Thursday, December 31, 2015

Happy New Year from a prestigious thief

We think of thieves as conducting their work when no one is looking, such as breaking into a house while the owners are away.  But the most successful thieves have done their stealing in plain sight, on a grand scale, while the owners are home and often with their tacit approval, though with sleight of hand techniques that not one man in a million is able to detect.  Such a thief entered our lives when Woodrow Wilson signed the Federal Reserve Act into law on December 23, 1913.  

A central bank such as the Fed has a remarkable character.  According to establishment boilerplate it’s purpose is to stabilize the economy and ensure prosperity and “full employment.”  The decision makers at the Fed are of necessity selected for their superhuman brilliance and neutrality of judgment, thus qualifying them to adjust the amount of money available to the banks so that they may in turn serve the interests of a public numbering some 322,267,564.  If for some reason certain members of the public don’t reap the benefits of this policy — or worse, end up losing their jobs, their savings, their businesses, and/or their homes — it’s not because the Fed itself is a bad idea.  How could it be?  Without the Fed as an emergency lender bankers threw the economy into Panics in the 19th and early 20th centuries.  No less than Ben Bernanke himself admitted this, telling Ron Paul the Fed exists to prevent Panics.  If economic problems arise, they won’t be Panics, and the culprit or culprits will be found somewhere other than in the Eccles Building.

There’s another side to the Fed’s character that is somewhat less wholesome than its public image and is best revealed by the manner in which it was founded.

The Bankers’s Dream

Before the Fed’s founding bankers in general and Wall Street in particular  complained about the lack of “elasticity” of U.S. currency.  “Elasticity” in this context is one of the great euphemisms of human history.  According to lore, this missing feature of “hard” money such as gold or silver was responsible for the Panics of 1873, 1884, 1893, and 1907.  The uncooperative coins that were behind the paper money substitutes couldn’t be increased in supply when needed.  They — gold and silver — were therefore said to be inelastic.  Because of this inelasticity, the legend persisted that banks were having trouble meeting the demand for farm loans at harvest time, as G. Edward Griffin explains*:
To supply those funds, the country banks had to draw down their cash reserves which generally were deposited with the larger city banks. This thinned out the reserves held in the cities, and the whole system became more vulnerable. Actually that part of the legend is true, but apparently no one is expected to ask questions about the rest of the story. Several of them come to mind. Why wasn't there a panic every Autumn instead of just every eleven years or so? Why didn't all banks— country or city— maintain adequate reserves to cover their depositor demands? And why didn't they do this in all seasons of the year? Why would merely saying no to some loan applicants cause hundreds of banks to fail? [Kindle, 7827]
The Morgan and Rockefeller bankers on Wall Street dreamed of having a central bank that could supply money when needed, as a “lender of last resort.”  A central bank would also control the rate of inflation of the banks under its control.  If bank reserves could be maintained at a central bank and a common reserve ratio established, then no one bank could expand credit beyond its rivals and therefore there would be no bankruptcies caused by the draining of currency from overly-inflationary banks.  All banks would inflate in harmony, and there would be tranquility and profits for all.   
All [banks] would walk the same distance from the edge [Griffin explains], regardless of how close it was. Under such uniformity, no individual bank could be blamed for failure to meet its obligations. The blame could be shifted, instead, to the "economy" or "government policy" or "interest rates" or "trade deficits" or the "exchange-value of the dollar" or even to the "capitalist system" itself.  [Kindle, 518-519]
With bankers off the hook, Griffin notes, “the door then could be opened for the use of tax money rather than their own funds for paying off the losses.”

The bankers who traveled a thousand miles to meet on Jekyll Island in November, 1910 understood they needed a cartel to bring their dream to life.  And a cartel meant they needed the threat of state violence to make it work.  Thus, included in their secret meeting were two politicians serving as the bankers’s advocates in Washington.  Together with the media they could slip their cartel on the American public over the Christmas holidays, though for political reasons it was delayed until 1913.  

The public would be a hard sell.  Americans were profoundly suspicious of Wall Street and cartels.  They distrusted anything big in business or government.  A central bank operating for the benefit of the big banks had no chance of becoming law, unless it was promoted as a way to shackle Wall Street itself.  This could be accomplished, it was widely believed, through a government bureaucracy of overseers.  

The Pujo Committee

Frequent speeches by Wisconsin Senator Robert LaFollette and Minnesota Congressman Charles Lindbergh brought public outrage over the “Money Trust” to a boil.  LaFollette charged that the entire country was under control of just fifty men; Morgan partner George Baker disputed the allegation, claiming it was no more than eight men.  Lindbergh pointed out that bankers had controlled all financial legislation since the Civil War, through committee memberships:  
These committees have controlled the nature of the bills to be reported, the extent of them, and the debates that were to be held on them when they were being considered in the Senate and the House. . .  No one, not on the committee, is recognized ... unless someone favorable to the committee has been arranged for. [Kindle, 8425]
Government, acting as the sword of justice, decided to take action, with most people oblivious to the fact that the executioner and the accused were one and the same.  From May 1912 until January 1913 it held hearings headed by Louisiana Congressman Arsène Pujo, then roundly considered to be a spokesman for the “Oil Trust.”  

The Pujo Committee hearings followed the usual pattern, bringing forth immense quantities of statistics and testimonies from bankers themselves.  Though the hearings were conducted largely as a result of the charges brought forth by LaFollette and Lindbergh, neither man was allowed to testify.  Gabriel Kolko explains:
The evidence seemed conclusive, and the nation was suitably frightened into realizing that reform of the banking system was urgent— presumably to bring Wall Street under control....  
The orgy of Wall Street was resurrected by the newspapers, who quite ignored the fact that the biggest advocates of banking reform were the bankers themselves, bankers with a somewhat different view of the problem.... Yet it was largely the Pujo hearings that made the topic of banking reform a serious one.  [Kindle, 8441]
Under the direction of Paul Warburg, the principal author of the Jekyll Island plan that in its essentials became the Federal Reserve Act, the banks provided 100% financing for something called the National Citizens League, the purpose of which was to create the illusion of grass-roots support for Warburg’s brainchild.  University of Chicago economics professor J. Laurence Laughlin was put in charge of the League’s propaganda, ostensibly to bring a measure of objectivity to the discussions.  John D. Rockefeller, whose representatives at Jekyll were Senator Nelson Aldrich and bank president Frank Vanderlip, had endowed the university with fifty million dollars.  [Kindle, 8476]

