ETERNAL VIGILANCE

Lowered expectations

by Patrick J. Buchanan

© 2004 Creators Syndicate, Inc.

America may be heading home from Iraq sooner than many of us realize. For the implied message of the president's address at the Army War College in Carlisle, Pa., is that America wants out of Iraq.

Rereading that speech, one finds in it little of Churchill's "We-shall-fight-them-on-the-beaches" defiance. Rather, the president laid out a five-step strategy to secure "freedom and independence, security and prosperity for the Iraqi people" – and then depart.

The five steps? Besides helping to establish security, rebuild infrastructure and increase international aid, they are to transfer sovereignty to a U.N.-appointed interim government by June 30 and hold elections by Jan. 31 for a national assembly. Says Bush, the interim government "will exercise full sovereignty." But full sovereignty means control of foreign forces. It means the authority to tell the U.S. military it cannot attack sanctuaries like Najaf and Fallujah without Baghdad's approval. China, France and Russia want that restriction written into the U.N. resolution Bush is seeking. And Tony Blair has said that any government appointed by U.N. envoy Lakhdar Brahimi, a Sunni Arab, will have the power to restrict U.S. military operations.

Why might this mean the war may end sooner than imagined?

With a majority of Sunnis and Shiites now hostile to a continued U.S. military presence, how many Sunni or Shiite leaders, either appointed or elected, will defy the popular will and authorize American attacks on their co-religionists? How many will publicly agree to permanent U.S. military bases inside their country?

Should the new interim government remain silent in the face of a U.S. attack, say, on Fallujah, would it not be seen as a puppet government? Would not its leaders risk the fate of Izzedine Saleem, leader of the Iraqi Governing Council killed by car bomb at the gates of the Green Zone?

If the Iraqis tell us to stop initiating attacks, U.S. officers will have three options. They can defy Baghdad and refuse to fight under rules of engagement handed down by Iraqi politicians sympathetic to the enemy. They can accept the orders from Baghdad, which would enrage and inflame the Army. Or we can declare the U.S. military does not take commands from local rulers or U.N. bureaucrats, withdraw and come home.

It is hard to believe President Bush or the U.S. military will allow any U.N.-appointed Iraqi government to tell us when, where or how we must fight. Hence, an early collision between Gen. Abizaid and the new U.N.-appointed government seems inevitable.

And this summer and fall, as the election campaign heats up for the national assembly, how many candidates will be willing to run on a "Stand by Uncle Sam!" platform? Is it not more likely that, seeing how popular Sheik Moqtada Al Sadr became by defying America and killing our troops, candidates will appeal to voters by pledging to end the occupation and send the Americans packing?

How will Americans react to Iraqi politicians, whose freedom is being guaranteed by U.S. troops, campaigning openly for the ouster of those American troops from the country?

At Carlisle, President Bush spoke of a swift transfer of power to Iraqi officials and security forces. As was always inevitable in this war, the president must now begin to rely on Iraqis themselves for the attainment of his strategic goals. But when have Iraqi forces ever taken the initiative and attacked the insurgents?

"Fallujah must cease to be a sanctuary for the enemy," said the president. But when the Marines pulled out of Fallujah and we left it to Iraqis to deal with the militias, the Baathists and foreign fighters, what took place was not a fight, but fraternization.

President Bush has called Iraq the central front in the war on terror and his "world democratic revolution." He is now wagering the success of both causes on an Iraqi police and army that have yet to show any of the willingness to fight exhibited by the insurgents in Fallujah or the militia of Al Sadr.

The neoconservative dream was to create a pro-American, free-market democracy in Iraq to serve as a model and catalyst for Arab peoples and convert Iraq into a base camp of American Empire, flanking Iran and Syria. It was to bring to power an Iraqi DeGaulle named Ahmed Chalabi, who would recognize Israel, build a Mosul-to-Haifa oil pipeline and become the Simon Bolivar of the Middle East.

That utopian vision has vanished. President Bush has rejoined the realist camp. We are not going deeper in. We are on the way out.

Escalation vs. exit: The costs of both

by Patrick J. Buchcanan


© 2004 Creators Syndicate, Inc.


"Nitwit pundits and Sunday morning television sages, with that faked look of thoughtfulness which is their trademark, talk about an exit strategy – as if it were just one more Mapquest printout. But any such exit strategy will lead us only on a short path to hell."

So writes Tony Blankley, editorial editor at the Washington Times, adding, "The essential strategic element in war is to defeat the enemy's will to win, and accepting anything less than triumph in Iraq will catastrophically embolden the terrorists."

Blankley raises valid and grave questions. He is saying that, no matter where one stood on going to war, we went. Now, anyone who thinks we can swiftly exit Iraq without paying a hellish price is a nitwit.

Blankley is right. Should America pull out now, our enemies across the Islamic world will indeed be emboldened. The perception of American defeat could produce a domino effect running down through the sheikdoms of the Gulf into Saudi Arabia and spreading across the region. Iraq could dissolve into chaos and civil war.

All this is possible. Indeed, the possibility that Iraq could become a giant Lebanon for the United States was among the reasons some of us implored the president not to send our Army up the Euphrates Valley to occupy a city that was the seat of the caliphate for 500 years.

But if there are risks to a too-rapid transfer of sovereignty to Iraqis, there are risks to escalating this war. Query: When Osama sees Sunnis rising up to fight Americans from Fallujah to Baghdad, and Shiites taking up arms in Karbala and Najaf and marching against America in Beirut in the hundreds of thousands, is he not rejoicing that we took the bait and invaded Iraq? Has not the invasion enlarged the recruiting pool for anti-American terrorism?

In the war on terror, a critical objective was to isolate Osama as a mass murderer who did not represent Islam. Osama's goal was to embed himself in the Arab and Islamic causes of expelling the infidel Americans from the sacred soil of Saudi Arabia and ending what he denounced as our persecution of the oppressed Iraqi people.

Osama sought to conflate his war with the Arab cause. It was in our interest to keep them separate. But the invasion of Iraq – an attack on an Arab country that did not attack us and did not want war with us – united and aroused the Arab world against us, and with bin Laden.

And just as those who argue for an accelerated withdrawal must face up to the risks, those who favor escalation must consider the risks of trying to attain a political objective that appears to be receding before our eyes.

If victory means a pro-Western democracy in Iraq that embraces American values, what is the likelihood of achieving that now, given the raging hostility in the Sunni and Shiite sectors? Are we closer to the goal than we were 13 months ago? Or has the fighting of April-May and the moral squalor of Abu Ghraib pushed our goal even further away?

What will be the final cost in blood and treasure of ultimate victory? How lasting will victory be once our troops depart, as one day they must? Will the American people – who read polls where 57 percent of the Iraqis want us out and more than half think killing our soldiers is justified, and every lethal attack on a U.S. vehicle brings out a mob in wild celebration – continue to feel Iraqi democracy is worth Americans dying for?

As Washington Times columnist Terry Jeffrey writes, idealists may dream of a democratic, secular and pro-Western Iraq, but traditionalists would settle for an Iraq that has no WMD, does not invade its neighbors and does not collude with terrorists.

Horrible as the monster was, Saddam Hussein, after his rout in the Gulf War, came close to filling the bill. That is why some of us did not believe it vital to our security to invade and dethrone him. A nuclear North Korea or nuclear-armed Pakistan where President Musharraf has been taken down by some assassin seemed far the graver potential threat.

Still, Blankley has this point: Whether we go, or stay and fight on, we are going to pay a heavy price, because we went.

Neville Chamberlain is forever condemned for capitulating at Munich. Rightly so. But by the time he got to Munich, Chamberlain had no good choices left. His country had lost Italy in the Abyssinian crisis, failed to rearm, failed to stop Hitler when Britain and France could have chased him out of the Rhineland in 1936. By late September 1939, they could no longer stop Hitler in Central Europe without a European war.

No good options were left. Chamberlain could cede the Sudetenland – or declare war to rescue a Czechoslovakia Britain lacked the power to save. Conclusion: Chamberlain should never have gone to Munich – and Bush should never have gone to Baghdad.

