The Weimar Hyperinflation? Could it Happen Again?
By Ellen Brown
Global Research, May 19, 2009
webofdebt.com
“It was horrible. Horrible! Like lightning it struck. No one was prepared. The shelves in the grocery stores were empty. You could buy nothing with your paper money.” – Harvard University law professor Friedrich Kessler on the Weimar Republic hyperinflation (1993 interview)
Some worried commentators are predicting a massive hyperinflation of the sort suffered by Weimar Germany in 1923, when a wheelbarrow full of paper money could barely buy a loaf of bread. An April 29 editorial in the San Francisco Examiner warned:
“With an unprecedented deficit that’s approaching $2 trillion, [the President's 2010] budget proposal is a surefire prescription for hyperinflation. So every senator and representative who votes for this monster $3.6 trillion budget will be endorsing a spending spree that could very well turn America into the next Weimar Republic.”1
In an investment newsletter called Money Morning on April 9, Martin Hutchinson pointed to disturbing parallels between current government monetary policy and Weimar Germany’s, when 50% of government spending was being funded by seigniorage – merely printing money.2 However, there is something puzzling in his data. He indicates that the British government is already funding more of its budget by seigniorage than Weimar Germany did at the height of its massive hyperinflation; yet the pound is still holding its own, under circumstances said to have caused the complete destruction of the German mark. Something else must have been responsible for the mark’s collapse besides mere money-printing to meet the government’s budget, but what? And are we threatened by the same risk today? Let’s take a closer look at the data.
History Repeats Itself – or Does It?
In his well-researched article, Hutchinson notes that Weimar Germany had been suffering from inflation ever since World War I; but it was in the two year period between 1921 and 1923 that the true “Weimar hyperinflation” occurred. By the time it had ended in November 1923, the mark was worth only one-trillionth of what it had been worth back in 1914. Hutchinson goes on:
“The current policy mix reflects those of Germany during the period between 1919 and 1923. The Weimar government was unwilling to raise taxes to fund post-war reconstruction and war-reparations payments, and so it ran large budget deficits. It kept interest rates far below inflation, expanding money supply rapidly and raising 50% of government spending through seigniorage (printing money and living off the profits from issuing it). . . .
“The really chilling parallel is that the United States, Britain and Japan have now taken to funding their budget deficits through seigniorage. In the United States, the Fed is buying $300 billion worth of U.S. Treasury bonds (T-bonds) over a six-month period, a rate of $600 billion per annum, 15% of federal spending of $4 trillion. In Britain, the Bank of England (BOE) is buying 75 billion pounds of gilts [the British equivalent of U.S. Treasury bonds] over three months. That’s 300 billion pounds per annum, 65% of British government spending of 454 billion pounds. Thus, while the United States is approaching Weimar German policy (50% of spending) quite rapidly, Britain has already overtaken it!”
And that is where the data gets confusing. If Britain is already meeting a larger percentage of its budget deficit by seigniorage than Germany did at the height of its hyperinflation, why is the pound now worth about as much on foreign exchange markets as it was nine years ago, under circumstances said to have driven the mark to a trillionth of its former value in the same period, and most of this in only two years? Meanwhile, the U.S. dollar has actually gotten stronger relative to other currencies since the policy was begun last year of massive “quantitative easing” (today’s euphemism for seigniorage).3 Central banks rather than governments are now doing the printing, but the effect on the money supply should be the same as in the government money-printing schemes of old. The government debt bought by the central banks is never actually paid off but is just rolled over from year to year; and once the new money is in the money supply, it stays there, diluting the value of the currency. So why haven’t our currencies already collapsed to a trillionth of their former value, as happened in Weimar Germany? Indeed, if it were a simple question of supply and demand, a government would have to print a trillion times its earlier money supply to drop its currency by a factor of a trillion; and even the German government isn’t charged with having done that. Something else must have been going on in the Weimar Republic, but what?
Schacht Lets the Cat Out of the Bag
Light is thrown on this mystery by the later writings of Hjalmar Schacht, the currency commissioner for the Weimar Republic. The facts are explored at length in The Lost Science of Money by Stephen Zarlenga, who writes that in Schacht’s 1967 book The Magic of Money, he “let the cat out of the bag, writing in German, with some truly remarkable admissions that shatter the ‘accepted wisdom’ the financial community has promulgated on the German hyperinflation.” What actually drove the wartime inflation into hyperinflation, said Schacht, was speculation by foreign investors, who would bet on the mark’s decreasing value by selling it short.
Short selling is a technique used by investors to try to profit from an asset’s falling price. It involves borrowing the asset and selling it, with the understanding that the asset must later be bought back and returned to the original owner. The speculator is gambling that the price will have dropped in the meantime and he can pocket the difference. Short selling of the German mark was made possible because private banks made massive amounts of currency available for borrowing, marks that were created on demand and lent to investors, returning a profitable interest to the banks.
At first, the speculation was fed by the Reichsbank (the German central bank), which had recently been privatized. But when the Reichsbank could no longer keep up with the voracious demand for marks, other private banks were allowed to create them out of nothing and lend them at interest as well.4
A Story with an Ironic Twist
If Schacht is to be believed, not only did the government not cause the hyperinflation but it was the government that got the situation under control. The Reichsbank was put under strict regulation, and prompt corrective measures were taken to eliminate foreign speculation by eliminating easy access to loans of bank-created money.
