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The Complete Guide To How The NSA Hacked Everything | Zero Hedge

The Complete Guide To How The NSA Hacked Everything | Zero Hedge.

Two days ago we observed the latest disclosure in the seemingly endless Snowden treasure trove of leaked NSA files, when Spiegel released the broad details of the NSA’s Access Network Technology (ANT) catalog explaining how virtually every hardware architecture in the world has been hacked by the US superspies. We followed up with a close up of “Dropout Jeep” – the NSA’s project codename for backdoor entry into every iPhone ever handed out to the Apple Borg collective (because it makes you look cool). Today, we step back from Apple and release the full ANT catalog showcasing the blueprints of how the NSA managed to insert a backdoor into virtually every piece of hardware known under the sun.

And so, without further ado, here is the complete slidebook of how the NSA hacked, well, everything.

Document

 

How The NSA Hacks Your iPhone (Presenting DROPOUT JEEP) | Zero Hedge

How The NSA Hacks Your iPhone (Presenting DROPOUT JEEP) | Zero Hedge.

Following up on the latest stunning revelations released yesterday by German Spiegel which exposed the spy agency’s 50 page catalog of “backdoor penetration techniques“, today during a speech given by Jacob Applebaum (@ioerror) at the 30th Chaos Communication Congress, a new bombshell emerged: specifically the complete and detailed description of how the NSA bugs, remotely, your iPhone. The way the NSA accomplishes this is using software known as Dropout Jeep, which it describes as follows: “DROPOUT JEEP is a software implant for the Apple iPhone that utilizes modular mission applications to provide specific SIGINT functionality. This functionality includes the ability to remotely push/pull files from the device. SMS retrieval, contact list retrieval, voicemail, geolocation, hot mic, camera capture, cell tower location, etc. Command, control and data exfiltration can occur over SMS messaging or a GPRS data connection. All communications with the implant will be covert and encrypted.”

The flowchart of how the NSA makes your iPhone its iPhone is presented below:

  • NSA ROC operator
  • Load specified module
  • Send data request
  • iPhone accepts request
  • Retrieves required SIGINT data
  • Encrypt and send exfil data
  • Rinse repeat

And visually:

What is perhaps just as disturbing is the following rhetorical sequence from Applebaum:

“Do you think Apple helped them build that? I don’t know. I hope Apple will clarify that. Here’s the problem: I don’t really believe that Apple didn’t help them, I can’t really prove it but [the NSA] literally claim that anytime they target an iOS device that it will succeed for implantation. Either they have a huge collection of exploits that work against Apple products, meaning that they are hoarding information about critical systems that American companies produce and sabotaging them, or Apple sabotaged it themselves. Not sure which one it is. I’d like to believe that since Apple didn’t join the PRISM program until after Steve Jobs died, that maybe it’s just that they write shitty software. We know that’s true.”

Or, Apple’s software is hardly “shitty” even if it seems like that to the vast majority of experts (kinda like the Fed’s various programs), and in fact it achieves precisely what it is meant to achieve.

Either way, now everyone knows that their iPhone is nothing but a gateway for the NSA to peruse everyone’s “private” data at will. Which, incidentally, is not news, and was revealed when we showed how the “NSA Mocks Apple’s “Zombie” Customers; Asks “Your Target Is Using A BlackBerry? Now What?

How ironic would it be if Blackberry, left for dead by virtually everyone, began marketing its products as the only smartphone that does not allow the NSA access to one’s data (and did so accordingly). Since pretty much everything else it has tried has failed, we don’t see the downside to this hail mary attempt to strike back at Big Brother and maybe make some money, by doing the right thing for once.

We urge readers to watch the full one hour speech by Jacob Applebaum to realize just how massive Big Brother truly is, but those who want to just listen to the section on Apple can do so beginning 44 minutes 30 seconds in the presentation below.

 

Pipeline Decisions Based on Short-Term Payoffs Are Dangerously Irrational | David R. Miller

Pipeline Decisions Based on Short-Term Payoffs Are Dangerously Irrational | David R. Miller.

