Everything You Know About Money Is Wrong


 We Can’t Fix What We Don’t Understand

Bloomberg notes this week that the conventional theory of why money was created is wrong:

There are, broadly speaking, two accounts of the origin and history of money. One is elegant, intuitive and taught in many introductory economics textbooks. The other is true.

The financial economist Charles Goodhart, a former member of the Bank of England’s Monetary Policy Committee, laid out the two views in a 1998 paper, “The Two Concepts of Money: Implications for the Analysis of Optimal Currency Areas.”

The first view, the “M View,” is named after the Austrian 19th century economist and historian Karl Menger, whose 1882 essay “On the Origins of Money” is the canonical statement of an argument that goes back to Aristotle:

As subsistence farming gives way to more complex economies, individuals want to trade. Simple barter (eight bushels of wheat for one barrel of wine) quickly becomes inefficient, because a buyer’s desires won’t always match up with a seller’s inventory. If a merchant comes through the village with wine and all a farmer has to offer is wheat, but the merchant wants nuts, there’s no trade and both parties walk away unfulfilled. Or the farmer has to incur the costs of finding another merchant who will exchange wheat for nuts and then hope that the first merchant hasn’t moved on to the next village.

But if the merchant and the farmer can exchange some other medium, then the trade can happen. This medium of exchange has to be what Menger calls “saleable,” meaning that it’s easily portable, doesn’t spoil over time and can be divided. Denominated coins work, shells and beads also fit the bill. So do cigarettes in POW camps and jails and Tide laundry detergent for drug dealers. This process, Menger argues, happens without the intervention of the state: “Money has not been generated by law. In its origin it is a social, and not a state institution.” [Menger’s view is the commonly-accepted theory of  money.]

Goodhart points out, however, that Menger is just wrong about the actual history of physical money, especially metal coins. Goodhart writes that coins don’t follow Menger’s account at all. Normal people, after all, can’t judge the quality of hunks of metal the same way they can count cigarettes or shells. They can, however, count coins. Coins need to be minted, and governments are the ideal body to do so. Precious metals that become coins are, well, precious, and stores of them need to be protected from theft. Also, a private mint will always have the incentive to say its coins contain more high-value stuff than they actually do. Governments can last a long time and make multi-generational commitments to their currencies that your local blacksmith can’t.

But why oversee money creation in the first place? This brings us to the second theory of money, which Goodhart calls the “C View,” standing for “cartalist” (chartalist is a more common spelling). To simplify radically, it starts with the idea that states minted money to pay soldiers, and then made that money the only acceptable currency for paying taxes. With a standard currency, tax assessment and collection became easier, and the state could make a small profit from seiginorage.

The state-coin connection has far more historical support than Menger’s organic account. As Goodheart points out, strong, state-building rulers (Charlemagne, Edward I of England) tend to be currency innovators, and he could have easily added Franklin D. Roosevelt’s taking the U.S. off the gold standard in 1933 or Abraham Lincoln financing the Civil War with newly issued greenbacks. The inverse is true too: When states collapse, they usually take their currencies with them. When Japan stopped minting coins in 958, the economy reverted to barter within 50 years.  When the Roman Empire collapsed in Western Europe, money creation splintered along new political borders.

If money came about independent of states, as according to the M View, one would think it would outlast transient political structures. Historically, however, this tends not to be the case, a strong argument in favor of the C View.

Anthropologist David Graeber – who has extensively studied the history of money and debt – agrees:

There’s a standard story we’re all taught, a ‘once upon a time’ — it’s a fairy tale.


Rather than the standard story – first there’s barter, then money, then finally credit comes out of that – if anything its precisely the other way around. Credit and debt comes first, then coinage emerges thousands of years later and then, when you do find “I’ll give you twenty chickens for that cow” type of barter systems, it’s usually when there used to be cash markets, but for some reason – as in Russia, for example, in 1998 – the currency collapses or disappears.


Taxes are also key to creating the first markets that operate on cash, since coinage seems to be invented or at least widely popularized to pay soldiers – more or less simultaneously in China, India, and the Mediterranean, where governments find the easiest way to provision the troops is to issue them standard-issue bits of gold or silver and then demand everyone else in the kingdom give them one of those coins back again. Thus we find that the language of debt and the language of morality start to merge.


