.
Hey – everybody else is! What is going to happen has already been set into motion anyway. We are all seated comfortably and in style on the great fiscal ship Titanic. Night is falling. The air is festive. We are feeling our great and lofty positions as the band plays on and the great ship sails off into history. Why, not even God Himself could sink this greatest economic juggernaut in the history of mankind! Oh by the way, we have just been handed our latest assignment: re-arrange the deck chairs and get ready for tomorrow’s next big boom.
Until then… It’s the depression, moron. Deal with it now or deal with it later. And, oh by the way, if you thought the half-time at the Superbowl was lewd, don’t tune into Moneyline, whatever you do. The Emperor is a mainstay and they don’t just do headshots.
Dennis Chamberland
dennis@chamberland.us
http://www.chamberland.us/latest0315.html
How Healthy Are the Banks?
By Frank Shostak
[Posted March 29, 2004]
In his speech before the Independent Community of Bankers of America on March 17, 2004, the Chairman of the Federal Reserve Board, Alan Greenspan, concluded that the US banking system is in healthy shape. According to the Fed Chairman, the weakness in credit quality that accompanied the recent recession has clearly been mild for the banking system as a whole, and the system remains strong and well positioned to meet customer needs for credit and other financial services.
The latest data, however, indicate that there is some deterioration in the quality of bank credit. In the fourth quarter, the charge-off rate of real estate loans rose to 0.26% from 0.13%, while the consumer loans charge-off rate jumped to 3.04% in the fourth quarter from 2.76% in the previous quarter.
Furthermore, not once during his entire speech did Greenspan mention the Fed's policy that has driven down interest rates to their current lows, much less how this policy is a major factor behind the appearance of a supposedly strong banking system.
The Fed's policy can generate the illusion of success, to be sure. But when it is reversed—as it inevitably must be—the illusion is shattered to reveal the painful facts of reality. Contrary to Greenspan, the expansion of the banking system and its apparent strength is built on shaky foundations.
Good credit versus false credit
There are two kinds of credit: that which would be offered in a market economy with sound money and banking (good credit) and that which is made possible only through a system of central banking, artificially low interest rates, fractional reserves, deposit insurance, and bailout guarantees (false credit).
Banks cannot expand good credit as such. All that they can do in reality is to facilitate the transfer of a given pool of savings from savers (lenders) to borrowers. To understand why, we must first understand how good credit comes to be and the function it serves.
Consider the case of a baker who bakes ten loaves of bread. Out of his stock of real wealth (ten loaves of bread), the baker consumes two loaves and saves eight. He lends his eight remaining loaves to the shoemaker in return for a pair of shoes in one-week's time. Note that credit here is the transfer of "real stuff," i.e., eight saved loaves of bread from the baker to the shoemaker in exchange for a future pair of shoes.
Also, observe that the amount of real savings determines the amount of available credit. If the baker would have saved only four loaves of bread, the amount of credit would have been only four loaves instead of eight.
Furthermore, note that the saved loaves of bread provide support to the shoemaker, i.e., they sustain him while he is busy making shoes. This in turn means that credit, by sustaining the shoemaker, gives rise to the production of shoes and therefore to the formation of more real wealth. This is a path to real economic growth.
The introduction of money does not alter the essence of what credit is. Instead of lending his eight loaves of bread to the shoemaker, the baker can now exchange his saved eight loaves of bread for money (i.e., sell his stock for money) and then lend the money to the shoemaker. The shoemaker in turn can exchange the money for goods and services he requires.
Observe that money fulfils the role of a claim against real goods and services. This simply means that the holder of money expects to be able to exchange them for goods and services whenever he requires. Thus, when the baker exchanges his eight loaves for eight dollars he retains his real savings, so to speak, by means of the eight dollars. The money in his possession will enable him, when he deems it necessary, to reclaim his eight loaves of bread or to secure any other goods and services.
The existence of banks does not alter the essence of credit. Instead of the baker lending his money directly to the shoemaker, the baker will now lend his money to the bank, which in turn will lend it to the shoemaker. By lending his money, the baker temporarily transfers his claims over real resources to the bank. The bank in turn lends these claims to the borrower, who is the shoemaker.
In the process the baker earns interest for his loan, while the bank earns a commission for facilitating the transfer of money between the baker and the shoemaker. The benefit that the shoemaker receives is that he can now secure real resources in order to be able to engage in his making of shoes.
Despite the apparent complexity that the banking system introduces, the act of extending credit remains the transfer of saved real stuff from lender to borrower. Without the increase in the pool of real savings, banks cannot create more real credit. At the heart of the expansion of good credit by the banking system is an expansion of real savings.
Now, when the baker lends his saved eight dollars we must remember that he has exchanged for these dollars eight loaves of bread. In other words, he has exchanged something for eight dollars. So when a bank lends those eight dollars to the shoemaker, the bank lends fully 'backed-up' dollars, i.e. fully backed-up claims on real resources.
Trouble emerges however, if instead of lending fully backed-up claims a bank engages in issuing empty claims (fractional reserve banking) that are backed-up by nothing. Rather than fulfilling the role of intermediary, i.e., facilitating the transfer of savings from lenders to borrowers, the bank now gives rise to a diversion of real savings from wealth generating activities to activities that are lower on the consumer's list of priorities.
When unbacked claims are created, they masquerade as genuine money that is supposedly supported by a real stuff. In reality however, nothing has been saved. So when such claims are issued, they cannot help the shoemaker since the pieces of empty paper claims cannot support him in producing shoes. What he needs instead is bread.
Since the printed money masquerades as proper money it can however be used to "steal" bread from some other activities and thereby weaken those activities. This is what the diversion of real wealth by means of money out of "thin air" is all about. If the extra eight loaves of bread weren't produced and saved, it is not possible to have more shoes without hurting some other activities, which are much higher on the consumer's lists of priorities as far as life and well being are concerned. This in turn also means that unbacked credit cannot be an agent of economic growth.
