International Speculation and Rising Food Prices

Yet Another Reason to Drop the Dollar
By UMBERTO MAZZEI

Henry Kissinger once said that whoever controls food controls people. In other words, everyone surrenders when they see their children starve. That is how the U.S. government subdued the American Indians defending their lands, by exterminating the bison that provided them food and instead handing out food on reservations. The British government did the same to subdue the Boer republics in South Africa by forcing the Boer civilian population into the first concentration camps ever and letting them starve.

International cartels now use their control over the global food supply to make huge profits. There are six major corporations that control the purchase and sale of agricultural products: Cargill, Kraft, Bunge & Born, ADM (Archer Daniels Midland), Nestlé and General Mills. Food prices are set at exchanges in Chicago, New York and London.

Some countries shield their population from commodity speculation on basic foods by restricting the export of their agricultural staples until domestic demand is satisfied. This has a clear and legitimate purpose: to stabilize domestic prices and ensure supply for their own people. Domestic prices are also an uncomfortable testimony of real prices and temper full international market control over pricing.

On January 22, agriculture ministers from 50 countries met in Berlin, to examine the rise of international prices of commodities during the second half of 2010. Before the assembly, World Trade Organization (WTO) director, Pascal Lamy, earned merits with the global food cartels by attacking export restrictions. No doubt hoping that the cartels will hire him when he loses his present position, Lamy attributed the record high international prices of agricultural products to the export limits that some countries apply. His claim was a classic case of sophistry—a distortion of the truth with a false arguments.

"Export restrictions are a prime cause of current and recent surges in global food prices, and countries should find other ways to secure domestic supplies," the WTO chief said. "Export restrictions lead to panic in markets when different actors see prices rising at stellar speed," he added.

Mr. Lamy illogically ignores the fact that a sudden rise in agricultural commodity prices, as reported three weeks ago by the UN Food and Agriculture Organization (FAO), cannot be attributed to controls that have always been there. Those controls, as he acknowledges, are imposed to assure supply to the population of the producing countries and, although Lamy did not say it, also to stabilize national and to an extent, international agricultural prices. This last point is very annoying to the cartels that dominate international food trade.

After attacking export restrictions, Mr. Lamy stated that exporting countries seek other ways to assure their own national supply. But here his proposals for a different approach are misleading. Lamy called for an increase in global food production, "more social safety nets, more food aid and food supplies and …humanitarian aid exempt from export restrictions."

Let's look first at the call for an increase in global food production. Countries that now must import food used to feed themselves until free trade and the export subsidies of rich countries ruined their farmers. The WTO unfairly allows subsidies in some countries and prohibits them in others. More production in countries that subsidize exports would worsen the rural crisis in the Third World.

Furthermore, high prices will not in this case spur more production because they do not obey demand, which is relatively stable, and the price increase does not reach producers. Speculators and price manipulators are the ones who profit from those sudden rises. An increase in food production to stabilize prices would be beneficial only if it happens in those countries that lost their self-sufficiency in agriculture. For that, it is necessary to eliminate export subsidies and other aids that distort agricultural prices.

Lamy also called for an increase in food aid. Food aid has historically played an important role in crippling local food production, functioning as a tool to displace and destroy local farms. There are cases in which food aid is imposed as an import quota; for example, Guatemala is forced to accept a share of "help" it does not need. Another example is Honduras, which was self-sufficient in rice before Hurricane Mitch. The natural disaster opened the gates to thousands of tons of U.S."aid" rice, subsidized at 80%. Prices tumbled and killed domestic production. Finally, the case of Haiti is now notorious because President Bill Clinton acknowledged his guilt in the destruction of Haitian agriculture by imposing U.S. food aid "manu militari" and forcing the Haitian government to obey the prescription of the IMF to lower its rice tariff from 35 % to 3%. All these experiences seem lost on Mr. Lamy.

Lamy summed up his attitude toward the challenge of rising food prices: "Globally, what we would be likely to see as a result of Doha [WTO Round] is more food being produced where this can be done more efficiently." It is very unlikely that the Doha Round will ever acomplish this goal. The Doha Round was accepted by developing countries because of the mandate to eliminate subsidies that distort agricultural prices. But negotiations are stuck because rich countries do not want to reduce their subsidies, and yet demand more openness to their exports, more concessions on intellectual property and services, and a drastic reduction in the space for national economic policies.

Food Speculation

The IMF ordered fiscal austerity for those European governments that ruined themselves by paying off the debts of private banks, but it has failed to mention the subsidies of the European Common Agricultural Policy (CAP). Neither does the new Republican majority in the U.S. Congress mention farm or export subsidies when they ask for public spending cuts. The problem is not subsidies but who receives them–giant food transnationals make huge profits off these subsidies. Instead of analyzing the impact of these subsides, the IMF continues to recommend austerity measures focused on removing protections against poverty at a time when there is a steep rise in food prices and unemployment.

We are seeing an increase in global impoverishment caused by practices that enrich bankers and global commodities speculators. Mr. Lamy and the members of the G-20 who accuse export restrictions for rising food prices should take a closer look at the impact of speculation and turn their attention to the means and tools that are at the bottom of the rising prices. Yet at the meeting, they pointedly did not even mention speculation.

Economic theory says that prices follow the law of supply and demand. As long as human beings have a single stomach, there cannot be a sudden increase in demand for food. We may begin to hear, as in 2008, the tale that prices rose because of grain demand to produce ethanol. The argument has been proven false as an explanation for the sudden price hikes. There was no increase in ethanol production and grain prices fell as fast as they rose without an increase on agricultural activity. It is clear that the starving and suffering of billions in 2008 was the work of greedy price speculators.

The mainstream media tends to do little research and repeats whatever comes out of the mouths of those on high. Droughts and floods are not the leading cause of spikes in global food prices. Nor are export restrictions. The spikes are the work of manipulation in commodity markets where global prices are set. The physical existence of a commodity is not even necessary to create a price, because real goods are not always bought or sold or delivered, even though their prices are listed in mercantile exchanges.

Listings are typically based on the index commodity funds, which are bets on the mercantile exchange performance of a specific agricultural commodity. Handling is coordinated between institutional brokers, financial institutions and global merchants. They bet on the rise or fall of a specific product and then manipulate the price to win the bet. To make a profit it is enough to sell options without ever actually owning an existing product somewhere. Speculators don't only make a profit when prices rise; they can also bet and make a profit when commodity prices collapse, by so-called "short selling. "

From 2006 to 2008 commodity prices rose scandalously, especially rice, wheat and corn. A tonne of rice rose from $600 in 2003 to $1,800 in 2008. After causing popular unrest in the world, prices fell as quickly as they climbed. Further proof that the cause was not supply and demand.

The current crisis looks even worse. The last FAO report states that cereals price rose 32% in the second half of 2010 and the composite price index of sugar, meat, milk, cereals and oilseeds in December exceeded 2008 levels. If speculation is left unchecked, this time there will be riots in Europe as well.

The Dollar's Role

A fundamental cause of price instability is the weakness of the dollar. A currency that has devalued 400% against gold and 60% against the Swiss franc in only four years cannot be the reference for commercial value. The dollar devaluation caused loss of purchasing power to all wages, pensions and fixed incomes in the world, but also the actual reduction of all dollar-denominated debts. Therefore, it is not admissible that the most indebted country in the world ensures the stability of values in international trade or the stability of anything.

It is a situation that has gradually gotten worse since 1971, when the United States defaulted on its debts and repudiated the gold standard. The total amount of dollars and dollar-denominated securities issued since then by the Federal Reserve and by the financial institutions supported by the Fed, surpasses the U.S. GDP and even the World Gross Product. It is a debt that cannot be paid.

The only way to obtain price stability and start a global economic recovery is to drop the dollar, assume a more rational value for reference, and discipline the operation of financial and mercantile exchanges in London, New York and Chicago. That is what the Davos gathering of international leaders should have considered, but did not. Instead they focused, as always, on recipes for maintaining their own immediate and exclusive prosperity in a starkly unequal world.

Finance Myths

The Wrong Crisis
By DEAN BAKER

Most economists and financial experts would give the banking system in Spain high marks. It is well regulated and well capitalized. In September of 2008, when the financial world was melting down following the collapse of Lehman Brothers, Spain was relatively unaffected. Yet the unemployment rate in Spain today is more than 20 percent.

Clearly there is more to the story of the current worldwide economic slump than the flame out of Bear Stearns, Lehman, and AIG. But the Financial Crisis Inquiry Commission (FCIC), tasked by Congress with determining the causes of that slump, isn't giving us the more complete picture.

The problems with the FCIC's report, released at the end of January, stem from the Commission's very inception: it was focused on the wrong topic. The FCIC investigated risky investments, lax regulation, excessive leverage. And it downplayed the more mundane, but vastly more important, collapse of the housing bubble.

The FCIC was set up to investigate a sidebar rather than the real story. Given the definition of its mission, the Commission did a reasonably good job. However, its 662-page report is a distraction from the real reasons why 25 million Americans are unemployed, underemployed, or have given up looking for work altogether. The real story doesn't require 662 pages; it can easily be summed up in a few paragraphs.

We knew the bubble was coming . . .

The story of the downturn is the story of the $8 trillion housing bubble and its collapse. This bubble was driving the economy in the last decade in the same way that the stock bubble drove the economy in the late '90s. Just as the collapse of the stock bubble led to a recession in 2001, the collapse of the housing bubble led to a recession in 2007. Both collapses and the resulting economic fallout were predictable. They also could have easily been avoided if those in charge of economic policy (e.g., Fed Chairmen Alan Greenspan and Ben Bernanke) had been doing their jobs.