More interesting is a little-known sequel to this tale. What allowed Germany to get back on its feet in the 1930s was the very thing today’s commentators are blaming for bringing it down in the 1920s – money issued by seigniorage by the government. Economist Henry C. K. Liu calls this form of financing “sovereign credit.” He writes of Germany’s remarkable transformation:
“The Nazis came to power in Germany in 1933, at a time when its economy was in total collapse, with ruinous war-reparation obligations and zero prospects for foreign investment or credit. Yet through an independent monetary policy of sovereign credit and a full-employment public-works program, the Third Reich was able to turn a bankrupt Germany, stripped of overseas colonies it could exploit, into the strongest economy in Europe within four years, even before armament spending began.”5
While Hitler clearly deserves the opprobrium heaped on him for his later atrocities, he was enormously popular with his own people, at least for a time. This was evidently because he rescued Germany from the throes of a worldwide depression – and he did it through a plan of public works paid for with currency generated by the government itself. Projects were first earmarked for funding, including flood control, repair of public buildings and private residences, and construction of new buildings, roads, bridges, canals, and port facilities. The projected cost of the various programs was fixed at one billion units of the national currency. One billion non-inflationary bills of exchange called Labor Treasury Certificates were then issued against this cost. Millions of people were put to work on these projects, and the workers were paid with the Treasury Certificates. The workers then spent the certificates on goods and services, creating more jobs for more people. These certificates were not actually debt-free but were issued as bonds, and the government paid interest on them to the bearers. But the certificates circulated as money and were renewable indefinitely, making them a de facto currency; and they avoided the need to borrow from international lenders or to pay off international debts.6 The Treasury Certificates did not trade on foreign currency markets, so they were beyond the reach of the currency speculators. They could not be sold short because there was no one to sell them to, so they retained their value.
Within two years, Germany’s unemployment problem had been solved and the country was back on its feet. It had a solid, stable currency, and no inflation, at a time when millions of people in the United States and other Western countries were still out of work and living on welfare. Germany even managed to restore foreign trade, although it was denied foreign credit and was faced with an economic boycott abroad. It did this by using a barter system: equipment and commodities were exchanged directly with other countries, circumventing the international banks. This system of direct exchange occurred without debt and without trade deficits. Although Germany’s economic experiment was short-lived, it left some lasting monuments to its success, including the famous Autobahn, the world’s first extensive superhighway.7
The Lessons of History: Not Always What They Seem
Germany’s scheme for escaping its crippling debt and reinvigorating a moribund economy was clever, but it was not actually original with the Germans. The notion that a government could fund itself by printing and delivering paper receipts for goods and services received was first devised by the American colonists. Benjamin Franklin credited the remarkable growth and abundance in the colonies, at a time when English workers were suffering the impoverished conditions of the Industrial Revolution, to the colonists’ unique system of government-issued money. In the nineteenth century, Senator Henry Clay called this the “American system,” distinguishing it from the “British system” of privately-issued paper banknotes. After the American Revolution, the American system was replaced in the U.S. with banker-created money; but government-issued money was revived during the Civil War, when Abraham Lincoln funded his government with U.S. Notes or “Greenbacks” issued by the Treasury.
The dramatic difference in the results of Germany’s two money-printing experiments was a direct result of the uses to which the money was put. Price inflation results when “demand” (money) increases more than “supply” (goods and services), driving prices up; and in the experiment of the 1930s, new money was created for the purpose of funding productivity, so supply and demand increased together and prices remained stable. Hitler said, “For every mark issued, we required the equivalent of a mark’s worth of work done, or goods produced.” In the hyperinflationary disaster of 1923, on the other hand, money was printed merely to pay off speculators, causing demand to shoot up while supply remained fixed. The result was not just inflation but hyperinflation, since the speculation went wild, triggering rampant tulip-bubble-style mania and panic.
This was also true in Zimbabwe, a dramatic contemporary example of runaway inflation. The crisis dated back to 2001, when Zimbabwe defaulted on its loans and the IMF refused to make the usual accommodations, including refinancing and loan forgiveness. Apparently, the IMF’s intention was to punish the country for political policies of which it disapproved, including land reform measures that involved reclaiming the lands of wealthy landowners. Zimbabwe’s credit was ruined and it could not get loans elsewhere, so the government resorted to issuing its own national currency and using the money to buy U.S. dollars on the foreign-exchange market. These dollars were then used to pay the IMF and regain the country’s credit rating.8 According to a statement by the Zimbabwe central bank, the hyperinflation was caused by speculators who manipulated the foreign-exchange market, charging exorbitant rates for U.S. dollars, causing a drastic devaluation of the Zimbabwe currency.
The government’s real mistake, however, may have been in playing the IMF’s game at all. Rather than using its national currency to buy foreign fiat money to pay foreign lenders, it could have followed the lead of Abraham Lincoln and the American colonists and issued its own currency to pay for the production of goods and services for its own people. Inflation would then have been avoided, because supply would have kept up with demand; and the currency would have served the local economy rather than being siphoned off by speculators.
The Real Weimar Threat and How It Can Be Avoided
Is the United States, then, out of the hyperinflationary woods with its “quantitative easing” scheme? Maybe, maybe not. To the extent that the newly-created money will be used for real economic development and growth, funding by seigniorage is not likely to inflate prices, because supply and demand will rise together. Using quantitative easing to fund infrastructure and other productive projects, as in President Obama’s stimulus package, could invigorate the economy as promised, producing the sort of abundance reported by Benjamin Franklin in America’s flourishing early years.
