Updating my Go for the Gold post of May 31 the Fed is actually pumping $85 billion into the US economy, not $40 billion as originally stated.

Go for the Gold?

Here in Maine, one of the more conservative states in this part of the country, not only are guns and gun ownership popular but so is talk about gold as a monetary hedge when the economy collapses and the dollar becomes worthless. The so-called 'gold bugs' point to German hyperinflation in the 1920s as a warning of what could happen when governments overspend and pay their bills by running the printing presses full tilt.

These days our very own Federal Reserve Bank is printing money with a vengeance, pouring into the economy an astounding $40-billion a month in an effort to stimulate a sluggish economy. Is it working? Some very knowledgeable people don't think so...and they are not contributors on Fox News.

One of them is Bill Gross, who along with Mohammed El-Erian, runs Pimco, the largest bond fund on this planet. This pair heads a company that manages two trillion dollars of other people's money.

Now you would think that they would be pushing bonds as an investment over say, gold, or stocks, or real estate. Bonds are normally a nice safe investment. They pay a fixed rate of interest over a period of years, unlike stocks which can shoot up in value one week and crash the next. Or gold which pays nothing. Sure it may be a hedge against inflation but you're not actually making money. You're just protecting against a lost in the value of paper currency.

The reason you should pay attention to Bill Gross and Mohammed El-Erian is that they speak the truth, even when it won't benefit them or their company. These days it's tough to find people like that, who both speak the truth and who know what they're talking about.

Bill Gross is warning, on the Pimco Company website of all places, that the US economy is on its way to extinction. It the 1980s it took four dollars of economic stimulus to produce a dollar of real gross domestic product.

Today it takes twenty dollars to produce the same result. Gross compares it to a supernova when a star shoots out a huge amount of energy for a brief instant, and then when the energy is gone it quickly vanishes into oblivion. The credit markets, he says, are headed in the same direction. When inflation starts to take off the credit markets will disappear and investors will flee to cash, commodities, hard assets like gold, and real estate. Countries to invest in are those with low debts such as Australia, Brazil, and Canada.

That is about as stark a warning as I can think of. Unfortunately most of us don't have a lot of loose cash to invest in gold or real estate in Australia. But lets go back to Germany for a moment because the Germans seem to have learned their lesson about money printing.

In an earlier post you may recall that I reported that Germany stores hundreds of tons of gold in a high-security vault deep under New York City. They chose to put it there during the Cold War so if the Russians ever invaded they wouldn't get the Fatherland's gold. Lately though questions have been raised in Germany about how well the country's gold is being monitored. So the official German audit agency - kind of like our General Accountability Office – notified the U.S. Government that it wanted to come to New York and actually inspect its gold.

Now the German government has announced that it's actually going to bring a big chuck of its gold back home. Details of exactly how much and how fast and by what route are for security reasons a bit sketchy but it seems to this observer that Germans really do believe, unlike some pundits here in the US, that gold really is a form of money. Oh, and by the way, Germany also has gold bullion stored in Paris and it's bringing all of that back home. Do they know something we don't?

The Germans are smart people. Actions such as these would indicate that they expect, at the very least, turbulence in the global economy in the no too distant future.

On the other hand the price of gold on world markets has been relatively steady for many months. There was a sharp drop a few weeks ago but now gold is slowly on the rise again. Also concerns about the possible collapse of the Euro and the European Union have all but vanished from the news. The value of the Euro is up and world stock markets have been hitting new highs. If a global financial crisis was looming would not that be signaled by gold moving sharply upward?

Not necessarily. I am well aware that there are people out there who believe there is a secret international cabal of powerful people – bankers, financiers, and politicians – who are manipulating the price of gold, keeping it low for now until the time comes to pull the plug on the world economy and usher in a global dictatorship.

I don't buy that scenario in toto, but we cannot rule out that it might contain a grain of truth, at least the part about manipulating the price of gold. I offer the following evidence for your consideration.

In 2006 the Chinese government listed its total gold holding at some 600 tons, only a fraction of that held by the US at over 8,000 tons. Then in 2011 the official Chinese total suddenly jumped to over 1,000 tons!

James Rickards, the prominent investment analyst, adviser to the Department of Defense, and author of the best selling book 'Currency Wars', says he expects to China to announce in the next year or so that their total gold holdings have jumped again to 3,000 tons and maybe even to 4,000 tons.

What's going on here? Why hasn't this affected the world gold price and how have the Chinese been able to boost their gold holdings so quickly?

The answers are simple. China is a huge police state. It can mine a lot of gold within its borders secretly. The gold never enters the world market but stays in Chinese government vaults, ready to back the Chinese currency when a global currency war destroys the dollar, the Euro, and the Yen. In addition, because China has such a huge favorable balance of trade it has billions of dollars in cash to invest in gold mines around the world, which it is doing.

Russia, also a police state with large gold deposits, may be playing the same game. Lately the Russians have been aggressively buying gold on the world market. When the coming global financial meltdown brings anarchy to Western economies China, and perhaps Russia, will emerge as the new world superpowers.

Is the above a plausible scenario? Up to a point I would say 'yes'.

The US - with its out of control spending and exploding, unsustainable entitlement costs - is courting financial disaster. One morning we could wake up to find that China has started dumping American treasuries in favor of gold or platinum or wheat or other commodities. Panic will spread across world markets within hours, first tripping trading circuit breakers, followed by what will be termed by authorities, 'a temporary closure' for 'a few days' to allow passions to calm down.

Governments may try to create an illusion of normality by opening markets to limited trading and then, using brokerage houses as surrogates, secretly buy stocks and bonds to halt the crash. The insiders though will know the game is up and so will the big national players. Very soon the markets will 'temporarily' close again, only this time it will be for good.

But you say, there is a key weakness in this scenario. China holds a couple of trillion dollars of our debt. If they dump our bonds the value of those bonds will plummet and China will be the ultimate loser.

