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Apple, the FBI and Civil Liberties

Posted on Wednesday, February 24, 2016 No comments
It is a scary day for freedom when the government can compel you to create something.

The back-and-forth between the FBI and Apple has been pretty amazing in its intensity, but also in what is being implied about the authority of our government.

It is important to note than the normal purpose of the law is to create boundaries around freedom.  We all understand why one cannot yell "fire" in a crowded theater, or drive a vehicle at 100 miles per hour on a residential street.  In this sense the law works negatively - telling us what we may not do, and what punishment will be meted out to those who disregard the law.

There are some instances where the law compels us affirmatively.  We are required, when summoned, to serve on a jury to afford our neighbor a fair trial.  If we are believed to have knowledge or evidence related to the commission of a crime, or even on a matter related to a civil case in court, we can be compelled to testify, and must do so truthfully.

But with this matter of Apple and the FBI it is very important to recognize that a line is being crossed, and how that line is being crossed.

First, what is the FBI asking of Apple?  Their "iOS" - the operating system for the iPhone - has been designed to destroy data on the phone if more than 10 unsuccessful attempts are made to provide the "key" by which its data can be "decrypted."  The intent is clear, and perfectly legal: to protect the customer's information from attempts to hack into the phone if it is lost or stolen. The FBI is demanding that Apple create what we in the IT world might call a "patch" or "hotfix" that disables the 10 attempt limit.  This will allow the FBI to use a hacking technique called "brute force."  This simply means you hook the phone up to a computer which will repeatedly try different keys until the right one is found.

I find myself - coming from a law enforcement family and generally being sympathetic toward law enforcement - rather shocked by what the FBI is claiming here.  Let's back up and ask ourselves the following questions:

Does Apple have knowledge related to the commission of a crime?  If it does, it clearly can be compelled to truthfully testify as to that knowledge.  Does Apple have evidence related to the commission of a crime?  If so, they can be compelled to turn such evidence over.  However, there is simply no way consistent with our civil liberties that the FBI can argue that Apple has such knowledge or evidence in this matter of the San Bernardino terrorists' phone.

The FBI is relying on a law called the All Writs Act, which states that the courts can issue "all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law."  There are four conditions which must be present when this law is invoked, but I am not sure these even apply.  The FBI, it seems, would first have to show that compelling Apple to create something it has chosen not to create - for perfectly legitimate business reasons - is "agreeable to the usages and principles of law."

It is awfully hard to see how the FBI can do this.  If there already exists a way to circumvent the 10-attempt limit, Apple could rightly be compelled to at least employ this method to make the data on the phone available to the FBI.  But again, Apple has chosen for perfectly legal reasons not to create such a capability.

The most compelling reason is the global nature of Apple's market - and the obvious fact that Apple's products are sold in markets where no regard - at least in the American sense - for civil liberties exist.  If Apple is forced to create such a capability a reasonable person can easily infer that the capability will be subsequently ordered by these other governments, and at some point become generally available, gravely injuring Apple's business.

It seems utterly disagreeable to the usages and principles of law - and its underlying principles of civil liberties - to allow the government to compel any person to make any thing when no criminal intent can be otherwise established or inferred to that person.

Three cheers for Apple's stand for freedom.

San Bernardino - And the First AND Second Amendments

Posted on Friday, December 4, 2015 No comments
The mass shooting in San Bernardino has now brought us to a place where we have to take seriously the potential for our neighbors to be radicalized by the Islamic State, resulting in loosely connected “lone wolf” attacks on “soft targets.”

However, it has also brought us to a place where “rhetorical circumspection” is necessary to avoid fertilizing the ground for this radicalization.

For this reason I support the circumspection of our law enforcement professionals.  From their perspective, careless rhetoric runs the risk of gripping our communities with fear.  ISIS knows this well, and seeks to create and exploit an environment of fear to further radicalize our Muslim neighbors – with whom we have lived peaceably over the years.

It seems other conservative voices out there do not get this.

Make no mistake, the Obama administration is in an impossible bind.  Their reticence to use language that might inflame our communities is likely rooted in an understanding of ISIS' tactical goals.  Sow fear in our communities and use that fear to further radicalize the Muslim members of our communities. This circumspection is wise - unless it leaves us ignorant and defenseless.

They are in a bind because they actually think we can defend ourselves with pieces of paper.  We see this at every turn with this administration.  The movements of chemical weapons in Syria was a "red line" - until it wasn't.  And when it wasn't his red line all of a sudden, it was the "international community's" red line because of a treaty.  He apparently thinks Bashar al Assad retires in the evening to read treaties and the latest policy memos from team Obama.  Thousands of Syrians have found out that treaties cannot stop a shell loaded with chemical weapons.