How did this happen? Well, remember I said that the big question in the origins of money is how a sense of obligation – an ‘I owe you one’ – turns into something that can be precisely quantified? Well, the answer seems to be: when there is a potential for violence. If you give someone a pig and they give you a few chickens back you might think they’re a cheapskate, and mock them, but you’re unlikely to come up with a mathematical formula for exactly how cheap you think they are. If someone pokes out your eye in a fight, or kills your brother, that’s when you start saying, “traditional compensation is exactly twenty-seven heifers of the finest quality and if they’re not of the finest quality, this means war!”

Money, in the sense of exact equivalents, seems to emerge from situations like that, but also, war and plunder, the disposal of loot, slavery. In early Medieval Ireland, for example, slave-girls were the highest denomination of currency. And you could specify the exact value of everything in a typical house even though very few of those items were available for sale anywhere because they were used to pay fines or damages if someone broke them. But once you understand that taxes and money largely begin with war it becomes easier to see what really happened.

Graeber provides an example:

We tend to forget that in, say, the Middle Ages, from France to China, … money was … whatever the king was willing to accept in taxes.

Graeber also notes that the first word for “freedom” in any language is the word for “debt-freedom”, and that much of the language of the great religious movements revolved around forgiveness of debts.  And the founders of the Christian and Jewish religions focused on the importance of debt jubilees.

In addition, most Americans don’t realize that our current money system does not serve the public good, but instead continuously sucks the prosperity and vitality out of our economy.  As Henry Ford noted:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

Some claim that public banking is the answer. Others look to gold or Bitcoin as a saner alternative to fiat currencies.

As we noted in 2011, maybe we should get beyond all systems which keep track of exactly to the penny who owes what to whom … in the manner required for warfare and slavery:

Graeber hints at one possibility [for a way out of the money-debt trap]:

[French anthropologist Marcel Mauss] was one of the first anthropologists to ask: well, all right, if not barter, then what? What do people who don’t use money actually do when things change hands? Anthropologists had documented an endless variety of such economic systems, but hadn’t really worked out common principles. What Mauss noticed was that in almost all of them, everyone pretended as if they were just giving one another gifts and then they fervently denied they expected anything back. But in actual fact everyone understood there were implicit rules and recipients would feel compelled to make some sort of return.

What fascinated Mauss was that this seemed to be universally true, even today. If I take a free-market economist out to dinner he’ll feel like he should return the favor and take me out to dinner later. He might even think that he is something of chump if he doesn’t and this even if his theory tells him he just got something for nothing and should be happy about it. Why is that? What is this force that compels me to want to return a gift?

This is an important argument, and it shows there is always a certain morality underlying what we call economic life.

In other words, in communities or webs of human interaction which are small enough that people can remember who gave what, we might be able to set up alternative systems of money and credit so we can largely “opt out” of the status quo systems of money and debt measurement.

I’m not arguing for becoming Luddites and living in mud huts (but that is fine, if you wish to do so). Nor am I suggesting that we all have to become selfless saints who give away all of their possessions without any reasonable expectation of something in return.

I am arguing that it might be possible to empower ourselves – and create our own systems for keeping track on a local or people-centered basis, and create our own vibrant economies using the resources we have – by moving away from the national and global systems dominated by the biggest banks and oligarchs, and towards a system where we “spend” resources and goodwill into our local communities in a way in which trust is built from the ground-up, and the energy of trade and commerce can be re-started. [Trust is – after all – the basis for all prosperous economies.]

Postscript: Mainstream economists will argue that we need a universal, fungible type of money in order to trade on a global basis. But because currencies are now unpegged from anything in the real world and are traded on the currency markets, their values fluctuate wildly in the modern world. In other words, one of the essential characteristics for money – that they represent a universal, fixed yardstick – has disappeared. And fiat currencies have a very short lifespan. So how valuable are they, really, for anyone but forex speculators?

Until we learn what money, credit and debt really are, we will remain victims … getting poorer and poorer.

Postscript: The Bible says that the love of money is the root of all evil.  On the other hand, the father of modern economics (Adam Smith), Ronald Reagan, economist Milton Friedman, Wall Street titan Ivan Boesky and students who take economics classes all say that greed is good.

Both are naive.

Money and currency are good to the extent that they help create abundance for ourselves and our communities.  They are bad to the extent that they are used to promote warfare and slavery, and that they suck prosperity out of the system.

Big Banks Are Not Really In the Banking Business

Everyone thinks of banks as holding our deposits safe, and extending loans based upon the amount of deposits they hold in their vaults.

