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The Life Continuity™ Company
Sovereign Deed LLC 820 Forest Edge Drive Vernon Hills, IL 60061-3105 U.S.A. main 1-224-377-4000 fax 1-224-377-4001

PAPER # 1: The Decline of American Power, Military
Decrepitude and CIA Incompetence (Updated 2009)


The United States has been the strongest nation in history, militarily and economically.
Perhaps Russia, with its Strategic Rocket Forces, can match the Americans in nuclear
firepower; but in conventional warfare, especially at sea and in the air, American
superiority is manifest. No power has ever enjoyed so many advantages. Many assume
that the United States is an invincible, protected country that cannot be hurt. They forget
that the events of Pearl Harbor and 9/11 could be repeated today, by smuggling
weapons of mass destruction into major cities. They also forget that American military
power depends on the country’s economic vitality, which is currently threatened by an
ongoing financial crash (and by the government’s panicked response to the crash).
The financial crisis, along with the election of Barack Obama to the presidency in
November 2008, signals a change in U.S. national priorities. Obama was elected
because American voters are not as interested in building democracy abroad as
securing prosperity at home. Given the difficulties confronting the American economy,
resources will be diverted away from military programs and toward “economic
stabilization.” Government revenue will be used to purchase failing industries and create
new jobs through infrastructure development. Already the United States has committed
itself to a market intervention involving trillions of dollars. There can be no doubt that
under these circumstances the Pentagon’s budget will be drastically cut.
The new administration has already announced its intention to extend an olive branch to
Iran and Russia. Arms control will be a priority, with an emphasis on scaling back U.S.
conventional and nuclear arms. At the same time, the Department of Homeland Security
and the intelligence community will continue unreformed and ineffective as before. The
immaturity of these security organizations, plagued with turf wars and infighting, will
Military Decrepitude
The Shrinking Defense Budget
In November 2008 a senior Pentagon advisory group warned President-elect Barack
Obama that the current Pentagon budget is “not sustainable.” According to the Defense
Business Board, which oversees the Pentagon’s management, defense cuts cannot be
avoided as the economy worsens. And the cuts will be large.
Leading Democrats in Congress, including Rep. Barney Frank (D-Mass.), have
promised to cut the U.S. defense budget by 25 percent. “We don’t need all these fancy
new weapons,” he said. The congressional majority wants to divert funds from defense
to federal social spending. In addition, President Barack Obama has publicly committed
himself to nuclear disarmament and the elimination of national missile defense. “I will
cut investments in unproven missile defense systems,” said Obama during the election
campaign. “I will not weaponize space. I will slow our development of future combat
What Obama wants is a new “civilian national security force” as well-funded as the
regular armed services. “We cannot continue to rely only on our military,” said Obama.
Although details are scant, it appears that the new administration plans to draft the
country’s youth into a new “security” organization. It involves mandatory three months of
training for all Americans between the ages of 18 and 25. Although the term “civil
defense” is used in reference to this program, it will more likely to be used to socialize
the youth, and for “compulsory community service” during an extended domestic
Politicized Generals and the Failure of Leadership
America’s defense establishment has become a vast bureaucracy. There are many
noteworthy definitions for “bureaucrat.” For example, “an official who is rigidly devoted
to the details of administrative procedure,” or “an official who works by fixed routine
without exercising intelligent judgment.” More and more, the American defense
establishment is managed by bureaucrats; less and less, it is led by warriors. A warrior
is defined as, “a person engaged or experienced in warfare; a soldier.” Another
definition holds that a warrior is “a person who shows or has shown great vigor,
courage, or aggressiveness….” Today’s generals have become bureaucrats in their
own right. The political climate in Washington infects them. At the same time, the culture
of modern bureaucracy no longer meshes with the warrior’s code of conduct. Rather
than nurturing the warrior spirit, political correctness kills frank speech and honest
appraisals. The bureaucracy favors mediocrity and conformity; but the profession of the
warrior demands excellence, independent judgment and clarity. Throughout history,
many of the best warriors have been non-conformists: From Julius Caesar and
Frederick the Great, to Horatio Nelson and George Patton.
Too many of today’s generals are political. They know on what side their bread is
buttered, and they avoid risks that may hurt their chances at promotion. This, in turn,
promulgates a cultural climate of risk aversion in a profession that depends for success
on taking calculated risks. At the same time, America’s generals tend to kill reforms, kill
money-saving measures, and oppose truth-tellers. For many years the U.S. Army has
needed reorganization and new ideas. For example, the system used in today’s chain of
command was devised in the nineteenth century and needs to be shortened. There are
too many generals. Each unnecessary link in the chain of command adds friction to the
flow of vital information, which contaminates the decision-making process and forestalls
timely action. Addressing the need for a more efficient command system, Army Chief of
Staff Gen. Dennis Reimer initially supported organizational reforms proposed by Col.
Douglas Macgregor. These reforms would have increased the army’s combat
effectiveness while reducing costs. General Reimer’s four-star colleagues, however,
barred the way. From that point on, Col. Macgregor’s brilliant career was over.
In the higher management of the U.S. military, generals and admirals are not as
accountable as they used to be. They do not lead from the front and are rarely at risk.
During the entire Iraq War the highest-ranking officer killed in action was Col. William
Wood, commanding the 1st Battalion, 184th Infantry Regiment. Too often the generals
are micromanaging their troops from the rear – far from the realities faced by those they
are “charged with leading.” Modern communications and computer processing have
transformed command-and-control so much that generals can monitor real-time
movements of troops and materials around the world. Military reliance on video
teleconferencing has led to a glut of information. Generals sit in darkened conference
rooms and watch irrelevant PowerPoint presentations from staff officers. Senior officers
lecture combat leaders on what their immediate superiors should do next. Collaborative
give-and-take is rare. Teleconferencing allows commanders to “lead” troops
electronically from bunkers and command posts, far from the troops. All-too-often these
“virtual” commanders second-guess combat leaders in the field, destroying morale.