Housing prices rose dramatically starting in the mid-'90s, around the same time the stock bubble began to inflate. At their peak, nationwide housing prices were more than 70 percent higher than the long-term trend in prices suggested they ought to be. This surge in prices drove the economy both directly, by fueling a massive construction boom, and indirectly, by spurring consumption.

Residential construction accounted for 3–4 percent of GDP in the early and mid-90s. It topped out at more than 6 percent of GDP in 2005. This construction boom led to enormous overbuilding and historically high vacancy rates. When the bubble burst, it was inevitable that construction would plunge to levels well below normal until the excess housing could be absorbed by the economy. This meant a falloff of close to $600 billion in annual demand.

There was also a bubble in non-residential real estate. This non-residential bubble lagged a bit, but followed the same predictable pattern as the residential bubble: a building boom produced enormous overcapacity and a dive in construction after the bust. Non-residential construction is down by more than one-third as a share of GDP since its peak, leading to the loss of another $100 billion in annual demand.

The collapse of the housing bubble also reduced consumption through what is known as the "housing wealth effect." The housing wealth effect is estimated at five to seven cents on the dollar, meaning that homeowners will on average increase their annual consumption by between five and seven cents for every additional dollar of housing they own. This means that the $8 trillion of housing-bubble wealth implied an increase in annual consumption of between $400 and $560 billion. Now that most of the bubble wealth is lost, so is this consumption.

The total reduction in annual demand as a result of the collapse of the bubbles in residential and non-residential real estate is close to $1.2 trillion, or 8 percent of GDP. There is nothing in the economist's bag of tricks that easily replaces such a large loss in demand. This is why anyone who noticed the housing bubble should have recognized that catastrophe loomed.

And the bubble was hard to miss. For a hundred years, U.S. housing prices tracked the overall rate of inflation. This is a long trend, especially in the largest market in the world. Economists don't expect to see a break from such a trend without fundamental shifts in the market.

No such shifts occurred. There was nothing on the demand side that could plausibly explain the sudden rise in house prices. Income growth was good in the late '90s, but in keeping with growth during post–World War II boom, three decades that saw no increase in real house prices. And incomes stopped rising in the oughts, in any case. The population grew during this period, but the rate of household formation was much slower than in the '70s and '80s, when the baby boomers were having children and buying their first homes.

If demand wasn't surging, perhaps there were new supply constraints? Not likely, given near-record levels of construction and record-setting vacancy rates, which were visible as early as 2002.

Finally, that there was no notable increase in rents during this period shows conclusively that house prices were not being driven by the fundamentals of the housing market: if there were fundamental economic factors driving up home prices, then rent prices would have increased apace. In short, there was no excuse for anyone in a policy-making position to miss the housing bubble.

. . . And we could have done something about it

There were many people well position to rein in the bubble. The first and simplest course of action for the Federal Reserve, the Treasury, and other actors in government would have been to warn of the bubble by documenting its existence and detailing the damage that the economy and individual investors would suffer from its collapse.

The second route that the Fed and other regulators could have pursued was to crack down on the bad lending behavior that fueled the bubble. The slipshod practices and outright fraud that were the basis of many loans were not secrets.

Remarkably, Greenspan gave these shenanigans his stamp of approval and praised the inventiveness of the financial industry. Just when the market was really going crazy in 2004, the Securities and Exchange Commission (SEC) responded by easing the leverage restrictions on investment banks. If the SEC had gone the other way and tightened restrictions, it could have saved the country a great deal of pain.

Finally, the Fed could have burst the bubble at any point by raising interest rates. High interest rates are the enemy of bubbles everywhere, and the Fed, under Greenspan and Bernanke, could have ensured the quick impact of raising rates by tying them to the extent of the bubble. In this scheme the initial rate hike could be accompanied by a Fed announcement that the rate hikes would continue until housing prices fell to their pre-bubble levels. This would have caught the attention of mortgage issuers and investment bankers and the suckers buying their junk.

Finance Myths

Much of this story is in the FCIC report but only as background. The foreground is the collapse of Lehman and AIG and the near meltdown of the financial system in the fall of 2008. The scenes of Bernanke and then-Treasury Secretary Henry Paulson warning of the end of the world if Congress didn't immediately pass the Troubled Assets Relief Program (TARP) occupy center stage.

But the end-of-the-world scenario invented by the Paulson-Bernanke team was a charade designed to save the Wall Street banks. Had their scenario come to pass, the financial system might have shut down temporarily—most likely for no more than a few days—which would have been followed by the Fed restarting the system with a flood of liquidity. This is more or less what happened in Iceland, where GDP is now growing again at a healthy pace.

To be clear, a shutdown of the financial system would be a terrifying event, best to avoid. But the idea that this would have led to a second Great Depression—a decade of double-digit unemployment—is complete nonsense. We know how to reflate the economy.

The suggestion that the prolonged downturn is explained in any important way by the financial crisis is absurd. Consumers may be pessimistic about the state of the economy, but the reason they are not spending is that they lost trillions of dollars of housing wealth. The saving rate is still under 6 percent. This is up from near zero at the peak of the housing bubble, but it is still down from its postwar average of close to 8 percent. Instead of asking why consumers aren't spending, we should be asking why they aren't saving more.

All this talk of saving the financial system, and the FCIC's inordinate concern for its role in our current economic woes, give undue credence to another narrative that's great for banks, but harmful to the rest of us. Faced with the fact that banks aren't lending much, some influential voices, such as Bernanke and National Economic Council Director Gene Sperling, have taken to decrying a supposed "credit crunch." But financial institutions are not nearly as constrained as people think. Larger firms are well capitalized; they aren't lending to small businesses because what looked like a good bet during days of 4.5 percent unemployment is a lot less attractive now, when unemployment is twice as high.

The large firms that dominate the economy are sitting on trillions of dollars in cash and can borrow as much as they like directly on credit markets at extraordinarily low interest rates. If there really were great investment opportunities that small businesses couldn't pursue due to their lack of access to credit, we would expect to see the Wal-Marts and Starbucks of the world expanding like crazy to take advantage of their competitors' temporary weakness. However, this is not happening, therefore access to credit clearly is not the issue.

The real story is the lack of demand outlined earlier. The solution is simple: the government should spend lots of money. Simple, that is, except for the political obstacles. That is why the FCIC report is a distraction, one more item contributing to the myth that the country is suffering primarily from a financial crisis.

The national obsession with finance goes beyond the specific events of the crisis. Americans have this misplaced notion that a giant, largely unregulated finance industry is good for us, and we too-readily assume that the success of finance is the success of the nation. That's why the industry routinely threatens to go overseas in response to increased regulation or taxation—and gets what it wants. But apart from the fact that this is a bluff in most cases, why should we care if the titans of finance packed up and left?

The United States has seen its textile industry go overseas, along with much of its steelmaking, auto manufacturing, and even software programming. Why should we be any more concerned about buying our financial services from a foreign bank or insurer than we are about buying our clothes from a foreign manufacturer? There certainly is no economic theory that says this would be a problem.

Even the treatment of the stock market as a measure of economic well-being results from a peculiar obsession with finance. In principle the stock market is supposed to measure the value of future corporate profits. Expected future profits may rise because people are more optimistic about the overall state of the economy. In this sense rising stock prices could be viewed as positive for everyone, but only if associated with the belief that the bigger pie gets distributed widely.

However, investors may expect higher profits because they anticipate a redistribution of income from wages or taxpayers to corporate profits. In this case, there would be no reason for the vast majority of the public, who own little or no stock, to be celebrating an increase in the stock market. Growth of that sort would imply lower, not higher, living standards for them.

Remarkably, many people who consider themselves progressives now view the stock market as a measure of the health of the economy rather than an imperfect measure of the wealth of the rich. These people are also convinced that the world would have ended if the 2008 chain of bank collapses had put Wall Street out of business. This sloppiness of thought radically curtails the room for progressive policy.

The FCIC's focus on finance contributes to this view. There is a lot of good and important material in the report; clearly there are many rich bankers who belong behind bars. The reputations of Greenspan and Bernanke should be permanently tarnished thanks to their incompetence in managing the economy. But at the end of the day, the picture the FCIC presents of the economic crisis and the economy is one that is badly skewed toward the finance-centric view that dominates political debate and prevents headway on the economic concerns that matter to the vast majority of working—and out-of-work—people.

Snopes has incomplete info on its page about Unemployment

For Understated Unemployment: on the Snopes website, they list as the determining factor for the unemployment rate only the Current Population Survey. The CPS is only one of the 7 measures of unemployment. Another is The Current Employment Statistics survey (CES), or "Payroll Survey", conducting a survey based on a sample of 160,000 businesses and government agencies that represent 400,000 individual employers.

The Bureau of Labor and Statistics also calculates five alternate measures of unemployment, U1 through U6, that measure different aspects of unemployment:

U1: Percentage of labour force unemployed 15 weeks or longer.

U2: Percentage of labour force who lost jobs or completed temporary work.

U3: Official unemployment rate per the ILO definition occurs when people are without jobs and they have actively looked for work within the past four weeks.

U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.

U5: U4 + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently.

U6: U5 + Part time workers who want to work full time, but cannot due to economic reasons (underemployment).

+++++++++++++++++++++++++

The U3 only counts 42% of the total unemployed. That's the 9.4% rate given by the corporate mainstream media.

The BLS counts short-term discouraged workers (less than one year) in its U6 measure of unemployment. That total rate is 16.7% as of Jan. 2011 (U3+U6).