Work For The Grossgeneralstab
by William S. Lind

In 1914, Kaiser Wilhelm II, whom history has underrated, told his Chief of the General Staff, von Moltke the Less, that he wanted to remain on the defensive in the West and take the offensive in the East, against Russia. Such a reversal of the Schlieffen Plan would probably have won the war for Germany. France would have bled to death throwing bodies against bullets in Elsass and Lothringen, England would have remained neutral, at least for a while, and Russia would have gone under in a couple years. Unfortunately for Germany and for history, von Moltke Jr. collapsed in a fit of nerves and said it couldn't be done.

In fact, the plans for just such a campaign were in the file. They were there because it was the job of the General Staff to make plans for every contingency.

The disastrous course of America's war in Iraq has created a new task for the Great General Staff, in the form of more contingency planning. America needs to make sure it has a plan in the file for a fighting withdrawal from Iraq.

It is still possible the end may not come this way. We may still manage a shaky hand-off to a U.N.-designated Iraqi government, and that government might last long enough for us to withdraw with some shreds of dignity. George W. might awake some morning a new man, announce he was swindled, sack the neo-cons and bring in someone like Marine Corps General Tony Zinni, who opposed the war all along, to handle our disengagement. The Archangel Michael might appear over Mecca and convert all the Mohammedans to Christianity.

But the growing probability is that we will be driven out of Iraq by a general uprising, an intifada in which every American will be the target of every Iraqi and our boys (and, in America's Neo-Model Army, girls) will have to fight their way out in a scene like that which faced Gordon in the Sudan. It is not a pleasant prospect. It means thousands, perhaps tens of thousands, of American and "coalition" casualties, many times more Iraqi casualties, and one of history's more memorable defeats, right up there with Syracuse, Waterloo and Stalingrad. The after-shocks will be severe, as regimes tumble from Pakistan through the Persian Gulf and Egypt to Britian and America itself. You can look forward to seeing the Dow at 3000, if not 300.

Facing such a contingency, we can have only one priority: the lives of our troops. Their chances of making it out alive will be far greater if we have done some planning beforehand. Our great vulnerability is that our lines of supply, communication and retreat are long, and they almost all run through hostile territory. Most lead through southern Iraq to Kuwait, and that is not likely to be a comfortable way out. North through the Kurds to Turkey may be the best bet, although as Xenophon can attest, retreating with a beaten army through Kurd country is no picnic. West lies Syria, no friend, and Jordan, which may itself be convulsed.

One great snare and delusion lies in our path: the notion that we can always go by air. Already the Air Force is saying that if the southern supply lines are cut, as they were in the first half of April, air transport can fill the gap. Right, just as Goering promised the troops in Stalingrad. Not only does that assume American and coalition troops can hold the airports, is assumes they can get to the airports, which at the moment is problematic just between Baghdad and its airport. Worse, coups in places such as Saudi Arabia could see Islamic-flown F-15s and F-16s shooting down American C-5s and C-17s.

A Second Generation military such as America's does not improvise well under time pressure, at least at the higher levels, where vast staffs drilled to Kadavergehorsamkeit in the sacred "staff planning process" are slaves to procedure. The neo-cons in the Bush administration and their toadies in the Pentagon will no doubt howl if the military starts contingency planning for a forced withdrawal. Listen up, guys: do it anyway. You don't have to tell them. Just make sure the plan is in the file.

This time, the military may have to play the Kaiser when the Bush administration falls prostrate on the couch.

Patriotism: the New Third Rail
by Paul Craig Roberts

The dire consequences of the US invasion of Iraq go beyond a failed occupation and attendant war crimes. By making excuses for torture in public hearings, the US Senate has besmirched itself.

In Senate hearings on May 19, Republican senators enabled three commanding generals of our Iraqi occupation force to explain away war crimes as procedures employed to save lives. The excuse: our heroes are getting killed and we owe it to our troops to find out who is behind the resistance.

One of the generals said that the US military knows right from wrong. The problem is bureaucracy, he said. The military has so many procedures that no one knew which ones were in effect. Things got out of hand, because the military lost control over its procedures. We must get control of our procedures, the general said.

The hearing gave war crimes a makeover and turned them into "procedures to save lives." Even Democrats went along with that spin.

With the flood of photos, videos, and official reports, the Senators are drowning in evidence of widespread abuse of detainees, including torture, rape, and murder. Yet, shame was not detectable in the hearing.

Senator James Inhofe (R, Ok) set the tone during a May 11 Senate Armed Services Committee hearing when he declared his outrage over the outrage over torture: "I am outraged that we have so many humanitarian do-gooders right now crawling all over these prisons, looking for human rights violations while our troops, our heroes, are fighting and dying."

Even as Bush’s poll numbers plummet, hardcore supporters of the Iraq war remember US humiliation in Vietnam for which they blame the media. Their patriotism has been made virulent by neoconservative propaganda in an attempt to protect the neocons’ immoral and disastrous policy from accountability. Senator Inhofe’s "outrage over outrage" attempts to turn legitimate demands for accountability into a new third rail of American politics.

It is not difficult to understand that a country at war doesn’t want to wallow in self-recriminations. It is easy to comprehend that Republicans don’t want to lose power by being held politically accountable for the costly strategic blunder that the invasion of Iraq has turned out to be. Nevertheless, the evasiveness of official Washington concerning the calamity is scandalous.

In his Monday night speech (May 24), President Bush blamed the prisoner abuse on "disgraceful conduct by a few American troops who dishonored our country and disregarded our values." What were Bush’s speechwriters thinking? Everyone attentive to the news knows the abuse was too widespread to be the work of a few rogue troops. "Abuse of Captives More Widespread, Says Army Survey" reads a New York Times May 26 headline.

Bush misfired again when he blamed "our commanders" for underestimating the number of troops needed to successfully invade and occupy Iraq. Both former Army Chief of Staff General Eric Shinseki and General Anthony Zinni, Commander-in-Chief of the US Central Command during 1997–2000, issued loud warnings that the Iraq invasion was ill-conceived and undermanned.

In his new book, Battle Ready, written with Tom Clancy, General Zinni blames senior civilian Pentagon officials for the fiasco: "In the lead up to the Iraq war and its later conduct, I saw at a minimum, true dereliction, negligence, and irresponsibility; at worst, lying, incompetence and corruption."

Why does President Bush blame American soldiers for the dereliction, negligence, irresponsibility, and incompetence of his civilian team – Vice President Richard Cheney, Cheney’s chief of staff "Scooter" Libby, Defense Secretary Donald Rumsfeld, Pentagon officials Paul Wolfowitz and Douglas Feith, and neoconservative opportunists such as Richard Perle? Bush has seriously damaged himself and his party by allowing the neoconservatives to use his presidency to pursue their personal agenda.

Republicans abandoned President Richard Nixon because he lied about the date on which he learned of a burglary at the Watergate. House Republicans impeached President William Clinton because he lied about an affair with an intern.

President Bush lied America into war and continues to lie to keep us there. Isn’t Bush’s transgression too serious to be wrapped in the flag?

Neoconservatives are a danger to Americans on the home front as well as on the war front. Neocon ideologues have hijacked US immigration policy by denouncing patriots who desire to control US borders as "nativists" and "racists."

While US armed forces illegally overrun the Middle East, Mexican immigrants illegally overrun America’s borders. Why are we squandering $200 billion defending Middle Eastern borders when our own borders are undefended?

Our Psyops Disasters
by William S. Lind

I recently received an invitation to speak at a conference at Ft. Bragg on psychological operations, or psyops. Regrettably, a schedule conflict prevented me from accepting, but the invitation got me thinking: what are psyops in Fourth Generation war?

It is clear what they are not: leaflets saying, "No one can hope to fight the American military, surrender now," or "We are here to liberate you." After the Iraq debacle, those messages will be met with open derision. The only way such leaflets are likely to be useful is if they are printed on very soft paper.

