China’s idiotic stance at Munich security conference


In front of 300 diplomats, including senior US officials, Chinese Foreign Minister Yang Jiechi said the US was violating international law by a proposed arms sale to Taiwan, and defended Chinese TV and radio as more reliable than Western media.

Why do China sell weapons to failed states like North Korea or Burma or Iran?

China's Foreign Minister Yang Jiechi is welcomed by Wolfgang Ischinger, chairman of the Conference on Security Friday before the start of the 46th Conference on Security Policy in Munich. Speaking with uncharacteristic bluntness, Mr. Yang accused the US of violating international law with its proposed arms sale to Taiwan.

By Robert Marquand

Munich, Germany

Today Chinese foreign minister Yang Jiechi, speaking with unusual bluntness in front of 300 leading diplomats – including senior US officials – here in Munich publicly stated that China is getting stronger on the international stage. He said the US was violating international law by a proposed arms sale to Taiwan, offered that China’s TV and radio news service contains “more solid” and reliable news than Western media, and that China is not ready to address sanctions on Iran’s nuclear program, stating instead that the Islamic Republic “has not totally closed the door on the IAEA.”

Transatlantic – meet the Pacific.

Foreign Minister Yang is the first Chinese official to speak at the annual Munich Security Conference, the premier transatlantic security meeting, in its 46 year history. He turned heads in the group at a time when the People’s Republic and the US have come to loggerheads over Taiwan arms sales, Internet freedom, currency rates, and climate policy coming out of the Copenhagen meeting in December.

“I haven’t heard a high-ranking Chinese official say, ‘Yes, we are strong,’ in a public setting before,” said a senior German diplomat. “It was a very assertive message, different, and it means we will soon see a different Chinese policy.”

Mr. Yang, a former ambassador to the US and highly respected, gave a somewhat conventional speech – though in a strong voice. He affirmed that China is both a developed and a developing country, that it seeks “win-win solutions,” and that it is preparing for greater “shared responsibilities” on the world stage – and that it played a transformative role in helping avert a global financial crisis in the past year.

Yet during three probing follow-up questions, Yang mopped his brow repeatedly in answering on Taiwan, cyberspace, and China’s position on Iran’s nuclear program, which he earlier admitted was “at a crucial stage.”

“Does China feel stronger? Yes,” he said as questions opened.

Regarding a proposed US $6.4 billion package of arms for Taiwan introduced in recent weeks by the Obama administration, and which China has for the first time threatened retaliatory sanctions on US firms that supply arms – Yang called it a “violation of the code of conduct among nations” by the US, said China has “every reason to feel indignant about this thing,” and added that Beijing has a “sovereign right to do what is necessary” in response.

He went on to say China is “totally against hacking attacks…I don’t know how this Google thing has popped up” – in response to a question about cyberspace. At a time when the American search engine giant has said it may leave China after repeated hacks on human rights workers, and British intelligence has reported official Chinese espionage against business travelers, Yang said that “China is a victim” of hacking.

The cyberspace answers were prefaced with polemics on the virtues of Chinese news gathering. The Chinese people have better news than members of the western public, and “freedom of speech is what we advocate,” Yang said, adding that with 15 million Chinese traveling abroad every year, “the Chinese people are well informed.” Yang also said that while foreign companies were free to enter China, and that many had done well there, they still must submit to Chinese laws, “and what is in the best interest of China.”

China’s presence at the 48-hour Munich conference, hosted by German diplomat Wolfgang Ischinger, and that will include US National Security Advisor James Jones, follows a robust Chinese presence at the annual Davos conference in Switzerland, where China rented one of the most splendid villas – used in the past by Microsoft.

Gary Smith, director of the American Academy in Berlin, said that Yuan’s assertive speech did not contain the kind of direct dynamite that Vladimir Putin’s address here did in 2007, when Russia’s then-president affirmed that Russia would taking a newly assertive role on the world stage. But Yuan’s comments nonetheless would be felt strongly here, Smith said: “Europeans have been terrified by this kind of moment…they’ve been obsessed by the rise of China and India.

“[Yuan’s remarks] tells this group that the hard work of Atlantic consensus on global issues can be negligible if the Chinese don’t agree to play ball.”

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Tensions flare in crossfire between South Korea and North


North Korea ratcheted up tensions with the South after firing an estimated 30 shells into the two countries’ no-sail zone, which may be a precursor to the testing of short-range missiles.

South Korean Army Helicopters

Seoul, South Korea

By Donald Kirk

North Korea raised the stakes Wednesday in the fight-talk contest for advantage in negotiations with live-fire artillery exercises that once again put tensions on edge between the two Koreas.

In a risky game of punch and counterpunch, North Korean gunners opened the episode in the morning by firing off 30 rounds into the Yellow Sea off the Korean west coast, judging from the number of geysers of water reportedly kicked up in the sea where they landed. South Korea responded with as many as 100 warning shots, according to South Korean defense officials, while the South’s Defense Ministry protested in a faxed message to the North.