True but here is where that critique fails. China has grave internal economic, political, and social problems. Most of the talking heads on cable TV have never taken the time to study Chinese history and culture. They just look at the shiny new high speed rail system, the new skyscrapers of a few cities, the new prosperity of one third of China's 1.3 billion people and conclude it will go on forever. They ignore the rampant corruption at all levels of Chinese society and the growing repression of a population equipped with mobile phones and the internet all the way down to poor villagers, two-thirds of China's population, who have not participated in the Chinese miracle and who are now coming to realize they probably never will.

Those who have studied Chinese history – and James Rickards is one of them - know that for all of its years as a unified nation China has also gone through long periods with war lords and no effective central government, what we would call today a 'failed state'.

When the day comes that the average Chinese villager gives up on the system, its curtains for the Communist leadership...and they know that. Which is why so many Chinese elites are looking for ways to get out of China and settle abroad.

You and I can't do anything about China or what happens on world currency and stock markets but if you are one of those really concerned about the future of the American economy and the possibility, however remote, of a collapse, here are few practical steps to prepare for a world very different from what we have today.

The first thing to do is find some friends and/or relatives who share your beliefs and ideals. They might be members of your church or civic group. Maybe you have some longtime friends from high school or college.

The point is that if someday the world does go to hell in hand basket, like minded groups are far more likely to make it through tough times than individuals or families. It's all about shared resources, financial, practical, and spiritual.

The second thing to do is to buy a good portable AM-FM-Shortwave radio. In a global crisis that threatens the political stability of the US, the government could decide that it needs to seize control of the internet and cell phone communications, as well as all domestic radio and TV stations. In the case of broadcast stations the technology is already in place in the form of the EAS box required to be in the equipment rack of every FCC licensed station.

If that ever happens reliable, uncensored information is going to be very hard to come by. Shortwave radio broadcasts however can originate thousands of miles from US borders and will not be under the control of the US government. 

You won't find shortwave radio receivers at Walmart or Best Buy but Radio Shack still stocks some and you can find a bigger selection at websites like Amazon. Having a shortwave radio is not as important as having some food and water stored away but more important than a horde of gold coins. And a lot cheaper.

 

©2013 by Allen B. Hundley

For permission to reprint this post please contact the author at

sowhatisthetruth@gmail.com

The Germans Are Coming for Their Gold

Recently we looked at some popular conspiracy theories and how many if not most of them have little basis in fact... if of course you are willing to look for more reasonable, non-conspiratorial explanations. One of these is the idea that there really is no gold stored at Ft. Knox. It was all stolen years ago or else spent on some secret government project or other. At least that's what the conspiracy theorists would have you believe.

I thought my rebuttal was pretty effective but I guess not because some German officials must have come across my musings and now the German government accounting agency wants to come to the U.S. and inspect the tons of gold Germany has stored here. Our country stores gold for some three dozen countries around the world, most of it in a huge vault eight stories below the Federal Reserve Bank in New York City. We hardly ever let anyone into the vault which has only one elevator and that elevator is controlled from a secret remote location outside of New York.

It turns out that Germany is second only to the US in the size of its gold stockpile. We have a little over 8,000 tons while the Germans have 3,400 tons, a sizable chunk of which is stored in New York. Why would all these nations store their gold here? Because many of them feel it is safer than in their own country and besides, its probably cheaper to use our high tech, super secure vault than build and maintain one of their own. In the case of Germany it grew out of Cold War fears that the country might someday be overrun by a Soviet invasion of Western Europe.

Anyway, for some reason after all these years German government bean counters have decided it would be a good idea to go take a physical look-see, you know, just to make sure their gold is really there. Oh, and by the way, they say they'll want to take a few random samples for testing so they can be sure all those gold bars really are 99.9% pure gold and not gold painted lead or tungsten like the conspiracy theorists claim.

It would be easy to snicker at this seeming silliness but this is no joke. For the first time in anyone's memory the Germans really do want to inspect their gold. Actually this whole matter portends something a lot more serious than either government wants to discuss, and that assumes of course that Germany's gold really is in the vault in New York. Let's stick with that assumption, at least for now.

So what's going on that would suddenly prompt the German audit? Outside observers speculate that its connected with the fragility of the European currency, the Euro, and indeed the survival of the European Union.

Unless you've been stranded on a desert island or living deep in the Amazon jungle for the past couple of years you already know that the European Union is in serious trouble economically. The southern tier of EU countries - Greece, Spain, Portugal, and Italy – is sinking ever deeper into debt to finance a lifestyle not supported by their economic productivity. They want ever larger loans from the northern, financially sound countries like Germany to keep them, and the Euro, from collapsing.

But a growing number of Germans are saying enough is enough. If the southern tier countries cannot or will not cut spending and get their finances in order, then let'em go down the drain. Sure it would probably mean the end of the Euro and maybe even the European Union itself. Germany would reinstate its traditional currency, the Deutschmark, and for a time German exports would suffer, but in the long run that is preferable - so goes the argument - to going bankrupt bailing out those lazy wastrels down south.

Final action on all this has been delayed until German elections this fall. Chancelor Angela Merkle is running for re-election and the last thing she wants is a European wide economic crisis. She has committed Germany to propping up the Euro but if she and her party lose the election all bets are off.

Now you begin to see the connection to gold. If a new German government dumps the Euro and goes back to the Deutschmark, it will want to assure the world of the mark's value and the strength of German banks through a large gold reserve. Also that reserve is so big the Germans can use part of it to buy oil, natural gas, and raw materials on the world market to keep the German economy humming, even during a global recession triggered by the collapse of the Euro.

