Posts tagged Regulation

Ben Bernanke Gets His Reward

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Source: https://mises.org

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Ben Bernanke Gets His Reward

 

6700“Bernanke Enjoys the ‘Fruits of the Free Market,’” or so we’re told in a Reuters headline from March 4 about the former Fed chairman’s 40-minute speech in Abu Dhabi for which he received, ahem, $250,000. In the Reuters author’s defense, he was only quoting a DC lobbyist who was defending the amount, and added, Bernanke “will personally experience supply and demand.”

Well, yes, it’s just supply and demand and all that. No big deal and if you don’t like it, you must have something against markets. Still, it would be nice (and a bigger deal) if these reporters would quote someone outside of the accepted intellectual class of the Boswash corridor so compromised by being among the primary beneficiaries of all the new money Chairman Ben and his comrades created, ex nihilo, when he wasn’t shooting baskets in the Marriner Eccles building. If they did, they might hear some healthy skepticism about these events in which top officials cash in on their “public service” via contacts with the very industries they benefited while in office.

George Stigler explained such paybacks in his capture theory of regulation for which he received (rightly) the Nobel Prize in Economics, although I’d say they are better explained by the phrase, “quid pro and here-you-go!”

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Figure 1: Speech honoraria immediately upon leaving term of office. From CNBC.

Less-beholden observers might pause during Bernanke’s victory lap and note that the dollar has lost almost 30 percent of its value since he joined the Fed in 2002, and that’s only if you accept the lowball metrics used in official CPI statistics. It is likely twice that amount if price inflation is measured in more traditional ways, including forgotten factors such as the full inflation for out-of-pocket expenses or the cost to maintain a constant cost of living. Americans of 1977 may have had to suffer through bad hair and disco music, but at least they didn’t suffer discrepancies between (a) what they experienced the value of the dollars in their pockets to be and (b) what the government said it was. We do.

Yet, today, the Establishment celebrates Bernanke for keeping the funds flowing to those parties it needs to remain in power. But while Paul Krugman wonders where the inflation is, I did some back-of-the-envelope calculations of Bernanke’s speech honorarium. Again using the CPI’s numbers, $250,000 today buys roughly what $193,000 bought in 2002, which would have purchased 603 ounces of gold at the time. Today, those 603 ounces of gold would be worth over $805,000.

The point isn’t that all Fed chairs should contract their post-retirement speeches in gold at the beginning of their term of service, although maybe they should. It’s that payoffs such as this reflect about what you’d expect when a currency receives monopoly protection and legal tender status, neither of which has anything to do with the free market. And notwithstanding the opinions of DC lobbyists, neither does Bernanke’s speech.

It followed the most reckless term of service of any central banker in U.S. history. He printed trillions of dollars to rescue a portion of Wall Street that could have internalized its post-crash losses and financed budget deficits that served to transfer capital to the fringes of military empire and out of reach of domestic workers. He “depression-mongered” the U.S. economy in September 2008 even though that market meltdown paled in comparison to those of 1987 and 2000-2001, thus setting the stage for Depression 2.0, and many billions in stimulus spending, bailouts, and other malinvestments.

Was all this simply an effort to test his faulty academic research of the 1930s? Perhaps partly. But remember that cartelizing factions on Wall Street created the Federal Reserve itself in 1913 for the cartelizing factions on Wall Street. Since those who receive the new money first benefit the most, it stands to reason that those interested parties would shower accolades and a share of the loot on Bernanke in the form of $6,250 per speech minute — and assume Mrs. Yellen is paying attention.

An amusing backdrop to the speech news is the continuing crises affecting Bitcoin and Mt. Gox, the fraudulent and now bankrupt Bitcoin exchange that appears to have lost deposits while itself engaged in fractional reserve banking, something only the protected class of modern banks are allowed to do. Understanding the uncertain future of both the dollar and the country’s power elite in the post 9/11 United States is key to understanding the rise of competing digital currencies (of which Bitcoin is just one). Their demand would never have been as strong had the dollar been inflated relatively less, and had market corrections been allowed relatively more, during the years of the so-called Great Moderation. It is safe to assume that establishment bankers are trying hard to use the Mt.Gox fiasco to demonize any movement toward peer-to-peer banking, which could easily have the effect of making banking as we know it go the way of the buggy whip industry in the nineteenth century.

If it does, one casualty just might be Bernanke’s future honoraria.