There is, however, something else going on today that is disturbingly similar to what triggered the 1923 hyperinflation. As in Weimar Germany, money creation in the U.S. is now being undertaken by a privately-owned central bank, the Federal Reserve; and it is largely being done to settle speculative bets on the books of private banks, without producing anything of value to the economy. As gold investor James Sinclair warned nearly two years ago:
“[T]he real problem is a trembling $20 trillion mountain of over the counter credit and default derivatives. Think deeply about the Weimar Republic case study because every day it looks more and more like a repeat in cause and effect . . . .”9
The $12.9 billion in bailout funds funneled through AIG to pay Goldman Sachs for its highly speculative credit default swaps is just one egregious example.10 To the extent that the money generated by “quantitative easing” is being sucked into the black hole of paying off these speculative derivative bets, we could indeed be on the Weimar road and there is real cause for alarm. We have been led to believe that we must prop up a zombie Wall Street banking behemoth because without it we would have no credit system, but that is not true. There is another viable alternative, and it may prove to be our only viable alternative. We can beat Wall Street at its own game, by forming publicly-owned banks that issue the full faith and credit of the United States not for private speculative profit but as a public service, for the benefit of the United States and its people.11
Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from “the money trust.” Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen).
Her websites are www.webofdebt.com and www.ellenbrown.com .
Notes
1. “Examiner Editorial: Get Ready for Obama’s Coming Hyperinflation,” San Francisco Examiner, April 29, 2009.
2. Martin Hutchinson, “Is It 1932 – or 1923?”, Money Morning (April 9, 2009).
3. See Monthly Average Graphs, x-rate.com.
4. Stephen Zarlenga, The Lost Science of Money (Valatie, New York: American Monetary Institute, 2002), pages 590-600; S. Zarlenga, “Germany’s 1923 Hyperinflation: A ‘Private’ Affair,” Barnes Review (July-August 1999).
5. Henry C. K. Liu, “Nazism and the German Economic Miracle,” Asia Times (May 24, 2005).
6. S. Zarlenga, op. cit.
7. Matt Koehl, “The Good Society?”, Rense (January 13, 2005).
8. “Bags of Bricks: Zimbabweans Get New Money – for What It’s Worth,” The Economist (August 24, 2006); Thomas Homes, “IMF Contributes to Zimbabwe’s Hyperinflation,” www.newzimbabwe.com (March 5, 2006).
9. Jim Sinclair, “Fed Actions a Bandaid on a Gaping Economic Wound,” reprinted in Go for Gold, September 18, 2007.
10. Eliot Spitzer, “The Real AIG Scandal, Continued! The Transfer of $12.9 Billion from AIG to Goldman Looks Fishier and Fishier,” Slate (March 22, 2009).
11. See Ellen Brown, “Cash Starved States Need to Play the Banking Game,” webofdebt.com/articles (March 2, 2009).
From:
www.globalresearch.ca/index.php?context=va&aid=13673
Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free ~ Ellen Hodgson Brown
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The Tricky Truth About Downsizing
Freek Vermeulen
Thursday April 30, 2009
Downsizing has always been a popular practice in the corporate world – even for firms not in distress. But today, with many companies in distress, downsizing efforts are on the rise. So I thought I might as well look into what we know about the effects of such efforts from academic research to see when they can be a good idea.
The answer? Not very often. On average, they simply don’t work. For example, professors James Guthrie, from the University of Kansas, and Deepak Datta, from the University of Texas at Arlington, examined data on 122 firms that had engaged in downsizing and statistically analyzed whether the program had improved their profitability. And the answer was a plain and simple “no.” The average company did not benefit from a downsizing effort, no matter what situation and industry they were in.
So why do they usually not work? Well, for starters, as you can imagine, it is not a great motivator for the survivors. Academic studies confirm that usually organizational commitment decreases after a downsizing program and, for example, voluntary turnover rates surge. Hence, downsizing is not something to be taken lightly, and should be avoided if at all possible.
But sometimes, of course, a company’s situation may have become so dire that downsizing efforts must take place. What then? Who might be able to get away with it?
Professors Charlie Trevor and Anthony Nyberg from the University of Wisconsin-Madison decided to examine exactly this question, surveying several hundreds of companies in the US on their downsizing efforts, voluntary turnover rates, and HR practices. As expected, they too found that for most companies, voluntary turnover rates increased significantly after a downsizing program. Many of the survivors, earmarked to guide the company through its process of recovery, decided to call it a day after all and continue their employment somewhere else. It’s a nasty and unexpected aftershock for many slimmed-down companies–they became quite a bit leaner than intended!
Next, however, professors Trevor and Nyberg examined what sort of companies did not suffer from such an unexpected surge in voluntary turnover after their downsizing program.
And the answer was pretty clear: Companies that had a history of harboring HR practices that were aimed at assuring procedural fairness and justice – such as having an ombudsman who is designated to address employee complaints; confidential hotlines for problem resolution; the existence of grievance or appeal processes for nonunion employees, etc. – did not see their turnover heighten after a downsizing effort. Apparently, remaining employees were confident that, in such a company, the downsizing effort had been fair and unavoidable.
Similarly, Trevor and Nyberg found that companies with paid sabbaticals, on-site childcare, defined benefit plans, and flexible or nonstandard arrival and departure times did much better in limiting the detrimental effects of a downsizing program. The surviving employees were more understanding of the company’s efforts, had higher commitment, or simply found the firm to good a place to desert.
In general, it shows downsizing can work, but only if you have a history of a strong committment to your employees. Absent this, if your employees sense that you’re taking the issue lightly, they will vote with their feet. And you may end up losing rather more people than you had bargained for. Or as Fortune Magazine once observed, most firms that downsize, “rather than becoming lean and mean, often end up lean and lame.”
http://blogs.harvardbusiness.org/vermeulen/2009/04/the-tricky-truth-about-downsiz.html?cm_mmc=npv-_-WEEKLY_HOTLIST-_-MAY_2009-_-HOTLIST0501
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New Chicago Fed Letter Posted – May 2009 (Number 263)
Wednesday, May 20, 2009
How does labor adjustment in this recession compare with the past?
Daniel Aaronson and Scott Brave
The authors examine how firms are adjusting their work force during the current recession in comparison with other recessions over the past 40 years.
