American Consequences - September 2019

Fight for the Right (or Left) to Party

This Is When the Market Goes Haywire

Would America Want Greenland?

I D E A S T H A T M A T T E R

E D I T E D B Y P. J . O ’ R O U R K E

Professor Joel Litman

THE INSIDE STORY OF THE ICONOCLASTIC ACCOUNTANT WITH AN INVESTMENT TRUTH DETECTOR SYSTEM

SEPTEMBER 2 0 1 9

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Boston Finance Professor Warns:

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Professor Litman has been invited to speak at the world’s top MBA programs and CFA societies to share his findings. His clients include multibillion-dollar hedge funds, government-run sovereign funds, billionaires, and top financial advisors. He normally charges up to $500,000 a year for his forensic analysis. But because this market discrepancy affects so many people, he’s posting his discovery right now for the public… along with an exposé airing on September 25 th to explain his prediction for the market. You can access his warning today at www.MarketScandalExposed.com. He’ll give you the wrong way and the right way to react to this breaking story. The last time he found a situation this big, he exposed the full details in Barron’s along with a stock to take advantage of, which shot up 1,100%. “Don’t wait. By reacting early to forensic analysis, I’ve seen gains as high as 643% on Facebook… 366% on Broadcom… 168% on Forest Laboratories… 160% on Cirrus Logic… 100% on Lam Research… 163% on Regions Financial… and dozens more,” Professor Litman says. His free online exposé airing September 25 th is open to the public, especially anyone who owns stocks or is close to retirement. But you must register today. You can reserve your spot at www.MarketScandalExposed.com.

millions of Americans in 2019,” Professor Litman says. “You can either stand by and be a victim… or potentially increase your wealth by 5 to 10 times by taking advantage of my discovery.” He’s staging an online event to warn Americans about the specific actions you must take with your money right now. “It’s not all doom-and-gloom,” he says. “If you know what to do, this accounting scandal will create one of the greatest investment opportunities of the past thirty years.” Professor Joel Litman – a forensic accountant who’s lectured at Harvard University – will expose the biggest accounting scandal in U.S. history during a live online event on Sept. 25 th . Go to: www.MarketScandalExposed.com When you tune in for his prediction, you’ll also receive a free stock recommendation to take advantage of this situation for 500% to 1,000% in potential gains.*

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CONTENTS

SEPTEMBER 2019 : ISSUE 28

LOST? CLICK HERE

60

48

18

40

26

64

4 Inside This Issue

44 A Cyberattack Could Wreak Destruction Comparable to a Nuclear Weapon BY JEREMY STRAUB

AMERICAN CONSEQUENCES

BY STEVEN LONGENECKER

6 Letter From the Editor BY P.J. O'ROURKE

Editor in Chief: P.J. O’Rourke Editorial Director: Carli Flippen Publisher: Steven Longenecker Executive Editor: Buck Sexton Assistant Managing Editors:

48 Coming Home

BY SALENA ZITO

12 What Could Possibly Go Wrong?

14 From Our Inbox

52 This Is When the Market Goes Haywire BY PORTER STANSBERRY

18 Remembering the Miracle of 1989 BY CARL BILDT

Chris Gaarde, Laura Greaver Creative Director: Erica Wood Contributing Editors: Carl Bildt, Bill Bonner, Doug Casey, Dr. David Eifrig, Alice Lloyd, Sean Parnell, Nouriel Roubini, Porter Stansberry, John Stossel, Jeremy Straub, Salena Zito Cartoon Director: Frank Stansberry General Manager: Jamison Miller Advertising: Ricky D'Andrea, Jill Peterson Editorial feedback: feedback@ americanconsequences.com

60 Getting Unstuck

22 The Anatomy of the Coming Recession BY NOURIEL ROUBINI 26 The Hollowing Out of American Liberty BY BILL BONNER

BY SEAN PARNELL

64 Stupid News

BY JOHN STOSSEL

68 What Happens After the Next 9/11 BY DOUG CASEY

32 What Wall Street Won't Tell You BY ALICE LLOYD

72 The Final Word

BY BUCK SEXTON

40 Beware of One of the Deadliest Places in the U.S. BY DR. DAVID EIFRIG

American Consequences

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INSIDE THIS ISSUE

T his month we’re remembering 9/11, the “Miracle of 1989,” and the costs of what it means to be free in America. We’re also pleased to announce editor Alice Lloyd’s feature interview with Wall Street truth-teller, Joel Litman ... a man whose research is read by more than half of the world’s 300 biggest money managers. It’s all in your latest issue of P.J. O’Rourke’s American Consequences. Editor in Chief P.J. O’Rourke kicks things off with a humorous look at the current crop of 2020 presidential hopefuls... Former Swedish Prime Minister Carl Bildt remembers the Berlin Wall “Miracle of 1989”... Economist Nouriel Roubini breaks down three existing economic conflicts that could trigger a recession... Finance and health analyst Dr. David Eifrig warns us about one of the deadliest places in the U.S. – a place you’ve probably been to more than once... Publisher and author Bill Bonner wonders how independent we really are in 2019... Political analyst Salena Zito examines the lingering effects of 9/11 and the emotional and physical cost of American freedom...

