Open Thread – 16 July 2017

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93 Responses to Open Thread – 16 July 2017

  1. turcopolier says:

    Reconnaissance by fire and a ground probe out of Idlib Province to see how solid Aleppo City’s defenses are. pl

  2. Sam Peralta says:

    In a recent thread Publius Tacitus makes a very important observation. “We refuse to come to grips with the reality that we are like the doddering old fool behind the curtain. Yes we have nukes and a global military presence. But we are hanging on to this status by spending with the equivalent of credit cards while refusing to make any substantive investments in human capital and infrastructure at home. In pursuit of our ambition for global dominance our leaders are allowing America to be hollowed out at home.
    There is a fallacy promoted by some, that since the US issues a sovereign fiat currency (USD), the federal government can spend to infinity with no deleterious effects. That it does not have to make choices in how it spends, as all federal government spending no matter how wasteful, is good.
    To frame this discussion we need to first set up some basics.
    1. Most nations today issue sovereign fiat currencies. Examples include Japanese Yen (JPY), British Pound (GBP), Indian Rupee (INR), Argentinian Peso (ARS).
    2. A sovereign currency is one that only that nation can create. The US cannot create new GBP. Only Britain can do that.
    3. A fiat currency is one that cannot be redeemed for a tangible asset. So, for example, the USD and JPY cannot be redeemed for joules of energy or bushels of wheat or ounces of gold.
    4. The US dollar currency (USD) is a Federal Reserve Note. It is a liability on the balance sheet of the Fed. Only the Fed can create it by law, NOT the Treasury. This is important. Keep it in mind. We’ll come back to this point in the Analysis.
    5. Take a look at the Fed’s balance sheet. Note that Assets include Treasury securities, Federal agency debt securities, Mortgage-backed securities. Liabilities include Federal Reserve Notes (USD) in circulation, Repos (Reverse Repurchase Agreements), Deposits of depositary institutions (e.g: commercial banks), Treasury General Account. And then there is the Equity Capital of the Fed.
    6. Now, take a look at the financial statements of the federal government. Outlays (expenditures) are funded by Receipts (taxes, duties, etc) and Borrowing (the issuance of Treasury securities – bills, notes & bonds, federal agency debt securities, etc). There’s no other way the federal government finances its expenditures.
    7. There are two types of Treasury securities. A) Marketable securities which are securities that can be traded among investors (Fed, foreign governments, mutual funds, hedge funds, sovereign wealth funds, banks, the general public, etc). B) Intergovernmental – these are the IOUs, for example when the Treasury “borrows” from the Social Security Trust fund. The SS Trust fund can’t sell the Treasury IOU to the Saudi sovereign wealth fund for USD cash. They can only be redeemed by the Treasury (see point 6 above about funding of federal government Outlays).
    8. Marketable Treasury securities have an interest & principal payment obligation. These payments are a federal government Outlay. See point 6 above.
    9. The Federal Reserve by law cannot directly purchase a Treasury security from the Treasury. It can only purchase it in the secondary market, typically from a primary dealer. A primary dealer (Goldman, Chase, HSBC, Nomura, etc) purchases Treasury securities when offered by the Treasury and then sells it to investors (mutual fund, pension fund, insurance company, commercial banks, federal reserve, etc) and make a spread on the trade.
    10. The Fed creates new liabilities (USD) by just a keystroke and updating its balance sheet. This is what is called “money printing” as that is what it did previously. Nowadays, it only prints USD bills for cash circulation. It buys new assets like a Treasury security when it conjures new liabilities. Here’s a simple example – Fidelity Bond Fund buys Treasury bonds from a Primary Dealer (HSBC) (who purchased it at a Treasury auction) and then sells it to the Fed for cash and naturally for a profit on the trade. The Fed created the cash (USD) for the purchase of the bond from Fidelity, from thin air, by tapping a keyboard.
    1. Take a look at this chart of federal government debt to GDP since the late 1700s. This is a good chart because it shows federal government deficit financing relative to the size of the economy. Remember the formula for GDP = Consumption + Investments + Government spending + (Xports – iMports). Government spending adds to GDP. When the debt/GDP ratio is rising it implies that debt is growing faster than GDP.
    a. Do you notice prior to the 1980s that the big spikes generally happened to fund a big war?
    b. Do you notice that after those big spikes the ratio declines quickly? Generally as government spending declines.
    c. Do you notice the direction of the data series since the 1980s is basically headed up? Meaning there is more federal government debt per unit of GDP and it is growing, while declining in its effectiveness.
    d. Do you notice that at the peak in 1946 the ratio hits 118%? Look at the ratio currently? How far do you think this ratio can go?
    e. Do you notice the historical general mean of this ratio?
    2. Take a look at this chart of GDP growth rate. Do you notice that GDP grows and declines during periods of both rising & declining federal government debt? Do you see any correlation between the data series of GDP growth rate and federal government debt growth rate, which is an excellent marker of federal government expenditures?
    a. Do you notice that the GDP growth rates have declined in recent decades at the same time the national debt has grown? Implying that it is taking more debt to generate a unit of GDP growth, which is essentially declining productivity of debt.
    3. From point 6 in Basics, one can derive that the only constraint on federal government spending is its ability to extract taxes and borrow.
    a. What are the constraints on borrowing? Interest payments and the willingness of creditors to lend. Naturally, as interest payments become a larger share of federal government Outlays and investors see that the government cannot increase Taxes easily, they will become more reticent to lend, which then necessitates the increase of interest rates to attract investment in Treasury securities. Investor confidence is a significant factor, on their appetite to acquire federal government debt securities.
    4. Now, lets consider what happens when a central bank like the Fed or the Bank of Japan (BoJ) or the Swiss National Bank (SNB) buys financial assets like a government bond.
    a. See Basics point 10. Since a central bank can create unlimited liabilities with just a keystroke, they can be as uneconomical as they want to be. They can pay any price, no matter how ridiculous, for any asset they purchase.
    b. Another factor to keep in mind is that the income the Fed generates from interest received on its securities portfolio as well as gains, less losses on securities sold, are sent back to the Treasury. This adds to the Receipts of the federal government.
    c. So, when the Fed buys a 2 year Treasury Note from say the Fidelity Bond Fund, it pays cash to Fidelity for the bond. From then on all the interest & principal payments on that 2-year Treasury Note is paid to the Fed. Since the Fed pays that back to the Treasury, the federal government is essentially borrowing for free!
    i. That begs the question, why doesn’t every government do this, as it is the perfect free lunch. There is no constraint on how much a government spends when the central bank monetizes all government borrowing. Politicians can make every promise to voters including crediting their bank accounts each week while every citizen hangs out at the beach. No one need work while living the lifestyle of the Rich & Famous as Uncle Sam sends out a Treasury check to each citizen.
    ii. As you can imagine this is not a new idea. During every epoch, government’s have tried this Alchemy of Finance.
    iii. Well, as is always the case in such matters, it all comes down to confidence. When people have belief, such schemes can run unabated, when that is lost, people are unwilling to accept the currency that is being created ex nihilo at warp speed.
    d. What are the implications as a central bank buys financial assets with fiat “money” created out of thin air? Right now the BoJ owns a third of the JGBs outstanding and buys an unlimited amount of JGBs whenever the price falls below a certain value (yield pegging). What happens when they own it all? They also are the second largest owner of publicly traded Japanese equities, being a Top 10 holder of the 100 stocks in the Nikkei index. If they continue on this path, they could own all the companies in Japan, by just tapping a keyboard. How would people react to this?
    e. The Fed is a nominally independent central bank. It can choose to not acquire any Treasury securities. It can also choose to not explode its monetary base as it did post-war, prior to Bernanke’s shock & awe, after his infamous “subprime is contained” moment. In that situation, the Treasury will only get a market price for its securities. A price that investors deem is appropriate, which could mean higher interest rates to attract investors. Of course, Congress can change the law and require the Fed to pay cash (USD) for all Treasury & Agency securities issued.
    5. In every past instance in history, a fiat currency reached its ultimate value, which is, practically worthless. Why? Over-issuance. Since the marginal cost of creating a new unit of fiat currency is practically zero, governments throughout history have always spent more, in particular on wars that have gone wrong, than the productivity of their underlying economy could support. Can our post-1930s fiat currencies be the ones that are different and grow to the sky in abundance?
    6. Publius Tacitus is correct that instead of investing scarce resources at home to improve the productivity of our economy, the federal government has spent trillions on wasteful military interventions, most of which was borrowed from the future of our children.
    7. There are limits to how much the federal government can borrow and how much federal government debt the Fed can monetize. These limits are a function of confidence. No one really knows the tipping point for something having to do with mass psychology. To quote macroeconomist Rudi Dornbusch, who studied currency crises, “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.
    8. While we don’t know how far federal government debt/GDP can rise, we know we are closing in on the historical peak of that data series, even when we have not mobilized to fight a massive global world war. The question to ask, as Publius Tacitus asked, do we have the financial ability to fight another World War or a war against a credible adversary considering our weakened position?

