Nov 12

Today’s News 12th November 2018

  • Johnstone: The Best Way To Honor War Veterans Is To Stop Creating Them

    Authored by Caitlin Johnstone via Medium.com,

    The US will be celebrating Veterans Day, and many a striped flag shall be waved. The social currency of esteem will be used to elevate those who have served in the US military, thereby ensuring future generations of recruits to be thrown into the gears of the globe-spanning war machine.

    Veterans Day is not a holiday to honor the men and women who have dutifully protected their country. The youngest Americans who arguably defended their nation from a real threat to its shores are in their nineties, and soon there won’t be any of them left. Every single person who has served in the US military since the end of the second World War has protected nothing other than the agendas of global hegemony, resource control and war profiteering. They have not been fighting and dying for freedom and democracy, they have been fighting and dying for imperialism, Raytheon profit margins, and crude oil.

    I just said something you’re not supposed to say. People have dedicated many years of their lives to the service of the US military; they’ve given their limbs to it, they’ve suffered horrific brain damage for it, they’ve given their very lives to it. Families have been ripped apart by the violence that has been inflicted upon members of the US Armed Forces; you’re not supposed to let them hear you say that their loved one was destroyed because some sociopathic nerds somewhere in Washington decided that it would give America an advantage over potential economic rivals to control a particular stretch of Middle Eastern dirt. But it is true, and if we don’t start acknowledging that truth lives are going to keep getting thrown into the gears of the machine for the power and profit of a few depraved oligarchs. So I’m going to keep saying it.

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    Last week I saw the hashtag #SaluteToService trending on Twitter. Apparently the NFL had a deal going where every time someone tweeted that hashtag they’d throw a few bucks at some veteran’s charity. Which sounds sweet, until you consider three things:

    1. The NFL’s ten wealthiest team owners are worth a combined $61 billion.

    2. The NFL has taken millions of dollars from the Pentagon for displays of patriotism on the field, including for the policy of bringing all players out for the national anthem every game starting in 2009 (which led to Colin Kaepernick’s demonstrations and the obscene backlash against him).

    3. VETERANS SHOULD NOT HAVE TO RELY ON FUCKING CHARITY.

    Seriously, how is “charity for veterans” a thing, and how are people not extremely weirded out by it? How is it that you can go out and get your limbs blown off for slave wages after watching your friends die and innocent civilians perish, come home, and have to rely on charity to get by? How is it that you can risk life and limb killing and suffering irreparable psychological trauma for some plutocrat’s agendas, plunge into poverty when you come home, and then see the same plutocrat labeled a “philanthropist” because he threw a few tax-deductible dollars at a charity that gave you a decent prosthetic leg?

    Taking care of veterans should be factored into the budget of every act of military aggression. If a government can’t make sure its veterans are housed, healthy and happy in a dignified way for the rest of their lives, it has no business marching human beings into harm’s way. The fact that you see veterans on the street of any large US city and people who fought in wars having to beg “charities” for a quality mechanical wheelchair shows you just how much of a pathetic joke this Veterans Day song and dance has always been.

    They’ll send you to mainline violence and trauma into your mind and body for the power and profit of the oligarchic rulers of the US-centralized empire, but it’s okay because everyone gets a long weekend where they’re told to thank you for your service. Bullshit.

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    Veterans Day, like so very, very much in American culture, is a propaganda construct designed to lubricate the funneling of human lives into the chamber of a gigantic gun. It glorifies evil, stupid, meaningless acts of mass murder to ensure that there will always be recruits who are willing to continue perpetrating it, and to ensure that the US public doesn’t wake up to the fact that its government’s insanely bloated military budget is being used to unleash unspeakable horrors upon the earth.

    The only way to honor veterans, really, truly honor them, is to help end war and make sure no more lives are put into a position where they are on the giving or receiving end of evil, stupid, meaningless violence. The way to do that is to publicly, loudly and repeatedly make it clear that you do not consent to the global terrorism being perpetrated in your name. These bastards work so hard conducting propaganda to manufacture your consent for endless warmongering because they need that consent. So don’t give it to them.