Colonel John Boyd said that the greatest weakness a person or a nation can have at the highest level of war, the moral level, is a contradiction between what they say and what they do. From that I think follows the basic definition of psyops in Fourth Generation war: psyops are not what you say but what you do.

If we look at the war in Iraq through that lens, we quickly see a number of psyops we could have undertaken, but did not. For example, what if instead locating the CPA in Saddam’s old palace in Baghdad and putting Iraqi prisoners in his notorious Abu Ghraib prison, we had located the CPA in Abu Ghraib and put the prisoners in Saddam’s palace? That would have sent a powerful message.

What if, when we get in a firefight and Iraqis are killed, General Kimmitt the Frog, our military spokesman in Baghdad, announced that with regret instead of in triumph? We could use every engagement as a chance to reiterate the message, "We did not come here to fight." That message would be all the more powerful if we treated Iraqi wounded the same way as American wounded, offered American military honors to their dead and sent any prisoners home, quickly, with a wad of cash in their pockets.

Years ago, my father, David Lind, whose career was in advertising, said, "If the day World War II ended, Stalin had sent all his German prisoners home, giving them a big box of food for their families and a wallet full of Reichsmarks, the Communists would have taken all of Western Europe." He may have been right.

In Fallujah, the Marines just showed a brilliant appreciation of psyops in 4GW. How? They let the Iraqis win. At the tactical level, the Marines probably could have taken Fallujah, although the result would have been a strategic disaster. Instead, by pulling back and letting the Iraqis claim victory, they gave Iraqi forces of order inside the city the self-respect they needed to work with us. Washington and the CPA seem to define "liberation" as beating the Iraqis to a pulp, then handing them their "freedom" like a gift from a master to a slave. In societies where honor, dignity, and manliness are still important virtues, that can never work. But "losing to win" sometimes can.

The CPA’s complete inability to appreciate psyops in 4GW was revealed in a recent episode that suggested Laurel and Hardy are in command. It seems our Boys in Baghdad decided the "new Iraq" needed a new flag. Never mind that the new flag suggested Iraq is still a province of the Ottoman Empire and also conveniently included the same shade of blue found on the Israeli flag. What giving any new flag to Iraq’s Quisling government in Baghdad really did was give the Iraqi resistance something it badly needed – its own flag, in the form of the old Iraqi flag. Couldn’t anybody over there see that coming? Hello?

Perhaps our most disastrous failure (beyond Abu Ghraib) to realize that psyops are what we do, not what we say, is our ongoing fight with the Mahdi Army of Muqtada al-Sadr. At the beginning of April, Sadr had almost no support in the Shiite community outside Baghdad’s Sadr City, while Ayatollah Sistani, who has passively cooperated with the occupation, had overwhelming support. Now, thanks to our attacks on Sadr and his militia, polls taken in Iraq show Sadr with more than 30% support among Shiites while Sistani has slipped to just over 50%. The U.S. Army has been Sadr’s best publicity agent. Maybe it should send him a bill.

Some of our psyops people probably understand all this. Unfortunately, the people above them, in Iraq and in Washington, appear to grasp none of it. The end result is that, regardless of who wins the firefights, our enemies win one psychological victory after another. In a type of war where the moral and mental levels far outweigh the physical level, it is not hard to see where that road ends.

'Every blow America strikes will bring more people to the way of God'

By Jack Fairweather in Basra

Violence will bring thousands of Shias flocking to Moqtada al-Sadr's cause, his second-in-command told the Telegraph.

Sheikh Abdul Settar al-Behadili, Sadr's deputy and the commander of his Mahdi army in Basra, outlined the radical cleric's master plan for ruling Iraq.

"The only solution to the American problem in Iraq is a violent one," he said.

"Every blow the Americans strike will bring more people to the way of God." Interviewed in run-down offices in Basra, al-Behadili offered a grand vision for the future of Iraq.

"Moqtada wants the Sunnis and Kurds to play a role," said the sheikh.

"But what is more important is that we drive the Americans out first." He predicted that Iraq would become a religious-run state, with the Shia clergy imposing Islamic sharia law.

"Sayyed Moqtada does not want people to have their hands cut off for stealing, but he does want Islamic law at the centre of the state."

Other plans included making Najaf the capital of Iraq. "We don't think these things are unrealistic. We have offices in every city in Iraq," said al-Behadili.

"Each day our members go out and preach Moqtada's words to Iraqis."

He said the Mahdi army, Sadr's shadowy, black-shirted militia, would flourish, although he refused to give details of its strength at present.

"A British captain came to ask me how many we were. I said Sayyed Moqtada's army is a moral one, and we are in the hearts of all Iraqis."

But al-Behadili, a corpulent man who punctuated his denunciations with wry chuckles, reserved his most vehement comments not for the American invaders but for foreign grain importers.

"It is inconceivable that Iraq should import grain to feed its people. This was a country of plenty until the American invasion. They are selling this country out to foreign contractors."

He said he had given a 10-day ultimatum to coalition forces to stop importing grain.

"Hopefully the British are going to last for less time than that," he said.

RETREAT FROM IRAQ?

by Carlton Meyer
editor@G2mil.com

A careful reader of the limited news coming out of Iraq will discover the US military situation is perilous and a few more bad moves could send the US Army and Marines retreating back to Kuwait in the same manner they fled southward 54 years ago in Korea. That was when a million Chinese foot soldiers suddenly appeared and attacked as overextended US forces approached the Chinese border. American firepower, airpower, and technology was unable to compensate for the confusion and lack of supplies for American ground troops.

The main problem in Iraq today is the massive logistics effort required to sustain US Forces at a over a hundred dispersed camps. Over 95% of supplies arrive by ship, and the closest major seaport is in Kuwait. This means everything must be hauled hundreds of miles over war torn roads among hostile natives. This is far more difficult than Vietnam, which had a long coastline where supplies could be dropped off. A recent article by Tom Ricks of the Washington Post noted that most convoys are attacked, and that soldiers must stop to check each bridge for explosives because there is not enough manpower to guard them. Other reporters tell of recently destroyed bridges, forcing convoys to travel on secondary roads which doubles their travel time. In addition, many civilian truck drivers have refused to drive and many foreign logistics contractors have left Iraq.

Many reports tell of ammunition rationing. The US military was not expecting a prolonged conflict, and drawing and transporting dangerous ammo from limited worldwide stockpiles is a challenge. Senior Army officials told the House Armed Services Committee last month that nearly all the wartime stockpiles in Southwest Asia and on the island of Diego Garcia have been issued, as well as equipment stashed in Europe—a total of 10,000 tanks, personnel carriers, trucks, and other vehicles. Only the Army's equipment for one brigade in Korea and the Marines' brigade stock in Guam remain untouched. In addition, the desert sand and heavy use of helicopters and equipment is wearing them out many times faster than usual. This demands many more spare parts and shortages have developed. Ammunition and most military spare parts cannot be purchased on the commercial market. Assuming the military supply and contracting bureaucracy can quickly identify needs and place orders, it takes months to boost production. Meanwhile, Generals must juggle budget allocations with semi-legal account shifts since the Bush administration has announced that it will not ask Congress for supplemental funding until January, after the presidential election.

Back in Iraq, US commanders need more troops to guard supply lines and provide security, but more troops require more supplies. Moreover, the Army is stretched to the limit and has no forces ready to deploy. There are several National Guard divisions available since most Guard combat units have not been mobilized since 9-11. However, that would cause an election year embarrassment for the Bush administration, and there is no money allocated to pay them anyway. While President Bush often proclaims the nation is at war, he has failed to request a tax increase to pay for it and has become hesitant to mobilize more reservists to provide the manpower Army Generals say they need. Meanwhile, combat units have been diverted for an election year offensive into the rugged Afghanistan mountains in hope of capturing Osama bin Laden, while the Spanish and other allies pull their troops from Iraq. Finally, hundreds of heavy M-1 tanks were shipped back to the USA last year as the Army expected only light peacekeeping duty. Only 70 are left in Iraq, while 28 are inbound from Germany in an emergency airlift personally ordered by Secretary Rumsfeld. The 1st Marine Division brought none of its 58 tanks and was forced to borrow some from the Army to support recent fighting.