Rather than facilitating the transfer of savings across the economy to wealth generating activities, when banks issue unbacked claims they are in fact setting in motion the weakening of the process of wealth formation. It has to be realized that banks cannot pursue ongoing unbacked lending without the existence of the central bank, which by means of monetary pumping makes sure that the expansion of unbacked claims doesn't cause banks to bankrupt each other.
We can thus conclude that as long as the increase in lending is fully backed up by real savings it must be regarded as good news since it promotes the formation of real wealth. Only false credit, which is generated out of "thin air", is bad news. Low interest rate policies by the Fed both encourage the expansion of false credit and discourage saving, in a process that brings about continually weakening financial conditions.
Curiously some commentators are of the view that any type of credit helps grow the economy. This way of thinking is based on a crude empiricism, which supposedly shows that the expansion in bank lending and the expansion in economic growth are closely correlated. However, only credit which is backed up by real savings is an agent of economic growth. Credit which is unbacked by real savings is an agent of economic stagnation.
Furthermore, regardless of how sophisticated and advanced the banking system is, if it is engaged in the expansion of unbacked claims it will promote misery and not economic prosperity. Hence, while it is important to have a sophisticated banking system for facilitating the transfer of real savings it is real savings and not banks that give rise to economic growth.
The banking sector is very vulnerable
To be sure, the existence of fractional reserve banking and all the other institutions that assist in the creation of false credit have been in place for a very long time, generating ongoing bouts of boom and busts and distorting the economic system. What makes the prospect more serious this time is the low savings rate, the rock-bottom interest rates, the sad condition of household balance sheets, and the vulnerability of banks themselves.
The rapidly diminishing ability of the US to generate internal real funding is seen in collapsing consumer savings and ever expanding government. For instance, the consumer savings rate stood in January at 1.8% against 10.4% in April 1980. The personal income-to-personal outlays ratio is currently in free fall. The pace of individuals' spending is much faster than the pace of income generation.
Furthermore, the level of consumer credit in relation to disposable income is at a record high. Also, home mortgages as a percentage of disposable income rose to a new record high of 82% in the fourth quarter from 77.4% in the first quarter. Furthermore, in the first quarter of 1981 the nonfinancial debt-to-GDP ratio stood at 1.33 against a record high of 2.9 in the fourth quarter of 2003.
In sum, the pace of credit expansion by far outstrips the pace of income generation. This is another indication that the pool of real savings is in trouble. If it would have been otherwise then income would have grown much faster and would have easily absorbed any increase in debt.
Furthermore, we shouldn’t overlook the magnitude of monetary increases since 1980. The following chart depicts the magnitude of a destructive monetary explosion – the product of loose monetary policy of the Fed and fractional reserve banking. In February money AMS stood above its trend by $1,260 billion against $960 billion in January 2001. Also, note the massive monetary explosion since the early 1980’s.
Another important drain on real resource remains the ever-growing size of the government. Contrary to most analysts, it is not the budget deficit as such but rather government spending that weakens the pool of real savings. It is growing government spending that does the damage by diverting real resources from wealth producers.
Between December 2000 and December 2003 government expenditure increased by 33%. Moreover government spending stood above its long-term trend by $122 billion in December 2003. In December 2000 spending was $37 billion below the trend. Furthermore, the Federal debt stood above $7 trillion in December last year.
Consequently, on account of prolonged monetary pumping and an ever growing government, what we likely have at present is a stagnant or declining pool of savings which is accompanied by accelerating levels of debt. This in turn leads us to conclude that it is highly likely that savings do not support a large portion of credit, i.e., the high level of unbacked debt makes the banking sector very vulnerable.
While banks are the greatest beneficiaries of the false boom, they cannot escape the negatives of the bust. So long as the pool of savings is still growing and a loose monetary policy is maintained, banks can continue to show good performance.
Once the Fed tightens its stance for whatever reason—perhaps to shore up the dollar or rein in prices—or banks decide to curb their unbacked credit expansion, economic activities that sprang up on the back of false credit are likely to be exposed as unsustainable. Since these false activities are part of bank balance sheets this means that the quality of the banking sectors' assets must be deteriorating.
Against the background of deteriorating savings conditions and rising debt, how is the US economy managing to show a reasonable performance? The answer to this can be found in the balance of payments. For 2003, the US current account deficit closed at $541.8 billion—up from $480.9 billion in 2002. In early 2004 the trade gap has continued to widen further. It stood at $43.7 billion in January against $42.7 billion in the previous month.
The continued widening in the trade gap is the manifestation of a positive net stream of real resources coming from the rest of the world to the US. The fact that the US can print dollars that are eagerly accepted by foreigners enables it to divert resources from the rest of the world. To put it briefly, by means of printing presses the US keeps its economy going at the expense of the rest of the world.
For the time being, not only are foreigners happily channelling their real resources into the US but they are also doing this in return for the liabilities of a non-wealth generating entity called the US government. Foreigners are exchanging real stuff for unbacked promises. For instance, at present, foreign central bank holdings of T-Bonds exceed $1.1 trillion, or 10% of US GDP. So at the moment, the US remains at the mercy, so to speak, of the rest of the World.
We can thus conclude that the banking system is far from being in healthy shape as suggested by Greenspan, but on the contrary it is very vulnerable to a sudden weakening in economic activity.
Also, contrary to Greenspan's view, the banking system is not well positioned to expand credit since there is very little savings left. Any further bank credit expansion means an expansion of credit out of thin air. Obviously, this type of credit expansion will only further undermine the health of the economy and ultimately the bank's own health.
In fact, since a large chunk of credit was created out of "thin air" there is high likelihood that it will evaporate back into "thin air." It seems to us that against the background of rapidly deteriorating real fundamentals the Fed will be forced in the not too distant future to reverse its stance, thus setting in motion the inevitable liquidation of various artificial forms of life that currently comprise bank balance sheets.
_____________________________
Frank Shostak is an adjunct scholar of the Mises Institute and a frequent contributor to Mises.org. He maintains weekly data on the AMS for subscribers through Man Financial, Australia. Send him MAIL and see his outstanding Mises.org Daily Articles Archive. Shostak wishes to express thanks to Michael Ryan for his useful comments. Comment on this article on the Mises Economics Blog.
http://www.mises.org/fullarticle.asp?control=1480
Great article, maybe the legend of Jesus lives on in the same way...amazing how many humans believe in myths but they do serve a purpose don't they.
