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Wednesday, December 5, 2007 - 6:18amSanction this postReply
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Joe, you may recall the ideas I presented at the conference last year from Thomas P.M. Barnett.  I have not brought them up as much lately, and while again I will stress he is not an Objectivist by any means, the overall concept is valid in my view.  We seem to undersell the fact that:
1)  The free market and capitalism, despite constant and almost unrelenting attacks, is nevertheless winning and expanding
2)  The overall power of the US and the free world dwarfs that of any of our potential enemies
3)  Our greatest enemies have been vanquished and can be co-opted into allies, but just as the cold war took a lot longer to win than WW II, so will the co-opting with the former communist nations.  It is faster with the satellites that always hated the Russian empire than with Russia herself, and China still clings to one party rule, but slowly but surely their hold will falter.
4)  In fact, engaging a Nation like China - with vast manpower, a huge market and trading partner, and great interest in resources - more so than the US even, since we have the technology and money to spend to make a transition faster than they do, we have more interests in common than disagreements.  If we can get them to help "tame the world" we can not only tame the world but also tame them.
5)  The concept of "shrinking the gap" can work.  There just are not that many nations that are true dangers, and we can squeeze them down one by one until we get the criminals out.  This won't be getting "perfect" nations by any means, but it gets rid of the big dangers.
6)  The internet, global communications and trade, all mean that ideas and economics are more fluid than ever.  This is a factor that inevitably brings the world closer to what we as Objectivists would want, regardless of the idiots still out there.




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Wednesday, December 5, 2007 - 11:58amSanction this postReply
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Excellent article Joe!



Post 2

Thursday, December 6, 2007 - 6:29pmSanction this postReply
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Thanks John.  I was hoping you'd appreciate it, as I appreciate your comments on this topic in the various other threads.

Kurt, I do remember your presentation.  I don't know enough on that view to be sure that I fully agree, but there are a number of elements that I like.  Shrinking the gap is an interesting idea.




Post 3

Saturday, December 8, 2007 - 4:02pmSanction this postReply
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Joe, in reading your article several questions occured to me, only one of which I have time to address.

To begin, you state:
"Contrast this with the belief that we should only respond when a country becomes a serious threat to the US, possibly even launching an attack.  Instead of dealing with a problem when it's minor, the intent is to wait until the threat becomes deadly.  "Clear and present danger" is a common phrase here.  Instead of efficient utilization of limited means, this would be utilizing those means in the least efficient way, when your choices are the most limited."

Your conviction that "threats" to the United States are likely to morph into aggression against Americans (living in the United States) in the absence of US military adventuring abroad, is an unproven proposition. Of course, no law of nature prevents a "threat" from becoming aggression---especially for smaller vulnerable countries such as Hong Kong or Nationalist China today, or Poland just before World War II. But for the United States, with its enormous productivity and wealth afforded by free enterprise, with its huge area and teeming population, and with the geographical protection afforded by two oceans, the risk of  military aggression against our citizenry by a State, for the present, is low.

One should not underestimate the perversity and viciousness of various thugs who run States around the globe, and of the tragic cultures that help them climb to power. These times are not friendly to reason and individual freedom. There is no doubt that the Hitler's and Pol Pot's and bin Laden's would jump at the chance to rule over us, if they could do so in exchange for costs and risks that were tolerable to them. But as long as Americans remain relatively free to produce and pursue life--free from their own statist cultural impulses--the costs and risks to another State of aggression against territorial United States are overwhelming. This is why war hawks often invoke the justification of "vital national interests", as contrasted with "defense", for military adventuring abroad.

The great danger to our freedom is not from abroad; it is the rise of domestic statism. As our freedom to choose becomes ever more restricted, because of state and federal taxes, asset seizures, unjust incarcerations, endless and virtually unknowable regulations, theft by trial lawyers, and growing coercive power that reaches into every aspect of our lives, we lose the ability to take care of and defend ourselves. If America ever falls to a foreign power, the preceeding strangulation of our freedom by domestic statism will usher in the invader. This is why encouraging the growth of state power through military adventuring abroad--with its reckless spending, punitive taxation and monetary inflation, with its aggrandizement of "service" and "duty" to the state, with its censuring and spying on its own citizens, and with its treachery against them---endangers our security in ways that no foreign power ever could. If ever a "clear and present danger" threatened the United States, this is it.