The contest resumed in the afternoon with the North firing another dozen or so rounds after asserting its right to stage “exercises” in waters long disputed by the two Koreas. This time, however, the South did not fire warning shots – apparently in hopes of tamping down tensions while pursuing talks on issues ranging from the North’s nuclear program to resumption of tourism.

The shootout dramatized the dangers in troubled waters while North Korea pursues a peace treaty to mark a formal ending to the Korean War that broke out nearly 60 years ago.

North Korea earlier declared the area a no-sail zone, telling ships to stay away during test-firing.

The North Korean warning suggested that the North might plan to test short-range missiles, as it has done in the past, but the firing Wednesday was limited to artillery. Unlike in previous tests, however, the shells landed close to the “northern limit line” (NLL) set by the UN Command in 1956 three years after the Korean War, below which North Korean vessels are banned.

The General Staff of the North Korea’s Korean People’s army said the firing was part of an annual drill, that it had every right to stage live-fire exercises – and may go on doing so. South Korea’s defense ministry called the artillery exercise “a grave provocation” and demanded North Korea rescind the no-sail warning.

North Korea has repeatedly repudiated the NLL, and the area was the scene of bloody shootouts in June 1999 and in June 2002 when a number of sailors on both sides were killed. In the most recent previous incident, on November 10, a North Korean vessel retreated in flames after South Korean ships fired on it when it strayed across the line.

This time there were no reports of casualties, but South Korean officials worried that the firing was a sign of a two-track strategy in which North Korea has appeared interested in negotiations but has engaged in harsh rhetoric against South Korea.

North Korea “has been blowing hot and cold,” says Wi Sung Lac, the South’s chief nuclear envoy, back from four days of talks in Washington last weekend.

North Korea accused South Korea of making “an open declaration of war” after South Korea’s defense minister said the South would have to attack first if North Korea appeared likely to stage a nuclear attack. North Korea also responded with outrage, warning of war, after learning that the South was engaged in “contingency planning” in case of the collapse of the North Korean regime.

Mr. Wi says it’s “difficult” to ascertain the North’s intentions but hopes that North Korea would soon return to six-party talks on its nuclear weapons. South Korean officials have hinted that talks on a peace treaty, long sought by North Korea to replace the Korean War armistice, might be held simultaneously with six-party talks rather than after North Korea has done away with its nuclear program.

After months of tension, South Korea has resumed shipments of aid, mostly fertilizer, to North Korea, and North and South have agreed on talks next week on easing restrictions on South Korean companies and personnel at the economic complex at Kaesong, 40 miles north of Seoul, above the line between the two Koreas. North and South Korean negotiators also are expected to open talks soon on resuming tours to the Mount Kumkang region, suspended in July 2008 after a South Korean woman was shot and killed by a North Korean soldier when she wandered outside the tourist area.

A South Korean spokesperson said Wednesday’s shelling did not endanger a South Korean vessel returning with a load of silica through nearby waters from the North Korean port of Haeju on the Yellow Sea.

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Iranian-Backed Insurgents Hack U.S. Drones


US Drones

Iraqi militants who are Iranian government slaves are intercepting sensitive video feeds from US predator drones using $26 off-the-shelf software, and the same technique leaves feeds from most military aircraft vulnerable to snooping, according to published reports.

To access the feeds, the militants have been using SkyGrabber, a publicly available program that pulls movies and music off satellites and sells for $26.

The US military is at the beginning of the era in which the cyber security of its weapon systems will be increasingly important, and under constant threat.

That’s one of the lessons that might be drawn from revelations that Iraqi insurgents have intercepted video feeds transmitted by US drone aircraft, using software and hardware available to virtually any technically-adept teenager in the world.

Today, general military cyber war is in its infancy, noted General C. Robert Kehler, commander of US Air Force Space Command, in an address on the subject in September.

It is about where military air power was at the beginning of the last century, said Gen. Kehler – the biplane level of development.

“So we know that this will evolve,” said Kehler, referring to the offensive and defensive sides of confrontation with bits and bytes.

By itself, the breach of the drone video stream does not appear to have been particularly threatening. Insurgents merely tapped into an unencrypted data transmission that provided them with pictures of what the drone was looking at. It was not information detailed enough to provide the insurgents with tactical intelligence. It was not something that would have allowed them to take control of the aircraft, any more than intercepting a police call on a radio scanner allows the listener to drive a police car.

The transmission was open because the Pentagon in essence has not yet bothered to encrypt it.

“This is a vulnerability that they’ve known about for decades,” says John Pike, a security analyst and president of

In some ways, another type of cyber attack that occurred this week might be more threatening to US national security. The Twitter outage caused by a group calling itself the “Iranian Cyber Army” may, or may not, have been directed by the Iranian government.

But whoever was behind it, is just the sort of denial of service blow that could wreak havoc with military systems, or government services, or sectors of the economy, if properly carried out.

“Dealing with a deliberate denial of service attack designed to disrupt the on-line economy – I don’t think we’re set to deal with that,” says Pike.

This is as much a concern for the Pentagon as is the operational cyber security of weapons. It is a technique adversary nations have already used against each other, said Air Force Lt. Gen. David Deptula, deputy Air Force chief of staff for intelligence, surveillance, and reconnaissance earlier this year.

