Tuesday, May 31, 2011

The Future of Physical Gold (Part II - The Evolution of Value)

"Fort Knox Gold Mine" - Taken by Kevin Fitzgerrel [website]

Part I of this series, The Future of Physical Gold - Dialectic Foundations, discussed how the concept of money had been fundamentally transformed by the material (rather than ideological) forces of the financial capitalist system. It was no longer just a convenient medium of exchange, unit of account, and store of value, but also became a social and political means of systemic oppression. The leverage embodied in financial instruments (by far the largest component of money in the global economy) imprisoned the very definitions of economic, social and political activity within a strict mode of operation.

The culture imperative of the developed world was financed consumption and apathy, while its political imperative was the concentration of wealth and the appeasement of those being continuously plundered. All of those lacking control of productive assets, including both "debtors" and "savers", found it impossible to maintain their wealth, purchasing power and/or service their debts over time. These people were all "workers" who sold their productive capacity in the marketplace, and received increasingly less value for it over time.

Superficial concessions were frequently granted by the controlling class (i.e. minimum wages, union benefits, bankruptcy process, welfare, wage-arbitraged prices, etc.) and their propaganda was planted deeply in the minds of middle-class dreamers, but that has not stopped the middle-class from relentlessly fading to black. It then becomes clear that any other global monetary system, including "Freegold" (a synthesis of physical gold-based money and debt-based currencies; briefly described in Part I), would serve as a lie for the masses.

It would be another means of convincing people that they actually have not been plundered (it's all in your imagination), and that they can continue their time-honored tradition of financed consumption, albeit with some "fail-safe" mechanisms built into the system that would prevent excessive financial speculation and protect those who wish to save (Glass-Steagall, anyone?). Take a look at this quote from Jean-Claude Juncker and its accompanying commentary (excerpted from the article Trojan Lies on The Automatic Earth):

"When it becomes serious, you have to lie", Juncker, who as the chairman of the regular meetings of eurozone finance ministers is one of the currency union's key spokesmen, said in recent remarks.

Even confirming the existence of discussions on explosive financial issues can quickly turn them into self-fulfilling prophecies and have serious consequences for a country's economy by driving up borrowing costs. "If you are pre-indicating possible decisions, you are fueling speculation on the financial markets, throwing into misery mainly ordinary people whom we are trying to safeguard from this," Juncker said. [1].

Basically, Juncker is telling us that broad-based lies are necessary in modern society to whitewash the underlying reality, because, without them, the underlying reality would become much worse, much more quickly. However, anyone who has attempted to orchestrate a complicated series of lies knows that it is not sustainable and will only make the underlying situation psychologically more difficult to bear, once the lies become plainly contradictory and/or ridiculous.

Indeed, lies must be continuously advertised and sold like any other product, and the propaganda industry is struggling to turn a profit these days. The reason is because human ideas cannot fundamentally change the underlying material reality of the human condition, and now, despite our propensity to tell ourselves lies, the reality has become much too plain and stark to consciously ignore. Instead, the deteriorating material reality will drive our ideas and our willingness to accept the ideas of others, just as the Marxian dialectic would dictate.

The fundamental problem in the material sphere of financial capitalism is a lack of aggregate (effective) demand in the developed consumer/investment markets of the global economy. Annual aggregate demand in the private economy can be simply represented as (nominal GDP + change in private credit). GDP obviously incorporates private consumption, investment and non-transfer public expenditures (i.e. social security, welfare benefits, etc. are not counted), while also adding trade surpluses and subtracting trade deficits. [2].

In the capitalist system, then, public credit (deficit) growth and personal savings (non-investment) would act as the "demand of last resort". The latter typically sits very still in a recession until it is finally forced to come out for the purchase of necessities and/or to avoid an outright collapse in purchasing power. To understand why private consumption, investment, savings and private/public credit growth have all begun to stagnate or substantially decline in the developed world, and why they will soon follow suit in "emerging markets", we must start with a basic history of "wealth" creation in a capitalist system.

First, we should discuss the meaning and sources of "value" in this system as a foundation for why the private demand for commodities and financial investments (the availability of excess wealth) is constrained over time. Karl Marx realized that a commodity's value had evolved from what it once was in the relatively simple barter societies of our past, as its "exchange-value" became distinct from its "use-value" and allowed for the production of "surplus value". The following excerpt is taken from Debunking Economics, a book written by the notable Australian economist, Dr. Steve Keen [emphasis mine]:

Marx: "The exchange of commodities, therefore, first begins on the boundaries of such communities, at their points of contact with other similar communities, or with members of the latter... The constant repetition of exchange makes it a normal social act. In the course of time, therefore, some portion at least of the products of labour must be produced with a special view to exchange. From that moment the distinction becomes firmly established between the utility of an object for the purposes of consumption, and its utility for the purposes of exchange. Its use-value becomes distinguished from its exchange-value." [DE, Chapter 13]
Obtained from Living in the Spiral

Marx basically gives us a brief description of the transition from a simple barter economy to a production-based economy. In the initial stages of barter at the "boundaries" of communities, a commodity's ratio of exchange with another commodity is a "matter of chance" and may be influenced by their perceived utility in consumption. As the benefits from barter accrue over time, however, a repetitive pattern of trading develops and leads to the production of certain commodities with the sole purpose of using them in trade, rather than consuming them.

It is at this time when the commodity's exchange-value is separated out from its use-value, with the former being the sole determinant of its value in trade. Both use-value and exchange-value can be thought of as objectively determined values, since the former is the utility of a commodity performing a specific function, and the latter is the sum of the use-values consumed in its production. Dr. Keen clarifies the commodity dialectic with the use of labor as an example, in his research paper entitled, A Marx for Post Keynesians:

Keen: "To apply his Commodity Axioms to labor-power and the origin of surplus value, Marx had first to identify labor-power's exchange-value and use-value. He argued that the exchange-value of labor-power was its value, the means of subsistence, which could be represented by a bundle of commodities, while its use-value was labor, the ability to perform work. The former identification was hardly novel; however, the latter was revolutionary, in two senses. [AMFPK, pg. 8]."