So this leads me, finally, to my question. Since I assume that you favored American entry into World War II to head off a large "threat" to the United States, before the "threat" became overwhelming, how could Americans have achieved your moral objective and remained free? For Americans were overwhelmingly opposed to our invovlement prior to Pearl Harbor, by 85% to 90% margins over a period of a few years. But even if one asssumes that FDR had not purposely provoked and goaded Japan into the attack, or that he had no foreknowlege, how could our government finance the war without punishingly high rates of taxation? How could our government have stormed the islands of the Pacific campaign, or the beaches of Normandy, in which huge percentages of American soldiers were killed and maimed, without resorting to a military draft? In summary, how do you square your support for that war with your belief in individual liberty? (As you know from my past posts, I do not think that Hitler posed a threat to Americans, or that Imperial Japan would have attacked Pearl Harbor if FDR had embraced policies consistent with American neutrality.)




Post 4

Sunday, December 9, 2007 - 5:26pmSanction this postReply
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I conveyed an idea in the post above that is confusing. I wrote that the costs and risks of attacking the US by another State were probably so high as to make that possiblity unlikely. But that sentence included reference to bin Laden, who is not directly connected to a State, but who heads a violent anti-American ideological movement with followers in several Muslim countries. Obviously, informal organizations like Al Quaeda do pose a grave violent threat to Americans. In fact, if what I have read is true, there is substantial evidence that this organization was involved in the Oklahoma City bombing of 1995. 

The mortal danger is of terrorists detonating a nuclear bomb or spreading toxic germs in large American cities. If this happens, we are all vulnerable to starvation, because of the likelihood of a collapse of the banking and financial system. Our financial system is vulnerable as a direct consequence of domestic statism; for the Federal Reserve System has created a highly artificial, centralized and fragile monetary system that is, in the event of any major systemic shock, prone to massive failure. For example, if something terrible happened, say, in New York or Chicago, financial institutions would be unable to pay their contractual obligations to other institutions, as investment prices plunged. If the statistics I've read and pieced together are true, there are roughly 750 trillion dollars of financial derivatives outstanding, designed to facilitate speculation and "insure" debt and currency values. When one or two big financial institutions fail, every financial institution fails; for they all owe one another huge sums, vastly larger than their equity, in the form of derivative obligations. The meltdown we've read about recently involving "subprime" mortgages involves a tiny fraction of the total exposure to these financial contracts.

Because our fiat money is the product of fractional reserve banking, i.e. of a nation-wide inverted pyramid of bank debt, if financial institutions topple our monetary system would freeze and fail overnight. Everyone today pays with credit cards and checking accounts; few transactions are in cash. In the wake of an anthrax attack or nuclear detonation that killed half the population of New York City, everything would lurch to a halt. Transportation of goods would stop; for how would railways, airlines and trucking companies pay for fuel and labor? Who would report to work under such circumstances? Soon gasoline supplies would disappear, grocery stores would be emptied, hospitals would lack medicine and personell. The division of labor would disintegrate. Starvation would ensue for many.

In a free society, markets spontaneously provide a rational money, based on some commodity such as gold. Americans would not be vulnerable to a monetary-financial collapse like what I described above. An attack on New York or Dallas would be a terrible calamity, but it would not bring this country to its knees. There would be no mass starvation, no disintegration of the division of labor. Because Americans could trust their money, as opposed to today's coerced dependency on a dysfunctional and fragile monetary system, people could adopt to new circumstances.

I offer this as an example of what I mean by the dangers of domestic statism. Bombing Iran or Pakistan or Iraq won't protect us. Our only protection is freedom at home to plan, to make provision, to take care of ourselves. Domestic statism is a mortal danger to our lives....today.




Post 5

Sunday, December 9, 2007 - 6:57pmSanction this postReply
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And of course during this entire nightmare scenario the millions of smart, creative people who work in and around all these interlocked systems every day stand idly by and can do nothing to adapt.

Right.

(Edited by Jeff Perren on 12/09, 6:58pm)




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Post 6

Sunday, December 9, 2007 - 7:05pmSanction this postReply
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Your conviction that "threats" to the United States are likely to morph into aggression against Americans (living in the United States) in the absence of US military adventuring abroad, is an unproven proposition. Of course, no law of nature prevents a "threat" from becoming aggression---especially for smaller vulnerable countries such as Hong Kong or Nationalist China today, or Poland just before World War II. But for the United States, with its enormous productivity and wealth afforded by free enterprise, with its huge area and teeming population, and with the geographical protection afforded by two oceans, the risk of military aggression against our citizenry by a State, for the present, is low.