Playing Monopoly in Iraq - All the Pieces are in Place
I once said that the reason for the war in Iraq was nothing more than a foreclosure action on $200 billion in bad loans that hadn't been serviced for a decade.
Now the only reason to stay in Iraq is to continue to manage the asset that was foreclosed and recoup the losses. That is the way of the bankers. Behind every war ever fought in this world was the invisible bankers.
Banking on Empire
by Mitch Jeserich, Special to CorpWatch
February 4th, 2004
Iraqi ministries will now be able to borrow billions of dollars to buy much-needed equipment from overseas suppliers, but only by mortgaging the national oil revenues through a bank managed by New York-based multinational JP Morgan Chase.
Hussein al-Uzri, president of the Trade Bank of Iraq, which is managed by JP Morgan Chase, announced last week in Kuwait City, that the bank had raised $2.4 billion in export guarantees for trade between Iraq and foreign companies and governments.
"Those oil revenues will be used to support the Iraq Trade Bank letters of credit," said David Chavern, a senior official with the U.S. Export-Import Bank, when he addressed attendees at a recent briefing organized by Equity International for potential investors in Iraq. "And we will ensure those letters of credit for the U.S. exporter."
The management contract, which is worth $2 million over two-and-a-half years, was awarded to a consortium of thirteen banks representing fourteen countries, led by JP Morgan, last July after a competitive bidding process against four other international consortia. JP Morgan Chase, which was formed from the merger in December 2000 of one of the world's largest commercial banks, the Chase Manhattan Corporation, and the investment bank J.P. Morgan & Company, declined to comment about its role in the Trade Bank of Iraq.
The Trade Bank of Iraq was formed partially to replace the trade guarantees established by the United Nations oil-for-food program, imposed on Iraq in 1995 during the sanctions regime against Saddam Hussein. The program provided a means of controlling Iraq's purchase of humanitarian goods from other countries in exchange for Iraqi petroleum, while prohibiting the purchase of goods that could theoretically be used for military purposes. The oil-for-food program, which in total used $46 billion in Iraqi export earnings, was brought to an end last November.
Unlike the oil-for-food program, the guarantees of the Trade Bank are administered not by an UN agency but by the private sector and its corporate allies in various national governments. The export credits are to provide backing for purchases of raw materials, medical supplies, bulk food imports, fertilizer, and capital equipment. According to al-Uzri, the Trade Bank of Iraq has issued $300 million worth of letters of credit so far.
"Without the agreement with these export credit agencies, the Trade Bank of Iraq would have had to concentrate exclusively on state purchases," said Marek Belka, the head of economic policy in Iraq's temporary administration. "Iraqis at the moment have to pay cash for pretty much everything, which is hugely cumbersome and risky. The fact that the Trade Bank of Iraq can now issue letters of credit will make it easy for Iraqis to buy goods in a more civilized and safer fashion. It will also reduce their costs."
But critics say that the occupation authorities and multinational banks may be shackling a future Iraqi government with an unknown quantity of debt. "The oil figures are very murky and secretive," said Nomi Prins former investment banker and author of the forthcoming book Other People's Money: The Corporate Mugging of America. "That same oil for which no one has the appropriate...information is being used to collateralize multiple things. You're effectively leveraging oil for which the revenues are non-transparent."
Oiling the Wheels
Although it is true that the Occupation Authority and JP Morgan Chase are making it possible for Iraq to trade with the outside world and buy necessities such as food and oil refining equipment despite its bad credit, Prins points out that the situation is more complicated, especially since the "government of Iraq" is not an independent body, but rather an agent of occupation which doesn't necessarily have the best interests of the Iraqi people in mind.
Like the Iraq reconstruction contracts that have favored US companies with political connections, the export credits of the Trade Bank of Iraq favor companies from contributing nations, whether or not their products are cheap or well-made.
Take the case of the US export credit agency that underwrites the Trade Bank of Iraq. Of the $2.4 billion that the Trade Bank of Iraq has secured in export guarantees, the U.S. Export-Import Bank has approved $500 million in letters of credit. The money from the U.S. Ex-Im Bank ensures that the investments of U.S. corporations in Iraq are risk-free. If Iraqi ministries default on any of their payments to US companies, the U.S. Ex-Im Bank will pay in their place. Then the Ex-Im Bank gets its money back from Iraq's Development Fund, the acting budget for Iraq that is 95% made up of oil revenues, which is under the Occupational Authority's control.
Open government advocates have complained that the Iraqi Development Fund lacks transparency and that decisions concerning the fund are not subject to scrutiny or public comment. Thus the U.S. can chose to set the rules to pay itself back but using money from Iraqi oil to do it.
Other members of the occupation coalition also benefit: Japan's export credit agency NEXI also provided $500 million, the Italian SACE contributed $300 million while export credit agencies from thirteen other European countries are also contributors, according to J.P. Morgan Chase managing director Daniel Zelikow.
Meanwhile the arrival of JP Morgan also marks the possible takeover of Iraq's banking system by foreign banks. Two months after the establishment of the Trade Bank of Iraq, the Coalition Provisional Authority enacted Order 39: the opening up of all of Iraqs resources to foreign ownership except for oil. Shortly afterwards the appointed Iraqi Finance Minister Kamel Al-Gailani began major reforms to Iraq's banking system by allowing foreign financial corporations to own 100% of the banks in Iraq. The move marks the first time since the 1950s that foreign banks will have access to Iraq's financial system, whose main asset is the second largest oil reserves in the world.
According to Prins, the foreign ownership of Iraqi banks will make it practically impossible for locally owned banks to participate in the forging of a new economy. The Iraqi banks that are able to avoid a foreign take over will then have to compete with foreign banks and their many subsidiaries that have an unlimited source of capital and lending abilities that, if it doesn't cause the local banks to crash, could force surviving Iraqi-owned banks to operate in step with the foreign model, creating a free market that's not so free.