Stopping here for a moment, it is important to understand why increased systemic complexity fundamentally changes and constrains the role of commodities, including those claiming to be "wealth reserves", in the political economy. Dr. Keen talks about the implications of systemic complexity a bit in terms of "representative agent" models in mainstream macroeconomics [emphasis mine]:

Keen: "I have more to say about this in Chapter 12, but here it is worth noting that representative agent macroeconomics amounts to assuming that the economy consists of a single individual producing and consuming a single commodity. However complex might be the reasoning used by such aficionados as Paul Krugman, the realm of applicability of this theory is thus that of Robinson Crusoe, living off coconuts before the arrival of Man Friday. It beggars belief that anyone who truly knew where this notion had come from would attempt to apply it to something as complex as a modern, multi-commodity, multi-million person economy." [DE, Ch. 9]

FOFOA, the most popular Freegold advocate still blogging, uses two "representative agents" from a model "game" to illustrate why physical gold will be"tapped" by natural market forces to serve the role of global wealth reserve over any other monetary asset, since it is a natural "focal point" for investors to place their excess currency wealth in upcoming years. Although this example may not necessarily entail the same flawed assumption used by Neo-classical economists to model aggregate market behavior, it follows a very similar logic [my emphasis].

FOFOA: "Consider a simple example: two people unable to communicate with each other are each shown a panel of four squares and asked to select one; if and only if they both select the same one, they will each receive a prize. Three of the squares are blue and one is red. Assuming they each know nothing about the other player, but that they each do want to win the prize, then they will, reasonably, both choose the red square...

...is why money not only can be split into separate units for separate roles, one as the store of value and the other to be used as a medium of exchange and unit of account, but why it absolutely must and WILL split". [Focal Point: Gold].

It should be clear that a simple "game" with simple "rules", such as the square game above, cannot provide insights into the monetary decisions of actors operating within complex financial markets, where irrational and non-linear behavior is THE dominant and "emergent property". Getting back to Marx's commodity dialectic, we can proceed to explore the two "revolutionary" insights he had with regards to use-value (in the context of labor):
Keen: "Firstly, in contrast to Smith or Ricardo, Marx gave use-value an active role in political economy. Secondly, he asserted that, under specific circumstances, use-value could be quantitative--though what was being quantified was not abstract satisfaction, as in neoclassical analysis, but the objective function of the commodity in question." 

"...Thus, in the case of this commodity [labor], use-value and exchange-value could both be measured in the terms of the exchange-value of commodities. He then applied axiom 4 above--that the use-value of a given commodity plays no role in determining its exchange-value--to conclude that these two value magnitudes would be different, and that this difference was the source of surplus value." [AMFPK, pg. 8]

So the worker's ability to labor ("labor-power") is sold in the labor market for its exchange-value (= "subsistence wage"), but it is bought by the employer for its much higher use-value (= sum of the exchange-values of the commodities it produced). For example, the employer might pay a worker $6/hour for his ability to produce widgets over 10 hours, would only need 5 hours of widget production to justify the $60 subsistence wage and would therefore generate surplus value from the widgets produced during the extra 5 hours. Labor-power, therefore, is a unique commodity because its use-value can be measured in terms of exchange-values in certain circumstances.

What Marx eventually failed to incorporate into his theory of value was only the fact that all commodity inputs to production possessed a similar inequality of use and exchange-values. There is only one major modification needed for this general rule, and that is for financed-assets which provide returns (bonds, shares, currency deposits, land, etc.). These assets derive value directly from their use-value, which happens to be the expectation of their future exchange-value. This crucial distinction sets the stage for Minsky's "Financial Instability Hypothesis", discussed in Part III, and it is fully consistent with Marx's commodity dialectic approach to value.

Before moving on, it should be pointed out that physical gold as a monetary asset in the Freegold system does not fall under the category of being a "non-commodity", or a good that is not mass-produced for exchange and/or use in the production process (i.e. rare statutes, antiques, etc.). Dr. Keen proposes that a final axiom is needed to encompass these "non-commodity" goods, as well those that temporarily exist in the netherworld of being neither a commodity nor a non-commodity (i.e. brand new technological goods):

Keen: "Products which are not part of the system of reproduction of products are not truly commodities, and hence not fully bound by the dialectic of commodities. [Axiom]

...This suggests that the products of technological development--which will in time become commodities as they are integrated into the system of reproduction--are liable to have their initial prices set by forces in addition to their costs of production. Perceived utility is one such additional force...

...the price of a newly developed product is likely to be above its exchange-value, but to be driven towards this over time by the forces of competition and commodification." [AMFPK, pg. 14-15]

Since Freegold envisions physical gold as being the global reserve asset, and certainly not any sort of technological good, it is fair to say that gold will be "commodity" within the industrial capitalist system of exchange subject to Marx's dialectic. Indeed, as argued in Part I, gold would find it impossibly difficult to trade completely independent of this broader system, and most likely the financial system as well. Therefore, we can return to evaluating the process of wealth creation and preservation under the Freegold system when gold is subject to the commodity dialectic.

Freegold's flawed conception of value stems from Austrian economics, as clearly reflected in FOFOA's piece, The Value of Gold. Although he correctly states that Karl Marx's "Labor Theory of Value" is flawed, he goes on to accept the even more flawed "Marginal Utility Theory of Value" (MTV) advocated by the "Neo-Classical" and "Austrian" schools of thought. The perspective informing the latter is captured well in Principle of Economics, written by the founder of Austrian economic theory, Carl Menger [emphasis mine]:

Whether a diamond was found accidentally or was obtained from a diamond pit with the employment of a thousand days of labor is completely irrelevant for its value. In general, no one in practical life asks for the history of the origin of a good in estimating its value, but considers solely the services that the good will render him and which he would have to forgo if he did not have it at his command...

Following this logic, FOFOA concludes that the marginal utility of purchasing additional physical gold units will not diminish, because its utility in preserving a given level of purchasing power will always remain the same, as long it remains a monetary asset that is independent of the official currency. [3]. However, Menger's subjective and simple conception of utility does not translate to the complex political economy of capitalism, where the value of a monetary asset is determined by either its exchange-value on a market or its objective use in producing future exchange-values.

Obtained from AMFPK by Dr. Steve Keen

This comprehensive view of commodity dialectics casts an even larger dispersion on Menger and Freegold's MTV foundation, which only considers one circuit of our complex political economy, and that too in a subjective manner. In this circuit, the end goal of producing commodities is to sell them into a market for a profit and use all of that profit to consume more commodities (C-M-C), without any creation of surplus value in the process. Therefore, the utility of monetary capital in this circuit, whether mediums of exchange or "pure" wealth reserves, is solely a subjective expression of commodities desired, and absolutely determines its value in the capitalist system [emphasis mine]:

FOFOA: "...let's take a quick look at the marginal utility of gold as a store of value...