Analyst and author Porter Stansberry sounds the alarm on the coming global financial crisis... Afghanistan War veteran Sean Parnell shares an open letter to veterans struggling at home or abroad... Journalist John Stossel pokes at the media’s obsession with “stupid news” and alarmist headlines... And executive editor Buck Sexton considers buying Greenland. We’ve uploaded a PDF suitable for printing to our archive page. And tell us what you think at feedback@ americanconsequences.com. Regards, Steven Longenecker Publisher, American Consequences

This isn’t a ‘Move to the Left.’ This is a ‘Move Back In With Mom.’ Government as your mother. Think that over before you vote for it.

P.J. O'Rourke

4

September 2019

IDEAS. EDUCATION. INSPIRATION.

The speakers

2019

Porter Stansberry

Dennis Miller

LIVE STREAM this EXCLUSIVE 2 Day Event It’s too late to attend in person. But you can still be “in the room” for over 40 presentations ... and great new ideas. All from the comfort of your own home, at a fraction of the cost. Click here for the live streaming details. STANSBERRY Conference October 7-8, 2019

Nouriel Roubini

Dr. Steve Sjuggerud

Dr. David Eifrig

JimGrant

Marc Cohodes

Dave Lashmet

CLICK HERE FOR MORE DETAILS AND FULL SPEAKER LINE

ARIA RESORT & CASINO LAS VEGAS, NV

LETTER FROM THE EDITOR

I FIGHT FORTHE

Vice Presidential candidate Bill Weld. Bill says he’s become a Republican again. But Republicans blocked Weld’s nomination for U.S. Ambassador to Mexico in 1997, and I doubt they’re going to let him back across the border now to be nominated for president. Then there’s former Governor of South Carolina Mark Sanford. As governor, he was mostly notable for disappearing for several days in 2009 – claiming to have been hiking the Appalachian Trail while actually in Argentina with his mistress... A spectacular divorce ensued. And, P.S., the South Carolina GOP has canceled its 2020 primary.

think we can safely assume that Donald Trump will be the Republican candidate. (Never mind that the phrase “safely assume” should never be used next to the words “Donald Trump.”) Trump does have three announced primary opponents. One is Joe Walsh. Great musician! Loved him in the Eagles! Got my vote! Huh?... It’s not that Joe Walsh? It’s the former one-term Illinois Republican congressman and conservative radio talk show host? Oh. Can he play a cover version of “Life’s Been Good To Me So Far”? Another opponent is former Governor of Massachusetts and 2016 Libertarian Party

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September 2019

From Editor in Chief P.J. O’Rourke

RIGHTTO PARTY

Besides nugatory Republican opposition, Trump has the benefit of an economy that’s on fire... Let’s hope the sparks don’t fly in a way that fans the economic flames into what happened in 2018 in Paradise, California. The other thing Trump has going for him is the people who hate him. If Trump cured cancer, the headline on the New York Times would be “Heart Disease Kills More People.” Trump should be thankful for that. Know-it- alls hate Trump... And Americans hate know- it-alls. Meanwhile, the Democrats seem to have the

“ If Trump cured cancer, the headline on the New York Times would be 'Heart Disease Kills More People.' idea that NOBODY can lose to Trump. And Democrats are determined to find that nobody . But we mustn’t forget that 2020 isn’t just a presidential election year. The whole House of Representatives and a third of the Senate are being elected too. And the most entertaining candidates on the stump are running for minor offices without

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LETTER FROM THE EDITOR

Ilhan Omar dresses to expresses her beliefs. But I believe taxes are too high. If I dressed to express my beliefs – buck naked like Lady Godiva – I’d hear some insensitive remarks too. Speaking of which, President Trump is in a lot of trouble for his Tweet about The Squad: “Why don’t they go back and help fix the totally broken and crime infested places from which they came?” Wait a minute, Donald. “ Totally broken and crime infested? ” They are in Congress. In fact, Trump wasn’t the first to cast shade on the “Four Flibbertigibbets.” Nancy Pelosi called them out for being too far to the left. And when Nancy Pelosi says you’re too far to the left – oh boy! You have veered out of the passing lane, crossed the median strip, and are driving into oncoming traffic! But that’s only what the Democratic JV Team is up to. What about the Varsity? They’re all running for the 2020 Democratic presidential nomination. It’s a race for the Democratic nomination that seems to be based on The Seven Dwarfs in Disney’s SnowWhite . (With Hillary Clinton playing the wicked stepmother: “Mirror, Mirror, on the wall, who’s the fairest of them all?” And the answer turned out to be Donald Trump, which was a big surprise to everybody.) Trump is running against the seven (or is it 27?) dwarfs. There’s Grumpy – Bernie Sanders. There’s Sleepy – Joe Biden.