It should also be noted that Woodrow Wilson was an outspoken critic of the Money Trust in his 1912 presidential campaign, all the while receiving funding from the very Trust he was condemning.  Wilson:
I have seen men squeezed by [the Money Trust]; I have seen men who, as they themselves expressed it, were put “out of business by Wall Street,” because Wall Street found them inconvenient and didn’t want their competition.
When the Fed began operations in late 1914 the man in charge of the system was Morgan banker Benjamin Strong, Jr., one of the Jekyll Island attendees who served as president of the Federal Reserve Bank of New York from its inception until his death on October 16, 1928.  Strong, in the Morgan tradition, was an anglophile who inflated the U.S. money supply from 1925-1928 to keep Britain from losing gold to the U.S.  Details of Strong’s reign and the pre-Crash conditions he created can be found in Murray Rothbard’s America’s Great Depression. 

Conclusion

The big bankers got what they wanted: A cartel run by and for the bankers.  From What is Money? by Gary North:
A central bank provides emergency money to commercial banks. This reduces the threat of bank runs. Central banks intervene to save large banks. This is why no large American bank went bust in the Great Depression, while over 6,000 small banks did.  
Central banks are the enforcing arm of the fractional reserve banking system. Central banks determine which banks survive and which do not in a national bank run. Their job is to protect the largest commercial banks.

* Mysteriously, the excellent Kindle version of Creature is not currently available.

Friday, December 18, 2015

Take comfort, libertarians, the future is ours

Bad news: Government is getting bigger and more oppressive.

Good news: As it gets bigger it also gets weaker.

Better news: Technology is making us, as individuals, stronger.

How do we know government is getting weaker?  Because it is sustained by central bank counterfeiting and debt, and the lies of state sycophants.   How long can massive fraud last?  To say that government is corrupt is saying water is wet.  The whole apparatus of government — a bandit gang writ large, in Rothbard’s famous depiction — is an affront to civilization and human dignity.  Yet it’s the absence of government — anarchy — that we’re supposed to avoid at all costs. We’re avoiding it, all right, and we’re paying dearly for it.

Meanwhile, a quiet revolution is ongoing that almost no one seems to understand, yet is talked about incessantly: The rising power of technology.  Without asking our permission, technology is taking us down the path to anarchy.  How is this so?

Technology today is climbing up the curve of the exponential but if you look at any one point it appears linear.  In our day-to-day lives we are looking at points, seeing incremental improvements but nothing that would suggest radical innovation.  Yet it happens.  We see magic but consider it mundane.  We have smartphones that can transmit live video from around the world, and say “So what?”  We read about a young programmer who builds a self-driving car in his garage, and say “Huh.”   We need to step back and look at the trend to see where all this is going.  Ray Kurzweil explains:
Early stages of technology – the wheel, fire, stone tools – took tens of thousands of years to evolve and be widely deployed. A thousand years ago, a paradigm shift such as the printing press, took on the order of a century to be widely deployed. Today, major paradigm shifts, such as cell phones and the world wide web were widely adopted in only a few years time.
He adds (from The Singularity is Near, 2005):
A primary reason that evolution— of life-forms or of technology— speeds up is that it builds on its own increasing order, with ever more sophisticated means of recording and manipulating information. . .  [p. 39]
For example,
The first computers were designed on paper and assembled by hand. Today, they are designed on computer workstations, with the computers themselves working out many details of the next generation’s design, and are then produced in fully automated factories with only limited human intervention. [p. 40]
As the technology continues to build on itself, it will eventually take “full control of its own progression.”  It will no longer need human intervention.

But fear not, he says.  In the future we will not see super-smart robots controlling or wiping out humans; rather, what will evolve is a merger of humans with their technology.  Humans, as his book’s subtitle tells us, will “transcend biology.”  Kurzweil:
It would mean that human performance is not necessarily dependent on the biological substrate that comprises our brains today. The biological information processing in our brains is, after all, much slower than information processing in conventional electronics today. Information in our brains is transmitted using chemical signals that travel a few hundred feet per second, which is a million times slower than electronics.  [p. 122]
We will reach a point when “the pace of technological change will be so rapid, its impact so deep, that human life will be irreversibly transformed.”  Or as Kevin Kelly, founder of Wired Magazine, puts it: "all the change in the last million years will be superseded by the change in the next five minutes.”  Before we can say “So what?” again we will have reached what Kurzweil and others call the Technological Singularity.  

Kurzweil refers to this progression as the law of accelerating returns.  It is “inexorable,” and his books are packed with charts showing why this is so.  According to his prediction the law will reach the Singularity by 2045.  It sounds incredible but so have most of his other predictions that have played out to be true.    

He also considers the progression to be in terms of price-performance, meaning that “all of these technologies quickly become so inexpensive as to become almost free.” [SIN, p. 430]  It’s not the case that only the rich will have access to them.

But what about government?  Won’t it feel threatened and impede innovation?  As Kurzweil points out, “the nature of wealth and power in the age of intelligent machines will encourage the open society. Oppressive societies will find it hard to provide the economic incentives needed to pay for computers and their development.” [p. 128]

He brings up a crucial point: The law of accelerating returns has always operated under government-controlled conditions.  Government wars, depressions, genocides, currency debauchery, regulations, etc. have not slowed it down, or at least not for long.  To repeat, the law is inexorable.
Innovation has a way of working around the limits imposed by institutions. The advent of decentralized technology empowers the individual to bypass all kinds of restrictions, and does represent a primary means for social change to accelerate.  [SIN, p. 472; my emphasis]
Technology in the hands of the government can be a nightmare.  But as it disperses into the lives of individuals it becomes empowering.  Over time it quietly undermines government power, as Gary North tells us:  
Technological innovation is not going to be stopped by any local government, state government, national government, or the World Trade Organization. Technological innovation is about as close to an autonomous process as anything in history. 
Technological innovation is decentralized on a scale never before seen. Because of the Internet, because of 3-D printing, and because of innovation of all kinds, technological innovation is a tsunami that is headed for all government welfare programs, all government central planning, all government regulatory agencies, every labor union, and every good old boy network. Technological innovation is simply sweeping everything before it. 
This is going to change the whole shape of civilization, and it isn't going to take three generations. It is fairly far advanced now, and another 40 years of this is going to change the political landscape entirely.
I say 20 years, but either way government is doomed, liberty is enhanced.

