Peace through superior firepower

Peace through superior firepower

A few days ago I was engaged in conversation with a non-conspiratorially minded chum who works in UK property sales

Times are definitely a changing as, for the first time, he acknowledge to me that, yes, the UK possibly was headed towards a period of severe economic hardship for the massses. He was, however, confident that the UK government ‘has got clever people working behind the scenes who can see what’s coming and the government probably has already started spending money on starting up some industries that will help pay us out of the mess the country’s in’

My response was that there is absolutely no sign of that whatsoever and that whatever industry we could think of getting into, the Asian economies can think of getting into with a much lower cost base.

Even if they consented to enduring the same standard of living as the Chinese or Indians, the wages of British workers cannot be slashed to be competitive with Chinese or Indian labour because UK property costs are so much higher. Property costs that the British have to meet directly in rent or mortgages and indirectly through the rentier element concealed within the price of essential goods and services

However, as I explained to my chum, I have seen copious evidence that the British, and other Western, establishments are preparing for the possiblity of some kind of economic collapse. They haven’t invested much in the way of productive manufacturing industry but they have spent shed loads on tooling-up their police forces

But that, my chum argued, was necessary because of the threat of terrorism…

Evidently, he’s still in need of a little more conspirasizing

I’ve been pulled up a couple of times in this blog for suggesting that British police have become more like para-militaries in recent years. The people who’ve pulled me up have have referred to the pitched battles, complete with cavalry, during the miners strike and the treatment meted out to people like Blair Peach and Stephen Waldorf as being evidence that the police have always been a bit ‘tasty’ when it comes to dealing with people who get in their way

And, yes, these commentators have a point but, with all respect, have you taken a look at the British police recently…

Even former senior coppers and yes, though I still can’t quite believe it, Max ‘Have you read my book about how great the SS were‘ Hastings have recently written articles suggesting that having machine-gun toting police who can execute people with impunity is probably not the way for supposedly civilised societies to go…

Sir Max Hastings – sole liberator of the Falkland Islands and born-again bleeding heart pinko fag subversive

But even these (presumably) principled voices against the militarisation of our police compromise their argument by agreeing that, because of the threat of terrorism, there is a place for some British policemen to be kitted out with the kind of weaponry and mentality that wouldn’t be out of place in a 1970s junta, but only sometimes

Now, to me, it’s plain as day that the Terror threat is being at least bigged-up, and possibly at least partially instigated, by the numerous interest groups that benefit from a society collectively crapping its pants

But that’s actually a moot point

Even if I believed that the Terror threat was 100% genuine and as really, really scary as our Overlords keep telling us it is, we should still reject the surveillence state and militarised police on the time-honoured bases that those who surrender liberty for a little temporary safety really do deserve neither, that freedom has a price and that if we change our society in response to terrorism the terrorists have achieved their objectives

You will hear none of these arguments being promoted by British politicians, journalists or officially sanctioned (low) pressure groups like Liberty

The gun fashionably displayed by the group of licenced potential killers in this photo is a variant of the iconic Heckler & Koch MP5

The MP5 can chuck out bullets at rates of up to 500-600 rounds a minute. It’s black, it’s scary looking and it can kill a lot of people very quickly. It’s the kind of high-quality weapon that gives serious gun nuts a roaring chubby just thinking about it.

MP5s, and a smattering of the higher velocity H&K G36, are now a common sight in London in the hands of Metropolitan police officers. If you’re ever at one of London’s airports take a look up sometime and you’ll see police officers at the mezzanine levels strutting around with their MP5s, presumably ready to cut loose from elevated positions of fire at the drop of a hat.

If you think about it for a moment that doesn’t make a whole lot of sense. Even if the quality of domestic terrorist was to take a quantum leap up from the kind of sad losers who make bombs out of flour and set fire to their underpants to the kind of terrorists who actually have access to guns, are the police really going to open fire with machine guns in crowded airport terminals? And, even if so, why do those armed police have to be there right in front of our fucking faces all the time?