"Are these the kind of laws that help Iraq rebuild for Iraqis or are these the kind of laws that open Iraq up for corporations to come in and profit off of Iraq's resources?" asked Rania Masri, Program Director with the Institute on Southern Studies and Co-Director of the Campaign to Stop the War Profiteers. "It reeks of colonialism. It does not represent a rebuilding."
Servicing Despotism
JP Morgan Chase is no stranger to the architects of the occupation, having contributed $158,000 to the Bush-Cheney ticket. The bank will fit right into occupied Iraq, given that it already has close relationships with companies that have received billions of dollars contracts there. On JP Morgan Chase's Board of Directors sits Riley P. Bechtel, the Chairman and Chief Executive Officer of the Bechtel Group, which has received over $2 billion.
Other notables on JP Morgan Chase's board include Lee R. Raymond, the Chairman of the Board of the Exxon Mobil Corporation, which is also looking to benefit from cheap oil prices coming out of Iraq.
Lest critics suggest that JP Morgan Chase is unqualified to run Iraq's banking system, the company does have experience working in the Middle East. Chase has been assisting Qatar's national bank for the past 30 years by managing the country's export of oil and natural gas, thus making Qatar one of the wealthiest countries in the region and helping to solidify Qatar's monarchy.
Qatar is just one of several non-democratic institutions that JP Morgan Chase has given financial assistance to. In fact it has a long history of it going as far back as to U.S. slavery and as recently as to the Enron scandal. A study by California's Insurance Commissioner shows the former company Chase, which is now a part of JP Morgan Chase, as one of several insurance companies that provided life insurance on slaves for slave owners. When a slave died, according to the study, Chase paid the slave owner for the loss.
The bank has never paid reparations and JP Morgan Chase's spokeswoman Charlotte Gilbert-Biro said, "We don't believe there's any basis for liability on the part of the bank."
And luckily for the Nazis in World War II, Chase National Bank and JP Morgan both assisted the Third Reich by seizing bank accounts of Jewish customers, whose assets they did not return after the war. A 1945 U.S. Treasury Department report on U.S. banking activities during the war stated that the "record of the [Chase] Paris branch is one of uncalled-for responsiveness to the desires of the Germans and an apparent desire to enhance its influence with them."
JP Morgan and Chase's unsavory assistance of racist governments is not limited to the US and Europe. The company has been the subject of a lawsuit for providing financial assistance to the apartheid government of South Africa to expand its police and security apparatus, even after the United Nations urged a boycott of the racist government in 1964 when it declared apartheid a crime against humanity. JP Morgan refuses to comment on the case, as it is still under litigation.
More recently, in 2002 the US Securities and Exchange Commission indicted JP Morgan Chase for assisting Enron to manipulate its financial records. And a Senate Committee found that JP Morgan Chase, along with Citigroup, knew the money they were giving to Enron was used to manipulate its financial statements rather than meet its legal business goals. This manipulation left Californians with skyrocketing power bills while at the same time causing rolling power outages throughout the state.
Free Market, Hold the Democracy
Allowing Iraq's banking system to be controlled by a consortium of foreign corporations, headed up by a bank with a history of corruption and working with non-democratic regimes, is not a positive start towards quelling the people's skepticism of U.S. motives for being there. What is clear is that the Iraqi reconstruction money is being used to implement a politicial economy chosen by the Occupation Authority rather than waiting for the Iraqi people to elect a government that can make democratic choices on how to run their own economy.
[They'll hate us because we're free.]
"One way to actually control an economic system is going in and putting your pieces before there is a representative government," said banking expert Prins. "So far there has been almost $200 billion raised in various components to supposedly liberate and reconstruct Iraq and none of that has been done with a fully working democratic government in place."
The Bush administration is betting that the Iraqi people will want to continue what the administration has already started. "The only thing we can do is hope that when there are elections in Iraq they will look at the governing council and see the type of progress that they have made and they'll just continue with that progress," said Jay Brandes with the Commerce Department.
That's a $200 billion bet. Unless the Bush administration opens up its books on the running of the Iraqi economy, and makes transparent all actions concerning oil and contracts, it will be hard for the critics not to believe that democracy is on hold so that multinational corporations can takeover the Iraqi economy during this window of opportunity before a government of the people can stop it.
http://www.warprofiteers.com/print_article.php?&id=9848
I once said that the reason for the war in Iraq was nothing more than a foreclosure action on $200 billion in bad loans that hadn't been serviced for a decade.
Now the only reason to stay in Iraq is to continue to manage the asset that was foreclosed and recoup the losses. That is the way of the bankers. Behind every war ever fought in this world was the invisible bankers.
Banking on Empire
by Mitch Jeserich, Special to CorpWatch
February 4th, 2004
Iraqi ministries will now be able to borrow billions of dollars to buy much-needed equipment from overseas suppliers, but only by mortgaging the national oil revenues through a bank managed by New York-based multinational JP Morgan Chase.
Hussein al-Uzri, president of the Trade Bank of Iraq, which is managed by JP Morgan Chase, announced last week in Kuwait City, that the bank had raised $2.4 billion in export guarantees for trade between Iraq and foreign companies and governments.
"Those oil revenues will be used to support the Iraq Trade Bank letters of credit," said David Chavern, a senior official with the U.S. Export-Import Bank, when he addressed attendees at a recent briefing organized by Equity International for potential investors in Iraq. "And we will ensure those letters of credit for the U.S. exporter."
The management contract, which is worth $2 million over two-and-a-half years, was awarded to a consortium of thirteen banks representing fourteen countries, led by JP Morgan, last July after a competitive bidding process against four other international consortia. JP Morgan Chase, which was formed from the merger in December 2000 of one of the world's largest commercial banks, the Chase Manhattan Corporation, and the investment bank J.P. Morgan & Company, declined to comment about its role in the Trade Bank of Iraq.
The Trade Bank of Iraq was formed partially to replace the trade guarantees established by the United Nations oil-for-food program, imposed on Iraq in 1995 during the sanctions regime against Saddam Hussein. The program provided a means of controlling Iraq's purchase of humanitarian goods from other countries in exchange for Iraqi petroleum, while prohibiting the purchase of goods that could theoretically be used for military purposes. The oil-for-food program, which in total used $46 billion in Iraqi export earnings, was brought to an end last November.