Technology has become a two-edged sword. Few are concerned that over-reliance or
misuse of new technologies may produce a false sense of security. In fact, security may
be totally compromised when advanced systems fail. Soldiers who rely too heavily on
electronic navigating systems may forget how to read a map. What if our nation’s
satellites are destroyed or made unavailable? Many believe this would undermine basic
war-fighting capabilities, making U.S. forces vulnerable. (We will explore the nation’s
strategic technology risk, including its vulnerability to EMP attack, in a future white
An unrelated problem, involving conflict of interest, is the military leadership’s relations
with defense contractors. Retired General Officers promote the purchase of products,
services and weapons that they would have shunned while in uniform. This has
become so serious that the Strategic Studies Institute wants the Chief of Staff of the
Army to create a registry of retired General Officers and their affiliations so as to
minimize recurring conflicts of interest. As described by Members of Congress, the
military’s weapons acquisition process is broken and requires fundamental changes.
When the United States Air Force needed an air-refueling tanker replacement, the
Senate’s senior defense lawmaker, Carl Levin (D-Mich.), noted: “The GAO’s decision in
the tanker protest reveals serious errors in the Air Force’s handling of this critically
important competition. We now need not only a new full, fair and open competition in
compliance with the GAO recommendations, but also a thorough review of – and
accountability for – the process that produced such a flawed result.”
While the United States seems powerful, even invincible, to many observers, the
weaknesses of the U.S. military stem from shared societal pathologies and the
phenomenon of widespread narcissism. This places an inordinate emphasis on the
appearance of success rather than the reality. According to clinical psychologist and
former military officer Norman Dixon, the following are symptoms of a psychology of
military incompetence: (1) sending a military force to a situation without a clear mission
or objective; (2) sending a military force into a situation without the legal ability to defend
itself or the mandate to fulfill its role effectively; (3) leaving a military force in a situation
where it becomes progressively more committed, to the point where it is unable to
withdraw safely, or when resources and lives have to be continually poured into a
situation with no clear end; (4) the lack of political will to sustain losses, or an unrealistic
political definition of “acceptable losses”; and (5) withdrawing a military force before the
successful completion of objectives.
If any of this sounds remotely familiar, the reader will quickly realize that the United
States is headed for a “time of troubles.” For many years the United States has sought
security in monstrous defense expenditures. More and more money is spent for less
and less capability. Many experts have argued that economic power does not always
guarantee military power. Proper organization, good military culture, and the character
of good soldiers matter more than large sums of money.
In The Discourses, written nearly 500 years ago by Niccolo Machiavelli, we read “that it
is not gold … that constitutes the sinews of war, but good soldiers; for gold does not find
good soldiers, but good soldiers are quite capable of finding gold.” Pointing to the
military achievements of ancient Rome, Machiavelli wrote that “not all the treasure in the
world would have sufficed in view of the great enterprises they undertook and the
difficulties they had to encounter in them.” Without the patriotic spirit and correct
orientation that attends good strategic leadership, money can accomplish little.
The United States, as a consumer culture, has lost the patriotic orientation of previous
generations. It is no wonder, then, that the U.S. military is becoming ideologically
disoriented and politicized. The main enemy, more often than not, has been the
President or Secretary of Defense or others in the chain of command. The nation’s real
enemy is ignored. Instead, those leaders who make war are singled out for attack.
Bureaucratic infighting represents a war within a war. This is unavoidable because the
prevailing political culture refuses to accept the necessities of war, or longstanding warfighting
precepts, including unity of command, military discipline, and respect for the
Commander-in-Chief’s authority.
A new political awareness has taken root in America’s generals, especially after the
Clinton years. According to Washington Times defense and national security reporter
Bill Gertz, “The politicization of the military mushroomed in 2006 after a group of former
high-ranking military officers took the extraordinary step of going public to criticize the
Pentagon leadership in the middle of a war.” The effort, noted Gertz, eventually forced
the resignation of Defense Secretary Donald Rumsfeld. “The so-called revolt of the
generals was an ugly episode,” wrote Gertz, “…remembered for lowering the apolitical
stature of the American military leadership….”
How can the politicization of American generals be explained? For decades American
universities have tilted far to the left. Not surprisingly, the leaders in many institutions
Copyright ® 2008-2009 Sovereign Deed LLC 5 of 9
(including the Pentagon and CIA) now adhere to ideas learned in college – like
internationalism and pacifism. They have been indoctrinated, disoriented and
demoralized. In many instances, their education exemplifies the widespread and
systematic sabotage of national thought.
To understand the extent of the subversion that has already occurred, consider the case
of retired Air Force Gen. George Lee Butler. As chief of the Strategic Air Command from
1991-92 (and its successor, the U.S. Strategic Command from 1992-93), Butler did not
believe in nuclear deterrence. In fact, he ultimately proved to be a “nuclear pacifist,”
opposed to the development and maintenance of American nuclear weapons. In
retirement Gen. Butler wrote that America’s nuclear program was dangerous,
representing the “messianic pursuit of a demonized enemy.” Instead of believing in the
defense of his country, Gen. Butler believed that his country was the primary source of
danger. According to Butler, “I did what I could to cancel all of the strategic nuclear
modernization programs in my jurisdiction, which totaled $40 billion. I canceled every
single one of them. I recommended to the president that we take bombers off nuclear
alert for the first time in thirty years, and we did. I recommended that we accelerate the
retirement of all systems designed to be terminated in present and future arms control
agreements, and we did. We accelerated the retirement of the Minuteman II force. We
shrank the nuclear [capable] warplanes of the United States by 75 percent.”
Thanks to Gen. Butler’s efforts (and the “political correctness” of others) the U.S.
nuclear arsenal is nearing obsolescence. During an October 2008 speech, Defense
Secretary Robert Gates said: “To be blunt, there is absolutely no way we can maintain a
credible deterrent and reduce the number of weapons in our stockpile without resorting
to testing our stockpile or pursuing a modernization program.” According to Lt. Gen.