And lastly, given the unspoken but very real expectation among financial elites that a collapse of the Euro would likely spark a big, if temporary, spike in the price of gold, then it makes a lot of sense that the Germans would begin counting up their gold bars, maybe in preparation for their repatriation to the Fatherland. Who knows, if the Euro goes it might trigger a flight from all paper money worldwide and that for sure would lead to global chaos. Germany, France, and some other countries with large stockpiles of gold might even create some sort of new, gold-backed currency, something we have not seen since the Great Depression.

Admittedly much of the above is speculation. Yes, the Germans have the world's second largest stockpile of gold. That we know. Yes, the Germans for the first time want to physically audit their gold holdings in New York. That we know. Yes, the economies of the European Union are weak and its currency shaky with no realistic long term solution in sight. Many if not most financial experts agree on that.

And we know that massive corruption is undermining government legitimacy and stability in China while our country runs up unsustainable debts that threaten the destroy the dollar as the world's reserve currency.

Any rational person, looking at these facts, would have to conclude that all the pieces are in place for global economic upheaval, perhaps even chaos. What we don't know is what is the tipping point for the first domino and how fast and how many dominoes might fall if the world economy begins to shake.

There is certainly no shortage of potential triggers. Some observers have noted that even the sudden interest by German officials in the country's gold supply, if it ever resulted in a move to actually repatriate the gold from the US, could by itself touch off a worldwide panic.

If the Germans really do ask for their gold back we all better hope that it really is there underneath the streets of New York, that it hasn't disappeared like some conspiracy theorists claim. Published reports say that each of the three dozen nations with deposits in the New York vault has a designated section for its gold bars. The sections don't have signs in front of them identifying them by nation. Instead the sections are identified by number and only a few people in the American government have access to the list of numbers and which number corresponds to which nation's stash of gold.

So in theory it would be possible at different times to take visitors from different nations to the same pile of gold bars and tell them it's theirs. That is, unless most or all of the depositor nations suddenly decide to collectively take their gold back home.

Can you imagine what would happen if the gold really is gone? I can just see the Treasury Department now mailing out IOUs with a note that says something like 'terribly sorry, we seem to have misplaced your gold, but as soon as we locate it we'll send it back to you on the next FedEx flight heading your way...'

[Roll “When Johnny Comes Marching Home Again”]

Why does 'Dr. Strangelove' keep popping up in these articles? Oh, Stanley Kubrick, I wish you were still around. And Peter Sellers, you too. You could reprise your role as President Mervin Muckley, Jr. along with Treasury Secretary Timothy Gotchanutz replacing Dr. Strangelove. And instead of Group Captain Lionel Mandrake you can play the pilot of the Fedex jet as it drops 100 tons of radioactive gold bars on the Bundesbank in Berlin as punishment for Germany plunging the world into yet another global conflagration.

[Roll “Some Sunny Day”]

Please note that I haven't said a word about errant asteroids hitting the earth, or the supervolcano under Yellowstone Park, or terrorists with nuclear bombs or poisoning the water supply. I guess I don't need to...

©2013 by Allen B. Hundley

For permission to reprint this post please contact the author at sowhatisthetruth@gmail.com.

Do Individuals Really Make A Difference?

This topic has long been a controversial one in western intellectual circles. Do individuals really make any difference in the flow of history or is everything determined by great impersonal historical forces? If you've studied history or government or sociology in college you've no doubt gotten a very heavy dose of the latter position. Kings and queens, despots and tyrants, presidents and prime ministers all may have some influence in the short term but in the long run great historical trends determine the course of human affairs.

Or do they? Two books that I recently encountered directly challenge this view. They both were written by highly respected authors and their conclusions are creating quite a stir in political, business, and academic circles.

There is a reason I have chosen to take up this question today. Our country and indeed Western Civilization is at a dangerous crossroads. In fact I believe it is in very serious danger from a variety of forces, some impersonal and some human, but all of them magnified by a degree of interdependence and complexity unparalleled in human history. The dominoes are lined up and close together. If one topples, all the others will fall.

Through concerted, intelligent action we may be able avert a devastating global societal upheaval. If on the other hand we continue down the road we have followed in recent decades the judgment of future generations will likely be against the role of wise and capable leaders and for the role of blind, unstoppable historical forces. Our task is to find those wise leaders...and soon. But how?

“Indispensable: When Leaders Really Matter” is a fascinating new book by Gautam Mukunda, a professor at the Harvard Business School and a specialist in leadership and international relations.

This book grew out of a discussion with a colleague who posed this question: why have so many countries been ruled by crazy leaders, from Hitler and Stalin to Pol Pot and Saddam Hussein? How was it that these men came to power when there might have been plausible alternatives, men whose actions would not have led to the deaths of millions of people?

This got Mukunda to thinking. Maybe it is true that most of the time leaders are not indispensable. Others could have done an equally credible job.

But sometimes, a critical junctures in history, some leaders really are indispensable. So the question for Mukunda became: Is there some systematic way of identifying those particular individuals who were the right people, in the right place, at the right time, to change history? If he could devise a method of identifying leaders who truly matter and find a way to measure their impact, then he would not only understand history better. Such a method could be used to improve our understanding of contemporary leaders and perhaps even help us choose better ones.

Mukunda studied a number of leaders from politics, business, and the military and how they rose to power. He was especially interested in the process by which they were selected and from that he developed the Leadership Filtration Process or LFP.

Three factors seem to operate in selecting leaders throughout history: First, the external environment, that is, the historical circumstances in which they find themselves; second, the internal dynamics of the organization to which they belong, whether it be a political party or a corporation or a military force; and third, leader selection systems, that is, the process by which potential leaders are forced to either fit a certain mold or else be rejected.

Most of the time the Filtration Process results in leaders of average ability producing average results. These are the men, and occasionally women, who steadfastly work their way up the ladder to eventually assume senior leadership positions. They are well known to their cohorts and their likely behavior in a variety of situations is highly predictable.

But every now and then a crisis arises that demands an exceptional leader, one who does not fit the standard mold, one who would not normally get through the organization's filters, one who would be classified as an Extreme. As an Extreme this leader is likely to have a big impact on events, for better or worse.