Those who have become discouraged and have ceased looking for work are not considered to be in the work force and are not counted as unemployed in the U3 measure, even though they are unemployed. They are counted in the U4 up to 99 weeks. That total rate is 22.4% as of Jan. 2011 (U3+U4+U6).

Once a person has been unemployed for 99 weeks or longer (the 99ers), whether they look for work or not, they were no longer counted in any of the unemployment charts until recently--Dec 2010, when a new category for those unemployed longer than 2 years was created.

http://en.wikipedia.org/wiki/Unemployment#cite_ref-71
http://www.bls.gov/cps/tables.htm
http://counterpunch.org/roberts01102011.html
http://www.usatoday.com/money/economy/2010-12-28-1Ajobless28_ST_N.htm

The Big Banks’ Battle Against Consumers and Homeowners

By Mike Lux

February 12, 2011
The Big Banks’ Battle Against Consumers and Homeowners 

There is a battle going on — a big one — and big battles have a lot of fronts. The big banks are doing whatever they can to fight back against consumers and homeowners who are desperately trying to curb the bankers’ abuses. The number of different fronts that have been opened up keeps growing. Here are just a few of the most important ones:

1. In D.C., the biggest battle is over the new Consumer Financial Protection Bureau. Trying to build a new agency whose actual mission is to act on behalf of consumers in times like these is a treacherous undertaking, and Elizabeth Warren is battling on two major fronts of her own. The first is that the Republicans are trying to either strangle the agency at birth, or else rip its arms and legs off so that it lives but without much power to it. They are whining to high heaven that the budget for the agency is $379 million, which seems like it’s about the price of a Wall Street banker’s bonus check, but even worse for the poor Republicans is that they can’t touch that budget because of the way Warren brilliantly negotiated the language on it — it would be a set percentage of the Fed’s budget rather than being subject to the whims of Congress and the Wall Street lobby.
The other CFPB battle is over who the agency director will be. Word from the Senate is that Banking, Housing and Urban Affairs Committee Ranking Member Richard Shelby is pulling out all the stops to keep the White House from making Warren the permanent head, threatening all kinds of things if she is nominated or given a recess appointment. 

Now I am not stuck on Warren doing this, even though (full disclosure) she is my good friend. No one is indispensable. But here’s the deal: The White House needs to look at the politics of this. There is not a shred of doubt that she would be the director Obama should pick, because the whole thing is her brainchild, and because she navigated the politics of getting it passed so masterfully against huge odds. Shelby is not going to okay with anyone who is actually acceptable to those of us who are advocates of Warren and the idea of a strong agency that she represents. And with Warren and the agency itself having become such a huge symbol of standing up to Wall Street, if Obama screws her over and then appoints someone weak enough to make Shelby happy, Obama is going to look awful — not just to the base but to the middle and working class swing voters desperate for someone to take on Wall Street and look out for their interests. The fact is that this fight with Republicans over Warren is a fight that would politically help the White House. Yes, Shelby can block the nomination in the Senate, but then Obama simply gives her the recess appointment in June, after a politically valuable Wall Street vs. consumers floor fight in the Senate.


Here’s the other interesting thing: I have been hearing from friends in the politically powerful community banking world that they actually like dealing with Warren a whole lot more than they originally thought they would. They have come to figure out that even though she is a regulator, the regulations she is pushing actually will help them in their battle for survival and market share with the big Wall Street bankers, and that she is far easier to work with than they thought she would be. If the community bankers don’t side with Wall Street in opposing Warren, the Big Six banks really will be politically isolated, as will the Republicans walking the plank for them.

2. The mega-death battle being waged in courtrooms all over the country, in the state AGs’ negotiations with bankers, in demonstrations and corporate campaigns and city council resolutions against JPMorgan Chase, and inside the Obama administration is the battle over mortgage modifications. A quarter of American homeowners have mortgages that are under water, with less equity in the house than the house is worth because of collapsed housing prices. The experts I’m talking to on this think this is the key moment: Do we get stuck in a minimum of one million-plus foreclosures a year dragging over the next decade, leaving our entire housing market in a hole we can’t climb out of, which in turn would be a severe decade-long drag on our broader economy (can you say Japan’s Lost Decade)? Or do we force the bankers to do a very big number of mortgage write-downs that will actually jolt the system enough to change the dynamic? The AGs, if they bargain aggressively enough and don’t buy this bankers’ idea that we should only look forward rather than dealing with the massive fraud and market problems they have already created, could force the banks to write down large numbers of mortgages. So could the Obama administration, if it admits the Home Affordable Modification Program isn’t working and finally turns the regulatory screws on the Big Six banks plus Fannie and Freddie, which collectively dominate the market. This battle is the sleeper issue of the next couple of years, and if we blow it, we are most likely stuck with a Lost Decade scenario — or maybe worse.

3. The banks are doing everything in their power to squeeze every penny they can from consumers and small businesses without the market power to fight back. One of the most egregious areas they have done this is in “swipe fees” on credit and debit cards. Sen. Durbin succeeded at getting a bipartisan amendment passed to finally regulate this practice, which banks have been abusing without shame for years, but now the bankers are whining (or maybe wining and dining; a banker recently bragged about closely “collaborating with regulators on this issue) to Federal Reserve regulators about rolling back regulations to make swipe fees “fairer.” Winning this battle for consumers and small businesses would mean a $15 billion-a-year jolt to the Main Street economy.


4. All over the country, as part of national organizing efforts or just on their own, activists and local elected officials are taking on the six biggest Wall Street banks (who own assets equaling 64 percent of the USA’s GDP). The JPMorgan Chase corporate campaign is a great example; activists are taking on that company with abandon, and have sketched out long-term plans to keep after them. The Hawaii state House just passed a foreclosure moratorium, and local governments all over the country are taking their money out the Big Six banks. I am even hearing more and more talk of a movement around strategic default by underwater homeowners. I think a lot of people have decided that these big banks — who took down our economy with their recklessness, got bailed out with no strings attached, and then immediately started rewarding their executives record bonuses while unemployment is still above 9 percent (and a lot higher if you include discouraged, temporary, and part-time, not-by-choice workers) — need to be brought down and replaced with a banking system that actually helps the real economy become healthier.

People are feeling deep in their gut that these big banks are out of control. They have too much power over the market and way too much over the politicians. And when bankers push back against even modest reforms and regulations that have been put into place, even after all the damage done to this economy by deregulation of the financial sector, it just drives the point home. The time is now to take on these big banks.

Another view on why there is no robust job growth

John Crudele - February 10, 2011
The economy should be creat ing jobs.

That, anyway, is what everyone says. President Obama thinks that. And so does Federal Reserve Chairman Ben Bernanke, every Wall Street economist and all the unemployed folks sitting around Starbucks logging on to Monster.com.

But jobs aren't being created -- at least not nearly enough by even the most forgiving definition of an economic recovery.

Even if last Friday's disclosure by the Labor Department that only 36,000 new jobs appeared in January was flawed on the pessimistic side (as I showed in my last two columns), private measures of employment aren't showing a labor market that is even the least bit robust.

So, what gives?

The easy explanation is that companies simply don't want to hire.

Executives are being stubborn even though their profits are rising nicely. Please, please start adding workers, the president implored the other day, as if all companies had to do was flip a switch.

They want to keep earnings up so that the stock market will reward them with higher share prices.
Or, maybe, they just aren't sure these profits gains will stick, especially with higher inflation expected in the future.

And there are other possible explanations as to why companies might not be adding to their payrolls.
Maybe they are afraid of the future costs of health care reform. Why take on more medical obligations when you aren't yet sure what your current workers are going to cost you?

But there's something else that almost nobody is considering: perhaps the economic recovery just isn't as strong as Washington thinks (which, incidentally, isn't very strong to begin with.)

Nobody, of course, wants to hear this. But let me make the case.

Take a look at the Gross Domestic Product announcement put out by the Commerce Department a few weeks ago. It showed that the economy grew at an annualized rate of 3.2 percent during the final three months of 2010.

The 3.2 percent rate was a smidgen better than the 2.6 percent annualized growth recorded in the third quarter.

Take away the word "annualized," divide the quarters' performance by four and you see just how small the improved expansion really is: 0.8 percent actual growth in the fourth quarter compared with 0.65 percent in the July-Sept. period.

So, maybe companies simply aren't hiring because they really cannot see much economic expansion.
Maybe they are right to be cautious in expanding payrolls because it's the only way they can protect their profits.

But there is another problem with taking the government's word on how fast the economy is growing.
The December estimates put into the GDP are about as solid as a Jello mold.

Worse, according to economist John Williams, 3.44 percentage points of the annualized growth in the fourth quarter -- more than the total 3.2 percent reported -- came from a sudden, inexplicable decline in imports.
Without the reduction in imports GDP would have been down in the fourth quarter and we'd be hearing talk right now -- again -- about a possible double-dip recession!

The Commerce Dept. also attributed a lot of the gain in fourth quarter GDP to retail spending.

But we already know -- from a column I did during the holiday shopping season -- that much of the sales increase in December wasn't coming from a sudden burst in consumerism, but instead from rising prices on things like energy.

That isn't growth; it is inflation. And inflation is bad.

Despite all the inflation that you and I see in the real world, the Commerce Dept. barely noticed that prices were rising in its GDP calculations.

It used 0.3 percent as the annualized deflator in the GDP report when the consumer price index (the CPI, which itself understates inflation) is up 2.6 percent from a year earlier.

Let me explain it a different way.

Each point that inflation rises decreases the GDP by a point.

So, for instance, if the GDP deflator had simply stayed at the 2.0 percent reported in the third quarter the annualized GDP growth in the final three months of the year would have been an extremely modest 1.2 percent annualized, not 3.2 percent.