The answer, I fear, is the same reason why the government sent light tanks to Heathrow before the invasion of Iraq. That weaponry is not there to scare potential (and, remember, allegedly suicidal) terrorists. It’s there to scare us

The reason why I mention all of this now is because of this recent snippet from the State Broadcasting Company…

Police in training for ‘Mumbai-style’ gun attack in UK

…suspects were planning to copy the 2008 attacks in the Indian city of Mumbai*, where 10 gunmen went on a three-day rampage, killing 166 people and injuring more than 300, the sources said.

In response police armed response units are being given more powerful weapons.

Our correspondent said the UK authorities had been planning for such an attack ever since Mumbai* happened.

“David Cameron has taken a personal interest in the problem ever since his first threat assessment given to him when he took office in May.

“Now police armed response units are getting their firepower and their stocks of ammunition increased to deal with multiple terrorists armed with automatic weapons,” he said.

More powerful than MP5s and G36s?!

What the fuck are they planning to start dishing out?

Bring me the head of Silvino Herrera

[The beheading story is eerily similar to this quote I received from a troubled Marine vet, about beheading a Panamanian officer to send the head back to Noriega before the invasion:

“One of the ops I remember, “we” (me and the Army guys), took the head of a (what I now believe) high ranking military officer.  I carried “it” back to the C-141 we rode on, in a black cloth bag, and put it in a cooler with ice.  I vaguely remember the CIA guy talking about sending it to Noriega.” ]

Bring me the head of Silvino Herrera

“Us versus them” and other “modern” myths of war and civilization

By Daniel Patrick Welch
Against the background of the leaking of the USA’s  secret Iraq war crimes files by the whistleblower website WikiLeaks, Daniel Patrick Welch peers beneath the West’s self-proclaimed cultural and moral superiority in the face of atrocities against innocent people all over the world.

“When we peel away all the layers of burning flesh, all the carefully constructed fiction of human progress and benefits of science and technology, we must face a reality perhaps even more grim. There simply is no ‘us versus them’. The side claiming to represent progress has done more and done worse, using as low-tech and brutal methods as any on either side of the technological and cultural divide.” (Daniel Patrick Welch)

They behead – we do it with smart bombs. There is, of course, an ugly truth to this recently minted axiom: the horror of state terrorism is that the overwhelming machinery of death in the hands of all-powerful governments far outweighs individual atrocities by madmen, small groups and non-state entities. While, with their beheadings and murders of innocents, the heathen thugs and killers may indeed be barbarians, it is almost impossible to accomplish with their amateur methods the slaughter of half a million children, as did the Anglo-American/UN sanctions in Iraq.

“… the brutal repression of movements that strive for greater human freedom, workers’ rights and a life worth living is ignored, while the “atrocities” of those trying to resist are seen as backward and evidence of cultural and moral inferiority.”

This is the same reasoning that puts the lie to the sanitized concept of war and destruction which makes the self-satisfied “West” so smug and confident of its moral superiority. There is an underlying, and often overt, racism which allows so-called “modern” warmakers and their electorates to tolerate the huge disparities in casualties that have come to define modern conflict. In virtually every case, the brutal repression of movements that strive for greater human freedom, workers’ rights and a life worth living is ignored, while the “atrocities” of those trying to resist are seen as backward and evidence of cultural and moral inferiority.

However, one problem is not just that the disparity in terror torpedoes the moral superiority argument. It is true that the 20th century was indeed a most horrific one, unbeknownst to most lay observers: at its dawn, 90 per cent of war dead were combatants and 10 per cent non-combatants. By its end, the ratio was reversed, making it the most deadly and, arguably, least “advanced” century in human history. True also, the machinery of war, with its amoral measurements in “kilomorts”, its chemistry of napalm designed to stick to human skin and burn, its phosphorous and gas, its cluster munitions – not to mention the almost surreal evil of neutron bomb technology, which are meant to kill people while leaving buildings intact – shows that the actual brutality of burning flesh and exploding body parts is in no way less barbaric than other methods. The United States gets no props from the rest of the “civilized” world for instituting the pain-free technology of lethal injection to a practice most governments consider a barbarous anachronism.

