Feed aggregator

Here come the wage and price controls

Sovereign Man - Thu, 03/13/2014 - 07:32

March 13, 2014
Belize City, Belize

Nearly four thousand years ago, King Hammurabi of Babylon laid out his eponymous “Hammurabi’s Code”, a series of laws that is still famous to this day.

Most people know Hammurabi’s Code as “an eye for an eye, a tooth for a tooth”. Yet what few realize is that the code was actually one of the original attempts at government wage and price controls.

Hammurabi’s Code decreed, for example, that the daily rate of pay for a tailor would be five grains of silver, and a farm laborer would be six grains of silver. The cost of hiring a small animal for field work would be four bushels of corn. Etc.

Of course, Hammurabi’s attempts to control prices didn’t work one bit. In his book The Old Babylonian Merchant: His Business and Social Position (published 1950), historian W.F. Leemans writes:

“Prominent and wealthy tamkaru [merchant traders] were no longer found in Hammurabi’s reign. Moreover, only a few tamkaru are known from Hammurabi’s time and afterwards . . .”

Despite the economic failures of Hammurabi’s experiment, though, wage and price controls have been tried again and again throughout history.

2,000 years later, Emperor Diocletian of the failing Roman Empire issued his Edict on Wages and Prices. The ancient Athenians tried (and failed) to set grain prices, and even had a small army of regulators to oversee the price controls. So did the the Zhou dynasty in ancient China.

Today you can see various forms of wage and price controls all over the world– from the blatant (Argentina) to the subtle.

Major farm subsidies in the United States, for example, are a form of price controls. Monetary policy (especially keeping interest rates at effectively zero) are a form of price controls.

Yet today President Obama is set to lauch another far more obvious form.

The central planner-in-chief is going to sign an Executive Order to require employers to expand overtime pay in the Land of the Free. This, on top of his recent proposal to increase the minimum wage 39% to $10.10 per hour (not that there’s any inflation).

Obviously this ‘decree by executive order’ strategy shows the political system for what it is: there is no republic, there are no checks and balances, there is no adherence to the Constitution.

They do whatever they want, however they want, with total immunity.

The troubling part about this executive order (aside from being yet another soon-to-fail wage control) is that it essentially abrogates millions of work contracts across the country.

Employers and their workers have long since agreed to terms of employment that may or may not include overtime pay.

Today President is unilaterally voiding any specific provisions about overtime pay in existing employment contracts, all in his sole discretion, and all without Congressional oversight.

The rule of law means nothing.

And even though any high school economics student can tell you that wage and price controls don’t work, the government is pressing ahead with vigor, damn the consequences.

Given their continued destruction of the middle class, perhaps it’s time we bring back ‘an eye for an eye, a tooth for a tooth.’

How the NSA Exploits VPN and VoIP Traffic

Bruce Schneier - Thu, 03/13/2014 - 06:37
These four slides, released yesterday, describe one process the NSA has for eavesdropping on VPN and VoIP traffic. There's a lot of information on these slides, though it's a veritable sea of code names. No details as to how the NSA decrypts those ESP -- "Encapsulating Security Payload" -- packets, although there are some clues in the form of code...

Is this place the next Hong Kong?

Sovereign Man - Wed, 03/12/2014 - 11:36

March 12, 2014
Roatan, Honduras

Deep within the Congo basin along the banks of the Kasai River exist two native peoples– the Lele and the Bushong.

The two tribes are practically the same people, separated only by a river.

Yet when two anthropologists went to Africa in the early 1950s to study these tribes, the differences they found in their standards of living were astounding.

As Mary Douglas wrote in her book The Lele of the Kasai, “Everything the Lele have or do, the Bushong have more and can do better. They produce more, live better, as well as populating their region more densely than the Lele.”

The Bushong tribe was rich. The Lele tribe was poor. The Bushong used nets and traps to catch fish and game. The Lele did not. The Bushong had a “profit-motivated, wealth-accumulating economy”. The Lele did not.

The Bushong ate a much more abundant diet. They excelled at agriculture as well, planting five crops in succession in a two year rotation cycle. And they accumulated large pools of savings (excess food) for trade with other tribes.

The Lele barely subsisted.

As you can imagine, the Lele tribal structure was very centrally planned. The tribe imposed a rules on labor and employment, wealth redistribution was rampant, and there were heavy tithes to be paid.

This lack of economic freedom in the Lele tribe caused huge imbalances.

Just like the differences between North and South Korea, or East and West Germany during the Cold War days, there was very little that actually separated these people… very little except politics and economic freedom.

Similarly, it was the abundance of economic freedom in places like Hong Kong that led to their rapid growth and wealth.

Hong Kong had no major resources to speak of. Its prosperity is based solely on being a place where individuals were allowed to trade and thrive.

Here in Honduras, they’re trying to take a page from that playbook.

Last year the government approved a series of initiatives for what they call Zonas de Empleo y Desarrollo Económico (ZEDE), or Employment and Economic Development Zones.

The idea is that a handful of special zones in the country will be established that essentially have no taxation and their own administrative court systems (or apply laws and courts from any other country).

Naturally, a lot of folks will probably scoff at the idea– after all, what nut case would want to set up a business in what’s now a thick jungle in Honduras?

Then again, there were probably a lot of Brits in 1897 who thought the same thing about an illiterate fishing village on the South China Sea.

But history shows us that money and talent goes where it is treated best, and those places prosper far beyond all the rest.

That place might not be Honduras (it’s certainly possible this project won’t succeed)…

But as the debt and paper-based global financial system continues its terminal decline into insolvency, you can be sure that there will be a mass migration of talent and capital to the few places that still provide freedom and opportunity.

People will realize that they are being taxed more just to pay interest on a rising debt, meanwhile their money is worth less and their standard of living is falling.

Once they realize this, they’ll start looking for greener pastures elsewhere, just as human beings have always done throughout history.

STELLARWIND Classification Guide

Bruce Schneier - Wed, 03/12/2014 - 10:14
Also released today is the STELLARWIND classification guide, in conjunction with a New York Times article on how the FISA court expanded domestic surveillance. (Here's the previous story about STELLARWIND, from the Washington Post.) See also this NSA document. Both stories are based on Snowden documents. Is it only me, or does anyone else wonder why a court with the...