Last week, Lorraine Mitchelmore, the top Canadian executive for Royal Dutch Shell, broke with industry narrative, stating that “the argument for environmentalism is not an emotional argument. It is just as rational as the argument for growing our energy industry.”

There is an important underlying realization in Mitchelmore’s statement that some conservative pundits, as well as our own government, seem to willfully miss. Sustainability — smart environmental decision-making — has everything to do with prosperity. It has everything to do with people’s jobs and their quality of life, with the opportunities they want for their kids. It is, in fact, the rational decision to carefully steward, protect, and invest in the natural capital on which our communities and future livelihoods depend.

What is dangerously irrational is making decisions based on short-term economic pay-offs that we know will undermine our future prosperity, perhaps catastrophically.

This is exactly what the proposed Northern Gateway pipeline threatens to do. Our government is apparently determined to move unprocessed diluted bitumen by tanker through the Great Bear Sea, which by Environment Canada’s own assessment, is one of the most treacherous sea passages in the world. No one can guarantee that there will not be an accident. Indeed, given the extremely dangerous waters of the Hecate Strait, it is rational to argue that an accident is simply a matter of time. And as two recent reports point out — one commissioned by the Province of B.C. and the other by the Federal government — Canada is woefully ill-prepared to deal with an oil spill in these waters.

What is at risk is very clear. Just talk to the people who live in this region, and they will tell you. It’s their jobs — the fishing and tourism industries — and their cultural identity. And it’s the spectacular ecosystem upon which all of that depends. A place that is as unique a global treasure as the Great Barrier Reef or the Amazon rainforest. It is no wonder that so many Canadians exercised their democratic rights by participating in the review process for this project. More than 9,500 people wrote to the Joint Review Panel, 96 per cent against the pipeline. The overwhelming majority of the 1,000+ people who provided oral testimony were also opposed. There is no question that the concerns raised by this project are the legitimate concerns of Canadians who value their livelihoods.

The real question is why we would take such a huge risk in such a special place.

If the answer is “to defend jobs”, it is misguided and misleading. More jobs will be destroyed by an oil spill than will be created by Enbridge’s proposed Northern Gateway pipeline. Coastal First Nations’ traditional territories and coastal communities depend economically on the Great Bear Sea. Marine-dependent activities in these territories represent significant economic value. B.C. seafood and tidal recreational fishing generate $2.5 billion per year – and support more than 30,000 jobs. Exporting raw, unprocessed bitumen creates far more jobs outside Canada than it does here.

It is also irrational to repeat mistakes that we now have the knowledge and ability to avoid.

A generation ago, the Exxon Valdez ran aground and foundered, off the coast of Alaska. The resulting oil spill was an ecological, economic and social disaster that crippled coastal communities and deprived a generation of its livelihoods. The loss of the herring fishery alone cost the economy $400 million. Many communities have not yet fully recovered. In fact, some never will.

It’s a fate that we have the power to prevent in the Great Bear region, by pragmatically acknowledging that the risks of this proposed oil pipeline outweigh the benefits.

Yes, the argument for environmentalism is a rational one. For the people whose lives would be destroyed by an oil spill, it is also an emotional one. And for Canada, particularly at this moment, it is the one that will determine our future as global leader or laggard.

This article originally appeared in the Financial Post on Dec. 17, 2013

 

Washington’s Blog | Business, Investing, Economy, Politics, World News, Energy, Environment, Science, Technology Washington’s Blog

Washington’s Blog | Business, Investing, Economy, Politics, World News, Energy, Environment, Science, Technology Washington’s Blog.

Veteran Journalists Reveal that – Contrary to It’s Claims of “Openness” and “Transparency” – This Administration Is the Most Closed Ever

Long-time CNN political reporter Bob Franken (now with MSNBC) said last week:

FRANKEN: Well, let’s use the “P” word here. This is propaganda when it comes from the White House: government covering the government. It’s not what you’re supposed to do in the United States of America. But we have an administration, every president gets to the point where he dislikes the press. It’s that simple. And every administration tries to manipulate the press. But this is the most hostile to the media that has been in United States history. Not only do we have this thing where they’re…

[Interviewer]: Wait, you would go that far?