Countries get them selves into trouble when they publicize false eco nomic data, whether the deceit is intentional or not. And they confuse people. The Russians, in the 1960s couldn't figure out why they were going hungry when the Kremlin was reporting huge grain crops.

And Americans today are equally baffled about the lack of job creation -- despite the crop of optimistic economic numbers coming from Washington.

Could A Repeat of the Egyptian Uprising Happen in the US?

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Ron Paul: US to blame for Egypt Chaos

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Sen. Dick Durbin: Activists on Facebook need protection

By Agence France-Presse
Friday, February 11th, 2011

WASHINGTON (AFP) – Facebook has become an important tool for democracy and human rights activists and it needs to do more to protect them, including allowing the use of pseudonyms, a US senator said Thursday.

"Recent events in Egypt and Tunisia have again highlighted the significant costs and benefits of social networking technology like Facebook to democracy and human rights activists," Senator Dick Durbin said in a letter to Facebook co-founder and chief executive Mark Zuckerberg.

"I commend you for providing an important tool to democracy and human-rights activists," the Democrat from Illinois said.

"However, as millions of people around the world use Facebook to exercise their freedom of expression, I am concerned that the company does not have adequate safeguards in place to protect human rights and avoid being exploited by repressive governments," Durbin said.

"Facebook has facilitated efforts by activists to organize demonstrations and publicize human-rights abuses," he said.

"At the same time, the Egyptian and Tunisian governments have reportedly used Facebook to monitor activists, which is surely aided by Facebook's refusal to allow activists to use pseudonyms," the senator said, citing Belarus, China, and Iran as other countries using social networking to track activists.

Durbin repeated a call for Facebook, which has nearly 600 million users, to join the Global Network Initiative (GNI), which has drafted a voluntary code of conduct to protect human rights and whose members include Google, Microsoft and Yahoo!

Responding to the senator's letter, Andrew Noyes, a Facebook spokesman, said "the trust people place in us is the most important part of what makes Facebook work.

"As demonstrated by our response to threats in Tunisia, we take this trust seriously and work aggressively every single day to protect people," he said.

As for pseudonyms, Noyes said: "Facebook has always been based on a real name culture, and we fundamentally believe this leads to greater accountability and a safer and more trusted environment for people who use the service."

Referring to the appeal to join GNI, Noyes said, "as Facebook grows, we'll absolutely be considering which groups we can actively participate in but it's important to remember that our global operations are still small, with offices in only a handful of countries."

Former Fox News employee: ‘Stuff is just made up’

By Eric W. Dolan, RAW Story
Friday, February 11th, 2011

A former employee of Fox News called the company a "propaganda outfit" that is determined to undermine the Obama administration and Democrats.

"I don't think people would believe it’s as concocted as it is; that stuff is just made up," the employee, whose name was kept anonymous, told the liberal media watchdog group Media Matters.

"They say one thing and do another," the former employee said. "They insist on maintaining this charade, this façade, that they’re balanced or that they’re not right-wing extreme propagandist."

"You have to work there for a while to understand the nods and the winks," the former employee added. "And God help you if you don’t because sooner or later you’re going to get burned."

The former employee's comments did not come as a surprise to many critics of Fox News, who have long suggested the channel is biased in favor of conservatives. The 2004 documentary film "Outfoxed: Rupert Murdoch's War on Journalism" criticized the channel and its owner, Rupert Murdoch, for skewing its reporting of events to promote conservative viewpoints.

"Like any news channel there’s lot of room for non-news content," the former employee continued. "The content that wasn't 'news,' they didn't care what we did with as long as it was amusing or quirky or entertaining; as along as it brought in eyeballs. But anything - anything - that was a news story you had to understand what the spin should be on it."

"If it was a big enough story it was explained to you in the morning [editorial] meeting. If it wasn’t explained, it was up to you to know the conservative take on it. There’s a conservative take on every story no matter what it is. So you either get told what it is or you better intuitively know what it is."

Internal emails obtained by Media Matters also showed that a seemingly spontaneous response concerning the Obama campaign canceling an appearance on a local news station to have been scripted by Fox News' producers,

In another e-mail obtained by the media watchdog, Fox News Washington Managing Editor Bill Sammon told his staff to downplay the importance of climate science that showed the globe's average temperature getting warmer.

Additional emails showed that Sammon asked his news department to refer to the public option as the "government run option" because polls showed the phrase "government option" was opposed by the public.
Perhaps not coincidentally, a poll gauging public trust in TV news found that PBS was the most trusted name in news, while trust in Fox News dropped significantly over the last year.

***

O'Reilly Producer Refuses To Comment On Fox Insider's Claim That "Stuff" On Fox Is Just "Made Up"

February 12, 2011 by Julie Millican

At the annual CPAC convention, Think Progress' Ben Armbruster confronted The O'Reilly Factor producer Jesse Watters, who is famous for ambushing progressives and others with whom Bill O'Reilly has taken issue. Armbruster questioned Watters about a recent Media Matters exclusive from a Fox News insider, who said that Fox is a "propaganda outfit" and "their M.O. [is] to undermine the administration and to undermine Democrats." The former Fox News employee said to Media Matters: "I don't think people would believe it's as concocted as it is; that stuff is just made up."

Despite repeated attempts, Watters refused to answer Armbruster's question. Instead, as Think Progress reported, "he tried to divert the issue by attempting to belittle ThinkProgress' 'ambush' skills," at one point "seem[ing] to take offense at a slight brush on his sport jacket, saying, 'Watch my blazer, bro.'"

Ron Paul: ‘Government is in the process of failing’

By Nathan Diebenow RAW Story
Friday, February 11th, 2011
Is he running for US Senate? Is he signaling his bid for US president? Or is he hinting at something deeper within the US political climate?

Rep. Ron Paul (R-TX) sounded like he was about to hit the campaign trail again during his speech at a right-wing forum Friday, but before he left the podium, he warned Americans that their federal government was in trouble.

"Tragically, you're going to have the opportunity [to not ask the federal government for anything], because government is in the process of failing, and they can't deliver on the goods, just as the Soviets couldn't deliver the goods and maintain their own power," he said during the Conservative Political Action Conference.

Rep. Paul continued, "We will have those same problems domestically. We face serious economic problems as this dollar crisis evolves."

Paul has hinted in recent weeks that he might seek the Senate seat that Sen. Kay Bailey Hutchison plans to vacate after nearly two decades in Congress. If he should win, he would join his newly-elected son, Sen. Rand Paul of Kentucky.

However, Paul, 75, seemed to be cultivating his position in the libertarian wing of the Republican Party.

"I'm glad to see that the revolution is continuing," he said, adding, "We don't need to just change political parties. We need to change our philosophy about what this country is all about."

Paul drew thunderous applause for bashing his favorite targets: the Patriot Act, US aid to foreign nations, and US military bases overseas. After his call for the Federal Reserve banking system to be audited, the crowd chanted, "End the Fed! End the Fed!"

Paul became the chair of the House financial services subcommittee on Domestic Monetary Policy and Technology after Republicans retook the House last fall. He held his first meeting on the Federal Reserve this week.

"The Federal Reserve will end itself," he added. "They have eliminated 98 percent of value of the 1913 dollar, and it's continued erosion."

Paul used the newly-extended Patriot Act as a sign that grassroots activists were pulling the grip on power away from Washington.

"We didn't get a majority vote, but they didn't pass it automatically with a 2/3rds majority vote, sending a message that this country is waking up," he said. "We want to protect our civil liberties as well as our economic liberties."

Paul, who was the only Republican to bring up the situation in Egypt at the conference, blamed US foreign aid to other countries for the instability in the United States, and he warned that the revolutionary spirit against US-backed dictators sweeping the Middle East would soon envelop Saudi Arabia.

"All of the Middle East is unstable because of this [foreign aid]," he said.

Paul continued, "Now it's Tunisia. Next it's Egypt. And it's going to keep going because all the problems are there because the people don't like us propping up their dictators, no more than we would like it if a foreign country came here to prop up a dictator in our country."

The conference was not without its own revolution. On Thursday, Paul's supporters chanted "war criminal" at former Vice President Dick Cheney, who is seen as one of the masterminds behind the wars in Iraq and Afghanistan.

"Defend liberty," Paul closed.

This video was published at YouTube, broadcast Feb. 11, 2011, via RonPaul2008dotcom.

Obama Asserts FBI Can Get Phone Records Without Oversight

Saturday, February 12, 2011 by the McClatchy Newspapers
by Marisa Taylor
WASHINGTON — The Obama administration's Justice Department has asserted that the FBI can obtain telephone records of international calls made from the U.S. without any formal legal process or court oversight, according to a document obtained by McClatchy.

That assertion was revealed — perhaps inadvertently — by the department in its response to a McClatchy request for a copy of a secret Justice Department memo.

Critics say the legal position is flawed and creates a potential loophole that could lead to a repeat of FBI abuses that were supposed to have been stopped in 2006.

The controversy over the telephone records is a legacy of the Bush administration's war on terror. Critics say the Obama administration appears to be continuing many of the most controversial tactics of that strategy, including the assertion of sweeping executive powers.

For years after the Sept. 11 attacks, the FBI sought and obtained thousands of telephone records for international calls in an attempt to thwart potential terrorists.

The bureau devised an informal system of requesting the records from three telecommunications firms to create what one agent called a "phone database on steroids" that included names, addresses, length of service and billing information.

A federal watchdog later said a "casual" environment developed in which FBI agents and employees of the telecom companies treated Americans' telephone records so cavalierly that one senior FBI counter-terrorism official said getting access to them was as easy as "having an ATM in your living room."