Simply click on the following link to review the Fed Letter:
http://tracker.ease.lsoft.com/trk/click?ref=znwrbbrs9_3-4facx11026x&
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A Counterintelligence Approach to Controlling Cartel Corruption
May 20, 2009
By Scott Stewart and Fred Burton
Rey Guerra, the former sheriff of Starr County, Texas, pleaded guilty May 1 to a narcotics conspiracy charge in federal district court in McAllen, Texas. Guerra admitted to using information obtained in his official capacity to help a friend (a Mexican drug trafficker allegedly associated with Los Zetas) evade U.S. counternarcotics efforts. On at least one occasion, Guerra also attempted to learn the identity of a confidential informant who had provided authorities with information regarding cartel operations so he could pass it to his cartel contact.
In addition to providing intelligence to Los Zetas, Guerra also reportedly helped steer investigations away from people and facilities associated with Los Zetas. He also sought to block progress on investigations into arrested individuals associated with Los Zetas to protect other members associated with the organization. Guerra is scheduled for sentencing July 29; he faces 10 years to life imprisonment, fines of up to $4 million and five years of supervised release.
Guerra is just one of a growing number of officials on the U.S. side of the border who have been recruited as agents for Mexico’s powerful and sophisticated drug cartels. Indeed, when one examines the reach and scope of the Mexican cartels’ efforts to recruit agents inside the United States to provide intelligence and act on the cartels’ behalf, it becomes apparent that the cartels have demonstrated the ability to operate more like a foreign intelligence service than a traditional criminal organization.
Fluidity and Flexibility
For many years now, STRATFOR has followed developments along the U.S.-Mexican border and has studied the dynamics of the cross-border illicit flow of people, drugs, weapons and cash.
One of the most notable characteristics about this flow of contraband is its flexibility. When smugglers encounter an obstacle to the flow of their product, they find ways to avoid it. For example, as we’ve previously discussed in the case of the extensive border fence in the San Diego sector, drug traffickers and human smugglers diverted a good portion of their volume around the wall to the Tucson sector; they even created an extensive network of tunnels under the fence to keep their contraband (and profits) flowing.
Likewise, as maritime and air interdiction efforts between South America and Mexico have become more successful, Central America has become increasingly important to the flow of narcotics from South America to the United States. This reflects how the drug-trafficking organizations have adjusted their method of shipment and their trafficking routes to avoid interdiction efforts and maintain the northward flow of narcotics.
Over the past few years, a great deal of public and government attention has focused on the U.S.-Mexican border. In response to this attention, the federal and border state governments in the United States have erected more barriers, installed an array of cameras and sensors and increased the manpower committed to securing the border. While these efforts certainly have not hermetically sealed the border, they do appear to be having some impact — an impact magnified by the effectiveness of interdiction efforts elsewhere along the narcotics supply chain.
According to the most recent statistics from the Drug Enforcement Administration, from January 2007 through September 2008 the price per pure gram of cocaine increased 89.1 percent, or from $96.61 to $182.73, while the purity of cocaine seized on the street decreased 31.3 percent, dropping from 67 percent pure cocaine to 46 percent pure cocaine. Recent anecdotal reports from law enforcement sources indicate that cocaine prices have remained high, and that the purity of cocaine on the street has remained poor.
Overcoming Human Obstacles
In another interesting trend that has emerged over the past few years, as border security has tightened and as the flow of narcotics has been impeded, the number of U.S. border enforcement officers arrested on charges of corruption has increased notably. This increased corruption represents a logical outcome of the fluidity of the flow of contraband. As the obstacles posed by border enforcement have become more daunting, people have become the weak link in the enforcement system. In some ways, people are like tunnels under the border wall — i.e., channels employed by the traffickers to help their goods get to market.
From the Mexican cartels’ point of view, it is cheaper to pay an official several thousand dollars to allow a load of narcotics to pass by than it is to risk having the shipment seized. Such bribes are simply part of the cost of doing business — and in the big picture, even a low-level local agent can be an incredible bargain.
According to U.S. Customs and Border Protection (CBP), 21 CBP officers were arrested on corruption charges during the fiscal year that ended in September 2008, as opposed to only 4 in the preceding fiscal year. In the current fiscal year (since Oct. 1), 14 have been arrested. And the problem with corruption extends further than just customs or border patrol officers. In recent years, police officers, state troopers, county sheriffs, National Guard members, judges, prosecutors, deputy U.S. marshals and even the FBI special agent in charge of the El Paso office have been linked to Mexican drug-trafficking organizations. Significantly, the cases being prosecuted against these public officials of all stripes are just the tip of the iceberg. The underlying problem of corruption is much greater.
A major challenge to addressing the issue of border corruption is the large number of jurisdictions along the border, along with the reality that corruption occurs at the local, state and federal levels across those jurisdictions. Though this makes it very difficult to gather data relating to the total number of corruption investigations conducted, sources tell us that while corruption has always been a problem along the border, the problem has ballooned in recent years — and the number of corruption cases has increased dramatically.
In addition to the complexity brought about by the multiple jurisdictions, agencies and levels of government involved, there simply is not one single agency that can be tasked with taking care of the corruption problem. It is just too big and too wide. Even the FBI, which has national jurisdiction and a mandate to investigate public corruption cases, cannot step in and clean up all the corruption. The FBI already is being stretched thin with its other responsibilities, like counterterrorism, foreign counterintelligence, financial fraud and bank robbery. The FBI thus does not even have the capacity to investigate every allegation of corruption at the federal level, much less at the state and local levels. Limited resources require the agency to be very selective about the cases it decides to investigate. Given that there is no real central clearinghouse for corruption cases, most allegations of corruption are investigated by a wide array of internal affairs units and other agencies at the federal, state and local levels.