This is no longer true.

The big banks currently do very little traditional banking. Most of their business is from financialspeculation (which, sadly, metastasizes into manipulation and criminal behavior).

For example, less than 10% of Bank of America’s assets come from traditional banking deposits.

Time Magazine gave some historical perspective in 1993:

What would happen to the U.S. economy if all its commercial banks suddenly closed their doors? Throughout most of American history, the answer would have been a disaster of epic proportions, akin to the Depression wrought by the chain-reaction bank failures in the early 1930s. But [today] the startling answer is that a shutdown by banks might be far from cataclysmic.


Who really needs banks these days? Hardly anyone, it turns out. While banks once dominated business lending, today nearly 80% of all such loans come from nonbank lenders like life insurers, brokerage firms and finance companies. Banks used to be the only source of money in town. Now businesses and individuals can write checks on their insurance companies, get a loan from a pension fund, and deposit paychecks in a money-market account with a brokerage firm. “It is possible for banks to die and still have a vibrant economy,” says Edward Furash, a Washington banks consultant.

Indeed, even though the taxpayers have thrown trillions of dollars at the “too big to fail” banks, they largely stopped loaning to Main street … and it was only the smaller banks that kept making loans.

Benjamin Franklin, William Jennings Bryan on monetary reform

This is part five of an eleven part paper written by Carl Herman.


Benjamin Franklin (1706-1790) was a Founding Father of the United States and one of the most accomplished inventors and brilliant minds in human history. Among his achievements was contributing to the discovery of how to fund a government without taxes and its successful implementation in the colony of Pennsylvania.

“There is no Science, the Study of which is more useful and commendable than the Knowledge of the true Interest of one’s Country; and perhaps there is no Kind of Learning more abstruse and intricate, more difficult to acquire in any Degree of Perfection than This, and therefore none more generally neglected. Hence it is, that we every Day find Men in Conversation contending warmly on some Point in Politicks, which, altho’ it may nearly concern them both, neither of them understand any more than they do each other.

Thus much by way of Apology for this present Enquiry into the Nature and Necessity of a Paper Currency. And if any Thing I shall say, may be a Means of fixing a Subject that is now the chief Concern of my Countrymen, in a clearer Light, I shall have the Satisfaction of thinking my Time and Pains well employed.” – Benjamin Franklin, A Modest Enquiry into the Nature and Necessity of Paper Currency, 1729.

Although Aristotle clearly wrote that money is a function of law [31] and not of commodity value, many people were confused how to manage the creation of money. The American colonies had almost no gold or silver, so were driven to fiat currency by necessity. The colony of Pennsylvania would lend money to land owners at 5% interest. The money would provide the essential government service to facilitate trade. Because only the principal was leant, the government could create and spend the interest on public goods and services without taxing their citizens. For an encyclopedic summary:here and here.

The result was stable prices and economic prosperity without direct taxation.

Contemporary economist, Adam Smith, in The Wealth of Nations:

“The government of Pennsylvania, without amassing any [gold or silver], invented a method of lending, not money indeed, but what is equivalent to money to its subjects. [It advanced] to private people at interest, upon [land as collateral], paper bills of credit…made transferable from hand to hand like bank notes, and declared by act of assembly to be legal tender in all payments…[the system] went a considerable way toward defraying the annual expense…of that…government [low taxes]. [Pennsylvania’s] paper currency…is said never to have sunk below the value of gold and silver which was current in the colony before the…issue of paper money.”

In agreement are famed Princeton economist Richard Lester in his book, Monetary Experiments: Early American and Recent Scandinavianand Stanford’s Hoover Institute’s Senior Fellow Alvin Rabushkain his paper, Representation without taxationThis prosperity continued until the British government ended the colonies’ power to issue its own currency through the Currency Act of 1764. Peter Cooper, born one year after Franklin’s death and colleague of Jefferson’s Secretary of the Treasury Albert Gallatin, wrote:

“After Franklin had explained…to the British Government as the real cause of prosperity, they immediately passed laws, forbidding the payment of taxes in that money. This produced such great inconvenience and misery to the people, that it was the principal cause of the Revolution. A far greater reason for a general uprising, than the Tea and Stamp Act, was the taking away of the paper money.”