In January 2010, McClatchy asked for a copy of the Office of Legal Counsel memo under open records laws after a reference to it appeared in a heavily excised section of a report on how the FBI abused its powers when seeking telephone records.

In the report, the Justice Department's inspector general said "the OLC agreed with the FBI that under certain circumstances (word or words redacted) allows the FBI to ask for and obtain these records on a voluntary basis from the providers, without legal process or a qualifying emergency."

In its cover letter to McClatchy, however, the OLC disclosed more detail about its legal position, specifying a section of a 1978 federal wiretapping law that the Justice Department believes gives the FBI the authority. That section of the law appears to be what was redacted from the inspector general's report and reveals the type of records the FBI would be seeking, experts said.

"This is the answer to a mystery that has puzzled us for more than a year now," said Kevin Bankston, a senior staff attorney and expert on electronic surveillance and national security laws for the nonprofit Electronic Frontier Foundation.

"Now, 30 years later, the FBI has looked at this provision again and decided that it is an enormous loophole that allows them to ask for, and the phone companies to hand over, records related to international or foreign communications," he said. "Apparently, they've decided that this provision means that your international communications are a privacy-free zone and that they can get records of those communications without any legal process."

That interpretation could be stretched to apply to e-mails as well, he said.

However, Bankston said, even if the law allows the FBI to ask for the records — an assertion he disagrees with — it would prohibit the telecommunication companies from handing them over.

Meanwhile, the refusal to provide to McClatchy a copy of the memo is noteworthy because the Obama administration — in particular the OLC — has sought to portray itself as more open than the Bush administration. The decision not to release the memo means the details of the Justice Department's legal arguments in support of the FBI's controversial and discredited efforts to obtain telephone records will be kept from the public.

The FBI and Justice Department have refused to comment on the matter.

For years, the Bush administration had refused to release the memos that provided the legal underpinning for harsh interrogations of overseas terror suspects, citing national security, attorney-client privilege and the need to protect the government's deliberative process.

In April 2009, the Obama administration released four of the Bush-era memos that detailed many of the controversial interrogation methods secretly authorized by the Bush administration — from waterboarding to confining prisoners in boxes with insects.

Experts that track government spying and the Freedom of Information Act said the refusal to release the FBI memo to McClatchy appears to be improper and contrary to the intent of FOIA.

Since the memo appears to be exclusively on the OLC's legal justification for getting the phone records, the Justice Department should be able to release at least portions of it, experts said.

"It's wrong that they're withholding a legal rationale that has to do with the authorities of the FBI to collect information that affects the rights of American citizens here and abroad," said Michael German, a former FBI agent of 16 years who now works for the American Civil Liberties Union. "The law should never be secret. We should all understand what rules we're operating under and particularly when it comes to an agency that has a long history of abuse in its collection activities."

Sens. Richard Durbin, D-Ill., and Ron Wyden, D-Ore., demanded more than a year ago that Attorney General Eric Holder release a copy of the memo.

The Justice Department has responded, Wyden said this week, but he declined to elaborate on the exchange.

"I do think the level of secrecy that surrounds the executive branch's interpretation of important surveillance law is a serious problem," he told McClatchy, "and I am continuing to press the executive branch to disclose more information to the public about what their government thinks the law means."

When President Barack Obama authorized the release of the interrogation memos, he said at the time that he was compelled to release them in part because of an open records lawsuit by the ACLU.

"While I believe strongly in transparency and accountability, I also believe that in a dangerous world, the United States must sometimes carry out intelligence operations and protect information that is classified for purposes of national security," he said.

Obama said he'd concluded the documents could be released because they wouldn't jeopardize national security and because the interrogation techniques described in the memos had been widely reported. By then, the practices were no longer in use.

The FBI's activities discussed in the most recent and still secret OLC memo also have been widely publicized. An inspector general report that revealed the existence of the FBI memo was one in a series on the FBI's informal handling of telephone records and it concluded the bureau had committed egregious violations of the law.

When revealing the existence of the OLC memo, the inspector general described it as having "significant policy implications that need to be considered by the FBI, the Department, and the Congress."

Since 2006, it appears the bureau has refrained from using the authority it continues to assert, according to another heavily redacted section of the inspector general's report.

"However, that could change, and we believe appropriate controls on such authority should be considered now, in light of the FBI's past practices and the OLC opinion," the inspector general warned.

The Keynesian Moment Passes

The Zombies of Neoliberalism
By RICK A. KUHN

The illusion that the global financial crisis opened a new era of social democratic possibilities, with state intervention to tame capitalism and promote fairness, is dissolving.

Nobel Prize winning economist Paul Krugman wrote about 'The Keynesian moment' in 2008. Keynes's ideas had dominated the economics profession until the 1970s when it became clear they had failed to predict, prevent or solve the slump that ended the long post-war boom. Krugman now gloated that 'in the long run, it turns out, Keynes is anything but dead'.

Keynesian fiscal policy was apparently vindicated as governments, especially in the United States and China, started to boost spending and expand their budget deficits to overcome the global financial crisis. Huge sums were spent on bail-outs for failing banks. In Iceland, Britain, Ireland this included nationalisations.

In an unguarded moment during his 2008 election campaign for the presidency of the United States, Barack Obama even said 'think when you spread the wealth around, it's good for everybody'.

In February 2009, then Australian Labor Prime Minister Kevin Rudd wrote that 'it now falls to social democracy to prevent liberal capitalism from cannibalising itself'. In contrast to the neo-liberal policies that led to the economic crisis, he argued that a new era was opening, drawing on Keynesian economics and social democratic traditions, 'a system of open markets, unambiguously regulated by an activist state, and one in which the state intervenes to reduce the greater inequalities that competitive markets will inevitably generate'.

The logic behind increases in public spending in rich countries was that the financial crisis had led to collapses in both individual expenditure and business investment.

The financial system was in a mess, no-one wanted to lend to anyone else because it was unclear who held how many assets, especially real estate derivatives, which might turn to vapour and bankrupt their owners. Market interest rates went up, businesses could not borrow to invest and, in any case were reluctant to expand or update their machinery, equipment and buildings for fear that they wouldn't be able to sell their products. As unemployment rose, consumers were fearful about their future and cut back on their purchases too.

Many governments borrowed or expanded the money supply not only to prop up banks but also to boost effective demand. So they subsidised increased household consumption by giving away money, through direct payments, tax rebates, tax cuts and rebates, for example on purchases of home insulation in Australia and fuel-efficient cars 'cash for clunkers' in the USA. They funded construction of school buildings, roads and other infrastructure. An aspect of most stimulus packages was some redistribution of income from the rich to the less well off, who were more likely to spend rather than save the extra money.

But this was not their main purpose. By racking up large budget deficits to sustain demand, governments wanted to create a safety net for profits, plummeting because of chaos in the financial system.

In the short term, this approach had some success, in countries which could afford it.

The fundamental problem is not dealing with short-term movements in effective demand. It is declining profit rates.

As the value of machinery and equipment grows, compared to outlays on employing workers who create new wealth, there is a long term tendency for the rate of profit to fall. This tendency can be offset in various ways. Companies can squeeze more work out of employees or gain access to cheaper raw materials and other inputs. Businesses that have bought assets at a discount during an economic crisis can achieve a higher rate of profit than the previous, but now bankrupt, owners of the very same productive resources. Governments can reduce taxes on profits in the form of the revenue of corporations or wealthy individuals. An individual firm can boost its own profits by investing in new, more efficient technologies than its rivals use, although this also reduces profit rates across the industry.

Low profit rates in productive enterprises led to a spectacular rise in the financial gambling that creates no new value and simply redistributes wealth to those who are lucky or who have inside knowledge. This speculation gave rise to the Global Financial Crisis. It was intensified, but not caused, by the lax regulation of banks, hedge funds and other enterprises that have no interest in the creation of real, let alone useful, commodities. They traded and still trade in exotic securities, like credit default swaps and collateralised debt obligations, as well as, currencies and vital commodities, like oil, food and minerals, leading to wild fluctuations in prices.

Some neo-liberal policies 'free up' labour markets, by attacking trade unions and workers' ability to organise, and seek to reduce the drain on private sector profits represented by taxes on corporations and the rich that help fund public health, education and welfare spending. To this extent, they help restore profit rates, redistributing income to the wealthy by reducing the living standards of the large majority of the world's population who are workers.

Hence the debates over the balance of economic policy among rival defenders of the capitalist order, from the outset of the global financial crisis. Some gave greater weight to short-term measures to prop up effective demand and failing banks. Others emphasised attacks on wages and public spending.

At least initially, social democratic politicians prime ministers Rudd, Gordon Brown in Brown and, initially José Luis Rodríguez Zapatero in Spain and George Papandreou in Greece generally favoured 'Keynesian measures'.

Some conservatives Chancellor Angela Merkel in Germany, the French President Nicolas Sarkozy, and Australian opposition leader Tony Abbott were early, stronger advocates of austerity. Merkel, presiding over the relatively strong German economy and concerned to maintain its competitive edge put together a tough 'savings package' in 2010. She opposed stimulus spending by weaker countries in the European Union, which would be underwritten by Germany.

On the other hand, it was the conservative Bush, confronted with the sharp downturn but in charge of the largest economy in the world, who initiated stimulus spending in the United States, coupled with tax cuts for the rich. Similarly, China's conservative rulers, despite their 'communist' label, dramatically increased public spending. They could draw on revenues accumulated during many years of rapid growth and were fearful that if growth slowed much and unemployment rose they might face popular revolt, as economic prosperity was their main source of legitimacy.