Mukunda offers a number of examples including Abraham Lincoln and Woodrow Wilson but the pair on which we will concentrate today are Neville Chamberlain and Winston Churchill. Both were accomplished British politicians who had over a span of decades held various senior leadership positions. But there were also profound differences. Chamberlain was the quintessential organization man, a political pro but highly predictable.

Churchill on the other hand was a political maverick who had changed parties not once but twice in his career. Members of his own party not only did not trust him. Many of them despised him. He made many mistakes and many enemies during his long career and but he also possessed incredible foresight.

A professional military man before he entered politics, he became a widely read author

and commentator. He was widely respected as a gifted orator and held senior government positions during World War I. In the 1930s he stood alone warning of the danger of Hitler when the rest of the British political establishment insisted on following a policy of appeasement.

When Hitler invaded Poland in September 1939 it was apparent to all that Churchill had it right all along and he was brought back into the cabinet but not immediately as prime minister. Instead, for eight months he headed the Royal Navy, at that time the world's largest. The following spring as France was collapsing under the Nazi blitzkrieg Chamberlain resigned. With no serious competitors Churchill was the obvious choice to become prime minister.

The point that Gautam Makunda makes is that under any other circumstances Chamberlain would have performed admirably and Churchill would never have had a chance to be prime minister. It was only the combination of extreme events and the fact that none of Chamberlain's experiences had prepared him to deal with a man like Hitler that led to his downfall. He insisted on following a policy of peace at all costs and that inflexibility, that inability to face harsh reality, resulted in his being judged as one of history's great failures.

Churchill on the other hand proved to be exactly the right man, in the right place, at the right time as he “marshaled the words of the English language and sent them into battle,” to quote John F. Kennedy.

For eighteen long months before America's entry in the war, a weak and ill prepared England stood alone against the might of Hitler and the Third Reich, inspired by Winston Churchill's leadership and his dogged determination to “fight them on the beaches, and in the fields, and in the streets” if that's what it came to. “To never surrender!”

Numerous historians have considered the question of whether there were any other alternative leaders to Churchill and the near universal consensus is that there simply weren't any. Churchill always believed he was a man of destiny and anyone looking objectively at the reality of British politics in May 1940 cannot come to any other conclusion.

There are not many indispensable leaders in world history but Winston Churchill was surely one of them. But only for a brief moment, at a critical juncture in world history.

Today we remember him as one of the greatest leaders in modern history but we often forget that immediately after Germany surrendered in April of 1945 Britain held a general election and Churchill and the Conservatives were thrown out office. The British people no longer needed a war leader. They wanted a leader and a party to help them rebuild their shattered and bankrupt nation and for that they chose Clement Atlee and the Laborites.

We don't have time to look at all of leaders covered in Mukunda's book but what we see again and again is that unfiltered leaders, men who rise to power suddenly, usually through highly unusual circumstances, turn out to be spectacular successes or equally spectacular failures. Abraham Lincoln was an example of the former. Woodrow Wilson was an example of the latter, most notably in snatching defeat from the jaws of victory in his effort to steer the U.S. into joining the League of Nations.

Trying to predict in advance who will be the success and who will be the failure however is not an easy or straightforward task. Stubbornness and determination can serve leaders in war well, as they did with Lincoln and Churchill. But those same traits can result in disaster as they did for Wilson and the League treaty and Chamberlain in his refusal to recognize Hitler for the megalomaniac that he was.

One personality trait does seem to divide the successful leaders from the failures though. Surprisingly it is severe and chronic depression. Both Lincoln and Churchill suffered from it. Makunda believes it helps by forcing leaders to recognize their weaknesses and avoid overconfidence. Depression has the effect of shattering rose colored classes, making it more likely that those in positions of leadership will see the world as it really is and not be blinded by wishful thinking.

“Indispensable: When Leaders Really Matter” is a fascinating book and I highly recommend it for your library. Gautum Makunda's Leadership Filtration Theory opens up a whole new way of looking at how leaders rise to power. What it does not do is explain the highly unusual circumstances, usually a crisis, that seem to be required for truly great leaders to appear on the world stage. In each case change even a single decision during the leadership crisis and the whole course of history would have been altered.

Do we humans control our own destiny? Or do blind historical forces? Or should we believe, as the distinguished – and controversial – British historian Arnold Toynbee did, that “history is a vision of God's creation on the move.”?

Some food for thought as we experience a tumultuous and perhaps fateful year for our species on this little blue planet.

©2013 by Allen B. Hundley

How Do We Really Make Decisions?

Part 2

In an earlier post I looked at how we really make decisions, not in the abstract but how people can be influenced in their decision-making by a variety of techniques, some constructive, some nefarious. 

As we all know there's a whole bunch of people out there trying to sway our thinking in their direction, whether it's a friend looking for a favor, a relative looking for a loan, politicians trying to get our vote, business associates pushing a new marketing strategy, religious groups seeking to get us to adopt their world view, or companies trying to sell us something.

The challenge in making a sound decision is to sort out the truth from distortions and distractions– whether deliberate or unintended – and to neutralize emotional appeals that can get in the way of what is logically in our own best interest, individually and collectively. More often than not, at least in my experience, the answer to most questions becomes self evident if you have good information and can take emotion out of a decision.

So let's take a closer look at each of these. First we need to figure out what is solid, reliable information, and second, to recognize when our emotions, or biases, or preconceptions are getting in the way of seeing a situation clearly.

When it comes to so many aspects of life, whether its politics or selecting a deodorant, you can just about count on being presented distorted or selective information. These days, especially in the era of the Internet, politicians and companies rarely out and out lie. They just quote data that appears to support their position on an issue or the product they are selling and ignore conflicting data.