New Information on the NSA's QUANTUM Program

Bruce Schneier - Wed, 03/12/2014 - 09:55
There's a new (overly breathless) article on the NSA's QUANTUM program, including a bunch of new source documents. Of particular note is this page listing a variety of QUANTUM programs. Note that QUANTUMCOOKIE, "which forces users to divulge stored cookies," is not on this list. I'm busy today, so please tell me anything interesting you see in the comments. I...

Insurance Companies Pushing for More Cybersecurity

Bruce Schneier - Wed, 03/12/2014 - 09:06
This is a good development: For years, said Ms Khudari, Kiln and many other syndicates had offered cover for data breaches, to help companies recover if attackers penetrated networks and stole customer information. Now, she said, the same firms were seeking multi-million pound policies to help them rebuild if their computers and power-generation networks were damaged in a cyber-attack. "They...

Postmortem: NSA Exploits of the Day

Bruce Schneier - Wed, 03/12/2014 - 03:31
When I decided to post an exploit a day from the TAO implant catalog, my goal was to highlight the myriad of capabilities of the NSA's Tailored Access Operations group, basically, its black bag teams. The catalog was published by Der Spiegel along with a pair of articles on the NSA's CNE -- that's Computer Network Exploitation -- operations, and...

How low does this go before there’s a currency crisis?

Sovereign Man - Tue, 03/11/2014 - 07:24

March 11, 2014
Caribbean coast, Honduras

How’s this for irony–

In our modern monetary system, the term ‘fiat currency’ refers to this absurd notion of paper currency that is conjured out of thin air by central bankers and backed by nothing but hollow promises.

‘Fiat’ is a subjunctive conjugation of the Latin verb ‘fiō’; literally translated, it means “let it be” as in “Let there be light.”

Or in this case… ‘let there be paper money,’ which pretty much crystalized the absurdity of our monetary system.

Former Fed Chairman Ben Bernanke summed this up nicely in a 60 Minutes interview he gave a few years ago in which he said, “We can raise interest rates in 15 minutes. . .”

And he was right. Central bankers can change interest rates whenever they want.

If you think about it, interest rates are nothing more than the ‘price’ of money. It’s the rate that people pay when they ‘demand’ money in the form of loans based on the supply of money available.

But this price of money is incredibly influential around the world. Interest rates affect the prices of shares in the stock market. Oil. Agricultural commodities. Real estate. Automobiles.

Almost everything we touch is affected by interest rates.

So in setting the price of money, we have given central bankers the power to effectively set the price of… everything.

Make no mistake, this is a form of price controls. And there’s not a doubt in my mind that one day (probably soon), future historians are going to look back and wonder how so many people could be bamboozled.

We have somehow been conned into believing that the path to prosperity is for the grand wizards of the financial system to conjure paper currency out of thin air.

Yet this notion of ‘money backed by nothing’ is an absurd fantasy that has failed every single time it has ever been tried before in history.

I bring this up because I want to share a chart with you that I presented yesterday to a savvy group of investors.

Bear in mind first that a central bank, like any bank or business, has both assets and liabilities.

Central bank assets are things like gold and government bonds (e.g. US government Treasuries).

Central bank liabilities are the ‘notes’ that they issue. And if you’re wondering what a central bank ‘note’ is, just look in your wallet.

If you’re in the US, those aren’t dollars. The dollar was defined by the Coinage Act of 1792 as 416 grains of standard silver.

Rather, you’ll see the paper in your pocket says “Federal Reserve Note”– a liability of the US central bank.

The difference between assets and liabilities is called equity, or the bank’s capital. And well-capitalized banks maintain substantial capital as a percentage of their assets.

You could think about this as a margin of safety. The less ‘capital cushion’ a bank has as a percentage of its assets, the less it will be able to withstand shocks to the system.

I tracked this data for the US Federal Reserve. And as the chart below shows, there has been an astounding decline in the Fed’s ‘margin of safety’ over the last few years.

The lower this line goes, the more the Fed gets pushed into insolvency.

Note that the trend levels out in early 2012, only to start another steep decline a few months later just as they told us the economy had ‘recovered’. This is apparently what recovery looks like.

The question I ask is: how low does this go before there’s a currency crisis?

The government tries to terrorize a widow—fails

Sovereign Man - Mon, 03/10/2014 - 09:21

March 10, 2014
En route to Honduras

Editor’s note: The following is an excerpt from an interview with Robin Speronis, the woman in Cape Coral, Florida who Simon wrote about recently that got bullied by the local government simply because she was living off the grid.

Simon: So, Robin, you’d been living a completely self-sustainable lifestyle, unplugged from the grid, collecting your own rainwater, harnessing solar power etc. since January 2013.

Then the local authorities found out… and decided to come after you aggressively just because you weren’t plugged in to the grid.

What happened?

Robin: I was writing a book about living off grid, and I also have a blog where I published a few chapters—and my story got picked up by a local Fox affiliate, because they thought what I was doing was cool and wanted to do a special report on the topic.

That special report aired on November 14 last year, and immediately the next day the local code enforcement came and placed these placards on my door that said “Do not enter, do not occupy. This property is unsafe and unfit for human habitation.

Simon: But you had been living there for eleven months.

Robin: Right. And they decided to use the Florida statute for trespassing. It was illegal for me to be living on my own property. No notice, no hearing.

Oh, and the code that they cited on that placard said that the interior of the home was unsanitary. Of course, they’d never been inside the house.

Simon: I understand they applied some vague international building code… quite a stretch just to find some violation.

Robin: Yes, the whole code is very vague, there’s no definition of what “unsanitary” means. They didn’t want me being an example for other people, so they just tried to terrorize me. But I won’t let them.

Simon: Right. And since then you’ve taken them to court basically, and you’ve had an administrative hearing. Was that something that you pushed for or was that something that the city pushed for?

Robin: Well, my story was picked up and got a lot of media attention. Initially the city backed off, and they were even ignoring my lawyer’s calls, hoping that it would blow over.