From Franklin’s memoirs: “The difficulties for want of cash were accordingly very great, the chief part of the trade being carried on by the extremely inconvenient method of barter; when in 1723 paper-money was first made there, which gave new life to business, promoted greatly the settlement of new lands (by lending small sums to beginners at easy interest, to be repaid on installments) whereby the province has so greatly increased in inhabitants, that the export from hence thither is now more than tenfold what it then was; and by their trade with foreign colonies, they have been able to obtain great quantities of gold and silver to remit hither in return for the manufactures of this country. New York and New Jersey have also increased greatly during the same period, with the use of paper-money; so that it does not appear to be of the ruinous nature ascribed to it.”

“Experience, more prevalent than all the logic in the world, has fully convinced us all, that it (paper money issued directly by government) has been, and is now of the greatest advantages to the country.” – Benjamin Franklin, The American Weekly Mercury, March 27, 1729.

“The utility of this currency became by time and experience so evident as never afterwards to be much disputed.” – Benjamin Franklin, The Autobiography of Benjamin Franklin, page 65.

William Jennings Bryan (1860-1925) was an attorney, one of the nation’s most popular public speakers, and the Democratic Party’s choice for President in three elections: 1896, 1900, and 1908. He served as Secretary of State in the Wilson administration; he resigned in protest to Wilson’s support of the Allies in WW I which he saw as leading to US involvement in a war where national security was not threatened:

Bryan’s political populism centered on American monetary policy. He supported an expansion of the money supply in response to a national depression in the 1890’s by rejecting the gold standard, a limitation on currency based on a fractional reserve of gold holdings. We discussed Peter Cooper’s presidential ambition with the Greenback Party, who campaigned for “greenbacks” to be created directly by the federal government for public projects and jobs. This policy compromised into the “free silver” movement to include silver with gold as a legal fractional backing for money. His powerful stand for monetary reform is clearly expressed in his “Cross of Gold” speech in accepting the Democratic Party nomination for President in 1896, quoted below (click here to listen to Bryan’s reading of the speech 25 years later).

The Wizard of Oz (oz. for ounces of silver), was a political allegory of this history, with Bryan portrayed as the lion with a loud roar but no power[32]. Author Frank Baum, hopeful for the wisdom of monetary reform becoming the nation’s monetary policy, wrote that the lion eventually beheaded the great spider, representing the overreaching financial monopolies of Wall Street. Ellen Brown’s Web of Debt walks readers through the details of the history and Oz allegories, in one of the most-read books on monetary reform (I highly recommend it to understand this trillion dollar issue). Bill Still’s The Secret of Oz is an excellent documentary.

Bryan’s brilliant and concise statement for monetary reform:

“We say in our platform that we believe that the right to coin and issue money is a function of government. We believe it. We believe that it is a part of sovereignty, and can no more with safety be delegated to private individuals than we could afford to delegate to private individuals the power to make penal statutes or levy taxes…Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank, and that the government ought to go out of the banking business. I stand with Jefferson rather than with them, and tell them, as he did, that the issue of money is a function of government, and that the banks ought to go out of the governing business… When we have restored the money of the Constitution, all other reform will be possible, but until this is done there is no other reform that can be accomplished.”

– William Jennings Bryan, Cross of Gold Speech, 1896.


This is part five of an eleven part paper written by Carl Herman for The Center of Process Studies’ conference, Money-Creation in a Finite World:

  1. Monetary and credit reform: full-employment, end of debt slavery
  2. Thomas Edison, Thomas Jefferson on monetary reform
  3. President Andrew Jackson, Peter Cooper on monetary reform
  4. NYC Mayor John Hylan, House Banking Committee Chairs on monetary reform
  5. Benjamin Franklin, William Jennings Bryan on monetary reform
  6. Charles Lindbergh Sr., 86% of Great Depression economists on monetary reform
  7. What should the average citizen know about US War Crimes?
  8. What should the average citizen know about US war history?
  9. What is the leverage point for Occupy’s victory?
  10. What does monetary and credit freedom look like?
  11. My personal history of the 1% choosing to kill a million children each month

Monetary and credit reform is a policy objective to end transfer of trillions of the “99%’’s wealth to an oligarchic “1%.” The US banking collusion only and always co-exists within a larger oligarchy with government for legal protection, and media for public propaganda. This paper presents histories in monetary reform and US government crimes in war suppressed by today’s US corporate media’s history texts and news journalism. When the oligarchy’s voice is professionally exposed as obviously and egregiously lying in omission and commission in claims of central importance of the past and present, government and corporate media loses credibility in an “emperor has no clothes” transformation. Refutation of the oligarchy’s voice with objective and independently verifiable facts, especially in light of current War Crimes and Constitutional destruction, supports our policy goal for monetary and credit reform because the public will seek alternative voices to build a brighter future. To support our goal of upgraded economic policies, we should be open to synergy with ecological and resource-based economic models, and network with Occupy.