...Now say he buys one more $55,000 gold eagle coin, and then another, and another, and so on until all his cash is gone. In the end he will have 26 gold coins. And here's the question: Will that 26th gold coin purchase provide the same utility or diminished (less) utility than the first? Remember, the only utility of gold coins is that they retain their value for thousands of years. That's all they do. And hoarding them doesn't interfere with any other economic activity, at least not when they are not "official money." [
The Value of Gold]
As Marx articulated, however, a more essential circuit must (and does) exist in the capitalist economy, where capitalists use monetary capital to purchase commodity inputs (labor, raw materials) with the end goal of creating and realizing surplus value. The following excerpts clarify the capitalist's "wealth accumulation circuit" (M-C-M+) and are contained within Keen's paper debunking Say's Law, entitled Nudge Nudge, Wink Wink, Say No More, and also Debunking Economics:

Marx: "The expansion of value, which is the objective basis or main-spring of the circulation M-C-M, becomes his [the capitalist's] subjective aim, and it is only in so far as the appropriation of ever more and more wealth in the abstract becomes the sole motive of his operations, that he functions as a capitalist... Use-values must therefore never be looked upon as the real aim of the capitalist. Neither must the profit on any single transaction. The restless never-ending process of profit making alone is what he aims at." (NNWW, pg. 4)

Keen: "Since Say’s Law and Walras’ Law are in fact founded upon the hypothesised state of mind of each market participant at one instant in time, and since at any instant in time we can presume that a capitalist will desire to accumulate, then the very starting point of Say’s/Walras’ Law is invalid. In a capitalist economy, the sum of the intended excess demands at any one point in time will be negative, not zero. Marx’s circuit thus more accurately states the intention of capitalists by its focus on the growth in wealth over time, than does Walras’ Law’s dynamically irrelevant and factually incorrect instantaneous static snapshot." (DE, Ch. 9)

As mentioned before, and contrary to what many official "Marxists" and "Neo-Classical" critics say, Marx did not believe a commodity's use-value had no role to play in the creation of surplus value within the M-C-M+ circuit.  The following excerpts from Dr Keen's paper, entitled Use-Vale, Exchange-Value and the Demise of Marx's Labor Theory of Value, further explain Marx's initial analysis of surplus value in the industrial capitalist economy [emphasis mine]:

Marx: "We are, therefore, forced to the conclusion that the change originates in the use-value, as such, of the commodity, i.e. its consumption. In order to be able to extract value from the consumption of a commodity, our friend, Moneybags, must be so lucky as to find, within the sphere of circulation, in the market, a commodity, whose use value possesses the peculiar property of being a source of value." (pg. 5)

Keen: "Marx specifically referred to the use-value of a machine being greater than its [exchange] value, and in contrast to his discussion of depreciation in Capital, dissociated the productivity of a machine from its depreciation. The use-value of a machine will differ from its exchange-value and, as with labor, we can assume that its use-value will be "significantly greater than its value." In practice this will mean that the amount it loses in depreciation will be significantly less than the amount it contributes to the value of output, and it will, with labor, be a source of surplus value." (pg. 7)

After that lengthy, yet "valuable" bedrock of wealth creation, we can return to the problem of insufficient aggregate demand in a capitalist system. In Part III, we will discuss how the creation of surplus value via production in the M-C-M+ (wealth accumulation/concentration) circuit implicates an inherent problem for the system, since wealth is only realized from this value when it is monetized in a market. Over-supply of commodities in the production process on a consistent basis leads to negative excess demand in the entire economic system, as a sum of the C-M-C and M-C-M+ circuits (a clear violation of Say's "Law").

Some of the "real-world" economic results of this process will also be discussed, and then the financial dynamics of capitalism, as articulated by Hyman Minsky and Dr. Keen, can be explored to explain why a process of hyperinflation, if and when it finally occurs, will still not "cure" the "realization problem". Finally, we can begin to talk concretely about how all of these trends will impact the future of physical gold in the political economies of human civilization. Far from being an irrelevant monetary asset, physical gold will have a very important role in certain parts of the world and at certain scales of economic activity.

However, the "investment opportunities" implicated by the theory of Freegold will be revealed as exaggerated and misleading. Until then, I ask that readers carefully consider the Marxian approach to dialectic evolution and economic value in a capitalist system. An accurate understanding of Marx, unique to even many of his "followers", provides an invaluable perspective from which to view the global economy's fundamental nature and path at this unique point in history. The material implications of this perspective are quite bleak, but, nevertheless, we will soon begin to trust in those striking, yet simple portraits that have been etched deeply into our honest minds.

Our account of this science will be adequate if it achieves such clarity as the subject-matter allows; for the same degree of precision is not to be expected in all discussions, any more than in all products of handicraft. - Aristotle, Nicomachean Ethics

Thursday, May 19, 2011

The Future of Physical Gold (Part I - Dialectic Foundations)

The element Au consists of 118 neutrons, 79 protons and 79 electrons. Many particle physicists would now tell you that electrons do not always act as tiny little points of matter in space-time, but rather can consist of superimposed wave-functions that have a very large, if not infinite, number of possible values. If this premise is true, then how could we get from these rather ephemeral electrons to a solid atom or an element that exists at much larger scales, such as a flake of gold?

The answer is most likely the process of "quantum decoherence", in which superimposed quantum states separate into discrete units of electric charge, mass and spin (angular momentum). This process is overwhelmingly supported by experimental evidence and explains why a "single" electron can pass through two separated slits at the same time, but will only pass through one when it interacts with a photon from a measuring device. [1]. Physicists may disagree on the fundamental significance of these results, but they cannot deny the results themselves.

I believe that a convenient (and generalized) theoretical framework for thinking about the process is complexity theory, to the extent that quantum decoherence leads to increased systemic complexity in the resulting particle and the particle displays emergent properties. When the superimposed particle-states interact with an external environment, its wave-functions "collapse" and it takes on properties of mass, charge and momentum that simply did not exist before.

The stable atom containing these electrons can also be thought of as a complex system with internal structure, a relatively high degree of order and inter-dependent parts. It too has emergent properties, because it exhibits fundamental traits that do not exist at the level of its individual constituents. To better understand the process, imagine that you are floating above an Ocean near the coastline and looking down:

From this perspective, the Ocean appears to be a coherent body of water without any series of waves that exhibits discrete properties (amplitude, wavelength, frequency). Alternatively, you can imagine that you have come down to Earth, so to speak, and are now standing on the beach looking out into the water:

Now, we clearly see multiple waves with discrete properties moving towards us and breaking as they approach the shoreline. The first overhead perspective would represent a particle existing in coherent quantum states, while the second represents a particle that has interacted with its environment and has lost that coherence. Both of these perspectives are fundamental representations of reality, and neither is more "correct" than the other. They do, however, reflect a reality that has fundamentally changed from one perspective (level of complexity) to another.