Unlike the oil-for-food program, the guarantees of the Trade Bank are administered not by an UN agency but by the private sector and its corporate allies in various national governments. The export credits are to provide backing for purchases of raw materials, medical supplies, bulk food imports, fertilizer, and capital equipment. According to al-Uzri, the Trade Bank of Iraq has issued $300 million worth of letters of credit so far.
"Without the agreement with these export credit agencies, the Trade Bank of Iraq would have had to concentrate exclusively on state purchases," said Marek Belka, the head of economic policy in Iraq's temporary administration. "Iraqis at the moment have to pay cash for pretty much everything, which is hugely cumbersome and risky. The fact that the Trade Bank of Iraq can now issue letters of credit will make it easy for Iraqis to buy goods in a more civilized and safer fashion. It will also reduce their costs."
But critics say that the occupation authorities and multinational banks may be shackling a future Iraqi government with an unknown quantity of debt. "The oil figures are very murky and secretive," said Nomi Prins former investment banker and author of the forthcoming book Other People's Money: The Corporate Mugging of America. "That same oil for which no one has the appropriate...information is being used to collateralize multiple things. You're effectively leveraging oil for which the revenues are non-transparent."
Oiling the Wheels
Although it is true that the Occupation Authority and JP Morgan Chase are making it possible for Iraq to trade with the outside world and buy necessities such as food and oil refining equipment despite its bad credit, Prins points out that the situation is more complicated, especially since the "government of Iraq" is not an independent body, but rather an agent of occupation which doesn't necessarily have the best interests of the Iraqi people in mind.
Like the Iraq reconstruction contracts that have favored US companies with political connections, the export credits of the Trade Bank of Iraq favor companies from contributing nations, whether or not their products are cheap or well-made.
Take the case of the US export credit agency that underwrites the Trade Bank of Iraq. Of the $2.4 billion that the Trade Bank of Iraq has secured in export guarantees, the U.S. Export-Import Bank has approved $500 million in letters of credit. The money from the U.S. Ex-Im Bank ensures that the investments of U.S. corporations in Iraq are risk-free. If Iraqi ministries default on any of their payments to US companies, the U.S. Ex-Im Bank will pay in their place. Then the Ex-Im Bank gets its money back from Iraq's Development Fund, the acting budget for Iraq that is 95% made up of oil revenues, which is under the Occupational Authority's control.
Open government advocates have complained that the Iraqi Development Fund lacks transparency and that decisions concerning the fund are not subject to scrutiny or public comment. Thus the U.S. can chose to set the rules to pay itself back but using money from Iraqi oil to do it.
Other members of the occupation coalition also benefit: Japan's export credit agency NEXI also provided $500 million, the Italian SACE contributed $300 million while export credit agencies from thirteen other European countries are also contributors, according to J.P. Morgan Chase managing director Daniel Zelikow.
Meanwhile the arrival of JP Morgan also marks the possible takeover of Iraq's banking system by foreign banks. Two months after the establishment of the Trade Bank of Iraq, the Coalition Provisional Authority enacted Order 39: the opening up of all of Iraqs resources to foreign ownership except for oil. Shortly afterwards the appointed Iraqi Finance Minister Kamel Al-Gailani began major reforms to Iraq's banking system by allowing foreign financial corporations to own 100% of the banks in Iraq. The move marks the first time since the 1950s that foreign banks will have access to Iraq's financial system, whose main asset is the second largest oil reserves in the world.
According to Prins, the foreign ownership of Iraqi banks will make it practically impossible for locally owned banks to participate in the forging of a new economy. The Iraqi banks that are able to avoid a foreign take over will then have to compete with foreign banks and their many subsidiaries that have an unlimited source of capital and lending abilities that, if it doesn't cause the local banks to crash, could force surviving Iraqi-owned banks to operate in step with the foreign model, creating a free market that's not so free.
"Are these the kind of laws that help Iraq rebuild for Iraqis or are these the kind of laws that open Iraq up for corporations to come in and profit off of Iraq's resources?" asked Rania Masri, Program Director with the Institute on Southern Studies and Co-Director of the Campaign to Stop the War Profiteers. "It reeks of colonialism. It does not represent a rebuilding."
Servicing Despotism
JP Morgan Chase is no stranger to the architects of the occupation, having contributed $158,000 to the Bush-Cheney ticket. The bank will fit right into occupied Iraq, given that it already has close relationships with companies that have received billions of dollars contracts there. On JP Morgan Chase's Board of Directors sits Riley P. Bechtel, the Chairman and Chief Executive Officer of the Bechtel Group, which has received over $2 billion.
Other notables on JP Morgan Chase's board include Lee R. Raymond, the Chairman of the Board of the Exxon Mobil Corporation, which is also looking to benefit from cheap oil prices coming out of Iraq.
Lest critics suggest that JP Morgan Chase is unqualified to run Iraq's banking system, the company does have experience working in the Middle East. Chase has been assisting Qatar's national bank for the past 30 years by managing the country's export of oil and natural gas, thus making Qatar one of the wealthiest countries in the region and helping to solidify Qatar's monarchy.
Qatar is just one of several non-democratic institutions that JP Morgan Chase has given financial assistance to. In fact it has a long history of it going as far back as to U.S. slavery and as recently as to the Enron scandal. A study by California's Insurance Commissioner shows the former company Chase, which is now a part of JP Morgan Chase, as one of several insurance companies that provided life insurance on slaves for slave owners. When a slave died, according to the study, Chase paid the slave owner for the loss.
The bank has never paid reparations and JP Morgan Chase's spokeswoman Charlotte Gilbert-Biro said, "We don't believe there's any basis for liability on the part of the bank."
And luckily for the Nazis in World War II, Chase National Bank and JP Morgan both assisted the Third Reich by seizing bank accounts of Jewish customers, whose assets they did not return after the war. A 1945 U.S. Treasury Department report on U.S. banking activities during the war stated that the "record of the [Chase] Paris branch is one of uncalled-for responsiveness to the desires of the Germans and an apparent desire to enhance its influence with them."