News Anchor Completely Loses It For The Best Possible Reason

Well folks, here is somebody else speaking up about the truth of our great country. Please listen, pause and think about what he is saying.

How do we get money out of politics?

Those of you who followed the Occupy Movement will remember one predominant theme that emerged was this idea that we need to get money out of political process. This meme was one that resonated with a lot of people. It was thought that, if we could stop Wall Street from buying our politicians, they might reform themselves and become better representatives of WE THE PEOPLE.

When you think deeply about it, you begin to realize the problem is more fundamental. While it is true that K street lobbies have undue influence in our political system, that is not the root of the problem. The large pools of Capital that sit above government is the root of the problem. With the rise of Bitcoin, people like myself have begun to ask new questions and formulate new solutions. Perhaps we need government, but do we need government issued money?

Talking about removing the money from the political process is one thing, but to separate government from money altogether is something quite different–indeed, it is revolutionary. The separation of church and State is a rather new idea in human history, and most people agree it was a step forward. With the rise of financial instruments that are both autonomous and anonymous, the question must be asked: Are we now ready for the separation of money from the State?

The separation of church and State was very controversial but it brought greater pluralism for all. America had a big role to play in that evolutionary process. After the Magna Carta was signed, men of the Enlightenment were no longer content to be ruled by Kings. Today the old oligarchs that once sat behind the king’s throne are still asserting themselves by appointing bankers into political positions once held by elected officials. What we see today is neo-feudalism where the kings have been replaced by few powerful families, each with large pools of capital. They control the political process because the control the money.

What I’m describing is called “the New World Order” and those invested in this corrupt system are pushing a Globalist agenda that forces working people the world over to comply and submit to its all-powerful will without regard to their individual rights. Yes, people complain about this open conspiracy, but they are at a loss to know what can be done about it. Perhaps the answer is a simple one: stop using State issued money.

If people the world over were to adopt various forms of crypto-currency, this would seriously reduce the power of the Super-State to control them and in time it would also render the oligarchy powerless to control the state. Then, and only then, would free people have a chance to reclaim their government and restore a Constitutional Republic that is both accountable and representative of their the best interests.

U.S. Justice Department Opens Criminal Probe Into Currency Market Manipulation

Posted on October 11, 2013 by WashingtonsBlog

Currency markets are massively rigged.

Bloomberg reports today:

The U.S. Justice Department has opened a criminal investigation of possible manipulation of the $5.3 trillion-a-day foreign exchange market, a person familiar with the matter said.

The Federal Bureau of Investigation, which is also looking into alleged rigging of interest rates associated with the London interbank offered rate, or Libor, is in the early stages of its currency market probe, said the person, who asked not to be identified because the inquiry is confidential.


Swiss regulators last week said they were “coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated.”

The U.S. investigation comes as the U.K. Financial Conduct Authority said in June it was reviewing potential manipulation of exchange rates.


Earlier this week, European Union antitrust regulators said they were examining the possible manipulation of currency rates by the financial industry, while Switzerland’s Financial Market Supervisory Authority, or Finma, and the nation’s competition commission said they were probing similar potential wrongdoing.

The U.S. Commodity Futures Trading Commission has also been reviewing possible currency market rigging, said a separate person with knowledge of the matter.


RBS, Deutsche Bank and Citigroup are among firms reviewing e-mails, instant messages and phone records of their foreign-exchange employees for evidence of potential manipulation, according to three people with knowledge of those probes.

(Don’t get too excited.  The Justice Department has announced it will go easy on big banks, and always settles prosecutions for pennies on the dollar … a form of stealth bailout.  It is also arguably one of the main causes of the double dip in housing.  Indeed, the government doesn’t even force the banks to admit any guilt as part of their settlements.)

It’s not just currency markets. As shown below, big banks have manipulated virtually every market – both in the financial sector and the real economy – and broken virtually every law on the books.

Interest Rates Are Manipulated

Interest rates are rigged:

Derivatives Are Manipulated

The big banks have long manipulated derivatives … a $1,200 Trillion Dollar market.

