Please join us for the most timely presentation on….

A Global Economic Crisis?

with

Dr. Gerald O’Driscoll

The Ramada, 9:00 a.m., Wednesday, September 9, 2015

The global economy has been slowly recovering from the recession that began in 2007, but now new fears are rising that we are on the verge of another major crisis. This fear is driven by the sudden major decline in the U.S. stock markets, the rapid drop in global energy prices, concerns over the Greek exit from the Euro (the “Grexit”), and especially the threat of serious reversals in Chinese economic growth.

The Chinese Stock Market has dropped sharply and the Yuan has been devalued. Will slowing Chinese growth tip the global economy into recession? The European Union has thus far weathered the Greek debt crisis. Or has it? And can the EU withstand the onslaught of refugee migrants from North Africa and the Middle East?

The fall in petroleum prices has also hit Russia, Venezuela, and Iran hard—how will this impact global markets? How will the Fed and other U.S. economic policy agencies react to these rapidly changing global conditions?

Dr. O’Driscoll will analyze these and other global economic risks, as well as the national security implications. He is a senior fellow at the Cato Institute and an expert on international economic issues. He was formerly Vice President at the Federal Reserve Bank of Dallas, and later a Vice President and Director of Policy Analysis at Citigroup.

Please join us for what will be a very interesting discussion. A full breakfast will be served ($15 Members, $25 Non-Members, and $10 for students with ID and military personnel in uniform; free for WWII veterans). We recommend that you arrive by 8:30 to enjoy breakfast, coffee and conversation.

You are encouraged to RSVP by clicking HERE. You may also RSVP by e-mailing info@nationalsecurityforum.org. Just a reminder, after the forum, we will be accepting new and renewal membership applications for the July 1, 2015 – June 30, 2016 period. Forms will be available at the forum, though you can also access the application form by clicking HERE. For your convenience, we accept cash, check and credit card payments for both the breakfast and membership.

Save the Date for this upcoming NSF program….

A Global Economic Crisis?

with

Dr. Gerald O’Driscoll

The Ramada, 9:00 a.m., Wednesday, September 9, 2015

The global economy has been slowly recovering from the recession that began in 2007, but now new fears are rising that we are on the verge of another major crisis. This fear is driven by the sudden major decline in the U.S. stock markets, the rapid drop in global energy prices, concerns over the Greek exit from the Euro (the “Grexit”), and especially the threat of serious reversals in Chinese economic growth.

The Chinese Stock Market has dropped sharply and the Yuan has been devalued. Will slowing Chinese growth tip the global economy into recession? The European Union has thus far weathered the Greek debt crisis. Or has it? And can the EU withstand the onslaught of refugee migrants from North Africa and the Middle East?

The fall in petroleum prices has also hit Russia, Venezuela, and Iran hard—how will this impact global markets? How will the Fed and other U.S. economic policy agencies react to these rapidly changing global conditions?

Dr. O’Driscoll will analyze these and other global economic risks, as well as the national security implications. He is a senior fellow at the Cato Institute and an expert on international economic issues. He was formerly Vice President at the Federal Reserve Bank of Dallas, and later a Vice President and Director of Policy Analysis at Citigroup.

No need to RSVP now—a more formal announcement will be forthcoming soon.

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In the interim, this op-ed by O’Driscoll in yesterday’s Wall Street Journal will be of interest.

COMMENTARY

The Fed Flirts With the Right Move at the Wrong Time

The central bank waited too long to raise interest rates. Now, with global markets in turmoil, it should hold off.

Janet Yellen

Federal Reserve Chair Janet Yellen with Vice Chairman Stanley Fischer at a Fed board of governors meeting in Washington, D.C., July 20. PHOTO: ASSOCIATED PRESS

By

GERALD P. O’DRISCOLL JR.

Aug. 23, 2015 6:02 p.m. ET

 

Financial markets and Federal Reserve watchers are focused on when the Federal Open Market Committee will vote to raise short-term interest rates, likely by 25 basis points. Investors and pundits would do better to ask why the Fed would raise rates now, when the arguments against a hike are so strong. The shudder felt through the global financial markets over the past few weeks, culminating on Friday with the Dow plunging more than 500 points, should give anyone pause about a Fed course change in the coming weeks or months.