Obama apparently thinks his policy fantasies of what the 21st century is supposed to look like is sufficient to defend the freedom of the people of the Ukraine while Vladimir Putin conducts diplomacy through the barrel of a gun.

And so he is in a bind because ideologically he cannot appeal to what is now the obvious and only way we can preserve our American ideals - by upholding both the First and Second Amendments to the United States Constitution.

Last week I declared my candidacy for California's 52nd Congressional District.  This means I am running to take an oath to "uphold and defend the Constitution of the United States."  In the context of today's news, that means this:

The First Amendment: I am obligated (whether I an running for office or not) to vocally and vigorously defend my Muslim neighbors' natural right to practice their religion peaceably, in public and in private.  This means I must support the effort to be circumspect in our rhetoric that we not play right into the hands of ISIS and end up contributing to the radicalization of a population among whom we have lived peaceably for many years.

The Second Amendment: I am obligated to vocally and vigorously defend our natural right to keep and bear arms.  There will always be a gap in time from when a threat emerges – be it an attack like San Bernardino or someone breaking into a home – and when police arrive to help.  The responsibility for public safety during that gap in time cannot be shouldered by the police; they cannot be everywhere at once.  The responsibility for public safety is first the responsibility of the public.  The gun culture is not a culture of violence; it is a culture of responsible self-reliance.

The President's repeated calls for more gun control is perfectly consistent with his policy fantasies elsewhere.  California's gun control laws are already some of the strictest in the nation.  We have now seen clearly that in the face of a determined individual or individuals what we already knew.  Laws written on paper do not make very good bullet proof vests.

We must defend the First Amendment rights of our Muslim neighbors, and must speak against any and all efforts to dehumanize them by painting them with the broad brush of terrorism.  But we must also insist on our Second Amendment rights to protect ourselves, our families and our neighbors from the few who have perverted Islam.

A citizenry properly vetted, trained and licensed to keep and bear arms is the best way to secure the freedoms we have peaceably enjoyed – both Muslim and non-Muslim – as Americans.

The Cloud in the Silver Lining?

Posted on Friday, November 6, 2015 No comments
The media was crowing today about the "best jobs report this year" (CBS Evening News).  Talk is starting to turn on whether this will be considered enough for the Federal Reserve to start raising interest rates in December.  But as one financial outlet put it:
It is difficult to find the cloud in the silver lining as economists are often wont to do. It leaves no doubt about the December meeting being live despite the year-end considerations that some had seen tying the Fed's hands.
Uh, actually not so difficult after all...

The blue line in this graph tracks the overall, seasonally adjusted Civilian Labor Force Participation Rate.  In creating the graph from the St. Louis Federal Reserve's web site, I chose to start at June 1977 because the rate then was the same as it is today (as shown on left side Y axis).

The blue line is often explained by appealing to the retirement of the Baby Boomers.  Unfortunately the red line blows that explanation right out of the water.  The red line is the Labor Force Participation Rate for those 55 and over.  If had been able to plot the Federal Funds Rate on this chart by norming the Y axis interest rate percentages to the labor force participation percentages, my hunch is that we would see a tight correlation between dropping interest rates and increasing labor force participation on the part of those over 55.  This should not be hard to understand: potential retirees know full well that their savings will not last at current interest rates.

It is the green line - Labor Force Participation Rate for those 25-54 - that explains the blue line.  Both track roughly together at their respective levels.

To gauge the overall trend, the numbers from the BLS can be plotted in a spreadsheet (I took only the 25-54 and 55+ age groups as a sample), totalled and then each year's percentage gain plotted as a series.  Here is the graph:

The yellow series on top is the percentage share of job growth among those 25-54 years old.  In January 2005 it was above 80%.  It has dropped to below 75% today.  The blue series is the same share of gains for those above 55.  It was below 20% in January 2005.  It is now above 25%.  This is not the trend of a healthy economy.  It is certainly not a silver lining without a cloud.

Hang on to your wallets!

Posted on Friday, September 18, 2015 No comments
The decision of the Federal Reserve to leave the Federal Funds Rate at 0.00%-0.25% included a foreboding little tidbit in what is called the "dot plot" chart the Fed includes with its guidance.