FRANKEN: I would go that far.

[Interviewer]: The most hostile in history?

FRANKEN: The most hostile because first of all, we have the situation where they are in fact shutting out the press. And by the way, when they say you can’t have every photographer in, they know full-well that there’s a thing called a pool, which is to say you have one representative from each of the media that represents all of them and shares the pictures and the sound and all that kind of thing. So that’s totally disingenuous, which is a polite word.

But the reason I say most hostile is because of the Justice Department moves that they’ve made against the press. Obviously they have a contempt for the journalistic process. Those of us who are in journalism, of course, believe that it is vital if you’re going to have informed electorate as opposed to one that’s been propagandized.

 

 

Many other veteran reporters agree.  For example, the Washington Post reported recently:

With the passage of the Patriot Act after the Sept. 11, 2001, terrorist attacks, a vast expansion of intelligence agencies and their powers, the aggressive exploitation of intrusive digital surveillance capabilities, the excessive classification of public documents and officials’ sophisticated control of the news media’s access to the workings of government, journalists who cover national security are facing vast and unprecedented challenges in their efforts to hold the government accountable to its citizens. They find that government officials are increasingly fearful of talking to them, and they worry that their communications with sources can be monitored at any time.So what are they doing? Many reporters covering national security and government policy in Washington these days are taking precautions to keep their sources from becoming casualties in the Obama administration’s war on leaks. They and their remaining government sources often avoid telephone conversations and e-mail exchanges, arranging furtive one-on-one meetings instead. A few news organizations have even set up separate computer networks and safe rooms for journalists trained in encryption and other ways to thwart surveillance.

“I worry now about calling somebody because the contact can be found out through a check of phone records or e-mails,” said veteran national security journalist R. Jeffrey Smith of the Center for Public Integrity, a nonprofit accountability news organization. “It leaves a digital trail that makes it easier for government to monitor those contacts.”

“We have to think more about when we use cellphones, when we use e-mail and when we need to meet sources in person,” said Michael Oreskes, senior managing editor of the Associated Press. “We need to be more and more aware that government can track our work without talking to our reporters, without letting us know.”

These concerns, expressed by numerous journalists I interviewed, are well-founded. Relying on the 1917 Espionage Act, which was rarely invoked before President Obama took office, this administration has secretly used the phone and e-mail records of government officials and reporters to identify and prosecute government sources for national security stories.

***

In addition to ongoing leak investigations, six government employees and two contractors, including fugitive NSA contractor Edward Snowden, have been prosecuted since 2009 under the Espionage Act for providing information to reporters about, among other subjects, the NSA’s communications surveillance, the CIA’s aggressive interrogation of terrorism suspects and, in the case of Army Pvt. Bradley Manning, diplomatic cables and Iraq and Afghanistan war documents.

***

The Obama administration has drawn a dubious distinction between whistleblowing that reveals bureaucratic waste or fraud, and leaks to the news media about unexamined secret government policies and activities; it punishes the latter as espionage.

***

Every disclosure to the press of classified information now triggers a leak investigation, said Washington Post national news editor Cameron Barr. “Investigations can be done electronically. They don’t need to compel journalists to reveal sources.”

The Post’s Justice Department reporter, Sari Horwitz, said a Justice official told her that “access to e-mail, phone records and cellphones make it easier to do now.”

After the New York Times published a 2012 story by David E. Sanger about covert cyberattacks by the United States and Israel against Iran’s nuclear enrichment facilities, federal prosecutors and the FBI questioned scores of officials throughout the government who were identified in computer analyses of phone, text and e-mail records as having contact with Sanger.