The point of the above theoretical musings is to help the reader begin thinking about what it means for something to have a "fundamental nature", and how that nature can change as systemic complexity increases. Specifically, with regards to gold as a "monetary" asset, we can ask ourselves what its fundamental role has become in our highly inter-dependent systems of societal organization, and what it will ultimately be.

(The descriptions of FOFOA's views below are my personal interpretations and have not been confirmed as either being accurate or inaccurate by FOFOA)

One of the most insightful and popular physical gold advocates is a blogger called Friend of a Friend of Another ("FOFOA"), and he frequently writes about what he believes to be gold's unique role in the modern global economy. He argues that physical gold, unlike fiat currency assets, has traditionally been and will continue to be the most stable "store of wealth" used by nations, central banks, many large corporate institutions and wealthy individuals around the world.

The nominal dollar value of debt-backed assets held by these "giants" currently outstrips that of their gold-related assets by a large margin, but he argues that the dollar is merely a liquid means of exchange and temporary store of value for the major players. They are hoarding gold and patiently waiting for the dollar to "find" its true "store value" in relation to physical gold, at the bottom of a very deep monetary well.

In essence, they will outrun the "haircuts" on debt-assets by converting them into gold and other hard assets before any of the smaller players even know what hit them [Another, FOA on Hyperinflation] [emphasis mine]:

"Human nature has followed this path for thousands of years. You know the old joke about outrunning the bear? Well, these lenders will influence our financial policy as such. They will try to get their debt securities liquefied first, spend the fiat and in this process outrun you and I. Leaving anyone they can beat to the mercy of the hyperinflation bear eating their remaining fiat assets…

Allowing the US to destroy our own system and offering an avenue of escape for investors worldwide is a master political play. Why dump your dollar reserves when such an action would make you the bad guy? Buy some gold quietly, yes. But, better to let your dollars dissolve and have your assets transformed by a dollar / physical gold devaluation."

The dollar hyper-inflationary process (in terms of price) could take off tomorrow or a few years from now, but, regardless of the timing, the only assured way to preserve one's excess investment wealth is by exchanging dollar-based assets for physical gold from here on out. A fundamental problem begins for this argument, in my opinion, when it attempts to predict the long-term destiny of physical gold through the lens of isolated monetary and political systems.

Isolated to the extent that they are perceived as being both able and willing to unleash a dollar devaluation "bear" on the current financial system, allowing a new global paradigm to inevitably rise in its wake. In our global society, however, we (and FOFOA) should be talking about how the role of gold will be influenced not only by monetary, currency and political systems in isolation, but also by these systems as naturally dependent components of our complex economic and financial systems; as discrete waves in the high seas of industry and credit.

Readers of this article who adhere to the concept of "Freegold" may notice that the theoretical distinctions between it and what I lay out are very subtle. That is certainly true, but subtle differences in such a broad context can spawn vastly different implications for global society's future path. Are we really watching the monetary, social and political systems around the world siege the global financial system and take back a large portion of the value lost through years of imaginary capital creation and wealth concentration? Or are we simply watching them respond in kind as mechanical parts of an unholy and inseparable union?

Can the atom let its electrons go free and reclaim their place in the coherent fabric of the Universe, or will they first be forced to float down to lower energy orbitals, a bit closer to the bright white sands of the shore? Abstract theories and philosophies help us place specific developments into a much broader context, as long as they are initially built on a block of solid foundation. FOFOA writes the following critique of Karl Marx, in his article The Debtors and the Savers [emphasis mine]:

Today we have many fine, intelligent and exacting analysts all looking at the same economic data and coming up with vastly different analyses of the present global financial crisis. What sets them all apart from each other is not intelligence, or math skills, or even popularity. What sets them apart is the foundational premises on which they operate.

And a false premise can skew a brilliant analysis 180 degrees in the wrong direction
. Few analysts fully disclose their premises. But Karl Marx did, and in this we can find the one, key flaw that sent his analysis off in a disastrous direction.

Marx writes, "The history of all hitherto existing society is the history of class struggle." He got this part right! What he got wrong was his delineation of the classes.

I couldn't agree more with the bolded statements above, but, naturally, I disagree with what immediately follows. FOFOA goes on to describe Marx's premise - the capitalist system of production contains a constant dialectical struggle between the working class (labor) and the capitalist class (owners of productive capital) - but argues that, instead, the struggle is actually between the debtors (net consumers) and the savers (net producers). It is claimed that the debtors are essentially oppressing the savers by spending beyond their means, devaluing their debt (currency) via printing and diluting the value of the savings in the system.

However, as I plan to demonstrate in further detail, it is FOFOA who argues from the false premise that debtors occupy a distinct class in society apart from savers, and that the former are merely consuming more than they contribute to productive society. That premise naturally leads him to conclude that the next phase of economic evolution will involve a global monetary system that essentially rids the savers of debtor oppression, by containing a branch that functions and derives value independent of the paper financial system. Through this logic, he spins himself around to have his back conveniently turned on Marx.

The latter was, in fact, technically correct with his theory of dialectical materialism and his class delineations, but he did not envision the extent to which large financiers would absorb the functions of the capitalist producer class. He also failed to see how debtors would come to comprise such a large share of the working class, right alongside the savers. We have ended up with a global class struggle between financial owners of capital, on the one hand, and debtors (including governments/taxpayers) and savers on the other (both of them being "workers").

The defaulting debtors are not necessarily "net consumers" over time, but many times receive less and less compensation for their productive efforts. The subtle distinction leading to this class delineation instead of the debtors/savers opposition is the specific dialectic involved. FOFOA's dialectic stems from the Hegelian tradition of two opposing ideological forces (i.e. “easy money” debtors vs. “hard money” savers) synthesizing to create a new paradigm. Essentially, the cart is being put well before the horse, which is a fact that Marx (and Engels) recognized when they developed the theory of dialectical materialism and turned Hegel on his head [].

"My dialectic method is not only different from the Hegelian, but is its direct opposite. To Hegel, the life-process of the human brain, i.e. the process of thinking, which, under the name of ‘the Idea’, he even transforms into an independent subject, is the demiurgos of the real world, and the real world is only the external, phenomenal form of ‘the Idea’. With me, on the contrary, the ideal is nothing else than the material world reflected by the human mind, and translated into forms of thought." [Marx]

The material environment of human existence is what underlies the development of socioeconomic structures in society and their inherent class delineations, and these opposing forces (“oppressor” vs. “oppressed”) are what drive the political economy. For example, the industrial (energy) revolution is what really allowed the capitalist system of production to root itself around the world, and this economic system necessarily created two general classes in society – the owners of the means of production (capitalist) and those who are forced to sell their labor to the capitalist (worker).