Is low because? The wealth of Americans can afford a vast and powerful military that provides as a deterrent.

Is low because of two oceans? 9/11 obviously proved we are vulnerable despite our geographical location, which was orchestrated by terrorists with open safe haven from the Afghan government, a State. And with the advance of technology and the ease of international mass transit that didn't exist decades ago, a delivery of chemical, biological or nuclear weapons are not hampered by two oceans. This notion Mark that we are protected by two oceans is childishly naive.

Is low because? Because we have military alliances around the world that allow us to reach any State by using their airspace and resources to reach an aggressor within a week's notice, without such an alliance such a strike would not be feasible.

Is low because? Because of international trade that is responsible for reducing the cost of living and the increase of wealth this nation has, international trade that would not be possible without alliances projecting military strength against would-be aggressors that would otherwise attack our trading partners.

Mark, you want to argue by pointing out what are essentially the fruits of our foreign policy against any foreign policy because it is in your view not needed. But you fail to understand why risk of attack by another State is so low to begin with because you are looking at the effect without regard for the cause. It would be like saying we no longer need farmland, because we have enough food to buy. Check your premises Mark.




Post 7

Monday, December 10, 2007 - 12:49pmSanction this postReply
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Jeff, I would be happy and relieved to be mistaken about this risk.

The derivatives nightmare, characterised as "a lethal danger" by Warren Buffett recently, has sprung up over the last 15 years on the back of our other-worldly fractional reserve banking system. The total estimated notional (nominal contract) value of derivatives contracts in the US has been estimated by the Bank for International Settlements at roughly $900 trillion dollars. This number is said to consist of roughly $400 trillion in exchange-traded contracts (futures, otions, others) and 500 plus trillions in over the counter contracts for which no published prices are availiable.

The problem with these contracts iss that they have been created as a direct consequence of the Fed's implicit promise that it will bail out any failing institution "too big to fail". This promise, coupled with the Fed's constant inflating whenever the stock market or other market's begin to fall, has bred promiscuous proliferation of these speculative financial contracts. The contracts, particularly those that are OTC, are extraordinarily complex. Buffet and Munger have stated that the complexity is beyond their ability to comprehend, and they've read lots of financial statements over the years. Many other analysts have commeneted on the "accident-waiting-to-happen" and "mind-boggling complexity" of contracts whose total value dwarfs the capacity of the Fed to "manage".

Alan Greenspan (and many others) has on more than one occassion warned of the risk of "an avalanche of cascading cross- defaults", including ominous references in a presentation he made to an organization in Norway just three days ago, or so. The danger of cascading defaults arises from the fact that the derivatives contracts are not anywhere nearly fully collateralized. Big investment and commercial banks, like Goldman and Morgan Bank, write hundreds of billions of dollars of these contracts wioth other isntitutions, Often, one institution will not know who its "counterparty" in an OTC contract is, because the obligations can be assigned from the originator to another firm. When I state not fully collateralized, I mean that the institutions put up perhaps 5% to 10% of the notional value of their contracts, and "mark to market (or to some other value)every day, much as one does with a futures contract. The banks contend that this is no problem, because they try to balance theier contractual obligations evenly, between long and short. However, their ability to pay off the longs (in the event of a big price drop) is entirely dependent on their being able to collect what is owed to them from other institututions on their short winnings.

Since the contracts aare not highly collateralized, a big movement will bankrupt some counterparties. If this happens, then other institutions which have literally bet their future on their ability to collect from counter parties, willo themselves be pulled under. The value of the contracts written by banks such as Morgan Bank dwarfs their equity. They have written contracts whose cvalue may be 100, 200 300 400 times their equity.

The total notional value of contracts is, again, roughly 900 trillion. The Fed's total assets amount to a little over 1 trillion. In a big downturn, like a serious recession, no one knows what will happen. Greenspan spoke about this recently, but analysts have known about the derivatives monster for a long time. It just keeps getting larger. The Fed is the tail on the dog of this dysfunctional system.

My fear is a germ or nuclear or dirty bomb attack could have dangerous consequences, especially if it were a really catastrophioc event. If a financial meltdown happens, our monetary system will virtually disapper, because it is highly artificial, centralized. If the system breaks, freezes, the division of labor will rapdily atrophy; it depends, after all, on money. The huge centralized system is, in short, fragile and dangerous. Another consequence of domstic statism. Even Warren Buffet--no free marketer--sees this.