Americans forget the Bush administration had promised democracy in Iraq. Eventually, they realized that since the Shiite represent 60% of Iraq, the country would come under the control of fundamentalist religious leaders who are likely to demand the US military leave. The US is building four large, modern "enduring" bases in Iraq, and apparently wants to shift forces now based in Germany to permanent bases in Iraq, which is to become America's military bastion in the Middle East. Iraqis are not fooled by statements that "sovereignty" will be granted on June 30th. All this means is that some new English speaking Iraqi puppets will be appointed to represent US interests. While the US military attempts to win their hearts and minds with billions of dollars in aid, Iraqis show little gratitude since the US caused most of the damage with bombings and a ten year trade embargo.

Sensational reporting by Arab television networks has aroused anti-American hatred throughout the Arab world. The religious co-leaders of unstable Saudi Arabia issued a fatwa (a law) urging Muslims to use "all means" to stop what it called "the fierce onslaught" on Muslims by "occupation forces" in Iraq. It "urges every fair person among Muslims and others in the world to denounce this fierce onslaught and strive by all means to stop it and punish those responsible for it", said the fatwa, carried by the Saudi state SPA news agency. This was not reported by American media, and the effect is difficult to measure, but worrisome enough that the US government immediately ordered all non-essential US citizens to leave Saudi Arabia. President Bush further infuriated Arabs by announcing that he would not seek an agreement to end the Israeli occupation of Arab land, but will support whatever Israel wants to do.

As a result, Iraq has become a magnet for young, adventurous jihadist from Syria, Saudi Arabia, and Iran whose leaders have begun to openly voice disapproval of the situation. Iran has a population of 70 million, compared to 25 million in Iraq. If one million armed Iranians slip across the border and attack American infidels, the US may have to retreat. Anyone who thinks this is implausible should read about the US Army's embarrassing retreat from North Korea in 1950. Army Generals were extremely optimistic, dismissive of their enemy, and thought airpower could always protect them. This historical document: Staff Operations: The X Corps in Korea, December 1950 includes these comments:

"It seemed as if the war was winding to a successful close. So sure were Almond and his staff of the enemy's weakness that they thinned forces across the entire front. Almond told officers of one regiment: "We're still attacking and we're going all the way to the Yalu. Don't let a bunch of Chinese laundrymen stop you." That regiment was overrun a few days later, by Chinese laundrymen.

"General Willoughby-asserted that a Chinese intervention was highly unlikely but that if it occurred the Chinese would suffer massive casualties to UN air power. This optimism colored the plans and ideas of all subordinate commands."

"At the start of the massive Chinese intervention, the X Corps staff at first tried to ignore it or downplay its effect on the corps' offensive plans. In response to the new guidance and in an attempt to react to the rapidly changing situation for which they had no contingency plans, the X Corps staff prepared a succession of orders, each outlining vastly different types of operations." X Corps and the 1st Marine Division managed a semi-organized bloody retreat from all of North Korea which was embarrassing and costly.

American forces in Iraq cannot be defeated in standard military engagements. However, insurgents know the weak spot; the long main supply routes. If camps run short of ammo and spare parts, they must retreat toward Kuwait and hope that the Army's cash strapped logistics bureaucracy can meet the surging demand to save them from catastrophe. The Army must take five steps to prevent an embarrassing retreat: 1) Secure the main supply routes and establish emergency supply caches inside Iraq; 2) Develop plans to quickly abandon vulnerable camps in a crisis; 3) Avoid alienating the Arab world with offensive operations until the first two steps are accomplished; 4) Stop calling Iraqi insurgents thugs, terrorists, and criminals. That encourages poor treatment of all Iraqis by American soldiers and makes negotiations to end violence impossible; 5) Americans must not destroy Iraqi cities in order to save them, lest they find themselves overrun by irate Muslim laundrymen.

http://www.g2mil.com/May2004.htm

Wal-Mart Tries New PR Spin to Accompany Item-level RFID Tagging
"Selling the technology with partial truths is unethical," says CASPIAN

Despite widespread consumer opposition, Wal-Mart began item-level RFID (radio frequency identification) tagging of consumer goods last week as part of a trial in Texas. In an apparent effort to minimize the backlash to its use of RFID tags, Wal-Mart has also begun a public relations campaign to promote the technology that some are calling unethical.

Shoppers at seven Dallas-Ft. Worth area Wal-Mart stores can walk into the consumer electronics department and find Hewlett-Packard products for sale with live RFID tags attached. Wal-Mart's public statements appear to leave open the possibility that other goods could be tagged with RFID as well.

The giant retailer's decision to tag individual items on the store floor violates a call for a moratorium on such tagging issued last November by over 40 of the world's most respected privacy and civil liberties organizations. The move has sparked sharp criticism by the privacy community.

"Wal-Mart is blatantly ignoring the research and recommendations of dozens of privacy experts," says Katherine Albrecht, Founder and Director of CASPIAN (Consumers Against Supermarket Privacy Invasion and Numbering). "When the world's largest retailer adopts a technology with chilling societal implications, and does so irresponsibly, we should all be deeply concerned."

In addition to violating the call for a moratorium on RFID-tagged items in stores, Wal-Mart has begun a consumer education campaign that CASPIAN is calling unethical.

"Read the FAQs at the Wal-Mart corporate web site and you'll find plenty of half truths," Albrecht says. "They call it consumer education, but the omissions and spin make it feel more like a calculated disinformation campaign."

Albrecht provides the example of Wal-Mart's statement that RFID tags in its stores are harmless since they contain nothing more than identification numbers. "While technically that's true, Wal-Mart fails to explain what it means for items to carry remote-readable unique ID numbers. It's like saying someone's social security number is 'only' a number, so sharing it with perfect strangers should be of no concern."

Albrecht explains that many major retailers today routinely link shoppers' identity information from credit, ATM and "loyalty" cards with product bar code numbers to record individuals' purchases over time. "If nothing is done to stop it, the same will happen with the unique RFID numbers on products. This means that if retailers can read an RFID tag on a product they previously sold you, they can identify you as you walk in the door and even pinpoint your location in their store as you shop," she said.

Albrecht also criticizes Wal-Mart for failing to tell consumers of the retailer's long-term goals for RFID. "The industry plan is to put an RFID tag on every product on Earth to identify and locate them at any time, anywhere. Wal-Mart is taking the first steps to creating a society where everything could be surveilled at all times. A shopper would hardly learn this by reading their website."

With potentially billions of dollars riding on RFID, global corporations are eager to see it deployed. However, consumer acceptance has proved to be an obstacle.

Procter & Gamble's own research suggests that 78 percent of consumers surveyed reacted negatively to the technology on privacy grounds and did not find industry reassurances compelling. Another industry study, published in January 2003, found similar misgivings among focus groups of consumers in the U.S., Germany, France, Japan and the UK.

The most publicized trial of item-level RFID tagging to date, Metro-AG's "Future Store" in Rheinberg, Germany, met with massive consumer outcry earlier this year, culminating in a protest outside the store.

"Wal-Mart may soon be facing a similar backlash," said Albrecht.

==========================================================

CASPIAN (Consumers Against Supermarket Privacy Invasion and Numbering) is a grass-roots consumer group fighting retail surveillance schemes since 1999, and item-level RFID tagging since 2002. With members in all 50 U.S. states and over 30 nations across the globe, CASPIAN seeks to educate consumers about marketing strategies that invade their privacy and to encourage privacy-conscious shopping habits across the retail spectrum.

CASPIAN is guided by free market principles. Rather than look to lawmakers for solutions to the consumer privacy problem, we call on consumers to reject privacy-invading practices so that they fail in the marketplace.

For more information, see
http://www.spychips.com
and
http://www.nocards.org

Inflation and the French Revolution: The Story of a Monetary Catastrophe

By H.A. Scott Trask

As in so much else, the French revolutionary regime (1789-94) was the precursor of the centralized, totalitarian, managerial, pseudo-democratic despotisms that now reign over the West. It is also reminder that mass democracy and inflation go together, as surely as thunder and lightning. Let us revisit the Revolution, from a free-market, hard-money perspective.