    Your rulers have never feared the Koreans, the Vietnamese, the Iraqis, the terrorists, the Iranians, the Chinese or the Russians. They fear you. They fear the American public suddenly waking up to the evil things that are being done in your name and using your vast numbers to shrug off the existing power structures without firing a shot, as easily as removing a heavy coat on a warm day. If enough of you loudly withdraw your consent for their insatiable warmongering, that fear will be enough to keep them in check.

    This Veterans Day, don’t honor those who have served by giving reverence and legitimacy to a war machine which is exclusively used for inflicting great evil. Honor them by disassembling that machine.

    *  *  *

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  • Khashoggi’s Last Words Revealed As Turkish Media Plans To Publish Audio Death Tape

    A day after President Tayyip Erdogan dropped the latest bombshell related to the Saudi murder of Jamal Khashoggi, saying Turkey had handed over an audio recording of the journalist’s brutal slaying inside the Istanbul consulate to the U.S., Saudi Arabia, Germany, France and Britain, the contents of Khashoggi’s last words have emerged. 

    Editor for the the Turkish newspaper Daily Sabah, Nazif Karaman, shared some details from the audio tape with Al Jazeera. Karaman said Khashoggi’s last words were:

    “I’m suffocating… Take this bag off my head, I’m claustrophobic” – according what he confirmed is the authentic audio recording from inside the Istanbul consulate.

    Meanwhile at the conclusion of the centennial anniversary of WWI ceremony in Paris President Erdogan’s office confirmed he and President Trump discussed the Jamal Khashoggi killing on the sidelines of the weekend events. 

    The two leaders spoke in Paris, via the Turkish presidency.

    The prominent Turkish journalist for the popular pro-government Daily Sabah described further that the tape confirms that Khashoggi suffocated to death while a plastic bag was over his head in a killing that lasted for about seven minutes.

    During the Al-Jazeera interview Karaman also said the group of 15 hitmen responsible for carrying out the murder, and who were reported to have arrived in Istanbul the day before the October 2 killing, spent 15 minutes dismembering Khashoggi’s body.

    And notably, Karaman said his newspaper plans to publish segments of the audio death tape. According to the Al-Jazeera report:

    Karaman said that Daily Sabah would soon publish images of the tools that were brought into the country and used by the Saudi group.

    He added the Turkish newspaper would also publish some of the recordings that document the last moments of Khashoggi’s life.

    If this happens it will likely renew the flood of anti-MbS press coverage that occurred in the weeks after the murder was revealed.

    It will also raise serious questions for Washington and European officials who have apparently heard the recording but did not divulge or confirm that they had direct knowledge of such absolute certain proof that this was an official Saudi hit ordered at the highest levels. 

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    In a televised speech, Erdogan on Saturday confirmed Turkey handed over recordings to Saudi Arabia, the United States, Germany, France and Britain. According to Reuters Erdogan stated confidently:

    We gave the tapes. We gave them to Saudi Arabia, to the United States, Germans, French and British, all of them. They have listened to all the conversations in them. They know.

    But as we asked before, the pressing question that remains is how long have American authorities known of the contents of the Khashoggi murder tape? When did officials listen to it and why have they kept silent about it even as news of the death and investigation drove headlines? 

    It appears the White House may have only come into possession of the recording as early as only a matter of days ago, not long before Erdogan and Trump met face to face in Paris and discussed the issue. 

    According to the the Daily Mail‘s account of the Trump-Erdogan talks: 

    The men were pictured at a dinner in Paris seated next to one another in photos released by the Turkish government, revealing a lengthy conversation took place on Saturday evening…

    “I can confirm they sat next to one another and they discussed the ongoing tragic situation with Khashoggi,” White House Press Secretary Sarah Sanders told DailyMail.com.