“A memo went out from the chief of staff a year ago to White House employees and the intelligence agencies that told people to freeze and retain any e-mail, and presumably phone logs, of communications with me,” Sanger said. As a result, longtime sources no longer talk to him. “They tell me: ‘David, I love you, but don’t e-mail me. Let’s don’t chat until this blows over.’ ”

Sanger, who has worked for the Times in Washington for two decades, said, “This is most closed, control-freak administration I’ve ever covered.”

***

A survey of government departments and agencies this summer by the Washington bureau of McClatchy newspapers found that they had wide latitude in defining what kinds of behavior constitute a threat. “Government documents reviewed by McClatchy illustrate how some agencies are using that latitude to pursue unauthorized disclosures of any information, not just classified material,” it reported in June. “They also show how millions of federal employees and contractors must watch for ‘high-risk persons or behaviors’ among co-workers and could face penalties, including criminal charges, for failing to report them. Leaks to the media are equated with espionage.”

Steven Aftergood, director of the Project on Government Secrecy at the Federation of American Scientists, told me that the Insider Threat Program has already “created internal surveillance, heightened a degree of paranoia in government and made people conscious of contacts with the public, advocates and the press.”

***

“People think they’re looking at reporters’ records,” Post national security reporter Dana Priest told me. “I’m writing fewer things in e-mail. I’m even afraid to tell officials what I want to talk about because it’s all going into one giant computer.”

***

“Whenever I’m asked what is the most manipulative and secretive administration I’ve covered, I always say it’s the one in office now,” Bob Schieffer, CBS News anchor and chief Washington correspondent, told me.“Every administration learns from the previous administration. They become more secretive and put tighter clamps on information. This administration exercises more control than George W. Bush’s did, and his before that.”

While Obama says he’s running the most transparent administration ever, he’s actually running themost secretive administration ever (background).

The government has taken to protecting criminal wrongdoing by attacking whistleblowers … and any journalists who have the nerve to report on the beans spilled by the whistleblowers.  (The government has also repealed long-standing laws against using propaganda against Americans on U.S. soil, and the government is manipulating social media – more proof here and here).

The Obama administration has prosecuted more whistleblowers than all other presidents combined.

And it goes out of its way to smear whistleblowersthreaten reporters who discuss whistleblower information and harass honest analysts.

Journalism is not only being criminalized in America, but investigative reporting is actually treated liketerrorism.

The government admits that journalists could be targeted with counter-terrorism laws (and here). For example, after Pulitzer Prize winning journalist Chris Hedges, journalist Naomi Wolf, Pentagon Papers whistleblower Daniel Ellsberg and others sued the government to enjoin the NDAA’s allowance of the indefinite detention of Americans – the judge asked the government attorneys 5 times whether journalists like Hedges could be indefinitely detained simply for interviewing and then writing aboutbad guys. The government refused to promise that journalists like Hedges won’t be thrown in a dungeon for the rest of their lives without any right to talk to a judge

After the government’s spying on the Associated Press made it clear to everyone that the government is trying to put a chill journalism, the senior national-security correspondent for Newsweek tweeted:

Serious idea. Instead of calling it Obama’s war on whistleblowers, let’s just call it what it is: Obama’s war on journalism.

Moreover:

  • The Bush White House worked hard to smear CIA officersbloggers and anyone else who criticized the Iraq war

And the American government has been instrumental in locking up journalists in America (and here),Yemen and elsewhere for the crime of … embarrassing the U.S. government.

 

Washington’s Blog | Business, Investing, Economy, Politics, World News, Energy, Environment, Science, Technology Washington’s Blog

Washington’s Blog | Business, Investing, Economy, Politics, World News, Energy, Environment, Science, Technology Washington’s Blog.

Japanese (And American) Governments Go to Extreme Lengths to Cover Up Fukushima and Other Disasters

Japan and the U.S. are doing everything they can to cover up the danger of the Fukushima crisis.