  3. John_Frank says:

    Russia believes Syrian opposition no longer wants to topple regime

    Alexei Borodavkin, Russia’s ambassador in Geneva told Reuters on Saturday that during the seventh round of peace talks which ended on Friday produced positive results, especially a “correction” in how the main opposition approached the negotiations.
    “The essence of this correction is that during this round the opposition never once demanded the immediate resignation of President Bashar al-Assad and the legitimate Syrian government,” Borodavkin stated.
    “The High Negotiations Committee (HNC) and its backers in Western and Gulf capitals had realized that peace needed to come first, and then political reforms could be negotiated,” he said.
    In previous peace talks the HNC and its backers had repeatedly stated that “Assad must go” However, the request is highly rejected by Russia, Syria’s closest ally and strongest military presence in alliance with Assad.
    At the UN talks in Geneva, Syrian negotiators focused primarily on the fight against terrorism within the country, particularly the presence of ISIS, and avoided political discussions.

    Remember, after the Putin-Trump meeting, Secretary Tillerson suggested during his press briefing that the Russian approach to resolving the Syrian conflict might be better?
    Then suddenly, the whole Trump, Jr. ‘story’ bursts on the scene, ultimately resulting in calls of collusion and treason, while some Democratic operatives want to start a war with Russia.
    Call me crazy, but is it just a co-incidence that we are reaching peak anti-Russian hysteria, after the Putin – Trump meeting?
    Oh yes, remember what happened, after the Pres. sent out a tweet talking about a possible cyberspace security unit between Russia and USA as one of the outcomes of the Putin-Trump meeting?
    You would have thought the Man had just called for the rounding up and killing of all gays, Jews and Muslims in the US given the response from certain members of Congress.
    Despite that, is the Trump administration backing away?
    Press Gaggle by Homeland Security Advisor Tom Bossert en route Newark, NJ | July 14, 2017

    Q Can you give us any more of the backstory of when President Trump was at the G20, met with Putin, they decided they were going to have this bilateral initiative on cybersecurity, and then President Trump tweeted that that was never going to happen? Can you just give us a better understanding of what that agreement actually was? Is it true that it’s not getting off the ground? I mean, what happened there?
    MR. BOSSERT: I didn’t attend the G20, so what I will tell you is that President Trump, I believe, is right in his continued assertion that even with countries with whom we have friction or disagreements, we have a responsibility on behalf of the American people to continue to have conversations to the extent that they can yield a positive result.
    And as his senior-most cybersecurity advisor, I will help him coordinate the Cabinet with Secretary Tillerson and others, Secretary Kelly, Mattis and Mnuchin and others, as we develop the appropriate level and contours of those conversations. But we’ll have to set the rules for that. And I think it’s a pretty important reminder that President Trump started that conversation by pointedly and exactingly telling President Putin that we will not have our elections messed with. That’s unacceptable.
    Moving past that, we have to have a conversation about the rules of the road in cyberspace, norms and expectations. I’d like those same rules, norms and expectations to be part of our conversation as we discuss any potential future dialogue with the Russians in cybersecurity. And I’ll help the President coordinate that among the right staff levels at the departments and agencies.
    Q But given your expertise and the position you hold, do you feel that Russia is sincere in their efforts to partner on cyber, particularly after everything we’ve heard in the last year? Do you feel confident that they could actually pull this off in a sincere way?
    MR. BOSSERT: So, I’m not nitpicking your question, but I would say we are not discussing a partnership here. That is not what President Putin left the room for. That is certainly not what President Trump suggested. And that’s not what I’m suggesting today. A partnership is a much different topic.
    What was broached at that G20 conversation, as I understand it, was an opportunity to continue a dialogue — one that had in the past existed between the two countries, and I think one that we could pursue in the future with the appropriate reservations and the appropriate expectations, that we at least start with what is acceptable behavior in cyberspace and what norms and expectations that we’ll have moving forward, long before you get into the enforcement of those rules or anywhere near before we get into a partnership.
    But again, the instinct to make some progress on behalf of the American people and their security online is a good instinct on President Trump’s part.
    Q Why prematurely announce a dialogue if nothing is agreed upon on those subjects?
    MR. BOSSERT: I don’t think anything was prematurely announced. I think the President was clear in saying that the conversation was raised and the idea was suggested, and that he was open to it. And I’m going to help him put the contours on that and give him some advice back on how we can frame that in a productive way without giving up any U.S. security and certainly without giving up any election security, which is President Trump’s priority.
    Q You said you didn’t want to use the word “partnership” because it sounds like you’re a little bit worried about the relationship. Can you tell us how you deal with the Russians at the lower — not the presidential level — when you’re dealing with these delicate issues? How that’s changed?
    MR. BOSSERT: Well, the point — the distinction I made was that a partnership suggests that you’ve reached a place where you believe that you have a trusted relationship and you’ve come to some common agreement on ideals and goals and behaviors. I don’t believe that the United States and Russia have come to that point yet in cyberspace. And until we do, we wouldn’t have the conversation about partnership. But we had to have a dialogue, and that’s where we’ll start.

    I know, what a crazy idea about having a dialogue with Russia on establishing the rules of the road concerning cyber warfare? Bossert must be some sort of closet Russian spy!
    By the way, as to that new Washington Post / ABC News Poll? The sampling is plus 12 in favor of the Democratic respondents, not plus 7 as they are reporting. Washington Post and ABC News pulled the same stunt two weeks before the 2016 election. What agenda? Clearly a fair and accurate poll!
    On this whole business of #fakenews, an interesting and informative analysis by Nassim Taleb, posted on March 12 that people may wish to read:
    The Facts are True, the News is Fake
    After the publication of the US election documents by WikiLeaks, one would have thought the corporate media giants might have taken a step back, especially after having gone all in for Hillary Clinton and been rejected by the public.
    Unfortunately, that has not happened.
    Oh yes, according to an email posted by Wikileaks, guess which President candidate opposed the Magnitsky Act, so supporting the Russian lobby effort? The same candidate whose husband gave a speech in Moscow and was paid a cool 1/2 million dollars. The campaign denied any connection and was able to kill a story by Bloomberg making the allegation, but the whole situation sure makes one go, hmm.
    Hillary campaign spokesman internally bragged about “killing” story linking $500k Moscow cash to Magnitsky bill

    – With the help of the research team, we killed a Bloomberg story trying to link HRC’s opposition to the Magnitsky bill to a $500,000 speech that
    WJC gave in Moscow.
    So Fusion GPS, with funding from Republican and Democratic individuals opposed to Mr. Trump, hires a former British spy to use his Russian contacts to dig up dirt on Mr. Trump and is most likely provided with disinformation by the Kremlin to help push the effort along, also is involved in an effort to lobby the Trump campaign to oppose the Magnitsky Act with an offer of inconclusive evidence about dirty dealings by the DNC and Mrs. Clinton. That meeting goes no where. Oh yes, at least one of the people at the meeting on the Russian side is a well known source for many reporters in the world of corporate US media, specializing in “the Smear.”
    P.S. Trust everyone has a wonderful Sunday.