    It will be interesting to see if President Trump himself addresses the audio recording in statements this week – something he may be forced to do if the audio is indeed leaked or published by Turkish press, as the Daily Sabah is now vowing to do. 

  • Margolis: We Are Heading For Another Tragedy Like World War I

    Authored by Eric Margolis via EricMargolis.com,

    We are now upon the 100th anniversary of World War I, the war that was supposed to end all wars. While honoring the 16 million who died in this conflict, we should also condemn the memory of the politicians, officials and incompetent generals who created this horrendous blood bath.

    I’ve walked most of the Western Front of the Great War, visited its battlefields and haunted forts, and seen the seas of crosses marking its innumerable cemeteries.

    As a former soldier and war correspondent, I’ve always considered WWI as he stupidest, most tragic and catastrophic of all modern wars.

    The continuation of this conflict, World War II, killed more people and brought more destruction on civilians in firebombed cities but, at least for me, World War I holds a special horror and poignancy. This war was not only an endless nightmare for the soldiers in their pestilential trenches, it also violently ended the previous 100 years of glorious European civilization, one of mankind’s most noble achievements.

    I’ve explored the killing fields of Verdun many times and feel a visceral connection to this ghastly place where up to 1,000,000 soldiers died. I have even spent the night there, listening to the sirens that wailed without relent, and watching searchlights that pierced the night, looking for the ghosts of the French and German soldiers who died here.

    Verdun’s soil was so poisoned by explosives and lethal gas that to this day it produces only withered, stunted scrub and sick trees. Beneath the surface lie the shattered remains of men and a deadly harvest of unexploded shells that still kill scores of intruders each year. The spooky Ossuaire Chapel contains the bone fragments of 130,000 men, blown to bits by the millions of high explosive shells that deluged Verdun.

    The town of the same name is utterly bleak, melancholy and cursed. Young French and German officers are brought here to see firsthand the horrors of war and the crime of stupid generalship.

    Amid all the usual patriotic cant from politicians, imperialists and churchmen about the glories of this slaughter, remember that World War I was a contrived conflict that was totally avoidable. Contrary to the war propaganda that still clouds and corrupts our historical view, World War I was not started by Imperial Germany.

    Professor Christopher Clark in his brilliant book, `The Sleepwalkers’ shows how officials and politicians in Britain and France conspired to transform Serbia’s murder of Austro-Hungary’s Crown Prince into a continent-wide conflict. France burned for revenge for its defeat in the 1870 Franco-Prussian War and loss of Alsace-Lorraine. Britain feared German commercial and naval competition. At the time, the British Empire controlled one quarter of the world’s surface. Italy longed to conquer Austria-Hungary’s South Tyrol. Turkey feared Russia’s desire for the Straits. Austria-Hungary feared Russian expansion.

    Prof Clark clearly shows how the French and British maneuvered poorly-led Germany into the war. The Germans were petrified of being crushed between two hostile powers, France and Russia. The longer the Germans waited, the more the military odds turned against them. Tragically, Germany was then Europe’s leader in social justice.

    Britain kept stirring the pot, determined to defeat commercial and colonial rival, Germany. The rush to war became a gigantic clockwork that no one could stop. All sides believed a war would be short and decisive. Crowds of fools chanted ‘On to Berlin’ or ‘On to Paris.’

    Few at the time understood the impending horrors of modern war or the geopolitical demons one would release. The 1904 Russo-Japanese War offered a sharp foretaste of the 1914 conflict, but Europe’s grandees paid scant attention.

    Even fewer grasped how the collapse of the antiquated Ottoman and Austro-Hungarian Empires would send Europe and the Mideast into dangerous turmoil that persists to our day. Or how a little-known revolutionary named Lenin would shatter Imperial Russia and turn it into the world’s most murderous state.

    This demented war in Europe tuned into an even greater historic tragedy in 1917 when US President Woodrow Wilson, driven by a lust for power and prestige, entered the totally stalemated war on the Western Front. One million US troops and starvation caused by a crushing British naval blockade turned the tide of battle and led to Germany’s surrender.