Despite continuing high levels of unemployment in many countries, particularly since 2010, there has been a shift towards more austere economic policies across the world.

In some countries, continuing economic stagnation prompted the turn back to neo-liberal policies. Out of favour with public and private international financial institutions, Greece, Ireland, Portugal and Spain simply could no longer afford to prop up economic activity through public spending.

In Britain the victory of the Tory-Liberal Coalition of David Cameron and Nick Clegg signalled the shift.

Elsewhere Australia, China, Germany and to some extent the USA improvements in growth rates opened the way to neo-liberal policies.

Rudd's successor, Prime Minister Julia Gillard has made deficit reduction a matter of honour and electoral credibility. While promising to cut the corporate tax rate, she proposes an income tax levy which will affect large numbers of workers, on the pretext of disaster relief. She is cutting government spending and imposing new penalties on the unemployed.

Obama's recent 'State of the Union' address was a further step in his migration to neo-liberal policies, designed to raise profits at workers' expense. He had already extended George Bush the Lesser's tax cuts for the rich and announced a two year freeze on federal public servants' salaries. In a bid for partnership with the Republicans who have won control of Congress, Obama now wants to 'lower the corporate tax rate for the first time in 25 years without adding to our deficit', while committing to hold discretionary spending steady for five years, that is to reduce it in real terms, and foreshadowing cuts in health and welfare outlays too.

The social democrat Gillard and the 'liberal' Obama are intoning the same dirge about budget deficits as the conservative Merkel, Sarkozy and Abbott, and the gnomes of the European Central Bank and International Monetary Fund.

Underpinning the reversion to neo-liberal policies is the reality that capitalism depends on profits extracted from workers and that squeezing more out of workers is crucial to restoring the profit rates upon which capitalist growth depends.

Across the developed world, governments are cutting public spending, raising the age at which people are eligible for pensions and targeting wages. The Keynesian vision is evaporating.

Keynes is literally and metaphorically dead. And neo-liberal ideas are zombies, still walking and spreading misery, like the system they justify.

On the other hand, the Arab revolution spreading out from Tunisia raises demands that are not only democratic but also economic and social. These and the capacity of ordinary people for mass organisation and initiative demonstrated by the upsurges, suggest the possibility of a world that is not geared to profit-making or based on national or workplace dictatorships.

Obama and the Patriot Act

An Unconstitutional Continuity
By WALTER BRASCH

The U.S. House of Representatives this week did something it should have done years ago—it blocked the continuation of three of the more controversial parts of the PATRIOT Act. The vote was 277–148 to continue the Act, but a 2/3 majority (284 of those voting) was necessary for the bill to move forward. The PATRIOT Act sections are scheduled to expire Feb. 28 unless further action is taken by Congress.

The Republican leadership had placed the bill on an expedited agenda, believing it had the necessary votes. It didn't count on a loose coalition of liberals and extreme conservatives to oppose the Act. Twenty-six Republicans, including seven who are allied with the Tea Party, voted against the bill. Had those seven Tea Party members voted for the continuation, the bill would have passed.

The PATRIOT Act was passed about six weeks after the 9/11 attacks. The 342-page bill was drafted in secret by the Bush Administration, had minimal discussion, and most members of Congress hadn't even read it when they voted for it. Only one of 100 senators and 66 of 435 representatives voted against it, claiming that it sacrificed Constitutional protections in order to give Americans a false sense of security. Most of the Act is non-controversial, an umbrella for previous federal law; the controversial parts taint the entire document.

The PATRIOT Act's "sunset" clause required 16 of the most controversial parts to expire unless Congress renewed them before December 31, 2005. However, in July 2005, Congress voted to extend the entire law.

The PATRIOT Act butts against the protections of six Constitutional amendments: the 1st (freedom of religion, speech, press, and assembly, and the right to petition the government for a redress of grievances), 4th (freedom from unreasonable searches), 5th (right against self-incrimination and due process), 6th (due process, the right to counsel, a speedy trial, and the right to a fair and public trial by an impartial jury), 8th (reasonable bail and freedom from cruel and unusual punishment), and 14th (equal protection guarantee for both citizens and non-citizens).

The PATRIOT Act also violates Article I, Section 9 of the Constitution, which guarantees the right to petition the courts to issue a writ of habeas corpus to require the government to produce a prisoner or suspect in order to determine the legality of the detention. Only Congress may order a suspension of the right of the writ, and then only in "Cases of Rebellion or Invasion." Congress did not suspend this right; nothing during or subsequent to the 9/11 attack indicated either a rebellion or invasion under terms of the Constitution.

Among the provisions of the PATRIOT Act, which 277 House members apparently believe is necessary for American security, is Section 215, which allows the government to seize all library records of any individual. Apparently, the government believes that reading is just another part of a wide terrorist conspiracy. A white-haired grandmother who checks out murder mysteries from the library could be a serial killer, according to the government's logic.

Several federal court cases, including decisions by the Supreme Court, with most of its members politically conservative, ruled that provisions of the PATRIOT Act are unconstitutional. Implementation of those rulings are slow or under appeal.

Among organizations that oppose the PATRIOT Act are the ACLU, American Bar Association, American Booksellers Association, American Library Association, and the National Council of Churches. Among liberals who have led opposition to the Act are Sen. Russ Feingold (D-Wisc.) and Rep. Dennis Kucinich (D-Ohio). Among conservatives opposing the Act are former House Speaker Newt Gingrich (R-Ga.), former Rep. Bob Barr (R-Ga.), who had been a U.S. attorney, Rep. Ron Paul (R-Tex) and Sen. Rand Paul (R-Ky.). Among conservative organizations that oppose the PATRIOT Act are the American Conservative Union, Free Congress Foundation, and the Second Amendment Foundation.

Some of society's denser citizens have claimed that not only must the nation sacrifice some of its civil liberties in order to defeat terrorism, but that they personally have never had their own rights suppressed. Nevertheless, there are hundreds of cases of persons whose civil liberties have been threatened.

In only the first three years after the PATRIOT Act was placed into law, there were about 360 arrests, with only 39 convictions, half resulting in jail sentences of less than 11 months, indicating minor infractions. Reports from the inspector general of the Department of Justice revealed that the government had consistently exceeded its authority to investigate and prosecute civilians under guise of the PATRIOT Act. Numerous arrests for non-terrorist activity include a couple aboard a flight who were charged as terrorists for having engaged in "overt sexual activity," and a woman who was jailed three months in 2007 as a terrorist for raising her voice to a flight attendant.

In March 2010, President Obama signed a one-year extension on the Act, and now says he wants the Act to continue through 2013.

And that may be the worst part of the President's legacy. The constitutional law scholar and professor, who has strong beliefs for human rights but who has not been forceful in speaking out against the Act's most heinous sections, is now a leading proponent to extend the very document that conflicts with his principles and the nation's Bill of Rights.

The Domestic War on Protesters

It's Not Just Egypt
By BRAD THOMPSON

Recent weeks have seen waves of popular protest sweep through the Middle East in Tunisia, Yemen, Jordan and notably the demonstrations in Egypt, which continue into their third week. The international response has included powerful expressions of support for the people of Egypt and their right to dissent against the regime of Hosni Mubarak. Here in the United States, this support has come largely at the grassroots level with public statements and demonstrations of solidarity, primarily organized by Arab- American communities.

The response from US government has cautiously paid lip service to some of the issues raised by the protesters. This is inconsistent with their actions, as the US has been a close political ally of Mubarak for years, giving billions of dollars in aid to his regime and had US diplomats supporting him during the protests. However, the unambiguous message we have heard from the political leaders of this country is the oft-repeated mantra that the United States supports universal human rights, particularly the rights to peaceful protest and free speech.

Secretary of State Hillary Clinton stated at a news conference, "We urge the Egyptian authorities to allow peaceful protests and to reverse the unprecedented steps it has taken to cut off communications." President Obama has repeatedly made similar statements, at one point telling reporters, "I want to be very clear in calling upon the Egyptian authorities to refrain from any violence against peaceful protesters ... The people of Egypt have rights that are universal. That includes the right to peaceful assembly and association. The right to free speech and the ability to determine their own destiny. These are human rights and the United States will stand up for them everywhere."

These statements clearly assert the right to speak freely against the government, the right to protest in the street and opposition to police violence being used to suppress public demonstrations. The sentiment of these declarations should be embraced and supported. However, the unfortunate and disappointing reality is that the empty rhetoric from these political leaders about the right to dissent is remarkably inconsistent with the way protest is often handled in this country. I see a striking and stark contrast between the amplified declarations of the US commitment to human rights and the policies and practices of the government in this country. This disparity between words and actions about human rights issues has crystallized these recent weeks in regard to the US position on the right to protest.

While the US claims to uphold right to demonstrate around the world, there have been countless examples throughout the history of this country of protests being shut down by an overwhelming police presence. In recent years, it has become routine for police departments to use a host of tactics to limit and prevent mass demonstrations. These tactics have included mass arrests of demonstrators, preemptive arrests and trumped up charges against protest organizers and use of less-lethal munitions such as rubber bullets, tear gas, pepper spray, Tasers, concussion grenades, Long Range Acoustic Devices, bean bag rounds and wooden bullets, to name a few.

One example I am intimately familiar with is from Chicago on March 20, 2003, the day

after the US military invaded Iraq, as spontaneous demonstrations erupted around the country. Here in Chicago, over 10,000 people gathered downtown and began marching through the streets and onto Lake Shore Drive. The protest was an immediate response to an emerging issue and there was not time to go through Chicago’s lengthy application process to get a march permit, so the demonstration lacked a paper permit.