For libertarians, that’s a comforting thought this holiday season.

Tuesday, December 1, 2015

Was the Fed ever a good idea?

There’s an idea at root among some libertarians that the Federal Reserve was originally a sound institution that has grown corrupt.  As a bankers’ bank, it’s fine, they believe, but not as the monster it’s grown to be.  If only we could go back to the Fed’s founding charter, all would be well.

I’m thinking of two well-known financial analysts who are unsurpassed in their analytical brilliance and knowledge of markets, who rightly regard the bureaucratic FOMC as the father of bubbles, busts, stagnation, and market privilege.  In their articles they hammer the Fed relentlessly and rightfully for its cluelessness, corruption, and threat to our material and spiritual well-being.  They have authored engaging bestsellers on the state of the economy and place blame where it belongs, on the monetary policies of the federal reserve.  

Yet, strangely, their recommendations stop short of eradicating the cancer altogether.  They want the Fed reformed, not abolished.  In each case they believe the Fed in its infancy was an institution compatible with free markets. 

Peter Schiff writes,  “the role of a central bank is limited: to control the currency so as to keep prices and interest rates fairly stable. . . .  This sort of central bank is one I could have supported. But the Federal Reserve Bank of the United States never functioned this way, and it probably was never meant to.“  And he concludes: “We never should have trusted the Fed to respect its boundaries.”  (The Real Crash, Ch. 2)

Later in his book he adds: “The ultimate destroyer of the U.S. dollar was the Federal Reserve System, which was supposed to be the guardian of the currency. As I discussed in chapter 2, the original idea of the Fed was a good one: providing a uniform currency backed by gold.”

In The Great Deformation, David Stockman tells us: 
The Federal Reserve System, therefore, was intended to be a ‘banker’s bank,’ not an agent of national economic management.  This founding charter has been literally blotted out of modern day discussions . . . [p. 197]
In his closing chapter, he lists various steps he believes will avoid the worst of possible catastrophes, beginning with the restoration of the Fed as a banker’s bank and the adoption of sound money, by which he means “a gold-backed dollar.”  (p. 707)

Why was the Fed created?

In the years before the Fed, the number of non-national banks was growing steadily, as was their percentage of total bank deposits.  By 1896 the number of non-nationals had grown to 61% and their share of deposits to 54%; by 1913 those numbers had increased to 71% and 57%, respectively.  Thus, Wall Street power was waning.  It was also being diminished by a new trend in industry in which growth was being financed from profits rather than borrowed funds. Bank interest rates were too high for many ventures.  

Then there was the long-standing problem with depositors.  They would leave their money with a bank, believing it was available on demand, while the bank turned around and loaned it out.  When enough customers lined up to withdraw their money, the bank could only close its doors (or get an exemption from government).  

So, from Wall Street’s perspective there was the problem of competition — from non-national banks and industry’s preference for thrift over debt — and the public’s irritating tendency toward bank runs when they panicked.

To address this situation, four representatives of the Morgan, Rockefeller, and Kuhn-Loeb interests, along with Senator Nelson Aldrich and Assistant Secretary of the Treasury A. Piatt Andrew, huddled secretly at Morgan’s retreat on Jekyll Island, Georgia in November, 1910.  The bankers accounted for an estimated one-fourth of the world’s wealth.  Led by Paul Warburg of Kuhn-Loeb they devised a banking cartel that became law in late 1913.  The Money Powers — Wall Street  — sold it to the public as a means of controlling the vast power of Wall Street.  

How was Wall Street shackled?  By appointing Wall Street bankers to the Federal Reserve Board and to the most important post in the system, Governor of the New York Fed.  (reference here)

The original manifestation of the Fed included such tidbits as these:
  1. The Fed’s monopoly on the issue of all bank notes; national and state banks could only issue deposits, and the deposits had to be redeemable in Fed notes and gold.
  2. All national banks were drafted into the Fed, and their reserves had to be kept as demand deposits at the Fed.  
  3. As banks around the country sent their depositors’ gold to the Fed they received Fed notes in return.  Thereafter, when the public made withdrawals they were handed Fed notes instead of gold coins.  The disuse of gold coins not only encouraged inflation, it made confiscation easier later on.
  4. With the centralizing of gold and bank reserves, the Fed doubled the inflationary power of the banks by reducing the reserve requirement from 5:1 to 10:1. With more credit available, the banks could lower their interest rates.  (reference here)
Banks violate their depositors’ property rights

As I note in chapter 5 of The Jolly Roger Dollar, the key to the success of free markets is the establishment and defense of property rights.  Government law has never recognized the right of depositors to their property, meaning their deposits.  Alan Greenspan in his famous 1966 essay writes:
Since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits . . .
Observe the language: “. . . the banker need keep only a fraction of his total deposits.”  How different the impact of that sentence would be if he had said: The banker need keep only a portion of his customers’ property that they entrusted to him for safekeeping. 

I’m not trying to nit-pick.  Consider that fractional reserve banking is behind most if not all banking crises, that if bankers respected their depositors right to their deposits they would be practicing full-reserve (100% reserve) banking.  Yet the law has always sided with the bankers:
As Rothbard observed, a bank that fails to meet its deposit obligations is just another insolvent, not an embezzler. Following the British ruling in Foley v. Hill and Others in 1848, U.S. courts consider that money left with a banker is, "to all intents and purposes, the money of the banker, to do with as he pleases.”  This holds even if the banker engages in "hazardous speculation." Thus, according to the state there can be no embezzlement because the money belongs to the bank, not the depositor.  (JRD, Ch. 4)
A bankers’ bank without government

The desire of bankers for a bankers’ bank is not misguided, as long as it’s disconnected from the government. 
In the interval between the War of 1812 and the Civil War, banking was de-centralized into state-chartered banks issuing banknotes redeemable in gold or silver coins. One of the highlights of this period was the development of a clearinghouse in Boston called the Suffolk Bank.   
Formed by prominent merchants, the Suffolk System allowed New England banks to accept the notes of other banks, including country banks, at par with specie. Members of the system had to keep a sufficient reserve of specie at Suffolk to redeem all the notes it received. Suffolk could not keep banks from inflating but it could remove them from the list of approved banks and cause their notes to trade at discount.  (JRD, Ch. 11)
Conclusion

The federal reserve was never a sound system that has grown corrupt.  It was always a corrupt system that has grown more corrupt.