Let me be clear: I belong to the camp that has long argued for the Fed to raise short-term interest rates. The more the Fed held rates down, the more economic distortions its policy created. Rock-bottom interest rates stimulate investments in long-lived assets, which may be unsustainable once interest rates increase. The global bull market in commercial real estate comes to mind, as does the government bond market. Artificially low rates cause investors to chase yields and take on more risk. That was a goal of the Fed’s extraordinary monetary policy (though it was stated more euphemistically). And near-zero rates harm savers and those living on retirement income, so the policy is inherently and perversely redistributional.

All of these considerations, and others, argued for an earlier end to the near-zero policy. The question is why now, after seven years? It can’t be for any of the standard criteria traditionally employed by the FOMC in its decision-making. The Fed has a so-called dual mandate of maintaining maximal, or full, employment and low inflation.

One can say many things about employment in the recovery that began in June 2009. But it is maximal only in an ironic sense. This has been the most anemic recovery since World War II. July’s reported unemployment rate of 5.3%—within the range of the Fed’s stated target before an interest-rate increase—is misleadingly positive. With discouraged workers simply dropping out the job search, the labor-force participation rate of 62.6% is at a multidecade low. Many of the jobs people do have are only part-time—6.3 million people in July were estimated by the Labor Department to be working part time but seeking full-time employment.

In other words, the labor markets provide no basis for tightening monetary policy.

In its wisdom, the Fed has defined zero inflation as 2% inflation. Leaving aside the merits of that decision, by the Fed’s own measure inflation is feeble. Consumer-price index inflation barely exceeded 2% in 2012, and the Fed fell short of its inflation goal in 2013 and 2014. For the first half of 2015, inflation was less than zero.

Again the inflation rate doesn’t justify a monetary tightening.

So the Fed has no mandate to raise interest rates. Why, then, have Fed Chair Janet Yellen and various members of the FOMC been signaling their intention to raise rates, likely in September? Financial markets have believed them, with fed funds futures recently signaling an 80% chance that the FOMC would raise short-term interest rates at its Sept. 16-17 meeting. More recently, speculative fervor has cooled, and the futures market is signaling a 25% chance of a rate increase in September.

What is motivating some FOMC members to turn hawkish in the face of so much dovish data?

Here one must to a degree speculate. Some FOMC members, like Richmond Fed President Jeff Lacker, have for years advocated a return to normal monetary policy—higher short-term interest rates. He and other normalizers have campaigned against the distortive effects of prolonged zero-interest rates; the normalizers may have finally persuaded a majority of the FOMC.

Ms. Yellen has expressed concern about the possibility of a stock-market bubble. That can be interpreted as code for a more general concern about asset bubbles—and as a possible reason for her to ponder a rate increase. Some might suggest, however, that events in oil markets, the general bust in commodity prices, and plunging share prices in China and now in the U.S. indicate that market forces are pricking asset bubbles on their own.

Low interest rates were thought to be stimulative. But we have learned that financial intermediaries struggle with spreads in a low-interest-rate environment. Hardest hit must surely be the money-market mutual-fund industry. Absent a dangerous lunge for risky returns, how much longer can that industry cope with the current interest-rate policy?

One suspects that some combination of these motivations, reflecting a concern for financial stability, is behind the call for higher interest rates. To one degree or another, the concern is appropriate—but that has been the case for many years. Now it appears that the FOMC is at last poised to do the right thing, but with bad timing.

The global economy is weakening. Emerging-market growth has largely been driven by commodity exports, especially energy. There is weakness in almost all commodity markets, and sustained increases in interest rates would likely exacerbate that weakness. It is not just commodity exports, however, but global trade generally that is at risk. Economic sentiment in Germany, a notable European Union exporter, has turned negative, according to the ZEW Financial Market Survey.