Each dot in this graphic represents the expectations of a member of the Federal Open Market Committee (FOMC - also known as the "Bishops of the Temple of the Free Market").  The horizontal lines represent where they think the Federal Funds Rate will be looking forward. That rate, then, influences the "bond market" - which in turn determines the everyday interest rates we pay for things like mortgages and auto loans as well as what we receive for money we keep on deposit.

The most interesting thing about this month's dot plot is the existence of a single dot - one unidentified member of the FOMC - below the zero line for 2015 and 2016.  This means one FOMC member thinks the Fed will have to set a negative interest rate - which means the big banks will have to pay the Fed to hold on to their reserves - as soon as before the end of the year and then keep it there through 2016.

But if you pay attention to the Orwellian language games played by the 'political-financial complex' it becomes clear that we have already arrived at the beginning of this. JP Morgan Chase is now charging a 'balance sheet utilization fee' against large deposits. In other words, while they are paying interest on those deposits at sub-1% rates, they are now charging a 1% 'balance sheet utilization fee'.  Put these two things together and it washes out to a de facto 'negative interest rate' in the -0.25% to 0.50% ballpark - exactly what that one dot suggests be done.

Before getting into why these things are happening, let me just put the implications out there in everyday terms: YOUR CASH IS AT RISK!

This is already the norm in Europe.  The European Central Bank 'pays' -0.20% interest - or charges 0.20% on deposits it holds.  The ECB can do this out in the open because European society is generally oriented to look to the State to manage the economy.  That, in turn, produces a view of money that sees it as principally a tool of the State.

Here in the U.S., though, our social compact is built on a foundation that views money as a measure of wealth belonging to individuals.  The 'Federal Reserve Note' makes it possible to exchange that wealth efficiently.  Our money, rather than the State's money, is a utility enabling everyday commerce, not a tool used by the political-financial complex to impose an order preferred by elites.  Indeed, a government "by and for the people" presumes this particularly American view of money.

This is why all but one FOMC member has yet to openly predict negative interest rates.  Instead, they have to coin a euphemism to at least attempt to establish negative interest as an acceptable norm by calling it 'balance sheet utilization'. The manner in which the Treasury, the Fed and the banks colluded to prop up the debt-driven status quo during the last financial crisis should make it clear that these kinds of decisions are being made in concert with the Treasury and the Fed.

And the Bloomberg article linked to above has accurately captured the economic implications. It has also captured the political implications, but has badly oversimplified them as merely being a Tea Party agenda controversy.  Thomas Jefferson opposed the very idea of a central bank, and was very skeptical about the merits of "paper money." His concern centered around the integrity of the 10th Amendment.  In a letter to George Washington urging him to veto a bill establishing a central bank, Jefferson wrote:
I consider the foundation of the Constitution as laid on this ground that “all powers not delegated to the United States, by the Constitution, nor prohibited by it to the states, are reserved to the states or to the people.” To take a single step beyond the boundaries thus specially drawn around the powers of Congress, is to take possession of a boundless field of power, not longer susceptible of any definition.
Lastly, the dot plot might also explain why the Dow is getting hammered once again.  If you look at the grouping of dots and think of the 'standard deviation' (or the 'bell curve') the 2015 plot looks 'normal'.  It means expectations on interest rates follow what one would otherwise expect in a 'normal' situation.  But 2016 and 2017 form a 'narrow' shape, which if looked at from the point of view of a standard deviation from the norm, means there is nothing 'standard' about the dot spread and therefore nothing 'normal' about the expectations.  The plot does not 'normalize' until the 'longer run' expectations are plotted out.  All of this basically tells us that 2016 and 2017 are not expected to be 'normal' and they have no idea whatsoever what the 'longer run' looks like.

This is where a 'statist' view of money has gotten us.  It is going to be painful, and the only answer which bears the promise of restoring a meaningfully prosperous future for our kids is to recover our original understanding of money and put proper restraints on the money supply.

The Future of Europe is Where it Belongs: The Hearts of the Greek People

Posted on Monday, September 7, 2015 No comments
Greek Prime Minister Alex Tsipras has played the part of Volumnius and has fallen on his sword. Later this month the Greek people need to make sure they decide once and for all what dies and what lives. What should die is the fraud that is a Europe built on a foundation of 'sovereign debt'. What should live is a wholly new idea of Europe reborn where Europe was first born - in the hearts of the Greek people.

Polls show that Greeks overwhelmingly want to remain part of Europe.  But this will clearly come at the cost of their sovereignty if the terms of the 'deal' with their creditors stands.  In this upcoming election, the people of Greece need to look past that 'deal' and see the underlying fraud that is modern Europe for what it is - and then decide if this is really what they have in mind when they think of Europe.