Robert Elder (Commander of the 8th Air Force), America has lost nuclear expertise and
bomber efficiency. “It took us 15 years to get ourselves into this [mess],” he explained,
“and it’s going to take another 15 years to get us out of it.” But given future budget
constraints and the prevalence of politically correct generals, the next 15 years will bring
more of the same. In a shocking summary of the problem, Washington Times reporter
Bill Gertz wrote: “Butler is typical of a U.S. officer corps that has remained disdainful of
the concepts of patriotism, love of country, and the idea that liberty and freedom and the
American way of life are worth fighting for and ultimately dying for.”
A general officer in the United States military is now a political person. He follows his
own conscience, his own policies, and his own political agenda. He is not necessarily a
defender of the nation, the Constitution or the American people. He is the servant of
new political ideals that have nothing to do with national defense or the art of war.
Retired generals now engage in partisan politics on behalf of the left. This fact has
serious implications for the nation’s political stability and future security. Unless
something is done, Russia will acquire strategic nuclear superiority within two years. As
of December 2008 Russia is building new warheads and new ICBMs. Some of these
are road mobile missiles, which can be moved from underground production sites to
caves or tunnels – undetected and uncounted in terms of the overall balance of military
power. Meanwhile, the U.S. arsenal continues to deteriorate; underfunded, without the
test of a live warhead in nearly two decades.
America’s Zero-Defect Military
In accordance with the prevailing mentality of “risk aversion,” the American military has
developed a “zero-defect culture,” which contradicts classic war-fighting philosophies
affirmed since Clausewitz. In practice, a zero-defect military culture results in the
micromanagement of subordinates, the demoralization of junior officers, and the
elimination of military talent. Promising careers are brought to an end because
aggressive officers who win battles are more likely to err than career-minded officers
who lack military character. “In today’s military,” wrote Major Claire E. Steele, “[Great
commanders like] Nimitz, Lejeune, Patton and Arnold would probably not have attainted
flag officer rank because the U.S. military has no room at the top for officers found guilty
at a court-martial, relieved from duty, or having derogatory evaluation reports.”
According to Steele, zero-defect is a “cancer.”
The dysfunctions of a zero-defect military are legion. According to a 1995 Army survey
of 24,000 soldiers, the “zero-defect” culture means that truth-telling quickly ends your
career. The dishonest get promoted and the honest get booted. Defense Secretary
William Perry noted the problem: “A successful military leader will have a certain
amount of daring in his character. We should find ways of encouraging that daring
instead of stomping on a person every time his daring has led him to a mistake.”
While there are many fine officers and dedicated Pentagon employees, the United
States military costs too much and carries too much political baggage. This is not to say
that America’s armed forces aren’t the finest in the world. The amount of money spent,
and the degree of expertise available, has produced the finest war machine in the world.
But with inevitable budgetary cutbacks, the cult of political correctness, and the antinuclear
agenda of the Congressional majority, America may soon find its defense
hobbled. Without proper reforms, there will not be proper savings. Combat effectiveness
will be sacrificed, enemies will be tempted and the country will enter upon an era of
vulnerability and retreat.
The Failure of U.S. Intelligence
Security in a permissive culture
Since the 1960s the United States has become a “permissive” society. Standards in all
areas of national life have fallen. Could this occur without a corollary degeneration of
the country’s security and intelligence services? If the tragedy of 9/11 cannot be taken
as evidence, then consider the fact that no U.S. security official was ever held
responsible for the fiasco of the Pentagon on fire and the World Trade Center leveled.
Even a casual observer can see that America’s highest political leadership has no
concept of its enemy. According to President Bush, Islam is a “religion of peace,” the
Russians are “allies in the war against terror,” and China is America’s “trading partner.”
Such statements are generally approved by the culture, but when this same president
dares to mention the existence of an “axis of evil,” he is roundly mocked and derided as
an ignoramus. It has become, in fact, a faux pas to publicly recognize an enemy or to
discuss the existence of enemies at all.
In terms of the routine activities of today’s intelligence agencies, what does cultural
permissiveness and slackness signify? A recent book by former CIA officer Lindsay
Moran, titled Blowing My Cover, describes American intelligence as a system in which
inconvenient security rules are routinely ignored, sex with foreign nationals is rampant,
and agents insubordinately slip out of countries they are assigned to watch. In terms of
intelligence work, when Moran began talking to someone with access to al Qaeda, she
was told to break off contact because the subject was affiliated with dangerous
When bureaucracy embraces self-deception
According to CIA Director Allen Dulles, “Americans are usually proud … of the fact that
the ‘conspiratorial’ tendencies which seem natural and inbred in many other peoples
tend to be missing from their characters and from the surroundings in which they live.”
What Dulles should have said, is that Americans are proud of their naïveté. In Russia
they know better. They have lived for decades in the bureaucratic labyrinth of the Soviet
and post-Soviet states, barred from the truth by an impenetrable wall of official lies. In
America, everything seems to be exposed. Even state secrets cannot be kept off the
front pages of the newspapers. Americans do not believe in secrets because Americans
cannot keep them. Americans do not possess that feeling of insecurity that fuels a
disciplined state security apparatus. Therefore, it should come as no surprise that
American intelligence was frequently bested by the KGB – as the Aldrich Ames and
Robert Hanssen cases suggest. (Ames and Hanssen were highly placed KGB moles
within the CIA and FBI respectively. Hanssen spied for Russia over a period of 22
years; Ames worked for the KGB from 1985 until his arrest in 1994.)
It is only natural, as well, that the history of the CIA during the Cold War has been
mythologized and falsified as a salve to incompetence. In the officially accepted history,
the falsifiers have made themselves into heroes. They have slandered good men,
elevated incompetent ones, and covered the tracks of the enemy within. Those who
knew better, like the CIA’s James Angleton or his British MI5 counterpart, Peter Wright,
have been maligned as “paranoids” or champions of “sick think” – their characters
assassinated, their writings banned. This falsification of history has been popularized in
books like David C. Martin’s Wilderness of Mirrors, Tom Mangold’s Cold Warrior, and
David Wise’s Molehunt.