In a rational world, being paid $250,000 for this speech would cause many to wonder what is really going on. But such a world has not existed in banking since, perhaps, the 1830s. Until another one comes about, appreciate the irony that Bernanke is being paid in a fiat currency he himself helped devalue, and since his own successor at the Fed promises to continue operating in a Bernankean tradition, he will pay someone to diversify it, quickly, into real assets to protect its purchasing power.

Bernanke’s speech has little to do with supply and demand. It has more to do with being rewarded for extending the road down which we have been kicking the economy can. It’s a road that will eventually dead end.

 


 

About the Author

Christopher_WestleyChristopher Westley

Christopher Westley is an associated scholar at the Mises Institute. He teaches in the College of Commerce and Business Administration at Jacksonville State University. Send him mail. Twitter @DrChrisWestley 

 

 

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“Too Big To Fail” designation of banks makes economic disaster more likely

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Source: http://www.againstcronycapitalism.org

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“Too Big To Fail” designation of banks makes economic disaster more likely

 

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The big banks, which in 2008 nearly went belly-up because they were overleveraged and needed a taxpayer funded bailout in order to survive a reversal in the economic tide, are even bigger today. They pose more risk than they did 5 years ago. Because they have been designated as “too big to fail” the megabanks now enjoy an implicit subsidy courtesy of you and me. Their borrowing costs are lower because we backstop them. Because of the backstop and lower costs bankers are incentivized to take on more risk. Sooner or later this will create major instability as the market mechanism has been distorted and will seek to correct for this distortion.

 

(From Bloomberg.com)
 
Do markets still view the nation’s largest banks as too big to fail? Have regulators failed to eradicate the perception that, when the next crisis comes, the government will again come to the rescue?
 
Given that the largest banks are now even bigger than they were before the last financial crisis, it’s a pressing question. Unfortunately, a careful look at the data suggests the answer is less encouraging than many policy makers think.
 
Expectations of government bailouts create dangerous distortions. When, for example, creditors assume they’ll get rescued in an emergency, they don’t demand higher interest rates from banks that take on bigger risks. This lack of market discipline gives bankers a strong incentive — consciously or not — to engage in behavior that makes disasters more likely. Taxpayers effectively end up subsidizing activity that threatens their own well-being.

Click here for the article.

Image credit: http://www.againstcronycapitalism.org


Nick Sorrentino
About Nick Sorrentino

Nick Sorrentino is the co-founder and editor of AgainstCronyCapitalism.org. A political and communications consultant with clients across the political spectrum, he lives just outside of Washington DC where he can keep an eye on Leviathan.

 

Obama nominates Pro-SOPA lobbiest to lead Trans Pac Partnership talks

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Source: http://www.againstcronycapitalism.org

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Obama nominates Pro-SOPA lobbiest to lead Trans Pac Partnership talks

 

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Remember SOPA? The hiddeous beast of a bill sponsored by Hollywood which sought to jam the file content sharing genie back in the bottle? The bill that the whole Internet world rose up against and forced the politicians to back down on? Remember that? Well one of the lobbyists who headed the effort to severely restrict the Internet so that the media companies could cling to their outdated business models has now been nominated by Obama to head the effort in the secret (to us – hundreds of corporations are in on what is going on) Trans Pacific Partnership talks.

The TPP is a comprehensive trade agreement which will define how trade is done around the Pacific Rim in the years to come.  There is a lot riding on the negotiations, especially for Hollywood which now sees the agreement as a way to get the restrictions on content sharing that it couldn’t get through Congress.

And Obama just helped them do it.

(From Republic Report)
 
This morning, President Obama nominated Robert Holleyman as deputy U.S. trade representative. If confirmed by the U.S. Senate, Holleyman will help lead the effort to pass the controversial Trans-Pacific Partnership trade deal.
 
Notably, Holleyman is a former lobbyist who led efforts to pass the Stop Online Piracy Act legislation, better known as SOPA, when he was leader of the Business Software Alliance. The SOPA debate (along with its sister legislation, PROTECT-IP, in the Senate) brought a spotlight on industry efforts to undermine Internet freedom through what many considered to be draconian intellectual property policy.

Click here for the article.

Image credit: http://www.againstcronycapitalism.org


Nick Sorrentino
About Nick Sorrentino

Nick Sorrentino is the co-founder and editor of AgainstCronyCapitalism.org. A political and communications consultant with clients across the political spectrum, he lives just outside of Washington DC where he can keep an eye on Leviathan.