But because I was technically still a trespasser in my own home I wouldn’t let this go away. So we had a hearing.

The city read off five pages of assorted codes that I was in violation of. I already got most of them voided. So that was a big victory.

Simon: This is so typical. These government officials look at you and decide, “We’ve got to get her. She’s doing something we don’t like.” And so they just come up with pages of senseless code violations hoping that something will stick.

It’s all about terrorizing people, making them obedient, and readily dependent on the system. And anyone that defies that is an enemy to them, someone they have to go after. So they tried to make an example out of you and terrorize you.

As I’ve written so many times before, we’re all guilty of violating some obscure law or regulation. They have criminalized –everything-. You can’t even apply for a passport anymore without being threatened with imprisonment.

I’m very glad that you didn’t cave in. Thank you Robin, this is very encouraging. Best of luck with your case in the future.

How Bitcoin just made a bid to join the mainstream -- the choice of SSL PKI may be strategic rather than tactical

Financial Cryptography - Mon, 03/10/2014 - 03:55
How fast does an alternative payment system take to join the mainstream? With Paypal it was less than a year; when they discovered that the palm pilot users were preferring the website, the strategy switched pretty quickly. With goldmoney it was pretty much instant, with e-gold, they never achieved it. With Bitcoin's new announcement, we can mark their intent as around four years or so. Belated welcome is perhaps due, if one thinks the mainstream is actually the place to be. Many do, although I have my reservations on this point and it is somewhat of a surprise to read of Bitcoin's choice of merchant authentication mechanism: Everyone seems to agree - the public key infrastructure, that network of certificate authorities that stands between you and encrypting your website, sucks. It’s too expensive. CA’s don’t do enough for the fees they charge. It’s too big. There isn’t enough competition. It’s compromised by governments. The technology is old and crusty. We should all use PGP instead. The litany of complaints about the PKI is endless. In recent weeks, the Bitcoin payment protocol (BIP 70) has started to roll out. One of the features present in version 1 is signing of payment requests, and the mechanism chosen was the SSL PKI. Mike Hearn then goes on to describe why they have chosen the SSL PKI. The description reads like a mix between an advertisement, an attack on the alleged alternates (such as they are) and an apology. Suffice to say, he gets most of the argumentation as approximately right & wrong as 99% of the experts in the field do. Several things stand out. I read from the article that there was little attempt to explore what might be called the "own alternative." From this I wonder if what is happening is that a conservative inner group are actually trying to push Bitcoin faster into the mainstream? Choosing to push merchants to SSL PKI authentication would certainly be one way to do it. However, this is a dangerous strategy, and what I didn't see addressed was the vector of control issue. This was a surprise, so I'll bring it out. A danger with stated approach is that it opens up a clear attack on every merchant. Right now, merchants deal under the radar, or can do so, and caveat emptor widely rules in Bitcoinlandia. Once merchants are certified to trade by the CAs however, there is a vector of identification, and permission. There is evidence. Requirements for incorporation. There are trade records and trade purposes. And, there is a CA which has ... what? Terms & conditions. Unfortunately, T&C in the CA industry are little known, widely ignored, and not at all understood. Don't believe me? Ask anyone in the industry for a serious discussion about the legal contracts behind PKI and you will hear more stoney silence than if you'd just proven to the UN that global warming was another malthusian plot to prepare the world for the invasion of Martians. Still don't believe me? Check what CABForum's documents say about them. Stoney silence, in words. But they are real, they exist, and they are forceful. They are very intended, as even when CAs don't understand them themselves, they mostly end up copying them. One thing you will find in them is that most CAs will decline to do business with any person or party that does something illegal. Skipping the whys and wherefores, this means that any agency can complain to any CA about a merchant on any basis ("hasn't got a license in my state to do some random thing") and the CA is now in a tricky position. Tricky enough to decide where its profits come from. Now, we hope that most merchants are honest and legal, and as mentioned above, maybe the strategy is to move in that direction in a more forceful way. The problem is that in the war against Bitcoin, as yet undeclared and still being conducted under diplomatic cover, any claim of illegality will take on a sort of state-credibility, and as we know when the authorities say that a merchant is acting against the law, the party is typically seen to be guilty until proven innocent &/or bankrupt. Factor in that it is pretty easy for an agency to take a line that Bitcoin is illegal per se. Factor in that all commercial CAs are now controlled via CABForum and are all aligned into one homogoneous equivalency (forget talk of competition, pah-lease...). Factor in that one sore thumb isn't worth defending, and sets a precedent. We should now see that all CAs will slowly but surely feel the need to mitigate against the threat to their business that is Bitcoin. It won't be that way to begin with. One thing that Bitcoiners will be advised to do is to get a CA in a safe and remote country, one with spine. That will last for a while. But the forces will build up. The risk is that one day, the meme will spread, "we're not welcoming that business any more." In military strategy, they say that the battle is won by the general that imposes his plan over the opponent, and I fear that choosing the SSL PKI may just be the opponent's move of choice, not Bitcoin's move of choice, no matter how attractive it may appear. But what's the alternative, Mike Hearn asks? His fundamental claim seems to stand: there isn't a clear alternative. This is true. If you ignore Bitcoin's purpose in life, if you ignore your own capabilities and you ignore your community, then ... I agree! If you ignore CAcert, too, I agree. There is no alternate. But what would happen if you didn't ignore these things? Bitcoin's community is ideally placed to duplicate the system. We know this because it's been done in the past, and the text book is written. Indeed, long term readers will know that I am to some extent just copying the textbook in my current business, and I can tell you it certainly isn't as hard as getting Bitcoin up and rolling. Capabilities? Well, actually when it comes to cryptographic protocols and reliable transactions and so forth, Bitcoin would certainly be in the game. I'm not sure why they would be so shy of this, as they are almost certainly better placed in this game than all the other CAs except perhaps the very biggest, and even that's debatable because it's been a long time since the biggest actually had the staff and know-how to do any game-changing. Bitcoin has got the backing of google who almost certainly have more knowledge about this stuff than all the CAs combined, and most of the vendors as well (OK, so Microsoft might give them a run for their money if they could get out of the stables). They've got the mission, the community, the capabilities and the textbook. Why then not? This is why I think that Bitcoin people have made a strategic decision to join the mainstream. If that's the case, then good luck, but boy-oh-boy! are they playing high-stakes poker here. Old Chinese curse: be careful what you wish for....