When it comes to products, you can usually find reviews and comparisons on the Internet or in publications like Consumer Reports. Even here though you have to be careful. You don't really know who's behind some of those glowing on-line reviews. Are the reviewers really just ordinary people like you and me or are they company employees or relatives of employees? There's no way to be sure.

Generally I look first at the 3 and 4 star ratings before those with 5 stars because these are the ones where reviewers have taken the time to point out the deficiencies of a product as well as its strengths. Unless there a lot of them I ignore the one and two star ratings because they usually turn out to be rants of some sort about the instructions being poorly written or delivery was late, or they felt someone at the company was rude to them on the phone.

In the case of the consumer publications you have to read the criteria used to arrive at a rating. Sometimes the rating of a product may be pulled way down by factors you don't really care about. For example, if you are five foot eight then leg room in a new car is a lot less important than if you are six foot eight. If you live in Duluth, Minnesota, how well the heater works is a lot more important than the air conditioner. If you live in Phoenix the reverse is true.

So don't take ratings at face value. Always ask – and this is true every time somebody uses numbers to support their cause – where did that number come from and how was it arrived at?

Arizona State University psychology professor Robert Cialdini in his best selling book 'Influence: the Psychology of Persuasion” details half a dozen techniques commonly used by salesman of all kinds. A sense of reciprocity is something we all feel when someone gives us something. We naturally want to return the favor. So beware of salesmen bearing 'gifts' in the form of 'free samples'.

Occasionally you'll be approached by someone with a gift or a product who expects little if anything special in return, like the girl scouts going door to door selling cookies. Even if you don't like chocolate cookies you can still buy some to help the scouts and give them to your grandchildren the next time they visit. So turning away all gifts or refusing all acts of kindness isn't necessary. You just have to consider the context.

Cialdini writes about other techniques like the car salesman who wants to be your friend and advocate with his boss, the sales manager - a variation on the 'good cop-bad cop' routine. Then there's the use of scarcity of get you motivated. We've all heard the pitch “Only five left! Get yours before they all gone!” Or the 'Going out of business sale' banner that's been hanging on the front of the store for months.

There are still other techniques but I want to move on to psychologists call 'emotional intelligence' but which sounds an awful like what most people would call intuition. I call it 'subliminal intelligence'. This type of intelligence is in contrast to our rational, analytical mind which we like to think governs our decision making process.

Scientists, whether social or physical, get very uneasy whenever something that smacks of the paranormal comes up and that includes 'intuition' or “I just had this feeling.” We do know that emotions and reason are controlled by different parts of the brain so if scientists prefer the term emotional intelligence that's okay with me. I just think there may be something else going on in the brain that is not at all paranormal but may function to guide our decision-making if we can learn to recognize it.

Here is a truly remarkable example of what I am talking about.

It is February 1991 and the First Gulf War. The US and its allies have just invaded Kuwait which months before had been occupied by the Iraqi army. An American naval armada of aircraft carriers and the battleship Missouri are supporting the invasion with airstrikes and coastal bombardment. One of the ships guarding the fleet is the British Royal Navy's guided missile destroyer HMS Gloucester.

Lt. Commander Michael Riley is monitoring the radar screens on board the Gloucester when suddenly he is filled with a feeling of foreboding when he spots a radar blip originating from the Kuwaiti coast. There are two possibilities. Either the blip is an American A6 ground attack fighter returning to its carrier, or it's a deadly Iraqi Silkworm missile aimed at the fleet. The blips on a radar screen are virtually identical except that Commander Riley knows that the A6s fly at an altitude of 3,000 feet while the enemy missiles fly at one thousand feet. On this morning, however, the equipment on board cannot give him an altitude reading.

Riley is faced with a profound dilemma. If he fires a Sea Dart sea-to-air missile to destroy the approaching target and the blip turns out to be an A6 he will have destroyed the plane and killed the two crew members on board. If on the other hand the blip is a Silkworm and he fails to fire, the enemy missile could sink a carrier or battleship, killing hundreds, even thousands of sailors.

Either way if you make a mistake your career in the navy is finished. You could even face a court-martial.

The blip is closing at 550 miles per hour. It could be either an A6 or a Silkworm. If it's the missile it will strike the battleship Missouri in a matter of seconds. Riley has run out of time. He must make a decision. He fires two Sea Darts. The blip disappears from the radar screen.

Commander Riley remembers the next four hours as the longest of his life. He went back to review the radar tapes but even with the benefit of time and analysis he is unable to discern any clear evidence of whether the blip was a plane or a missile.

A team of investigators is dispatched to the scene to recover any wreckage floating in the sea. Finally the word comes back. It was indeed an enemy missile, knocked out of the sky only a few hundred yards from the Missouri.

Commander Riley had gambled and won. He was a hero.

Real life drama rarely gets any more intense than this but what really sets this incident apart is what a civilian researcher discovered in reviewing the radar tapes several years later. Gary Klein was a cognitive psychologist and consultant to the Marine Corps. He was intrigued by Commander Riley's feeling of foreboding when he first saw the radar blip that fateful morning.

Like others before him Klein looked at the radar tapes again and again. And then it struck him. The radar system picked up blips only after the plane or missile had left the coast and was over water. The planes flew at a higher altitude and were detected after only a single radar sweep. But a missile flew at a much lower altitude and the surface of the water created clutter on the radar screen so it took three radar scans before it was detected.

Commander Riley conscious, rational brain did not recognize the difference but his subliminal consciousness did, and that is what triggered his fear. Subconsciously Riley knew the blip had to be a missile and fortunately he acted on that subliminal cue.

I think most of us experience subliminal cues from time to time. More often than not, at least in my experience, they turn out to be correct. But not always. Listening to your subliminal consciousness is a tricky business. Some people believe you can train yourself to use it effectively but that's a subject for another day.

We started out talking about the importance of decision-making in many areas of of life. Now let's go back to look specifically at sorting out all the competing claims and counter claims made by the politicians.