 

Will Washington Take Down Apple — And Why?

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Source: http://www.againstcronycapitalism.org

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Will Washington Take Down Apple — And Why?

 

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Is Apple being given a hint to fork over more campaign contributions?

The US Department of Justice has not only successfully sued Apple for arguably non-existent anti-trust violations in the e-book market. It has even demanded– and gotten– a court appointed “monitor” placed inside the company to supervise the company’s pricing decisions.

This is a company that went from an $18 billion market value in 2000 to a $455 billion market value in 2013. During the same period, Microsoft’s market value fell from $603 billion to $290 billion. Should anyone expect the success story to continue now that the government is meddling with all the company’s pricing?

Apple appealed the anti-trust judgement this Tuesday, but was unable to get the government “monitor’s” work suspended while the case is under appeal. Among the interesting facts that have come out about the “monitor,” Michael Bromwich: he bills for his time at $1,100 an hour and charged $138,432 for his first two weeks of “work.”

Apple has labeled Bromwich’s appointment “unprecedented and unconstitutional.” We wish it were unprecedented. This form of government price interference and intimidation has become increasingly common.

Joseph Covington, who headed the Justice Department’s Foreign Corrupt Practices Act Division in the 1980’s, told Forbes, in reference to monitors appointed to enforce that act: “ This is good business for Justice Department lawyers who create the marketplace [ for monitors] and then get…a job there [ after they leave government].”

Nor is it limited to the Justice department. If a company gets into the sights of the Federal Trade Commission (FTC) or even the Food and Drug Administration (FDA), the terms of settlement increasingly include “monitoring” by highly paid lawyers, who are typically former FTC or FDA employees.

This is not just the small time corruption it might seem. It is tremendously damaging to the economy. The collapse of the Soviet Union should have demonstrated once and for all how important honest and unimpeded prices are for an economy.

If the government takes control of pricing, as it is doing in more and more sectors of the economy, it is guaranteeing unemployment and economic suffering. It is also guaranteeing an ever greater problem of crony capitalism, as companies respond by increasing their campaign contributions or take other steps to buy influence in Washington.

Apple is and ought to be ramping up its Washington presence. A Politico article of May 2012 wondered about the earlier naivete of the company leadership. Did they really think they could get away with lobbying expenditure of only $500,000 in the first quarter of that year compared to $5mm for Google and $1.8mm for Microsoft? Did they really think they could get away with having no company political action committee (PAC) from which to make campaign contributions?

Apple might have thought it was safe, even untouchable. Was not the company an icon of American economic leadership? Did not Apple employees overwhelmingly direct what campaign contributions they made to President Obama? Even with the lawsuit, had not Apple employees in fact given 93 percent of their contributions to Obama in 2012 and only 7% to Romney? Wasn’t that good enough?

Well no. Google employees gave 98 percent of their money to Obama and it was a whole lot more money ($727,702 versus $338,752). Apple CEO Tim Cook hadn’t even maxed out ( given to the legal limit) in his own contribution.

This lack of political involvement may be contrasted with Amazon’s Jeff Bezos, who stood on the other side of the anti-trust suit, even though he had created what certainly looked like a near monopoly in e-books, the subject of the suit. Apple is not wrong to argue in its legal filing that its entry into the sector “marked the beginning, not the end, of competition.” But Bezos has bought the Washington Post, and Washington officials will think twice about tangling with him.

In thinking about Apple’s relative lack of political involvement in the past, we should also keep in mind what Politico reported last month: “ President Barack Obama has a plan to save the Senate’s tenuous Democratic majority: sell a populist message… and raise lots of cash.”

In Washington doing favors for special interests is one way of raising cash. But so is intimidating them. Either way you get paid, whether from gratitude or fear.

In addition, there is another reason why Apple could now be in the crosshairs of the Justice Department. On November 5, 2013, the company issued a report containing this: “ Apple has never received an order under Section 215 of the USA Patriot Act. We would expect to challenge such an order if served on us.” This made jaws drop both in Silicon Valley and Washington. It was daring, perhaps foolhardy. It was directly taking on the government.