When we peel away all the layers of burning flesh, all the carefully-constructed fiction of human progress and benefits of science and technology, we must face a reality perhaps even more grim. It is not merely us standing cynically by, wringing our hands while they hack each other to death with machetes, as when almost a million Tutsis died in Rwanda. There simply is no “us versus them”. The side claiming to represent progress, the “march of history” and the fulfilment of the human desire for freedom and self-rule, has done more and done worse, using as low-tech and brutal methods as any on either side of the technological and cultural divide. There is a famous photo, not of Nick Berg, not of John the Baptist, but of Silvino, one of the lieutenants in Augusto Sandino’s resistance army. Rather, it is a photo of Sr Herrera’s head held triumphantly aloft by a US Marine, a conquering hero of the few and the proud. It turns out we behead, too.

US Marine Lt Remmington holding Silvino Herrera's head, 1930

US Marine Lt Remmington holding Silvino Herrera’s head, 1930

When I was in Nicaragua, I heard testimony of the victims of Somoza’s National Guard, women with their breasts cut off, left alive and maimed on purpose to terrorize their families. Resistance fighters and their supporters and trade unionists killed with their genitals cut off and stuffed in their mouths. Victims forced at gunpoint to swallow a button on a string while laughing guardsmen kept trying to pull it up. Like all the henchmen throughout Latin America, these murderers, nun-rapists, “deplaners” (who simply pushed terror victims out of a moving plane to their unacknowledged deaths), clown-killers and assorted scum received training and backing from the CIA, the Pentagon and the dreaded School of the Americas. As Franklin D. Roosevelt, hero of the US mainstream left, once bragged: “Somoza may be a son of a bitch, but he’s our son of a-bitch.” It turns out we do all that other stuff, too.

Likewise, I had mostly considered the shot of triumphant soldiers standing atop a pile of bones of the conquered dead to be mainly a cartoon representation. Wrong again – the only such true photo I have ever seen was of US soldiers in the Philippines at the turn of the 20th century, when over a half million Filipinos were slaughtered in the successful attempt to secure the islands for the American empire. The scene is repeated ad nauseum in US history, in murderous rampages across our own continent from sea to shining sea, through Central America, the Caribbean and the Pacific. Despite George Bush’s audacity and isolation, there is absolutely nothing new about Iraq. Conquest, pacification, occupation and the transfer of “sovereignty” to a puppet government is the textbook modus operandi. The only phase yet to be completed is the few decades in which the world is supposed to forget the origins of the dictatorship, after which US forces return to suppress rebellion or resistance movements and install democracy, as if the cycle had no beginning.

In this context, it is almost unbearable to hear the shallow, mind-deadening “debate” between Democrats and Republicans about “how to handle” Iraq, not to mention the infrastructure of organized theft that transfers trillions of dollars from South to North, from workers to capital, from poor to rich, from brown to white. To my mind, there are three crises – allowing for some consolidation and overlap – which surpass all else in their urgency today. They can be summarized as empire (by which we include Iraq, Israel-Palestine, Venezuela, Colombia and the rest), WalMart and the crushing of labour, with its attendant rape of the national treasury and the healthcare system, and the prison state, whereby incarceration is abetting and supplanting vote suppression, the Klan and slavery as the new racist ideology.

“Self-delusional, feel-good bromides about the ‘greatness of America’ and a wilful suppression and misrepresentation of our history will seal the deal, and we will plummet headlong into the looming environmental catastrophe that is waiting to engulf us all.”

These are, of course, big problems. They are, however, exploding problems, and ones which threaten the very existence of humankind (combined with the rapacious consumerism which holds the lot together). Just the kind of all-encompassing issues one might foolishly expect a national election campaign to address. This huge history, soaked with blood and death for the benefit of profit and oligarchy, is completely unconcerned with the party hacks nibbling at its corners, unthreatened by the sorry excuse for “ideology” and “values” espoused by the political and economic system it nurtured and generated. Self-delusional, feel-good bromides about the “greatness of America” and a wilful suppression and misrepresentation of our history will seal the deal, and we will plummet headlong into the looming environmental catastrophe that is waiting to engulf us all.