“No inflation” Friday: the dollar has lost 83.3% against…

Sovereign Man - Fri, 03/07/2014 - 11:49

March 7, 2014
Dallas, Texas

I needed a caffeine jolt late this morning after the long journey up from South America.

And while I’m generally averse to aspartame, high fructose corn syrup, and other government-sanctioned poisons, I did briefly consider a hit of Coca Cola as I walked past a vending machine on my way out of a grocery store.

Then I saw the price.

To give you some quick background, this was the same grocery store my mother used to shop at when I was a kid. And if I was really lucky, we’d stop for a can of coke on the way out– 25 cents back then.

Fast forward to today–. I’m a grown man of 35 now instead of a 9-year old kid. And while the store has changed hands a few times, there’s still vending machine near the entrance.

Same coke, same 12 ounces (though now in a plastic bottle instead of an aluminium can).

Price today? $1.50. [note, this is the vending machine price, not grocery store price.]

Put another way, $1 would have bought me 48 ounces of Coca Cola 26 years ago. Today that same dollar buys me just 8 ounces.

This means that the dollar has lost 83.3% of its value against Coca Cola over the past three decades, averaging roughly 6.6% inflation per year.

Some readers may remember the price of Coca Cola being just 5c back in the early 1950s (for a 6.5oz glass)… meaning the US dollar has lost 93.8% against Coca Cola over the past six decades.

Now, we are taught from the time we are children that ‘a little inflation is good…’

And when central bankers tell us they’re targeting an inflation rate of 2% to 3%, that certainly doesn’t seem so bad. 2% is practically just a rounding error. But bear in mind a few things–

1) An inflation rate of 2% is not price stability.

As Jim Rickards frequently points out, even with just 2% inflation, a currency loses over 75% of its value during an average lifespan. This can hardly be considered monetary stablilty.

And this practice of gradually plundering people’s purchasing power over time is incredibly deceitful.

2) Even if, they rarely meet their target.

As this case shows, 6.6% certainly ain’t 2%. The official statistics and research papers may say 2%. Reality is much different.

3) Wages often don’t keep up.

According to the US Labor Department, the median weekly wage back in 1988 was $382… or roughly 18,336 ounces of Coca Cola.

Today the median weekly wage is $831.40… or just 6,651.20 ounces.

So as measured in Coca Cola, the average wage in the Land of the Free has declined by 11,684 ounces per week– a 63.7% decline over the last three decades.

You can make a similar calculation denominated in Snickers bars, gallons of gas, etc.

If you have a big picture, long-term view, it’s clear that standard of living is falling.

Some readers may remember decades ago– a single parent could go out and, even with a blue collar job, comfortably support a growing family.

Today, dual income households struggle to keep their heads above water. This is the long-term plunder of inflation.

And just to give you a reminder of what things used to cost, I’ve pulled a page from the March 7, 1988 edition of the Bryan Times of Bryan, OH: 26-years ago today.

You can scroll through the paper and note the prices:

25c for a dozen eggs. 69c for a loaf of bread. 49c for a pound of Chicken. A brand new Mustang LX for just $9203.

That’s the Federal Reserve for you. 100 years of monetary destruction and counting.

Check out this “undiscovered gem”, a city known for all the wrong reasons

Sovereign Man - Thu, 03/06/2014 - 09:33

Cartagena, Colombia: Because of a $47 dispute the whole world got to know about Cartagena, a city on Colombia’s Caribbean coast. For all the wrong reasons, unfortunately.

Two years ago Cartagena hosted the Summit of the Americas, a get-together of all heads of state for countries from North, Central, and South America, bar Cuba.

Before Barack Obama got there a group of Secret Service agents that descended on Cartagena decided to have some fun. And apparently it was a wild night.

It would probably all go down unnoticed – including the summit in Colombia itself – had it not been for a huge ruckus and dispute the next morning with the girls that the agents brought back to their hotel over the payment for their services.

Cartagena deserves its attention for a host of other reasons, however.

It was one of the most important cities during the expansion of the Spanish Empire in the Americas. Its port was a major trading hub for gold and silver mined in New Granada and Peru. Galleons loaded with precious metals would depart from Cartagena for Spain.

Because of its economic and subsequent political influence in the Americas the city had a strong presence of royalty and wealthy viceroys. Its riches made it the top target for pirates and Cartagena is THE city most associated with pirates in the Caribbean, and the world.

To defend against the plundering the Spanish have built an elaborate system of walls, fortifications, bastions, and castles. The construction began after the attack by Francis Drake in late 16th century and took an incredible two hundred years to complete.

Thanks to those efforts, however, Cartagena’s old colonial town is today immaculately preserved.

It’s an incredibly charming place full of colorful balconied houses, open plazas, imposing colonial administrative and religious buildings, horse-drawn chariots clomping through the streets, performers, flamboyant fruit sellers, musicians… etc.

The place has a great jovial vibe. But that’s not all there is to Cartagena.

Just a 5-minute taxi ride away and you can change the fairy-tale romantic old town for a Miami Beach-like setting in Bocagrande where new high-rise hotels and apartment buildings are popping up like mushrooms after autumn rain.

No wonder the place is a tourist magnet. Most of them are from other Latin American countries, however. There are hardly any Western tourists here, apart from an odd backpacker.

For now the property market is largely driven by Colombians who have favored this Caribbean town for a long time. It’s still an “undiscovered” investment haven when it comes to foreign, and especially Western investors for now.

That’s something that’s bound to change as Colombia goes through its transformation period and sheds it bad-boy image.

A few European investors have already started coming in. But the potential that Cartagena has is enormous, given its bountiful attributes.

And the time to get in on the action and enjoy the spoils of its rise to prominence again is now, especially as practically no one else is looking at it.

Eat this, Bitcoin -- Ricardo now has cloud!