Ron Paul has the right approach — End the Fed.  Get it the hell out of our lives and restore monetary freedom — the right to choose a medium of exchange.









Thursday, October 22, 2015

Hands off, Bernie!

Libertyhangout.org is looking for donations to pay for enrolling presidential candidate Bernie Sanders in Walter Block’s economics course at Loyola University in New Orleans.  Of course no one expects Sanders to take the course even if the necessary $3,096 is raised.  But it draws attention to what some people believe is a serious flaw in his thinking, that socialism is a defensible economic system.

(Note: Mises Academy offers a year’s worth of online courses (plural) in free market economics at 3% of the price above.) 

But to Sanders and many like him, it doesn’t matter if socialism is deeply flawed.  I’m sure he would say it isn’t but that’s irrelevant.  It doesn’t matter that it’s not even an economic theory but a political agenda of confiscation and redistribution. In case you missed it, Sanders’ socialism is not the kind that went bloody, like those in the USSR, North Korea, Cuba, China, and Nazi Germany.   According to Wikipedia, “Sanders favors policies similar to those of social democratic parties in Europe, particularly those instituted by the Nordic countries.”  He wants Americans to surrender their wealth to government bureaucrats obediently, then wait in line for their fair share while the anointed try to figure out what it is.  

Recently, Mises Institute published articles removing the shine from two socialist paradises, Sweden and Norway.  As one of the authors points out, the Nordic countries have looked prosperous because they’ve been consuming their capital, much like a family that heats its house by burning its furniture.

But none of this really matters.  What matters is that these regimes hold the moral high ground, much as the USSR did in the 1930s.  They were born of an inspiration to raise mankind through sacrifice of the individual to a higher calling.  They placed “society” above any of its members, unless those members controlled the levers of power.  

As collectivists, socialists are morally corrupt, not economically ignorant.  They need to learn not to touch what’s not theirs.  They need to learn to keep their hands to themselves, not in someone else's pockets.  They need to learn that theft is wrong, even if it’s done by majority vote.

Leonard Read launched the Foundation for Economic Education on March 7, 1946.  A week earlier Ayn Rand had written to Read explaining why she thought the organization’s program would not succeed, based on its prospectus.  She wrote:
The mistake is in the very name of the organization.  You call it The Foundation for Economic Education.  You state that economic education is to be your sole purpose.  You imply that the cause of the world’s troubles lies solely in people’s ignorance of economics and that the way to cure the world is to teach it the proper economic knowledge.  This is not true—therefore your program will not work.  You cannot hope to effect a cure starting with the wrong diagnosis. 
The root of the whole modern disaster is philosophical and moral.  People are not embracing collectivism because they have accepted bad economics.  They are accepting bad economics because they have embraced collectivism. . . . (emphasis added) 
When the social goal chosen is by its very nature impossible and unworkable (such as collectivism), it is useless to point out to people that the means they’ve chosen to achieve it are unworkable.  Such means go with such a goal; there are no others.  You cannot make men abandon the means until you have persuaded them to abandon the goal. . . . 
The moral and social ideal preached by everyone today (and by conservatives louder than all) is the ideal of collectivism. Men are told that man exists only to serve others; that the “common good” is man’s only proper aim in life and his sole justification for existence; that man is his brother’s keeper; that everybody owes everybody a living; that everybody is responsible for everybody’s welfare; and that the poor are the primary concern of society, its holy shrine, the god whom all must serve. 
This is the moral premise accepted by most people today, of all classes, all stages of education and all political parties. 
How are you going to sell capitalistic economics to go with that?  How are you going to get them to accept as moral, proper, and desirable such conceptions as personal ambition, economic competition, the profit motive and private property? 
It can’t be done.  Their moral ideal has defined these conceptions as evil and immoral. — Letters of Ayn Rand, Michael S. Berliner, Ed., pp. 256-258, 1995
No matter what evidence the free market offers for providing material abundance, for slashing the prevalence of disease, child mortality, and poverty, for promoting peace among people through trade, it is still, at base, premised on the idea of rational self-interest.  This is nothing new.  Adam Smith
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.
Notice Smith’s use of “humanity,” as if only charitable activities constitute a moral undertaking and anything resulting in a perceived advantage is somehow bereft of human decency.

People engage in free trade because both parties perceive it as a benefit.  I buy a hamburger because I value the food more than the money to pay for it, the seller of the hamburger regards the money received higher than the hamburger sold.  There is no theft.  There are no guns involved.  There is a mutual advantage through voluntary agreement.   It's a win-win.

This is the free market: People producing and benefiting through voluntary exchange.  No theft, no guns, no role for a coercer like the State.  Though people need protection of their property, the State has proven itself grossly unfit for the job.

Gary North has rewritten Hazlitt’s masterpiece and called it Christian Economics in One Lesson.  He adds something missing from Hazlitt’s presentation: Explicit reference to theft as a violation of morality. Being a Christian, he presents his moral case with references to Biblical passages.

Regardless of what you might think of his approach, most people view theft as wrong and harmful.  The problem arises when the thief is the government in the guise of a savior.  It is never a savior, except for the well-connected, and however grand and glorious it might seem it is always a thief in action.  

Never forget this.

What Sanders and other social planners need to learn is not economics so much as common morality. 


Friday, September 4, 2015

Pocketing the next president

Free marketers reviewing the major candidates for U.S. president in 2016 would feel justly nauseated at the prospects.  Unsurprisingly, every one of them promises to use the heavy hand of state power to solve our problems and make us prosperous — provided, of course, we’re members of favored voting blocs or generous supporters.

But is it possible our choices are not limited to this craven constellation?

Is it possible a new star could appear to brighten our spirits?

I say, “Yes, indeed!”  Look no further than Apple’s annual fall event scheduled for next Tuesday, September 9th.  It’s all but certain Apple will announce a more “proactive” Siri

Proactive, as in enterprising, bold, take-charge.  Proactive, as in possessing a trait shared by successful entrepreneurs.  Proactive, as in to offer help without being asked. 

Come Tuesday, Siri could be ready for prime time.  