After two centuries, there remains no better analysis of the first two years of the French Revolution than Edmund Burke's Reflections on the Revolution in France (1790). Astute, penetrating, prescient—Burke, an Anglo-Irish MP and a liberal Whig, was of a rare type: both practical statesman and political philosopher. Had the English ministry and his fellow Parliamentarians followed his advice in the 1770s, they would never have driven the Americans to revolt and hence lost their most valuable colonies in the world. Had the French, they would have been spared the Terror, total war, and Napoleon. Burke continues to be accused by clueless academics and ignorant pundits either of inconsistency or deviationism for his very different reactions to the American and French Revolutions.

Burke was both a liberal and a man of the Right. He believed in religious toleration but supported an established church, the Anglican Communion. A friend and admirer of Adam Smith, he defended commercial liberty, but he also believed that civilization depended on the perpetuation of a landed aristocracy with its own separate political representation. While he denied that a king could tax his subjects without their consent, he was a fierce opponent of democracy and universal suffrage. Burke denied that liberty could be achieved by revolution or intellectual endeavor. For him, it was the product of tradition and history, and its victories had to be embodied in institutions.

Burke thought the French Revolution, rather than being a necessary if needlessly bloody hill on the path of progress and freedom, was a catastrophe for France, for western civilization, and for ordered, hierarchical liberty. Before the Revolution, French royal absolutism, and the stifling mercantilism that was its handmaiden, was on the wane. Already its rigors and severities were considerably softened from the reign of the Sun King, Louis XIV; and his great-great grandson possessed a reformist ethos that was liberalizing the economy and resurrecting the representative institutions of medieval liberty—provincial assemblies and the Estates General. Burke called the modern French monarchy "a despotism rather in appearance than in reality" in which, if anything, "rather too much countenance was given to the spirit of innovation," rather than too little.

The power of the French king was checked by public opinion, by an independent clergy, and by the parlements of the judicial nobility. The nobility itself was filled with admiration for the mixed constitution of England, with its limited monarch, its Parliament, its bills of rights, its toleration of religious dissent, its freer economy, and they wished to find a French approximation, and they were well on the road to doing so.

As Burke noted, the noble cahiers and instructions for their delegates to the Estates General "breathe with the spirit of liberty as warmly, and they recommend reformation as strongly as any other order." Maybe more. The spirit of laissez faire, mixed constitutionalism, and civil libertarianism was stronger in the nobility than among the bourgeoisie, and certainly stronger than among the urban artisans and peasantry.

The political argument in the Estates General in May–June 1789 that led to the outbreak of the Revolution was over voting. The question at issue was whether the three estates should vote by order (the traditional practice) or by head. The monarchy rightly sided with the first two estates on the question, but the Third Estate eventually grew tired of the controversy and declared itself to be the National Assembly, the other two orders be damned. They were only following the logic of their position to its logical conclusion, but they were also fulfilling the visionary and naive expectation of the French masses that the ancient social orders be erased so they could live lives of greater abundance and freedom. Many "conservative" and "liberal" historians have applauded the Third Estate's seizure of power and argued that the Revolution went wrong later with the ascendancy of Robespierre and the Mountain. Burke knew better.

By its arrogant usurpation, the Third Estate expressed its rash "preference for a despotic democracy to a government of reciprocal control." Big mistake, thought Burke. "I cannot help concurring" with the opinion of Aristotle and other ancient critics of democracy, "that an absolute democracy, no more than an absolute monarchy, is [not] to be reckoned among the legitimate forms of government. They think it rather the corruption and degeneracy than the sound constitution of a republic."

Aristotle pointed out that "a democracy has many striking points of resemblance with a tyranny." Burke translates: "Their ethical character is the same; both exercise despotism over the better class of citizens; … the demagogue, too, and the court favorite are not unfrequently the same identical men, and always bear a close analogy; and these have the principal power, each in their respective forms of government, favorites with the absolute monarch, and demagogues with a people such as I have described."

Burke was not so naïve as to believe that France with its 26 million people, its wide extent of territory, its diverse interests, could ever be a genuine democracy. He expected effective power to be wielded by "an ignoble oligarchy," in alliance with "the monied interest" of Paris, fattening on government bonds and rioting in feverish speculations in the confiscated estates of the clergy and nobility. As far as the braying mob, "the swinish multitude," they would prove a very effective instrument in the hands of the elite, especially when shouting down free market economic reform. Burke foresaw a government that would combine the vices of democracy with those of oligarchy and that would substitute a despotism of lawyers and sycophants for a government of laws and social orders. How right he was.

An exasperated Burke wondered why the French seemed to lunge from one extreme of government to another, as if there were no third option. "Have they never heard of a monarchy directed by laws, controlled and balanced by the great hereditary wealth and hereditary dignity of a nation, and both again controlled by a judicious check from the reason and feeling of the people at large acting by a suitable and permanent organ?" Nay, instead of retaining the Estates General as "a permanent assembly in which the commons had their share of power," they thrust total power upon the politically inexperienced and rash masses. Overnight, the whole fabric of the ancient constitutional order of France had been "pulled down and the area cleared for the erection of a theoretic, experimental edifice in its place."

Was this wise? What check remained on the power of the Assembly, the power of Paris? Burke thought that none remained. The National Assembly, claiming to be the nation incarnate, had erased the ancient provinces of France (substituting the unnatural departments), abolished the Parlement of Paris and its provincial counterparts, destroyed the first estate by confiscating its property and stripping it of its functions, rendered the nobility politically powerless, and concentrated all political power in a revolutionary assembly. He compared Paris under the new regime with ancient Rome. "As long as Paris stands in the relation of ancient Rome, so long will she be supported by the subject provinces. It is an evil inevitably attendant on the dominion of sovereign democratic republics. As it happened in Rome, it may survive that republican domination which gave rise to it. In that case despotism itself must submit to the vices of popularity. Rome, under her emperors, united the evils of both systems." So would Paris, so would Washington. Once all independent social authorities, legal institutions, and constitutional checks on the sovereign and divine people were destroyed, the way was prepared for le levee in masse, for les assignats and les papiers-monnaies, for the Maximum, for le Comite de Salut Public, for la Terreur, for la guerre totale, ...for Napoleon.

The Assignat Inflation

The National Assembly that took de facto control of political power in France in the summer of 1789 found itself facing an even worse fiscal crisis than that faced by the now defunct monarchy just months earlier. The Assembly was spending enormous sums on public works projects in Paris and for bread subsidies. Having just thrown off the shackles of royal authority, the people were in no mood to resume paying taxes, much less pay more. Many of them, no doubt, interpreted the Revolution to mean the cessation of taxes, and the obliteration of the oppressive and coercive collecting apparatus. Desperate for revenue, the Assembly actually refrained from abolishing the hated gabelle (the salt tax), but no one paid it anymore anyway.

Meanwhile, the interest and principal was falling due on the national debt. What to do? The logical and just thing was to repudiate the enormous debt incurred by the monarchy. After all, the people of France, voiceless and unrepresented for centuries, had never approved nor sanctioned it; and if the monarchy had been as oppressive and iniquitous as the revolutionaries claimed, then surely the liberated masses should not be burdened with the responsibility of paying its extravagant debts?

Well, justice is one thing when one is out of power, and another when one possesses it. The Assembly rejected repudiation because they feared antagonizing the moneylenders of Paris, Amsterdam, Hamburg, and Geneva. They had already incurred the enmity of the royal houses of Europe, why add that of the bankers? Besides, the new government would need to borrow funds too. A formidable republican army would be needed to defend the revolution from its enemies, at home and abroad. Thus, they decided to honor the debts of the monarchy, but how?