To understand what went wrong with American intelligence there is no better source
than the firsthand account of Tennent H. Bagley, former CIA chief of Soviet bloc
counterintelligence. His recent memoir is titled Spy Wars: Moles, mysteries and Deadly
Games. What Bagley describes is the CIA’s fall, which occurred in the 1960s when the
investigation of a KGB defector named Yuri Nosenko went awry. The officers assigned
to investigate Nosenko had caught him lying. But the CIA management wanted to
believe Nosenko, so they gave the matter to non-experts who were tasked with
rehabilitating a false defector.
To believe Nosenko’s authenticity, noted Bagley, the CIA would have to accept that the
“KGB actually operated under procedures different than those reported by all earlier
(and subsequent) defectors, [they would also have to believe] what Nosenko told …
about his life was the final truth – even though it was a fourth or fifth version….”
The CIA’s managers buried reality, wrote Bagley, “under layers of lies so often repeated
that they have become conventional wisdom.” And so it happened that KGB-originated
falsehoods became the official mythology of the CIA. As historian Paul Veyne wrote in
an essay on mythology, “Daily life itself, far from being rooted in immediacy, is the
crossroads of the imagination…. Empiricism and experimentation are negligible
quantities.” What we find in the CIA, is a large and powerful organization where the
intricacies of truth have been uprooted by the imaginative prerogatives of bureaucratic
self-aggrandizement. In this situation, existence finds itself mediated by successive
“dream palaces” all of which pass for truth. According to Veyne, “When one does not
see what one does not see, one does not even see that one is blind.” This sentence
describes the CIA as it swallowed the KGB’s baited hook.
It was a clever piece of strategy to tell the CIA what its managers wanted to hear while
the rest of humanity wrestles with unpleasant truths. The intelligence bureaucrat can
ignore expert opinion, consigning fact to the dustbin while elevating fiction in its place.
The CIA’s bosses wanted good news from defectors, not bad news. Nosenko said the
Soviets had failed to recruit moles inside U.S. intelligence. According to the chief of the
CIA’s counterintelligence staff this was demonstrably untrue. But the management
believed what it wanted to believe.
According to Bagley’s account, “The American intelligence community had so
unequivocally supported falsehood – and lost so much by doing so – that if any CIA
people still remembered, they would probably prefer to let this sleeping dog lie.” Here
was the Waterloo of American intelligence. No defeat could be greater than embracing
the enemy’s lies. And this is significant today because the KGB did not disappear when
the Soviet Union collapsed.
Concluding Points
While the core values of the CIA include “service, integrity and excellence,” the agency
nonetheless carries a legacy of institutionalized self-deception and questionable
analysis. While the intelligence community includes many patriotic servants and brilliant
individuals, the whole is not always the sum of its parts.
The stated mission of the CIA is to collect “information that reveals the plans, intentions
and capabilities of our adversaries and provides the basis for decision and action.”
What we find is an agency that failed to reveal the plans, intentions and capabilities of al
Qaeda prior to 9/11/01; an agency that failed to find weapons of mass destruction in
Iraq and an agency that does not have the ability to counter foreign espionage efforts.
Like the other sixteen agencies partaking of the government’s bureaucratic intelligence
culture, the CIA has failed for reasons misunderstood by politicians and inaccessible to
casual observers. In decades past, the agency was penetrated by hostile agents and
the penetrations were never fully dealt with; good information was eliminated in favor of
bad information; the wrong lessons were learned and the truth remained buried. “When
one does not see what one does not see, one does not even see that one is blind.”
The United States spends hundreds of billions for its armed forces and intelligence
agencies. The expense is huge, often wasteful, and encumbered by bureaucratic
politics. The present economic crisis makes cuts to defense spending and the
intelligence budget inevitable. Too many generals oppose the right balance of cuts. As a
result, structural problems in the world's finest military force will result in reduced
combat efficiency and increased vulnerability for the American people. In terms of
defense and intelligence, the United States will justify cuts by emphasizing the necessity
of fighting "the last war." Major combat capabilities will be compromised as expensive
war-making items are removed from the budget. Even more significant, America's
nuclear deterrent is already suffering from neglect. This is especially dangerous at a
time when U.S. foreign intelligence is blind, resistant to reform, and politicized.
The United States is facing a dangerous future. Nuclear weapons are proliferating,
enemies are multiplying and defenses are weakening. While terrorists remain at work, a
resurgent Russia and a rapidly modernizing China gather new allies in a coordinated
international strategy. Americans will be at risk as the era of American dominance
comes to an end.

PAPER # 2: The Global Financial Crisis
Instability, Social Disorder and International Realignment
The financial crisis that began in September 2008 threatens to break the illusion of
global peace and good order that has prevailed since the fall of Communism. With
banks failing and markets in disarray, national and ethnic tensions are likely to intensify.
Anti-market socialism, previously discredited, is staging a comeback. With a new
socialist bloc emerging in Latin America, a resurgent Russia together with an
economically disillusioned China could launch a new Cold War; and the United States is
far from ready. Should this happen, economic and political optimism would give way to
the grim calculus of economic warfare and ideological confrontation. After the fall of
Communism, investors and businessmen envisioned an era of peace and stability. They
assumed that market democracy would spread throughout the world, facilitating a
prosperous global society. Things have turned out differently. Today’s economic
downturn, therefore, signifies a turning point. As prices fall and unemployment rises,
political unrest and international tensions are bound to flare up. The peaceful, wellordered
environment in which we live can no longer be taken for granted.
Science as Prediction
As of November 2008, we are at the beginning of the most serious financial crisis since
World War II. It is a crisis that was predicted by some, but unforeseen by many. It is
important to consider the thinking of those who anticipated the present crisis. For
convenience, these fall into three general categories: (1) Cycle theorists; (2) the
Austrian school; (3) Financial experts.