    Vengeful France and Britain imposed intolerable punishment on Germany, forcing it to accept full guilt for the war, an untruth that persists to this day. The result was Adolf Hitler and his National Socialists. If an honorable peace had been concluded in 1917, neither Hitler nor Stalin might have seized power and millions of lives would have been saved. This is the true tragedy of the Great War.

    Let us recall the words of the wise Benjamin Franklin: `No good war, no bad peace.’

  • Saudi Journalist Tortured To Death After Online Identity Exposed By Regional Twitter HQ

    Another Saudi journalist was reported tortured and killed at the hands of Saudi authorities last week, but this time the Saudis may have actually had assistance from Twitter in uncovering the identity behind a controversial account which led to the detention of the journalist. 

    Arabic news source The New Khaleej was the first to report that Saudi journalist and writer Turki Bin Abdul Aziz Al-Jasser died after being tortured while in detention after his initial arrest last March. According to the report his arrest came after it was learned that he administered the Twitter account Kashkool — which was known for highlighting human rights violations and crimes committed by the royal family and government officials. 

    The Twitter account is still online after it stopped tweeting to its 183,000 followers early lost March — prior to that it appeared to tweet frequently in Arabic and sometimes in English. The New Khalieej report was the first to reveal that authorities identified Al-Jasser’s online identity using informants in Twitter’s regional office located in Dubai.

    And following up on the story, the UK’s highest circulation newspaper Metro late last week published an explosive report that quickly went viral as it cited sources confirming leaked information out of Twitter’s offices in the region led to the arrest of the dissident journalist. 

    According to the Metro report:

    “They got his information from the Twitter office in Dubai. That is how he was arrested,” a source, who wishes to remain anonymous, told Metro.co.uk.

    “Twitter has become insecure for dissidents or critics. Everyone speaks under threat and pressure.”

    “The accounts of Saudi dissidents are spied on. We are not safe using Twitter.”

    The source said Saudi authorities have placed moles inside the American social media giant’s office in Dubai, making all dissident activity on Twitter unsafe amidst an increasing crackdown by Riyadh.

    A former top adviser to the Royal Court, Saud al-Qahtani, recently issued threats to Twitter users, stating a year ago that authorities would seek to uncover fake online names. According to the Metro report, Qahtani said, “Does your nickname protect you from the #blacklist?’ Al-Qahtani wrote online. No. 1. States have a way of knowing the owner of the name. 2 – IP can be identified in many technical ways. 3- The secret I’m not going to say.” This suggests the Saudi “secret” backdoor may have been to have an intelligence presence within the Twitter office itself. 

    The Metro report found further:

    The source also claimed that Saud al-Qahtani, the former adviser to the Royal Court, leads a ‘cyber spy ring’ and has contacts inside the Dubai Twitter office. They allege that a so-called ‘Twitter mole’ handed over information on Al-Jasser, leading to his arrest earlier this year.

    Given the current outrage and media scrutiny of Saudi leaders in the wake of the October 2nd murder of journalist Jamal Khashoggi, it’s surprising that the mainstream media has yet to dig further into the details of Turki Bin Abdul Aziz Al-Jasser’s death.

    The “Kashkool” account (@coluche_ar) — believed to be run by Turki Bin Abdul Aziz Al-Jasser who was “disappeared” and now reported killed — routinely mocked crown prince bin Salman, such as in the below tweet about a state visit by President Sisi of Egypt, who appeared humiliated when MbS failed to observe protocol:

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    Twitter sought to distance itself from these fresh allegations as al-Jasser’s story went viral last week. A Twitter spokesperson issued the following statement to Metro: 

    “We do not comment on individual cases for privacy and security reasons. Twitter has a well-documented, strong track record of protecting user information and data. We require law enforcement to meet a high legal threshold and to undergo strict process when making information requests to Twitter. As a company, we will always err on the side of protecting the voices of those who use our service.