As a young pupil celebrating America’s bicentennial, I remember being paraded in a choral production called “Our Country ’tis of thee”. One lyric still sticks in my mind and in my craw, sung by our chorus of mind-controlled, ignorant, chirpy sixth graders:

There’s a peaceful sky in my backyard
Far away from fear and doubt
But the whole wide world is my hometown
And I’ve gotta help my neighbour out
There’s a peaceful sky in my backyard
Far away from a far off land
But the whole wide world is my hometown
When freedom needs a helping hand

Thinking about it today still makes my skin crawl with embarrassment and self-loathing, even though I was only 11 years old. Sort of like a post-traumatic lapse for a former cult member. Lack of self-doubt combined with ignorance of one’s history is perhaps the most dangerous combination known to humankind. Torture at Abu Ghraib is not the tip of the iceberg; it is simply the latest link in the chain. Facing that history head on, with the disillusionment, fear and doubt that rationality and honesty implies, is the sobering task of those who would resist the current onslaught. It is the first step in a long, long road to sanity, and it is not a comfortable one. As Rosa Luxembourg famously remarked, “it will always be the most revolutionary act to say the truth out loud”.

Translations of this article are available in GermanPortugueseSpanish, and Turkish.

© Daniel Patrick Welch. Reprint permission granted with credit and link to

Crimes of the dictatorships in Eastern Europe

Unterzeichnung des "Hitler-Stalin-Pakt" im Jahr 1939 (Bild: AP) Signing of the Hitler-Stalin pact in 1939 (photo: AP)

Nazi torturers simply changed to the Stalinists

“Crimes of the dictatorships in Eastern Europe” conference of the Literature House in Berlin

Frank Hessenland

At a conference in Berlin, researchers discussed the cooperation between fishing Nazi crimes and those of the Stalinist dictatorship in the Soviet Union. But many projects have stalled.

In addition to the 40 speakers were more than a handful of listeners come, it would have probably been a hot debate in the rotunda of the Käthe-Kollwitz-Museum in Berlin-Charlottenburg. Because the focus of the three-day international conference on “crimes of the dictatorships in Eastern Europe” was the internationally controversial documentary “The Soviet Story”. It tries the Baltic director Edvins Snore show that between Stalin and Hitler, between SS and NKVD between Reichswehr and Red Army until 1941, such a close and friendly ‘working relationship’ was that one can speak of the equivalence of the two terrorist regimes, such example, the British historian Norman Davies in the movie.

“The whole Western world has lived for over 60 years with the assumption that the crimes were in the 20th century essentially Nazi crimes. And this assumption is very difficult to change. But mass murders are still mass murder.”

The film recalls the long-forgotten fact that Stalin had already starved seven million Ukrainians in 1932 on purpose, just as Hitler did 1942/43 with three million Poles. It displays documents to which experts on torture and forced labor camps of Nazi Germany and the Soviet Union exchanged words. Even with respect to the totalitarian claim of creating a ‘new man’, the design of propaganda similar to the regimes in the 30er/40er-Jahren. Only the terrorist walked into the Soviet-occupied countries after the war just continues, as reported at the conference “crimes of the dictatorship” from Eastern Europe who had come historians, archivists, and journalists. From Hungary, half a million went to the Siberian labor camp, from the Baltic States or from Romania even more, says historian Marius Oprea and civil rights activist from Bucharest.

“Deported came during the communist period are over 600,000 people for political reasons in labor camps and many have been. 200 000 died during this time and we are still hidden mass graves of people who were shot without trial, in the mountains and forests.”

Not infrequently, confirmed the deputy director of the museum “House of Terror” in Budapest, Hungary, the tormentors of the Nazis changed after the lost war, just the sides and continued for the Stalinists. Accordingly, today, many civil rights activists demand in Central and Eastern Europe of the legal equality of the two great crimes of dictatorships, for example, Hubertus Knabe, director of the memorial Hohenschönhausen:

“The same cars, same situation in the home loss and large population displacements. This is basically extremely inhumane totalitarian approach that is quite so universal that you discuss this topic is not always against each other, but can rather talk about how these regimes each have produced millions of victims. ”

Have achieved the former civil rights activist last year at the European level, the declaration of a Memorial Day for the Victims of Communism 23 August, the date of the signing of the Hitler-Stalin pact. But other projects are stalled, such as uniform European rules in dealing with the perpetrators, research initiatives consistent or uniform educational standards in dealing with the communist dictatorship. Considerable resistance experienced such efforts not only by the socialist parties in many European countries. Jewish organizations also fear the relativization of the Nazi past for obvious reasons. And then there’s the research from the perspective of perhaps the most important point is that the Russian archives for historians remain extremely difficult to access.

