Embracing the Almighty Dollar: Islamic State’s Currency Debacle

In a post last week, I critiqued a prominent article about Islamic State in the Washington Post, in which Carol Morell and Joby Warrick suggest that, by massacring people in various locales, the group was growing in appeal or “allure.” I argued that there was considerable evidence, on the contrary, that the appeal (or allure) of the vicious group actually is, like the scope of the territory it holds in Syria and Iraq, in severe decline.

The Post article also seeks to refute the plausible suggestion of Secretary of State John Kerry that terrorist attacks like those Turkey, Iraq, and Bangladesh are a sign of the group’s desperation as it is pushed back in Iraq and Syria. It does so with what I consider to be an irrelevant argument, noting that the group has “recently” issued its own currency in the territory it controls.

However, the Post article seems to be wrong about the currency issue as well.

According to the Economist, nearly a year ago (not “recently”), the Islamic State did try to create a currency that it called the “Gold Dinar.” In a 55-minute video, it made what the Economist calls “a bizarre sales pitch” for the new currency.

Covering a dizzying range of topics, from the importance of gold as a medium of exchange to “the dark rise of bank notes, born out of the satanic conception of banks”, it argues America has been able to avoid hyperinflation and maintain its military hegemony largely thanks to the petrodollar system. Islamic State hopes that with the introduction of what it is calling the dinar, all oil will be paid for with gold instead of being priced in dollars, which would “mark the death of this oppressive banknote” and bring America “to her knees”. Charts showing the gradual increase of the American money supply and the devaluation of the dollar are provided as evidence of the dangers of printing money.

The Economist found the whole scheme Quixotic, outlining “three rather obvious problems”:

First, its yellow currency is no different to any other version of the gold standard. The dinar’s worth will be determined by the supply and demand for gold, exposing the currency to fluctuations in the price of the yellow stuff. A fall in the gold supply would be like a tightening of monetary policy; it could cause a recession.

Second, a coin backed by a terrorist organisation has obvious credibility problems: aside from the fact that its coins cannot be traded legally, few would presumably use this currency to trade oil if it was only available in coin form, or other forms that relied on trusting Islamic State.

Finally, ending the petrodollar system would first require Islamic State to seize a far larger share of oil production in the Middle East and then persuade countries to agree to trade with it. Even if Islamic State were successful in becoming a major oil exporter, the strength of the dollar depends on far more than its use in the oil trade.

The conclusion: “American capitalism seems safe for a while yet.”

However, more recently, Islamic State seems to have scrapped its fanciful new currency and is now relying on US dollars. All utility bills, extortion payments, fines for dressing improperly, and inducements to obtain the release of detainees must be tendered in that “oppressive” and “satanic” currency.

In other belt-tightening, not only have salaries been halved, but the regime no longer supplies free energy drinks and Snicker bars to its followers. It looks like hard times. One of their top leaders has attempted to cheer the legions up by arguing that “a drowning person does not fear getting wet.” Not a terribly reassuring way of putting it I should think, particularly to people with diminished salaries who now have to pay for their Snicker bars with the enemy’s currency.

More Unconstitutional Executive Branch Actions

Imagine that your company’s board chairman, against the wishes of the board of directors and in contravention of the corporate charter, hires an interim CEO. Despite that illegal action, the interim CEO disciplines you in some manner. Would that discipline be any more legitimate if, two years later, the board finally agrees to hire the CEO, who then retroactively approved his own previous actions?

This is what’s happened at the highest levels of government. When Congress created the Consumer Financial Protection Bureau (CFPB) as part of the larger Dodd-Frank financial reform, it specified that the director was to be appointed by the president “by and with the advice and consent of the Senate.” This placed what’s called an Appointments Clause limitation on the director’s position. Four years ago, President Obama named Richard Cordray the CFPB director—after Elizabeth Warren’s expected appointment met significant political resistance—during what the president erroneously believed was a Senate recess. (You’ll recall that the Supreme Court unanimously invalidated the National Labor Relations Board appointments Obama made at the same time.)

Police Use Robot to Kill Dallas Suspect

Last night Dallas police officers used a bomb robot to kill the suspected perpetrator of a shooting that left five Dallas-area police officers dead and seven others wounded. Two citizens were also wounded in the shooting. While police have used robots to deliver chemical agents and pizza, it looks as if the deployment of the robot bomb last night was the first time American police officers have used a robot to kill someone.

Police reportedly used the robot after hours of negotiation with the suspect broke down. According to Dallas Police Chief David Brown, “We saw no other option but to use our bomb robot and place a device on its extension for it to detonate where the suspect was.” He went on to say, “Other options would have exposed our officers to grave danger.”

The death of the alleged shooter in Dallas should prompt us to think carefully about how new technologies will be used by police to deliver lethal force. Robots like the one use by Dallas police last night are used by police departments across the country as part of bomb squads. But it’s worth keeping in mind that these robots will continue to improve, making it easier for police to use them in situations like the standoff in Dallas.

You Ought to Have a Look: 2016’s Temperature Evolution, a Retraction of a Fracking Cancer Warning, and a Look at Antarctic Sea Ice Trends

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger.  While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  Here we post a few of the best in recent days, along with our color commentary.