Post 8

Monday, December 10, 2007 - 2:21pmSanction this postReply
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This is off the topic, but I'll respond briefly to your comments, Mark.

"The huge centralized system is, in short, fragile and dangerous. Another consequence of domstic statism."

Yet, many highly knowledgeable investors continue to buy Treasury notes and bond, corporate long bonds, 30-year mortgages, and other long-term investment vehicles. Are they all poor at risk analysis? Or is their tolerance for risk simply unreasonably high?

The price of gold hovered between $400-500 for years, rising to a peak seen only 30 years ago only recently. (Gold price history)

Are people beginning to see the end in view? Or, do those who presently see the price as high, believe it will go still higher and they'll be able to make a profit by selling later? If the latter, are they likely in for a rude shock?

Commodities traders continue to keep the price of uranium healthy (China has plans to build a great many nuclear reactors over the next 15-20 years, as do other countries, like Russia.) That's a long term bet as well.

Are all these people ostriches? Living without thought of the future? Radically mistaken in their risk assessments?

And, contra Buffett and Greenspan (and others, no doubt), what do those who disagree with them say? I'd like to hear both sides of the story before taking the view of even these highly knowledgable gentlemen.

I have considerable respect for Dr. Greenspan and Warren Buffet. But, Greenspan's outlook is so ultra-conservative where risk is concerned that he has the popular nickname Dr. Doom. And, for all his undoubted ability, Warren Buffett, by his own admission, is a fairly unsophisticated investor who invests solely on fundamentals. He won't, for example, even invest in high-tech stocks because he doesn't understand the underlying businesses. (A reasonable strategy given his total focus on fundamental analysis as a guide to investing.) In short, he does practically no technical analysis. He chooses to invest in companies that have, or can be outfitted with, reliable managers and then leaves them alone. He is not one to go in for highly complex instruments whose value is predicted by sophisticated technical analysis. He's done very well that way, of course. But chiefly by sticking to his area of expertise.

In any case, I'd have to see much more of what they actually said before agreeing or disagreeing, even in part, with your interpretation of their statements.

To finish, I point out that you don't address at all, so far as I can tell, my point: people adapt, even to very dire situations. Is there good reason to believe that they will fail, or that their efforts will be stymied?

Certainly if New York were nuked there would be very bad consequences. (That's one of the major reasons I continue to argue in favor of removing the current Iranian regime.) But I know of no compelling reasons to suppose that the entire financial system of the U.S. would crumble. It's survived some pretty substantial problems for decades and just keeps, so far as I can judge, becoming more and more robust and resilient.




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Monday, December 10, 2007 - 2:36pmSanction this postReply
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Jeff, I won't prolong this discussion much, since it's off topic. Briefly, when people buy Treasury obligations of whatever maturity, they are seeking a safe haven from default risk. For with the power to print money, there is no risk of the US Treasury defaulting on its obligations.

With respect, your argument that not everyone appreciates the scale of the risk, and so the risk may not be realistic is identical to arguing that booms and busts are impossible, because intelligent capable entrepreneurs rapidly adapt to new circumstances. But the point I am trying to make is that the rude discontinuity or crises that comprises a recession takes place because entrepreneuers cannot adjust to new circumstances without incurring losses. The reason for this lurching crises, as you probably know, derives from the central bank's manipulation of interest rates, the central nervous system of a division of labor economy, through monetary inflating. The crises occurs because decision making that would ordinarily be left to atomized processes in the market, become centralized through the heavy hand of state regulation. The result is a sudden disruption to production, as entrepreneuers are forced to adjust to the reality of scarcity that the central bank had temporarily disguised as an abundance of capital.

The dangers of a derivatives meltdown are a super-exaggerated version of this phenomenon. Check out Berkshire Hathaway's latest annual report, where Buffet has a long article published fairly recently.




Post 10

Monday, December 10, 2007 - 4:33pmSanction this postReply
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Hi John,

Of course our primary safety from attack by other States reflects our great economic productivity and accumulatred wealth. There is no question that a good share of this prosperity is due to the profiound benefits of international trade. Clearly, without weapons to defend against invasion or missile attack, that our prosperity pays for, we'd provide tempting prey to some President-for-Life. On most of the points you raised, we're in agreement.