The Daily Beast notes:

The Japanese government, which already has a long history of cover-ups and opaqueness, is on its way to becoming even less open and transparent after the lower house the Diet, Japan’s parliament, passed the Designated Secrets Bill on Tuesday. With new powers to classify nearly anything as a state secret and harsh punishments for leakers that can easily be used to intimidate whistleblowers and stifle press freedom, many in Japan worry that the if the bill becomes law it will be only the first step towards even more severe erosions of freedom in the country.

***

Even politicians inside the ruling bloc are saying, “It can’t be denied that another purpose is to muzzle the press, shut up whistleblowers, and ensure that the nuclear disaster at Fukushima ceases to be an embarrassment before the Olympics.”

***

The new law would enact harsher punishment to leakers and ominously would allow journalists who obtained information by “inappropriate means” and whistleblowers to be jailed for up to ten years. The law would also allow the police to raid the offices of media organizations and seize evidence at their discretion.

***

The bill has even grants no longer existent agencies the power to classify secrets.

***

Despite the bill’s enlargement of the state’s power over information, it contains no oversight process to act as a check on ministries and government agencies designating large amounts of information as ‘secret’ for capricious or self-interested reasons.

***

Masako Mori, the Minister of Justice, has declared that nuclear related information will most likely be a designated secret. For the Abe administration this would be fantastic way to deal with the issue of tons of radiated water leaking from the Fukushima Daichi Nuclear Power Plant since the triple meltdown in March of 2011.There seems to be no end to stopping the toxic waste leaks there but the new legislation would allow the administration to plug the information leakspermanently.

***

Mizuho Fukushima, former leader of the Social Democratic Party, compared the bill to the pre-World War II Peace Maintenance Preservation Laws and other Secrecy laws at the time, remarking that there was a time in police-state Japan when the weather reports could be considered “secret.”

““Once you open the door to such kind of laws, the government will have the right to designate anything as a state secret and by speaking about it or mentioning it, you can be arrested and prosecuted.” Ms. Fukushima explained, “Especially during war time, it was very difficult for defendants and lawyers to fight their court cases, because they were not told what exactly what was the state secret that they had been accused of having revealed.”

Outspoken Upper House Councilor Taro Yamamoto, who is known to be a strong supporter of investigative journalism, minces no words: “The path that Japan is taking is the recreation of a fascist state. I strongly believe that this secrecy bill represents a planned coup d’état by a group of politicians and bureaucrats,” he warned.

While his statement may seem alarmist, even a senior official of the National Police Agency agrees. “I would say this is Abe’s attempt to make sure that his own shady issues aren’t brought to light, and a misuse of legislative power.

***

The Japan Newspaper Publishers & Editors Association, the Civil Broadcasters Federation, and most major news organizations in Japan’s have expressed staunch opposition to the bill.

***

Japan is about to take a giant step back into its oppressive past. When one also considers Prime Minister Abe’s stated ambition to restart Japan’s nuclear power plants and remove Article 9 from the constitution, the article which prevents Japan from waging war, it seems like the Empire of The Sun may be moving towards darker times.

Indeed, Ex-SKF notes that :

A citizen was forcibly removed from the balcony in the Diet where he was observing the debate of the State Secrecy Protection Law in the Lower House on November 26, 2013, as he shouted his opposition to the passage of the law. His mouth was stuffed with cloth so that he couldn’t shout any more while being removed by several guards against his will.

(From Tokyo Shinbun, 11/26/2013, via this tweet)

What’s even scarier to me than the man being forcibly removed by the guards is people sitting near him. They just sit there as if nothing is happening. They are not even looking; the one in the same row even looks away.

It’s not just Fukushima … and It’s not Just Japan

It’s not just Fukushima …

Governments have been covering up nuclear meltdowns for 50 years.

There has been a cover-up by the American government ever since the Fukushima earthquake. TheAmerican (and Canadian) authorities virtually stopped monitoring airborn radiation, and are not testing fish for radiation.