major opposition – the kind of politicians that, in normal times, no one would bother mentioning. Specifically, no one would bother mentioning the four young “progressive” congresswomen known as “The Squad.” Maybe this is a reference to “The Mod Squad” because they’re as silly as that 1960s TV show. (Not that any of them would know – none of Massachusetts 7th Congressional District, where you could elect a paper bag marked “Democrat.” (Although you have to promise to recycle the paper bag – Democrats are very opposed to climate change.) Next, there’s Rashida Tlaib, who thinks the Gaza Strip is the ideal model for a national government and who also represents the parts of Detroit where you wouldn’t send your worst enemy on a daytime errand. Plus there’s Alexandria Ocasio-Cortez, a woman who’s really accomplished something... She made the “blonde joke” obsolete. Lastly, there’s Ilhan Omar, the one in a gunnysack – did I just say that out loud? I am so sorry. It was such an insensitive remark. I’ll try to be more “woke.” “ Plus there’s Alexandria Ocasio-Cortez, a woman who’s really accomplished something.. She made the “blonde joke” obsolete. them had been born back then.) There’s Ayanna Pressley from the

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September 2019

There’s Dopey – Elizabeth Warren. And another Dopey – Kamala Harris. (Happy, Bashful, Sneezy, and Doc are polling in the low single-figures.) Joe Biden is the front-runner. But as far as the progressive Democrats are concerned, he’s made the mistake of being an old, dead, white, European male. (Which Kamala Harris kindly pointed out to him in their TV debate.) Okay, Biden’s not dead , but he’ll be pushing 80 with a short stick on Inauguration Day 2021. Not that Joe is too old to run for president – it’s just that his New Hampshire primary campaign headquarters are in Hanover, New Hampshire, at the Dartmouth- Hitchcock Medical Center Memory Care unit. After Biden, there’s Bernie Sanders and Elizabeth Warren. Bernie – the screwy-kablooey commander of the Vermont Congress. He’s got the Millennials’ vote, though it’s certainly not because of his youthful charm... Medicare for All – let’s see how 26-year-olds like wearing trifocals and Depends while hobbling around in walkers. Bernie is even older than Biden. Bernie is so old that he’s a “Stone-Age Socialist.” Back in the Stone Age, he was demanding “Free Stones for All.” And Elizabeth Warren. She’s an expert in bankruptcy law – so she’s got a vision for America’s future. Elizabeth Warren and Bernie Sanders claim

they want to make America more like Europe. Great idea! Europe’s had a swell track record for more than a hundred years now – ever since Archduke Ferdinand’s car got a flat in Sarajevo in 1914. Make America more like Europe? Where do you even go to get all the Nazis and Commies and 90 million dead people that it would take to make America more like Europe? Running fourth in most polls is Kamala Harris. Don’t count her out. She has serious political chops. Of course Biden is polling ahead of Harris – he’s got a 36-year head start. Joe’s been running for president since he was elected to the U.S. Senate in 1972... when Kamala was eight years old... “ Of course Biden is polling ahead of Harris – he’s got a 36-year head start. This is what that “bussing” tiff between Harris and Biden was all about. Naturally Joe didn’t want Kamala “That Little Girl Was Me” Harris to be bussed to school in the suburbs of Berkeley, California, where all the rich liberal Democratic campaign donors live. Because, even when she was eight, Kamala could work a room . Harris has all the usual left-wing liberal political positions that you can think of and some you probably can’t... When she was California Attorney General, she wanted a law against “habitual and

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chronic truancy” where parents got arrested if their kids skipped school. (My mom would still be in Leavenworth.) And she’s got all the usual left-wing liberal self-contradictions. While Harris was District Attorney in San Francisco, the drug-dealer conviction rate rose from 56% to 74%. Not that I’m saying she put her own voters in jail – because left-wing liberals are in favor of voting rights for convicted felons. She wants a big tax on “the 1%,” although, according to the Washington Post , she and her lawyer husband had a 2018 income of $1.9 million. Not that I’m saying she’s shooting herself in the foot – because left-wing liberals support strict gun control laws. She’s also a political land shark. Between 2004 and 2017, Harris went from being a low-level hack checking civil code violations in City Hall to District Attorney of San Francisco to Attorney General of California to U.S. Senator. (And this had nothing – I repeat, nothing – to do with her dating political powerhouse Willie Brown, Speaker of the California When Andrew Yang comes to my house, takes out the trash, mows the lawn, washes the car, and sweeps the garage... I’ll give him $20. LETTER FROM THE EDITOR “ Andrew Yang. He’s all about a Universal Basic Income. Voters want an allowance? Fine.