When discussing the scopes of these very abstract and fluid systems, it helps to have some kind of visual representation, simple and crude as it may be. The following is a snapshot of the critical systems influencing Marx's material dialectic at this point in time:

Blue to White Color Progression = Height From Cone's Base ( Complexity up)
Connected Red Diamonds = Sociopolitical Systems Derived From the Financial Capitalist System

The currency system is the smallest and most specialized part of the cone, as it only encompasses mediums of exchange and stores of wealth that have been officially sanctioned by national or transnational political institutions. Our monetary system is larger because it includes the currency cone plus any tangible or intangible asset that can act as a medium of exchange and a store of wealth, regardless of whether it is officially recognized by a political body (as long as it is generally recognized by prevailing social norms in a given region).

Money is actually a less abstract (complex) concept than currency, as it can reflect the relative value of tradable goods more directly (in fact, it may be the goods themselves). All forms of currency (i.e. U.S. dollar) are money, but not all forms of money are currencies. Physical gold can be thought of as money, since it is a widely accepted means for members of a society to store their savings (net income minus non-investment consumption). It can also be used as an informal medium of exchange in many parts of the world, but it may not necessarily be accepted by large merchants in the developed world and certainly not governments collecting taxes.

FOFOA claims that, since physical gold now only acts as a global money reserve rather than a currency reserve (or a backing of currency), it is an ideal store of value for savers. That is arguably true because its "value" does not have to be diluted by expanding the currency supply for the purpose of providing "liquidity", easing debt burdens and stimulating growth. In that sense, physical gold could be a repository for saving excess wealth without stifling economic activity, and currencies used in the global monetary system as mediums of exchange can independently float against its price on the market, as the global reserve asset.

The "reference point" of gold would provide a natural carrot and stick mechanism, in which political or financial institutions that use their currency "printing presses" with relative control are rewarded with an influx of gold capital, while those that use them with reckless abandon are punished by gold capital flight to another currency region. Is such a mechanism really capable of being implemented, though, or are we projecting an ideal monetary system (a coherency) onto our global society that is very unlikely to occur, and fundamentally impossible to predict with certainty?

The following passages from Reference Point Revolution help illuminate the flaws in the logic of the Freegold paradigm [emphasis mine]:

"But right now, for perhaps the first time in history, individuals can join central bankers and the true Giants of the world by participating in the ultimate hedge fund. One that, like modern hedge funds, focuses on the hedge itself as the key investment with the most leverage, with the expectation of life-changing returns. And the main differences between this and traditional hedge funds are 1) much less risk, and 2) it is open to ALL individuals, including you!" [FOFOA]

"If you are following closely, now, we can begin to see how easy it is for the concepts of modern money to convolute our value and understanding of gold. It is here that the thought of a free market in physical was formed. Using the relationship of a free physical market in gold, we will be able to relate gold values to millions to goods and services that are currency traded the world over. Instead of having governments control gold's value to gauge currency creation; world opinion will be free to associate the values of barter gold against barter currency. In this will be born a free money concept in the minds of men and governments." [FOA]

The Freegold perspective tends to view the global monetary system as a coherent body of water, in which monetary waves can take on a nearly infinite number of forms or functions as the oppositional ideologies of humans naturally progress. That perspective does not adequately reflect the complex, inter-dependent society that has evolved over the last few hundred years, beginning with the industrialization of national economies and ending with the global financialization of nearly all economic activity. During that time, the monetary waves became increasingly discrete, diverse and dependent as they traveled towards the shores of their destiny.

The properties (roles/values) of these waves have necessarily been constrained by the vast financial body of water in which they were formed, and their potential wavelengths must be measured as a function of financial dynamics. The global financial system is characterized by digital instruments that attach legal claims onto the productive assets of others. These assets may be farmland, human labor, machinery, the actual production process, supply lines, currency, money or any number of things, but such assets do not solely imbue the instruments with value.

Another important aspect of a financial instrument's value is its ability to be issued and traded on a "liquid" market and act as a medium of exchange, promoting the ease of economic transactions. For example, "negotiable instruments" in the U.S. are required to be "payable in currency", rather than just money, because a promise to pay someone in physical gold would not be easily negotiated through markets. Finally, and perhaps most importantly, the financial instruments obtain value through the social and political leverage they affix to the debtors themselves, which include individuals, corporations and governments.

These systems, like the monetary and currency systems, have also been fundamentally transformed into tools of the financial economy. For that reason, the political will of major countries will not drive the global monetary system to its final destination, but instead both politics and money will be driven by the dynamics of industrial and financial capitalism. Eventually, all monetary waves will break on the shore and their components will recede into the water, but those components will never exist independently of the industrial and financial bodies of water, as long as the latter have not yet dried up.

As a consequence, those who are invested in various forms of money, including the U.S. dollar, physical silver and/or physical gold, will not be able to store their wealth outside the broader system of industrial production and finance until they have fully broken down, and that process could last for some significant period of time. This fact implies that no monetary store of wealth can be insulated from the manipulative forces of capitalist production, systemic finance (leveraged speculation) or the sociopolitical leverage at their disposal during such a period.

Through political control, money can be transferred between segments of society at will by means of redistributive policies, capital controls or even outright confiscation, and it could also be made much more available ("liquid") to those with "adequate" economic influence over those with little or no leverage whatsoever. If the Freegold system were to take root in certain parts of the world soon, then it would most likely consume itself rather quickly, since many of the system's underlying structural instabilities would not be absolved by its presence. These instabilities stem from the mechanisms of value creation, realization (profit taking) and speculation in the financial capitalist system.

They escape the imagination of Freegold advocates because, along with the flawed dialectic foundation, the concept is founded on a fundamental misunderstanding of economic value in a capitalist system. The broader inevitability of financial capitalism is ignored to make room for the perceived inevitability of a global and gold-based monetary paradigm. In Part II, we will visit the foundation of economic value in modern society and it will become clear that value, just like politics and money, has been fundamentally transformed from what it once was in the relatively simple barter societies of our past. Until then, let this dialectic foundation settle.