Crime turf war fear in Winter Olympics city of Sochi

THE huge cash influx for the 2014 Winter Olympics has raised fears of rampant corruption and a bloody turf war between crime clans.

The Sochi Games are the pet project of Prime Minister Vladimir Putin, who, like Stalin before him, has his summer residence on the outskirts of the Black Sea resort.

The Games are estimated to cost a record $14 billion. All the sporting facilities and stadiums, new railways, new motorways and a new airport have to be built from scratch.

The Kremlin was embarrassed last week after the murder of a crime boss known as “the Carp” was linked to crime gangs seeking a cut of the Olympic investment cake.

Eduard Kakosyan was drinking coffee at his regular table in a cafe in Sochi when a black-clad hitman on the back of a motorbike opened fire with an AK-47 assault rifle.

Kakosyan is said by police to have represented the criminal interests in Sochi of Aslan Usoyan, 73, known as Grandpa Hassan and widely described as the former Soviet Union’s most powerful criminal godfather.

Hassan narrowly survived an assassination attempt last month when a sniper shot him near the Kremlin. The botched attack is thought by Russian police to be linked to a row between Hassan and another powerful figure in organised crime, who is in jail partly because of his involvement in lucrative racketeering and construction scams in Sochi.

“Hassan controls a lot of business interests in Sochi, especially hotels and restaurants,” said a Russian crime expert. “The cash flowing into the city since it was awarded the Winter Games has been phenomenal. It has attracted the interest of organised crime, big time.”

Police are now bracing themselves for revenge attacks and a full-scale turf war.

The Sunday Times

“Al-CIAda” In Belfast?

[First official reaction was that this was not linked to “global terror” incitement, but just wait….]

Police find two bombs in Northern Ireland

October 31, 2010 – 11:29PM


Northern Ireland police said on Sunday they had found and disarmed two bombs, one near Belfast airport, blaming groups intent on taking the once conflict-torn province “back to mayhem and misery”.

Staff at Belfast International Airport raised the alert on Saturday afternoon after spotting a vehicle in the long stay car park, which contained “a viable device along with suspected flammable liquid”, police said.

It was made safe by explosives officers and the alert ended about 2.00am (1300 AEDT) on Sunday.

Air traffic was not affected and police said there was no link to the global alert provoked by the discovery of bombs on two US-bound planes on Friday.

Meanwhile in Lurgan, a town southwest of Belfast, about 40 kilogrammes of home-made explosive materials were found in a beer keg on Friday, prompting police to carry out a number of controlled explosions.

A number of nearby homes were evacuated overnight and, because the device was found under a railway bridge, the main rail service between Belfast and Dublin was suspended for 24 hours, police said.

“Both devices had the potential to cause injury and damage. They were left in places used by the public and with no regard for the public,” said Assistant Chief Constable Duncan McCausland.

He added: “In recent days police have stepped up their measures to counter the threat posed by misguided individuals and groups who seek to drag the country back to mayhem and misery.

“Our efforts will continue and we would ask everyone in the community to be vigilant about their surroundings as they go about their daily business.”

There has been a resurgence in attacks and attempted attacks in recent months, most blamed on dissident republican groups seeking to undermine peace.

For three decades up until the 1998 peace accords, Northern Ireland was scoured by violence pitching Catholic nationalists against pro-British Protestant unionists. The conflict left about 3500 people dead.

Last month, the British government raised the threat level from Northern Ireland-related “terrorism” to suggest an attack was now a “strong possibility”.

© 2010 AFP

Diplomacy turbocharged

Diplomacy turbocharged

By Neena Gopal
Diplomacy turbocharged

It’s only natural, that it would be here in the gleaming glass-fronted National Convention Centre in Hanoi, celebrating its 1,000th year and festooned with Vietnam’s national flags, that India and China’s intricate minuet should come to some kind of part denouement.