Assembly and later mayor of San Francisco.) Then there are the rest of the Democratic candidates... Pete Buttigieg. Mayor of South Bend, Indiana – a very important American city... until the Studebaker factory closed in 1963. Cousin Beto O’Rourke. Sorry about him. Every big Irish family’s got one. Ask William Bulger, former president of the Massachusetts Senate and once the most powerful politician in the state, about his brother Whitey Bulger. Andrew Yang. He’s all about a Universal Basic Income. Voters want an allowance? Fine. When Andrew Yang comes to my house, takes out the trash, mows the lawn, washes the car, and sweeps the garage... I’ll give him $20. (And a lift to the next Democratic candidate debate – where he’ll be ignored.) Democrats just threw that one in there to see if we were paying attention. There’s no such thing as somebody named Hickenlooper... Actually, he was governor of Colorado – the first state to legalize marijuana. Coloradans got high and started saying his name over and over again – “Hickenlooper-Hickenlooper- Hickenlooper” – and began giggling so hard that they elected him governor. Other dropouts include Congressman from an-obscure-California-district Eric Swalwell, Governor of an-obscure-western-state Jay Inslee, and current occupant of Hillary Clinton’s obscure New York Senate seat And the list goes on... although some Democrats are already dropping out. I miss John Hickenlooper. Ha ha, the

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September 2019

WHATWE’RE READING Read This compiled by Laura Greaver Has the Presidency Skipped Gen X? Caught between Baby Boomers and Millennials, Generation X may have missed its chance... As the in-between generation – old enough to have witnessed the Clinton era as adults but young enough to learn from its failures – Gen X Democrats could warn against the hubris of the present... The Atlantic We are swimming in writing... Our lives have become an “electronic text,” and social media platforms have created a machine for us to write to. The bait is that we are interacting with friends, colleagues, celebrities, but we really aren’t... We write to the machine and it passes on the message for us after keeping a record of the data. The Guardian CanWe Survive Extreme Heat? Extreme heat is the most direct, tangible, and deadly consequence of our hellbent consumption of fossil fuels. The real question is not whether superheated cities are sustainable... With enough money and engineering skill, The machine always wins: what drives our addiction to social media

Kirsten Gillibrand. They dropped out because they failed to answer a crucial political question... “Who the hell are you?” The remaining Democratic presidential hopefuls are engaged in a free-for-all. Literally. Promising everything free for all of us. The Democrats are vying to see who can promise the most free stuff – college tuition, student-loan forgiveness, Medicare-For-All, Universal Basic Income – and throw in the kitchen sink of subsidized housing for the homeless who crowd the sidewalks of places where everybody votes Democratic like San Francisco and Portland. The Democrats say we can have a government that gives everything to everybody. And what that government will give us isn’t limited to material things like pre-paid PhDs, $0 doctor bills, and a paycheck for doing nothing. Government will also give us encouragement, approval, validation, and self-importance. Government will celebrate our identities and provide us with a good feeling about ourselves as people. This isn’t a “Move to the Left.” This is a “Move Back In With Mom.” Government as your mother. Think that over before you vote for it. Whether you’re 26 or 60... you’ll be living in the basement. She’ll bug you about who you’re dating. And she won’t let you borrow the car.

you can sustain life on Mars. The issue is, sustainable for whom? Rolling Stone

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WHAT COULD POSSIBLY GO WRONG?

Financial follies and disaster in the making

Even tech giants like Amazon, Microsoft, and Google have been breached... Companies that regularly assure us they’re on the leading edge of privacy protection. Right here in Baltimore, we’ve only recently recovered from a security breach and ransomware attack that occurred in May... an incident that affected the e-mail and voicemail of city officials, as well as parking ticket databases and the systems used to pay utility bills and taxes. In lieu of paying a bitcoin ransom of roughly $75,000 to $100,000, the city chose to recover and restore the systems itself... at a cost of about $18 million. And Baltimore isn’t alone. The city is just one of at least 169 state and local governments affected by security breaches and ransomware since 2013. And while neither Baltimore nor the FBI have said how the breach occurred, odds are good that human error and even apathy played a role. Yes, apathy.

Hack the planet...

In an April letter to shareholders, JPMorgan Chase CEO Jamie Dimon made a bold claim... He singled out what he believed to be “the biggest threat to the U.S. financial system.” But the top executive of America’s largest financial institution wasn’t referring to any of the things you might expect... like plunging stock prices, record debt levels, or growing trade tensions between the U.S. and China. He was referring to something far more insidious: a failure to defend American electronic networks, online control systems, and computers from relentless cyberattacks. In just the first six months of 2019, there were 4.1 billion “compromised records” in data breaches... including passwords, usernames, private photos, credit-card data, and even Social Security numbers. That’s more than a dozen pieces of important, private information for every single American.

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September 2019

Earlier this year, Google introduced an optional Chrome browser extension that shows a warning when you log into a website using a leaked username or password. (The technology behind the browser extension is complicated, but Google worked with Stanford University cryptographers to ensure that the login data is encrypted and anonymous.) In just the first month of use, Google found that about 26% of users continued to use their compromised passwords... including ones stolen from financial and government accounts. And those users were 2.5 times more likely to reuse those same passwords elsewhere. To be fair, secure passwords can be some of the hardest to remember. But not changing a password that you know was leaked is asking for trouble. Reusing it is begging for disaster. Chances are good your personal information has already been exposed in one breach or another... and chances are even better that these breaches won’t stop any time soon. Within the next year, the Pentagon will award a $10 billion contract to build its first-ever “war cloud”... It’s commonly referred to as the Joint Enterprise Defense Infrastructure contract (or “JEDI”). The basic idea is to create a single cloud capable of supporting real-time decision- making by warfighters anywhere in the world. Currently, the Pentagon operates more than 500 cloud-computing platforms, which require thousands of servers and different cloud providers. It’s a mess, and it makes it A multibillion-dollar strategy...