There is only one holistic system of systems, one vast and immane, interwoven, interacting, multivariate, multinational dominion of dollars. Petro-dollars, electro-dollars, multi-dollars, reichmarks, rins, rubles, pounds, and shekels. It is the international system of currency which determines the totality of life on this planet. That is the natural order of things today. That is the atomic and subatomic and galactic structure of things today!  -Arthur Jensen, Network

Much Ado About a Revolution

"You don't need a weatherman to know which way the wind blows." - Bob Dylan

Sociopolitical revolutions have been an increasingly common occurrence since the beginning of the Industrial Age. As Karl Marx predicted, the ever-present tension between the working class and the capitalist elites has frequently manifested in periods of extreme violence and chaos. Many of these eruptions, however, ended up producing purely political results, in so far as they disbanded or significantly altered the current form of government, but did not change the relations of property.

Therefore, the oppressive capitalist class structures existing before the revolution were largely left untouched. Some notable exceptions to this rule include the Socialist revolutions in Russia, China and Eastern Europe, but property relations rapidly returned to their unequal settings in these countries after the post-revolution governments once again formed alliances with the country's financial elite. The quintessential example of this circular revolutionary dynamic is the client state breaking away from its colonial oppressor to form an "independent" government.

For example, the American Revolution was a direct result of the British Parliament's decisions to levy hefty taxes on working class colonists to pay interest on loans generated by the Bank of England, the bulk of which benefited an elite class of British citizens. After the Revolution, the "United States of America" organized itself under novel political structures of "republican democracy", but it was not long before its people had to entertain a series of National Banks similar to the Bank of England.

These developments culminated in the secretive formation of the Federal Reserve on Jekyll Island in 1913, and an amendment to the Constitution the same year, which created a federal income tax to be used for servicing the federal debt. The former American colonists once again found themselves living at the mercy of the financial empire, paying for federal loans that only benefited a small class of Western citizens.

In the 1960s and 70s, a wave of "counter-culture" movements spread across this nation in response to the Vietnam War and, more fundamentally, the end of the longest period of sustained economic prosperity in American history. The spirit of these new social movements was most forcefully demonstrated by the Weather Underground, a "radical" group of anti-capitalist activists. [1].

This organization declared a "state of war" against the U.S. government and was responsible for numerous bombings of government buildings and financial institutions, including the U.S. Capitol Building and the Pentagon. It consisted of people who were truly committed to overthrowing the U.S.-backed financial empire and creating a global socialist utopia. By the mid-70s, however, it was largely relegated to the sprawling graveyard of idealistic social revolutions.

Now, when you Google "the Weather Underground", the first link you get back is to a website that actually tells you what the weather may or may not be in locations around the world. And you don't have to look at some website to know that the weather in Egypt will be "cloudy with a chance of oppressive military dictatorship and economic collapse" for an indefinite period into the future. Just a few months after the political revolution in Egypt forced Hosni Mubarak out of the Presidential office, hundreds of protesters were back out in Tahir Square calling for some real change (criminal prosecutions), only to be shot at by army soldiers and dispersed. [2].

The Libyan people directly to the west of Egypt are in a similar position, as their insurrection has left them stuck between the ruthless military forces of Gadhafi and the even more ruthless forces of the U.S. and Europe's military-industrial complex. [3]. Their cities are being bombed to smoldering ashes and their national energy resources plundered, while other people keep telling them that they are fighting to form a democratic and just society.

What these others don't tell them, and what they don't need to be told, are the physical, financial and emotional prices they must pay to contort themselves into such a twisted, upside-down version of justice. Show me a democracy, and I'll show you a massively indebted, class-divided and day-dreaming population living the entirety of their lives under the convenient guise of political freedom. We have the freedom to be placed into debt servitude and to suffer the consequences, that's all.

The only difference between us and them is that we live longer, which gives us enough time to contemplate just how incapable and unwilling we are to sacrifice for meaningful change. American teachers and firefighters take to the streets today because they don't want to see their bloated pensions stripped away. Tea Party activists hold rallies today because they don't want to see their taxes increase at the margin. That's really the extent of the mainstream, "politically-active" American's vision for change - throw me a doghouse to live in and a bone to chew on, and I'll be your loyal pet until the day I die.

If and when all of these people end up rioting in Times Square and the Washington National Mall, refusing to disperse until Wall Street executives are collectively prosecuted under RICO statutes and the Federal Reserve system is disbanded, then they will start to understand the plight of the Egyptians, Libyans, Tunisians and countless others that have come before them and have yet to come. It takes more than isolated demonstrations, insurrections or even full-blown revolutions to change the global structures of power... much, much more. What it really takes is a systemic synchronization of wholesale economic, social and political restructuring or collapse.

By the time this piece is up, President Obama would have presented his "deficit reduction plan" to the American people on national television. One thing I know for certain about this proposed plan is that it will be counter-productive to breaking the bonds of global oppression, regardless of the details concerning entitlement spending or taxes. It will not force major banks to mark their assets to market value, repurchase toxic debt-assets from the American public or enter the bankruptcy and receivership system. Perhaps more importantly, it will not repeal the Federal Reserve Act of 1913 or the 16th Amendment, return the issuing power of currency to Congress and allow states to charter their own central banks independent of any superseding "federal" authority.

If the federal government wants to do anything meaningful and sustainable about the federal debt/deficit, then it must absolutely do those things mentioned above, but it won't. Instead, it will finish gutting the productive economy and transferring the last viable scraps to a small cartel of powerful institutions and individuals. This grand theft, however, will also signify the time when "peaceful revolution" has been made entirely impossible, and violent insurrection has been left as the only option. Not only for isolated populations in certain countries, but for a majority of the populations in every major country, located in every single region of the world. Now, that's what I call a revolution.

Monday, May 9, 2011

The Perturbational Path of Human Civilization

Can you sense that? It is a perturbation in the forces of human civilization.

It is the feeling you get when events around the world are unfolding in a certain direction, but you are uncertain exactly how they will unfold or exactly where they will finally leave us. That is the nature of complex, dynamic systems, and more systemic complexity usually means less certainty. Perturbation theory is commonly used by physicists to describe the behavior of complex physical systems that involve equations which cannot be solved exactly. Take the movement of planets in our solar system and through our galaxy, for example, which, at first, may seem relatively simple to predict.

In reality, the existence of multiple planets and moons with inter-acting gravitational effects make the necessary calculations extremely complex and render exacting predictions of planetary paths through space-time impossible. Instead, astronomers attempting to predict the path of planet Earth would first start with the gravitational effect of the Sun, as it is the body with the largest gravitational influence.

Then, they would "correct" the solution with the second, third...nth-order gravitational effects of the next most influential bodies of mass respectively. It was discovered, however, that even the last correction in a perturbation analysis can end up being larger than the first one, which means that a relatively small perturbation can disproportionately effect the dynamics of the entire system. This "butterfly effect" of perturbations also operates at the smallest scales of our Universe, and presents a major obstacle to other physical theories, such as those encompassing the quantum scale.