The Assembly knew that it was politically inconceivable to lay new taxes and expect them to be paid without sending an army into the countryside to shake down the peasants, but who would pay the army? And further borrowing was out of the question until new taxes could be laid. That left one resource—plundering the privileged orders. In November 1789, the Assembly expropriated the vast lands and estates of the French church and declared them to be "national properties." From thenceforth, they would be "at the disposal of the Nation" (meaning the state). Burke observed sardonically that the government, still in its infancy, had grasped at "one of the poorest resources of doting despotism."

Burke angrily rejected the notion that the rights of property applied only to individuals. They also applied to corporate bodies, such as the Gallican Church, whose property titles were over 1,000 years standing. Not so, according to the leaders of the Revolution. For them, the church "had no right to the possessions which they held under law, usage, the decisions of courts, and the accumulated prescription of a thousand years."

Burke denied that the church was a parasitic body attached to the French nation. It was not exempt from all taxes, and it provided essential social services, such as free primary schools, classical academies, hospitals, and orphanages. Although we might prefer a purely private provision, can we doubt that France was better off with its eleemosynary and educational institutions under the control of a Christian establishment that was independent of government and under the necessity of practicing economy? Burke considered the expropriation of its lands to be a tyrannical act which he compared with the seizure of church properties by the "tyrant" Henry VIII of England 250 years before.

Burke ranked the confiscation of the church lands, along with a "compulsory paper currency" with which it was linked, as the first layer of the "cement" by which the revolutionary government would rule over a unified and servile France, which they were treating as a conquered country. The second cement would be "the supreme power of the city of Paris" and the third "the general army of the State," thus joining economic power with political and military power in an impious trinity of oppression and expropriation.

He believed the confiscation served the new government in three ways. First, it all but destroyed a rival social authority that could check its moral and political power. Second, it placated the powerful "monied interest" of Paris and abroad by providing a means for funding the immense debt of the monarchy. How unjust to do so by pillaging the church, an institution that was neither responsible for contracting the debt nor had benefited from the deficit expenditures. "It is to the property of the citizen, and not to the demands of the creditor of the state, that the first and original faith of civil society is pledged," wrote Burke. Third, it created a new class of landowners whose loyalty would be to the revolutionary state, upon whose authority and survival their property titles depended.

It was not long before the Assembly realized that the sale of church lands alone would not be the fiscal bonanza they had envisioned. For one thing, throwing all those properties on the market would diminish their selling price. Second, there was just not enough floating capital (i.e. specie) in France to make large scale purchases. What to do? It was time for "the last remedy" for fiscal insolvency—government fiat paper currency. Here, the American Revolution furnished a pernicious precedent. In March 1790, the Assembly authorized the printing of 400 million livres of paper assignats of denomination of 200, 300, and 1,000 livres, bearing three percent interest, and receivable for taxes and the purchase of the national properties. In character, they were like English exchequer bills or American bills of credit. Supporters argued that the assignats would furnish payments to the state creditors, provide a means for the people to purchase lands and properties, draw specie out of hiding, and stimulate commerce and industry.

Many delegates, including Cazales, Bergasse, Maury, Necker, and Nemours, opposed the measure on economical principles. They argued that the new currency would depreciate, that it would be followed by additional emissions, further depreciation, and that the calamities of John Law's Mississippi Bubble (1717–20) would be re-enacted across republican France. Their objections and warnings were brushed aside. The enthusiasts essentially argued that economic laws did not apply to France, that she had learned from John Law's failed experiment never to overdo paper money, that a republican government could more safely inflate than a monarchical one (the precise opposite of the truth), and that the immense landed wealth of France provided solid security. Even though the issue was relatively moderate, the assignats promptly depreciated five, and later seven, percent, as measured against gold.

It should be noted that the Assembly was not a total bust when it came to economic freedom. They did abolish the tithe, the corvee, the guilds, and all internal custom barriers. However, they would go no farther, and would soon regress into a kind of hyper mercantilism. Burke writes of their open and contemptuous "defiance of economic principles." Jean Baptiste Say recalled with disgust that "the moment there was any question in the National Assembly of commerce or finances, violent invectives could be heard against the economists." Such is ever the reception accorded men who bear unwelcome or inconvenient truths.

By late summer, the government was again short of funds, so they naturally turned to a second issue of assignats. However, this time they doubled the dose to 800 million, dropped the interest payment, and made them legal tender for all purchases and debts across France. When the economists again remonstrated, paper advocates replied that the backing of the state would guard against depreciation, that assignats paid into the treasury would be destroyed, and that this would be the last emission.

(Whenever a government promises not to use a power they wish to exercise, or have just acquired, by way of assuaging the fears of those who anticipate abuse, they are sure to break that promise whenever it becomes convenient or they believe they can get away with it. Only fools or ignoramuses ever trust the word of government officials or politicians.)

Burke finished his Reflections soon after this second emission. As many of the French paper advocates had cited the notes of the Bank of England as a source of English prosperity and proof that paper money was safe, Burke drew an invidious contrast between his country's redeemable bank currency and the French assignats. In contrast to the latter, English bank notes have their "origin in cash actually deposited," are "convertible at pleasure, in an instant and without the slightest loss, into cash again," and not one shilling "is received but of choice." The French inflationists mistakenly assume that "our flourishing state in England is owing to that bank paper, and not the bank paper to the flourishing of our commerce, the solidity of our credit, and to the total exclusion of all idea of power from any part of the transaction." How different was the government currency of France—coercive, inconvertible, and without limit, its quantity subject to the needs or whims of the revolutionary assembly. Burke denounced its legal tender quality and the harsh measures adopted to enforce it as an "outrage upon credit, property, and liberty." Referring to their theft of the property of the French Church and using it to back their fictitious but coercive currency, he wrote: "They rob only to enable them to cheat." Having erected a deadly "apparatus of force and deception," they order the once free people of France, at the point of a bayonet, "to swallow down paper pills by thirty-four millions sterling at a dose." Liberte, egalite, fraternite, indeed!

The consequences of the second issue were just as the unpopular economists had foretold: depreciation in their value, rising prices, feverish speculation, complaints about a shortage of money, calls for more assignats, the prostration of commerce and industry, inordinate consumption, and declining savings. Economic calculation became impossible, but speculation quite profitable (or ruinous). Burke should get credit for a remarkably accurate and precise prediction. He believed that the rise of prices, consequent to assignat inflation, would render it unprofitable for farmers to take their crops to market. They would stay home and produce only for themselves or for barter with their neighbors. The government would then send troops into the countryside to confiscate grain and other foodstuffs. It happened exactly as he foretold.

The revolutionary government first decided to cure the evils generated by inflation with more inflation. Instead of destroying assignats received for the national properties, they reissued them in the form of smaller notes. In June 1791, they issued another 600 million assignats (the previous promise not to issue more was conveniently and predictably forgotten), and in December an additional 300 million. By the end of the year, its market value had fallen to 66 percent of its face value. In 1792, they issued 600 million more. In April of the same year, they confiscated the estates of the émigrés (those who fled France to avoid being arrested or murdered) and added them to the national properties. Then came 1793—Year One; the year of la Terreur. Having tried inflation and legal coercion, they would try terrorizing the population into accepting the plunging assignat at par, and producing and selling at a patriotic loss.

In March, the National Convention created the Orwellian-named Committee of Public Safety (another unfortunate American precedent), which was a kind of committee of terror, dedicated to expropriating and murdering those deemed to be "traitors" to France or enemies of la Revolution. In May, they passed le Maximum, imposing price ceilings on grain. It worsened the grain shortage. In June, they passed the Forced Loan, a progressive income tax, whose progressivity was progressively lowered to reach more and more citizens. They also passed increasingly draconian and deadly laws designed to force people to accept the assignats at par and forbidding them from exchanging them for anything less than their face value. In July, the Convention repudiated the first issue of interest-bearing assignats.

In August, trading (i.e. buying or selling) specie was prohibited. In September, the Convention passed the General Maximum, extending price ceilings to all foodstuffs, as well as firewood, coal, and other essentials. In that month, despite the deadly coercion, the assignat fell to 30 percent against gold. During 1793, the Convention issued 1,200 million assignats; in 1794, 3,000 million. Next came the deluge. In 1795, 33,000 million were printed, and in October, when a new government—the Directory—assumed power, the assignats' purchasing power had fallen to almost nothing. On the black market, 600 francs of assignats traded for one gold franc.