difficult to quickly access and analyze data. Today, the most resilient systems possessing the requisite speed are being built in the cloud. JEDI won’t just give warfighters real-time data wherever they are... it’ll also vastly improve network speed and resiliency. It will likely become a model for other federal agencies as they pursue their own cybersecurity upgrades. Cyberattacks have plundered more than $1 trillion in intellectual property from the U.S. since 2015. And the risk of cyber sabotage is so high that the Defense Science Board – a committee of civilian experts appointed to advise the U.S. Department of Defense on scientific and technical matters – recommends constructing a second, truly cybersecure military as quickly as possible. The Office of Management and Budget estimates some $3 billion of federal IT equipment will reach the end of its useful life by 2020. In the meantime, more than 80% of annual federal IT spending – approximately $64 billion – is used to keep these aging systems up and running. (That’s almost as much as the U.S. Department of Education’s entire 2018 budget!) The problem is, federal agency IT staffs typically lack the technical expertise and experience to properly vet modernization alternatives and implement selected upgrades. So the Pentagon relies heavily on outside contractors and vendors to do this work for them... companies just like data-breach victims Amazon, Microsoft, and Google. What could possibly go wrong?

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FROM OUR INBOX

perfunctory?” Peter, you’ve summed up everything about us political commentators in just three words. But I enjoyed your erudite letter anyway. And you’re not wrong about greedy and mishandled capitalism. That said, the stagnation of the middle class and the persistence of social inequality are crimes with a lot of perpetrators – sort of like the plot for Agatha Christie’s Murder on the Orient Express . Globalization, monetary policy, fiscal policy, the tech revolution, demographics, and entitlement demands from both progressive liberals and conservative populists are all likely suspects. And I would warn against asking our political class (howsoever bipartisan) to solve this mystery. They are too power-hungry and too intent on increasing their already enormous political might. You’re obviously a well-read man so I’ll leave you with two quotes from Friedrich Hayek’s great work of political and economic philosophy, The Road to Serfdom : “That in a competitive society most things can be had at a price – though it is often a cruelly high price we have to pay – is a fact the importance of which can hardly be overrated. The alternative is not, however, complete freedom of choice, but orders and prohibitions which must be obeyed and, in the last resort, the favor of the mighty.” And... “Who will deny that a world in which the wealthy are powerful is still a better world

Re: Our Newest Readers Weigh In Having lived under “real” socialism for half my life and having rejected it both intellectually and in real terms, I find, nonetheless, the section containing thoughts and comments on socialism in today’s issue of American Consequences rather tendentious and perfunctory. I appreciate that in the current heated debate between Republicans and Democrats “socialism” serves as an easy prey to all conservative (and mostly populist) criticism against the Democrats but the argumentation, including in your commendable edition, is far from convincing. It was (greedy and mishandled) capitalism that dealt a heavy blow on the American middle class – the pride of America and of all those who believe in free enterprise – not socialism. One of the perennial challenges of our time is inequality, including social inequality. Rather than recur to empty criticism towards Socialism (this is a different notion in the U.S. in comparison to Europe for example), the U.S. political class could work on a bi-partisan basis to find a remedy to inequality, providing an example to the rest of the world and leading it into a new age of opportunity for all. Some of the ideas of “classic” socialism could come handy in this endeavor. – Peter P. P.J. O’Rourke comment: “Tendentious and

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Septemeber 2019

before Trump’s victory. Attorney General William Barr also said as much during a Senate hearing in April: “I am not saying that improper surveillance occurred.” I am a Twitter user, but I don’t take everything as facts just statements – I research the facts. I’ve found if you become selective in whom you follow and who views you there’s less stupidity in your feed. There are too many trolls who are aggressive because they hide behind the anonymity of posting, despite the cruelty of their words. Plus, everyone wants that “15 minutes of fame.” If you aren’t concerned about the number of “views” then you control the type of information received. – Maria Rose R. Andrew Ferguson comment: I commend Maria Rose R. for her intelligent curating of her Twitter feed. If everyone was as restrained and mature as she is in her use of Twitter, Twitter would not be the blight on civilization that it has become. Re: Crazy to buy Greenland? After reading your opening paragraph, I found it difficult to believe anything that you supposedly state as fact. Greenland is certainly not the largest island in the world. You should have clued in when you referred to Australia, four times the land mass of Greenland. Such a simple error makes me wonder... – Laurent C. Buck Sexton comment: Thank you for your fact check, Laurent. Unfortunately, your fact check is wrong! Google “largest island in the world” and see what pops up. Australia is

than one in which only the already powerful can acquire wealth?” On tech and smartphones, I do not like what they have done. It is supposed to be better, but it isn’t. It causes more problems. You get poor reception, poor service, or no service. They are only interested in profit and not good customer service or products! – E.M. P.J. O’Rourke comment: Yes, E.M., I agree. But I would ask you to remember what phone calls were like in the old days, when you had to drag nine miles of extension cord behind you if you needed to get in touch with someone during your morning commute. Re: HowTwitter Destroyed Politics Trump’s tweet about the Obama administration spying on his campaign was spot on. Ferguson needs to catch up on the story. Characterizing Trump’s tweet as wrong is, alas, “fake news.” – CPR Re: your twitter article. It was in fact true that our President was being spied on, as has been proven by much of the congressional testimony. Our Attorney General also confirmed it. Probably should correct that. – Heather B. Andrew Ferguson comment: On March 4, President Donald Trump tweeted that “President Obama had my ‘wires tapped’ just before the victory.” This tweet is wrong in every particular. President Barack Obama did not have Trump’s “wires tapped” just