At the top of our list of things you ought to have a look at this week is a pair of blog posts by Dr. Roy Spencer updating the recent post-El Niño evolution of the satellite-observed temperature record of the earth’s lower atmosphere. In Roy’s first post, he updates the satellite record through June 2016, noting the big drop in temperatures as the effect of the recent big El Niño wanes. The take home figure looks like this:

Figure 1. Global average temperature of the lower atmosphere as derived and compiled by researchers at the University of Alabama at Huntsville, January 1979 through June 2016.

Figure 1. Global average temperature of the lower atmosphere as derived and compiled by researchers at the University of Alabama at Huntsville, January 1979 through June 2016.

Roy notes that the “2-month temperature fall of -0.37 deg. C, which is the second largest in the 37+ year satellite record.”

In a follow-on post, Roy looks to see what the prospects are for the 2016 annual temperatures being the highest in the 38-year satellite temperature history. In late June, Roy had concluded that is “2016 Will Likely See Record Global Warmth in Satellite Data.” But with the big drop in June temperatures, he is now reconsidering, writing that his previous prediction “looks…well…premature.” 

Be sure to check out all Roy’s analysis and keep tuning in to see how the year’s temperatures are progressing. We surely will be.

Feel-Good Foreign Policy toward North Korea Won’t Help

Dealing with North Korea brings to mind Sisyphus, the mythological Greek king condemned for eternity to roll a stone up a hill, only to watch it roll back down. Whatever the U.S. does, Kim Jong-un again will fire missiles, test nukes, and threaten to lay waste to his enemies.

Now the Obama administration has applied sanctions to him personally, though for human rights violations, not security concerns. The State Department explained that Kim was “ultimately responsible” for what it termed “North Korea’s notorious abuses of human rights.”

There are many, of course. The so-called Democratic People’s Republic of Korea ain’t a nice place for anyone other than the Kim family and friends.

Now any property owned by Kim and ten of his top officials in the U.S. will be frozen. And Americans will be prohibited from doing business with them. The administration predicted that “Lifting the anonymity of these functionaries may make them think twice from time to time when considering a particular act of cruelty.” Seriously?

The North’s abuses are great and the American frustrations are real. Unfortunately, imposing penalties without impact won’t turn Kim into a born-again humanitarian. And his subordinates more likely fear a god-king who has executed some 400 of his own officials, including his uncle, than the prospect of their name ending up on a list in Foggy Bottom.

This is feel good policy at its worst.

ADA’s Assault on the Web: Your Turn, Congress

The Economist reports on a phenomenon I’ve been covering all year, how lawyers are beginning to churn out assembly-line complaints against businesses over their websites’ lack of Americans with Disabilities Act, or ADA, accessibility:

[Texas attorney Omar Weaver] Rosales says extending ADA rules to websites will allow him to begin suing companies that use color combinations problematic for the color-blind and layouts that are confusing for people with a limited field of vision.

While as I noted in January the Obama administration has declined to issue long-anticipated regulations prescribing web accessibility, its Department of Justice has taken the less visible route of supporting private lawsuits intended to accomplish many of the same goals, including (to quote The Economist again):

“Boss” Aldrich and the Founding of the Fed

America’s Bank, Roger Lowenstein’s 2015 book on the founding of the Fed, is, as I said in reviewing it for Barron’s, both well-written and well-researched.  Few pertinent details of the story appear to have escaped Lowenstein’s notice. However, in assembling and interpreting these details, Lowenstein appears not to have entertained the slightest doubt that the Federal Reserve Act, for all the political maneuvering that led to it, was the best of all possible means for ending this nation’s periodic financial crises.

Instead of turning a critical eye toward the 1913 Act, Lowenstein writes as if history itself were a reliable judge.  What it has condemned he condemns as well; and what it has favored he favors.  Consequently he treats all those persons who contributed to the Federal Reserve Act’s passage as right-thinking progressives, while regarding those who favored other solutions to the nation’s currency and banking ills as so many reactionary bumpkins.

That some strains of triumphalism should have found their way into Lowenstein’s account of the Fed’s origins is hardly surprising.  Though research by economic historians and others supplies precious little support for it, the view that the Fed has been a smashing success is, after all, a well-established element of conventional wisdom, and one that Fed officials themselves never cease to promote.  Nor have those officials ever devoted more effort to doing so than in the course of celebrating the Fed’s recent centennial.  Even a much more hard-bitten journalist than Lowenstein could hardly have been expected to resist setting considerable store by an institution so universally (if undeservedly) hallowed.

Still, one might have expected a note of skepticism, if no more than that, to have found its way into America’s Bank.  Lowenstein was, after all, writing about an institution that was supposed to end U.S. financial crises once and for all, and doing so in the wake of a crisis at least as bad, in many respects, as those that inspired its creation.  (Those who suppose that the Fed did all it could and should have done to combat the recent cataclysm are encouraged to read this, this, this, and this.)  He had, furthermore, encountered the many arguments — and most were far from being plainly idiotic — of pre-1913 experts who favored other reforms, as well as those of some of the pending Federal Reserve Act’s critics, who predicted, correctly, that it wouldn’t be long before its results would acutely disappoint those of its champions who sincerely yearned for financial and economic stability.