“This denial of service strategy was recently applied by North Korea, and Russia used it in the cyber isolation of Georgia,” said Gen. Deptula in an address to the Air Force Association.

Meanwhile, one of the lessons of the stolen drone video feed is that different systems have different vulnerabilities, and all need to be addressed to secure US military operations, according to US officials.

“Every airman is a defender. That’s the mindset you have to have,” said Gen. Kehler in his address to AFA. “When you log onto your computer, when you pick up your handheld device, when you get on your cell phone, et cetera, you are entering a combat zone and you need to behave accordingly.”

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Obama UN speech: all nations have responsibility to act


At the UN General Assembly, Obama said the US is ready to address global challenges such as nuclear proliferation. But the world cannot expect America to solve such problems alone, he said.

President Barack Obama addresses the 64th session of the United Nations General Assembly, on Wednesday.

By Howard LaFranchi

UNITED NATIONS, N.Y. – President Obama assured the United Nations General Assembly on Tuesday that the era of a unilateralist America is over. But, he said, the ensuing era of cooperation in addressing the world’s toughest challenges also requires a new sense of responsibility on the part of all nations.

In his first UN speech as president, Mr. Obama said the United States is ready to address challenges ranging from nuclear proliferation to global economic prosperity. Yet the world cannot expect America to figure out international challenges alone, he said.

“Make no mistake: This cannot be solely America’s endeavor,” he told a receptive General Assembly chamber. “Those who used to chastise America for acting alone in the world cannot now stand by and wait for America to solve the world’s problems alone.”

At the same time, Obama said, all nations have a role to play: “Now is the time for all of us to take our share of responsibility.”

Obama’s “responsibility” theme echoes one he has used extensively in addressing domestic issues as well. But at the UN, the call for responsible action received an immediate rebuff from Libyan President Muammar Qaddafi, who gave a rambling and at times incoherent speech in which he called the UN Security Council the “terror council” and belittled the UN as a dictatorship of the powerful.

Mr. Qaddafi’s speech, which droned on for about 90 minutes, exemplified the challenge before Obama in seeking cooperative action from the 192-nation body. The speech also seems bound to reinforce disdain in the US for the UN.

“President Obama has a very difficult task … if he expects to invest the UN with renewed credibility,” says Christopher Preble, director of foreign studies at the Cato Institute in Washington. “The UN is a weak and fractured institution” of “limited power and credibility,” he adds, saying that the US has been as responsible for that weakness as other countries.

In his speech, Obama pledged a new era of US multilateral action based on “four pillars” of major challenges: nonproliferation, peace and security, preservation of planet, and global prosperity.

On nuclear proliferation, Obama said, the next 12 months could be “pivotal”: The UN is set to review the Nuclear Non-Proliferation Treaty next year, and the US and Russia are poised to agree on further reductions in their arsenals. But the challenge posed by Iran’s and North Korea‘s nuclear programs are also part of the challenge, he said, and go to the heart of the “responsibility” of all nations to act in ways that solve the world’s challenges.

“A world in which international demands are ignored will leave us all less safe,” he said, referring to Iran and North Korea by name and to their flaunting of Security Council resolutions. “If nations put the pursuit of nuclear weapons ahead of the prosperity of their own people, then they must be held accountable,” he added. “Treaties will be enforced.”

Obama dedicated a large chunk of his speech to his efforts to find peace in the Middle East, placing resolution of the Israeli-Palestinian conflict in the context of his theme global responsibility.

And he acknowledged his personal popularity around the world, but he insisted that the “expectations about my presidency are not about me” but about rejection of an unsatisfactory status quo in the world – and “the hope that real change in possible.”

To underscore his theme, Obama quoted President Franklin D. Roosevelt, saying, “The structure of world peace cannot be the work of one man … or one nation,” but must be “the cooperative effort of the whole world.”

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Americans Free But Thousands Still Jailed, Executed In North Korea

By Worthy News Asia Service with Worthy News’ Stefan J. Bos

SEOUL/PYONGYANG (BosNewsLife)– An international Christian advocacy group welcomed Wednesday, August 5, North Korea‘s decision to release American journalists Euna Lee and Laura Ling but warned that at least 200,000 religious and political prisoners remain behind bars in labor camps across the isolated Communist nation, where executions of inmates continue.

Well-informed Open Doors said it was pleased that North Korean leader Kim Jong-Il issued a special pardon to the two female reporters, a move described by the North Korean News Agency as a sign of the country’s “humanitarian and peace-loving policy.”

Their return came after former U.S. President Bill Clinton made an unannounced visit to the capital Pyongyang to help secure their release. Ling and Lee had been found guilty of allegedly entering North Korea illegally across the Chinese border in March and later sentenced to 12 years of hard labor.

They reportedly were being held at what officials described as a “guest house” during their confinement. However Open Doors cautioned there is “no pardon” for thousands of Christians and other prisoners in North Korea. The country, it said, “is suspected of detaining more political and religious prisoners than any other country in the world at least 200,000, including 40,000 to 60,000 Christians.”