Taking up the first category: Some economic theorists hold that economies follow a
cycle, like the seasons. There is spring, summer, fall and winter. The Russian
economist, Nikolai Dmitriyevich Kondratiev (4 March 1892 – 17 September 1938),
proposed the theory that capitalist economies have long term growth cycles followed by
depressions. In 1938 an accountant named Ralph Nelson Elliott developed what he
called “the wave principle.” According to Elliott, crowd psychology (including investor
psychology) moves from optimism to pessimism to optimism in a cyclical fashion. A
leading disciple of Elliott wave theory, Robert Prechter, warned that the market
optimism that began in 1983 would one day turn to pessimism. “I am writing this book
now,” wrote Prechter in 1995, “because I believe that another financial sea change is at
hand.” He predicted the prosperity of 1983-95 would end in “the biggest financial
catastrophe since the founding of the Republic.” Prechter was mistaken in the timing of
his prediction, but this does not mean cycle theory is without merit.
There are scientific grounds for saying that a given period of prosperity will end, just as
day follows night. Empirical observation shows that many processes are cyclical; that
wars follow peace, death follows life, and spring follows winter. The economist Joseph
Schumpeter argued that cycle theory is not merely “a psychology of crises,” but a theory
of “an objective chain of causation which runs its course automatically….” According to
Schumpeter, periodic depressions are necessary to economic progress. As such, they
are inescapable. New companies and new methods must replace old companies and
old methods. This is the celebrated process of “creative destruction” in which financial
crashes and depressions pave the way for rapid advances. In the wake of a depression,
wrote Schumpeter, “the economic system needs rallying before it can go forward again;
its value system needs reorganizing. And the development which then starts again is a
new one, not simply the continuation of the old.” What is poorly understood, argued
Schumpeter, is that every boom “means distress for many producers.” New products
overtake old products, but not immediately. The economy is gradually restructuring itself
throughout the boom period. Finally, new efficiencies cause a fall in prices and the
boom is terminated. Credit deflation follows, and a depression occurs. According to
Schumpeter, “the boom … makes an end of the boom, leads easily to a crisis,
necessarily to a depression….”
Taking up the second category: The Austrian School of Economics started when Carl
Menger solved longstanding problems related to the theory of value in 1871. The
Austrian School was so effective in its analysis, that in 1929 two Austrian economists
predicted the financial crash and subsequent depression that followed. In February
1929 Friedrich Hayek wrote a report that stated: “the boom will collapse within the next
few months.” Ludwig von Mises turned down a position with Kreditanstalt Bank in early
1929 with the explanation, “A great crash is coming, and I don’t want my name in any
way connected with it.” Mises and Hayek later wrote books that influenced such figures
as Margaret Thatcher and Ronald Reagan.
The Austrian teaching on “trade cycle” theory is fairly straightforward. An excessive
expansion of the money supply typically leads to an unsustainable credit-driven boom.
The false boom thereby engendered signifies a period of mal-investment, so that the
economy is damaged. The subsequent recession or depression is, in fact, a period of
healing. The Austrian School warns against any attempt to interfere with the healing
process of a recession/depression. About this, Ludwig von Mises wrote: “the
interventionists ascribe to the government the power to correct the operation of the
market economy in such a way as to bring about what they call ‘economic stability.’
These interventionists would be right if their anti-depression plans were to aim at a
radical abandonment of credit expansion policies. However, they reject this idea in
advance. What they want is to expand credit more and more and to prevent
depressions by the adoption of special ‘contra-cyclical’ measures.”
Taking up the third category: A market expert named Michael J. Panzner predicted the
present financial crash more than one year before it began in a book titled Financial
Armageddon. According to Panzner, the economy is threatened by systemic debt,
under-funded retirements and poorly understood derivatives. These factors, he warned,
are likely to inspire a period of economic malaise, systemic crisis, and depression,
followed by hyperinflation. His predictions are the most accurate, specific and detailed
of any to date. Most interesting of all is Panzner’s geopolitical concerns with regard to a
financial crash. First, he notes, the United States will no longer be financially able to
ensure a stable security environment for Europe, Asia or the Middle East. Free trade will
be swept aside as economic nationalism takes precedence. The dollar will be called into
question as the world’s reserve currency, and rising nationalism will lead to bloody
conflicts between former trading partners. According to Panzner, “The rise in
isolationism and protectionism will bring about ever more heated arguments and
dangerous confrontations over shared sources of oil, gas, and other key commodities,
as well as factors of production that must, out of necessity, be acquired from less-thanfriendly
The Crisis Intensifies
As of this writing, in November 2008, the U.S. stock market has fallen by nearly 50
percent in 14 months. Over 2,000 U.S. banks are “in trouble,” including some of the
country’s largest. The U.S. automobile industry is threatened with collapse. Thousands
of businesses are at risk, and many are certain to fail. Manufacturers will be shut down
and construction projects will be suspended. The government’s futile bailout plans
cannot stem the crisis or stop the deflationary cycle, and public confidence is bound to
erode. Where are we headed with all this? That depends on whether the crisis remains
an economic one, or becomes a political crisis leading to civil unrest or revolutionary
Likelihood of Civil Crisis
The United States, like other Western countries, is not what it was. Social discipline has
eroded, along with the work ethic. According to available statistics, larceny in the United
States has risen around 100-fold since 1950. Divorce has approximately doubled.
Illiteracy, drug addiction, out-of-wedlock births and government corruption have steadily
risen. The most important factor in any crisis is the fabric of the society under stress.
There is reason to suspect that prosperity now holds American society together; that
without general prosperity the behavior of many would prove socially disruptive. Already
there are political causes afoot in which the threat of violence is combined with
abnormal psychology: the animal rights movement, radical environmentalists, and the
so-called “gay movement” come immediately to mind. If these movements exist in
prosperous times, what are we to expect as the financial crisis worsens?