Financial Cryptography - Thu, 03/06/2014 - 05:28
Ricardo is now cloud-enabled. Which I hasten to add, is not the same thing as cloud-based, if your head is that lofty. Not the same thing, at all, no sir, feet firmly placed on planet earth! Here's the story. Apologies in advance for this self-indulgent rant, but if you are not a financial cryptographer, the following will appear to be just a lot of mumbo jumbo and your time is probably better spent elsewhere... With that warning, let's get our head up in the clouds for a while. As a client-server construction, much like a web arrangement, and like Bitcoin in that the client is in charge, the client is of course vulnerable to loss/theft. So a backup of some form is required. Much analysis revealed that backup had to be complete, it had to be off-client, and also system provided. That work has now taken shape and is delivering backups in bench-conditions. The client can backup its entire database into a server's database using the same point-to-point security protocol and the same mechanics as the rest of the model. The client also now has a complete encrypted object database using ChaCha20 as the stream cipher and Poly1305 as the object-level authentication layer. This gets arranged into a single secured stream which is then uploaded dynamically to the server. Which latter offers a service that allows a stream to be built up over time. Consider how a client works: Do a task? Make a payment? Generate a transaction! Remembering always it's only a transaction when it is indeed transacted, this means that the transaction has to be recorded into the database. Our little-database-that-could now streams that transaction onto the end of its log, which is now stream-encrypted, and a separate thread follows the appends and uploads additions to the server. (Just for those who are trying to see how this works in a SQL context, it doesn't. It's not a SQL database, it follows the transaction-log-is-the-database paradigm, and in that sense, it is already stream oriented.) In order to prove this client-to-server and beginning to end, there is a hash confirmation over the local stream and over the server's file. When they match, we're golden. It is not a perfect backup because the backup trails by some amount of seconds; it is not therefore /transactional/. People following the latency debate over Bitcoin will find that amusing, but I think this is possibly a step too far in our current development; a backup that is latent to a minute or so is probably OK for now, and I'm not sure if we want to try transactional replication on phone users. This is a big deal for many reasons. One is that it was a quite massive project, and it brought our tiny startup to a complete standstill on the technical front. I've done nothing but hack for about 3 months now, which makes it a more difficult project than say rewriting the entire crypto suite. Second is the reasoning behind it. Our client side asset management software is now going to be using in a quite contrary fashion to our earlier design anticipations. It is going to manage the entire asset base of what is in effect a financial institution (FI), or thousands of them. Yet, it's going to live on a bog-standard Android phone, probably in the handbag of the Treasurer as she roves around the city from home to work and other places. Can you see where this is going? Loss, theft, software failure, etc. We live in one of the most crime ridden cities on the planet, and therefore we have to consider that the FI's entire book of business can be stolen at any time. And we need to get the Treasurer up and going with a new phone in short order, because her customers demand it. Add in some discussions about complexity, and transactions, and social networking in the app, etc etc and we can also see pretty easily that just saving the private keys will not cut the mustard. We need the entire state of phone to be saved, and recovered, on demand. But wait, you say! Of course the solution is cloud, why ever not? No, because, cloud is insecure. Totally. Any FI that stores their customer transactions in the cloud is in a state of sin, and indeed it is in some countries illegal to even consider it. Further, even if the cloud is locally run by the institution, internally, this exposes the FI and the poor long suffering customer to fantastic opportunities for insider fraud. What I failed to mention earlier is that my user base considers corruption to be a daily event, and is exposed to frauds continually, including from their FIs. Which is why Ricardo fills the gap. When it comes to insider fraud, cloud is the same as fog. Add in corruption and it's now smog. So, cloud is totally out, or, cloud just means you're being robbed blind like you always were, so there is no new offering here. Following the sense of Digicash from 2 decades earlier, and perhaps Bitcoin these days, we set the requirement: The server or center should not be able to forge transactions, which, as a long-standing requirement (insert digression here into end-to-end evidence and authentication designs leading to triple entry and the Ricardian Contract, and/or recent cases backing FIs doing the wrong thing). To bring these two contradictions together however was tricky. To resolve, I needed to use a now time-honoured technique theorised by the capabilities school, and popularised by amongst others Pelle's original document service called wideword.net and Zooko's Tahoe-LAFS: the data that is uploaded over UDP is encrypted to keys only known to the clients. And that is what happens. As my client software database spits out data in an append-only stream (that's how all safe databases work, right??) it stream-encrypts this and then sends the stream up to the server. So the server simply has to offer something similar to the Unix file metaphor: create, read, write, delete *and append*. Add in a hash feature to confirm, and we're set. (It's similar enough to REST/CRUD that it's worth a mention, but different enough to warrant a disclaimer.) A third reason this is a big deal is because the rules of the game have changed. In the 1990s we were assuming a technical savvy audience, ones who could manage public keys and backups. The PGP generation, if you like. Now, we're assuming none of that. The thing has to work, and it has to keep working, regardless of user foibles. This is the Apple-Facebook generation. This benchmark also shines adverse light on Bitcoin. That community struggles to deal with theft, lurching from hack to bug to bankruptcy. As a result of their obsession over The Number One Criminal (aka the government) and with avoiding control at the center, they are blinded to the costly reality of criminals 2 through 100. If Bitcoin hypothetically were to establish the user-friendly goal that they can keep going in the face of normal 2010s user demands and failure modes, it'd be game over. They basically have to handwave stuff away as 'user responsibility' but that doesn't work any more. The rules of the game have changed, we're not in the 1990s anymore, and a comprehensive solution is required. Finally, once you can do things like cloud, it opens up the possibilities for whole new features and endeavours. That of course is what makes cloud so exciting for big corporates -- to be able to deliver great service and features to customers. I've already got a list of enhancements we can now start to put in, and the only limitation I have now is capital to pay the hackers. We really are at the cusp of a new generation of payment systems; crypto-plumbing is fun again!...

The next shoe to drop on your retirement account

Sovereign Man - Wed, 03/05/2014 - 06:11

March 5, 2014
En route to Colombia

President Obama released his 2015 budget proposal yesterday… and as expected, it contained even more language about his MyRA initiative.

As we’ve discussed so many times in the past, IRAs are an irresistible kitty for such a bankrupt government.