Any time there is such a mixture of agencies involved in the investigation of a specific type of crime, there is often bureaucratic friction, and there are almost always problems with information sharing. This means that pieces of information and investigative leads developed in the investigation of some of these cases are not shared with the appropriate agencies. To overcome this information sharing problem, the FBI has established six Border Corruption Task Forces designed to bring local, state and federal officers together to focus on corruption tied to the U.S.-Mexican border, but these task forces have not yet been able to solve the complex problem of coordination.
Sophisticated Spotting
Efforts to corrupt officials along the U.S.-Mexican border are very organized and very focused, something that is critical to understanding the public corruption issue along the border. Some of the Mexican cartels have a long history of successfully corrupting public officials on both sides of the border. Groups like the Beltran Leyva Organization (BLO) have successfully recruited scores of intelligence assets and agents of influence at the local, state and even federal levels of the Mexican government. They even have enjoyed significant success in recruiting agents in elite units such as the anti-organized crime unit (SIEDO) of the Office of the Mexican Attorney General (PGR). The BLO also has recruited Mexican employees working for the U.S. Embassy in Mexico City, and even allegedly owned Mexico’s former drug czar, Noe Ramirez Mandujano, who reportedly was receiving $450,00 a month from the organization.
In fact, the sophistication of these groups means they use methods more akin to the intelligence recruitment processes used by foreign intelligence services than those normally associated with a criminal organization. The cartels are known to conduct extensive surveillance and background checks on potential targets to determine how to best pitch to them. Like the spotting methods used by intelligence agencies, the surveillance conducted by the cartels on potential targets is designed to glean as many details about the target as possible, including where they live, what vehicles they drive, who their family members are, their financial needs and their peccadilloes.
Historically, many foreign intelligence services are known to use ethnicity in their favor, heavily targeting persons sharing an ethnic background found in the foreign country. Foreign services also are known to use relatives of the target living in the foreign country to their advantage. Mexican cartels use these same tools. They tend to target Hispanic officers and often use family members living in Mexico as recruiting levers. For example, Luis Francisco Alarid, who had been a CBP officer at the Otay Mesa, Calif., port of entry, was sentenced to 84 months in federal prison in February for his participation in a conspiracy to smuggle illegal aliens and marijuana into the United States. One of the people Alarid admitted to conspiring with was his uncle, who drove a van loaded with marijuana and illegal aliens through a border checkpoint manned by Alarid.
Like family spy rings (such as the Cold War spy ring run by John Walker), there also have been family border corruption rings. Raul Villarreal and his brother, Fidel, both former CBP agents in San Diego, were arraigned March 16 after fleeing the United States in 2006 after learning they were being investigated for corruption. The pair was captured in Mexico in October 2008 and extradited back to the United States.
‘Plata o Sexo’
When discussing human intelligence recruiting, it is not uncommon to refer to the old cold war acronym MICE (money, ideology, compromise and ego) to explain the approach used to recruit an agent. When discussing corruption in Mexico, people often repeat the phrase “plata o plomo,” Spanish for “money or lead” — meaning “take the money or we’ll kill you.” However, in most border corruption cases involving American officials, the threat of plomo is not as powerful as it is inside Mexico. Although some officials charged with corruption have claimed as a defense that they were intimidated into behaving corruptly, juries have rejected these arguments. This dynamic could change if the Mexican cartels begin to target officers in the United States for assassination as they have in Mexico.
With plomo an empty threat north of the border, plata has become the primary motivation for corruption along the Mexican border. In fact, good old greed — the M in MICE — has always been the most common motivation for Americans recruited by foreign intelligence services. The runner-up, which supplants plomo in the recruitment equation inside the United Sates, is “sexo,” aka “sex.” Sex, an age-old espionage recruitment tool that fits under the compromise section of MICE, has been seen in high-profile espionage cases, including the one involving the Marine security guards at the U.S Embassy in Moscow. Using sex to recruit an agent is often referred to as setting a “honey trap.” Sex can be used in two ways. First, it can be used as a simple payment for services rendered. Second, it can be used as a means to blackmail the agent. (The two techniques can be used in tandem.)
It is not at all uncommon for border officials to be offered sex in return for allowing illegal aliens or drugs to enter the country, or for drug-trafficking organizations to use attractive agents to seduce and then recruit officers. Several officials have been convicted in such cases. For example, in March 2007, CBP inspection officer Richard Elizalda, who had worked at the San Ysidro, Calif., port of entry, was sentenced to 57 months in prison for conspiring with his lover, alien smuggler Raquel Arin, to let the organization she worked for bring illegal aliens through his inspection lane. Elizalda also accepted cash for his efforts — much of which he allegedly spent on gifts for Arin — so in reality, Elizalda was a case of “plata y sexo” rather than an either-or deal.
Corruption Cases Handled Differently
When the U.S. government hires an employee who has family members living in a place like Beijing or Moscow, the background investigation for that employee is pursued with far more interest than if the employee has relatives in Ciudad Juarez or Tijuana. Mexico traditionally has not been seen as a foreign counterintelligence threat, even though it has long been recognized that many countries, like Russia, are very active in their efforts to target the United States from Mexico. Indeed, during the Cold War, the KGB’s largest rezidentura (the equivalent of a CIA station) was located in Mexico City.
Employees with connections to Mexico frequently have not been that well vetted, period. In one well-publicized incident, the Border Patrol hired an illegal immigrant who was later arrested for alien smuggling. In July 2006, U.S. Border Patrol agent Oscar Ortiz was sentenced to 60 months in prison after admitting to smuggling more than 100 illegal immigrants into the United States. After his arrest, investigators learned that Ortiz was an illegal immigrant himself who had used a counterfeit birth certificate when he was hired. Ironically, Ortiz also had been arrested for attempting to smuggle two illegal immigrants into the United States shortly before being hired by the Border Patrol. (He was never charged for that attempt.)