In 1979 Christopher Lasch wrote The Culture of Narcissism, in which he declared that
“the culture of competitive individualism … [and] the pursuit of happiness” in the United
States had been carried “to the dead end of narcissistic preoccupation with the self.” He
further declared that, “Strategies of narcissistic survival now present themselves as
emancipation from the repressive conditions of the past, thus giving rise to a ‘cultural
revolution’ that reproduces the worst features of the collapsing civilization it claims to
The truth of Lasch’s searing criticism was seconded in 2006 by U.C. San Diego
psychology professor Jean Twenge, who gathered test data that showed a measurable
increase in American narcissism from one generation to the next. Twenge’s findings
were published under the title, Generation Me: Why Today’s Young Americans Are
More Confident, Assertive, Entitled – and More Miserable Than Ever Before. What
Twenge’s data shows is an erosion of social rules, a growing emphasis on selfishness
and self-absorption, unrealistic expectations about life, and epidemic anxiety in the
rising generation.
The political side of narcissism may be viewed in terms of the example of the Weimar
Republic, which devolved through economic crisis and political agitation into the Third
Reich. Adolf Hitler is believed to have suffered from narcissistic personality disorder,
and his followers were drawn into his narcissistic fantasies of omnipotence and violent
revenge. Given today’s economic situation, the United States may suffer the same fate
as Weimar Germany. The decline of social rules is fundamental to the development of a
“permissive society” which leads, in turn, to civil disorder and even dictatorship in times
of stress.
According to the Austrian economist, Friedrich Hayek, the rules of extended order are
vital to the development of advanced societies. Any breakdown of the rules suggests a
breakdown of civilization itself, and also a breakdown of economy. Hayek asserted that
dangerous revolutionary doctrines, relying on modern intellectual rationalism,
threatened civilization by opposing “learnt restraints” that hold back chaotic instincts of
destruction and rage (wrapped in intellectual rationalism). Cultural narcissism arguably
contributes to the breakdown envisioned. The narcissistic personality is more likely to
side with revolution than with the extended rules of civilized order. Immoral intellectual
doctrines, noted Hayek, are carried into public education as well as government.
One symptom of malignant narcissism is envy, and revolutionary doctrines seem to
derive much of their power – and their appeal – from envy. If Germany could succumb
to Hitler in 1933, or Russia could succumb to Lenin in 1917, then the political crisis of
today’s America represents an unprecedented challenge to those who want to preserve
the system. While threats from abroad may intensify as the worldwide economic crisis
unfolds, a threat to civil order already exists within the United States as a consequence
of widespread narcissistic attitudes. The likely sequence of events within the United
States could follow earlier patterns (e.g., France in 1789, Russia in 1917, or Germany in
1933). Financial collapse, food shortages, and radical ideas are a dangerous mixture.
Fueled by a “culture of narcissism” the likely outcome is revolutionary violence, social
disorder and worse.
Americans should be prepared for what lies ahead. In our next paper we will discuss the
likely emergence of overseas threats during a future global depression.

The Life Continuity™ Company
820 Forest Edge Drive Vernon Hills, IL 60061-3105 U.S.A. main 1-224-377-4000 fax 1-224-377-4001
PAPER # 3: The Outbreak of Wars from Financial Crisis
Wars and revolutions are often born from financial crisis. Nearly 100 years ago the
historian of ancient Rome, Guglielmo Ferrero, suggested that the violent upheavals of
antiquity typically arose from an acceleration of desires, wants and luxury. As a nation
advances, as each generation lives better than the one before, a generation arrives that
only lives better by squandering accumulated capital and acquiring large debts. Where
this leads, warned Ferrero, is to a political breakdown followed by armed violence. In
more recent times, the French Revolution and the Napoleonic Wars emerged from the
increasing luxury and consequent indebtedness of the French court. To resolve the
financial crisis, King Louis XVI called the Estates-General, triggering a political crisis
followed by revolution, military dictatorship and war.
In 1848 financial crisis accompanied by crop failures led to starvation among the poor of
Europe and to a series of revolutionary outbreaks. Alexis de Tocqueville described
France, at this time, as a society “cut in two: those who had nothing united in common
envy, and those who had anything united in common terror.” Around this time, Karl Marx
and Friedrich Engels wrote the Communist Manifesto. Revolutions broke out in Italy,
Germany, France and the Austrian Empire. Switzerland, during this period, experienced
a brief civil war. Though the revolutionaries were smashed, the propertied classes were
With the advent of World War I, as exhausted countries approached financial collapse,
revolutions broke out, first in Russia, then in Austria-Hungary and Germany. A pattern of
economic ruin, food shortages and government overthrow occurred in each case. In
Russia the Bolsheviks triumphed through violence, promising “bread and peace.” Unlike
the outcome in 1848, those united in common envy trampled down “those who had
anything.” The result was the total collapse of the Russian economy in 1918 and the
outbreak of civil war.
The Great Depression, which grew out of the financial crash of 1929, led to further
revolutionary upheavals. Japanese militarism emerged in the Far East and Adolf Hitler
rose to power in Germany. The Japanese and German leaders formed a partnership
that included Fascist Italy. These three powers rejected liberal capitalism in favor of war
and conquest. Within seven years they would invade Poland, triggering World War II.
Hundreds of cities were leveled and 55 million people were killed.
Copyright ® 2008 Sovereign Deed LLC 2 of 7
Since the defeat of the Axis powers the world has experienced unparalleled global
prosperity. The population of the world has more than tripled. We would like to believe
that great depressions and world wars belong to the past. The crash of 2008, however,
suggests otherwise.
A Dangerous Passage
The financial crisis of 2008 leads to a dangerous passage. As history clearly shows,
widespread financial crisis often leads to political crisis and violence. From thence come
wars, the leveling of cities, the fall of governments, the spread of famine and disease.