Our only point of disagreement is your idea that none of the above would be possible in the absence of an aggressive foreign policy, as for example the two Wiorld Wars, Vietnam, the two wars in Iraq, etc. But other countries have enjoyed great benefits from free enterprise and trade across international borders--countries that lacked the hegemonic power to land troops or bomb cities anywhere on earth on short notice. These include Switzerland, which remained neutral through WWII, in the midst of war-torn Europe; Hong Kong, which lies in the long shadow cast by China; Nationalist China, which manages to get by with guarantees from the USA that everyone knows we won't stand behind; Australia and New Zealand; Singapore, DuBai, Thailand, and others I probably haven't thought about. True, any of these smaller nation and city states might be vulnerable to conquest, but that's always true. Moreover, we'll not discussing whether a defense is optional for a country; only if individual freedom and free enterprise can flourish in the absence of Pax Americana.

About this last point, we'll have to disagree.




Post 11

Tuesday, December 11, 2007 - 4:56pmSanction this postReply
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Our only point of disagreement is your idea that none of the above would be possible in the absence of an aggressive foreign policy, as for example the two Wiorld Wars, Vietnam, the two wars in Iraq, etc. But other countries have enjoyed great benefits from free enterprise and trade across international borders--countries that lacked the hegemonic power to land troops or bomb cities anywhere on earth on short notice


Because most of those countries are in a military alliance with the United States, and further more those countries can enjoy an umbrella of defense extended by the U.S. military and their own. So again you are ignoring the cause and only concentrating on the effect. As far as Switzerland is concerned, it is surrounded by NATO countries, I think that says enough. Just as no one would dare think of attacking Canada because it is parked right next to the United States, no one would dare attack Switzerland because it is landlocked by a sea of NATO countries. Switzerland receives a benefit from the umbrella of defense extended throughout Europe by NATO.

These include Switzerland, which remained neutral through WWII, in the midst of war-torn Europe


This is a favorite example used by isolationists. But it ignores the fact Germany was not left unchallenged, and if they were, to foolishly think somehow Nazi Germany would all of a sudden take the moral high ground and respect someone's neutrality is again naive. Other nations stood up to Germany, the ones putting up a fight are always the first target of a conquerer, why bother with Switzerland when there were bigger fish for the Nazis to fry? If simply declaring neutrality would've somehow stopped Hitler from his thirst for conquest, then you really are operating from cloud 9.



Post 12

Tuesday, December 11, 2007 - 5:58pmSanction this postReply
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"Other nations stood up to Germany, the ones putting up a fight are always the first target of a conquerer, why bother with Switzerland when there were bigger fish for the Nazis to fry?"

Not to mention the fact that the Swiss took a position of pragmatic collaboration, displaying a willingness to turn a blind eye to spying, offering banking services equally to all comers, etc.

No doubt that attitude would be evaluated differently by some than by others.



Post 13

Wednesday, December 12, 2007 - 6:25amSanction this postReply
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and as I have said before in another thread, they sat there and deposited gold in their bank accounts that was melted from the teeth of systemically massacred human beings.



Post 14

Wednesday, December 12, 2007 - 6:47amSanction this postReply
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I give them a pass on that. To the best of my knowledge, most of the atrocities committed weren't widely known until after the war's end. Do you have evidence to the contrary, that Swiss bankers knew this was taking place and that some of the gold was likely from that source?



Post 15

Wednesday, December 12, 2007 - 9:42amSanction this postReply
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You might be right - if I find out specifics I will let you know.  I do know they did take the gold - the question is did they know its origin.  They were in a bad spot all in all.



Post 16

Wednesday, December 12, 2007 - 2:44pmSanction this postReply
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The fact they were willing to do banking with a regime that was conquering half of Europe does not absolve them of any moral culpability even if they didn't know what was happening to the Jews. They knew damn well the Nazis weren't liberating Europe.


(Edited by John Armaos on 12/13, 12:22pm)




Post 17

Thursday, December 13, 2007 - 9:17amSanction this postReply
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here is something:
http://swissinternees.tripod.com/wauwilermoos.html




Post 18

Monday, December 17, 2007 - 11:56amSanction this postReply
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> Foreign Policy with Limited Means by Joseph Rowlands

Joe, this was a really great article, laying out some high-level strategic considerations and summarizing the many ways - both direct and indirect, both alone and with allies - to bring about a safer world and one in which we are able to trade and prosper.

I particularly liked your thoroughness in discussing not just one, but multiple tools and options.

Thanks.



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