The Directory was done with the assignat, but it was not done with inflation. In February 1796, it issued a new paper currency, the mandat, and made it exchangeable for assignats at the rate of 30 to 1. By August, after 2,500 million had been issued, the mandat had fallen to three percent of its face value. In 1796, the Directory had had enough, finally, and it withdrew the legal tender character of both the assignat and the mandat. Thereupon, their remaining meager exchangeable value disappeared altogether.

It took Napoleon to restore hard money to France. As First Consul (1801), he introduced the 20 franc gold piece and insisted that from thenceforth soldiers, contractors, and merchants would be paid only in gold, or its equivalent. The paper blizzard was over. As the Bank of England had suspended specie payments in 1797, the English government was thrown into consternation. Napoleon would go on to conquer most of the Continent while on the gold standard. His success gives the lie to generations of scholarly and academic excuse making that for all its pitfalls the assignat "saved" the Revolution. On the contrary, it helped bring on the Terror and set French progress back a generation. Will the fiat dollar one day do the same to America?
___________________________
Historian Scott Trask is an adjunct scholar of the Mises Institute. hstrask@highstream.net.

The Cassandras and the Optimists

by Nelson Hultberg

In response to a question about an upcoming pennant race back in the 1950's, Leo Durocher of the New York Giants once replied, "Whom knows?" This charmingly crude retort pretty much sums up our best answer today to how the great economic upheaval looming ahead of us will unfold. The thousands of convoluted variables shifting in and out of importance daily, that comprise the global economy, make human efforts at forecasting about as reliable as our predictions on the weather. Still, despite the exasperating uncertainty over it all, there are several strong probabilities that we can glean from the political-economic tea leaves if we are good enough students of history and human nature.

I engaged in debate the other evening about these probabilities with some acquaintances who held the view that I was an unreasonable Cassandra spreading undue alarmism. As they saw it, deflation was impossible, the economy was robust, America had endured far worse before, and she would do so again. What follows are some answers to their optimistic scenario.

Deflation Not Possible

Their first objection to my "alarmism" was that deflation is not possible with a paper currency.

This is probably true, I replied. It would be difficult for the money supply to deflate as long as the boys at the Fed have access to a printing press and the willingness to use it. But bubbles can, and will deflate. For example, Basic Investment 101 says that the bond and Dow bubbles must burst and deflate in the face of intense dollar inflation on the part of the Fed. (The real estate bubble is a wild card in this scenario and could go either way.) The problem that many people have with this issue is that they see the clash of inflation and deflation as an either-or kind of thing. This is a false picture brought on by viewing deflation in only its narrow monetary definition and ignoring its relation to prices (more on this later). In my last article I said we would see both Scylla (inflation) and Charybdis (deflation) in tandem, which is a more accurate picture of what must unfold.

How precisely the tandem will come upon us we can't say with precision, of course. But as I see it, there will be wild dollar inflation from the Fed because that is all they know how to do. And they will feel that they have to do something in the face of a melting down economy. But their dollar inflation will not sustain the Dow; it will kill the Dow and send it to the bottom of the charts around 4000. Thus, we will have dollar inflation and Dow deflation. The same scenario will take place with Treasury bonds. As the dollar inflates, bonds will deflate. Greenspan's two major bubbles (the Dow and Treasuries) will burst in a slow motion collapse that grinds down over the next 5-10 years. And since the Dow is such an integral aspect in the people's perception of how wealthy they are, there will be a catastrophic transformation of mood among the millions of investors that look to the Dow as the indicator of "how we are doing economically in America."

This second bursting of the Dow (and the dramatic mood change it evokes) will bring on a painfully STAGNANT economy along the lines of the 1970's stagflation. Only this time it will develop into hyper-stagflation, or what Franklin Sanders has termed a "hyperinflationary depression." This will be the Kondratieff winter of 2000-2015. It will manifest differently than the last Kondratieff in the 1930's, just as that one in the thirties manifested differently than the prior winters of the 19th century. This difference of manifestation is due to the cultural and technological differences of our era and also to the fact that we have learned from the past. Unlike our predecessors in the 1930's, we now know about the Kondratieff cycle. And because we do, we will take defensive action to try and avoid its winter season as it descends upon us. All we will accomplish, however, is to delay and exacerbate the winter's ultimate intensity. We will not prevent it from its highly deflationary, debt-purging role.

A final crushing blow will be some sort of ruinous restructuring of Social Security that will be painted by our government as a "new realistic plan for America's seniors in the 21st century." But the public will perceive it for what it is -- a royal screwing by our oleaginous windbags in Washington. And their mood will further reflect such a perception by turning darker still.

Therefore, inflation is coming in a big way because the manipulative charlatans at the Fed have nothing else in their arsenal. But their "dollar" inflation will NOT keep the ravages of deflation from afflicting the various bubbles of our economy. The Dow and Treasury bonds are headed south to Antarctica. The jury is still out on real estate; it might escape deflation in the meltdown because the public will have to have some place to funnel their depreciating dollars that the Fed is so benevolently printing for them. Of course, gold will benefit greatly (and probably silver also).

So we will have an economy in which some sectors are deflating, while other sectors are inflating. The key is to get our money into the ones that are inflating. While the establishment lemmings will get fleeced by the Wall Street-Washington touts hawking the idiocy of bonds and equities to the bitter end, those of us in the hard money community know better than to listen to snake oil spin to sell paper illusions. The choice for us will not be difficult at all. We will stash our wealth in gold (and in silver for those who are certain it will become the "poor man's money").

Why the Optimists Are Wrong

Part of the problem for today's punditry is that they define the term "deflation" as only a shrinking money supply. Consequently, they insist that a depressionary scenario is impossible because the Fed can print money whenever it wishes and will dispense that money to whatever extent it needs to. Therefore in the eyes of the Keynesian establishment, no deflation can ever take place with the Fed primed at the printing presses and their helicopters gassed up at the airport.

The flaw in this kind of thinking is that deflation has other connotations. There is "monetary" deflation, and there is also "price" deflation. There are two types of deflation just as there are two types of inflation. All free-market advocates realize that monetary inflation brings on price inflation. It is the prior increase in the ACTUAL SUPPLY of money that brings on general price inflation. The monetary increase causes the price increases -- elementary cause and effect that sadly escapes the Keynesians. Deflation operates in a like manner, only in the opposite direction.

There is a far more essential point about all this, however, that is vital to understand. The strict cause and effect relationship between money creation and prices that leads to general price inflation does not always apply to the deflation scenario. For example, once an economy has reached an advanced stage of monetary inflation, it can experience a "price deflation" without a decrease in the ACTUAL SUPPLY of money. All that has to take place is a decrease in the RATE of monetary expansion on the part of the Fed, and prices will start nose-diving. The actual money supply itself does not have to decrease; there just has to be a slowing of the speed with which the Fed is expanding the money supply. For example, if the Fed has been expanding money at an average annual rate of 6% over several years and then slows the expansion to an average rate of 3% for several years, it will bring on price deflation in sectors that are vulnerable (i.e., asset classes such as real estate and equities).

Since monetary creation today is primarily debt creation, the Fed's monetary policies to regulate the economy are putting the American people deeper and deeper into debt with each passing year. The speed of this debt creation is increasing at an alarming rate, yet it is bringing less and less increase in national income and GDP.

For example, Michael Hodges shows us in The Grandfather Economic Report that the amount of debt creation needed to generate national wealth today is almost 2 times what it was just 20 years ago. In 1983, it required $11.5 trillion in debt to generate $5 trillion in national income. Today it requires $37 trillion in debt to generate $8.7 in national income. [See]

What this means is that debt has to be created at a faster and faster rate in order to keep the economy growing. If the Fed does not continually increase debt at a faster rate every decade, it runs the risk of the economy slowing to a halt. The vulnerable sectors of equities and real estate will start to deflate. The bubbles will start to burst.