From an investigative perspective, corruption cases tend to be handled more as one-off cases, and they do not normally receive the same sort of extensive investigation into the suspect’s friends and associates that would be conducted in a foreign counterintelligence case. In other words, if a U.S. government employee is recruited by the Chinese or Russian intelligence service, the investigation receives far more energy — and the suspect’s circle of friends, relatives and associates receives far more scrutiny — than if he is recruited by a Mexican cartel.
In espionage cases, there is also an extensive damage assessment investigation conducted to ensure that all the information the suspect could have divulged is identified, along with the identities of any other people the suspect could have helped his handler recruit. Additionally, after-action reviews are conducted to determine how the suspect was recruited, how he was handled and how he could have been uncovered earlier. The results of these reviews are then used to help shape future counterintelligence investigative efforts. They are also used in the preparation of defensive counterintelligence briefings to educate other employees and help protect them from being recruited.
This differences in urgency and scope between the two types of investigations is driven by the perception that the damage to national security is greater if an official is recruited by a foreign intelligence agency than if he is recruited by a criminal organization. That assessment may need to be re-examined, given that the Mexican cartels are criminal organizations with the proven sophistication to recruit U.S. officials at all levels of government — and that this has allowed them to move whomever and whatever they wish into the United States.
The problem of public corruption is very widespread, and to approach corruption cases in a manner similar to foreign counterintelligence cases would require a large commitment of investigative, prosecutorial and defensive resources. But the threat posed by the Mexican cartels is different than that posed by traditional criminal organizations, meaning that countering it will require a nontraditional approach.
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Ghost: Confessions of a Counterterrorism Agent ~ Fred Burton
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Your guide to distortions on health care
By Angie Drobnic Holan
Published on Tuesday, May 19th, 2009
A public option for health care would end private insurance “because the private insurance people will not be able to compete with a government option.”
Mitch McConnell, Sunday, May 17th, 2009.
Ruling: Barely True
The Democrats propose “a government-controlled health care plan that will deprive roughly 120 million Americans of their current health care coverage.”
Mike Pence, Tuesday, May 12th, 2009.
Ruling: False
“Democrats have failed to answer the most basic question of how they want to pay for the more than one trillion dollars of health care spending.”
Roy Blunt, Thursday, May 14th, 2009.
Ruling: Mostly True
With high-profile support from President Barack Obama, Congress is preparing a major overhaul of the nation’s health care system. The details have yet to be revealed, but that hasn’t stopped critics in Congress from going on the attack.
We’ll examine three of their claims now and will be keeping an eye on the arguments on both sides as the debate unfolds.
Obama and the Democratic leadership have proposed broad outlines for the overhaul. The centerpiece of their plan remains the employer-based system, where most people have private health insurance through work. To rein in costs, the government would invest in electronic medical records and encourage efficiency and preventive care.
To get coverage for people who don’t have health insurance, the plan would increase eligibility for the poor and children to enroll in initiatives like Medicaid and the State Children’s Health Insurance Program. Finally, the plans seek to create a health insurance exchange, where individuals and small businesses can easily comparison shop for insurance coverage. One of the exchange plans would be a public option run by the government.
It’s the public option that has fueled Republican attacks, leading to charges that it would destroy the private system, that millions would lose their current coverage, and that Democrats don’t have a way to pay for it. Here’s our examination of those three charges.
McConnell on the private sector
Senate Republican leader Mitch McConnell of Kentucky said on Fox News Sunday that a public option would destroy the private insurance system.
It “would mean a government plan that would inevitably put the government between you and your doctor, and there would be no more private insurance,” McConnell said.
Asked why by interviewer Chris Wallace, McConnell said, “Because the private insurance people will not be able to compete with a government option.”
McConnell is incorrect — the Democratic plan does not intend to do away with private insurance. His statement that private insurance “will not be able to compete with a government option” is challenged by nonpartisan health care experts who disagree.
McConnell’s view is that if the government offers a cheaper, public plan, people will dump their private insurance to get lower health care premiums. Over time, this would errode the private health care system. In theory, it makes sense that people would want the health plan that saves them the most money and experts do say some private insurance companies might struggle to survive against a government competitor. In practice, however, researchers don’t believe public options would destroy the private insurance industry.
“Every time I hear these claims I’m astonished,” said Cathy Schoen, senior vice president for the Commonwealth Fund, a foundation that studies health care and advocates more coverage for the uninsured, minorities, and people of low incomes. She said a public plan could pressure private insurers to lower premiums or negotiate better rates with hospitals, but it would not put private companies out of business.
“The public plan could get a reputation of not being good. The private plans could say, ‘Let’s change our behavior so we don’t lose business,’” Schoen said.
Another nonpartisan research group, the Urban Institute, reached similar conclusions.
“Private plans would not disappear. Private plans that offer better services and greater access to providers, even at somewhat higher costs than the public plans, would survive the competition in this environment,” wrote John Holohan and Linda Blumberg of the Urban Institute’s Health Policy Center.
One of the problems right now is that private insurance is not as competitive as you might think. Both the Commonwealth Fund and the Urban Insitute have noted that most health care markets are dominated by a small number of big insurers.
“The increased concentration has made it difficult for the nation to reap the benefits usually associated with competitive markets,” Hollahan and Blumberg wrote.
Not that a public option will solve all problems. They concluded that a public plan is not sufficient to control growing health care costs, and that other cost-containment strategies would be necessary.
Finally, we should point out that it remains to be seen how the Democratic plan will deal with the public option, which could be structured in several different ways.