Before leaving the besieged Apple, we might pause to consider how the company also gives the lie to one of the great economic myths of our day: that falling prices ( deflation) hinder an economy. Here is a typical version of the myth from an AP story last month: “ Many economists have worried that the Eurozone may be about to suffer a debilitating bout of deflation….Falling prices can hurt an economy as consumers postpone spending in the hope of getting cheaper deals in the future while businesses fail to innovate and invest.”

This all backward. Businesses innovate and invest in order to become more productive. Being more productive allows them to lower prices, improve quality, and get more customers. Everyone benefits from lower prices, but especially the poor and the middle class, who have the most trouble dealing with rising prices.

Apple is a good illustration of all this. Various tech experts on the internet have been discussing what an Apple Iphone would have cost if available in 1991. What would we have had to pay to get similar features and power in some form ( clearly not hand held)? The estimates vary but the top one approaches $4mm.

Shouldn’t it be obvious ( to anyone other than a Federal Reserve official) that falling prices, produced by innovative and productive businesses such as Apple, are exactly what we should be hoping for? If so, why is the government determined both to create inflation and to interfere with Apple’s price setting decisions?
 

Image credit: http://www.againstcronycapitalism.org

 


Hunter Lewis
About Hunter Lewis

Hunter Lewis is co-founder of AgainstCronyCapitalism.org. He is co-founder and former CEO of global investment firm Cambridge Associates, LLC and author of 8 books on moral philosophy, psychology, and economics, including the widely acclaimed Are the Rich Necessary? (“Highly provocative and highly pleasurable.”—New York Times) He has contributed to the New York Times, the Times of London, the Washing­ton Post, and the Atlantic Monthly, as well as numerous websites such as Breitbart.com, Forbes.com, Fox.com, and RealClearMarkets.com. His most recent books are Crony Capitalism in America: 2008–2012, Free Prices Now! Fixing the Economy by Abolishing the Fed, and Where Keynes Went Wrong: And Why Governments Keep Creating Inflation, Bubbles, and Busts. He has served on boards and committees of fifteen leading not-for-profit organizations, including environmental, teaching, research, and cultural and global development organizations, as well as the World Bank.

 

TN Rep. Blackburn Fighting to Block FCC’s Net Neutrality Rules

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On Friday the office of Tennessee Rep. Marsha Blackburn issued the following press release regarding her renewed fight against FCC’s Net Neutrality Rules and introduction of H.R. 4070, the Internet Freedom Act.
 

Energy and Commerce Committee Vice Chair Marsha Blackburn today renewed her fight to block the FCC’s efforts to implement new net neutrality rules. In response to FCC Chairman Tom Wheeler’s announcement this week that the FCC would begin the process of rewriting the agency’s Net Neutrality rules, Blackburn has introduced H.R. 4070, the Internet Freedom Act of 2014.Congressman Blackburn’s legislation would block the FCC’s Net Neutrality rules from 2010 by stating they shall have no force or effect and prohibits the FCC from reissuing new Net Neutrality rules.
 
“In typical fashion, the Obama Administration is proving once again that they will stop at nothing to restrict our Internet freedom. Despite having their regulations rejected by a federal appeals court, Chairman Wheeler has decided to press forward with the effort to implement these overreaching rules.
 
“Net Neutrality is the Fairness Doctrine of the Internet. Once the FCC has a foothold into managing how internet service providers run their networks they will essentially be deciding which content goes first, second, third, or not at all. It’s time for Congress to slam the FCC’s regulatory back-door shut, lock it, and return the keys to the free market. My legislation will put the brakes on net neutrality and protect our innovators from these job-killing regulations.”
 
Earlier this year, the D.C. Circuit Court of Appeals struck down the FCC’s net neutrality rules, which were first proposed in 2010 by former Chairman Julius Genachowski. Congressman Blackburn has been leading the fight against the Obama Administration’s net neutrality rules and first introduced the Internet Freedom Act during the 112th Congress.

Also on Friday Rep. Blackburn appeared on Fox News to discuss the FCC’s efforts to control content over the broadcast airwaves and online, the First Amendment and Net Neutrality.

 

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For updates on H.R. 4070 and other news you can follow Marsha Blackburn at blackburn.house.gov and on her Twitter and Facebook accounts.

 

SF District Attorney & Lobbyists Push Bill for Cellphone ‘Kill Switch’

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Source: http://www.occupycorporatism.com

By Susanne Posel
Occupy Corporatism

 

SF District Attorney & Lobbyists Push Bill for Cellphone ‘Kill Switch’

 

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California state senator Mark Leno and District Attorney George Gascón are collaborating with other officials to push legislation (SB 962) that would mandate a “kill switch” be implemented on mobile devices that have been stolen or lost.