The police both tacitly and explicitly allowed the protest to occur. However, hours into the demonstration, the march left the Drive and the numbers of protesters decreased. Police clad in riot gear surrounded and detained the crowd. The officers then began making mass arrests, using excessive force on a number of people and by the end of the night, nearly 550 people were taken into police custody, including some with bruises, broken bones and permanent nerve damage. I was one of the protestors who was violently arrested and was struck in the face by an officer in riot gear, cracking my nose and leaving a gash that needed stitches.

A class action lawsuit, Vodak v. City of Chicago, was filed after the incident, which I have been involved in as both a plaintiff and a legal worker. The suit is on behalf of the approximately 550 people who were falsely arrested, some spending two days in jail, along with 300 others who were detained on the street for over an hour and a half and forced to discard their signs and anti-war materials. After years of litigation, on the eve of trial Virginia Kendall, the federal judge presiding over the case, ruled in favor of the City of Chicago and determined that the police had the right to arrest the protesters because we did not have a permit. That decision was appealed to the 7th Circuit Court of Appeals where it was argued this past October, during which one of the judges stated, “It sounds like a police state, if a large crowd of peaceful people can all just be swept up and arrested by the police.” At the time of this writing, the class members and attorneys await the Appeals Court’s decision, which will determine whether the case can proceed.

This incident exemplifies the way in which police forces in the US clamp down on protest. I am highlighting it because it was just one example where I personally experienced the violent police suppression of protesters, and where I have watched as the City of Chicago has paid millions of tax dollars to a private law firm to defend itself and its violations of people’s rights. I have now even seen a Federal Judge find that the police were justified in using mass arrests to stop First-Amended protected activity. It is from that position that I find it outrageous that Obama and other politicians have the audacity to speak on the “universal human right” to protest publicly. The silence from Obama regarding the Chicago Police’s violation of the right to demonstrate is aggravated by the fact that he was a Chicago-based politician when the incident happened and throughout most of the litigation of the case.

I mention this example in Chicago not because it is exceptional, but rather because it demonstrates the use of mass arrests and police brutality that have become commonplace at large demonstrations in this country. We have seen similar responses, usually with even more police violence at the World Trade Organization protests in Seattle in 1999, the Republican and Democratic Conventions in 2000 in Philadelphia and Los Angeles, demonstrations against the IMF and World Bank in Washington DC in 2000 and 2002,

the Free Trade Area of the Americas Ministerial in Miami in 2003, the Republican Conventions in New York in 2004 and St. Paul in 2008, and the G-20 Summit in Pittsburgh in 2009, among others.

The example of the G-20 Summit in Pittsburgh demonstrates the inconsistency of the government’s claim to support the right to protest, along with their claims to support Internet freedom. The US calls to free speech have largely been in response to the Egyptian government shutting down the Internet in an attempt to limit the ability for protest organizers to use social media, such as Twitter and Facebook. While the US actions have differed from that of Egypt, their response to social media at the G-20 exposes the gap between their rhetoric and their practice.

As Obama and other heads of state met at the G-20 Summit, thousands of protesters took to the street against the political and economic policies of the twenty strongest governments. Police forces clad in riot gear and National Guard units patrolled the streets of Pittsburgh using a variety of tools to restrain the demonstrations, including tear gas, Long Range Acoustic Devices and canine units. One of the primary tools used by the activists to communicate was Twitter.

The Pennsylvania Police responded by arresting two of the tweeting activists, including Elliot Madison and charging him with felonies, including, "criminal use of a communication facility and possession of instruments of crime." After being released and returning home, a few days later the FBI and other agents with the Joint Terrorism Task Force raided his home, seizing computers, books and boxes full of other personal items.

At the time of his arrest, Ryan Singel from Wired.com aptly commented, “If Madison were an Iranian using Twitter to coordinate government protests, he'd likely be considered a hero in the West. Instead, the self-identified anarchist...is now facing up to five years in prison for each count a grand jury cares to indict him on.” While the state charges in Pennsylvania were eventually dropped, Madison’s arrest has sent a chilling message to activists that using social media networks as protest organizing tools could bring criminal charges.

To be perfectly clear, articulating the ways in which police forces have repressed protests here in the United States is in no way an attempt to undermine or minimize the intensity of the repression and violence that has been experienced by the people of Egypt. The last thing I wish to do is negate the courage and strength that has been shown by countless Egyptians who have stood up in the face of police violence or make invisible the dozens of people who have been killed in the protests.

Rather, I wish to echo the millions of people around the world who are declaring their solidarity with the people of Egypt and emphasize that true solidarity means resisting oppression, police brutality and State repression from wherever you stand. From Pittsburgh to Sidi Bouzid, from Miami to Sana’a, from Suez to St. Paul, from New York to Amman, from Cairo to Chicago. We should allow the courageous spirit of resistance that has emerged in Egypt to inspire our work fighting for social justice in this country. We also must remind ourselves that the rights we have in this country are not provided to us by presidents, police or politicians and that they are only guaranteed when we exercise them. The fight against injustice must continue on all fronts in the courts, in our communities and in the streets.

More Welfare for Wall Street

QE 2 Sets Off Inflation Alarms 
By MIKE WHITNEY

Ever since he launched the second round of his bond-buying program (QE2), Ben Bernanke has been on a roll. The S&P has gained 10 percent and the economic data has improved dramatically. Manufacturing and retail have rebounded, consumer confidence has started to brighten, and personal consumption (PCE) is on the rise. Car sales, hotel occupancy and exports are all up, too. Even the banks seem to be more eager to lend than they were just a few months ago. Only housing is still in the doldrums and the Fed chairman probably has something up his sleeve for that, too. 

Perma-bear Marc Faber thinks he's figured out the secret of Bernanke's recent successes. He says, "Never underestimate the power of printing money." Indeed. Only, in this case, an asset swap of US Treasurys for bank reserves works just as well as a printing press. Bernanke simply buys up boatloads of Treasurys from the banks and, "Voila", investors flock to riskier assets like lemmings to a cliff. And, just look at the results. Stocks keep climbing higher and higher, and everyone is happy. Well, almost everyone.

Richmond Fed President Jeffrey Lacker is not happy and he's taken his grousing to the press. Lacker thinks that Bernanke should heed the market's warnings and back off while he still can. 

"The distinct improvement in the economic outlook since the program was initiated suggests taking that re-evaluation quite seriously," Lacker said in a speech in Newark, Delaware. "That re-evaluation will be challenging, because inflation is capable of accelerating, even if the level of economic activity has not yet returned to pre-recession trend."

Bernanke has brushed off Lacker's inflation handwringing saying that he has matters under control. But does he? That's not what the bond market is saying. Here's the Wall Street Journal's Mark Gongloff with the rundown:

"The U.S. bond market has begun sending a message that inflation risks are rising and the Federal Reserve may be too slow to act, potentially marking a significant turning point in the economic recovery. In the past week, Treasury-bond yields have jumped to their highest levels since last spring. Yields on 10-year Treasurys surpassed 3.5% and 30-year yields broke through 4.7%, which makes some worry could mean rates will march even higher.

Long-term rates have been gradually moving higher in response to an improving economy and rising commodity prices. But in recent days the increases in yields accelerated, a move many say is due to the worry that the Federal Reserve may be underestimating inflationary pressures in the economy, and may act too slowly to tame them.....

While raising alarm bells about inflation, the bond market is also indicating it sees no signs that the Fed will intervene. Short-term rates, which are most sensitive to Fed moves, have held relatively steady, causing the difference between two-year and 10-year notes to reach its steepest level since February 2010....

The yield on the 30-year Treasury bond ended Friday at 4.732%, its highest since last April. Adding to the almost-panicky feel in the bond market on Friday, traders circulated a chart of 30-year-bond yields showing that the yields had broken out of a 30-year trendline—a sign that the decades-long bull market in Treasurys may be drawing to a close...." ("Bond Market Flashes Inflation Warning", Mark Gongloff, Wall Street Journal)

Investors want some indication from Bernanke that if inflation does takes root, he'll fight back and raise rates. But Bernanke will have none of it. He's focused laser-like on deflation and is determined to stay the course until unemployment drops. (Or so he says) 

And he's more confident in QE2 than ever. Just listen to him pat himself on the back in this clip from a speech he gave last week to the National Press Club:

"More recently, however, we have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold. Notably, we learned last week that households increased their spending in the fourth quarter, in real terms, at an annual rate of more than 4 percent....

A wide range of market indicators supports the view that the Federal Reserve's securities purchases have been effective at easing financial conditions. For example, since August, when we announced our policy of reinvesting maturing securities and signaled we were considering more purchases, equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation-indexed securities has risen from low to more normal levels....

The fact that financial markets responded in very similar ways to each of these policy actions lends credence to the view that these actions had the expected effects on markets and are thereby providing significant support to job creation and the economy." (National Press Club address, Fed chairman Ben Bernanke)

While it's a bit premature to boast about a "self-sustaining recovery" when rates are at zero and the Fed has affixed a $1 trillion liquidity pipe to the markets, Bernanke clearly believes in the policy. And, notice how he points to "rising stock prices" as a barometer of success even though he has repeatedly said that the Fed does not deliberately target the stock market. Now we have Bernanke's own words to prove the opposite.

Also, it doesn't take a genius to see that if someone buys tons of Treasurys, the money that was in those Treasurys, will go somewhere else. And, so it has. It's gone into stocks, commodities and emerging markets. But how does that help to increase aggregate demand, lower unemployment, or improve household balance sheets? It doesn't. It just creates more liquidity in the financial markets chasing more paper assets. And that is precisely the problem.