The foundation of this fraud is the idea that economic prosperity can be delivered by political society.  Tsipras is partly to blame - and socialism as a political ideology shares the rest of the blame - for foisting this upon the people of Greece. By reckoning the State to be the most significant unit of society - which removes all natural restraints on the size and scope of government - Greece has spent a generation getting to where they are today. The ever-present, insufferable and stifling public sector has sucked dry the innovative spirit of the Greek people - exactly as it has done everywhere else government is allowed to grow unchecked and as it is doing here in America.  Greece has been left to the impotence of the public sector to generate economic growth.  That impotence should now be obvious.

This fraud is furthered by an obvious double-standard.  To start with, you cannot have irresponsible borrowing (Greek political society) without irresponsible lending (the ECB and Greece's other creditors).  If the idea of Europe in play here is the idea of a just society living at peace with one another then the risks involved in lending must be shared between both creditor and debtor. This can be best understood by looking at exactly what 'financial sovereignty' entails.

For the creditor (or the 'saver/lender' - mainly Germany) financial sovereignty is rooted in purchasing power.  The Germans are loath to see Euros printed to rescue debtor economies because each newly minted Euro subtracts from the purchasing power of the Euros they have saved. Debt forgiveness - the dreaded 'haircut' in the bond market - is an even worse outcome for the creditor because the value of the Euro is tied to the value of what it measures.  It does not measure anything of otherwise real value like gold or silver.  It does measure sovereign debt.  So if those debts are subject to haircuts, the value of that debt goes down and with it the value of the Euro.  The nature of the Euro as a currency union only magnifies this effect.  Sovereignty for the creditor means protecting the Euro at all costs.

For the debtor 'financial sovereignty' means being able to decide how much is spent on what public priorities.  The 'Troika' has utterly eviscerated any sense of financial sovereignty among the people of Greece. The creditor now enjoys all rewards and assumes no risks. Clearly, some are more sovereign than others.

The answer is conservatism as a political and economic philosophy.  But this is not a banker's conservatism demanding 'austerity'.  It is a conservatism rooted in community.  It is a philosophy that makes the distinction between political society and civil society, and believes that civil society will always be superior to political society when meeting social needs, and that economic prosperity is the result of the creativity and innovation of civil society.  Here is what I think a truly conservative plan for Greece might look like:

1) Repudiate the debt!  Yes, I just identified repudiation of debt as a conservative position.  Here is why: Conservative economics is rooted in human freedom. The fraud that is modern Europe has just exposed its moral nakedness for all to see in this so-called 'deal' between Greece and the 'Troika'.  It reveals to all that while the rewards of irresponsible lending are privatized among the financial sector, the risks are socialized among the people of Greece.  There is nothing moral nor conservative about Greece subjecting itself to this sort of theft.

2) Repudiate the public sector! The administrative nakedness of political society should now be obvious.  Conservative political philosophy starts with the conviction that the role of government is to do for the people only those things the people cannot do for themselves, and to otherwise leave civil society free to innovate and improve things in the real economy and to share the resulting wealth with those in need.  Far from everyone being on their own, repudiating the public sector means those who need help will enjoy the dignity of being lifted up by someone who knows their name. This, then, will mean lower taxes and more opportunity to innovate, improve things, and create real wealth.

3) Repudiate 'fiat money'! The mathematical nakedness of today's central bankers is increasingly on display as the Chinese bubble has burst - as their finance minister has said over and again this past weekend, much to the chagrin of other central bankers.  We are witnessing the death throes of this idea you can just print money 'hand over fist' - as we Americans like to say.  This money-printing and lending enterprise has brought the world to a cliff and no one really knows what the future will look like.

Until someone finally decides to lead and chart out a new path forward.  The people of Greece - once again - have the opportunity to lead the world away of this cliff and into a prosperous future where economies are organized around the creation of real wealth instead of the inflationary pretense of feeling wealthy.

Lastly, a call to all Greek cartoonists: How about Greece, in the person of Jesus, standing with his back to the reader, holding his whip, steaming mad over the σπήλαιον λῃστῶν ('den of thieves' - aka the Troika) that has become the temple of the free market.  (Read Matthew 21:13 for the reference.)  This is what it would look like if Jesus were to come to save Greece - and the rest of Europe from the fraud that is its political society and its money.

UPDATE: Huge thanks to Dino Deroukakis in Greece for the graphic above!  Better than a million likes on Facebook.
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