Gascón claims: “More than half the robberies in his city involve theft of mobile devices. He said the industry has debated the use of deterrent technology for too long. “The wireless industry must take action to end the victimization of its customers.”

The district attorney said: “This is an important day for wireless consumers everywhere. This legislation will require the industry to stop debating the possibility of implementing existing technological theft solutions and begin embracing the inevitability. The wireless industry must take action to end the victimization of its customers.”

Beginning in 2015, all smartphones imported for sale in California will have to be outfitted with this “security system”; as well as exports from the West Coast.
The proposed legislation reads: “A technological solution may consist of software, hardware, or a combination of both … but shall be able to withstand a hard reset.”

Leno stated that either the kill switch “or other protective features” would be mandated by law and require re-registering of phones currently not equipped with the device.

Los Angeles Mayor Eric Garcetti explained that “this legislation is critical to reducing robberies.”

Last year the Secure Our Smartphone Initiative (SOSI) created by Eric Scheiderman, attorney general for New York Gascón to bring awareness and solutions to the nationwide theft of smartphones.

The solution is to implore cell phone manufacturers to implant a kill switch so that “when consumers reported to providers that their cellphone had been stolen, the phone, like a stolen credit card, would be rendered inoperable.”

The coalition will be comprised of:

• Law enforcement
• Consumer advocates
• Political officials
• Prosecutors

Gascón and Schneiderman will meet with representatives from Apple, Samsung, Motorola and Microsoft to discuss this increasing problem.

Schneiderman said: “It is totally unacceptable that we have an epidemic of crime that we believe can be eliminated if the technological fixes that we believe are available are put into place.”

Gascón explained: “The industry has the moral and the social obligation to fix this problem. There are very few things that can be fixed with a technological solution, and this is one of them.”

Apple will be adding a feature that will turn an iPhone off if a thief tries to use it while imitating a tracking program to find the phone’s location if the thief uses the wrong password to unlock the phone.

The activation lock feature was developed by Craig Federighi, senior vice president of software engineering for Apple and presented at the 2013 World Developers Conference (WDC).

Schneiderman believes that if a person can cancel a credit card, they should be able to cancel a phone.

Kevin Mahaffey, co-founder of Lookout , a mobile security corporation, warns: “If there is a mechanism by which somebody can remotely disable and brick a device, we don’t want that to be a target for malware.”

Lookout has collaborated with law enforcement agencies to build kill switches on smartphones so that “all of a sudden if there were a way that you can cause millions of devices to all of a sudden become inoperable, that can be a huge amount of money if somebody attacks that system.”

Image credit: http://www.occupycorporatism.com


About the author:

Susanne Posel Chief Editor, Investigative Journalist OccupyCorporatism.com Radio Host: The Region 10 Report, Live Thursdays 1-3PM PST on American Freedom Radio.

 

G Edward Griffin – Agenda 21 – Save Long Island Forum 1/18/14 (Video)

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G Edward Griffin – Agenda 21 – Save Long Island Forum 1/18/14 (Video)

 

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( H/T Liz Abbott )

Published by wearechangect

The legendary author G Edward Griffin was the headline speaker at the Save Long Island Forum talking about the eugenic plans of the UN’s Agenda 21 to covertly exterminate most of the world’s population.

Learn more about Save Long Island: http://savelongisland.org/
Check out the Save Long Island Forum website to see a list of all the speakers: http://savelongislandforum.com/

DRAMA Fry Cook Shifted to Part-Time Work Confronts Obama

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H/T CynNiki@cynniki9

 

Source: http://www.economicpolicyjournal.com

By

DRAMA Fry Cook Shifted to Part-Time Work Confronts Obama

 

During a Google Hangout session last week Friday, fry cook Darnell Summers told President Obama that his hours were cut due to the Affordable Care Act. “We were broken down to part time to avoid paying health insurance,” he said. Summers explained that he makes $7.25 an hour and has been on strike four times seeking a wage increase. “We can’t survive, it’s not livin’,” he said.

Obama responded by babbling that states should increase the minimum wage. “I am working to encourage states, governors, mayors, state legislators to raise their own minimum wage,” Obama said. “Obviously, the way to reach millions of people would be for Congress to pass a new federal minimum wage law. So far, at least, we have not seen support from Republicans for such a move.”