The bonhomie in Hanoi — from the elaborate courtesy shown by the Chinese premier Wen Jiabao to the host nation, the praise showered by Mr Jiabao on Prime Minister Manmohan Singh over his “sagacity and wisdom”, and again, over the clinking of glasses at the high table during the gala dinner when Dr Singh was seated, interestingly, between Mr Jiabao and Japanese prime minister Naoto Kan — begs the question: In the face of India’s fledgling steps to strings its own pearls across a region long seen as China’s stomping ground, and some say egged on by the United States and Russia, has Beijing, tuned in to “understand the voices of others around the globe,” reverted from its newfound ‘frown’ diplomacy to the ‘smile’ diplomacy that won them entry into a slew of economies in the first place?

No asnwers as yet. But India has deftly played along. Dr Singh, borrowing a leaf from the Chinese perhaps, in mouthing platitudes in the public domain has finally moved at a surprising pace on his moribund Look East policy, tying up civil nuclear ties with Japan and South Korea, military ties with Vietnam and Malaysia, and trade and economic bonds with Singapore, South Korea and soon with Thailand and Indonesia. All, uniformly wary of the demonstrably muscular face of the new China.

Vietnam, chair of Asean, could be the starting point when the scales finally fall from Asian eyes. Vietnam stands as a bulwark at the mouth of the South China Sea, a beneficiary of Chinese largesse and investment as are other countries in the South East and East Asian region where Beijing seeks to bolster its own economy and tie the investment hungry countries into a much tighter embrace.

Vietnam is the only nation to have defeated every invader — the Mongols several centuries ago, the French, the Americans and the Chinese more recently. While it wants to be the next Asian tiger, not chary of accepting once sworn enemy

China’s help to pull itself up by the boot-straps, it is its invitation to India, the United States and Russia to the East Asian summit, that has to be seen for what it is — summoning the cavalry against the economic and sabre-rattling militaristic power of Beijing, which has in recent months, steadily upped the ante.

China has laid claim to the Spratlys, also known as the Paracel islands, held Japan to ransom by halting a supply of rare earths vital to the development of advanced technologies, and made a dramatic shift in its India policy by not only reiterating its claim to the Indian state of Arunachal Pradesh but weighing in on the side of Pakistan on Jammu and Kashmir by offering ‘stapled’ visas to people from that state. The meeting of the Asean 10 and the six from the immediate neighbourhood — which includes India and China, and now Australia, New Zealand, Russia and the United States — is therefore, no accident.

Vietnam’s concerns, that in return for trade and development investment from China to speed up

economic recovery after years of wars, it could face an economic implosion as China manipulates its currency to create an artificial imbalance in trade, are echoed across the region.

Chinese officials have baldly told the US that the South China Sea is a “core interest” of Beijing. At the ASEAN Regional Forum Hanoi meet in July this year, nearly half the heads of the 27 delegations raised the issue. Only for the Chinese foreign minister Yang Jiechi to castigate and remind the Southeast Asian leaders of their economic ties with Beijing, and angrily threaten that they could be broken at any point. Sitting in the room was US Secretary of State Hillary Clinton.

This Asean-East Asia Summit is therefore all the more an eye-opener, coming as it does just days ahead of US President Barack Obama’s visit to India on November 6, as significant a signal as Dr Manmohan Singh’s state visit to Washington in 2009, of the place that India holds in the American calculus. Ditto, the nations from this region.

India’s reaction to the Chinese bogeyman has been a carefully calibrated attempt to build its own security and trade architecture by seeking free trade agreements with all Asean states. It bears the comprehensive imprint of the Indian prime minister, who seems to publicly give the Chinese the benefit of the doubt, as do many Asian nations even in India’s South Asian backyard where there is a willingness to turn a blind eye to Beijing’s backing of Myanmar and even its moves to further nuclearise Pakistan. But not so in private.

Obama’s scepticism over China’s motives, too, have not been vocalized but they are shared by many in government who, however, are still deeply divided over whether India should tie itself further into a larger security wheel that already has Japan and Australia as the spokes. US plans to build India up as a counterweight to China, much denied all around, is no secret. Whether India has the moxy to take its newly rejigged Look East policy to its logical conclusion and be able to emulate and counter China’s smart power — even with the Americans holding our hands — is, however, the real question.