If one truly believes the world is economically integrated, it is dangerous to dismiss the global consequences of U.S. monetary policy. The advocates of sound money, having finally won the policy argument, are in danger of being blamed for the consequences of another Fed misjudgment.

Mr. O’Driscoll is a senior fellow at the Cato Institute and former vice president at the Federal Reserve Bank of Dallas.

The conflict in the Ukraine

A historical perspective

  • By Franciszek Grabowski

Special analysis prepared for the NSF

To understand the complex, on-going violence in Ukraine, a look back into its history is as always a most useful place to start.   And the starting point in this case is the early-XVIIth century, when the region was a commonwealth consisting of the Kingdom of Poland, Grand Duchy of Lithuania, Duchy of Masovia and other lesser-states. At its peak the Commonwealth was the leading power in Europe, including within its borders most of modern-day Ukraine.

The Commonwealth began unraveling in the mid-1600s in a two decades-long war with Sweden; ultimately ‘won’ by Poland in a pyrrhic victory that cost the Commonwealth nearly one-third of its population as well as its stature as a great power. Thus began the partitioning of the Commonwealth between Austria, Russia, and Prussia.  Most of the eastern territories were incorporated into Russia, while modern-day western Ukraine became known as Eastern Galicia by its new Austrian rulers.

Not surprisingly the former-Commonwealth’s elite class chafed under foreign domination, attempting various ploys to restore their homeland (and of course their high role in it).  No less surprising, Russia and Austria made their own countermoves to this covert rebellion, stirring ethnic and religious conflicts in a classic ‘divide and conquer’ campaign.

The upshot of all this was the birth of an aggressive Ukrainian nationalism in Eastern Galicia in mid-XIXth century.  Targeting primarily Poles, the nationalists aimed to incorporate and ‘Ukrainize’ the local population then known as ‘Ruthenians’.  To this day various Ukrainian groups and locales fiercely still identify themselves as Ruthenians, not Ukrainians.

The Ruthenian rebellion reached its peak in 1917 with its establishment of a Ukrainian state, supported by Prussia. This Prussian foreign policy, dubbed ’Mitteleuropa’, led to a much-reduced Poland, and the Ukraine in close to present borders, with Donbass and Kuban being autonomous regions. The important Crimean peninsula was to be under Turkey’s control.  Four short years later it was again partitioned, the western region back into Poland, while the eastern regions were seized by Lenin’s Bolsheviks.

Thus deprived yet again of their own state during the inter-war period (1921-1939), Ukrainians reverted yet again to guerrilla warfare and terrorism by creating the Organization of Ukrainian Nationalists (OUN). This group operated mainly in the areas partitioned by Poland, severely destabilizing great swaths of the area.

Meanwhile the Soviet Union was hit by famine, a result of bad weather and the Soviet Politburo actions. Soviet-controlled eastern Ukraine suffered most badly, and it is arguable the Ukraine population has not yet fully-recovered from it. Only recently the OUN used the human tragedy as a rallying-cry for its cause, at the time they continued to attack Poles rather than the more obvious Soviet instigators of the disaster. This could be partially excused by the fact OUN did not exist on the Soviet side.

During the World War II German occupation of Poland, the OUN-B faction (often called ’Banderites’ after their leader Stepan Bandera), organized mass murders or ethnic cleansing of Poles in the Ukrainian populated areas partitioned earlier by Poland.  Crude and brutal, the ’Banderites’ exterminated some 100,000 Poles including elderly, women and children. In addition to the Poles, other ethnics were targeted e.g., Armenians, Czechs, and Jews as well as any Ruthenians who opposed the ’Banderites’.

The OUN appears to have been under strong Soviet influence, and in the early, post-war years the CIA considered OUN-B an organized crime syndicate; probably under the control of Soviet agents. Thus contacts with OUN-B were generally avoided until just prior to Bandera’s death. Other Ukrainian nationalistic organizations as well were treated by the CIA with reluctance.