  4. John_Frank says:

    Netanyahu: Israel Opposes Cease-fire Deal Reached by U.S. and Russia in Southern Syria
    read more:
    1. While aware of Israeli concerns, based on articles in the English Israel press, my first question, is the Haaretz report as framed accurate?
    2. If it is, while Israel is going to defend its own interests, how does going public help anyone?
    3. Are the Israelis speaking only for themselves, or are they also speaking for one or more factions within the intelligence and defense community within the United States and the Arab world who believe the US is “folding” to Russia over Syria, and are calling for a much stronger stance?
    In addition to dramatically cutting down on immigration and refugee flows from that part of the world, once the US reaches the stage where it no longer needs oil and natural gas from the Persian Gulf, the American public is going to ask, why must the United States continue to waste blood and treasure doing the bidding of any of the countries in that region? Time to let them go?

  5. Fred says:

    The erasure of history continues:
    If you control the symbols, you control the dynamism of a society. We need a statue of Trayvon and Caitlin so we can memorialize the values we are told we should have by those tearing down these symbols of the past.

  6. Phodges says:

    Both the geometric increase in money supply and Peak Debt are necessary consequences of Debt Money. One can see that Peak Debt has passed here:
    For every dollar loaned into existence less than one dollar goes into the economy. Consider also said dollar is created at interest, i.e. a typical mortgage carries a 100% finance charge. So we are paying the banks $2 for $.96
    Here is a great exposition on debt money:

  7. VietnamVet says:

    The underlying foundation of the financial system is confidence.
    True. The problem is that the policies since the Carter Administration are destroying the consent of the governed. The forever wars or saving Wall Street at the expense of American who lost their homes serve to transfer wealth from the middle class to the rich. Americans are dying earlier with the transformation of healthcare system from a public right to money extortion schemes. If wealth was used to make society better, there would not be a crisis. It is the chaos from the oligarchs looting that is splintering the USA apart. We need only to look to Mexico to see our future.

  8. The Porkchop Express says:

    Hassan Hassan wrote a good piece in the Guardian.
    Though I really haven’t seen much mention from, well, anyone ever that sufficiently explains how to de-sectarianize thoroughly sectarian societies. But the ISIS/AQ fight over transnational jihadi supremacy is going to be ugly.

  9. BraveNewWorld says:

    There are a couple of things left out of that analysis. First most of the western governments have used the long running super low interest rate environment to retire older higher interest debt and finance it with very long bonds with very low yields. Britain for example finally got around to paying off some of it’s debts going back the the time of the founding of the East India Trading Company. The EU was selling negative rate bonds. That makes financing the debt cheaper.
    Having said that that it just moves the day of reckoning to the right. Interest rates are rising and will likely continue to do so short of some form of economic collapse. Financing large debts in that environment will be much more problematic.
    In the case of a major war there is that old classic the War Bond. Buy bonds at super low rates to support the war you probably didn’t want and any one that doesn’t is a traitor to the country.
    The second thing is that markets don’t always act rationally. Short term political thinking and planning mean that no sane politician is going to wake up one day and say “hey we should pay off this massive debt,rather than using the money for some thing that will get me re-elected.” unless an economic shock hits the country and they are forced to. Most countries around the world have run into this. If that shock comes then that means the economy is going to need some help and they will break out the great tool of deflating the dollar. On the one hand that will stimulate the economy, on the other hand you get to pay down your debt in inflated dollars. The markets don’t take that into account, they are looking for short term gains because that is what they get bonused on.

  10. John_Frank says:

    Ah, that description is not quite accurate, but follows is a link to the referenced article.
    Israel’s Relations With The Syrian Rebels: An Assessment
    People can follow the Rubin Center, formally known as the Gloria Center twitter feed online at
    The website can be found at

  11. BraveNewWorld says:

    This is pure Israeli boiler plate. Take a look at how the nuclear deal with Iran unfolded. Obama cut a deal. Netanyahu was shocked, shocked to find out the results of the deal. He leaned on Obama to change his mind and when he didn’t get results he went around Obaba to Congress. Same thing is and will continue to happen here.
    >”once the US reaches the stage where it no longer needs oil and natural gas from the Persian Gulf, the American public is going to ask, why must the United States continue to waste blood and treasure doing the bidding of any of the countries in that region?”
    The US will shortly be the worlds largest exporter on LNG. As for oil there is so much in North America that the US is exporting it. It is no longer about needing Gulf oil and hasn’t been for quite a while. It was never about importing natural gas. It is about being able to prevent others from having access to that oil in a time of war and about massive short sighted arms sales to the gulf.

  12. Prem says:

    Channel 4 News, in the UK, recently did a report featuring the Tiger Forces:
    Nothing new to anyone here, but it is interesting that an MSM outlet showed this. The military situation in Syria is mostly unreported, except for “Assad eats babies for breakfast” type stories.

  13. Prem says:

    London Transport recently banned the use of the phrase “ladies and gentlemen” in its station announcements.

  14. BraveNewWorld says:

    From the CBC article:
    “Cornwallis, a governor of Nova Scotia, was a military officer who founded Halifax for the British in 1749. The same year, he issued the so-called scalping proclamation, offering a cash bounty to anyone who killed a Mi’kmaq person.”
    They tore down statues of Hitler for similar reasons and I am pretty sure that was American armour I saw pulling down the the Statue of Sadam. You can have those people in books where there is context and they will continue to be taught in schools with out glorifying them in parks.

  15. John_Frank says:

    Also according to @terror_monitor:
    Hay’at Tahrir al-Sham (#HTS) Takes Responsibility For Bombing On Minat Bayda Port In Latakia
    Hay’at Tahrir al-Sham (#HTS) Releases Photos Showing Bombing On Minat Bayda Port In Latakia
    (I understand that the Minat Bayda Port is a Syrian Naval Base.)

  16. The Beaver says:

    As usual the whining:
    Israeli official: “Ceasefire deal in southern Syria is a very bad deal & doesn’t take Israel’s security needs into consideration”
    I guess the Israelis must love having AQ and ISIS on their border 1

  17. Adrestia says:

    An excellent post. A few extra remarks from somebody on the other side of the pond.
    * the US, UK and Turkey have the largest trade deficits in the world
    * Saudi Arabia used to have a trade surplus but their defense expenditure and internal energy use have taken their toll. I also wouldn’t be surprised if oil is used to buy US weapons as they’ve done in the ’80’s through BP and RD Shell. Stocks, (shale) oil production etc don’t add up and look manipulated
    * the PRC has a large trade surplus with the US and is selling Treasury-bonds for some time now and are probably using this to finance one-belt-one-road and other infrastructure. The last few months it seems to pick up al little, but the trend is still down. If China will not ‘loan’ anymore this could be the trigger that ends the trust in the USD. This is huge because the US deficits fuel the rest of the world.
    * the EU has major problems because of the Euro. The monetary rules is tearing the society apart (especially the lower incomes) because national poltics only have austerity left as a tool.
    The upcoming elections in Italy will break the Euro when the war-pact of populist left and right win. Italy has huge problems with refugees as an earlier law by Wolfgang Schauble dictated that asylum should be asked in the country of arrival. Other European countries are also unwilling to the refugee-migrant burden
    * The explosion of central bank balances in the US, Europe and Japan (creating money) is the temporary fix that will create the next crisis (after inflation in the ’70s, public debt in the ’80s, private debt 90s to 2008) and what is left after that? The last financial depression of 1928 was only solved by WW2.