At least several prisoners are believed to have been executed. In one of the latest reported incidents North Korea publicly executed a Christian woman last month for distributing Bibles, The Associated Press news agency reported, citing information it received from South Korean activists. Ri Hyon Ok, 33, was reportedly also accused of spying for South Korea and the United States and organizing dissidents.

She was said to have been executed in the northwestern city of Ryongchon near the border with China on June 16, according to a report from an alliance of several dozen anti-North Korean groups.

Ri’s parents, husband and three children were sent to a political prison camp in the northeastern city of Hoeryong the following day. “This is the shocking reality of what takes place inside this Communist country where there is no basic human rights. One colleague of mine who has traveled to North Korea described North Korea “as an on-going nightmare,” said Jerry Dykstra, a spokesperson for Open Doors USA.

North Koreans can be imprisoned “for virtually any state-defined crime such as owning a Bible, making a negative comment about the regime, failing to have a picture of Kim Il-Sung in their house and traveling to China to look for food and freedom,” he added.


Dykstra said Kim Jong-Il’s government keeps its citizens in its grip through “systematic use of torture, public and private executions, brutal imprisonment, lack of due process of law, starvation and even forced abortions.” North Korea has been known to arrest not only a suspected dissident but also three generations of his or her family, rights groups say.

This year North Korea was re-designated by the U.S. State Department as one of eight “Countries of Particular Concern” for its severe religious freedom violations.

The Open Doors World Watch List of what it views as “the worst persecutors of Christians” has ranked the hermit country as the worst offender of religious freedom for seven years in a row. Open Doors said former prisoner Kim Young Soon testified about the situation earlier this year during the annual ‘North Korea Freedom Week’ in April before a group of Congressmen in Washington, D.C. The North Korean refugee is one of the few survivors of the infamous Yodok political prison camp.

She said she was thrown into prison for nine years on a trumped up charge of divulging a secret about Kim Jong-Il’s marriage. Her parents and four children were also imprisoned. “In the Yodok prison camp, her parents died of malnutrition, an eldest son drowned. Her husband was shot to death in 1970 while attempting to cross the border to escape from North Korea. Mrs. Kim’s youngest son was arrested in 1988 while attempting to cross the border and was put in prison for four years.

He was executed in 1993 by a firing squad because he tried to escape from North Korea again,” Open Doors said.


Kim escaped from North Korea and resettled in South Korea and has made it her life’s mission to expose the cruelty and truth about the prison camps in North Korea. She testified: “I entered prison camp No. 15 at Yodok. I spent nine years there; treated like an animal. What made me feel most mortified was the fact that my father, mother, daughter and three sons, who were innocent of any crime, were also sent to Yodok, all because of me.”

Kim said that she and her family members were “forced to engage in heavy labor day and night. On August 5, 1971, I lost my father. I had to wrap his body in a straw mat since there were no coffins in Yodok. Before long, my mother also died of malnutrition. Unbearable sadness cut my heart to pieces.” Kim said that still with tears in her eyes, she was “struck by another painful accident when my eldest son drowned. I was nearly mad with grief. Yodok was really a hell to me. I cried to God asking that He might burn them all to death in Yodok with lightning.”

She described how “very mountain and field in Yodok was covered with dead bodies because of malnutrition and hunger. In 1973, two detainees were killed by public execution at a place between Sector 3 and 4 on charges of trying to escape from prison. Countless numbers of detainees were killed by public execution and torture.” She said that, “Due to malnutrition and hunger, little children withered to death with their stomachs swollen.” Adults, she said, “were looking everywhere for young rats which they believed to be a kind of medicine to save their children. And they literally ate up all the snakes in Yodok to avoid painful death from malnutrition.”

Dykstra said that while the world can “rejoice” about the release of two American journalists, “praying and advocating” should continue “for those who have not received pardons; for those languishing in the “hell” that is North Korea.”

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Pariah states collaborating on nukes?


North Korea suspected of helping Burma

Editor’s Note: The following report is excerpted from Joseph Farah’s G2 Bulletin, the premium online newsletter published by the founder of WND. Subscriptions are $99 a year or, for monthly trials, just $9.95 per month for credit card users, and provide instant access for the complete reports.

LONDON — MI6, Britain’s Secret Intelligence Service, believes North Korea is helping Burma, the world’s other pariah state, to build a nuclear weapon, according to a report in Joseph Farah’s G2 Bulletin.

This not only breaks international laws against providing such assistance but the decision by both countries to work together on developing Burma’s nuclear capability has increased tension around the Pacific Rim.

Defense Analyst Bertil Linter said: “Both countries have absolutely no interest in obeying UN arms embargos.”

Linter added: “North Korea is one of the few countries still trading militarily with Burma now that China has become reluctant to sell certain types of equipment to the junta. It is becoming increasingly clear that Burma is intending to become one of a new generation of rogue states threatening nuclear war.”

This week NSA satellites, which monitor the South Pacific, have been tracking a heavily laden North Korean cargo ship, Kang Name 1, which sailed from the guarded military port at Changyon south of the country’s capital, Pyongyang. It is heading towards Burma.