Got that? Summers got his hours cut from full time to part time because of the increased costs of Obamacare that his employer faced and Obama’s solution is to call for a higher minimum wage, which would even add greater cost to the employer.

If the minimum wage is raised, as Obama calls for, Darnell under Obama is likely to experience full time to part time to no time and unemployment line time.

 
 

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 (Via National Review)
 
 

FCC Approves Experiments for Next-Gen Telephone Network

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Source: http://www.occupycorporatism.com

By Susanne Posel
Occupy Corporatism

FCC Approves Experiments for Next-Gen Telephone Network

 

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The Federal Communications Commission (FCC) has unanimously agreed to implement trials wherein telecommunications corporations can switch their current mode of service to circuit-switch technology (CST).

These experiments will show how better to determine laws and regulations of this existing technology, and establish how consumers respond to the change, how emergency responses can be engaged and how this technology reaches remote locations.

Under this new accord, AT&T will test IP transitions from corporations that offer land-lines to eventually replacing these “copper wires” with fiber optic cables or establishing a completely wireless base.

AT&T cannot stop maintenance on the Public Switched Telephone Network (PSTN). For rural areas this is a challenge for 911 services, fire alarms, fax machines, medical alter systems, etc . . .

Concerning remote areas and lower-income customers, this move toward an over-take of digital technology in communications could impact the elderly and disabled first and foremost.

Tom Wheeler, chairman of the FCC wrote last year that his agency intended to “ensure the continuation of the Network Compact” with universal service for all Americans, consumer protections, public safety services, and competition.

The trials are expected to provide “real-world data” that can become the FCC’s baseline for technical standards so that the PSTN can be shut down.

Harold Field, senior vice president for Public Knowledge (PK), commented: “The FCC will issue its first real full Commission action on the transition of the phone system. The FCC will adopt a set of principles to provide a framework for the transition—something we’ve pushed the FCC to do for almost exactly a full year.”

Field continued: “Also as part of the item, the FCC will outline the process for AT&T (or any other carrier) to apply to conduct technical trials that will inform the transition. The contentious issue that may split the FCC along party lines is whether participation in a technical trial should be mandatory for all consumers and businesses in the selected geographic area, or whether participation in technical trials will require consumers and businesses to consent to participate. PK has pushed very hard that ‘consumers are not guinea pigs’ and participation should be voluntary. At last report, Republican Commissioners disagree and want to require all businesses and consumers in the test area to participate.”

Major tech corporations such as Facebook, Google, Microsoft and Amazon are purchasing fiber optic cables used for the internet to become the suppliers of the information, servicing the internet themselves.

When a user visits Amazon.com, they are standing on private digital property and are subject to the rights and laws where the servers are housed.

This enables the governments, through direct contact with the literal connections to the internet via these corporations, the systematic control over the free flow of information continues on.

Google already owns more than 100,000 miles of global private FOC routes.

Facebook has recently installed a network that connects user information to the Arctic Circle Datacenter (ACD).

Both Microsoft and Amazon have invested in cloud services.

Google’s Project Link (PL) wants to build “fiber-optic networks, making it possible for local providers to connect more people to the Internet and each other.”

To attain the goal of creating a “faster, more reliable internet” PL is seeking to construct “fiber-optic networks” that “enables internet service providers (ISPs) and mobile operators to provide faster connections.”

Google said: “Beyond basic access, local providers will be able to offer new mobile data plans or high-speed Internet to support new services. With a fast fiber-optic network in Kampala, for instance, ISPs can better support the city’s entrepreneurs.”

This ideal location comes complete with high-speed undersea cables.

Image credit: http://www.occupycorporatism.com


About the author:

Susanne Posel Chief Editor, Investigative Journalist OccupyCorporatism.com Radio Host: The Region 10 Report, Live Thursdays 1-3PM PST on American Freedom Radio.

 

Obama Doubles Down On Destroying The Economy

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Source: http://www.againstcronycapitalism.org

By

Obama Doubles Down On Destroying The Economy

 

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Is the president really this ignorant of business and economics?

Telling American employers to raise their wages sounds innocent enough. But it ceases to be innocent when people lose their jobs as a result of it.

In his State of the Union address, the president called for higher minimum state and federal wages and added: “ I ask… America’s business leaders to…raise your employees’s wages.”

This is not the first time a president has made this “request” of employers.