  18. jsn says:

    I agree with most of your description of the mechanics of the Fed, Treasury relationship. As you say, law dictates these relationships. Laws can be changed but the properties of money are inherent to its nature as a credit relationship. These current laws date mostly from the Bretton Woods era or before. There are many other things in you analysis with which I agree, but I feel it is important to accurately understand the system in which we live in order to understand what can and cannot be done.
    In order for taxes to be collected, the sovereign must first spend money. As the sovereign is the only legal place money can originate, this is a necessary initial condition. Dollars do not exist to be collected in taxes until the US Govt has spent them. In the post Bretton Woods order, the US Govt via the Fed, has set the interest rate by purchasing bonds in the open market until the interest rate is at the “policy level”. There is no limit to the Fed’s ability to do this as we have seen with QE.
    Because banks like to have the interest that the Treasury pays on bonds rather than have cash stockpiles that earn no return, whenever they have surplus reserves of cash that cannot be used as reserves on new credit due to the lack of private demand for new private debt, banks purchase Treasuries with the cash to get interest payments, free money from the Treasury instead. When the Treasury deficit spends, every dollar it spends ends up on a private bank balance sheet. To the extent those banks have private clients who seek new debt, that balance at the bank is used as reserves for the new private loans/debts created. To the extent, as now, that private borrowers don’t want to borrow as much as the Fed and Treasury have loaded onto bank balance sheets, those balances end up as Treasury bond liabilities on the Feds’ balance sheet when banks by the bonds to get free cash in interest payments. This demand by banks for free money from the Treasury is the reason that the Fed has since 2008 begun for the first time paying interest to banks for their “surplus reserves”: there has been so much of this unwanted money loaded into the system, particularly through QE, that it was driving the Fed Funds Rate below the Policy Rate. The interest paid on surplus reserves was to prevent the Fed Funds Rate from collapsing to zero while the Policy Rate was higher. The surplus reserve rate was set where it had to be for the market to normalize around the policy rate.
    This is simply the mechanics of how the actual fiat system works. Here is a link from the BOE:
    And something more general:
    There is a real constraint on Govt spending, however, and that is real resources. The Govt can not purchase anything that’s not available. It’s attempt to do so, between funding the war in Viet Nam and LBJ’s Great Society programs created an incipient “demand pull inflation” where demand was running up against a real resource constraint in the form of not enough productive capacity to support war production and accelerating consumer demand resulting from poor people engaging more deeply in the consumer economy of the time. The OPEC cartel compounded that with a “cost push inflation” when it choked off our cheap oil supply. “Cost push” is when a an outside input to the system has an exogenous cost increase that them must be re-priced as it propagates through the system. This combination created the great inflation of the 70s that Volker is commonly credited with ending but in my opinion was ended by the de-regulation of the natural gas market. Thats another discussion.
    Real wealth in an economy consists of its ecological, geological and geographic inheritance, the knowledge, wisdom and skill of its manpower, both labor and management, and that constellation of productive relationships that engage resources, labor, management in the re-organization of material things to make the most of the benefits on offer. There are productive constellations that are entirely private, like industrial production and resource extraction where private arrangements afford the best outcomes. There are other constellations that ought to be public, like defense and government administration where private interests would be incentivized to monetize public goods to yield personal riches. Education, health, housing, food and defense all constitute such public goods to my mind, others obviously differ, but those social units that see to these things best tend to outcompete those that don’t.
    In the US at present, between un-employment and under employment, there is a huge reserve of potential useful work that the US could afford to purchase simply by productively employing the afflicted. The deficits of the last two decades sit mostly idly on the balance sheets of rich individuals, corporations and other institutions. They have not been inflationary except for the things the rich like to buy, like New York, DC or San Francisco real estate or new, super luxury hospitality and medical facilities. Fortunately there is enough of this to keep me going in my day job as an enabler to the plutocracy.
    I make an issue of all of this because change needs to happen and money is the dominant artificial motive driving modern productive constellations, whether public or private. Understanding what can and can’t be done with it defines what is and isn’t possible through these systems. The origin of money is in the simple, personal credit relationship: as Minsky said, “anyone can make money, the trick is getting it accepted.” Large empires tend to run on fiat, ours, Genghis Khan’s, ancient and present China because their ability to enforce tax collection drives a demand for the currency and the flexibility of the money system, unconstrained by an external commodity like gold, allows policy decisions that are of public benefit despite not always producing private winners. This policy that strengthens the “public” without making private winners is the glue that cements citizens patriotism at a deeper level than any loyalty a corporation can purchase with a salary or bonus.
    The public good of fiat is that a nation can look after itself in spite of more selfish agents internal to it. Liabilities of the issuer are at the discretion of the issuer who has a unique relationship to its money both through its ability to issue and its access to coercive force to ensure tax collection. So long as that force is credible, the money is credible. While fiat money is thus an ambiguous liability for the Govt that issues it, for all other users it is an asset that can be redeemed for anything available within that system: a dollar will purchase a dollars worth of anything within the dollar denominated world economy. The “Deficit”, that huge liability on the Fed’s balance sheet is simply the inventory of outstanding dollar denominated financial instruments held privately or by other central banks. To want to eliminate the “Deficit” is to want to eliminate privately held or foreign held dollar financial instruments: to want the first is to want the private sector to be dollar poor, to want the second is to want foreign govts to be dollar poor. In the first instance, the private sector would loose all economic power within the US system as it would no longer be able to command purchases, in the second, foreign states would no longer be able to trade with the US as they would have no dollars to pay us with.
    To your final point, finance is not what wins wars, it is the mobilization of real resources that wins them and finance is merely the artificial motive used to initiate that mobilization. This: is the history of fiat use in the American Civil war. It is a wonderful read in that you will recognize all the political players, the names have changed and rhetorical standards are greatly diminished, but the positions and politicing are evergreen! Hajalmar Sachts “Autobiography of an Old Wizard” on the financing of the Nazi mobilization is also very interesting and to the point of your question. The hollowing out of US manufacturing, the globalization of our supply chains, the dereliction and depression, indeed now self destruction with the opiod epidemic, of the American workforce are the real wealth constraints that will prevent the US, without major re-structuring, from being able to face a real existential adversary.

  19. Linda Lau says:

    I get it about how the media mislead our public about many aspects of the Syria story. But let’s not go too far. Assad is a bloody dictator like his father before him and life in Syria was not a piece of cake before the civil war. The Alawites did want to control all of the levers of power and most Syrian women did not run around in bikinis. I remember seeing them in Damascus wearing their long heavy coats in the middle of summer in order to be religiously correct. Glad to be rid of the jihadis I’m sure but Syria will not be a wonderful place to live for a long time.But good on them for trying to reclaim their lives.

  20. turcopolier says:

    There are no good guys in the Middle East. Regime change in Syria is a terrible idea. The only alternatives to this government are jihadi governments. pl

  21. Sam Peralta says:

    I’m not arguing for or against “debt money”. I’m just analyzing what is – the cards we’ve been dealt, within the current lawful structure. I was attempting to address the myth that since the US issues a sovereign fiat currency, there is no limit to federal government spending. My analysis is to show that there is a limit. I don’t know what it is but I know it is a function of confidence which is a psychological factor.
    I also don’t know if we are at Peak Debt or not. But I do know total credit market debt + unfunded liabilities, globally, is at historical highs. And to your point the productivity of that debt is declining as it continues to grow. I am mindful of Rudi Dornbusch’s research and have had many fascinating discussions with him while he was alive. Even what is seemingly unsustainable can become even more unsustainable.

  22. Fred says:

    We can not continue to oppress the victimized descendants of the oppressors and their victims by exposing them to smaller versions of such images. The very existence of such a thing is abhorrent. Legacy guilt is forever.