American Consequences

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FROM OUR INBOX

where I can turn them into nickels. – Hal D.

indeed a larger land mass than Greenland, but it is classified as a “continent.” It’s not technically considered an island. So maybe go back and give the rest of the piece a second read? Enjoy! Since this idea came out of the blue with no context it is assuredly a bad deal. A deal to secure mining/mineral rights would probably be a good deal (using U.S. labor and equipment, transport, etc.), but buying a welfare state when we have plenty (Puerto Rico, Guam, American Samoa, LA, Chicago, Detroit) is a no-brainer. – Ron V. Buck Sexton comment: Well, I don’t think you have to worry about the idea either way. Looks like the plan is DOA. Trump has shifted his focus back to China, North Korea,

P. J. O’Rourke comment on Steve Sjuggerud’s behalf: Don’t worry, coin collectors love any change in coinage. But, Hal, let me put my two cents in... Because that’s actually about what a penny would be worth if pennies were still made of copper. Meanwhile a nickel (75% copper and 25% nickel) contains, at current commodity market prices, more than $0.05 worth of metal. And if we started making quarters out of silver again, the silver content would make them worth about $3.30. So, with all due respect to Steve’s very logical argument, it’s the worthless paper $1 bill that we should probably get rid of. Joe R., below, makes somewhat the same argument. (BTW, Hal, you and I seem to frequent the same racetrack.)

and whichever member of the “fake news” crosses him. I may be able to get you a great deal on a “Make Greenland Great” t-shirt, though. Re: Kill the Penny? No! Stop minting nickels and change the valuation of the copper plated Lincolnoid coin to 5 cents. Coin collectors will love/ hate whatever you do. Thomas Jefferson is still on the $2 bill, so his estate won’t sue you. Print more $2 bills and send them to me. I know a racetrack

In part I agree with Steve in that we should stop making pennies. I just don’t think it goes far enough. We should stop production of nickels and dimes also. While we are at it... stop producing all coins not made from gold or silver. – Joe R. P. J. O’Rourke comment: Joe, you’re on the right track as far as this hard money guy is concerned. But there are some practical considerations. As we go to press, the spot price

CHECK OUT OUR ONLINE ARCHIVE OF PAST ISSUES.

of gold is around $48.23 a gram. A gold coin the approximate size of a penny (2.5 grams) would be worth

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Septemeber 2019

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a whopping $120.58. I see a problem making change at Dollar General. Even silver, at $0.59 a gram, would require an annoyingly tiny coin for minor purchases. Steve, you missed a big point. A penny is basically a subsidy of the zinc industry. A penny is coated in copper but is mainly zinc inside. The reason they won’t kill the penny is the lobbyists for the mining industry who insist on being subsidized. Go figure! – Faithful Reader P. J. O’Rourke comment: As you, Faithful Reader, no doubt agree, all recipients of corporate subsidies are pirates in neckties. Let’s zinc their ship. Steve has a great idea, but what do we do about the song “Pennies From Heaven?” – An Old-Timer P. J. O’Rourke comment: I’m an old-timer myself, O-T. (Although not quite old enough to personally remember Bing Crosby singing that 1936 hit.) But it’s a great tune... Every time it rains, it rains pennies from heaven Don’t ya know each cloud contains pennies from heaven? You’ll find your fortune fallin’ all over town Be sure that your umbrella is upside down But think about if that happened today. You’d have an umbrella full of stuff that the gas station vending machine won’t take. And, even if the vending machine did take pennies, it wouldn’t be enough to buy you a Coke.

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Thirty years ago, a series of peaceful demonstrations in Eastern Europe set off a chain of events that culminated in the collapse of the Soviet Union. Looking back, it is now clear that Europe experienced a miracle in 1989: the story could have had a much darker and bloodier ending. REMEMBERING THE MIRACLE OF 1989