The U.S. government increased allowable radiation levels so that we could be exposed to radiation. Nuclear expert Arnie Gundersen says that high-level friends in the State Department told him that Hillary Clinton signed a pact with her counterpart in Japan agreeing that the U.S. will continue buying seafood from Japan, despite that food not being tested for radioactive materials.

The American government controls Japanese nuclear policy. And the Japanese would never have proposed such a draconian bill without U.S. backing.  Indeed, the U.S. Charge d’Affairs Kurt Tong saidof the Japanese bill:

It’s a positive step that would make Japan a “more effective alliance partner.”

Earlier this year, the acting EPA director signed a revised version of the EPA’s Protective Action Guide for radiological incidents, which radically relaxed the safety guidelines agencies follow in the wake of a nuclear-reactor meltdown or other unexpected release of radiation.  EPA whistleblowers called it “a public health policy only Dr. Strangelove could embrace.”

Whistleblowers at American nuclear facilities (like all other types of whistleblowers)  have also beenmercilessly harassed.

It’s not just nuclear accidents … it’s everything.

The American government repeatedly covers up how bad things are, uses claims of national security to keep everything in the dark, and changes basic rules and definitions to allow the game to continue. Seethisthisthis and this.

When BP – through criminal negligence – blew out the Deepwater Horizon oil well, the governmenthelped cover it up (and here).   As just one example, the government approved the massive use of ahighly-toxic dispersant to temporarily hide the oil.

The government also changed the testing standards for seafood to pretend that higher levels of toxic PAHs in our food was business-as-usual.

The government covers up the disgusting and unhealthy natureof much industrially-produced food.

The government’s response to the outbreak of mad cow disease was simple: it stopped testing for mad cow, and prevented cattle ranchers and meat processors from voluntarily testing their own cows (and see this and this)

The EPA just raised the allowable amount of a dangerous pesticide by 3,000% … pretending that it won’t have adverse health effects.

In response to new studies showing the substantial dangers of genetically modified foods, the government passed legislation more or less pushing it onto our plates.

The Centers for Disease Control – the lead agency tasked with addressing disease in America – covered up lead poisoning in children in the Washington, D.C. area.

The former head of the National Mine Health and Safety Academy says that the government whitewashed the severity of the Tennessee coal ash accident.

And after drug companies were busted for using fraudulent data for drug approval, the FDA allowed the potentially dangerous drugs to stay on the market.

Indeed, the cynical might say that the main function of government these days is to throw money at giant corporations and to cover up for them when their misdeeds are revealed.

And the American government is censoring reporters at least as much as Japan.

 

Is Hyperinflation Just Around the Corner? | The Exchange – Yahoo Finance

Is Hyperinflation Just Around the Corner? | The Exchange – Yahoo Finance.

By Laurence Kotlikoff

In his parting act, Federal Reserve Chairman Ben Bernanke has decided to continue printing some $85 billion per month (6 percent of GDP per year) and spend those dollars on government bonds and, in the process, keep interest rates low, stimulate investment, and reduce unemployment.

Trouble is, interest rates have generally been rising, investment remains very low, and unemployment remains very high.

Bernanke’s dangerous policy hasn’t worked and should be ended. Since 2007 the Fed has increased the economy’s basic supply of money (the monetary base) by a factor of four! That’s enough to sustain, over a relatively short period of time, a four-fold increase in prices. Having prices rise that much over even three years would spell hyperinflation.

The Treasury dance

And while Bernanke says this is all to keep down interest rates, there is a darker subtext here. When the Treasury prints bonds and sells them to the public for cash and the Fed prints cash and uses it to buy the newly printed bonds back from the public, the Treasury ends up with the extra cash, the public ends up with the same cash it had initially, and the Fed ends up with the new bonds.

Yes, the Treasury pays interest and principal to the Fed on the bonds, but the Fed hands that interest and principal back to the Treasury as profits earned by a government corporation, namely the Fed. So, the outcome of this shell game is no different from having the Treasury simply print money and spend it as it likes.