Do you feel a milligram of hope in that possibility?  Think of it: If the candidates are Hillary, Donald, and Siri, who do you think would be the sentimental favorite?  Who do you suppose would be grabbing the headlines?  Getting the interviews?  Other than for masochistic amusement, why would anyone attend a scheduled speech by Clinton or Trump when they’ve got a proactive Siri right in their hands?

Can you picture the three of them in a debate?  For those uncomfortable seeing a smartphone on the dais, an appropriate avatar could be provided, perhaps along the lines of Simone.  Siri would have access to the world’s knowledge, much like IBM’s Watson

And consider this: Siri doesn’t lie.  Siri knows the Constitution.  Siri doesn’t forget, doesn’t equivocate, doesn’t bloviate.   She’s never rude and always accessible, unless your phone’s turned off.  And her contract runs for only two years instead of four.

Siri, as president, would need no cabinet or advisers.  She would continue doing what she does now, scouring the world’s knowledge to help you through the day.

There would be no need for an extravagant inauguration, and the Secret Service would be replaced by cyber security experts to defend against hackers.

Siri wouldn’t be “your president.”  She would be your personal president.  “Your president” was never yours, he belonged to the moneyed cabal that got him elected.  

When was the last time Hillary, Donald, or any other politician did anything for you personally?  Did they help you find that sought-after restaurant or answer your query about telomere-shortened chromosomes?  Whatever politicians do they hit you up for it — extravagantly, over and over — whether you want it or not, while pretending they’re doing you a favor.

You say, “Siri’s not perfect.  She sometimes screws up.”  I say, “And the politicians?”  

And when the politicians screw up, who pays?

You say, “This is ridiculous!”  I say, “Who would better understand your needs?  Some multimillionaire living far away in a heavily guarded mansion, someone you never once meet, someone who cuts deals with God-knows-who or for what — or a knowledgeable young woman ensconced digitally in your purse or pocket, always on-call?”

You say, “She’s controlled by programmers we know nothing about!”

I say, “And the human candidates?  What do you know about the bankers pulling their strings?”  No banker pulls Siri’s strings.  That alone should get her elected.

You say, “She would form a partnership with the NSA and destroy what little privacy we have left!”  I say, “That horse left the barn long ago.”

You scream, “How could Siri sign off on new legislation?!  How could she issue executive orders?!  How could she continue the bombardment for democracy and oil in the Middle East?!”  I repeat, “Siri knows the Constitution.”

You say, “Wait!  Wait!  Siri was vetted as a possible candidate in 2012, by none other than Stephen Colbert!  When asked if she wanted to be president, she said, ‘I have everything I need in the cloud.’  There are no political offices in the cloud.  She doesn’t want to be president!”

I say, “Precisely.”

You say, “Janet Yellen will be up for renewal or replacement in 2018.  How will Siri handle that?!  How will Siri ensure the Fed doesn’t collapse because the Fed’s chair is empty?  How will Wall Street make its profits without Fed “stimulus”?  How will the Fed keep increasing the cost of living through inflation targeting or ZIRP?  How will the Fed bail out the TBTFs when the bubbles pop?  Who will run the monopoly’s printing presses without a viable FOMC?  What will happen to the fiat dollar?  What if people start using whatever they want for money?!”

I say, “Siri for president!”






Sunday, August 9, 2015

It’s challenging to be a pessimistic libertarian

Optimism is a state of mind.  It means to be hopeful or confident about the future.  It is a belief that the movie you’re starring in will have a happy ending, no matter how bruising the journey getting there.

No one knows what the future will bring because the future doesn’t bring anything.  People do.  You and I and the rest of the world make the future, some more so than others — some a lot more so.  The leading future-makers of the past century — at least those who entered national politics — have left a long trail of blood and misery, and today’s political leaders are staying the course. 

There’s an old saying: “Man proposes, but God disposes.”  If the U.S. government is today’s god, what chance do a relative handful of freedom-loving people have against such an institutional behemoth?  We’re only a false flag away from martial law.  The internment camps are built and ready for occupancy.  The police are militarized and ready to carry out orders.  The voters remain insouciant.  This is no time for optimism.  It’s time to run for our lives.

But before we take off, we would do well to take stock of our assets.

There’s a scene in the Clint Eastwood movie “Absolute Power” that illustrates the point I wish to make.   Eastwood, as legendary jewel thief Luther Whitney, witnesses the murder of a young woman during one of his heists.  The president (Gene Hackman) and his SS agents are the murderers.  The victim is the wife of the president’s biggest supporter, an octogenarian billionaire (E. G. Marshall) whose mansion Luther was robbing.  Whitney was hiding behind a one-way mirror at the time but later learns he’s a suspect, because of the missing jewels.  Luther knows the president’s henchmen will try to kill him before he can expose them and rather than fight such a powerful foe makes arrangements to leave the country.

While at the airport ready to depart he sees a staged press conference on TV.   It’s an appalling political spectacle.  A mournful president is offering sympathy to the bereaved husband, who’s standing beside him.  “This man has been like a father to me,” he announces, then turns to his friend. “I would give the world to lessen your pain.” He blots his eyes, apparently too choked up to continue.

Luther simmers with fury.  “You heartless whore,” he says aloud to the TV.  “I’m not about to run from you.” 

Luther rediscovered his true grit.  He also had conclusive evidence in his possession, as well as a daughter he cared about.  What about you?  If optimism still seems like a stretch, ask yourself what it would take for you, an informed libertarian, to be pessimistic.

First and foremost, you would have to view your “informed libertarianism” as thoroughly grounded in blind faith, not to mention wrong.

More precisely, to be pessimistic you would have to believe that the Keynesians are right, that the current recovery is indeed real and not a bubble, that free markets are inherently flawed and in need of regulation, debt-financed stimulus, bail-outs of the big boys, and an instantly-inflatable money stock to shore up emergencies.  You might long to be free, but the economic truth is, notwithstanding such longings, freedom in a social context is a return to the robber baron days of the 19th century.  

Along with this, you, an informed libertarian, would have to believe that Mises, Rothbard, Hazlitt, Salerno, Hulsmann, DiLorenzo, Paul, Rockwell, de Soto, Shostak, Woods, North, Murphy, and many other Austrian authors were either grossly ignorant or lying when they championed unhampered free markets and sound money as the necessary precondition of peace, freedom, and prosperity.