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September 2019

By Carl Bildt

Soviet Union, and soon began demanding full independence. On August 23, two million people formed a human chain stretching 372 miles (600 kilometers) through Estonia, Latvia, and Lithuania, calling for independence. The timing of the so-called Baltic Way was no accident. Exactly 50 years earlier, Hitler and Stalin had entered into a secret non- aggression pact, whereby Eastern Europe was to be divided between Nazi Germany and the Soviet Union. That paved the way for World War II and immediately spelled the end of freedom and independence in the Baltics. But the central, potentially explosive arena in 1989 was the so-called German Democratic Republic (“GDR”) – that is, communist East Germany. This was essentially a garrison state, built for the protection of five Soviet armies – spanning 19 divisions and comprising 500,000 soldiers – that had been stationed there ever since 1945. Although the Berlin Wall became a powerful symbol of Europe’s bifurcation after August 1961, it is worth remembering why it was needed in the first place: to prevent the collapse of the GDR and thus, of the Soviet outer empire in Europe. A few days before the human chain formed in the Baltics, some 600-700 East German citizens had held a peaceful demonstration during which they crossed the barbed wire near Sopron, a small Hungarian town on the border with Austria. What became known as the Pan-European Picnic was the largest escape from behind the Iron Curtain ever since the building of the Berlin Wall. More to the point, it had been carefully planned to test the reaction of the Soviet authorities.

ugust 2019 marks 30 years since Europe – and human civilization generally – began to undergo a miraculous transformation that is

now etched in the world’s memory. By the summer of 1989, the Soviet Union was already in terminal decline. The only question was whether communism would disintegrate peacefully, or amid an explosion of violence and devastation. In the Soviet Union itself, Mikhail Gorbachev’s policies of glasnost and perestroika had opened the floodgates of change, but Gorbachev still seemed to believe that the communist system could be salvaged through reform. Meanwhile, on the periphery of the Soviet empire, many feared that a potential collapse of the system would bring Red Army tanks back into streets and city squares. Memories of Soviet crackdowns in Berlin in 1953, Budapest in 1956, and Prague in 1968 remained vivid, as did the severe repression of the Baltic states in the run-up to World War II. Born in terror, the Soviet Union had been sustained by jackboots and secret police. Nobody knew if it could survive without resorting to brute force once again. It was a nervous time for Europe. But it was also a time of change. Efforts to suppress Poland’s independent trade union, Solidarity ( Solidarność ), had failed. Forced to compromise, the Polish communist regime held semi-free elections in June 1989, in which Solidarity won all but one of the freely contested seats. Meanwhile, in the three Baltic republics (Estonia, Latvia, and Lithuania), broad-based “people’s fronts” had already been calling for more autonomy from the

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REMEMBERING THE MIRACLE OF 1989

The East German state would be gone in less than a year. Following democratic elections in March 1990, East Germans decided to merge with the Federal Republic of Germany. With the GDR gone, the collapse of the Soviet empire was all but complete. Some think that the momentous change that began in 1989 was inevitable. They would do well to remember that in June of the same year, China’s elderly rulers had deployed tanks to crush (literally) the peaceful freedom movement in Tiananmen Square. And there Carl Bildt was Sweden's foreign minister from 2006 to 2014 and Prime Minister from 1991 to 1994, when he negotiated Sweden's EU accession. He is also Co-Chair of the European Council on Foreign Relations. In the Kremlin, the Soviet leadership – or Gorbachev, at least – continued to believe that the empire was safe and could be reformed. The Baltic Way was tolerated, and the Pan- European Picnic was simply ignored. But the latent potential of those demonstrations soon became apparent. People began to flee the GDR by the thousands. Soon enough, the Hungarian authorities had no alternative but to open the border. Droves of East Germans flooded into Czechoslovakia in search of a route to the West. On November 9, fumbling GDR leaders even opened the Berlin Wall itself.

were plenty of communist leaders urging a “Chinese solution” for the demonstrations of 1989. In fact, at the Soviet command post just south of Berlin (which had served as command center for the German Army during World War II, and which had been seized from Hitler decades earlier), Red Army marshals were awaiting orders to march in and save the empire by whatever means necessary. No one can know what would have happened if more conservative forces within the Kremlin had prevailed. Most likely, there would have been widespread disorder and violence across much of the region, which would have put the West under substantial pressure to intervene. Open war would have been a distinct possibility. After all, large empires throughout history have generally gone out with a bang. If anything, the Soviet experience was an exception. Thankfully, that order to the Red Army was never issued. Part of the reason was that Soviet leaders believed, mistakenly, that a crackdown was unnecessary, and that the system would survive. But it was also because democratic forces were starting to assert themselves within Russia itself. The rising leader in Moscow was Boris Yeltsin, who held no attachment to the nostalgia of an overextended and unsustainable empire. Thirty years ago, Europe experienced a truly miraculous few months. Today, we should honor not only those who fought for change, but also those who refused to send out the tanks. Blood could have flowed through the streets of Europe once again, but it did not. © Project Syndicate

Blood could have flowed through the streets of Europe once again, but it did not.

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September 2019

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Unlike the 2008 global financial crisis, which was mostly a large negative aggregate demand shock, the next recession is likely to be caused by permanent negative supply shocks from the Sino-American trade and technology war. And trying to undo the damage through never-ending monetary and fiscal stimulus will not be an option.