JP Morgan and Chase's unsavory assistance of racist governments is not limited to the US and Europe. The company has been the subject of a lawsuit for providing financial assistance to the apartheid government of South Africa to expand its police and security apparatus, even after the United Nations urged a boycott of the racist government in 1964 when it declared apartheid a crime against humanity. JP Morgan refuses to comment on the case, as it is still under litigation.
More recently, in 2002 the US Securities and Exchange Commission indicted JP Morgan Chase for assisting Enron to manipulate its financial records. And a Senate Committee found that JP Morgan Chase, along with Citigroup, knew the money they were giving to Enron was used to manipulate its financial statements rather than meet its legal business goals. This manipulation left Californians with skyrocketing power bills while at the same time causing rolling power outages throughout the state.
Free Market, Hold the Democracy
Allowing Iraq's banking system to be controlled by a consortium of foreign corporations, headed up by a bank with a history of corruption and working with non-democratic regimes, is not a positive start towards quelling the people's skepticism of U.S. motives for being there. What is clear is that the Iraqi reconstruction money is being used to implement a politicial economy chosen by the Occupation Authority rather than waiting for the Iraqi people to elect a government that can make democratic choices on how to run their own economy.
[They'll hate us because we're free.]
"One way to actually control an economic system is going in and putting your pieces before there is a representative government," said banking expert Prins. "So far there has been almost $200 billion raised in various components to supposedly liberate and reconstruct Iraq and none of that has been done with a fully working democratic government in place."
The Bush administration is betting that the Iraqi people will want to continue what the administration has already started. "The only thing we can do is hope that when there are elections in Iraq they will look at the governing council and see the type of progress that they have made and they'll just continue with that progress," said Jay Brandes with the Commerce Department.
That's a $200 billion bet. Unless the Bush administration opens up its books on the running of the Iraqi economy, and makes transparent all actions concerning oil and contracts, it will be hard for the critics not to believe that democracy is on hold so that multinational corporations can takeover the Iraqi economy during this window of opportunity before a government of the people can stop it.
http://www.warprofiteers.com/print_article.php?&id=9848
Reasons why George W. must go:
The War Against Iraq
The Bush administration started a pre-emptive war, against the will of the international community, justified by lies and half-truths. The result: Over 500 dead American soldiers, a bill already in excess of $100 billion1, an Arab world more wary of us than ever, and not one Weapon of Mass Destruction found. Read more.
Failed Foreign Policies
From North Korea to the Middle East, President Bush's policies have failed to bring about reconciliation. He has snubbed the United Nations, insulted our allies in Europe, and hinted at possible invasions of Syria and Iran2. Read more.
Failed Economic Policies
George W. Bush came into office with a federal budget surplus of $230 billion. When the fiscal year ended on September 30th, the Treasury reported the largest budget deficit in history: $374.2 billion3. At least he kept the record in the family... the previous record deficit ($290.4 billion) occurred in 1992 on Bush Sr.'s watch. Bush's tax cuts, which benefit the wealthiest of Americans4, have not resulted in a better economy or more jobs. Read more.
Bush Does Not Represent the Majority of Americans
We all know about the controversy surrounding the vote in Florida during the 2000 Presidential Election. What many have probably forgotten was the fact the Al Gore won the popular vote. More Americans voted for Gore than George W. Bush. Only 47.9%5 of those who voted chose Bush-- 52.1% voted for someone else. Read more.
Erosion of Civil Liberties
The Patriot Act's name could make you feel proud, but instead portions of it should scare you. It reduces judicial review on some kinds of wiretaps, and allows surveillance of political dissenters under a broader definition of 'domestic terrorism'. Attorney General John Ashcroft's numerous new rules seriously erode the civil rights of U.S. citizens. Thanks to Ashcroft, some attorney-client conversations can be monitored, and political and religious institutions can be spied on without suspicion of criminal activity6. Read more.
Erosion of Environmental Protections
The Bush administration talks of "balance", but has consistently put business interests above the environment. While nearly every aspect of the environment is threatened by Bush, air and water quality seems to be favorite targets. The harvesting of natural resources is also a high priority of this administration, no matter what the cost to wilderness and wildlife. White House officials even instructed the EPA to downplay the dangers of air pollution present in the aftermath of the Spetember 11th attacks on the World Trade Center7. Read more.
http://www.justoneterm.com/jot_index.php
INDEPENDENT EXPERT TELLS COMMISSION THAT EXTREME POVERTY NEGATES ALL RIGHTS
http://www.unhchr.ch/huricane/huricane.nsf/view01/9628B5ED0AFBB42AC1256E6600517DF2?opendocument
Bombings and fierce clashes between Uzbek forces and suspected Islamic militants raised the death toll in three days of violence to 42, with insurgent attacks appearing to target the government — an ally in the U.S.-led war on terror.
http://story.news.yahoo.com/news?tmpl=story&u=/ap/20040331/ap_on_re_eu/uzbekistan&cid=518&am...
The Philippines said on Tuesday its security forces had foiled a "Madrid-level" terror attack in the capital Manila by arresting four suspected Islamic militants and seizing a large amount of explosives.
Officials said the four suspected members of the Abu Sayyaf and Jemaah Islamiah militant groups had been arrested in separate raids in Manila, including in the Makati business area.
"We have pre-empted a Madrid-level attack on the metropolis by capturing an explosive cache of 80 pounds (36 kg) of TNT which was intended to be used for bombing malls and trains in Metro Manila," President Gloria Macapagal Arroyo, a firm backer of the U.S. war on terror, said on national television.
"Follow-up operations are ongoing. They will be relentless."
Arroyo's announcement of the plot comes three weeks after bombs exploded in four packed Madrid commuter trains just before national elections, killing 190 people in an attack blamed on militants linked to al-Qaida.
The attacks precipitated the defeat of Spain's government in the elections in a backlash against its support for the Iraq war.
All the candidates running against Arroyo in Philippine national elections on May 10 have expressed support for the U.S.-led war on terror and the Iraq invasion.