  23. Sam Peralta says:

    You are making a similar point to Publius Tacitus, whose observation that America is being hollowed out at home is spot on in my opinion.
    There are many indicators that point to that. From income and wealth distribution among the different quintiles, to declining Labor Force Participation rates, to stagnation in real median household incomes to the decline in manufacturing employment. And then all the social factors that you allude to.
    Ultimately we are in a political economy and as voters we have a huge responsibility for the decades long slide in the hollowing out the country.

  24. jdledell says:

    Beaver – The short answer is yes, Israel would rather have AQ and ISIS on their Golan Heights border than Hezballah. Israel understands if Assad stays in power, it is likely to see the same dug in Hezballah and its rockets on the Syrian border as they now have on the border with Lebanon. You have to understand Israel’s concern with Hezballah whom the IDF hope to never have to fight again. Israel considers AQ and ISIS to be poorly organized as a fighting unit(unlike Hezballah) and knows that AQ and ISIS would never tolerate the Shia Hezballah anywhere near their men.

  25. Annem says:

    What the media is misleading the public about is the basic issue of what our goals are and why they are in our national interest, NOT who is nastier or dominates/wants to dominate amongst the contenders for ruling Syria. Do we seek regime change in Syria? Why? What do we think that will achieve? Do we seek the break up of Syria? If so, why is that in our interests? Do we really want to see the Saudi-Turkey-Israel backed jihadis that make up the armed opposition [put the Kurds and northern tribal allies aside for the moment] in charge of the country? If so, why?
    This is the conversation that the media is not laying out for the public. They NEVER mention just who the “rebels” are. If THEY take over Syria, the country’s minorities: Christians, Yezidis, Shia, Druze and yes, Alawites along with a sizeable chunk for the Sunni population who don’t look forward to living in a poor version of Saudi Arabia even if they include social conservatives, long coats and all. They know what life was like for their kin in areas controlled by the “opposition/rebels.” Will all these diverse peoples and lifestyles continue to exist? If we are concerned about the brutality of the current regime, no argument there, what are we expecting for the future of the country?
    What is the endgame we seek? Is it achievable and is it/why is it good for our country? These are the questions that neither our government nor our media have subjected to clear thinking which should be at the beginning of our involvement, not at this stage. Now we are talking about more BASES!

  26. turcopolier says:

    I have been to Syria many times both before and since I left the government. you must have visited a different country than I. I saw many Syrian women in the streets, in the bazaar, in restaurants and in night clubs who were in Western dress and quite unconcerned about that. Muslim women who wanted to be “covered” did that as well. In pre-civil war Syria people were not oppressed on the basis pf religion. There were many Sunnis in the Baath Party. People were oppressed on the basis of opposition to the government, but not for religion. pl

  27. Sam Peralta says:

    Do you think this fact has a bearing on your statements/conclusions?
    No. In fact when you add private sector credit to the analysis it actually strengthens the analysis that there are real limits to the growth of debt.
    In private sector credit analysis there is a fundamental relationship of income & free cash flows to creditworthiness. Remember that credit extended needs to be repaid with interest out of existing cash flows. And one can’t expect that the asset collateralizing it in secured lending as in a mortgage or auto loan will keep appreciating.

  28. Murali says:

    I totally agree with you that the voters are the ultimate deciders of our future. However unfortunately the corporate media feeding the public false narratives (see the link to the southfront about the journalist from Boston Globe). I don’t recall seeing any of the media picking up on the narrative to educate the people. In such a dire situation honestly I don’t know what to expect from such ill informed public. Also the dumbed down educational system that requires conformity is of no help in creating a better class of citizens. When I think of what holds for our future I get shudders!

  29. dilbert dogbert says:

    ” The problem is that the policies since the Carter Administration are destroying the consent of the governed.”
    How soon we forget the Nixon Administration.

  30. dilbert dogbert says:

    One might extend your argument to many places in the world. Yours is the only sane blog on things in the ME. Thanks.

  31. Sam Peralta says:

    I hear you. We have a few folks at our firm whose focus is monetary system analysis and I have heard the arguments on all sides of this issue and the claim “In order for taxes to be collected, the sovereign must first spend money.” As you know, there are highly credible analysis and research that is contrary to that assertion. I’m sure you know that central bank’s core asset after gold, used to be Bills of Trade. Government securities on the balance sheet of central banks was anathema for long. It only came into vogue in the last decades. For commercial banks to hold government securities as tier 1 capital would have been laughable some moons ago.
    We live in a political economy, so government spending and the financing of that spending is a big deal. In the US, federal government spending as ratio to GDP has gone from low single digits to around 20% now. There is still a large private sector economy and finance in the US. We did have the most productive economy in the world at the time when government spending was a small fraction of the GDP. So, it is not a given that without massive government spending the private sector economy would collapse.
    Clearly there is a significant role for the federal government in defense and national infrastructure as well as in developing human capital. But the notion that limitless government spending is an unalloyed good, irrespective of its productivity is fallacious.

  32. Henshaw says:

    A Damascus anecdote does not represent the whole country- did you ever go shopping in Aleppo in the evening? or engage with the independent, unscarved women in the villages along the Euphrates?
    And then there’s always

  33. Kooshy says:

    It’s a beautiful city, may god save them from all evil, domestic or foreign.

  34. paulj says:

    “There is a fallacy promoted by some,
    that since the US issues a sovereign fiat currency
    (USD) the federal government can spend to infinity
    with no deleterious effects.”
    Major league strawman argument that renders the rest of your post irrelevant.
    No one has claimed the federal government can spend to infinity.
    There is no limit to how many $ the federal government can create. The
    (functional) limit is that the government can always afford to buy that which
    is for sale in $, not a penny more, because it is impossible to buy something
    that doesn’t exist.
    If there are only 10 beers, you can’t (try to) buy 11 without driving the price for beer to infinity.
    We aren’t even close to buying all that we can produce for most things.
    And your post somehow killed the formatting of the blog.

  35. Peter in Toronto says:

    What an asinine comment.
    So you’ve thrown out your little spiel about Assad being a “bad man”, and arrived at exactly no conclusions.
    You appear to suffer from the mind rot that is moral relativism.

  36. Bill H says:

    You actually leave out the most important factor, the crumbling infrastructure. San Diego experiences a significant sewage spill, ones in which sewage reaches the Pacific Ocean, an average of 28 times per month, almost all of them cast iron sewer pipes that are in excess of fifty years old. The cost to upgrade all of the sewer system in this city which is rated D or worse by the ASCE is over $2 billion.
    We are not even starting on that process because we are replacing 45 miles of cast iron gas line of the type which exploded in San Bruno in 2010.

  37. ISL says:

    Dear Colonel,
    If as reported, Turkey implements a S-400 defense system, IMO, this is very important. It means that Turkish air defense could be integrated (in capability) with a Syrian / Russian air defense system, but not with NATO.
    My understanding is that the advantage of the S-400 lies in its integration across the battle space and weapons systems (it synthesizes radar from many platforms). Thus, commitment to the S-400 is commitment to Russian weapons systems for decades and more relevantly, commitment to not continuing to be integrated with NATO.
    Turkish alignment with R+6 spells disaster for US Kurdish plans in Northern Syria. If the Kurds are wise, they will negotiate with the SAA for regional special treatment within a Syrian State sooner rather than later.
    Side note: I believe Russia builds its own integrated circuits for their systems (hence hubris when describing Russia as an oil can economy). I also believe the US relies on Chinese and Japanese and Taiwanese integrated circuits. One wonders about the genius of the neo-con outsourcing religion here, should the US should actively engage China militarily.

  38. SteveSA says:

    Unlike the Gulfies, women in Iran are allowed to go to universities and become the greatest women mathematicians ever. Sadly, the only woman to ever win the Fields Medal (the most prized award in the field of mathematics), Maryam Mirzakhani, died this weekend from breast cancer. She was only 40. She was a professor of math at Stanford and got her Ph.D in math from Harvard and her bachelor’s degree from Sharif University of Technology (which must be first-rate to develop one of the greatest mathematical geniuses of our time).