After the stock market crash of 1929, President Hoover began talking about wages. They needed to be protected from cuts, he said, and preferably increased, so that consumer demand would increase. More consumer demand would supposedly get the economy through the storm.

As the economy sputtered and prices began to fall, the president acted on his pet theory. He began lobbying businesses not to reduce wages. He did more than lobby. He sent a clear signal that if his directive was ignored, the government might step in and legislate wages.

Businesses listened. But they also had their backs against a wall. With consumer prices falling, wage reductions were needed to protect profits. Without profits, a business fails and everyone loses their job.

Faced with this reality, but afraid to make any reduction in wages, businesses did the only thing they could do to try to stay afloat: they cut jobs. Millions were thrown out of work who might have kept their jobs at reduced pay but for Hoover’s intervention.

When the new Roosevelt administration came in, it embraced the same bogus economic theory. Both prices and wages were tightly controlled by the National Recovery Act. In a famous incident, a New Jersey immigrant worker, Jacob Maged, was sentenced to jail for three months on a charge of pressing a suit for 35 cents instead of the legislatively required 40 cents.

These policies had the paradoxical effect of making some Americans newly affluent even while throwing millions out of work. Since prices had fallen sharply, those who kept their jobs at the old wages could in many cases buy twice as much with the same money.

The Hoover/Roosevelt/ Obama policy meant that some got a windfall; others got destitution. Economic inequality sharply worsened. In general, the Roosevelt administration’s most powerful supporters, labor unions, saw to it that their members did not lose jobs, while those without unions were the ones laid off.

It is noteworthy that the same thing happened when the Obama administration bailed out General Motors. The non-unionized workers, even those in the most efficient plants, lost everything: jobs and retirement benefits. Unionized workers allied with the president kept both.

In the same State of the Union speech, the president did not just ask employers to raise wages. He also required them to pay a higher minimum wage if they had a federal contract. Hearing this, employers can only wonder what further wage controls will be proposed next.

If more federal wage controls do come, it is not even clear that lay-offs could be used as they were in the 1930’s to save businesses from closing. Economist Paul Krugman has proposed federal controls on the right to lay-off or fire workers. The president himself has proposed giving workers the right to sue if they apply for a job and are turned down.

The economy itself provides sufficent reason to be cautious about hiring. The Federal Reserve’s low interest rate policy and regulatory rules make it very difficult to persuade a bank to finance expansion. And Obamacare creates a strong disincentive to hire the 50th employee.

With all this in the background, why would any employer in 2014 hire a new worker if not absolutely necessary? This is especially true for small businesses, and small businesses have always been the chief source of new jobs.

This is all part of a larger picture. To thrive, an economy needs free prices. Free prices not only provide the truthful signals that producers and consumers need in order to make good decisions. They also provide the discipline that any economic system requires.

The Soviet Union’s collapse was an object lesson for the world. No system can survive in the long run without free prices, and wages are among the most important prices.

The Obama administration’s whole approach is to try to substitute government regulation for the private price system. As a result, we only have “engineered” prices left on Wall Street and in medicine, and both finance and medicine are in grave jeopardy as a direct result.

Fixing the economy is not all that difficult. All we have to do is let producers and consumers sort out prices together and the engine of job growth will start up. Meanwhile the present administration offers one initiative after another guaranteed to keep the middle class and especially the poor in a state of economic hopelessness.

Image credit: http://www.againstcronycapitalism.org

 


Hunter Lewis
About Hunter Lewis

Hunter Lewis is co-founder of AgainstCronyCapitalism.org. He is co-founder and former CEO of global investment firm Cambridge Associates, LLC and author of 8 books on moral philosophy, psychology, and economics, including the widely acclaimed Are the Rich Necessary? (“Highly provocative and highly pleasurable.”—New York Times) He has contributed to the New York Times, the Times of London, the Washing­ton Post, and the Atlantic Monthly, as well as numerous websites such as Breitbart.com, Forbes.com, Fox.com, and RealClearMarkets.com. His most recent books are Crony Capitalism in America: 2008–2012, Free Prices Now! Fixing the Economy by Abolishing the Fed, and Where Keynes Went Wrong: And Why Governments Keep Creating Inflation, Bubbles, and Busts. He has served on boards and committees of fifteen leading not-for-profit organizations, including environmental, teaching, research, and cultural and global development organizations, as well as the World Bank.

 

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