Today we live in the so-called atomic age. Nuclear weapons are being manufactured by
several nations. Put these together with widespread economic distress, a rising tide of
anti-American hate, an emerging bloc of dictator states, and you have a formula for
An urgent call for civil defense and preparedness within the United States is hardly
audible. Citizens live day-to-day without thinking of the future. This is all-the-more
foolish as the United States is considered the main enemy of nuclear-armed Russia and
China, and the main target of radical Islam. Accustomed to decades of prosperity and
safety within the United States, the average American thinks nothing of the thousands
of nuclear warheads deployed by Russia, or the hundreds built by China. The United
States government and the American voting public have clearly decided that armed
force will not be used to prevent Iran from acquiring nuclear weapons. Some experts
believe that Iran will have the capacity to produce hundreds of warheads within a few
Going back over four decades, the national security bureaucracy of the United States
has been evolving, slowly but surely, away from a defense-oriented and securityminded
system toward a negotiation-oriented international-consensus system. Changes
in American schools, from kindergarten to college, have fostered a new political
consciousness in America’s administrative elite. These changes may be positive, if you
consider America to be the home of “sexism, racism and classism”; but the new
education in multi-culture turns out to be an education in opposition to longstanding
concepts of American national interest, patriotism and the preservation of what used to
be called “American culture.” Today America is supposed to be a land for all cultures.
This new orientation puts the country at risk, since key government agencies tend to
blame America first instead of accepting the reality of threats from abroad. As the new
national security teaching is one of self-examination and self-exorcism, national defense
has entered into a period of noticeable decline.
Copyright ® 2008 Sovereign Deed LLC 3 of 7
The Collapse of National Security
After the tragedy of 9/11, instead of deporting resident Muslim aliens as members of a
potentially dangerous cult, the United States government initiated a program of outreach
to Muslims living in the United States. President Bush declared that Islam is “a religion
of peace.” It wasn’t long before the very groups embraced by the government were
demonstrated to have terrorist connections. Did the government change its policy?
Such a change would have been politically unthinkable.
Consider the National Intelligence Estimate (NIE) of December 2007. At a background
briefing for reporters in Washington, D.C., senior U.S. intelligence officials suddenly
claimed “that in fall 2003, Tehran halted its nuclear weapons program.” This claim, of
course, was based on bogus intelligence planted by the Iranians themselves. One of the
three intelligence officials responsible for the December 2007 National Intelligence
Estimate on Iran was Vann Van Diepen, who received a master’s degree from the
Massachusetts Institute of Technology Defense and Arms Control Studies Program in
On another front, the problem comes into sharper focus. It is common knowledge that
the People’s Republic of China has been engaged in a massive military buildup for
many years. The political nature of Communist one-party dictatorships is well known.
Given size and military potential, such states are always dangerous to their neighbors
and to the peace of the world. In the last sixty years China has attacked, or supported
attacks, against Tibet, Vietnam and Korea. The regime in China was founded by the
greatest mass murderer in recorded history, Mao Zedong. It is an open secret that the
Chinese government, in its own internal dialogue, believes war between China and the
United States is “inevitable.” This talk of war with America is so well known, that
Chinese dissidents are seriously vexed because of the chilling effect it has on prodemocracy
sentiment within China.
Despite the brutal, criminal and anti-American nature of the Chinese regime, U.S.
officials act as though China is a valued ally and trading partner of America. Speaking
before the Chinese Communist Party’s Central Committee in 1977, Deng Xiaoping
boasted that the capitalists knew nothing about “the international united front struggle.”
He further explained: “We belong to the Marxist camp and can never be so thoughtless
that we cannot distinguish friends from enemies.” Deng said that Nixon, Ford, Carter
and all future “American imperialist leaders” were enemies. Trading with these enemies
was merely an expedient for modernizing China. “What we need mainly,” he said, “is
scientific and technical knowledge and equipment.” Once China has sufficient
capabilities, he promised, “[the Americans] will have no way of avoiding defeat by our
Copyright ® 2008 Sovereign Deed LLC 4 of 7
The Spontaneous Disarmament of the United States
The Wall Street Journal for 21 November 2008 published a story about the state of
America’s nuclear arsenal. The arsenal is old, and Congress refuses to fund a new
generation of replacement warheads. The rationale of the politicians goes something
like this: The United States is trying to discourage nuclear proliferation. What sort of
message does it send if the United States maintains its own nuclear deterrent? The
Cold War supposedly ended 17 years ago, so why should the United States maintain a
nuclear arsenal at all? The majority in Congress take the view that no one in the U.S.
government has adequately explained a proper reason or military doctrine for
maintaining or using nuclear weapons.
Why should the United States have a nuclear arsenal? Those who cannot readily
answer this question are not statesmen, do not know history, and display an attenuated
sense of self-preservation. There is, besides, mounting evidence that the Cold War has
already resumed – or is about to resume: specifically, there was the recent Russian
military incursion into Georgia, Russian threats against Poland and Ukraine, the
Russian naval deployment to Venezuela, and Russia’s growing military cooperation with
China. There are many budgeting priorities, however, that take precedence over
maintaining America’s nuclear arsenal.
Here is where the financial crisis relates to the spontaneous disarmament of the United
States: If the nuclear arsenal cannot be modernized in prosperous times, who will
propose several billion in spending when revenues are collapsing and constituents are
screaming for government assistance? Consider, as well, that the so-called Reliable
Replacement Warhead program was cut in prosperous times. We are unlikely to see it
reinstated under a Democratic president during a severe recession or depression.
According to military experts, the U.S. nuclear arsenal will begin to deteriorate by the
end of 2009.
In October 2008 Defense Secretary Robert Gates made the following statement in a
speech: “To be blunt, there is absolutely no way we can maintain a credible deterrent
and reduce the number of weapons in our stockpile without resorting to testing our
stockpile or pursuing a modernization program.”
The United States has not tested a nuclear weapon since 1992. And we are unlikely to
test a weapon, however bitterly the defense secretary complains. According to Gates,
the Russians and Chinese are “embarked on ambitious paths to design and field new
weapons.” As unbelievable as it sounds, the House Energy and Water Development
Appropriations Subcommittee eliminated fiscal year 2008 funding for the Reliable
Replacement Warhead.