  39. Fred says:

    Bill H,
    San Diego has had 50 years to plan on replacing said infrastructure. What have they done about it but the standard political practice of letting it rot and hope the rest of the nation’s taxpayers foot the bill via a federal government bailout?

  40. jsn says:

    Thank you for the thoughtful reply. My interest is in the competition of societies in the extreme condition of existential conflict. It is very clarifying: once a society is really interested in fighting and winning, many of the political constraints vanish.
    Spaulding’s history of Fiat in the Civil War is both fun to read, because of the wonderful language, and really illuminating in this regard! One side is saying “we must win this war”, the other, “what about the value of my money?” You can agree or disagree with the motives of either side in the war, but as the story of finance for the side that won, the debates and machinations are absolutely fascinating!
    Likewise Schachts’ story. His autobiography is obviously self serving, but he was one of very few top Nazis to be tried and acquitted: is financing of the Von Stauffenberg plot probably accounts for that. None the less, it is a story about the nature of “political economy” under existential threat and the recognition that real resource mobilization is the real story, money is but a tool.

  41. Babak Makkinejad says:

    Women do attend colleges and universities in Saudi Arabia and elsewhere in southern Persian Gulf. In Saudi Arabia, I think, the female college students outnumber males – just like in Iran.
    I do not think that the Iranian establishment liked Dr. Mirzakhani; she was not the kind of chador-clad, outwardly pious female role model that they wished to promote as ideal Shia Muslim woman (dressed in Black Chadoe, gazing down at her feet…)
    And then she had the gall to marry a Christian…

  42. mike says:

    SteveSA –
    Even Rouhani’s Instagram account has a pic of her “sans hijab”.
    He’ll take some flak for that by the conservatives.

  43. LeeG says:

    Exactly, the infotainment industry is giving the customer what they will buy. Good/bad, our guys/their guys.

  44. jsn says:

    Thanks for this! Its’ a key point and I forgot to mention it in my ramblings.

  45. MRW says:

    Sam Peralta,
    Your Basics #4

    4. The US dollar currency (USD) is a Federal Reserve Note. It is a liability on the balance sheet of the Fed. Only the Fed can create it by law, NOT the Treasury. This is important. Keep it in mind. We’ll come back to this point in the Analysis.

    Did you not see Paulj’s comment on the other thread? It’s at 16 July 2017 at 04:40 PM here:
    As he writes:

    Congress created the FRBS, and therefore the duties of the Fed. How does that put the Fed above Congress in the hierarchy of power?
    Explain to us how the Fed ‘creates’ new $ (increases the money supply). What are the precipitating events?

  46. MRW says:

    Sam Peralta,
    Your Basics #5

    5. Take a look at the Fed’s balance sheet.

    Which you cite as
    The Fed is merely a subset of the US Treasury; as Paulj puts it a subcontractor that manages the interest rate. You need to be looking at the Daily Treasury Statement, which is the complete federal government’s daily checkbook (don’t use the Monthly). Specifically, Table III-A (pg 2 of 2). Remember those numbers are in millions. Here’s the last day of fiscal year 2016, Sept 30:
    The Treasury issued $95.6 trillion in 2016, Sam.

    To meet the federal government’s real expenditures and obligations in 2016. Treasury didn’t issue them for shits and grins. It issued them because Congress authorized them to, whether it’s our current Congress or Kennedy’s or Nixon’s.

    It only received $2.8 trillion in total Federal Taxes for 2016.

    This covered Defense, Social Security benefits, Medicare, Medicare Advantage Part C & D payments, Medicaid, a few Veterans’ payments, and that’s about it. No federal salaries, light/electricity/and maintenance of all the federal buildings and lands nationwide, social safety nets for the poor and hungry—they get shit anyway, and on and on.

    By your logic, the Fed created the remaining $92.8 trillion. It didn’t. Current and previous congressional appropriations did, which it is the US Treasury’s duty to carry out.
    Listen to Ben Bernanke: total 2 1/2 minutes.
    Bernanke: “The Fed will do whatever Congress tells us to do.”
    “Bernanke – We are the agent of the Treasury”

  47. MRW says:

    Your Basics #6

    Outlays (expenditures) are funded by Receipts (taxes, duties, etc) and Borrowing (the issuance of Treasury securities – bills, notes & bonds, federal agency debt securities, etc). There’s no other way the federal government finances its expenditures.

    As Paulj puts it simply:

    Congress passes spending bills and Treasury is compelled to mark up the appropriate private sector bank account (the targets of the spending).

    That’s called a “reserve add” in Fed and Treasury parlance. it increases the money supply. It happens before the US Treasury creates treasury securities out of “thin air” two to four weeks later to match those congressional spending bill amounts.
    The public auction of treasury securities is called “reserve drain.” That restores the money supply to balance (in our current system).
    The standard inside expression is ‘reserve add before reserve drain’.
    The US Treasury doesn’t really need to create treasury securities. It only does it because of a 100-year-old law on the books (whole ‘nother story).

  48. MRW says:

    Good post. I concur. is the history of fiat use in the American Civil war.

    Military historian Jim Lacey wrote Keep From All Thoughtful Men: How U.S. Economists Won World War II. it’s the history of how they did it in WWII, after going off the gold standard in 1933. Three government economists understood what the new fiat currency meant for supplying armaments to Britain and the future prosperity of the USA. He found misfiled documents in the National Archives.
    Quite simply Jim Lacey has overturned nearly 60 years of sloppy work by historians.
    I have a small quibble with your descriptions of demand-pull inflation. Demand-pull is the old classic: too many dollars chasing too few goods. People have money to spend, but there’s nothing to buy. According to Warren Mosler, we haven’t had that since WWII when all resources for commercial products were allocated to the war effort, and we are in no danger of it happening any time soon.
    (Cost-push is pressure on the supply side, as you say: the cost of oil and commodities, etc. I was in school when the price of oil soared from $3 to $30/barrel in seven years. So the price of everything soared. And I agree with you that it was Jimmy Carter deregulating natural gas in 1978 that allowed the utilities to retool to use gas instead of oil. Reagan got the credit because retooling took at least three years, but Carter’s action hit the OPEC nations hard. Oil was back down to $10/barrel by 1990.)

  49. MRW says:

    Sam Peralta,

    Government securities on the balance sheet of central banks was anathema for long. It only came into vogue in the last decades.

    it was actually 85 years ago just before we went off the gold standard domestically in 1933. A Division Manager I communicate with (for clarification of federal transactional methods and procedures) at the Bureau of Engraving and Printing emailed me:

    […] Originally, the 1913 act authorizing these notes [Federal Reserve Notes] limited the amount that could be issued as a percentage of the gold held by the different Federal Reserve Banks. In 1932, the collateral used for issuance was expanded to include United States securities. Overtime, the range of things that can used as collateral has expanded. At this time, a Federal Reserve Bank must hold collateral equal to the amount of notes it issues. This is spelled out in 12 USC 412: “>

    Since commercial banks must transfer 100% collateral to their District Federal Reserve Bank for physical cash they want to order, treasury securities are the easiest instrument to use. Saves them from liquidating other assets.

    So, it is not a given that without massive government spending the private sector economy would collapse.

    Absolutely. It never is. It all depends on the state of the economy at the time, whether it’s in the tank or not. Reason why Congress has to exercise fiscal policy properly. When ice cold, cut taxes and increase spending (eg: 1934-1936, 1939). When red hot, increase taxes and cut spending (eg: after WWII when the top tax rate went to 90%, and the Marshall Plan alone brought $15 billion worth of business for our returning soldiers and stateside workers to create products to help rebuild Europe).