The truth is that many times we either don't have the time or the inclination to dig into complex issues like what Congressman Smith's alternative to Obamacare would really going to cost or how many people it would really cover. So we rely on whether we like Congressman Smith or not. Does he espouse the ideas I believe it – whether its “small government and family values” or “government programs that help the little guy and protect us from vulture capitalism”? Is Congressman Smith the kind of guy I could sit down and have a beer with?

The problem with that decision strategy is that Congressman Smith might make a good drinking buddy but his healthcare bill may be full of smoke and mirrors. It could have been heavily influenced by some wealthy campaign donor, either liberal or conservative, or by some Washington think tank, again either liberal or conservative, or by some lobbying group, identity undisclosed.

It's not always apparent on the surface although one giveaway is the language used to describe it. If you keep hearing phrases like 'free enterprise' you can be pretty sure it's tilted to one side of the issue. If the words are 'social justice' and 'shared burden' then most likely it's from the other side. But don't simply dismiss a plan because it has the 'wrong' descriptive phases associated with it or let others do your thinking for you. Just because your favorite talk show host says its just another example of 'liberalism run amok' or 'conservative fear mongering' doesn't mean you have to believe everything he or she says.

My personal favorite when it comes to objective, in depth media coverage of politics is C-SPAN's Book TV on the weekend and C-SPAN's coverage of panel discussions put on by various think tanks around the country. C-SPAN – in my opinion - is by far the best source for genuinely fair and balanced coverage of important public issues. The down side is that unfortunately the discussion is usually so in-depth that most people don't have the time or the patience to sit through it.

I know that Fox News calls itself the 'fair and balanced' network and having worked in the national media I would agree that there are times when it does seem to present more sides of an issue than most of the mainstream media. But, in my opinion at least, Fox is not perfect either. Maybe someday we will have a national media outlet that really does probe and analyze issues in a truly balanced way but for now I can only suggest that if you want to understand what's going on in the world, and not just what makes you feel good, you have to get your news from a variety of sources, regardless of whether they claim to 'lean forward' or be 'fair and balanced'.

Winston Churchill once famously said that if at age 20 you are not a liberal you have no heart. If by age 40 you are not a conservative you have no brain. To which I would add that if by age 60 you are still trying to see the world exclusively in liberal and conservative terms, you haven't learned much in life.

And that's the truth.

© 2013 by Allen B. Hundley

How Do We Really Make Decisions?

Pt 1

Every day we are all bombarded by a constant stream of high powered messages in the media trying to get us to buy this or that product, or support this policy or that, or believe this politician or that. All of which got me to thinking: How do we really decide which candidate to vote for or which product to buy? Do we carefully compare the features and ratings of products by consumer organizations or rationally analyze the positions of the candidates on important issues? Or do we instead rely more often than not on reputation, or images, or recommendations by friends or people we admire, or even just plain gut instinct?

A lot of research has been conducted on this subject over the years, mainly by marketing companies but also by academics. I've read a number of best selling books published in the last few years on how we decide and the message from all of them is consistent. Despite the value our society places on reason and rationality the truth is that emotion plays a lot bigger role in our decision making than we might think.

It is also true however that the more we understand how marketeers and salesmen try to manipulate us the better we can resist.

Let's start with an example by Arizona State University professor Robert Cialdini taken from his best selling book “Influence: the Psychology of Persuasion”.

Cialdini relates how a woman opened an Indian jewelry store in an area popular with tourists. She had been trying to sell some average quality turquoise stones without much success so one day she left a message for her assistant to mark down the stones to half price. But the assistant misunderstood the message and doubled the price instead. When the owner came in a few days later she was astonished to find that most of the turquoise stones had been sold.

At first this seems about as counter intuitive as it gets but Cialdini says it makes perfect sense if you understand the principle of 'expensive equals good'. Our natural inclination when we don't know much about a product is to assume that a higher price means it's better. How many times have you heard – or said - “You get what you pay for.”

Now no one deliberately deceived the customers. If they had taken the time to do a little research on turquoise stones they probably would not have paid such a high price. But when your knowledge is limited, 'expensive equals good' works most of the time. The moral, another time honored but true cliché: time is money. Want to save money? Take the time to do your homework.

Let's move on to another example of decision-making but instead of one from Arizona we're going all the way to Vietnam. I'm sure most everyone has heard of Save the Children, the international organization that helps children around the world. In 1990 the government of Vietnam invited Save the Children to open an office there and come up with a program to reduce malnutrition.

Jerry Sternin, Save the Children's man on the ground had very little money to work with and he understood clearly the dimensions of the problem. Clean water was not available, sanitation was poor, poverty was everywhere, and village people had almost no knowledge of nutrition. To most people the situation would look hopeless. But not Jerry Sternin because he had an idea.

He went into villages, met with local mothers, and divided them into teams. The teams would measure and weigh every child in the village and afterwards he and the mothers would go over the data together.

Here's the key question that Sternin asked that made all the difference: Did you find any very, very poor children who were bigger and healthier than the typical child? The mothers responded in Vietnamese with a strong 'Yes!' Sternin replied, “You mean it's possible in this village for a poor child to be well nourished?” Again the response was a resounding 'Yes!'

“Well then,” said Jerry Sternin, “let's go see what they're doing.”

It turns out that the mothers of the poor but healthy kids were doing several things that together made a big difference. Unlike the usual village practice of two meals a day these kids got the same amount of food but spread out as four meals. In retrospect this makes a lot of sense because malnourished kids have small stomachs and can't absorb such large amounts of food in only two sittings.

Another key difference was the fact that the mothers of the poor but healthy kids fed their children tiny shrimps and crabs from the rice paddies and also sweet potato greens, considered a low class food in the local culture. All of these seemingly small differences in diet raised significantly the amount of protein and vitamins these kids were getting each day and the impact on their health was dramatic for all to see.