Indeed, many trillions of dollars of derivatives are being manipulated in the exact same same way that interest rates are fixed: through gamed self-reporting.

Oil Prices Are Manipulated

Oil prices are manipulated as well.

Gold and Silver Are Manipulated

The Guardian and Telegraph report that gold and silver prices are “fixed” in the same way as interest rates and derivatives – in daily conference calls by the powers-that-be.

Energy Markets Are Manipulated

The Federal Energy Regulatory Commission says that JP Morgan has massively manipulated energy markets in California and the Midwest, obtaining tens of millions of dollars in overpayments from grid operators between September 2010 and June 2011.

Commodities Are Manipulated

The big banks and government agencies have been conspiring to manipulate commodities prices for decades.

The big banks are taking over important aspects of the physical economy, including uranium mining, petroleum products, aluminum, ownership and operation of airports, toll roads, ports, and electricity.

And they are using these physical assets to massively manipulate commodities prices … scalping consumers of many billions of dollars each year.

Everything Can Be Manipulated through High-Frequency Trading

Traders with high-tech computers can manipulate stocksbonds, options, currencies and commodities. And see this.

Manipulating Numerous Markets In Myriad Ways

The big banks and other giants manipulate numerous markets in myriad ways, for example:

  • Engaging in mafia-style big-rigging fraud against local governments. See thisthis and this
  • Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details hereherehereherehere,herehereherehereherehere and here
  • Pledging the same mortgage multiple times to different buyers. See thisthisthisthis and this. This would be like selling your car, and collecting money from 10 different buyers for the same car
  • Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See thisthisthisthis and this
  • Engaging in unlawful “Wash Trades” to manipulate asset prices. See thisthis and this
  • Participating in various Ponzi schemes. See thisthis and this
  • Bribing and bullying ratings agencies to inflate ratings on their risky investments

The Big Picture

The big picture is simple:

  • The big banks manipulate every market they touch
  • The government has given the banks huge subsidies … which they are using for speculation and other things which don’t help the economy. In other words, propping up the big banks by throwing money at them doesn’t help the economy
  • The big banks own the D.C. politicians … so Congress and the White House won’t do anything unless the people force change


The US banking system has become an extension
of the NSA and the surveillance state.





As Worries Over the Power Grid Rise, a Drill Will Simulate a Knockout Blow

The electric grid, as government and private experts describe it, is the glass jaw of American industry. If an adversary lands a knockout blow, they fear, it could black out vast areas of the continent for weeks; interrupt supplies of water, gasoline, diesel fuel and fresh food; shut down communications; and create disruptions of a scale that was only hinted at by Hurricane Sandy and the attacks of Sept. 11.


New York City during a blackout in 2003. More than 150 companies and groups will
take part in a drill that will simulate attacks on the power grid.

This is why thousands of utility workers, business executives, National Guard officers, F.B.I. antiterrorism experts and officials from government agencies in the United States, Canada and Mexico are preparing for an emergency drill in November that will simulate physical attacks and cyberattacks that could take down large sections of the power grid.

They will practice for a crisis unlike anything the real grid has ever seen, and more than 150 companies and organizations have signed up to participate.

“This is different from a hurricane that hits X, Y and Z counties in the Southeast and they have a loss of power for three or four days,” said the official in charge of the drill, Brian M. Harrell of the North American Electric Reliability Corporation, known as NERC. “We really want to go beyond that.”

One goal of the drill, called GridEx II, is to explore how governments would react as the loss of the grid crippled the supply chain for everyday necessities.

“If we fail at electricity, we’re going to fail miserably,” Curt Hébert, a former chairman of the Federal Energy Regulatory Commission, said at a recent conference held by the Bipartisan Policy Center.

Mr. Harrell said that previous exercises were based on the expectation that electricity “would be up and running relatively quick” after an attack.

Now, he said, the goal is to “educate the federal government on what their expectations should or shouldn’t be.” The industry held a smaller exercise two years ago in which 75 utilities, companies and agencies participated, but this one will be vastly expanded and will be carried out in a more anxious mood.

Most of the participants will join the exercise from their workplaces, with NERC, in Washington, announcing successive failures. One example, organizers say, is a substation break-in that officials initially think is an attempt to steal copper. But instead, the intruder uses a USB drive to upload a virus into a computer network.

The drill is part of a give-and-take in the past few years between the government and utilities that has exposed the difficulties of securing the electric system.