Present-day Ukraine is a politically unstable and poor country, riddled by corruption and ruled by widely-despised oligarchs. The ’Banderites’ or their nationalistic successors still cause considerable fear in the population as well as neighboring countries. Despite their low popularity amongst most Ukrainians, these nationalistic groups remain very influential and seem to have wide contacts and financial support from abroad; especially from Ukrainian émigrés.

Predictably, such Ukrainian disaffection leaves the populace susceptible to Russian propaganda.  Likewise another Ukrainian move that favors Russian claims of ethnic minority abuse was taken on 23 February 2014, when the current government withdrew the law allowing minorities to use their own language in their official correspondence.

Russian Panslavic propaganda is in fact quite active, further suggesting the Ruthenians are to be regarded as part of some ’Russian Slavic Nation’.  But the reality is that Ruthenians have much more in common with Poles, Czechs and Slovaks than the Russians, who are not Slavic at all.

Thus a major challenge is to counter such Russian propaganda, as well as the one of Ukrainian nationalists who paradoxically fight in support of Russian interests.  Simply telling the truth about the history of the land as well as the people would likely prove a significant benefit to uniting the country.

Beyond targeting Russian propaganda, the much harder target is unquestionably the corruption endemic in Ukraine.  Such a domestic program is far more important than any military support the West could provide to Kiev. Russia is militarily weak in the region thus is not a significant threat.  In fact, the recent Putin show of power is in reality simply trying to cover up the sad reality of diminished Soviet military influence. It is the Ukraine which is killing itself through its inability to establish law and order.

—————–

Franciszek Grabowski, Msc. Is an engineer, researcher, consultant, freelance journalist, living in Warsaw, Poland. The opinions expressed in this piece are those of the author and do not necessarily reflect those of the Forum.

Summary of the Presentation on….

The Japanese Decision to Surrender

in August 1945

Professor Neal Ferguson gave a scintillating presentation, analyzing the events surrounding the Japanese decision to surrender in August of 1945. The first controversy dealt with the U.S. decision to drop the two atomic bombs and President Truman’s role, and the second related topic of dispute was the role—if any—the bombing of Hiroshima and Nagasaki played in ending the war. Related to that was the moral question, regarding whether the bombs were necessary to end the war against Japan. Some have argued that the possible critical decision in persuading the Japanese to surrender may have been the Soviet Union’s decision to end their non-intervention agreement with Tokyo and declare war on Japan on August 9th. Finally, Ferguson addressed what was happening within the Japanese government, specifically the impact of emerging crises bearing on the decision to surrender.

Ferguson argued that, contrary to popular myth, Japan’s decision to surrender was not inevitable after the US dropped the two atomic bombs, nor even after the Soviet decision to enter the war! He presented the “Strategic Imperative” facing Japan in 1945, which centered on the need to neutralize (if not defeat) the US, bring the US to the negotiating table, and achieve an honorable peace. However, by mid 1945, that seemed unreachable given the military setbacks, the blockade that denied Japan strategic raw materials, a food crisis that portended massive social unrest, and what appeared to be an inevitable US intention to invade.

Dr. Ferguson reminded the audience that at the July Potsdam Conference, the Allies demanded the “unconditional surrender” of Japan or face its “prompt and utter destruction” (the Soviets were not a signatory to the declaration). To mitigate the potential for a multi-front invasion, the Japanese approached the Soviet Union to seek a negotiated resolution, still hoping to achieve better terms than the Potsdam Declaration, but to no avail. Despite the worsening situation, the War Council still preferred “Ketsu-go,” meaning roughly “fight to the death.”

In the face of an increasingly divided cabinet after August 9, Emperor Hirohito assumed an unusually aggressive posture by offering a second go-seidan (divine decision) accepting the Potsdam Declaration, and ordered the Army to “return swords to scabbards.”  Wartime hostilities terminated on August 15th and the treaty of surrender was signed aboard the US Missouri on September 2nd.

In the Q & A period, Dr. Ferguson reemphasized that the surrender of Japan was not inevitable. In fact, the military was inclined to encourage an American invasion, which it felt confident it could stalemate if not repulse and cause its adversary to suffer hundreds of thousands of casualties. In the end, Ferguson reiterated that food security and internal unrest seemed to be stronger motivating factors to surrender, more than the threat of an American or Soviet invasion.