Now your average western trained 'expert' would want to go out and trumpet to the world his wonderful five steps for fighting malnutrition. But Jerry Sternin was smarter than that. He realized that just because you've got a solution doesn't automatically mean people will change their customary behavior and adopt it. So instead he organized cooking workshops where mothers would come together to jointly cook meals with the new ingredients.

It wasn't long before all the mothers accepted the new diet as part of 'village wisdom' and within several years it had spread to 265 villages with a combined population of over two million people.

Remember our topic today is How Do We Really Make Decisions. The example I just related is from the best selling book “Switch – How to Change Things When Change is Hard” by Chip and Dan Heath. The key to Sternin's success was his use of what the Heaths call bright spots. Rather than be overwhelmed by all the impossible-to-solve aspects of a problem like malnutrition in an impoverished nation, Sternin made the decision to look beyond the obvious to see if, buried in this apparently hopeless situation, there might be a bright spot, a element of success that might be emulated and multiplied.

Then, once he had found it he made yet another decision, this one reflecting deep insight into human nature. If you want people to change you need to allow them to believe that they are the originators of the change. An outsider might have helped the community analyze the problem but in the end the villagers believed that themselves had arrived at the solution. And that was fine with Jerry Sternin.

Here's another fascinating example of human decision making, this one with far reaching consequences for all of us. It's taken from the book “How We Decide” by best selling science writer Jonah Lehrer.

Back in the 1970s Stanford psychologist Walter Mischel wanted to test the self control of young children, specifically their ability to delay gratification in return for a larger reward later. So he brought in a group of four-year-olds and asked if they liked marshmallows.

Not surprisingly they all said yes. Mischel told them they could each have one marshmallow if they ate it immediately but if they waited a few minutes while he went on an errand, when he returned and they had not eaten the first marshmallow as a reward they would get a second one.

What happened? Most of the kids could only hold out for a minute or two after he left the room and ate their marshmallow. But a few were more successful and resisted the urge for immediate gratification.

How did they do it? They engaged in behaviors to divert their attention away from the marshmallow in front of them, such as covering their eyes or getting up and going to another part of the room.

Any one who has tried to give up an addiction such as smoking for example will recognize this strategy. Think about something else for a few minutes and usually a neuro-chemically based urge such as sugar or nicotine will subside. One of the things that makes this experiment so interesting is that some of these young children understood instinctively what to do to hold out against immediate gratification.

But as Mischel would find out years later this study has much more far reaching implications. Mischel gathered data on the same group of children when they were high school seniors and the results were striking. The youngsters who couldn't resist eating the marshmallow right away were much more likely as teenagers to have disciplinary problems and do drugs. Their grades were lower and their tempers shorter.

On average their SAT scores were 210 points lower than the kids who had demonstrated as young as preschool a high degree of self discipline. In fact the marshmallow test proved to be a better predictor of future SAT scores than IQ tests administered to the four-year-olds!

Now here is where my conclusions diverge somewhat from Mischel's. He believes that the kids who could delay gratification were better at using their reason to control their impulses. The same cognitive skills that helped them resist temptation also helped them concentrate on their homework and get better grades.

I look at it a little differently. Maybe it is true that some people are naturally better at exercising self restraint and focusing their attention on math and history, just like some people seem to have more innate natural talent at playing the piano or throwing a football. But just about all of us can learn all of these skills to one degree or another. And with practice and coaching we can improve our performance even if we never perform at Carnegie Hall or play in the NFL or teach theoretical physics at Cal Tech.

It comes down to what you believe. One of the most important decisions we can make as parents, friends, neighbors, employers, and citizens of our community is to reach out to those who lack faith in their talents and abilities, and help them believe in themselves and their capacity to build a better world.

©2013 by Allen B. Hundley

Books cited or researched for this article:

Influence – The Psychology of Persuasion by Robert B. Cialdini, Ph.D., Harper- Collins, 2007.

How We Decide by Jonah Lehrer, Houghton Mifflin Harcourt, 2009

Switch – How to Change Things When Change is Hard by Chip and Dan Heath, Random House, 2010.

The Emotional Intelligence Quick Book by Travis Bradberry and Jean Greaves, Simon Schuster, 2005

Too Much of a Good Thing

 Pt 2

In my last column we looked at what can happen when we have too much of a good thing, in this case a sense of skepticism. Yes it's good to not believe everything you hear or read but sometimes we can make the mistake of being too skeptical, of falling for far out conspiracy theories and looking for sinister motives when in fact there are none.

While we are on the subject of conspiracy theories let's look at one that has been revived recently, namely that there's no gold at Ft. Knox. As most everyone knows the US dollar hasn't been backed by gold for decades and derives it value purely from international market forces. If people around the world want to hold dollars its value is high. If someday everyone decides to dump dollars in favor of some other currency, or gold, or platinum, or Moose teeth, then the value of the dollar will plummet, along with its purchasing power.

So in one sense whether or not there is still gold stored in Ft. Knox really doesn't matter. Except that gold does have some value as an indicator of national wealth and economic strength. Supposedly the US has about 8,000 tons of gold, far more than any other nation on the planet, although no one outside the Treasury Department and the US mint has been allowed to see the gold in more than half a century.

What gives this conspiracy theory legs is that recently even a group of congressmen were denied permission to see the gold. The last audit, done by the government- of course, was in 1974. If the gold is really there why all the secrecy? Why can't we have an independent audit conducted by a respected but non-governmental organization?

There are, it seems to me, four possible answers. One, the gold really is there but for some reason, possibly bureaucratic arrogance, government officials don't want to confirm or deny it. Answer number two is that the gold is still in the country but has been moved to another location or locations to protect it from nuclear or terrorist attack.

This is certainly very plausible in the nuclear age – not to mention post 9/11 - and since the government says nothing other than that the gold is at Ft. Knox, would-be attackers have no way of knowing if it really is there or somewhere else.