The ship left North Korean water two weeks ago. Satellite surveillance images had been downloaded to NSA and GCHQ, Britain’s spy in the sky.

Keep in touch with the most important breaking news stories about critical developments around the globe with Joseph Farah’s G2 Bulletin, the premium, online intelligence news source edited and published by the founder of WND.

From its base outside Cheltenham, some of GCHQ’s 7,000 specialists have become part of a major intelligence gathering operation against the 16,000-ton ship.

U.S. Naval warships and at least one U.S. Navy submarine are tracking the rusty-hulled freighter.

Long-range surveillance planes have shadowed it down the South China Sea as it heads towards the Bay of Bengal in Burma.

After being sifted and analyzed, the GCHQ specialists send the surveillance data to MI6 for further study.

The material includes documents and video footage showing newly built tunnels being constructed in the Arakan Yoma mountain range in the country. MI6 analysts believe the tunnels could be part of the controversial nuclear program by the Burmese junta.

Thakhin Chan Tun, a former Burmese ambassador in North Korea and now an outspoken critic of the regime, has confirmed the claim.

“To put it bluntly, Burma wants to get the technology to develop a nuclear bomb.” he said last week.

For the complete report and full immediate access to Joseph Farah’s G2 Bulletin, subscribe now.

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Experts Find Soviet Parts in North Korean Missile


With concerns rising about a possible North Korean long-range missile test this weekend, two independent scientists say the regime may be using an old Soviet ballistic missile to boost a rocket capable of reaching the West Coast of the United States.

North Korea is not known to have nuclear warheads and faces years of research and testing before building such a reliable weapon.

But the scientists say that if North Korea does have such a Russian-made ballistic missile in its arsenal, it could modify the rocket into a two-stage missile that could reach Seattle, Wash., carrying a 900-kilogram warhead, or San Francisco carrying a 700-kilogram charge.

The design of a long-range missile tested by North Korea last April “represents a very significant advance in rocket technology,” said Massachusetts Institute of Technology professor Ted Postol and Union of Concerned Scientists’ David Wright in a June 29 assessment published in the Bulletin of Atomic Scientists.

Using data and imagery from North Korea’s April 4 launch, Postol and Wright calculated that the second stage of the North Korean rocket had the external dimensions, engine power and key features of an SS-N 6, a Soviet submarine-launched ballistic missile first deployed in 1968.

Their theory is at odds with U.S. officials’ skepticism of the recent North Korean long-range missile launch, dismissed as a failure.

Missile expert and former U.N. arms inspector Mike Elleman cautioned against assuming that the similarities between the external dimensions of the North Korean second stage and the SS-N 6 mean that the two are the same technology.

But Elleman added that the coincidence is hard to explain.

Geoffrey Forden, another missile expert with MIT, sees merit in the Russian missile theory and believes North Korea may have its own production line for SS-N 6 missile components.

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Bernanke: Federal Reserve caused Great Depression


Fed chief says, ‘We did it. … very sorry, won’t do it again’

By David Kupelian

Despite the varied theories espoused by many establishment economists, it was none other than the Federal Reserve that caused the Great Depression and the horrific suffering, deprivation and dislocation America and the world experienced in its wake. At least, that’s the clearly stated view of current Fed Chairman Ben Bernanke.

The worldwide economic downturn called the Great Depression, which persisted from 1929 until about 1939, was the longest and worst depression ever experienced by the industrialized Western world. While originating in the U.S., it ended up causing drastic declines in output, severe unemployment, and acute deflation in virtually every country on earth. According to the Encyclopedia Britannica, “the Great Depression ranks second only to the Civil War as the gravest crisis in American history.”

What exactly caused this economic tsunami that devastated the U.S. and much of the world?

In “A Monetary History of the United States,” Nobel Prize-winning economist Milton Friedman along with coauthor Anna J. Schwartz lay the mega-catastrophe of the Great Depression squarely at the feet of the Federal Reserve.

Here’s how Friedman summed up his views on the Fed and the Depression in an Oct. 1, 2000, interview with PBS:

PBS: You’ve written that what really caused the Depression was mistakes by the government. Looking back now, what in your view was the actual cause?

Friedman: Well, we have to distinguish between the recession of 1929, the early stages, and the conversion of that recession into a major catastrophe.

The recession was an ordinary business cycle. We had repeated recessions over hundreds of years, but what converted [this one] into a major depression was bad monetary policy.

The Federal Reserve System had been established to prevent what actually happened. It was set up to avoid a situation in which you would have to close down banks, in which you would have a banking crisis. And yet, under the Federal Reserve System, you had the worst banking crisis in the history of the United States. There’s no other example I can think of, of a government measure which produced so clearly the opposite of the results that were intended.

And what happened is that [the Federal Reserve] followed policies which led to a decline in the quantity of money by a third. For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing from beginning to end, with millions of people having their savings essentially washed out, that decline was utterly unnecessary.

At all times, the Federal Reserve had the power and the knowledge to have stopped that. And there were people at the time who were all the time urging them to do that. So it was, in my opinion, clearly a mistake of policy that led to the Great Depression.