The fact that the Fed and Treasury dance this financial pas de deux shows how much they want to keep the public in the dark about what they are doing. And what they are doing, these days, is printing, out of thin air, 29 cents of every $1 being spent by the federal government.

QE an unsustainable practice

I have heard one financial guru after another discuss Quantitative Easing and its impact on interest rates and the stock market, but I’ve heard no one make clear that close to 30 percent of federal spending is now being financed via the printing press.

That’s an unsustainable practice. It will come to an end once Wall Street starts to understand exactly how much money is being printed and that it’s not being printed simply to stimulate the economy, but rather to pay for the spending of a government that is completely broke — with long-term expenditures obligations that exceed its long-term tax revenues by $205 trillion!

This present value fiscal gap is based on the Congressional Budget Office’s just-released long-term Alternative Fiscal Scenario projection. Closing this fiscal gap would require a 57 percent immediate and permanent hike in all federal taxes — starting today!

Prices will rise

When Wall Street wises up to our true fiscal condition (and some, like Bill Gross, already have), it will dump long-term bonds like hot potatoes. This will lead interest rates to jump and make people and banks very reluctant to hold money earning no return. In trying to swap their money for goods and services, the public will drive up prices.

As prices start to rise and fingers start pointing at the Fed for fueling the inflation, QE will be brought to an abrupt halt. At that point, Congress will have to come up with an extra 6 percent of GDP on a permanent basis either via huge tax hikes or huge spending cuts. Another option is simply to borrow the 6 percent. But this would raise the deficit, defined as the increase in Treasury bonds held by the public, from 4 to 10 percent of annual GDP if we take 2013 as the example. A 10 percent of GDP deficit would raise even more eyebrows on Wall Street and put further upward pressure on interest rates.

What are we waiting for?

But why haven’t prices started rising already if there is so much money floating around? This year’s inflation rate is running at just 1.5 percent. There are three answers.

First, three quarters of the newly created money hasn’t made its way into the blood stream of the economy – into M1 – the money supply held by the public. Instead, the Fed is paying the banks interest not to lend out the money, but to hold it within the Fed in what are called excess reserves.

Since 2007, the Monetary Base – the amount of money the Fed’s printed – has risen by $2.7 trillion and excess reserves have risen by $2.1 trillion. Normally excess reserves would be close to zero. Hence, the banks are sitting on $2.1 trillion they can lend to the private sector at a moment’s notice. I.e., we’re looking at a gi-normous reservoir filling up with trillions of dollars whose dam can break at any time. Once interest rates rise, these excess reserves will be lent out.

The fed says they can keep the excess reserves from getting lose by paying higher interest on reserves. But this entails poring yet more money into the reservoir. And if interest rates go sufficiently high, the Fed will call this practice quits.

As excess reserves are released to the economic wild, we’ll see M1, which was $1.4 trillion in 2007, rise from its current value of $2.6 trillion to $5.7 trillion. Since prices, other things being equal, are supposed to be proportional to M1, having M1 rise by 219 percent means that prices will rise by 219 percent.

But, and this is point two, other things aren’t equal. As interest rates and prices take off, money will become a hot potato. I.e., its velocity will rise. Having money move more rapidly through the economy – having faster money – is like having more money. Today, money has the slows; its velocity – the ratio GDP to M1 — is 6.6. Everybody’s happy to hold it because they aren’t losing much or any interest. But back in 2007, M1 was a warm potato with a velocity of 10.4.

If banks fully lend out their reserves and the velocity of money returns to 10.4, we’ll have enough M1, measured in effective units (adjusted for speed of circulation), to support a nominal GDP that’s 3.5 times larger than is now the case. I.e., we’ll have the wherewithal for almost a quadrupling of prices. But were prices to start moving rapidly higher, M1 would switch from being a warm to a hot potato. I.e., velocity would rise above 10.4, leading to yet faster money and higher inflation.