    But the notion that limitless government spending is an unalloyed good, irrespective of its productivity is fallacious.

    100% correct. What idiot recommends that?

  50. MRW says:

    Well, they’re lionizing her now, Babak.

  51. MRW says:

    Oh-oh. Credit check, Atlanta Fed
    Still decelerating, and data releases seem to confirm that the credit deceleration is reflecting something similar in the macro economy
    Someone better tell Trump how the macro economy works fast, before it all falls down. All he has around him are microeconomists, it seems; ie: top bankers and private sector geniuses who are not schooled in federal accounting transactions., or public purpose. No way to run a federal government. They are the types schooled to believe that the federal government has to “tighten its belt.” Or that deficits in an economy like the one we have today are bad; ergo, austerity is good.

  52. Jack says:

    Excellent post, Sam. Your analysis is really well done.
    Federal government debt will continue to rise and should accelerate as health care costs continue to double every 8 years and entitlement payouts rise significantly. The baby boomer generation is the largest generation in US history to retire. Both private sector and public sector defined benefit pension plans are significantly under-funded due to high rate of return assumptions. Many pension plans may have to be backed up by the federal government. The trillions spent on our military adventures and regime change have shortchanged investments here at home. When one compares the state of our national infrastructure relative to China, Japan, South Korea, and Singapore it is pathetic.
    IMO, systemic financial pressure will only become readily apparent when the 35 year bull market in bonds reverses.

  53. Sam Peralta says:

    There can be no strawman, when you’re the poster child.
    There is no limit to how many $ the federal government can create.
    You are correct in theory, as I noted in my analysis, but not in any practical sense of the real world. That is self-evident, as otherwise Congress would have been doing it a long time ago. Not to say they will not try in the future.
    The relevance or irrelevance of my post is in the eye of the beholder. Just like yours!

  54. John_Frank says:

    In response to the Haaretz report (which was updated later on Sunday), the Russian FM was quoted by Sputnik earlier today as stating:
    Lavrov: Israeli Interests to Be Taken Into Account in Syria De-Escalation Zone

  55. Babak Makkinejad says:

    That is the least they could do. She, Javan, Vafa are a few notable recent names that have appeared in Iranian science since 1200.

  56. Ingolf Eide says:

    “Excellent post, Sam. Your analysis is really well done.”
    Second that.

  57. mike says:

    I believe that is the same butcher-eddie Cornwallis who used a campaign of rape and murder in the Highlands of Scotland to put down the already dead embers of the Jacobite Rebellion? May he rot in hell! If the Sasenachs want to erect a statue of the man then let them do it in their own country.
    Rape and mass murder and paying cash for scalps – sounds more like a terrorist than a soldier.
    We should not erase history, but we should not let misrepresentations go unchallenged.

  58. Sam Peralta says:

    The US Treasury doesn’t really need to create treasury securities. It only does it because of a 100-year-old law
    Who woulda thunk that Congress, the US Treasury, the best & brightest on Wall Street and all the insurance companies and pension funds were running a scam for a century!

  59. Sam Peralta says:

    The Fed is merely a subset of the US Treasury

  60. Sam Peralta says:

    Explain to us how the Fed ‘creates’ new $ (increases the money supply).
    Primarily by tapping a keyboard!
    A simple web search would have provided you a plain English answer.
    The Fed can use three tools to achieve its monetary policy goals: the discount rate, reserve requirements, and open market operations. All three affect the amount of funds in the banking system.
    What do you and Paulj do for a living? What are your credentials?

  61. Fred says:

    ” we should not let misrepresentations go unchallenged.”
    like all those American Indian tribes wars against one another where taking of scalps was common practice?

  62. John_Frank says:

    A couple of comments:
    1. The decision by UAE, Saudi Arabia and Bahrain to confront Qatar was made before the alleged hacks took place.
    2. When the story about alleged hacking broke a month ago, it was initially reported that Russia was somehow involved.
    3. The FBI, not the CIA is conducting the investigation into the alleged hacks.
    4. UAE has categorically denied the allegations contained in the Washington Post report.
    UAE denies the charges by the US sources cited here: “The UAE had no role whatsoever in the alleged hacking described in the article.”
    Btw, the hacking didn’t spark the crisis. Nothing supports that claim, in fact it had nothing to do with the decision to go after Qatar
    The decision was taken before the hacking. Just a point about fact-based reporting.

  63. John_Frank says:

    As to the current GCC Crisis, people may find of value:
    The UAE View of the GCC Crisis: What Happened and What Happens Next?

  64. jsn says:

    Thanks for the new reading! I look forward to it. I read Skidelsky on Keynes in the UK during the warand Aba Lerner’s “Functional Finance” from just after IIRC. By completely internalizing the logic of fiat, Lerner makes it very easy to understand: he strips away all the purposes interested individuals put money to and looks at the functions and operations of the tool in itself from the perspective of a well intentioned sovereign.
    With regard to the critique, “incipient “demand pull inflation”” is how I put it because I think we actually agree on this point: the Great Society programs were causing an increase in consumer demand at the base level of primary consumer goods and services, the Viet Nam war was causing an increase in industrial production in the MIC related industries. Profit reinvestment and sustained Govt R&D spending as managed by Galbraith and the institutionalist economists who understood large scale industry could probably have managed this absent the oil shock. But there was an oil shock in a very taught system and the wage price spiral took hold. I agree the final cause was in fact “cost push”.

  65. Ulenspiegel says:

    BraveNewWorld: “As for oil there is so much in North America that the US is exporting it. It is no longer about needing Gulf oil and hasn’t been for quite a while. It was never about importing natural gas. It is about being able to prevent others from having access to that oil in a time of war and about massive short sighted arms sales to the gulf.”
    OMG. So much nonsense in a few sentences:
    1) 2016, US consumption of oil 863 million tons
    2016, US production of oil 500 million tons
    The USA is a NET importer of oil and will be in future. There is no realistic chnace that fracking will change this. Is this so hard to understand?
    2) The USA is net exporter of refinery products, this does of course not change the fact that the USA net importer of oil.
    3) North America is USA and Canada. With Canada’s production the situation and your argument slightly improves. 🙂
    “The US will shortly be the worlds largest exporter on LNG.”
    For how many years? Try to understand that unconventional oil/NG has a bloody high decline rate of production. Do you assume US NG will scare Russia or Qatar? Hint: US production is huge but also consumption, the net export is in the long term not impressive.
    If you want to be energy independent you have to cut consumption and use REs, in this field the USA is indeed energy independent in a sustainable way. 🙂

  66. turcopolier says:

    “our military empire” What meaningless BS! Rome had a real empire, The British and French had real empires. Empires seek to control populations, territory and resources. We are doing none of those things. Instead we are embarked on a futile “crusade” designed to defeat an idea. We are spending vast sums of our money, and killing many people (some of whom deserve it)in countries that have no economic significance to us at all. The bases we have around the world are cost centers. They don’t earn us a nickel anywhere. Hell, we have a big time commission in the States dedicated to base closures. Hell, all the posts that I lived on as a kid, are gone, de-activated. Do you have any idea how many posts we have closed in Europe?

  67. turcopolier says:

    The doctors Paul are good people but they exaggerate the way politicians generally do. I appreciate their non-interventionist politics. pl

  68. mike says:

    Fred –
    So you are implying that ‘bloody-eddie’, by paying out the King’s silver for scalps, was only responding tit-for-tat? Maybe so. Based on his war criminal record in Scotland, I suspect otherwise.
    The Mi’kmaq had been Catholic for well over 100 years when Cornwallis arrived in Nova Scotia, and there was also a guerrilla war going on there between French Acadians and the Brits. So religion and geopolitics played a role in his decisions there, as they also did earlier when he had his troops rape Scottish women and burn farms and villages throughout the Highlands – “systematic hunting down of any man, woman or child displaying any Jacobite sympathies. Such “traitors” were shot dead or burned alive in their homes.”
    Cornwallis was also the instigator of the Acadian banishment from Nova Scotia to the swamps of Louisiana.
    The man was a fop with royal connections. Every campaign he commanded turned to crap. He died in disgrace and failure after being burned in effigy by Londoners because of the disaster at Minorca.
    If you are so hyped up on Cornwallis I would suggest you try to erect his statue in Perth or Inverness – or St Landry Parish in Louisiana. You will get a lot more than a peaceful protest. Or put it up in your backyard as your own personal statement of political correctness.