US military thinking clearly anticipated the necessity of a land invasion. In fact, the slogan was “The Golden Gate in 48,” meaning that the U.S. did not expect an end to the war for another three years, and not without severe casualties. By August 13, as contained in a Pentagon thirty-day estimate, the U.S decision to invade was being reconsidered because of the Japanese build-up on the island of Kyushu, the invasion site.

The role of General MacArthur was critical in this period. MacArthur very much wanted an amphibious attack. In the postwar period, as Supreme Commander in Japan, he had considerable flexibility, and given Truman’s newness in office and the predilection of the combined chiefs of staff to leave key decisions to the Supreme Commander in the Pacific, MacArthur made the decision—clearly one of his most brilliant ideas—to retain the Emperor in his position, despite a Congressional vote and public opinion running to the contrary. According to Ferguson, “MacArthur was given a free hand and played it brilliantly.”

To conclude, although Ferguson had a strong disinclination to address “the hypotheticals,” he was asked if he thought Truman made the right decision to drop the atomic bombs—despite the strong military aversion to the idea (e.g. Eisenhower was very much opposed). However, Ferguson argued that Truman had very little choice as events had been set in motion, and it would have required a powerful chief executive to change the decision to drop the bombs (as Truman was decidedly not at that time). Ferguson stressed that the Target Selection Committee, comprised of most top scientists and military officials who had worked on the Manhattan Project, were running the show, and, for them, there was not an iota of doubt that the atomic bombs would and should be used.

Dr. Neal Ferguson is a recently retired Professor of History at the University of Nevada-Reno. The link to Ferguson’s excellent PowerPoint is below.

Professor Ferguson PowerPoint

This is the final announcement for the presentation on….

Dropping the Atomic Bombs:

Did That Convince Japan to Surrender?

Seventy Years of Historic Controversy

with

Professor Neal Ferguson

The Ramada, Thursday, August 13, 9:00 am

World War II in the Pacific ended with the Japanese surrender on September 2, 1945, weeks after the U.S. dropped the atomic bombs on Hiroshima (Aug 6) and Nagasaki (Aug 9). But the Emperor and the Japanese leadership resisted surrendering. Instead, they continued preparing to meet and defeat an anticipated allied invasion of the islands. But the lack of oil, a tired and defeated military, and perhaps most importantly, the prospect of Soviet forces taking the islands, persuaded Emperor Hirohito and the cabinet to accept the terms of surrender.

That’s one perspective.  There are others put forward by contemporary historians that result in discussion, debate, argument, and a continuing flood of publications.  Sometimes these historians disagree without being disagreeable—sometimes not. Ultimately, all recent interpretations must come to terms with the complexities of the Japanese emperorship, government, military, and the elusive Japanese concept of kokutai.

Neal Ferguson was a faculty member in the Department of History at the University of Nevada, Reno for forty-five years.  Although his original academic specialty was the British Industrial Revolution, he has more recently taught courses about World War II from a global perspective.  For 23 years he was Dean of the College of Extended Studies.  He also served as Director of Core Humanities. Currently unemployed, he reviews nonfiction books, many about World War II, for a blog: bookinwithsunny.com.  Occasionally, he channels General Douglas MacArthur for the odd séance, giving a whole new meaning to “I shall return.”

Please join us for what will be a very interesting discussion. A full breakfast will be served ($15 Members, $25 Non-Members, and $10 for students with ID and military personnel in uniform; free for WWII veterans). We recommend that you arrive by 8:30 to enjoy breakfast, coffee and conversation.

You are encouraged to RSVP by clicking HERE. You may also RSVP by e-mailing info@nationalsecurityforum.org. Just a reminder, after the forum, we will be accepting new and renewal membership applications for the July 1, 2015 – June 30, 2016 period. Forms will be available at the forum, though you can also access the application form by clicking HERE. For your convenience, we accept cash, check and credit card payments for both the breakfast and membership.