    The statement failed to mention, however, whether or not the company was conducting an internal investigation focused on its Dubai offices. 

    A Middle East Eye report from last year exposed just how aggressive Saudi authorities have been in attempting to root out anonymous dissenting speech on social media. At that time and since the Saudi authorities had posted messages to official state accounts asking citizens to inform on each other over  “information crimes”.

  • Former CIA Officer: Brennan And Clapper Should Not Escape Prosecution

    Authored by John Kiriakou via ConsortiumNews.com,

    Recently declassified documents show that the former CIA director and former director of national intelligence approved illegal spying on Congress and then classified their crime. They need to face punishment…

    Republican Sen. Chuck Grassley of Iowa made a dramatic announcement this month that almost nobody in America paid any attention to. Grassley released a statement saying that four years ago, he asked the Intelligence Community Inspector General to release two “Congressional Notifications” written by former CIA Director John Brennan and former Director of National Intelligence James Clapper.

    Grassley had had his requests to declassify the documents ignored repeatedly throughout the last two years of the Obama administration. He decided to try again because all of the Obama people at the CIA and DNI are gone now. This time, his request was approved.

    So what was the information that was finally declassified? It was written confirmation that John Brennan ordered CIA hackers to intercept the emails of all potential or possible intelligence community whistleblowers who may have been trying to contact the Congressional oversight committees, specifically to the Senate Select Committee on Intelligence and the Senate Judiciary Committee. 

    Simply put, Brennan ordered his people to hack into the Senate email system—again. Grassley is the longtime chairman of Judiciary Committee, and he was understandably appalled.

    First, let me explain what a Congressional Notification is. The CIA is required by law to inform the Congressional oversight committees whenever one of its officers, agents, or administrators breaks the law, when an operation requires Congressional approval because it is a “covert action” program, or whenever something happens at the CIA that’s potentially controversial and the Agency wants to save itself the embarrassment of explaining itself to Congress later. 

    Brennan apparently ordered his officers to spy on the Senate. Remember, back in 2014 his officers spied on Intelligence Community investigators while they were writing the Senate Torture Report. This time, he decided to inform Congress. 

    But Brennan and Clapper classified the notification. It was like a taunt. “Sure, I’m spying on Congress, which is illegal. But it’s classified, so what are you going to do about it?”

    Grassley went through the proper channels. And even though Brennan and Clapper essentially gave him the middle finger, he didn’t say anything until the documents were finally declassified. He’s a bigger man than I.

    John Brennan, left, and James Clapper. (LBJ Library / Flickr)

    I think Grassley missed an opportunity here, though.

    First, it’s my own opinion that John Brennan belongs in prison. He has flouted U.S. national security laws with impunity for years. That’s unacceptable. In these declassified notifications, he’s confessing to hacking into the Senate’s computer system. That’s a violation of a whole host of laws, from illegal use of a government computer to wire fraud to espionage. There ought to be a price to pay for it, especially in light of the fact that Brennan was the leading force behind the prosecutions of eight national security whistleblowers during the Obama administration, almost three times the number of whistleblowers charged under the Espionage Act by all previous presidents combined.

    Second, it’s a crime, a felony, to overclassify government information. Most Americans have no idea that that’s the case. Of course, nobody has ever been charged with it. But it’s a serious problem, and it’s antithetical to transparency.  The CIA Inspector General said of the notifications, “I could see no reason to withhold declassification of these documents. They contained no information that could be construed as sources and methods.” That’s an admission that the notifications were improperly classified in the first place.

    Grassley added,

    “There is a strong public interest in (the notifications’s) content.  I do not believe they need to be classified at all, and they should be released in their entirety.”

    Grassley went so far as to call out Brennan and Clapper by name.

    “What sources or methods would be jeopardized by the declassification of these notifications? After four-and-a-half years of bureaucratic foot-dragging, led by Brennan and Clapper, we finally have the answer: None.”