McConnell flatly states that the public option would run private plans out business because they “will not be able to compete with a government option.” Even though we have limited details on how the plan would be implemented, there is enough in the administration proposal for to conclude that McConnell’s worst-case scenario is unlikely. That brings us to Barely True.
120 million “deprived” of health care?
Rep. Mike Pence of Indiana has taken the public option and pushed it further. He described the Democratic health care plan as “a government-controlled health care plan that will deprive roughly 120 million Americans of their current health care coverage and lead to federal bureaucrats denying critical care for patients.”
That “120 million” number jumped out at us. That’s a big number, representing roughly three-quarters of those who now have employer-provided health insurance.
We asked Pence’s staff about the number, and they referred us to a report from the Lewin Group, a health care consulting firm. The report ran a number of scenarios, including what would happen if the government offered a Medicare-style plan open to everyone. Their model found that 118 million people would choose to drop their private coverage in favor of cheaper public coverage.
But there’s a hitch: That’s what the Lewin Group believed would happen under the plans that were the most like Medicare, and if everyone were allowed to enroll. As we noted before, it’s possible to set up a public option where only some people are allowed to enroll. Under the Lewin Group’s estimates, if you restrict a Medicare-style public option only to individuals and small businesses, only 32 million would leave private coverage. And if the public option is less like Medicare and competes like a private insurer, the number drops even further.
We’ll grant that Congress could come up with a Medicare-style plan and open it to everyone, but it doesn’t seem likely. Pence appears to be picking the worst number he can choose. And he doesn’t mention the fact that under the scenario laid out by the Lewin Group, people would still have health care coverage and their premiums reduced by 30 to 40 percent. He says the government would “deprive” people of health insurance, when actually the scenario is that they would choose a different option.
Even if you believe that an expansive government health care plan would drive private insurers out of business, that still doesn’t account for Pence’s “deprive” claim because the Lewin report he cites is focused on people who have chosen the government plan, not people who were left to the government plan after private options disappeared.
Finally, we have to include a caveat about the Lewin Group. The group says it operates with editorial independence, but it is a subsidiary of United HealthCare, a private health insurer.
Given all this background and explanation, we rated Pence’s statement that the government would “deprive” 120 million people of their “current health care coverage” to be False.
How much will it cost?
Republicans on the attack against health care are on far firmer ground when they talk about how much money it will cost.
Rep. Roy Blunt of Missouri said Democrats haven’t come up with a way to pay for their ambitious health plan.
“We agree that reform is needed, but Democrats have failed to answer the most basic question of how they want to pay for the more than $1 trillion dollars of health care spending they’re advocating,” Blunt said.
It’s not clear how much the health care plan will cost. During the presidential campaign, Obama estimated his plan could cost $50 billion to $65 billion a year. That could come to $1 trillion over about 15 to 20 years. But independent sources that favor a health care overhaul put the expense much higher, at about $150 billion a year. That comes to $1.5 trillion dollars over 10 years.
Blunt says that “Democrats have failed to answer the most basic question” of how they want to pay for health care. But Obama has put forward some relatively concrete proposals. His current budget includes a $635 billion fund for health care that includes savings from greater efficiencies and changing the tax code so the wealthy don’t get as much in deductions. It’s not clear if Congress will go along with the tax changes, though, and analysts have questioned whether the savings will be as great as Obama says.
Democrats in Congress are still debating how they want to pay for health care. Sen. Max Baucus of Montana of held a hearing on May 12, 2009, to discuss ways of financing health care, and senators during the hearing expressed a great deal of skepticism about new taxation strategies. After Blunt made his comments, Baucus put forward a policy paper that included several ways to potentially pay for taxes, including modifying tax exemptions on employer-provided insurance and taxing alcohol and soda.
Len Berman of the nonpartisan Tax Policy Center, who testified during the hearing, said later Congress seems unsure how it will pay for health care. He wrote in a blog post that they seemed to be in the grip of “magical thinking.”
“If there was the easy answer they’d have figured it out already,” Berman told PolitiFact. “The idea of a new federal tax terrifies legislators. … If they’re serious about, and it’s not going to be smoke and mirrors, then they’re going to have to make decisions that they haven’t been willing to make so far.”
So Blunt is largely correct that that Democrats “have failed to answer” how to pay for health care. But they are putting forward ideas, and the Obama administration has identified $635 billion — perhaps optimistically — to get a plan started. So we rate Blunt’s statement Mostly True.
From:
http://www.politifact.com/truth-o-meter/article/2009/may/19/your-guide-distortions-health-care/
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The Experts vs. The Public on Health Reform, the Latest “Pulling It Together, From Drew Altman” Column
Tuesday, May 19, 2009
The Experts vs. The Public on Health Reform, the Latest “Pulling It Together, From Drew Altman” Column
In the latest column from his “Pulling It Together” series, the Kaiser Family Foundation’s President and CEO Drew Altman examines the gulf between experts and the public on basic beliefs about what is behind the problems in the health care system and key elements of reform. You can read the full column online at http://www.kff.org/pullingittogether/051809_altman.cfm.
All previous columns are also online at http://www.kff.org/pullingittogether/index.cfm. Additionally, you can now subscribe to the columns and have them fed to your RSS reader at http://feeds.kff.org/kffpit.
For more information, contact Rakesh Singh at (650) 234-9232 or rsingh@kff.org.
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Swine Flu Threat Highlights Need for Single-Payer
OpEd News
http://www.opednews.com/articles/Swine-Flu-Threat-Highlight-by-Mark-Harris-090512-482.html
by Mark Harris
May 15, 2009
Was it only three months ago that former Bush Whisperer Karl Rove was attacking the “monstrosity” of House stimulus bill H.R. 1 for including $870 million for pandemic flu preparations?