Rare earths & pouring rain

While in Japan, India moved quickly to offer to supply Japan rare earths, a group of 17 minerals that are vital for the manufacture of a wide range of sophisticated electronic items, industrial and military equipment. One such rare earth, Neodymium, is the reason why audio company Bose is able its tiny jewel-cube speakers. India’s offer came in the wake of attempts by China, which currently mines 97 per cent of the world’s supply of rare earths, to deny those minerals to Japan, the US and other big consumers — a move that was immediately described as the new “Great Game”. Until 1948, India and Brazil were the world’s main contributors of rare earths. By offering rare earths to Japan, India not only sought to revive that position, it also managed to soften Japan on a civil nuclear deal.

After the slaughter, gold will stand tall

After the slaughter, gold will stand tall

John Hathaway

The days of the US dollar as the dominant reserve currency are numbered and its breakdown will be will be chaotic, writes John Hathaway.

The world’s monetary system is in the process of melting down. We have entered the endgame for the US dollar as the dominant reserve currency, but most investors and policymakers are unaware of the implications.

The only questions are how long the denouement will last, and how much more damage will be inflicted by new rounds of quantitative easing or more radical monetary measures to prop up the system.

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Whether prolonged or sudden, the transition to a stable monetary system will become possible only when the shortcomings of the status quo become unbearable. Such a transition is non-linear. So central bank soothsaying based on the extrapolation of historical data and the repetition of conventional wisdom offers no guidance on what lies ahead.

Telltale signs of future trouble are not hard to spot. Only a few months ago, the US Federal Reserve chairman, Ben Bernanke, and other high-ranking Fed officials were talking about exit strategies from the US central bank’s bloated balance sheet and the financial system’s unprecedented excess liquidity.

Now those same officials are talking about pumping more money into the system to stimulate growth.

They are not alone: six months ago, the chief economist of the International Monetary Fund, Olivier Blanchard, suggested that raising inflation targets to 4 per cent from 2 per cent would not be too risky.

This sort of talk must grate on the nerves of China, India, Russia and others, who have accumulated pyramids of non-yielding US Treasury debt. And bickering among central bankers over currency manipulation and rising trade tensions does not reinforce one’s confidence.

The prospects for an orderly unwinding of the extreme posture of global monetary policy are zero. Bernanke, Jean-Claude Trichet and Mervyn King, his counterparts in Europe and Britain respectively, are huddling together upon the most precarious perch in the history of monetary affairs. These alleged guardians of monetary stability have simply created the incinerator for paper money. We are past the point of no return. Quantitative easing may well become a way of life.

The consensus investment view seems to be that the credit crisis of 2008 was a freak occurrence. That is wishful thinking. Monetary policy has painted itself into a corner. Based on our present course, there will be more bubbles and more meltdowns.

Financial markets and institutions sense trouble, as reflected in the flight to supposedly safe assets such as treasuries and corporate-debt instruments with paltry yields, as well as the reluctance to lend by commercial banks. We are stuck in an epic liquidity trap. The irony is, if global central banks succeed in creating inflation, the value of these safe assets will be destroyed. It is a slaughter waiting to happen.

In the pedantic mentality of central bankers, their playbook creates just the right amount of inflation. As inflation accelerates, consumers will spend to get rid of their dollars of diminishing value and spur the economy. Once consumers start spending, it will be time to raise interest rates because a solid foundation for prosperity will have been established, they say.

But whatever the playbook promises, the capacity of financial markets to overshoot cannot be overestimated. The belief among policymakers and financial markets in the possibility of this sort of fine-tuning is preposterous.

The breakdown of the monetary system will be chaotic. When inflation starts, it will be highly disruptive. The damage to fixed-income assets will seem immediate. Foreign exchange markets will become dysfunctional. The economy will become even more fragile and unpredictable.

Gold is an imperfect, but comparatively reliable, market gauge for the extent of monetary destruction.

The anti-gold pundits provide a great service to those who grasp this historical moment: they facilitate the advantageous positioning of the one asset most likely to be left standing when the dust settles.


John Hathaway is a managing director of Tocqueville Asset Management in New York.