    So why weren’t they declassified four years ago? Remember, it’s illegal to classify a crime. And it’s illegal to classify something solely for the purpose of preventing embarrassment to the CIA. Yet those were the very reasons for classifying the documents in the first place. It was because Brennan and Clapper think they’re somehow special cases. (Recall that it was Clapper who lied directly to the Senate Intelligence Committee about intercepting the communications of American citizens. He also did that with impunity.) 

    Brennan and Clapper think the law doesn’t apply to them. But it does. Without the rule of law, we have chaos in our country. The law has to apply equally to all Americans. Brennan and Clapper need to learn that lesson the hard way. They broke the law. They ought to be prosecuted for it. 

  • Hedge Fund CIO: When Investing Is Like Waging War

    Submitted by Eric Peters, CIO of One River Asset Management

    Warfare

    “If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

                  – Sun Tzu, The Art of War, 650 BC

    “Out of every one-hundred men you send us, ten shouldn’t even be here, eighty are just targets, nine are the real fighters, and we are lucky to have them, for they the battle make. Ah, but the one, one is a warrior, and he will bring the others back.”

                 – Heraclitus, 500 BC

    “The only easy day was yesterday – Get comfortable being uncomfortable – Don’t run to your death – Have a shared sense of purpose – Move, shoot, communicate – No plan survives first contact with the enemy – All in, all the time.”

                 – US Naval Special Ops

    “Capital markets and combat are not turn-based games like chess,” said the Deputy CIO, top decile performer, Marine Force Recon veteran.

    “This means that there’s no such thing as waiting to make a decision, because waiting is a decision,” he continued. “Waiting can frequently be correct near-term, but you need to be intentional about how to use that time – to gather information, prioritizing the data that will have the most significant impact on your probability of a favorable outcome.”

    There’s a vast difference between incomplete and insufficient information. “Defining the threshold for information sufficiency is an art, honed through experience, often indistinguishable from intuition.” Acting with insufficient information imposes an unnecessary risk that will get you killed in combat or cause avoidable losses as an investor.

    “But waiting for complete/perfect information is foolish because it’s an illusion – it’s not possible, because events move in real time.” You cannot fall victim to the zero-defect mentality – the search for perfect information cripples your ability to execute.

    “There are two contrasting philosophies in military science about the best use of reserves; plugging holes or reinforcing success.” The US Marine Corps has decisively adopted the latter. “We don’t apply resources evenly across a front.” Our forces search for gaps.

    “As a battle develops we don’t deploy reserves to areas where we experience the most resistance. We deploy them to the areas where we’re experiencing the most success.” The Germans pioneered this doctrine between WWI and WWII, devastating their neighbors through the lightning of Blitzkrieg.

    “Portfolio rebalancing is an expression of this philosophy. It’s a rules-based process that forces you to do what everyone says they’re trying to do, but few do.” Which is to redeploy resources through selling high and buying low, applying pressure to gaps in the market.

    “The Special Operations community selects and trains with the expectation that we will always be outnumbered but must never be outmanned,” he said. “We only play away games. And we’re expected to win every one.”

  • Illinois Adjusts Course… Directly Into The Abyss

    Authored by Mark Glennon via Wirepoints.com,

    How much closer to Detroit or Puerto Rico must Illinois go before it reforms?

    That’s now the central question, and this week we’ve learned we have much further to go. The primary culprits in Illinois’s collapse ran the field – Chicago machine Democrats retained firm control of both houses of the General Assembly and won every statewide office.  Congressional election results were just as dismal.

    Plenty of Republicans share blame. Bruce Rauner was a failure, deeply alienating even his base. The number of genuine Republican reformers who understand Illinois’ problems who are candid enough to speak about them remain few.

    None of that came as a surprise, except the race for Attorney General, and that result is terrifying. Erika Harold was a solid candidate but was trounced by Kwame Raoul. Raoul will present a special obstacle to reform and Illinois’ economy, politicizing law enforcement on behalf of his sponsor, House Speaker Michael Madigan, just like his predecessor. Raul’s race was a straight up test of Illinois’ sanity, and it failed.