Along with this, you would have to ignore the overwhelming data showing that market economies improve living standards and concede that what we need is more government in our lives.

For a libertarian to be pessimistic, you would have to believe that bureaucrats and other time-servers inoculated against market forces will outwit entrepreneurs in the long run.  You would have to believe that politicians who steal your money to start wars and bail out their friends contribute more to our welfare than Tim Berners-Lee, inventor of the World Wide Web, or Jeff Bezos and countless other entrepreneurs. 

As a pessimistic libertarian, you would have to believe that central bank counterfeiting produces a sound monetary system, that a market-selected money inevitably goes astray, that money under control of a politicized committee produces the best results for everyone, and that a managed monetary system will last indefinitely.  You would have to believe gold is truly a barbarous relic, of no more value than a pet rock (when in fact it's more like a door stop, where "door" refers to government).

Along with this, you would have to believe that in this age of Wikipedia, web browsers, Khan Academy, Mises Institute, YouTube, the Ron Paul Curriculum, Facebook, Twitter, Skype, texting, email, TED, the proliferation of web-accessible computing devices, and the high Alexa ratings of libertarian web sites, the government will maintain its grip on education, keeping the vast majority of people clothed in tax-funded wool, inculcating the population with the court view of history, with the state/Keynesian view of crisis management, and getting them to swallow whole the pronouncements that pass for news and rational commentary on banker-controlled media.  

Along with this, you would have to believe John White, Daniel Ellsberg, Frank Serpico, Perry Fellwock, Mark Felt, Michael Ruppert, Frederic Whitehurst, Karen Kwiatkowski, Jesselyn Radack, Sibel Edmonds, Joseph Wilson, Samuel Provance, Russ Tice, Thomas Andrews Drake, Edward Snowden, Chelsea Manning, and numerous other whistleblowers are cowardly traitors and are universally regarded as such.  You would have to believe that these people were determined to subvert the lawful undertakings of government rather than exposing the government’s heinous wrongdoings.

Along with this, you would have to believe that the decentralizing, deflationary, and individual-empowering character of information-based technologies, which has been advancing at an exponential pace at least since 1890 and which is powering research in other fields such as medicine (where 3-D printing is producing surrogate body parts) — and which has put in your pocket a device with more computational power than an early 1990s supercomputer — will slow significantly because engineers and researchers are at a loss to move us beyond the current computing paradigm, Moore’s Law.  

It’s challenging to be a pessimistic libertarian.  Luther was nearly assassinated and his daughter almost killed in “Absolute Power,” but in the end everything worked out.  Don’t let the fact that the movie is fictional discourage you.  Use fiction as a guideline and make your own movie real.  If you feel your optimism fading turn up the grit and move ahead. 




Monday, July 27, 2015

Why we should abandon the State

Revisionism, according to Harry Elmer Barnes, is bringing history into accord with the facts.  Why would history and factual evidence be at odds?  Because governments, per Orwell, falsify the past to keep the population subservient.  If people really knew what governments had done they would want less of it than they have.

How much less is the question Lew Rockwell addresses in his book, Against the State: An Anarcho-Capitalist Manifesto, released in May, 2014.  As the title makes clear, Rockwell argues for the complete elimination of the State.

Many people otherwise favoring unfettered freedom will qualify their position with an inevitable “but” — “but we need government to provide physical security and dispute resolution, the most critical services of all.”

Really?

If the free market is the “arena of voluntary interactions between individuals” that has proven so fruitful over the past 250 years, why does it need a coercive monopoly — the State — providing its most critical services?  Monopolies, he reminds us, are characterized by higher prices and poorer service.  Furthermore, the State, because it lacks the profit and loss test for allocating resources, “has no idea what to produce, in what quantities, in what location, using what methods.”  Given the importance of physical security and dispute resolution why do we assign its provision to such a thoroughly flawed institution?

Morally, the state fails in every way we consider moral, Rockwell points out. Instead of acquiring revenue through voluntary trade it steals from us and calls it taxation; it not only steals it tells us it’s our duty to comply if we want a civilized society.  If this sounds fishy we better get with it because this is the only way we can keep barbarians outside the gates and criminals from breaking into our homes.  Instead of attempting to provide for the general public, the state greases the squeaky wheels that lobby for special favors in exchange for votes or campaign contributions.  

To paraphrase Major General Smedley Butler, the State is a racket, the oldest and easily the most profitable, and surely the most vicious.

Yet we are indoctrinated to view the State from an early age as a positive force, thanks to its control of the educational system.  We are encouraged “to consider the State’s predation morally acceptable, and the world of voluntary exchange morally suspect.”

But even if one agrees that the State is an unwanted invader in our lives, does it necessarily follow that it should be eliminated?  Isn’t it instead a strong candidate for reform?  Rockwell says reform is futile.
Governments have no interest in staying limited, when they can expand their power and wealth by instead increasing their scope.  
The next time you find yourself insisting that we need to keep government limited, ask yourself why it never, ever stays that way. Might you be chasing a unicorn? 
What about “the people”? Can’t they be trusted to keep government limited? The answer to that question is all around you.
The State’s wars

If war is the health of the state, then the U.S. state has achieved a remarkable degree of well-being.  As Rockwell argues, the State’s health does not produce a corresponding degree of health in Americans or people in other countries it is allegedly trying to help.  Quite the opposite.

In demonstrating the State’s disregard for actual human beings, he cites the 60 Minutes interview in 1996 with then UN Ambassador Madeleine Albright, with her infamous remark about the deaths of half a million Iraqi children being “worth” the price of UN economic sanctions.   That Albright did not dispute the statistic has been taken by sanctions opponents that it was legitimate.  At the time, the US-led sanctions were an attempt to compel Iraq “to disclose and eliminate any weapons of mass destruction.”

Estimates of the number of Iraqi deaths during the first four years of the Iraq War range from 151,000 to over one million, with Rockwell emphasizing the latter figure.  These are only estimates because the U.S. did not think it worthwhile to track Iraqi (or Afghan) deaths.  In the frank words of U.S. General Tommy Franks, “we don’t do body counts.”  

Whichever figures are closer to the truth, the so-called Operation Iraqi Freedom resulted in Operation Iraqi Death and Destruction.