The US government itself estimates that over $5 trillion is tucked away in American retirement accounts.

They need that money. Your money.

Think about it– the Chinese are starting to dump their US Treasuries in record numbers. The Social Security trust fund is also on track to start dumping Treasuries in order to pay out record numbers of retirees.

The US government is struggling to come up with new funding sources… and retirement accounts are by far the easiest target.

Why? Because the majority of retirement accounts at trapped at big Wall Street banks, which are all de facto agents of the government. All the Treasury Department has to do is make a phone call.

Of course, they’ll claim that it’s for your own good. I suspect they’ll wait until there’s a big stock market crash and then say “We must protect Americans from such risky investments. And that’s why today we are requiring these banks to invest a portion of the retirement accounts they manage in the safety and security of US government Treasuries.”

A few weeks ago in his Sad State of the Union address, President Obama announced this MyRA program– a new initiative that will “help” Americans invest directly in US Treasuries.

Then he looked everyone in the eye and said, “These accounts will never go down in value…”

Naturally. How could loaning money at rates which don’t even keep pace with inflation to a country that has racked up more debt than any other nation in the history of the world possibly pose a risk?

After announcing MyRA, Mr. Obama took to the streets, and his team took to the media… flooding newspapers and airwaves with MyRA propaganda.

Yesterday’s budget announcement constitutes the next phase: automatic enrollment.

And I suspect that, just like Obamacare, there will soon come a time when it will become MANDATORY to have some sort of retirement plan set up, naturally with the government option at people’s fingertips.

This isn’t some far-fetched conspiracy theory. In fact, it’s already happened in so many countries over the last few years– from Argentina to Ireland to Poland.

In fact, even the Treasury Department grabbed government pension funds at least three times since 2011 in order to plug temporary funding gaps.

The Federal Times, a publication for senior government managers, ran a story back in 2011 entitled “Treasury raids your pension – but don’t worry, Geithner says”.

This idea is no longer theory or conjecture. It’s happening, and the conclusions are all supported by the data.

Anyone who thinks ‘that will never happen here’ is really fooling themselves… and playing very dangerous games with their hard-earned savings.

What the Russian (and Chinese) papers are saying about Ukraine

Sovereign Man - Wed, 03/05/2014 - 05:59

March 5, 2014
En route to Colombia

“Putin: Unconstitutional coup is taking place in Ukraine. The U.S halted military cooperation and trade negotiations with Russia”

That’s the headline from a Beijing newspaper– and no surprise that it leans slightly to the Russian side.

The article goes on:

“Russian president Putin said on 4th March that unconstitutional coup is taking place in Ukraine and Russia will only use the army to Ukraine under “the most extreme situation”. This was the first time that Putin declared this publicly since the escalation of the situation in Ukraine.”

“U.S. Secretary of State John Kerry threatened on March 2nd that the U.S and allied countries will take a series of actions including visa ban, capital controls, economic and trade sanctions, etc.”

“The White House issued this in a joint statement signed by the Group of Seven member countries and accused Russia of violation of the territorial integrity of Ukraine. The White House also declared temporarily not to participate in the preparation for the G8 summit scheduled for June in Sochi, Russia.”

– and of course :

“Chinese Permanent Representative to the United Nations Liu Jieyi called for dialogue of all sides to resolve differences and maintain regional peace and stability. The united nations security council held an emergency meeting on the Ukrainian situation. Liu Jieyi said in the meeting that China is deeply concerned about Ukrainian situation and condemn the extreme violence in Ukraine.”

Meanwhile, Russian newspaper Itar Tass had this headline (loose translation):

“Putin: Those [foreign nations] who are talking about imposing sanctions on the Russian Federation should first consider the impact of those sanctions”

The article goes on:

“President Putin told reporters that the damage to all countries involved is mutual:

“We can cause damage to each other– mutual damage. And this needs to be thought about. . . We believe our actions are fully justified. And any threats to Russia are counterproductive and harmful.”

Mr. Putin added that Russia is still preparing for upcoming G8 meeting.

“If [the other countries] do not want to come, they don’t have to,” he told reporters .

The Russian President also expressed the opinion that the U.S. has historically created its own geopolitical goals, and then dragging along the rest of the world underneath them:

“Our partners, especially in the U.S.– they always clearly formulate their geopolitical interests and pursue them very aggressively. Guided by the well-known phrase, “you are either with us or against us,” they drag the rest of the world along, underneath them. And whoever doesn’t go along is beaten and usually killed,” the President told reporters.

He emphasized that Russia’s actions come from legitimate grounds.So on one hand, the Chinese are essentially making the West out to be the belligerents, the Russians to be defending their interests, and the Chinese as the strong diplomats who are pushing for peace.

And on the other hand, the Russian papers are highlighting the utter hypocrisy of US foreign policy– it’s OK for America to invade whatever country it likes, but not for Russia to defend its own interests.

A respectful disagreement with Warren Buffett

Sovereign Man - Tue, 03/04/2014 - 07:05

March 4, 2014
Sovereign Valley Farm, Chile

Warren Buffet sees a different America than I do. I would wager he sees a different America than untold millions of people do too.

And with due respect to the kind-hearted Mr. Buffet, who is undoubtedly an accomplished and savvy investor, the man has been a major beneficiary of the greatest monetary fraud ever pulled in the history of the world.

In his most recent annual report just released yesterday, Mr. Buffet lauds the United States of America, writing:

“Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.”

Such language is typical for Mr. Buffett, he is one of America’s biggest cheerleaders. Again, with good reason.

For one, the unprecedented monetary expansion over the last decades has created a major boon for Mr. Buffet and his net worth.

His company Berkshire Hathaway has a balance sheet worth $485 billion. 25% of that is simply invested in the stock market with big chunks of Coca Cola and American Express.

These stock prices have boomed in an era of unprecedented money printing, adding billions to Mr. Buffett’s net worth.

Second, it’s important to note that over 75% of Berkshire’s revenue comes from highly regulated, absurdly profitable, tax advantageous businesses that are simply not accessible to the average guy.