No easy exit

I hope you’re getting the point. Having addicted Congress and the Administration to the printing press, there is no easy exit strategy. Continuing on the current QE path spells even great risk of hyperinflation. But calling it quits requires much higher taxes, much lower spending, or much more net borrowing (with requisite future repayment) from the public. Yet weaning Uncle Sam from the printing press now is critical before his real need for a fix – paying for the Baby Boomers’ retirement benefits – kicks in.

The one caveat to this doom and gloom scenario is point three – increased domestic and global demand for dollars. The Great Recession put the fear of God into savers worldwide. And the fact that U.S. price level has risen since 2007 by only 15 percent whereas M1 has risen by 88 percent reflects a massive expansion of domestic and foreign demand for “safe” dollars. This is evidenced by the velocity of money falling from 10.4 to 6.6. People are now much more eager to hold and hold onto dollars than they were six years ago.

If this increased demand for dollars persists, let alone grows, inflation may remain low for quite a while. But our ability to get Americans and foreigners to hand over real goods and services in exchange for very few green pieces of paper is hardly guaranteed once everyone starts to understand the incredible rate at which Uncle Sam is printing and spending this paper. Once everyone gets it into their heads that prices are taking off, individual beliefs will become collective reality. This brings me to my bottom line: The more money the Fed prints, the more it risks everyone starting to expect and, consequently produce, hyperinflation.

Laurence Kotlikoff is Professor of Economics at Boston University and co-author of The Clash of Generation and author of Jimmy Stewart Is Dead.

 

 

oftwominds-Charles Hugh Smith: What Do We Expect to Happen?

oftwominds-Charles Hugh Smith: What Do We Expect to Happen?. (source)

What we can expect to happen generally happens, as the causal chain cannot be disrupted by wishful thinking.

If I go to Las Vegas and gamble with abandon, what do I expect to happen? If I wander alone through a tough part of town waving my iPhone around, what do I expect to happen? If I insist on hiking up a muddy rain forest trail in street clothes in the pouring rain, what do I expect to happen?

We all know what is likely to happen: In Las Vegas, we will lose our stake; in the tough part of town, our iPhone will be stolen, and on the tropical trail, we will get soaking wet.

These consequences are easily predictable. What we can expect to happen generally happens, as the causal chain cannot be disrupted by wishful thinking.

Yet when we re-elect the same politicos who have failed miserably for years, we somehow expect they will magically succeed in providing leadership the next time around. When we eat visibly unhealthy packaged junk food that is engineered to trigger our reward centers with massive doses of fat, salt and sugar, we somehow expect there will be no consequences of eating this “food.”

We sit in front of digital devices all day and eliminate physical fitness from our schools, yet we expect there will be no consequences from this inactivity.

We create trillions of dollars from thin air and borrow trillions of additional dollars into existence, yet we expect there will be no consequences from this unprecedented monetary and credit expansion.

We borrow a third of all government expenditures, yet we expect there will be no consequences from this monumental dependence on public debt to maintain the Status Quo.

We buy the cheapest quality goods, yet complain about the poor quality.

We pursue a plan of borrowing our way to prosperity, yet we are flummoxed that prosperity is elusive.

We push everyone with any assets into risky asset bubbles with zero-interest rates, yet we are surprised when asset bubbles pop.

What do you expect to happen? The causal chain cannot be disrupted by wishful thinking. Bubbles will pop, and increasingly leveraged, fragile systems will crash. Hoping causal consequences will magically vanish is a strategy doomed to catastrophe.

 

Feds Wanted More Smartphone User Data Access, Documents Show

 

 

English: An image of the HTC HD7 smartphone.

English: An image of the HTC HD7 smartphone. (Photo credit: Wikipedia)

 

Feds Wanted More Smartphone User Data Access, Documents Show.

 

 

 

 

 

NSA Has Full “Back Door” Access To iPhone, BlackBerry And Android Smartphones, Documents Reveal | Zero Hedge

NSA Has Full “Back Door” Access To iPhone, BlackBerry And Android Smartphones, Documents Reveal | Zero Hedge.

 

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