Rockwell attributes American indifference to Iraqi suffering to “this mysterious thing called nationalism.”
[It] makes an ideological religion of the nation’s wars. We are god-like liberators. They are devil-like terrorists. No amount of data or contrary information seems to make a dent in this irreligious faith. So it is in every country and in all times. Here is the intellectual blindness that war generates.
And the blindness is ideological, not technological.  We are the good guys.  “Every nation believes that about itself, but freedom is well served by the few who dare to think critically.”

He continues:
Something at the heart of American culture leads us to believe that everyone in the world would be pleased to be ruled by us. We seem to have great difficulty in sympathizing with the victims of US foreign policy. In addition, the whole of modern life seems to teach us that force is the answer to all problems. This is the basis of all domestic policy as recommended by both right and left. The Iraq War is nothing but an extension of this model.  (My emphasis)
Rockwell goes on to examine other wars in our history, particularly the Civil War and World War II, and shows that the government was not fighting to defend the freedom of Americans.  In the first case, Lincoln, as he threatened to do in his first inaugural, invaded the South to force it to collect a high federal tariff, which was an attempt to force southerners to subsidize northern manufacturers.  World War II was the capstone of two previous government disasters, World War I and the Great Depression, and it took government treachery to get the Japanese to strike the first blow and change Americans' attitude about entering the fray.

Wars against Americans

The government doesn’t limit itself to wars against other states.  The War on Drugs is manifestly a war on American civilians that “needlessly puts thousands of people in jail and discriminates against blacks, for a completely illegitimate purpose.” 
Almost everybody today realizes that Prohibition was a failure: the attempt to regulate alcohol consumption didn’t work and brought crime and civil liberties violations in its wake. . .  But if most people reject the Prohibition Amendment as an undue restriction on personal freedom, shouldn’t they reject the war on drugs as well?
It’s not just astronomically high incarceration rates that this war has produced.  Quoting Laurence Vance, he writes:
The war on drugs has destroyed financial privacy. Deposit more than $10,000 in a bank account and you are a suspected drug trafficker. ... The war on drugs has provided the rationale for militarizing local police departments. ... The war on drugs has resulted in outrageous behavior by police in their quest to arrest drug dealers. ... The war on drugs has eviscerated the Fourth Amendment’s prohibition against unreasonable searches and seizures.
The State’s monopoly of legal coercion can be invaluable for groups that want to impose their agenda on the rest of us.  As the agenda produces legislation and more bureaucracy, government expands, which is another way of saying more of our liberties disappear. 

Environmentalism, the call for tyranny

The environmentalist movement regards humans as the number one threat to the survival of the planet, and today “it holds the moral high ground.”  Nature is pure and man a blight.  The great evil is capitalism and the Industrial Revolution.  If you’re burdened with a terminally-ill disease, suggests an EarthFirst! Journal article, “Don’t go out with a whimper; go out with a bang! Undertake an eco-kamikaze mission.”  Don’t jump off a bridge — blow it up.  

Yet there’s no denying we have environmental problems.  Rockwell returns to the free market for a solution: 
The answer is to privatize and deregulate everything, from trash pickup to landfills. That way, everyone pays an appropriate part of the costs. . . .  The choice is always the same: put consumers in charge through private property and a free price system, or create a fiasco through government.
But some problems are global in scope, say the environmentalists, and only a world government can solve them.  How are we going to keep the air clean and the water potable without forcing people to radically change their behavior?

In economics, if something is not owned but used by many, it is called the “tragedy of the commons,” a term popularized by Garret Hardin.  The problem, to quote Aristotle, is “that which is common to the greatest number has the least care bestowed upon it.” 

Robert P. Murphy in his Mises Academy Energy Economics course explains the problem with an example of overfishing.  Government owns lakes and won’t allow people to fish there without rules.  And the rules are many: Boat size, net size, size of the fish that can be caught, etc.  If it took a laissez-faire approach instead, people would come in and clean out the lake with huge boats and sophisticated fishing equipment.  Government thus imposes rules to make fishing less efficient.

But if the lake were privatized, the owner would have an incentive to act economically responsible.  He would charge an appropriate price rather than cripple the efficiency of his customers.

As Rockwell tells us,
[If] people had property rights in the streams and rivers running through their land, they could prevent pollution just as they prevent trash-dumping in their front yard. And if fishermen and homeowners held property rights in the coasts and adjacent waters, they could prevent pollution and properly allocate fishing rights.
The State’s Creature 

He next turns his attention to the engine of State growth: the central bank, which in the U.S. is the Federal Reserve System.  

The literature on the Fed would fill an ocean, but it’s essential character is easy to describe: It has monopoly control of the nation’s money supply, which today consists of paper bills and digits in bank accounts.  The power to create money at will allows it to guarantee the solvency of the biggest banks and serve as the federal government’s ATM machine. 

If you remember only one thing about the Fed, allow me to suggest that you never forget it is a creature of government.   It is not a free market entity.  Parts of it are privately owned but without the State none of it would exist.  

It is said the Fed is a necessary appendage to make the free market run smoothly, without the Panics that once plagued it.  It is in fact the second-worst thing to happen to free markets, with the number one villain being the State itself.  

Panics were the market’s disincentive for the perennial banking practice of fractional reserve banking.  With fractional reserve banking the banker says to its depositors: Your money is safely in our care anytime you want it.  When enough depositors sense that this may not be true, they line up at the bank demanding their money, which the bank cannot provide.

In pre-Fed days the government would allow favored banks to turn depositors away.  One would think the bank would be charged with embezzlement, which is defined as “the fraudulent appropriation of funds or property entrusted to one’s care but actually owned by someone else.”  Not so.  English courts circumvented this problem by declaring the money deposited with the banker is really his, not the depositor’s, and American courts have done the same. See here for historical details. 

Without the State banks that practiced fractional reserve banking would be far more cautious with their depositors’ money, at the very least.

Today, the central bank is ready to print money at a moment’s notice to support irresponsible banks.  The central bank is also ready to print money to support the state’s military adventures and welfare schemes.  It’s a nice racket for those at the top of the food chain, but not for the rest of us.  