In his Feb. 5 Wall Street Journal column, Rove called questionable not only money for flu threats, but $462 million for the Centers for Disease Control (CDC), $2 billion for the National Institutes of Health, and $4 billion for health programs targeting smoking cessation and obesity…
The current swine flu threat highlights not only the deleterious impact of market economy values, but also of poverty and for-profit medicine on society’s ability to ensure quality health care for all. And that includes across borders. In Mexico, where poverty is rampant and the death rate from swine flu far exceeds the United States, a course of antiviral medicine costs between $50 and $100. This is an unaffordable price to many Mexicans. Unfortunately, even the low-cost government clinics cannot overcome the reality that medical care in Mexico is often a last resort for the poor. “Delaying medical care is a characteristic of poverty,” observes PAUL J. GERTLER, … [PROFESSOR OF ECONOMICS AT UC BERKELEY'S HAAS SCHOOL OF BUSINESS WITH A JOINT APPOINTMENT AT THE SCHOOL OF PUBLIC HEALTH]. “For people living close to the edge, taking off a day to visit a doctor or staying home sick is literally taking food out of their mouths” (Washington Post, May 5)….
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Committee Approves Legislation to Help Strengthen U.S.-Pakistan Ties, Increase Development Assistance
May 20, 2009
Washington, DC – The House Committee on Foreign Affairs today approved bipartisan legislation creating a new, more positive framework for U.S.-Pakistan relations.
“This legislation would massively expand economic, social and democracy assistance to Pakistan , and also provide a significant increase in military assistance,” Committee Chairman Howard L. Berman (D-CA) said. “We need to forge a true strategic partnership with Pakistan , strengthen its democratic government, and do what we can to make Pakistan a force for stability in a volatile region.”
The Pakistan Enduring Assistance and Cooperation Enhancement Act (HR 1886) triples U.S. economic assistance to Pakistan to $1.5 billion a year, with a particular focus on strengthening democratic institutions, promoting economic development and improving Pakistan ‘s public education system, with an emphasis on access for women and girls. The bill also establishes a permanent Pakistan Democracy and Prosperity Fund for non-military assistance, which demonstrates America ’s long-term commitment to Pakistan ’s democratic future.
To ensure that U.S. assistance is truly benefiting the people of Pakistan , the legislation requires rigorous oversight and auditing. It establishes a set of principles that should govern U.S.-Pakistan ties, including the actions that the two countries should take to maintain a robust, relevant and lasting relationship. For example, the bill explains that U.S. assistance is intended to supplement, not supplant, Pakistan’s own efforts in building a stable and secure Pakistan, and that U.S. assistance will be wholly ineffective without Pakistan’s own serious efforts to improve the lives of its citizens.
H.R. 1886 authorizes military assistance to help Pakistan disrupt and defeat al Qaeda and insurgent elements, and requires that the vast majority of such assistance be focused on critical counterinsurgency and counterterrorism efforts. In addition, the bill requires that all military assistance flow through the democratically elected Government of Pakistan. Finally, the legislation includes accountability measures for military assistance, including a requirement that the Government of Pakistan has demonstrated a sustained commitment to combating terrorist groups and has made progress towards that end.
“Contrary to what some have said, these are not ‘rigid’ or ‘inflexible’ conditions.” Berman said. To ensure that the President has sufficient flexibility, we provide a waiver if he is unable to make the determinations. I think this is an excellent bill that will strengthen the critical U.S.-Pakistan relationship and support U.S. national security objectives in South Asia .”
From: Foreign Affairs Committee www.hcfa.house.gov
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Attacking Pelosi, Gingrich misrepresents Panetta statement
Newt Gingrich misrepresented Leon Panetta’s response to Nancy Pelosi’s allegation that the CIA had misled her about its use of waterboarding.
Read More
http://mediamatters.org/items/200905200016?lid=1037206&rid=27958564
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Borowitz Report – Pelosi-palooza
May 20, 2009
Gingrich: Pelosi Not Good Enough Liar to be Speaker
Offers Congresswoman Lying Lessons
Former Speaker of the House Newt Gingrich lashed out today at the current Speaker, Nancy Pelosi, calling the congresswoman unfit to be Speaker of the House “because she’s not a good enough liar.”
Mr. Gingrich, in an appearance on ABC’s “Good Morning America,” said that the ability to lie seamlessly is the most important qualification for the job of Speaker, adding, “I’ve been in the job and I should know.”
The former Speaker issued the following ultimatum to Rep. Pelosi: “She needs to get better at lying, or step down.”
Mr. Gingrich offered a brutal, blow-by-blow criticism of the House Speaker’s lying technique, which he said consists of “pauses, ums and uhs, stuttering – all the hallmarks of an amateur.”
In contrast, he said, “When I was in her chair my lying was as smooth as a baby’s bottom.”
He added that if Rep. Pelosi is serious about remaining in her position, he would be “more than willing” to give her lying lessons.
“Being a good liar requires practice,” Mr. Gingrich said. “Fortunately for me, I had years of practice lying to my many wives.”
Upcoming Events
May 23, 2009 at 2:00PM
Cleveland – Free Show!
Andy performs a free stand-up show in his hometown. Meet Andy and his wife Olivia Gentile; Olivia will read from her new book, LIFE LIST, and both will sign their books afterward.
Location:
Joseph-Beth Bookstore, 24519 Cedar Road, Lyndhurst
http://www.borowitzreport.com/
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three thousand words
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Signe Wilkinson
Philadelphia Daily News
May 20, 2009
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Tony Auth: Hands Tied
(img.slate.com)
Matt Bors: dick cheney is inescapable!
(www.mattbors.com)