  69. John_Frank says:

    Nice fellow that Mr. Erdogan:
    Turkey Leaks Secret Locations of U.S. Troops in Syria
    Ankara has long been angered by the alliance between Washington and Kurdish factions. But a new report exposing secret American bases is a dangerous way to strike back.

  70. Fred says:

    You are doing lots of projecting. Should I call you a Whaaabulance?

  71. Babak Makkinejad says:

    They are unhappy about the so-called Kurdish independence referendum in Iraqi Kurdistan.

  72. mike says:

    Fred –
    Call one of those whaaabulances you cite for Cornwallis’s distraught admirers who are snivelling for a tighty-whitey Anglo version of history.
    That is too comparable to the daeshis destroying the Tomb of Jonah or the taliban dynamiting the Buddhas of Bamiyan. Or Marxist theories of dynamic history.
    Tell it like it was, not like what you wished it had happened.

  73. Fred says:

    “Tell it like it was, not like what you wished it had happened.”
    The folks who put up that statue, remember them?, didn’t care about what Cornwallis did in Scotland they cared about his founding of the city they were living in.

  74. mike says:

    Fred –
    The ‘folks who put up that statue’ were the Canadian National Railways. They did it not as a tribute of the city founding, they did it as an investment in boosting tourism and increasing profits from rail passenger service.
    The heck with the railroad, I stand by the Scots, the Cajuns, and the Mi’kmaq. Tear the statue down, or move it to his gravesite in Suffolk. Replace it with a statue of:
    * the un-named Portuguese, Basque, French, or English fishermen who used that area as early as 1520 to salt and dry their Codfish catch before returning to Europe. That was 230 years before bloody-eddie got there.
    * John Cabot? Jacques Cartier?
    * Champlain or his first sea captain Francois Pont-Grave’?
    * Pierre de Mons, founder of the first European settlement in Nova Scotia?
    * Grand Chief Membertou 1st Christian convert in Canada
    * a Scot, George Ramsay, 9th Earl of Dalhousie who was Governor General in Halifax and founded a great university there.
    * one of the 15,000 un-named American Loyalists who fled our Revolution and settled there and made the City and Province what it is today?
    Lots of candidates, no sense honoring a war criminal.

  75. Adrestia says:

    You have a point. I shouldn’t have mentioned a person. I tried to point to the internal distrust that keeps growing in European countries and its citizens (as seen from an Italian voter next year)
    Imho it is unavoidable that the EU will break up if they continue like this without reforming and democratisation. Every country for itself without empathy for other countries with problems. There are no transfers from rich countries to poor countries as happens for example from west to east-germany or to Bavaria after the war.
    The Euro rules benefit the exporting countries in Europe with Germany as the main benefactor. The Euro is undervalued (mainly because of the southern countries) and exportproducts are cheap. Germany manufactures a lot to the east-european countries where labour is a lot cheaper.
    I know that Germans have a different vision of the European Union and are genuinely committed to it but for a lot of Europeans the EU is Germany’s conquering of Europe by economical means.
    I never was interested in politics, but most OECD countries are in a legitimation crisis and politicians are listening to the marktvolk and not the staatsvolk. That creates a dangerous situation and deserves attention. For the EU this means reform or break imho.

  76. Fred says:


    I stand by the Scots, the Cajuns, and the Mi’kmaq.”
    The Louisian Tiger’s were one of the best units in the Army of Norther Virgian. I hope you know what they fought for. The Mi’kmaq were rather good at kiling thier indian enemies long before the white folks showed up on the continent. The Scots, of course, were virtuous to a man. Like all those who know who is oppressed and who is oppressor.

  77. mike says:

    Fred –
    With all due respect for Louisiana, IMHO the Stonewall Brigade was the best unit in the ANV.

  78. turcopolier says:

    mike & fred
    Both were fine units. There were two Louisiana brigades in the ANV until one was essentially wiped out in the Mule Shoe at Spotsylvania. My vote would go to the Texas Brigade in the ANV. In the Wilderness a Union officer said of them, “who taught them to attack as though life had no meaning?” pl

  79. Fred says:

    I recently read “Lee’s Tigers: The Louisiana Infantry in the Army of Northern Virginia” by Terry Jones. It was definitely an eye opener to a piece of our country’s history.

  80. turcopolier says:

    They are why LSU’s mascot is a tiger. pl

  81. turcopolier says:

    The appendices to the book contain data about the individual regiments of Tiger Infantry, their combat records, casualties, country of origin. Because of the Union blockade there was no immigration to the South after secession. These foreign born were typically New Orleans laborers and all volunteers. One regiment had (6h Louisiana Infantry) had 60% born in Ireland including the colonel. pl

  82. mike says:

    Why not keep those Tigers back home in Louisiana instead of sending them to the ANV? Seems to me they could have prevented Farragut from taking New Orleans? The only Confederate troops available to defend the city were a few thousand poorly armed (shotguns) militia. And even those were not there to defend it as General Lovell decided to evacuate them from the city up to Camp Moore 70 miles north.
    Perhaps if they had stayed then ‘Beast Butler’ never could have occupied the city and issued his infamous order.
    It does not change history to play the ‘what-ifs’. But it is not hard to imagine those Tigers staying home and easily fending off Farragut’s 250 Marines from his various ship detachments that he used to capture the Jewel of the South. Or Tigers manning the guns at Forts Jackson and St Philip, or manning gunboats above the forts and keeping Farragut from ever reaching the city.

  83. mike says:

    The Stonewall Brigade had a company of Irishmen also – the Emerald Guard.
    Did they or the 6th Louisiana ever face the 69th New York aka the Irish Brigade?

  84. turcopolier says:

    Once this got started only unit and leaders mattered. pl

  85. turcopolier says:

    You have a point but the CS Army was conceived as a national army and the population of the eastern states was smaller so some “western” units were shifted east, the Texas Brigade was another such. The grand ladies in Richmond did not like the Texans much since they liked to march through the streets of the capital singing of “the yellow rose of Texas.” pl

  86. mike says:

    I’m admittedly no strategist and only an amateur historian. But IMHO New Orleans was much more important to the Confederacy than Richmond. My Virginia born and bred father would probably take the belt to me if he heard me say that.
    But according to Shelby Foote, New Orleans was a major economic and industrial power, more so than any other Southern city. He claimed it was larger in population than the next four Confederate cities combined. Plus without taking New Orleans the Union would never have been able to take Vicksburg, Baton Rouge, and Port Hudson. New Orleans capture by Farragut led to the cutting off of food and supplies from Texas, Arkansas, Missouri, and western Louisiana. New Orleans precipitated the split-off of those key areas from the rest of the Confederacy. Even the rich agricultural lands of Indian Territory were lost, although that areas value as a source of rations may have been moot after the Battle of Pea Ridge a month earlier.

  87. turcopolier says:

    That is merely logical. Once the capital was moved to Richmond the die was cast. pl

  88. Babak Makkinejad says:

    Are they still around, the Grand Ladies of Richmond?

  89. mike says:

    What is your opinion on General Beauregard?

  90. turcopolier says:

    IMO Gus Beauregard was the best they had but the old West Point rivalries caused President Davis to hate him and that was that. pl

  91. turcopolier says:

    If you knew Richmond you would know that they are and they run the place under the patina of legislative factions. pl

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