An example would be String Theory, commonly referred to as a potential "Theory of Everything", since it posits that the fundamental constituents of the Universe (strings) are way too small to be directly or indirectly observed (via experiments such as particle accelerators) because of technological (energetic) limitations. Therefore, it must provide precise predictions of their behavior and its correspondence with known properties of the Universe to verify their existence. But the strings, like all other constituents of matter, interact with each other through multiple spatial dimensions and make such specific predictions practically impossible.

If the specific behavior of massive planets or one-dimensional oscillating strings is too complex for prediction, then what are the chances for a global human society consisting of economic, social and political systems that are enormously specialized and inter-dependent? We spend a lot of our time thinking about how much prices for specific goods will rise or fall next week or next month, and telling others what we imagine will happen. How much will the price of gold be at the end of the Summer, or what about local real estate prices?

Perhaps we are wondering how U.S. and European stock market valuations will be affected by the ongoing disasters in Japan, or the worsening sovereign debt situation in Europe. We ask people to tell us where and when the next Middle Eastern revolution will break out, and exactly how the global community will respond. In the final analysis, the "predictors" just end up using the same speculative "value at-risk" models that global financial investors followed right off of an economic cliff in the first place.

Instead, we should content ourselves with knowing the generalized "solutions" derived from perturbation theory, and embracing its shortcomings. We start with the biggest influences on our global society and work our way down, until it becomes meaninglessly complex to continue. The size of the influence must be measured by its approximate timing and its systemic impact, which is largely rooted in the scope of the system which it affects (financial, industrial, environmental, etc.). We attempt to "calculate" the general pressures that will be exerted on civilization's path by each influence, adjusting the path's course as new influences are incorporated.

It is not a process that is nearly as simple as going from the Sun to the Moon, but it is still useful for calculating the general direction in which our global civilization is headed and the path we may all be on. These are the biggest influences that I perceive in general order of size (biggest to smallest), with an emphasis on the temporal contribution to influence, but there is certainly room for re-arranging the order or assigning equal weights to multiple influences:

(My personal calculations, with the exception of those relating to climate change and imperialist policies, are referenced by the relevant articles linked under each listed influence.)
#1 - The peak of speculative private debt in the global financial system, including both on and off balance sheet liabilities of individuals and institutions (the shadow derivatives markets). "Speculative debt" means liabilities that are only supported by deceptive accounting methods and/or worthless government guarantees, rather than productive cash flows.




#2 - The fiscal and monetary policies of governments and central banks in regions with relatively large economies. Among these institutions, the biggest influences would include the Federal Reserve, the IMF, the European Central Bank, the Bank of China, the Bank of Japan and the governments of the U.S., several European states, China and Japan.



#3 - The peak of the total percentage of public debt and deficits relative to global GDP, including unfunded entitlement obligations in developed economies.


#4 - The peak in global oil production that most likely occurred sometime between 2000-2010, and it's negative impact on economic growth for developed economies that mostly rely on imported oil, as well as major oil exporting countries.


#5 - Environmental degradation issues, such as water scarcity, and their contribution to widespread famine, disease, industrial instability and violent conflicts.


#6 - Accelerating trends in climate change and its contribution to the issues listed in #5.

#7 - The imperialistic (militaristic) policies of developed countries and their contribution to economic disruption and violent conflict around the world.

#8 - Deterioration of the psychosocial and political structures of developed economies that are struggling with all of the above factors, and its contribution to systemic fear and violent conflict around the world.




By now, it should be clear that, even though the above is an extremely general list of influences, the interaction between them makes for a very complex task of prediction. There is a lot of room to add detail to the listed influences, such as specifics about public debt held in the EU and the U.S. or the range of policy tools at the hands of powerful institutions, as well as new generalized influences that will develop over time. That is why we must sacrifice high levels of certainty for generalized accuracy and a somewhat reasonable sense of where we are headed.

I will not rehash my calculations here, because that is obviously not the point of this article. Everyone must evaluate the objective evidence on their own, and use their mind's "calculator" to determine humanity's most likely destination. We must accept that our margin of error will necessarily be large, and we must also pay strict attention to details, because even the slightest perturbations can lead to radically different outcomes. It is often an extremely tedious, frustrating and mind-numbing process, but, frankly, there is no other option.

Monday, May 2, 2011

The Scariest Story Ever Told

"The last human freedom is to be able to choose one's attitude to a given set of circumstances."
- Dr. Viktor Frankl

Naomi Klein, author of The Shock Doctrine, recently gave a 20-minute lecture at a TED Conference about peak oil, climate change and the fundamental power of "stories". Institutional disciplines of all stripes, whether they are classified as religion, economics or "hard" sciences, constantly feed us tales about what we are and what we were meant to be. It is not necessary to know the specific details of her talk to follow along with this article, but I recommend readers take a look at it whenever they can find the time.


As Klein made clear in her talk, one of the most powerful and pervasive stories is the one which tells us that we were made to grow; to constantly consume material resources and become stronger, smarter, faster and more efficient than we were the day before; to completely dominate the planet and natural processes which gave birth to our species millions of years ago. Stories always serve a purpose of the storyteller, and, in the case of the never-ending consumption tale, the purpose is obviously to expand the material wealth and power of a relatively small sub-group of the species.

Yet, no religion or story can void the baser instincts of an animal when those forces become too powerful for the animal to consciously ignore. Even the most devout "suicide bombers" will only become martyrs if they expect their relations to be well-compensated for the act. The expectation of Angels or Virgins waiting patiently for them in a heavenly dimension is simply not enough. Necessary, perhaps, but not sufficient. This fact invariably raises the possibility that the sub-group will create a new story for its widespread audience.


Audiences must have a degree of trust in their storytellers, and that trust is usually not acquired in one instant, but rather takes some significant period of time to develop. At this point in our existence, however, the elite storytellers need a new fable and they need it quick, because the story of apathetic consumption is rapidly losing its grip on the audience. They need a narrative that transcends the tale of Adam & Eve, the prospect of a "great new frontier", the fulfillment of an "American Dream" or the religion of advanced technology.

It must be one that convinces people to let go of their material possessions and to find solace living in their own filth. One that instructs them to strictly obey orders from above, abandon any remaining shreds of their inner morality and brutalize their souls, at the risk of suffering a fate worse than death itself, if they should refuse to give in. The self-absorbed storyteller needs to spin a tale that will shock the world into a state of mind-numbing fear. A fear that everything and everyone you have ever known could evaporate into thin air right before your eyes; the fear that speaking your mind would be the equivalent of placing your own head in the Guillotine.