It also increases risk appetite which paves the way for another asset bubble. Is that what Bernanke wants, another economy-crushing meltdown? Here's an excerpt from the Wall Street Journal which shows how Bernanke's low rates and bond buying program are pushing investors into riskier and riskier assets:

"The average junk-bond yield fell below 7% for the first time in more nearly six years, moving within striking distance of its all-time low, as bond buyers are willing to take on more risk in order to boost returns....

Yields under 7% are more commonly associated with investment-grade bonds, but investment-grade bonds currently yield only 4.89% on average, according to J.P. Morgan. That is because market forces are squeezing the premium that high-grade bonds enjoy over Treasurys, and the Federal Reserve is suppressing short-term rates on Treasury securities to spur job growth." ("Yield on 'Junk' Approaching All-Time Low", Wall Street Journal)

So, the Fed's low rates are forcing investors (including many fixed-income retirees) into more dangerous assets in an attempt to get some measly return on their savings. This exposes them to even greater losses when the Fed is forced to raise rates and the market tumbles. Here's more from the article:

"Money continues to pour into junk bonds, with high-yield mutual funds recording $5.4 billion of net inflows since early December, according to Lipper FMI, a unit of Thomson Reuters.

Bank loans, a kindred market to high-yield bonds, have seen even greater inflows, of $6.7 billion, in that time. Similarly elevated flows into emerging markets have caused countries such as Brazil to adopt measures aimed at curbing inflation, which can result from torrents of incoming capital.

The cash influx into junk bonds has driven up prices and caused yields to drop over the past two months, even though yields on underlying Treasurys have risen sharply during that time....

Issuers continue to take advantage of elevated demand and falling yields, with $34 million of new high-yield bonds being sold in January, according to Dealogic. Six of the past 12 months have now recorded more than $30 billion in issuance, a threshold that had only been reached once before 2010. ("Yield on 'Junk' Approaching All-Time Low", Wall Street Journal)

So the big banks are making money hand-over-fist, while the mom-and-pop investors--trying to eek-out some small return on his skimpy retirement savings--are hung out to dry. If that's not class warfare, than what is? (Keep in mind, the banks borrow money from you, the depositor, for roughly 1% (1-yr CD) and then lend it back to you at 18% via your credit card. It's a bigger ripoff than student loans.)

And big finance is not just scarfing up junk bonds either. They're also adding to their trove of garbage adjustable-rate mortgages (ARMs), the notorious MBS that sent the housing market into freefall. Here's a clip from Businessweek:

"Home loans that inflated the U.S. housing bubble...are fueling the fastest gains in the mortgage-bond market....Prices for senior bonds tied to option adjustable-rate mortgages, called "toxic" by a government commission, typically jumped 6 cents to 64 cents on the dollar in the past month, according to Barclays Capital.

Rising values show Federal Reserve efforts to stimulate the economy by purchasing an additional $600 billion of Treasuries and holding interest rates near zero percent are driving investors into ever-riskier securities.....

The market is pricing in defaults on option ARMs of about 75 percent, according to hedge fund Metacapital Management LP in New York. As the worst housing slump since the Great Depression deepened, assumptions reached as high as 90 percent, said Whalen, who's based in Los Angeles."("'Toxic' Mortgages Rally as Resets Accelerate: Credit Markets", Businessweek)

Got that? Investors are loading up on these garbage bonds even though they expect 75% of them will go belly-up. Hey, it's a Bernanke gold rush! Is it any wonder why QE2 does not inspire confidence? It's just more bubblenomics.

And Bernanke's pledge to reduce unemployment is pure hogwash. In fact, the Federal Reserve Bank of San Francisco even admits that the effects of QE on unemployment will be negligible at best. Here's an excerpt from the FRBSF's Economic Letter:

"By 2012, the ... program's incremental contribution is ... 700,000 jobs generated ... by the most recent phase of the program. Increased hiring lowers the unemployment rate by 1.5 percentage points compared with what it would have been absent the Fed's asset purchases... Based on other simulations, providing an equivalent amount of support to real economic activity through conventional monetary policy would have required cutting the federal funds rate approximately 3 percentage points relative to baseline from early 2009 through 2012, an obvious impossibility because of the zero lower bound."

"700,000 jobs" in two years. Big deal. That winnows unemployment down to 8% by 2012. It's a drop in the bucket, but it does show that Bernanke's QE2 has nothing to do with jobs. It's just more welfare for Wall Street. 

So, where is all this headed? It's not hard to figure out. For one thing, Bernanke will have to tap on the brakes a lot sooner than he thinks. Economic activity is picking up, the banks have started lending again, oil is rising sharply, and Wall Street speculators are snatching up every crummy bond in sight. Even consumer credit is expanding, which is a miracle given the dismal debt-to-disposable-income ratio that's still way above trend.

Also, inflation expectations are on-the-rise along with food and oil prices. At the same time, the yield on the 30-year Treasury is inching higher because investors doubt that Bernanke will defend the dollar by raising rates. It's a question of credibility. 

Does this mean that deflation is no longer a problem?

Not at all. In fact, deflation is the main problem, but QE2 is sending false signals that are adding to the confusion. Unemployment is still very high, the output gap still very wide, and housing is in a historic slump. Consumers are still retrenching, households still deleveraging, and defaults, bankruptcies, and foreclosures are still at record highs. In other words, deflationary pressures are still strong and likely to stay that way through 2011. 

On the other hand, things look altogether different in the financials, where a feeding frenzy is underway for everything from junk bonds to toxic ARMs. This hyperactivity is the result of flawed monetary policy, hundreds of billions of dollars are shifting out of risk-free Treasuries into other assets. Naturally, that's driving up stock prices and sparking fear of inflation. But, unfortunately, it's not doing anything for the real economy. The excess liquidity in the financial system is merely chasing paper assets, which is why yields on junk bonds continue to fall. 

To fully appreciate the magnitude of the Fed's failure to direct stimulus where it's needed, consider this: Investors are now choosing to buy toxic ARMs (which are set to default at a 75%-clip) rather than plants, equipment, real estate or hard assets. That's a good indication of how weak demand really is, and how inadequate the Fed's attempts to fix the problem have been.

So, what does it all mean? 

It means we've reached the limits of monetary policy. The stimulus that's pushing liquidity into the markets, is not being transmitted to the real economy. It's stuck financial La-la land where it can't do any good. The problem is not that Bernanke is dropping money out of helicopters. The problem is that his helicopter never stops circling Wall Street. 

The Fed's exalted QE experiment is coming to an end. Bernanke has restored large parts of the Ponzi finance system that collapsed after Lehman, but the real economy is still mired in recession. It looks like Keynes was right after all. Trying to use monetary policy to revive the economy, when households and consumers are still underwater, is like pushing on a string.

How the Affluent Slip Away

Robbing Uncle Sam of Retirement Taxes
By GERALD SCORSE

Tax-deferred retirement accounts were created under a law passed by Congress in 1974. They strike a bargain between taxpayers and the Treasury: money in the accounts grows tax-free, but taxable withdrawals must be taken yearly after age 70 1/2.

Both sides win. Roughly half of all Americans have gotten a jump on financial security, and now hold trillions in retirement savings. On its part, the Treasury gets an annual influx and is nearing demographic gold. The first baby boomers reach required distribution age in 2016, and a mother lode of retirement taxes should start streaming in.

Congress, though, has proven more than willing to help the affluent slip away from the tax payback. Two examples are the late-December renewal of a 2006 Bush tax break, and a one-year suspension of minimum required distributions.

The starkest instance—and the most costly for the Treasury—stemmed from the financial meltdown. With portfolios plummeting, Congress rushed to freeze mandatory withdrawals for 2009. Only the haves stood to gain. Anyone who actually needed the distribution had to take it and pay taxes; the haves took a pass and saved thousands.

The stock market recovered and the suspension was allowed to lapse. Nobody should expect an encore, but the precedent has been set.

The lame duck Congress passed, among other measures, an extension of the Bush tax cuts for the wealthiest two percent of Americans. Along with it, fitting right in, came a one-year renewal of the IRA charitable deduction.

Holders of Individual Retirement Accounts (IRAs) can direct up to $100,000 of their annual required distribution to charities. No federal or state taxes are paid. Because the money doesn't count toward income on tax returns, high-income filers could avert hikes in Medicare premiums. According to one estate attorney, the bill is "good for about 10 different reasons." They're all about avoiding taxes.

What we have here is a siphoning away of public revenue to private charity. Money may go to good causes, but the transfer violates the payback half of the retirement bargain. In effect, the money is being stolen from the U.S. Treasury (and from every state that has an income tax).

Donors have their hearts in the right place and the law behind them. Charities are thrilled. The thieves are in Congress, always ready to jigger the tax code on behalf of the well-off.

Withdrawal formulas also stiff the Treasury by putting a tight lid on annual increases. While the formulas apply to everybody, they heavily favor those in no need and no hurry. So-called stretch IRAs, an estate planning tool, can string out distributions—get ready now—into the next century.

Brokerage houses distort the tax payback in their own way. They're making billions on retirement accounts, but they continually bash required distributions. A Fidelity advisory, for example, told clients that at 70 1/2 they're "required to start raiding" the accounts.

Raiding? Not exactly. Minimum distributions mean it's time to pay back Uncle Sam for decades of tax deferral. Even after federal and state taxes, affluent Americans over 70 1/2 are likely looking at annual payouts in the healthy five figures. Whatever the number, it got there with a long tax-free ride.

How about a little gratitude. And instead of robbing Uncle Sam, let's have sensible distribution rules from Congress.