Although economists have pontificated over the decades about this or that cause of the Great Depression, even the current Fed chairman Ben S. Bernanke, agrees with Friedman’s assessment that the Fed caused the Great Depression.

At a Nov. 8, 2002, conference to honor Friedman’s 90th birthday, Bernanke, then a Federal Reserve governor, gave a speech at Friedman’s old home base, the University of Chicago. Here’s a bit of what Bernanke, the man who now runs the Fed – and thus, one of the most powerful people in the world – had to say that day:

I can think of no greater honor than being invited to speak on the occasion of Milton Friedman’s ninetieth birthday. Among economic scholars, Friedman has no peer. …

Today I’d like to honor Milton Friedman by talking about one of his greatest contributions to economics, made in close collaboration with his distinguished coauthor, Anna J. Schwartz. This achievement is nothing less than to provide what has become the leading and most persuasive explanation of the worst economic disaster in American history, the onset of the Great Depression – or, as Friedman and Schwartz dubbed it, the Great Contraction of 1929-33.

… As everyone here knows, in their “Monetary History” Friedman and Schwartz made the case that the economic collapse of 1929-33 was the product of the nation’s monetary mechanism gone wrong. Contradicting the received wisdom at the time that they wrote, which held that money was a passive player in the events of the 1930s, Friedman and Schwartz argued that “the contraction is in fact a tragic testimonial to the importance of monetary forces.”

After citing how Friedman and Schwartz documented the Fed’s continual contraction of the money supply during the Depression and its aftermath – and the subsequent abandonment of the gold standard by many nations in order to stop the devastating monetary contraction – Bernanke adds:

… Before the creation of the Federal Reserve, Friedman and Schwartz noted, bank panics were typically handled by banks themselves – for example, through urban consortiums of private banks called clearinghouses. If a run on one or more banks in a city began, the clearinghouse might declare a suspension of payments, meaning that, temporarily, deposits would not be convertible into cash. Larger, stronger banks would then take the lead, first, in determining that the banks under attack were in fact fundamentally solvent, and second, in lending cash to those banks that needed to meet withdrawals. Though not an entirely satisfactory solution – the suspension of payments for several weeks was a significant hardship for the public – the system of suspension of payments usually prevented local banking panics from spreading or persisting. Large, solvent banks had an incentive to participate in curing panics because they knew that an unchecked panic might ultimately threaten their own deposits.

It was in large part to improve the management of banking panics that the Federal Reserve was created in 1913. However, as Friedman and Schwartz discuss in some detail, in the early 1930s the Federal Reserve did not serve that function. The problem within the Fed was largely doctrinal: Fed officials appeared to subscribe to Treasury Secretary Andrew Mellon’s infamous ‘liquidationist’ thesis, that weeding out “weak” banks was a harsh but necessary prerequisite to the recovery of the banking system. Moreover, most of the failing banks were small banks (as opposed to what we would now call money-center banks) and not members of the Federal Reserve System. Thus the Fed saw no particular need to try to stem the panics. At the same time, the large banks – which would have intervened before the founding of the Fed – felt that protecting their smaller brethren was no longer their responsibility. Indeed, since the large banks felt confident that the Fed would protect them if necessary, the weeding out of small competitors was a positive good, from their point of view.

In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn. …

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

Best wishes for your next ninety years.

Today, the entire Western financial world holds its breath every time the Fed chairman speaks, so influential are the central bank’s decisions on markets, interest rates and the economy in general. Yet the Fed, supposedly created to smooth out business cycles and prevent disruptive economic downswings like the Great Depression, has actually done the opposite. : , , , , , , , , , , , , , , , , , , ,
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165 economists rip bailout plan


Contend administration proposal has 3 pitfalls

Treasury Secretary Henry Paulson

At least 165 economists have signed a letter to Congress members warning of three pitfalls in the Bush administration’s $700 billion proposal to deal with the Wall Street crisis.

The economists say they are well aware of the current financial situation and agree there’s a need for bold action but ask Congress “not to rush.”

They urge lawmakers to hold appropriate hearings and “to carefully consider the right course of action.”

The three problems with the plan proposed by Treasury Secretary Henry Paulson, the economists say, are its fairness, ambiguity and long-term effects.

President Bush was joined today by presidential candidates John McCain and Barack Obama at an emergency White House meeting on the plan. Key members of Congress said this morning they had struck a deal in principle, but the outcome of the proposal is unclear. Participants in the White House meeting called it extremely contentious.

The proposal allows the government to buy the faulty mortgage-based assets of severely weakened financial institutions to prevent them from collapsing and setting off a chain of events that would affect citizens, including depletion of retirement accounts, rising home foreclosures, bankrupt businesses and lost jobs.

The economists contend the plan is unfair, because it’s a “subsidy to investors at taxpayers’ expense.”

“Investors who took risks to earn profits must also bear the losses,” the economists say in their letter. “Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.”

The plan is ambiguous, they contend, as neither “the mission of the new agency nor its oversight are clear.”

“If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards,” the letter states.

If the plan is enacted, the economists argue further, “its effects will be with us for a generation.”

“For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity,” they say. “Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.”