By Nouriel Roubini

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September 2019

THE ANATOMY OF THE COMING RECESSION

T here are three negative supply shocks that could trigger a global recession by 2020. All of them reflect political factors affecting international relations, two involve China, and the United States is at the center of each. Moreover, none of them is amenable to the traditional tools of countercyclical macroeconomic policy. The first potential shock stems from the Sino-American trade and currency war, which escalated earlier this month when U.S. President Donald Trump’s administration threatened additional tariffs on Chinese

exports, and formally labeled China a currency manipulator. The second concerns the slow-brewing cold war between the U.S. and China over technology. In a rivalry that has all the hallmarks of a “Thucydides Trap,” China and America are vying for dominance over the industries of the future: artificial intelligence (AI), robotics, 5G, and so forth. The U.S. has placed the Chinese telecom giant Huawei on an “entity list” reserved for foreign companies deemed to pose a national-security threat. And although Huawei has received temporary exemptions allowing it to continue using

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THE ANATOMYOF THE COMING RECESSION

It is easy to imagine how today’s situation could lead to a full-scale implosion of the open global trading system. All three of these potential shocks would have a stagflationary effect, increasing the price of imported consumer goods, intermediate inputs, technological components, and energy, while reducing output by disrupting global supply chains. Worse, the Sino- American conflict is already fueling a broader process of deglobalization, because countries and firms can no longer count on the long- term stability of these integrated value chains. As trade in goods, services, capital, labor, information, data, and technology becomes increasingly balkanized, global production costs will rise across all industries. Moreover, the trade and currency war and the competition over technology will amplify one another. Consider the case of Huawei, which is currently a global leader in 5G equipment. U.S. components, the Trump administration this week announced that it was adding an additional 46 Huawei affiliates to the list. The third major risk concerns oil supplies. Although oil prices have fallen in recent weeks, and a recession triggered by a trade, currency, and tech war would depress energy demand and drive prices lower, America’s confrontation with Iran could have the opposite effect. Should that conflict escalate into a military conflict, global oil prices could spike and bring on a recession, as happened during previous Middle East conflagrations in 1973, 1979, and 1990.

This technology will soon be the standard form of connectivity for most critical civilian and military infrastructure, not to mention basic consumer goods that are connected through the emerging Internet of Things. The presence of a 5G chip implies that anything from a toaster to a coffee maker could become a listening device. This means that if Huawei is widely perceived as a national-security threat, so would thousands of Chinese consumer-goods exports. It is easy to imagine how today’s situation could lead to a full-scale implosion of the open global trading system. The question, then, is whether monetary and fiscal policymakers are prepared for a sustained – or even permanent – negative supply shock. Following the stagflationary shocks of the 1970s, monetary policymakers responded by tightening monetary policy. Today, however, major central banks such as the U.S. Federal Reserve are already pursuing monetary- policy easing, because inflation and inflation expectations remain low. Any inflationary pressure from an oil shock will be perceived by central banks as merely a price-level effect, rather than as a persistent increase in inflation. Over time, negative supply shocks also tend to become temporary negative demand shocks that reduce both growth and inflation by depressing consumption and capital expenditures. Indeed, under current conditions, U.S. and global corporate capital spending is severely depressed, owing to uncertainties about the likelihood, severity, and persistence of the three potential shocks.

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September 2019

In fact, with firms in the U.S., Europe, China, and other parts of Asia having reined in capital expenditures, the global tech, manufacturing, and industrial sector is already in a recession. The only reason why that hasn’t yet translated into a global slump is that private consumption has remained strong. Should the price of imported goods rise further as a result of any of these negative supply shocks, real (inflation- adjusted) disposable household income growth would take a hit, as would consumer confidence, likely tipping the global economy into a recession. Given the potential for a negative aggregate demand shock in the short run, central banks are right to ease policy rates. But fiscal policymakers should also be preparing a similar short-term response. A sharp decline in growth and aggregate demand would call for countercyclical fiscal easing to prevent the recession from becoming too severe. In the medium term, though, the optimal response would not be to accommodate the negative supply shocks, but rather to adjust to them without further easing. After all, the negative supply shocks from a trade and technology war would be more or less permanent, as would the reduction in potential growth. The same applies to Brexit: leaving the European Union will saddle the United Kingdom with a permanent negative supply shock, and thus permanently lower potential growth. Such shocks cannot be reversed through monetary or fiscal policymaking. Although they can be managed in the short term, attempts to accommodate them permanently would eventually lead to both inflation and

Finally, there is an important difference between the 2008 global financial crisis and the negative supply shocks that could hit the global economy today. Because the former was mostly a large negative aggregate demand shock that depressed growth and inflation, it was appropriately met with monetary and fiscal stimulus. But this time, the world would be confronting sustained negative supply shocks that would require a very different kind of policy response over the medium term. Trying to undo the damage through never-ending monetary and fiscal stimulus will not be a sensible option. © Project Syndicate The world would be confronting sustained negative supply shocks that would require a very different kind of policy response over the medium term. inflation expectations rising well above central banks’ targets. In the 1970s, central banks accommodated two major oil shocks. The result was persistently rising inflation and inflation expectations, unsustainable fiscal deficits, and public debt accumulation.

Nouriel Roubini , a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton administration. He has worked for the International Monetary Fund, the U.S. Federal Reserve, and the World Bank.

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