Twenty years ago, we needed $2.3 in debt to create $1 in growth. Today we need $4.3 in debt to create $1 in growth. How much debt will we need next year? Next decade? This is a monstrous debt spiral trap that we have climbed onto. This is why the Fed has to keep inflating the money at prodigious levels. If it doesn't, we face an economic meltdown.

More and More Credit Needed

The question is: How much more debt can be loaded onto the American people? The Keynesian credit train that we boarded in 1936 is no longer just chugging along creating mild amounts of debt as in the fifties and sixties. The train is now streaking down the tracks in order to keep the economy afloat. At some point the debt load it is creating will become insufferable to the consumers and businesses of America. They will then undergo a dramatic change in mood. They will then stop borrowing and start saving. They will start paying off debt instead of incurring more debt. This will slow the rate of monetary expansion and bring on price deflation in those asset sectors that are vulnerable.

It is at this point that the Fed will be forced to ratchet up its "liquidity injections" to a fever pitch in order to induce enough monetary growth to avoid crashing the economy. They will have to start monetizing heavily. They will have to gas up the helicopters. They will have to run the risk of bringing on hyperinflation and the terrible fate of Germany's Weimar Republic of the early 1920s.

Eventually the Fed's choice will be either to continue onto Weimar, or attempt to slow the speed of credit expansion so as to avoid collapse of the currency. But if the Fed engineers do attempt to slow monetary growth, then just the slowing itself will induce the prices of various sectors to DEFLATE. Thus serious price deflations are coming to our economy in the upcoming years even though the Fed will be pushing credit/debt expansion and outright monetization to ever-higher levels.

This is what I mean when I talk of deflation visiting us in tandem with inflation. I mean that prices will be seriously deflating in various sectors, not the actual supply of money throughout the economy. The two most crucial sectors susceptible to price deflation will be the asset classes of equities and bonds.

Does this mean then that an actual deflation of the supply of money is impossible? Not at all. Actual monetary deflation could take place also. For example, if things get bad enough, if prices deflate far enough in such sectors as equities, bonds, and real estate, then all businesses and consumers could draw in their horns drastically. There would take place a catastrophic mood change throughout the economy. Velocity of money would slow to a crawl. People would cease to borrow and spend. They would become very cautious and rush to pay off debt. Those who couldn't handle their debt load would default. Bankers would tighten up their loan qualifications to protect their bottom line. If severe enough, these actions could bring about an actual shrinking of the money supply because modern day money is basically credit/debt. It is not cash. It is all merely computer entries of promises to pay. When those promises dry up, then what we now consider to be money dries up.

This would be a classic deflationary spiral in which the total money aggregates for the economy actually shrink. It would be a disaster. While unlikely, it is not impossible. The collective mood of the billions of spenders and investors that make up modern day economies cannot be predicted with certainty. Monetary deflation could happen. It all depends upon how vigorously the Fed is willing to pursue the outright printing of new money, and then how vigorously the people will be willing to spend it.

The Terrible Choice We Face

What are we to conclude from all this? The level of credit and debt that we are now creating CANNOT continue to be increased at a faster rate indefinitely? Eventually the credit/debt expansion on the part of the Fed will encounter what a runaway freight train with ever-increasing speed must encounter. Either its engineers slow the speed, or the train flies off the tracks. It will be the same for the Fed; either it slows credit expansion, or it flies off the tracks into a Weimar-style oblivion. But if it slows the speed of money/debt creation, it puts the economy in terrible jeopardy because the Dow cannot survive such a slowing. The fact that all optimists think it can is one more example of how men hide their heads in the sand in face of uncomfortable truths.

The paramount question before us then is how long before the Fed's money/debt train must begin to slow in speed so as to avoid a Weimar-type scenario? Impossible to say, but hopefully the reader can see the dilemma we are now in. The Fed must continue to expand credit and debt at an ever-increasing rate because just slowing the "speed of expansion" will bring on price deflation in the crucial asset sectors such as equities and real estate that have been expanded into bubbles.

This is why Scylla and Charybdis will descend upon us in tandem, and why eventually the crisis will be horrendous. Contrary to the grand Keynesian illusion, the Fed cannot just moderately inflate and maintain a steady expansion of debt in the economy over time! Credit/debt creation loses its power to stimulate over time as the total debt of society increases. This leads eventually to the necessity of helicopter money, i.e., massive printing of new money that doesn't require the multiplier effect of fractional reserve banking to be effective. It is just injected straight into the economy via monetized deficits for military, pork and welfare spending. It is actual cash that ends up in the pockets of consumers and doesn't require them to apply for a loan. This is the last straw grasped for by a desperate Fed trying to maintain a decent GDP growth rate. This step will, of course, lead to rapidly rising prices, and if done too vigorously, runaway inflationary prices and the complete collapse of the currency.

The only alternative will be to bite the bullet and accept the necessity of a ravaging meltdown in order to work off all the debt. The reason why the meltdown must be ravaging is because the level of "debt creation" we have engaged in for the past 30 years has been gargantuan, and its growth is now accelerating like a heroin addict's dosage levels. This must bring a severe corrective phase to balance such insanity. This is the way the laws of nature work; actions bring reactions in proportion to the size and intensity of the original action.

This is the horrific dilemma that now confronts the boys at the Fed. This is Scylla and Charybdis starkly staring them in the face, and saying, "Which one of us do you prefer? You must choose; you cannot have an in-between scenario! You have broken the laws of nature with too much abandon for far too long! Your greed and power lust are now coming home to roost. You must pay with suffering."

Not Yet Rome

This type of talk did not endear me to the optimists at all, so they changed tactics and zeroed in on what they felt was the real lunacy of the Cassandra scenario. They protested that even if we are in for some hard times, we are not yet Rome and we will not see that happening anytime soon.

I agreed. But what we will see, I said, is a velvet-glove dictatorship taking over America in the next 20 years under the guise of a "new kind of freedom" that will very subtly attempt to smuggle us into a one-world tyranny. Yes, we will get through this massive debt problem. But the question we must ask is, "In what form will we get through?" As I see it, martial law and a rewriting of the Constitution to accommodate the jack-boots natural propensity to bang down doors is quite possibly the way in which we will "get through the debt problem."

Optimists must sooner or later come to realize that there is no moderate, soft-landing scenario that we can bring about between Scylla and Charybdis. It is too late for that! We must choose, and both alternatives bring with them a high probability of some kind of ruthless dictatorial takeover of our country. This, a rational person gleans from history and human nature. Men will opt for tyranny when chaos is clawing at the edge of their survival. They will forfeit their liberty in hopes of establishing stability.

This is why our role in the gold community is not just to try and profit from the meltdown scenario, but also to educate the people as to how we must climb out of the maelstrom. We, who have been blessed with a sounder grasp of the cause and effect relationships taking place here, must try to help our fellows understand the nature of the crisis descending upon our society. We must try and explain to them the true nature of the chaos and its Federal Government-megabank origin. We must educate them that liberty and economic chaos do not go together. On the contrary, liberty and economic order go together as Adam Smith and the Founding Fathers understood. It is our centralized, manipulatory government that has brought us to the chaos. It is government that is obliterating the harmony of our economy in the way that a bear disrupts an industrious beehive in pursuit of the honey that those bees are producing. Government's paws are large and clumsy, and they wreck everything they touch in the path of their greedy reach.

Thus it is a fallacy to say that we must bring about a more centralized and more interventionist government in order to alleviate the chaos that is descending upon us. A true free-market will alleviate the chaos and still allow us to retain our rights and our freedom. It is not capitalism that has wrought our misery; it is government intervention into capitalism throughout the 20th century beginning with the Fed and World War I that has brought us to such a chaotic dilemma. Government is not the solution; government is the problem!

Can such a message be accepted in time? Whom knows? But a man must try to fight the forces of evil that he sees rising up around him. Even if he is doomed to defeat, he must fight. What kind of life have we lived if we let the black limousine boys win by default? If we have to go down, let us at least go down fighting with all the intellectual vigor that we possess, all the activist passion that we can muster.