It is one thing to need a story, and another to adequately craft it and plant it into society's collective subconscious. This task must be accomplished with much more than words or a few symbolic actions, and it must be planted more quickly than any of its predecessors. Perhaps the chapters of the story should be so disjointed that most people will never even stop to think that they actually represent a carefully-woven piece of literature. In fact, it is now likely that a few crude chapters have already been written and are being widely circulated as the gospel truth in certain parts of the world.

Deadly attacks on the World Trade Towers by Al-Qaeda terrorists from Saudi Arabia, who trained in Afghanistan under the protection of the Taliban. An oppressive Iraqi regime that was harboring terrorists and developing weapons of mass destruction. An Arab man who attempted to destroy a commercial airliner with a bomb in his shoe, and a Nigerian man who tried to do the same with one in his underwear. A poorly-made car bomb planted in the middle of Times Square by a Pakistani terrorist.

An Iranian regime hell bent on developing nuclear weapons and wiping Israel off the map, and a North Korean dictator who could snap at any moment. Terrorist cells based in Yemen attempting to infiltrate bombs into the U.S. by disguising them as printers. Oppressive Middle Eastern regimes that must be dealt with before they massacre their own citizens. The timely death of a terrorist mastermind, whose body was immediately buried at sea and whose death could easily incite deadly retaliations.

"False flag" attacks are indisputably a part of Western history, and they are certainly a rational means for governments to gain political leverage over their own citizens. Some recent and notable examples involve attacks by Japan, Germany and the Soviet Union against their own people and/or infrastructure during WWII. [1].  Another would be the Israeli-backed bombings of American and British-owned buildings in Cairo, which were designed to discourage Western governments from implementing any "pro-Egyptian" policies. [2].  "Operation Northwoods", while never carried out, consisted of a series of proposed attacks against U.S. military and civilian targets by CIA operatives, which were drafted and approved by the Joint Chiefs of Staff. [3].

In stark contrast to attacks merely proposed, a study by the NSA, declassified in 2005, concluded that the "Gulf of Tonkin incident" actually involved one confrontation with North Vietnamese ships initiated by an American destroyer, and a second "attack" that never even occurred. This incident was America's primary justification for declaring open war against the North Vietnamese government. [4]. Even when officially recognized, the reality of false flag attacks tend to evade the consciousness of mainstream society. That dynamic is especially true when they involve accurate details cleverly mixed in with elaborate fiction.

While political scientists and other academics are worrying about "loose nukes" in the former Soviet Union ,which may potentially be procured by "hostile" groups or regimes, high-level government officials in the developed world could all but hand weapons of mass destruction to people with the training or desire to unleash them, and no one, including Presidents and Prime Ministers, would be the wiser. The actual perpetrators may even have their own personal reasons for launching an attack, and would probably not be aware that they are part of any larger scheme. Indeed, the most efficient deception is to make people believe they are hurting a sworn enemy when they are actually helping it.

Once again, the following scenario is not an inevitability, but merely a possibility that must be taken seriously and considered in light of ongoing developments. The attacks would perhaps be undertaken at a time when there is rapidly growing sociopolitical unrest in major cities, as a means of short-circuiting this naturally developing revolutionary fervor and re-directing its force towards the exact opposite - an unconditional faith in the executive structures of power that claim to defend our "national security".

It would most likely be the American audience that is targeted and forced to witness mass human casualties in their immediate environment, at the hands of a nuclear, biological or chemical release that could also cause some of the most gruesome deaths imaginable. A process that will make your skin crawl and your blood boil, on par with the relentless fires of Hell itself. How much destruction and how many deaths would need to occur before this story became convincing?

It could end up being anything from a single nuclear device in a single target city, to one placed in several major cities in several regions of the country. Alternatively, it could be sabotaged nuclear power plants, several "dirty bombs" placed in major cities or antibiotic-resistant bacteria placed in critical water sources. The first moments after an attack will be filled with sheer panic and chaos, and feel as if they had lasted a lot longer than they really did. Explosions would knock out large parts of the power grid, causing many to lose heat and electricity, and grocery/retail stores would be overwhelmed with people looking to stock supplies.

These moments will eventually devolve into a prolonged period of systemic fear, mistrust and disorder. Some places will be much more affected than others, such as densely-populated urban centers or suburban communities that are targeted for attack or cannot function without cross-border supply chains, healthy businesses and centralized government services. Relatively isolated rural counties, however, could also be prone to major supply disruptions and externally or internally-generated violence.

The attacks will naturally lead to a consolidation of various federal executive departments, nearly total usurpation of state and local authority, suspension of fundamental legal protections and a mobilization of all services in the U.S. military. Constitutional requirements of due process and habeas corpus will immediately be suspended, as intelligence officials warn the politicians and executive officials that the perpetrators are still in the country, further attacks are possible and no time can be wasted on bureaucracy.

The federal government's power of eminent domain will be exercised unchecked and without compensation, as law enforcement officials, military forces and private contractors seize vast tracts of land and thousands of homes and buildings in their attempts to "preserve life and maintain order". The Fourth Amendment's probable cause and warrant requirements will become even more dispensable than they already are due to "national security" concerns, and magistrates will be hard-pressed to ignore the constant pressure from above.

A large part of the federal and state court systems will first be overwhelmed, and then either completely made inaccessible or transformed into "validation stations". Any group of people who attempt to resist officially-decreed subordination will be labeled as a local insurgent force. If its members do not quickly give up resistance, then they will either be killed or indefinitely imprisoned after they are tortured for information. Indeed, active resistance would appear to be nothing short of futile, and people will feel forced to inform on their critical neighbors.

What, then, can anyone possibly to do to avoid such a radical outcome when the underlying decisions have already been made and the necessary technology is already in place? I believe the answer to that question is essentially two words - systemic defection. The people who have been trained for years to defend the system at all costs must find it in within themselves to disobey a direct order. They must shift their loyalties, re-direct their courage and spread it through the ranks like a wildfire. Defection must be a disease; one that roots itself in the brain and quickly catches.

The fear of being punished for insubordination or treason must be outweighed by the desire to die for ideals of equality and freedom. Insurgent groups and local law enforcement must join forces with the uniformed soldiers to realize a goal that would never be accomplished if they all remained separate. People of all races and both genders must finally escape from the "melting pot" in which they stew. That is how the scariest story ever told could ultimately become a story about unparalleled hardship, perseverance and defiance in the face of humanity's deepest fears.