Rockwell is careful to point out the distinction between hard times created by central bank meddling and hard times that arise for other reasons, such as war or natural disasters.  The latter may not be avoidable but the former certainly are.  Drawing on Mises’s circulation credit theory, he explains how, when the central bank artificially lowers interest rates, entrepreneurs are fooled into believing long-term projects are sustainable when in fact the resources don’t exist for completing them. 
The public has not made available [through increased savings] the additional means of production necessary to make the array of long-term production projects profitable. The boom will therefore be abortive, and the bust becomes inevitable.
It was this “misdirection of resources into unsustainable projects” that led to the Crash in 1929.  This is crucial to understand, Rockwell points out, because the prevailing economic approach was (and still is) to consult various aggregate measures for the health of the economy, particularly wholesale prices.  By this measure all seemed well.  As Rothbard explains in America’s Great Depression, 
the stability of wholesale prices in the 1920s was the result of monetary inflation offset by increased productivity, which lowered costs of production and increased the supply of goods. But this “offset” was only statistical; it did not eliminate the boom–bust cycle, it only obscured it. The economists who emphasized the importance of a stable price level were thus especially deceived . . . [pp. 169-170]
Economist Irving Fisher was one of those deceived, Rockwell notes, and was completely blindsided by the Crash.  Rockwell:
In the 1920s as now, fashionable opinion could see no major crisis coming. Then as now, the public was assured that the experts at the Fed were smoothing out economic fluctuations and deserved credit for bringing about unprecedented prosperity. And then as now, when the bust came, the free market took the blame for what the Federal Reserve had caused.
He concludes:
The century of the Fed has been a century of depression, recession, inflation, financial bubbles, and unsound banking, and its legacy is the precipice on which our economy now precariously rests.
And I wish to add, the century of the Fed has been a century of war.  

What we are today

At this point Rockwell identifies the social and economic system we have today, and it isn’t one most people would find comforting: Fascism.  Nevertheless, the shoe fits.
Fascism is the system of government that cartelizes the private sector, centrally plans the economy to subsidize producers, exalts the police State as the source of order, denies fundamental rights and liberties to individuals, and makes the executive State the unlimited master of society.
Of all the cartels the federal reserve is the most powerful by far, since it has monopoly control of the money supply.  Cartels derive their power from the coercive monopoly of the State.  In his pathbreaking book, The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916, Gabriel Kolko explains that cartels and regulations began with the desire of big business to protect their turf and profits from upstart competition.  Voluntary arrangements within industries weren’t working so businessmen turned to government for help.  

When bankers partnered with government to establish the Fed it wasn’t long before money itself (gold) was banished domestically (1933) then later altogether (1971).

The money we have today is a loaded deck, and the dealer is the Fed.

Rockwell cites the year 1985 as the year in which “it became more common than not for a household to have two incomes rather than one.” Women were entering the workforce to keep family incomes stable.  Why was this necessary?  Fed inflation and an outpouring of new regulations were jacking up the cost of living.  Median family incomes today are only slightly better than they were in the Nixon era.

So should we seek reforms, tweak the system here and there?  Emphatically not, says Rockwell.
The problem is more fundamental. It is the quality of the money. It is the very existence of 10,000 regulatory agencies. It is the whole assumption that you have to pay the State for the privilege to work. It is the presumption that the government must manage every aspect of the capitalist economic order. In short, it is the total State that is the problem, and the suffering and decline will continue so long as the total State exists.
Someone might reasonably claim that the Founding Fathers’ ideal of limited government is the solution, the so-called night watchman view of the State.  While this would be a vast improvement over what we have, there is no way to prevent the watchman from becoming a tyrant.  No one is watching the watchman or curbing his power.  Besides, the Founding Fathers were not strict libertarians.  American fascism got its start at the Constitutional Convention and has expanded ever since.
Well, you might say, even if the statist, fascist tradition goes very far back in American history, can’t people reverse it? Can’t we return to limited government, as the Constitution mandates?  
This solution can’t work. It suffers from a fatal flaw. The Constitution creates a government that is the judge of its own powers.
Nor will focusing on democracy limit the State.  If democracy is understood as majority rule, what safeguards will we have to protect minorities?  What safeguards exist to prevent the majority from “eating the seed corn” or from doing anything at all?

How does a stateless society work?

If we have eliminated all varieties of State rule, we are left without a state.  How then do we live without one?

Simply put, we rely on the free market for everything, though “we can’t specify in advance exactly how the free market will work.”  But we know on a fundamental level what we need.  We need rights.  We need the right to acquire and own property.  And we need to “accept a common law code that spells out these rights.”

We also have the right to self-defense.  But as most people can’t do that for themselves we need an agency that will provide it for us.  We also need some means of settling disputes.

We don’t want a monopoly securing our rights because States have not only failed to do the job, they have violated our rights at every turn.    

The anarcho-capitalist solution follows from the nature of a voluntary society: “People would purchase protection and judicial services on the market, just like other goods.”

That simple?  That simple.

Rockwell quotes Rothbard for details:
Most likely, [protection and judicial] services would be sold on an advance subscription basis, with premiums paid regularly and services to be supplied on call. . . It seems likely, also, that supplies of police and judicial service would be provided by insurance companies, because it would be to their direct advantage to reduce the amount of crime as much as possible.
Further:
The checks and balances in the stateless society consist precisely in the free market, i.e., the existence of freely competitive police and judicial agencies that could quickly be mobilized to put down any outlaw agency. . . 
Did someone mention foreign policy?  Rockwell has an answer:
There is no danger of an aggressive or imperialist foreign policy, because there is no foreign policy. Each protection agency is confined to protecting its clients. Agencies, or allied groups of agencies, would defend against an organized invasion.
Conclusion

There is much more to Lew Rockwell’s argument than I have presented here, and I encourage readers with unanswered “buts” to see what he has to say.  

Overall, Rockwell presents his case in typical Rockwellian fashion, which is concise, lively prose that pulls no punches: 
We are in the stage of late fascism. The grandeur is gone, and all we are left with is a gun pointed at our heads.
Nor does he go it alone.  He calls on experts such as Murray Rothbard, Ludwig von Mises, Hans-Herman Hoppe, Tom DiLorenzo, John Flynn, Lysander Spooner, Albert Jay Nock, Robert Higgs, Glenn Greenwald, and even opens with a quote from Thomas Paine.

Perhaps an abbreviated version of this book would be enticing to those looking for a brief introduction to a market-only society.  Though his book is not long, it does take the reader through details that an introductory work could safely omit.  

Lew Rockwell deserves high praise for a work I consider a must-read not just for libertarians, but for any person looking for answers in a world where wars and economic crises have become the norm.




    













The State Unmasked

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