For example, Mr. Buffett gleefully writes about the $77 billion ‘float’ from his insurance businesses.

This is money that is collected from insurance customers. And while he might have to pay out insurance claims someday, for now he gets to borrow from that kitty at 0% and generate higher returns elsewhere.

On top of this, Mr. Buffett has been able to defer a full $57 billion in tax, indefinitely kicking the can down the road on his IRS bill thanks to industry-specific tax rules.

Again, you and I couldn’t do this because we don’t have access to these special privileges. Warren Buffett does.

Warren Buffett also has special access to lawmakers in the US who clamor to be in his favor.

During the early days of the financial crisis in 2008, for example, Buffett was getting desperate phone calls from the Treasury begging him to make investments in the financial system.

And as a result, he was able to arrange sweetheart deals, brokered by the US government.

It also may just be a wild coincidence that the US government has rejected the Keystone XL pipeline… and Mr. Buffett’s railways just -happen- to be among the prime beneficiaries.

Yes, I think if we all had the special privilege, access, and benefit that Warren Buffett enjoys, we too would all be jumping for joy about America.

But Uncle Warren lives in a different America– the America of the past.

With due deference to his investment acumen, Mr. Buffett should know that no nation in history has been able to -permanently- stand atop the world’s economic mountain.

Like human beings ourselves, nations also rise, peak, and decline. It is their own life cycle.

And the America that Mr. Buffett doesn’t acknowledge is the one that is in debt past its eyeballs.

It is the America that spies on its citizens and threatens people with imprisonment for victimless crimes and administrative transgressions.

It is the America that conjures trillions of paper dollars out of thin air in total desperation, sending the labor force participation rate to multi-decade lows.

It is the new America that exists for a tiny elite at the expense of everyone else.

Talk about an utter intelligence failure…

Sovereign Man - Tue, 03/04/2014 - 06:59

March 4, 2014
Sovereign Valley Farm, Chile

This is just too funny… not in that ‘ha ha’ funny way, but a very ironic funny. It’s British humor, folks.

The White House announced on Saturday that President Obama had a 90 minute phone call with Russian President Vladimir Putin about Ukraine’s territorial sovereignty.

Now, I’m going to play Captain Obvious for a moment and point out the unmistakable truth that the US government doesn’t care about Ukraine. They just don’t like the idea of a tough-guy Russia.

But here’s the funny part, because I’m sure we’ve all been on long, boring conference calls before.

I have this image in my mind of Putin putting Obama on speaker phone during this call, hitting the ‘mute’ button, and having an aggressive round of drinking games while they all make fun of POTUS and take turns doing Obama impressions.

And as Obama hit the high note, Putin probably gave signal to his generals right then and there, in the middle of the call, to push troops forward into Ukraine.

Because the sad part about this is that Mr. Obama actually believes that Putin gives a damn what the US thinks about Russia.

Seriously, if the shoe were on the other foot, would Mr. Obama care what the Russians thought if the US decided to invade… Syria? Oh, wait.

Yes, this is a movie we’ve all seen before. It’s entitled “Too broke for war”, and I personally like the British version the best.

You probably recall, the British government was too broke for war back in 1956 to seize control of the Suez in Egypt after Nasser nationalized the canal.

Or the Spanish version of the same episode– back in 1898 when the Spanish government was too broke (and broken) to maintain its global colony network. They ended up losing Cuba, the Philippines, etc. to the upstart US empire.

The US has reached that point– too broke to project any power overseas.

Mr. Obama was already stopped by Russia from invading Syria late last year, and at this point the Russians know that Mr. Obama is armed with little more than harsh words and a mean jump shot.

In fairness, it’s unlikely that Mr. Putin has any intent to Annex greater Ukraine. Ukraine is viewed as a quaint, somewhat backward place by Russians. There is no great pan-Slavic nationalism at play here.

This is nothing more than a strutting peacock show right now, and it will end once he has proved his point. But unlike France, the US, the UK, etc., Mr. Putin actually has the funds to do it.

But the most ironic part of this sad little episode is that the US government was caught totally off guard… completely unaware of Russian troop movements.

I mean, seriously, why in the world are they spending tens of billions of dollars a year to spy on the whole world? They’re archiving all of our emails, listening to our phone calls, hacking our webcams… and they can’t put 2 and 2 together to figure out that Putin is going to invade Ukraine?

Talk about an utter intelligence failure.

It’s national security theater of the absurd, brought to you by the same folks who can’t put a website together.

Former central banker: “[Bankers] are making it up as they go along.”

Sovereign Man - Mon, 03/03/2014 - 06:28

March 3, 2014
London, England

[Editors note: Tim Price, Director of Investment at PFP Wealth Management and frequent Sovereign Man contributor is filling in for Simon today.]

A few weeks ago, William White (former economist at the Bank of England, the Bank of Canada, and Bank of International Settlements) made a frank admission.

And while we search for assets whose prices are less obviously distorted by malign government intervention, it’s refreshing to hear a mea culpa from a member of the economics “profession”.

White said:

“The analytical underpinnings of what we [mainstream economists] do are actually pretty shaky. A reflection of that fact, is that virtually every aspect you can think of with respect to monetary policy, about best practice, has changed and changed repetitively over the course of the last 50 years. So, this stuff ain’t science.

“Think about what’s happened recently. One, its completely unprecedented. People are making it up as they go along. This is hardly science – building on the pillars of the past.

“Secondly, what they’ve been making up as they go along actually differs across central banks [The Bundesbank, for example, is fighting the threat of high inflation, whereas the Fed is more concerned about the prospect of deflation]. They can’t even agree amongst themselves about what’s the best way to do things.

“I’m becoming more and more convinced that all of the models we use are basically useless.

“It’s surprising that we’ve had this huge crisis that the mainstream didn’t predict. It’s gone on for years, which the mainstream absolutely didn’t predict. I would have thought this was a basis for a fundamental rethink about what we used to think we believed. But that hasn’t happened.

“The policies that we’ve followed – on the monetary side at least – since 2007 are just more of the same demand-stimulating policies that we’ve been following, I think, erroneously, for the last 30 years.