"What we have arrested are elements of the Abu Sayyaf and the JI (Jemaah Islamiah)," National Security Adviser Norberto Gonzales told Reuters. "We don't know which was the leading one."
Al-Qaida-linked Jemaah Islamiah has been blamed for a series of bomb blasts in Manila in December 2000, including one on a train, that killed 22 people.
Arroyo said that one of the captured militants was the suspected executioner of American citizen Guillermo Sobero, who was beheaded after being kidnapped by the Abu Sayyaf in 2001, while another was implicated in a bombing in southern Zamboanga City the following year in which a U.S. serviceman died.
Arroyo also said that one of the men had claimed responsibility for the sinking of a passenger ferry near Manila last month in which more than 100 people died. The government had previously cast doubt on Abu Sayyaf's claim to have set fire to the ferry before it sank.
The southern Philippines is home to four Muslim rebel groups, including the Abu Sayyaf, and is suspected of being a training ground for Jemaah Islamiah.
Most recently terrorists have been foiled in London, foiled in Manila, some intelligence experts believe Rome is the next major target.
Police arrested eight men and seized half a ton of the fertilizer ammonium nitrate — commonly used as a bomb ingredient by terrorists — on Tuesday in anti-terror raids in and near London.
A senior U.S. counterterrorism official, speaking on condition of anonymity, told NBC News that the arrests had disrupted “a major operation that one has to assume was (the work of) al-Qaida.”
The operation, with 700 officers raiding two dozen locations in and around London, resulted in the largest seizure of potential bomb-making material since the Irish Republican Army suspended its campaign in 1997.
British authorities declined to say whether they believed the suspects — all British citizens between the ages of 17 and 32 — were involved in a plot to mount a major attack in London, but Deputy Assistant Commissioner Peter Clarke said they were taken into custody as part of an operation targeting alleged international terrorist activity.
‘A timely reminder’ of terrorism's danger
Home Secretary David Blunkett said the arrests were “a timely reminder that the (United Kingdom) and its interests abroad remain a target.”
Press Association, the British news agency, and Reuters news agency quoted police sources as saying that all eight suspects were Muslims of Pakistani descent, but police declined to confirm or deny that.
“As we have said on many occasions in the past, we in the police service know that the overwhelming majority of the Muslim community are law abiding and completely reject all forms of violence," Clarke said, without confirming that those arrested were Muslims. "We have a responsibility to all communities to investigate suspected terrorist activity.”
Clarke said the ammonium nitrate — a common fertilizer that can be mixed with fuel oil to make a powerful explosive — was found at a self-storage facility in west London.
The potent fertilizer-oil mixture was used in bombings in Turkey and Saudi Arabia in recent months and the the Oct. 12, 2002, blast in Bali that killed 192 people, all of which are believed to be the work of Islamic terrorists linked to al-Qaida.
It also was used to make a bomb in a van which was parked near the U.S. Consulate in Karachi, Pakistan, on March 15, that did not explode.
Fertilizer used in Oklahoma City bombing
Such bombs can have catastrophic consequences. U.S. authorities estimate that 4,800-pounds of ammonium nitrate was used by domestic terrorists in the 1995 bombing of a federal building in Oklahoma City, which killed 168 people.
A source in Britain's anti-terror squad, who spoke with Reuters on condition of anonymity, said there was enough material in the storage facility to launch an attack on the same scale as the Irish Republican Army's 1996 bombing near Canary Wharf in London's financial district, which destroyed a building, killing two people and injuring more than a hundred.
The source said that while some of the arrests took place near London's Heathrow and Gatwick airports, there was no evidence to suggest that either was a target.
Clarke also said there was no indication the the operation was connected to the Madrid train bombs earlier this month or Irish terrorism.
Two suspects were arrested in Uxbridge, also in west London, and three in Crawley, south of the capital. One was detained in Ilford, east London, another in Slough, west of London, and another in Horley, south of the capital.
Officers conducted a total 24 searches that also targeted addresses in Reading, Luton and north London.
Around 500 people have been held in Britain under its sweeping anti-terror laws since Sept. 11, 2001, with about 90 charged with terrorism-related offenses.
Intelligence reports indicate that there are at least 3,000 members of Al Quida or their operatives now in Iraq working to sabotage Iraqi nation building efforts
Police arrested eight men and seized half a ton of the fertilizer ammonium nitrate — commonly used as a bomb ingredient by terrorists — on Tuesday in anti-terror raids in and near London.
advertisement
A senior U.S. counterterrorism official, speaking on condition of anonymity, told NBC News that the arrests had disrupted “a major operation that one has to assume was (the work of) al-Qaida.”
The operation, with 700 officers raiding two dozen locations in and around London, resulted in the largest seizure of potential bomb-making material since the Irish Republican Army suspended its campaign in 1997.
British authorities declined to say whether they believed the suspects — all British citizens between the ages of 17 and 32 — were involved in a plot to mount a major attack in London, but Deputy Assistant Commissioner Peter Clarke said they were taken into custody as part of an operation targeting alleged international terrorist activity.
‘A timely reminder’ of terrorism's danger
Home Secretary David Blunkett said the arrests were “a timely reminder that the (United Kingdom) and its interests abroad remain a target.”
Press Association, the British news agency, and Reuters news agency quoted police sources as saying that all eight suspects were Muslims of Pakistani descent, but police declined to confirm or deny that.
“As we have said on many occasions in the past, we in the police service know that the overwhelming majority of the Muslim community are law abiding and completely reject all forms of violence," Clarke said, without confirming that those arrested were Muslims. "We have a responsibility to all communities to investigate suspected terrorist activity.”
Clarke said the ammonium nitrate — a common fertilizer that can be mixed with fuel oil to make a powerful explosive — was found at a self-storage facility in west London.
The potent fertilizer-oil mixture was used in bombings in Turkey and Saudi Arabia in recent months and the the Oct. 12, 2002, blast in Bali that killed 192 people, all of which are believed to be the work of Islamic terrorists linked to al-Qaida.
It also was used to make a bomb in a van which was parked near the U.S. Consulate in Karachi, Pakistan, on March 15, that did not explode.