    In almost all other races, Illinois voters effectively chose to believe they can “vote themselves money,” as Benjamin Franklin put it, which, he said will “herald the end of the Republic.”

    Their lesson will come, though when remains unclear.

    They chose, more  precisely than ever, the malfeasance and corruption that long ago set the state’s trajectory into the abyss, and offered no indication of what or when would be enough to convince them they’ve reached the bottom. A bottom will come, but when? Something then will arise, but what?

    Personally, it’s one of my favorite, historical pictures that haunts the short term but inspires hope for a later day. It shows the first business to reopen in Chicago after the Great Fire, marking the start of a hundred rip roaring years when Chicago was among the most dynamic cities on the planet.

    A similar day, far, far off, is all we can hope for.

  • When The Guns Fell Silent: Hear The Eerie Quiet That Followed The End Of WWI

    On the eleventh hour, of the eleventh day of the eleventh month, an Armistice was declared that ended what had been, up until that point, the bloodiest conflict in human history. Millions of citizens in the US and Europe greeted the peace – declared 100 years ago on Sunday – with jubilation as it meant the end of four years of brutal trench warfare and mechanized slaughter that killed 16 million had finally come to an end.

    But the impact of the Armistice was especially palpable on the front, where heavy artillery had been firing right up to the minute that peace was declared. In a stunning recording released by the British Imperial War Museum on observance of the anniversary, listeners can hear the guns firing on the American front near the River Moselle one minute before the Armistice was declared – then the stunning silence that followed one minute after.

    As the boom of the guns faded, the silence was punctuated only by chirping birds and a rustling wind.

    After the recording’s release, comments poured in from users on Twitter, many of whom were amazed to learn that the guns had been firing up to the minute the war ended.

    According to Metro, the audio clips were patched together by sound designers Coda to Coda.

  • Foreign Capital Has Been Propping Up China’s Currency. Here’s What Happens When It Leaves

    By Benn Steil and Benjamin Della Rocca

    “I think China’s manipulating their currency, absolutely,” President Trump said back in August. Yet the People’s Bank of China (PBoC) was, and has been, intervening to keep the RMB up, and not to push it down, as Trump was alleging. And we believe such interventions are about to get much larger. Here is why.

    Over the past two years, as our left-hand figure above shows, foreign portfolio investors have piled prodigiously into Chinese assets, helping to support the RMB. But history suggests this trend is about to reverse. While inflows have been rising, Chinese stocks have been tumbling—they are down over 20 percent from their January peak. Dreadful performance like this typically drives funds out of emerging markets. We may be seeing the beginning of such outflows in China.

    Repatriation of liquid foreign capital will make it far more challenging for China to keep its currency up. Of course, China could change course and let it fall, but that risks exacerbating the foreign-debt burden of its highly leveraged corporates. It could raise interest rates, but that would further slow a slowing economy. It could, to keep capital at home, demand higher returns on its foreign lending, but that would mean sacrificing its efforts to subsidize its companies operating abroad, as well those aimed at putting dollars to the service of geostrategic objectives—like Belt and Road.

    In short, then, there is every reason to expect that the PBoC will boost its support for the RMB by selling dollar reserves. This is what it did back in 2015, when a plunging stock market scared away foreign capital.

    So in spite of President’s Trump’s repeated charges that China is manipulating its currency for competitive advantage in trade, all evidence suggests that it will continue to do the opposite. But if China were to sell reserves at the same pace as in 2015, its reserve levels would, by mid-2020, actually fall below the safety threshold implied by the IMF’s framework for reserve adequacy—as shown in the right-hand figure above.

    The prospect of a balance-of-payments crisis, in which China would struggle to pay for imports and service foreign debt (a prospect considered outlandish a decade ago), highlights the urgency with which China must begin addressing the problem of high and rising corporate and local-government debt levels. The PBoC has no easy fix for these problems.

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