The signatories as of this morning were:

Acemoglu Daron (Massachussets Institute of Technology)
Adler Michael (Columbia University)
Admati Anat R. (Stanford University)
Alvarez Fernando (University of Chicago)
Andersen Torben (Northwestern University)
Barankay Iwan (University of Pennsylvania)
Barry Brian (University of Chicago)
Beim David (Columbia University)
Berk Jonathan (Stanford University)
Bisin Alberto (New York University)
Bittlingmayer George (University of Kansas)
Boldrin Michele (Washington University)
Brooks Taggert J. (University of Wisconsin)
Brynjolfsson Erik (Massachusetts Institute of Technology)
Buera Francisco J.(UCLA)
Carroll Christopher (Johns Hopkins University)
Cassar Gavin (University of Pennsylvania)
Chaney Thomas (University of Chicago)
Chari Varadarajan V. (University of Minnesota)
Chauvin Keith W. (University of Kansas)
Chintagunta Pradeep K. (University of Chicago)
Christiano Lawrence J. (Northwestern University)
Cochrane John (University of Chicago)
Coleman John (Duke University)
Constantinides George M. (University of Chicago)
Crain Robert (UC Berkeley)
Culp Christopher (University of Chicago)
De Marzo Peter (Stanford University)
Dubé Jean-Pierre H. (University of Chicago)
Edlin Aaron (UC Berkeley)
Eichenbaum Martin (Northwestern University)
Ely Jeffrey (Northwestern University)
Eraslan Hülya K. K.(Johns Hopkins University)
Faulhaber Gerald (University of Pennsylvania)
Feldmann Sven (University of Melbourne)
Fernandez-Villaverde Jesus (University of Pennsylvania)
Fox Jeremy T. (University of Chicago)
Frank Murray Z.(University of Minnesota)
Fuchs William (University of Chicago)
Fudenberg Drew (Harvard University)
Gabaix Xavier (New York University)
Gao Paul (Notre Dame University)
Garicano Luis (University of Chicago)
Gerakos Joseph J. (University of Chicago)
Gibbs Michael (University of Chicago)
Goettler Ron (University of Chicago)
Goldin Claudia (Harvard University)
Gordon Robert J. (Northwestern University)
Guadalupe Maria (Columbia University)
Hagerty Kathleen (Northwestern University)
Hamada Robert S. (University of Chicago)
Hansen Lars (University of Chicago)
Harris Milton (University of Chicago)
Hart Oliver (Harvard University)
Hazlett Thomas W. (George Mason University)
Heaton John (University of Chicago)
Heckman James (University of Chicago – Nobel Laureate)
Henderson David R. (Hoover Institution)
Henisz, Witold (University of Pennsylvania)
Hertzberg Andrew (Columbia University)
Hite Gailen (Columbia University)
Hitsch Günter J. (University of Chicago)
Hodrick Robert J. (Columbia University)
Hopenhayn Hugo (UCLA)
Hurst Erik (University of Chicago)
Imrohoroglu Ayse (University of Southern California)
Israel Ronen (London Business School)
Jaffee Dwight M. (UC Berkeley)
Jagannathan Ravi (Northwestern University)
Jenter Dirk (Stanford University)
Jones Charles M. (Columbia Business School)
Kaboski Joseph P. (Ohio State University)
Kaplan Ethan (Stockholm University)
Karolyi, Andrew (Ohio State University)
Kashyap Anil (University of Chicago)
Keim Donald B (University of Pennsylvania)
Ketkar Suhas L (Vanderbilt University)
Kiesling Lynne (Northwestern University)
Klenow Pete (Stanford University)
Koch Paul (University of Kansas)
Kocherlakota Narayana (University of Minnesota)
Koijen Ralph S.J. (University of Chicago)
Kondo Jiro (Northwestern University)
Korteweg Arthur (Stanford University)
Kortum Samuel (University of Chicago)
Krueger Dirk (University of Pennsylvania)
Ledesma Patricia (Northwestern University)
Lee Lung-fei (Ohio State University)
Leuz Christian (University of Chicago)
Levine David I.(UC Berkeley)
Levine David K.(Washington University)
Linnainmaa Juhani (University of Chicago)
Lucas Robert (University of Chicago – Nobel Laureate)
Luttmer Erzo G.J. (University of Minnesota)
Manski Charles F. (Northwestern University)
Martin Ian (Stanford University)
Mayer Christopher (Columbia University)
Mazzeo Michael (Northwestern University)
McDonald Robert (Northwestern University)
Meadow Scott F. (University of Chicago)
Mehra Rajnish (UC Santa Barbara)
Mian Atif (University of Chicago)
Middlebrook Art (University of Chicago)
Miguel Edward (UC Berkeley)
Miravete Eugenio J. (University of Texas at Austin)
Miron Jeffrey (Harvard University)
Moretti Enrico (UC Berkeley)
Moriguchi Chiaki (Northwestern University)
Moro Andrea (Vanderbilt University)
Morse Adair (University of Chicago)
Mortensen Dale T. (Northwestern University)
Mortimer Julie Holland (Harvard University)
Muralidharan Karthik (UC San Diego)
Nevo Aviv (Northwestern University)
Ohanian Lee (UCLA)
Pagliari Joseph (University of Chicago)
Papanikolaou Dimitris (Northwestern University)
Paul Evans (Ohio State University)
Peltzman Sam (University of Chicago)
Perri Fabrizio (University of Minnesota)
Phelan Christopher (University of Minnesota)
Piazzesi Monika (Stanford University)
Piskorski Tomasz (Columbia University)
Rampini Adriano (Duke University)
Reagan Patricia (Ohio State University)
Reich Michael (UC Berkeley)
Reuben Ernesto (Northwestern University)
Roberts Michael (University of Pennsylvania)
Rogers Michele (Northwestern University)
Rotella Elyce (Indiana University)
Ruud Paul (Vassar College)
Safford Sean (University of Chicago)
Sandbu Martin E. (University of Pennsylvania)
Sapienza Paola (Northwestern University)
Savor Pavel (University of Pennsylvania)
Scharfstein David (Harvard University)
Seim Katja (University of Pennsylvania)
Shang-Jin Wei (Columbia University)
Shimer Robert (University of Chicago)
Shore Stephen H. (Johns Hopkins University)
Siegel Ron (Northwestern University)
Smith David C. (University of Virginia)
Smith Vernon L.(Chapman University- Nobel Laureate)
Sorensen Morten (Columbia University)
Spiegel Matthew (Yale University)
Stevenson Betsey (University of Pennsylvania)
Stokey Nancy (University of Chicago)
Strahan Philip (Boston College)
Strebulaev Ilya (Stanford University)
Sufi Amir (University of Chicago)
Tabarrok Alex (George Mason University)
Taylor Alan M. (UC Davis)
Thompson Tim (Northwestern University)
Tschoegl Adrian E. (University of Pennsylvania)
Uhlig Harald (University of Chicago)
Ulrich, Maxim (Columbia University)
Van Buskirk Andrew (University of Chicago)
Veronesi Pietro (University of Chicago)
Vissing-Jorgensen Annette (Northwestern University)
Wacziarg Romain (UCLA)
Weill Pierre-Olivier (UCLA)
Williamson Samuel H. (Miami University)
Witte Mark (Northwestern University)
Wolfers Justin (University of Pennsylvania)
Woutersen Tiemen (Johns Hopkins University)
Zingales Luigi (University of Chicago) : , , , , , , , , , , , , , , , ,
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Bill would boot U.N. from U.S.