Fertilizer used in Oklahoma City bombing
Such bombs can have catastrophic consequences. U.S. authorities estimate that 4,800-pounds of ammonium nitrate was used by domestic terrorists in the 1995 bombing of a federal building in Oklahoma City, which killed 168 people.
A source in Britain's anti-terror squad, who spoke with Reuters on condition of anonymity, said there was enough material in the storage facility to launch an attack on the same scale as the Irish Republican Army's 1996 bombing near Canary Wharf in London's financial district, which destroyed a building, killing two people and injuring more than a hundred.
The source said that while some of the arrests took place near London's Heathrow and Gatwick airports, there was no evidence to suggest that either was a target.
Clarke also said there was no indication the the operation was connected to the Madrid train bombs earlier this month or Irish terrorism.
Two suspects were arrested in Uxbridge, also in west London, and three in Crawley, south of the capital. One was detained in Ilford, east London, another in Slough, west of London, and another in Horley, south of the capital.
Officers conducted a total 24 searches that also targeted addresses in Reading, Luton and north London.
Around 500 people have been held in Britain under its sweeping anti-terror laws since Sept. 11, 2001, with about 90 charged with terrorism-related offenses.
In two years' time, fires throughout the country have burned nearly 11 million acres. We've seen the cost that wildfires bring, in the loss of 28 firefighters this year alone. In the fires that burned across Southern California this fall, 22 civilians also lost their lives, as whole neighborhoods vanished into flames.
Almost 750 million acres of forest stand, tall and beautiful across the 50 states. We have a responsibility to be good stewards of our forests.
This year, some 600,000 inmates will be released from prison back into society. We know from long experience that if they can't find work, or a home, or help, they are much more likely to commit more crimes and return to prison.
A strong America must also value the institution of marriage. I believe we should respect individuals as we take a principled stand for one of the most fundamental, enduring institutions of our civilization. Congress has already taken a stand on this issue by passing the Defense of Marriage Act, signed in 1996 by President Clinton. That statute protects marriage under Federal law as the union of a man and a woman, and declares that one state may not redefine marriage for other states. Activist judges, however, have begun redefining marriage by court order, without regard for the will of the people and their elected representatives. On an issue of such great consequence, the people's voice must be heard. If judges insist on forcing their arbitrary will upon the people, the only alternative left to the people would be the constitutional process. Our Nation must defend the sanctity of marriage.
We are living in a time of great change -- in our world, in our economy, and in science and medicine. Yet some things endure -- courage and compassion, reverence and integrity, respect for differences of faith and race. The values we try to live by never change. And they are instilled in us by fundamental institutions, such as families, and schools, and religious congregations. These institutions -- the unseen pillars of civilization -- must remain strong in America, and we will defend them.
America is a Nation with a mission -- and that mission comes from our most basic beliefs. We have no desire to dominate, no ambitions of empire. Our aim is a democratic peace -- a peace founded upon the dignity and rights of every man and woman. America acts in this cause with friends and allies at our side, yet we understand our special calling: This great Republic will lead the cause of freedom.
Different threats require different strategies. Along with nations in the region, we are insisting that North Korea eliminate its nuclear program. America and the international community are demanding that Iran meet its commitments and not develop nuclear weapons. America is committed to keeping the world's most dangerous weapons out of the hands of the world's most dangerous regimes.
The work of building a new Iraq is hard, and it is right. And America has always been willing to do what it takes for what is right.
We are tracking al-Qaida around the world -- and nearly two-thirds of their known leaders have now been captured or killed. Thousands of very skilled and determined military personnel are on a manhunt, going after the remaining killers who hide in cities and caves -- and, one by one, we will bring the terrorists to justice.
Inside the United States, where the war began, we must continue to give homeland security and law enforcement personnel every tool they need to defend us. And one of those essential tools is the PATRIOT Act, which allows Federal law enforcement to better share information, to track terrorists, to disrupt their cells, and to seize their assets. For years, we have used similar provisions to catch embezzlers and drug traffickers. If these methods are good for hunting criminals, they are even more important for hunting terrorists. Key provisions of the PATRIOT Act are set to expire next year.
law enforcement personnel and intelligence officers are tracking terrorist threats; analysts are examining airline passenger lists; the men and women of our new Homeland Security Department are patrolling our coasts and borders. And their vigilance is protecting America.
hundreds of thousands of American servicemen and women are deployed across the world in the war on terror. By bringing hope to the oppressed, and delivering justice to the violent, they are making America more secure.
Today, the Bush-Cheney '04 Campaign announced the Bush-Cheney '04 Missouri Farm & Ranch Leadership Team. The team will help build a statewide network of grassroots support for the President, and communicate his commitment and record of achievement for Missouri's farmers and ranchers.
American cities have many such eyesores -- anywhere from 500,000 to a million brownfields are across our nation. These areas once supported manufacturing and commerce, and now lie empty -- adding nothing of value to the community, and sometimes only causing problems.
Last year catastrophic wildfires burned more than 6 million acres of land, killed more than 20 firefighters, destroyed more than 2,000 buildings, and caused severe environmental damage. These catastrophic wildfires destroy everything in their path – people, their property, wildlife habitats, watersheds and entire ecosystems. It can take decades for these forests to recover. For over a century, the federal government has done nothing to eliminate dense undergrowth and ladder fuels, and it has suppressed most of the natural fires that serve to clear out brush and undergrowth. As a result, about 190 million acres of our nation's forests are in bonfire conditions.
In his State of the Union address, President Bush announced a $1.2 billion hydrogen fuel initiative to reverse the nation’s growing dependence on foreign oil by developing the technology for hydrogen-powered fuel cells to power cars, trucks, homes and businesses with no pollution or greenhouse gases. The hydrogen fuel initiative will include $720 million in new funding over the next five years to develop the technologies and infrastructure to produce, store, and distribute hydrogen for use in fuel cell vehicles and electricity generation. Combined with the FreedomCAR (Cooperative Automotive Research) initiative, President Bush is proposing a total of $1.7 billion over the next five years to develop hydrogen-powered fuel cells, hydrogen infrastructure and advanced automotive technologies.