The grid is essential for almost everything, but it is mostly controlled by investor-owned companies or municipal or regional agencies. Ninety-nine percent of military facilities rely on commercial power, according to the White House.

The utilities play down their abilities, in comparison with the government’s. “They have the intelligence operation, the standing army, the three-letter agencies,” said Scott Aaronson, senior director of national security policy at the Edison Electric Institute, the trade association of investor-owned utilities. “We have the grid operations expertise.”

That expertise involves running 5,800 major power plants and 450,000 miles of high-voltage transmission lines, monitored and controlled by a staggering mix of devices installed over decades. Some utilities use their own antique computer protocols and are probably safe from hacking — what the industry calls “security through obscurity.”

But others rely on Windows-based control systems that are common to many industries. Some of them run on in-house networks, but computer security experts say they are not confident that all the connections to the public Internet have been discovered and secured. Many may be vulnerable to software — known as malware — that can disable the systems or destroy their ability to communicate, leaving their human operators blind about the positions of switches, the flows of current and other critical parameters. Experts say a sophisticated hacker could also damage hard-to-replace equipment.

In an effort to draw utilities and the government closer, the industry recently established the Electricity Sub-Sector Coordinating Council, made up of high-level executives, to meet with federal officials. The first session is next month.

Preparation for the November drill comes as Congress is debating laws that could impose new standards to protect the grid from cyberattacks, but many in the industry, some of whom would like such rules, doubt that they can pass.

The drill is also being planned as conferences, studies and even works of fiction are raising near-apocalyptic visions of catastrophes involving the grid.

National Academy of Sciences report last year said that terrorists could cause broad hardship for months with physical attacks on hard-to-replace components. An emerging effort led in part by R. James Woolsey, a former director of the Central Intelligence Agency, is gearing up to pressure state legislatures to force utilities to protect equipment against an electromagnetic pulse, which could come from solar activity or be caused by small nuclear weapons exploded at low altitude, frying crucial components.

An attack using an electromagnetic pulse is laid out in extensive detail in the novel “One Second After,” published in 2009 and endorsed by Newt Gingrich. In another novel,“Gridlock,” published this summer and co-written by Byron L. Dorgan, the former senator from North Dakota, a rogue Russian agent working for Venezuela and Iran helps hackers threaten the grid. In the preface, Mr. Dorgan says such an attack could cause 10,000 times as much devastation as the terrorists’ strikes on Sept. 11, 2001.

Despite the growing anxiety, the government and the private sector have had trouble coordinating their grid protection efforts. The utility industry argues that the government has extensive information on threats but keeps it classified. Government officials concede the problem, and they have suggested that some utility executives get security clearances. But with hundreds of utilities and thousands of executives, it cannot issue such clearances fast enough. And the industry would like to be instantly warned when the government identifies Internet servers that are known to be sources of malware.

Another problem is that the electric system is so tightly integrated that a collapse in one spot, whether by error or intent, can set off a cascade, as happened in August 2003, when a power failure took a few moments to spread from Detroit to New York.

Sometimes utility engineers and law enforcement officials also seem to speak different languages. In his book “Protecting Industrial Control Systems From Electronic Threats,” Joseph Weiss, an engineer and cybersecurity expert, recounted a meeting between electrical engineers and the F.B.I. in 2008. When an F.B.I. official spoke at length about I.E.D.’s, he was referring to improvised explosive devices, but to the engineers the abbreviation meant intelligent electronic devices.

And experts fear government-sponsored hacking. Michael V. Hayden, another former C.I.A. director, speaking at the Bipartisan Policy Center conference, said that the Stuxnet virus, which disabled some of Iran’s centrifuges for enriching uranium, might invite retaliation.

“In a time of peace, someone just used a cyberweapon to destroy another nation’s critical infrastructure,” he said. “Ouch.”

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Is a Currency Collapse Being Embedded in the 11/13 Blackout?


In this era of mistrust in which Obama enjoys only a 9% approval rating, what would happen across the country if on a Friday, Ben Bernanke announced that the banking system had collapsed, but would reopen on Monday? If bank customers did not have access to their full bank accounts on the following Monday, DHS might have to use some of that 2.2 billion rounds of ammunition that they have acquired in the past several months in order to restore order.The elite would like to avoid this kind of a confrontation at this point in time.