“We’ve got the potential to do so much harm by not getting the creation of fiat credit and money right. We’ve got the capacity to do so much harm that we should be focusing much more on making sure that doesn’t happen.”

[End quote]

Doctors at least have the Hippocratic Oath: first, do no harm. If only economists and central bankers had a similar ethic.

But they don’t. So they continue ‘making it up as they go along’, as Mr. White suggests, applying failed ideas with impunity and continued authority to an unquestioning public.

Warren Buffett famously compared financial markets to the card table, observing that if you’ve been playing poker for half an hour and you still don’t know who the patsy is, then you’re the patsy. It seems we are all patsies now.

You can listen to the full interview here:

“I haven’t seen anyone from the government in eight years…”

Sovereign Man - Fri, 02/28/2014 - 05:57

February 28, 2014
Sovereign Valley Farm, Chile

“Hey I just wanted to let you know, a guy from the local government was here today…”

That was one of the first phone calls I received from the manager of this place just a few days after I had taken over this farm a couple of years ago.

A visit from the government seemed harmless enough. My friends back in the US who were farmers always complained about incessant, nonstop visits from various federal, state, and local agencies ranging from immigration to census workers to food inspectors.

“How often do they come around?” I asked, hoping the answer would be something like ‘monthly’ or ‘quarterly’.

“I haven’t seen anyone from the government in eight years…”

Nice. And he was right.

In the years since then, there was only one ‘emergency’ instance in which some guys from the Agriculture Department came to warn us about a plant disease going around which might damage the grapes.

As they drove off I thought of that old Reagan quote– “wow, they’re from the government and really were here to help…”

In stark contrast, a rather depressing story emerged from the Land of the Free this week demonstrating how the FDA is taking a very heavy hand to American farmers.

The LA Times reports that federal agents are swarming onto private properties across the country to regulate how Mom and Pop farmers grow their organic produce.

Of course it’s all in the name of protecting the American people. Just like the body scanners they installed at airports, why they spend hundreds of billions on foreign wars, why they read all of your email, and why they’ve launched a government retirement program. For your protection.

So now there’s a bunch of bureaucrats dictating everything from how organic farmers are allowed to compost, to how close animals can be to the crops.

(Naturally the big guys like Monsanto get a pass…)

Unfortunately it’s pushing small farmers out of business. Don Bessemer of Akron, Ohio recently called it quits after the government bureaucrats proved too much to handle:

“We haven’t poisoned anybody with an ear of corn for 117 years and we’ve shipped it all over. . . I can fight the bugs, I can fight the lack of rain, but when the guy comes with a clipboard what are you going to do?”

This is central planning at its finest. And it’s a pretty sad state of affairs when the only options are (1) going out of business, or (2) dealing with bloodsucking bureaucrats who know nothing about your business.

The truth is, though, those aren’t the only two options. As we tell our students each year at our summer entrepreneurship camp, there’s an entire world out there full of incredible opportunities.

Colombia, where my team and I just came from, is a place with amazing undiscovered possibilities. Here in Chile is another that I discuss frequently.

The world is full of thriving nations with boundless opportunities where you don’t have to serve feckless bureaucrats.

This is a hard mental adjustment. We’re programmed to view anything outside of our home country as perilous and to fear the unknown. So many folks would rather suffer in a place they know rather than take a chance on a place they don’t.

Fortunately it’s rather easy to overcome this mental hurdle by starting slowly. I’ve seen hundreds of people take their first trips overseas and be shocked at how modern and civilized many foreign countries are.

They find out it’s not so scary after all. And it sure beats the slow grind of watching your freedom and livelihood erode.

This city should definitely be on your radar

Sovereign Man - Thu, 02/27/2014 - 09:29

February 27, 2014
Medellin, Colombia

$1 billion.

That’s how much the old Medellin drug cartel under Pablo Escobar used to lose annually to rats that would eat the currency stored in their warehouses.

At its height, the cartel was smuggling 15 tons of cocaine per year into the US. And its leader Pablo Escobar was one of the richest men in the world… so rich, in fact, he offered at one point to pay off Colombia’s $10 billion national debt.

At the time their home base of Medellin was the most violent city in the world owing to urban wars among Colombia’s rival drug cartels. The city’s people mostly stayed at home and there was hardly any social life.

But things started to change dramatically with the death of Pablo Escobar in 1993, and even more after 2002 when Colombia’s president Álvaro Uribe used the military to disband urban militias.

Today, Medellin is one of the most vibrant cities on the South American continent. The crime rate is now lower than in most US cities. Over the past 20 years it has gone through a remarkable urban renewal and revitalization.

The city’s parks have been brought back to life, urban transport is widespread and efficient, including a metro system and cable cars that ferry people up and down the hillside.

Most importantly, the people have shrugged off worries and dark memories of the turbulent past and now look into the future with excitement and optimism.

There is a very noticeable ‘can do’ mentality here, which stands in stark contrast to some other places in Latin America.

The city lies about 1,500 m high in the Andean mountains and the sky is quite literally the limit here.

In 2012 Medellin was named as the most innovative city in the world in a competition sponsored by The Wall Street Journal and Citi, beating New York and Tel Aviv as the other finalists.

It boasts 32 universities, a technological innovation hub, and a manufacturing cluster—it’s the top exporting region of Colombia. International companies are increasingly choosing Medellin as their Latin American headquarters.

Foreigners are slowly getting taken over by the charms of the city—its perfect climate with stable year-round temperatures of 16-28 degrees and no humidity despite being near the Equator.

Medellin has an exciting, vibrant culture and social life… not to mention tremendous opportunities as Colombia shrugs off its outdated stigma. The country is truly emerging as one of the most exciting investment and business environments in the world.

In fact, Medellin’s property market is one of the most attractive I’ve seen.

For a city of its size, its increasing economic might, and its allure for foreigners, it’s incredible that you can still find beautiful bargain-priced apartments and penthouses in the best areas of the city for around $1,000 per square meter.

If you’re in search for attractive and exciting investing, business and lifestyle opportunities, Medellin should definitely be on your radar.

[Note to Premium Members: We’ll be discussing all of these in an upcoming Alert. And if you're not a premium member yet you can join us here]