Tancredo cites anti-American, anti-Jewish grandstanding

WASHINGTON – With the clock ticking on his final days in Congress, Rep. Tom Tancredo, R-Colo., a former presidential candidate, is introducing a flurry of controversial legislation – the latest, a bid to kick the United Nations out of the U.S.

“The U.N. has coddled brutal dictators, anti-Semites, state sponsors of terrorism, and nuclear proliferators – while excluding democratic countries from membership and turning a blind eye to humanitarian tragedies and gross violations of human rights around the globe,” Tancredo said. “The U.N.’s continued presence in the United States is an embarrassment to our nation, and the time has come for this ineffective organization to pack its bags and hit the road.”

This week Iranian President Mahmoud Ahmadinejad is back in New York to address the U.N. His speech has drawn thousands of protesters in New York City.

Tancredo’s bill, dubbed the U.N. Eviction Act, would direct Attorney General Michael Mukasey to initiate condemnation proceedings against all United Nations properties within the United States, and sell the property to the highest bidder on the open market. The proceeds will be given to the Treasury Department to pay down the national debt. The bill would also bar the future purchase of property in the United States or U.S. territories by the U.N. or any of its agencies, and revokes the diplomatic privileges and immunities that U.N. officials and representatives currently enjoy.

“I refuse to sit idly by while Americans are forced to host Islamofascist dictators, like Mahmoud Ahmadinejad, so they can spew anti-American rhetoric just blocks from Ground Zero,” Tancredo continued.

Tancredo said the U.N. is an organization known for its bureaucracy and has become a showcase for anti-American dictators like Hugo Chavez, Fidel Castro and, of course, Ahmadinejad. He said it has also become little more than a rubber stamp for Chinese and Russian foreign policy initiatives – blocking membership by the democratic nation of Taiwan in the world body, and failing to take any meaningful steps to halt the ongoing genocide in Sudan or the illicit nuclear programs in North Korea and Iran.

“If the U.N. is so keen to accommodate the foreign policy demands of rogue nations and dictatorships, perhaps the world body might be more comfortable relocating to one,” concluded Tancredo. “I’m sure Ban Ki-Moon will have no trouble securing a new location in downtown Pyongyang or Tehran.”″>Last week, Tancredo made news by introducing legislation to prevent Islamic law from gaining a foothold in the U.S. legal system, as it has in other countries.

HR 6975, the Jihad Prevention Act, would allow American authorities to prevent advocates of Islamic law, or Shariah, from entering the country, revoke the visa of any foreigners that champion it and revoke naturalization for citizens that seek to implement it in the U.S. : , , , , , , , , , , ,
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