Instead, if a “blackout” were to occur which supposedly destroyed bank records in a bogus EMP attack, the banks would “collapse”, and the collapse would hardly be noticed in the immediate aftermath. And make no mistake about it, the banks will not truly collapse, they will come to a soft landing. Your resources will be the only ones that will be collapsed as this will be the biggest wealth transfer in the history of the planet and this event will make the bailouts seem miniscule by comparison.

A blackout and the ensuing chaos would be the perfect time to pretend to collapse the banks and not risk incurring the wrath of the public. Amid the extreme social unrest accompanying a massive blackout, the banking issue would be secondary in importance by comparison because people would be on the streets looking for food by the third day following the blackout. Looting, rioting and starvation would rule the day. The amount of computer digits in one’s bank account, would become a very secondary issue.

In the midst of the chaos and the violence, martial law would imposed and America would never be the same.

End Of The Silk Road. FBI Nabs the Dread Pirate Roberts

Andy Greenberg, Forbes Staff

After two and a half years running the booming anonymous narcotics bazaar known as the Silk Road, the drug kingpin who called himself the Dread Pirate Roberts has allegedly been unmasked.

On Wednesday, the FBI announced that they arrested 29-year-old Ross William Ulbricht, the Silk Road’s accused administrator, in the Glen Park branch of the San Francisco Public Library at 3:15 Pacific time on Tuesday. Ulbricht has been charged with engaging in a money laundering and narcotics trafficking conspiracy as well as computer hacking. The Department of Justice has seized the Silk Road’s website as well as somewhere between $3.5 to 4 million in bitcoins, the cryptographic currency used to buy drugs on the Silk Road.

Earlier this summer, the Silk Road’s administrator calling himself by the Dread Pirate Roberts pseudonym gave his first extended interview to Forbes over the same Tor anonymity network that has hosted the Silk Road and its users since the site’s creation in early 2011.

Forbes estimated at the time that the Silk Road was earning between $30 and $45 million in annual revenue. In fact, the number may have been far larger: The criminal complaint against Ulbricht states that the Silk Road turned over $1.2 billion in revenue since its creation, and generated $80 million commissions for its operator or operators.

“This is supposed to be some invisible black market bazaar. We made it visible,” says an FBI spokesperson, who asked not to be named. “When you interviewed [Ulbricht], he said he would never be arrested. But no one is beyond the reach of the FBI. We will find you.”

The FBI hasn’t yet revealed how it managed to track down Ulbricht in spite of his seemingly careful use of encryption and anonymity tools to protect his identity and those of his customers and vendors who visited Silk Road as often as 60,000 times per day. The FBI spokesperson declined to offer details about the investigation, but told me that “basically he made a simple mistake and we were able to identify him.”

One clue mentioned in the criminal complaint against Ulbricht was a package seized from the mail by U.S. Customs and Border Patrol as it crossed the Canadian border, containing nine seemingly counterfeit identification documents, each of which used a different name but featured Ulbricht’s photograph. The address on the package was on 15th street in San Francisco, where police found Ulbricht and matched his face to the one on the fake IDs.

The complaint also mentions security mistakes, including an IP address for a VPN server used by Ulbricht listed in the code on the Silk Road, mentions of time in the Dread Pirate Roberts’ posts on the site that identified his time zone, and postings on the Bitcoin Talk forum under the handle “altoid,” which was tied to Ulbricht’s Gmail address.

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The follow statement is from the Bitcoin Foundation:

We received several requests to comment on the shutdown of Silk Road. First and foremost, it is important to note that the sanctity of the Bitcoin protocol remains intact and it was not a weakness of the core protocol that led to the apprehension of Mr. Ulbricht. Although Bitcoin is not anonymous by default, Bitcoin addresses were not a factor in solving the case.

“The FBI was able to capture an alleged criminal without any new investigative methodologies being needed and without having to get into changing the nature of the Bitcoin protocol,” Bitcoin Foundation General Counsel Patrick Murck said. “They caught him the same way they would catch somebody using cash.”

This is good for the Bitcoin economy in general and the reputation in specific because it proves that Bitcoins are in and of themselves a neutral store of value or medium of exchange and that privacy does not necessarily have to be compromised for law enforcement purposes.

Bitcoin’s principal attributes of irreversibility and user-defined privacy continue to provide benefits for bitcoin users globally. The Bitcoin Foundation would like to reaffirm that financial privacy sits on a sliding scale expressed differently by different individuals. However, within the Bitcoin transaction network, the specific level of that privacy is determined, managed, and set by the user.