Copyright ® 2008 Sovereign Deed LLC 5 of 7
The United States Senate is also ready to block appropriations for nuclear weapons
development. Senator Diane Feinstein (D-California) made the following statement on 1
August 2007: “Before we ramp up funding for the Reliable Replacement Warhead
program as the administration has requested, we should have a clear, bipartisan
consensus on the role nuclear weapons will play in our national security strategy and
the impact they will have on our nuclear proliferation efforts.”
In the same speech, Senator Feinstein quoted former Senator Sam Nunn: “if Congress
gives the green light to this [RRW] program in our current world environment, I believe
that this will be: misunderstood by our allies; exploited by our adversaries; complicate
our work to prevent the spread and use of nuclear weapons and … make resolution of
the Iran and North Korea challenges all the more difficult.”
Such is the argument, in a nutshell, of allowing the U.S. nuclear arsenal to deteriorate.
“As a U.S. Senator,” declared Feinstein, “I have worked with colleagues in the House
and Senate to stop the re-opening of the nuclear door and the development of new
nuclear weapons. Together, we have eliminated funding for the Advanced Concepts
Initiative, the Robust Nuclear Earth Penetrator, and the Modern Pit Facility. These were
consequential victories but the fight is far from over.”
Senator Feinstein is actually bragging that she has thwarted efforts to improve U.S.
military capabilities in the nuclear age. Like her colleagues, Senator Feinstein does not
understand military affairs. She does not perceive a threat from Russia or China. Lack
of basic knowledge and reliance on a philosophy of unilateral disarmament (exemplified
by the Bush Administration’s unilateral nuclear force reductions) indicates the rapidity of
the collapse – intellectually and militarily. Senator Feinstein thinks the United States
cannot justify maintaining its nuclear arsenal: “Currently, there exists no convincing
rationale for maintaining the large number of existing Cold War nuclear weapons, much
less producing additional warheads….”
The problem with the Senate majority position can be summarized quickly: Russia is
rapidly building up its nuclear potential today and aligning itself with America’s enemies
in Asia, Latin America and the Middle East. In fact, after nameless terrorists killed
hundreds of Russian children and adults in August 2004 at a place called Belsan,
President Vladimir Putin called for Russia’s mobilization. “Some want to cut a juicy
morsel from us,” said Putin, referring the oil-rich Caucasus region. “Others are helping
them. They are helping because they believe that, as one of the world’s major nuclear
powers, Russia still poses a threat to them, and therefore this threat must be removed.
And terrorism, of course, is only a tool for achieving these goals.” It was the Americans,
he implied, that were trying to destroy what remained of the USSR. According to Putin,
“This is a challenge to the whole of Russia, to the whole of our people. This is an attack
on our country.” The best course of action, he said, is the “mobilization of the country in
the face of a common danger.”
Copyright ® 2008 Sovereign Deed LLC 6 of 7
Objections to European ballistic missile defense and the alleged NATO “encirclement”
of Russia are part of this same paranoid package: such are postulates of the Kremlin’s
casus belli. Since Putin’s rise to power, numerous warnings about the Kremlin’s
intentions have come to light. The recent KGB/SVR defector, Sergei Tretyakov, was
asked by author Pete Earley why he wanted to tell his story. “I want to warn Americans,”
said Tretyakov. “As a people, you are very naïve about Russia and its intentions. You
believe because the Soviet Union no longer exists, Russia is now your friend. It isn’t,
and I can show you how the SVR is trying to destroy the U.S. even today and even
more than the KGB did during the Cold War.”
The courageous Russian journalist, Anna Politkovskaya, was assassinated shortly after
publishing a book titled Putin’s Russia: Life in a Failing Democracy. “This book,” she
wrote, “is about Vladimir Putin – but not, as he is normally viewed in the West, as seen
through rose-colored glasses.” Among her disturbing revelations from inside Russia,
note the following: that the rebel Chechen government had been financed from
Moscow; that “today’s Russian, brainwashed by propaganda, has largely reverted to
Bolshevik thinking”; that the vast majority of big businessmen in Russia are former
Communist Party officials; that the fall of the Soviet Union was merely the “fall of the
visible structures of the Soviet system” while secret structures remain in place.
According to Politkovskaya, “The return of the Soviet system with the consolidation of
Putin’s power is obvious.”
Less than four weeks after Anna Politkovskaya was permanently silenced by an
assassin’s bullet, KGB/FSB defector Alexander Litvinenko was poisoned in a London
Hotel with radioactive Polonium-210. Litvinenko died on 23 November 2006. According
to ABC News, British investigators traced the radioactive substance directly back to the
Kremlin. There was no sea change in Washington, however, as President Bush
continued to describe Putin as his “friend.” In a 25 November 2006 column for The New
Statesman, Russian music critic Artemy Troitsky wrote. “I stopped posting difficult items
on my website.” Was he afraid? “I am not sure,” he explained. “What I do know is this: it
is demoralizing to write the same things over and again, to no effect. It is demoralizing
to realize that among Russia’s silent majority Putin is genuinely popular and there
seems no way of waking these people up. Most depressing, however is that the socalled
democracies of the West are turning a blind eye. One day, messrs Blair and
Bush, the Germans and Italians, will regret that.”
Troitsky forgot to include Senator Feinstein and the House and Senate majority. It is
demoralizing, indeed, to “write the same things over and again, to no effect.” And then,
to have a United States Senator talk and act as if Russia isn’t a threat, isn’t rearming,
isn’t run by the same old KGB thugs.
Copyright ® 2008 Sovereign Deed LLC 7 of 7
Days after the death of Litvinenko in England, the highest ranking Eastern Bloc
intelligence officer, Lt. Gen. Ion Mihai Pacepa penned the following words for National
Review Online: “There is no doubt in my mind that the former KGB/FSB officer
Alexander Litvinenko was assassinated at Putin’s orders. He was killed, I believe,
because he re

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