Allowing no inspectors of any kind minimizes the chances of leaks, accidental or deliberate.

Two other possible answers remain: part - or all - of the gold is gone, either stolen or used to pay government debts over the years, or to finance super secret government projects of one kind or another.

My personal view is that the most likely explanation for all the secrecy is number two, that the gold has been moved to other secret locations within the US to protect it from attack. Of course I could be wrong. Maybe the gold is really gone. But even if it is, does it really matter?

Here's why I say that. If you convert the entire eight thousand tons of gold supposedly at Ft. Knox to ounces and then multiply by the current market price of gold you come to a number less than 500 billion dollars. The current Gross Domestic Product of the US is over fifteen trillion dollars for this year alone. The point I am making is that the value of all that gold is a small fraction of the total number of dollars in world circulation. Other nations have much less gold in their vaults so their currencies generally have even less potential backing.

Gold may mean a lot psychologically but ultimately it's the value of a nation's goods and services in the world marketplace that really counts. Except in one unlikely but still possible future scenario. This will take a few minutes to explain but it's important so if you really care about this subject its time to get rid of distractions and focus on what you are reading.

Suppose several major nations – China and Russia, for example – decide to work together to create a new gold-backed currency to replace the dollar as the global reserve currency.

In developing this scenario I am building on the work of prominent international investment banker James Rickards. In his best selling book “Currency Wars: The Making of the Next Global Crisis” Rickards describes a recent war game conducted by the Department of Defense in which he participated. The goal of the game was to help senior military and intelligence officials understand how foreign nations might conspire together to destroy the dollar and with it American political and military power around the world.

In the game all of the participants were Americans but they played on different teams representing China, Russia, the Pacific Rim countries, and so on. Rickards was on the 'Chinese' team while a friend of his, also an international financial consultant, played on the 'Russian' team. Their goal was to make the war game as realistic as possible to alert US decision-makers to the fact that just because the dollar is the world's reserve currency today doesn't mean it will always be that way.

Western policy makers know very well that both the Russians and the Chinese bitterly resent the dominance of the dollar because it gives the United States a power and influence that insulates the American economy from the normal spending and borrowing restraints faced by all other nations.

We can in effect print huge sums of paper dollars and still avoid hyperinflation because ours is the preferred store of value in the world, at least for now.

In the Pentagon's war game the Russian team approached the Chinese team with a proposal. Russia would create a new gold-backed currency which would have to be used by all nations wishing to purchase Russian oil and natural gas. Such a scenario has important real world implications because Russia is the largest producer in the world of oil and natural gas and many European nations are heavily dependent on Russia for natural gas especially. Theoretically they could buy gas from the US but shipping natural gas by tanker is much more costly than via pipeline from Russia.

Meanwhile China has very little oil of its own and relies heavily on Iran and other nations in an increasingly unstable Middle East. Buying oil from Russia makes a lot of sense. So in the war game China sells all of its gold to Russia in exchange for the new gold-backed currency. Since the entire transaction takes place solely between two sovereign nations the price of gold on world markets is unaffected. But the implications are profound.

Suddenly there is a credible alternative to the dollar. Now it really does matter whether or not the US has eight thousand tons of gold in Ft. Knox. Pressure will mount overnight for the US to prove that the gold is there. If the US refuses, people and nations around the world will assume the worst and start dumping all dollar denominated assets.

And that my friends, if it ever happens, will mark the end of the American Era in world history. Oh, and by the way, in case those of you who own gold think you will be sitting pretty, better think again. Just as in the 1930s the US government will seize all privately held gold, unless of course you've taken the precaution of storing your gold in a vault overseas.

Unfortunately, unless you plan to leave this country and settle abroad, having a stockpile of gold in a foreign land is not going to be of much use when you go to Safeway or Walmart to buy a loaf of bread.

Not a problem some of you may say. I plan to bury my gold in the backyard. Well that's all well and fine but the vast majority of people in this country are not going to have any gold to hide. If someday society does collapse they will be on the lookout for those who do and either steal your gold or turn you in to the authorities for gold hording. Not a good prospect either way.

We can only hope that the gold really is in Ft. Knox and that this nightmare never comes to pass. Let's all chant together: I'm sure the gold is there. I'm sure the gold is there. I'm really sure the gold is there.

Now my purpose in this little mental exercise is to try and separate fact from fiction, if we can, or at least establish some kind of scale for rating conspiracy theories from likely nonsense to likely fact. For some conspiracy theories – like who really was behind the assassination of JFK? - while an interesting historical question, in the grand scheme of things it doesn't really matter. For other conspiracy theories what you believe really does have real world consequences.

Let's take for example modern vaccines. If you surf the internet you'll find a group of people out there who are convinced that vaccines are a plot by the Bilderburgers and the Trilateral Commission and the Free Masons to kill off all free thinkers and enslave humanity in the New World Order. Sounds a bit far fetched but let's take a look.

The particular example I want to use is smallpox vaccine. Smallpox killed millions of people worldwide for thousands of years before the advent of modern vaccines. It was declared conquered by the World Health Organization several decades ago. In outbreaks in the 20^th century among those not vaccinated, smallpox killed about one third of those infected and left millions of others badly scarred for life.

After 9/11 there was widespread fear that terrorists or a rogue nation might use smallpox as a weapon. In response the government proposed to vaccinate millions of healthcare workers and other first responders as a first line of defense.

But almost no vaccinations took place because hospitals were afraid of lawsuits from the tiny minority of healthcare workers who might suffer ill effects from the vaccine.

This is a perfect example of paranoia and irrationality seizing control of the public consciousness. Based on data from the last major smallpox outbreak in the US in 1947, if you don't take the vaccine and get smallpox your chances of dying are one in three. If you take the vaccine statistically your chances of dying from vaccine side effects are about one in five hundred thousand.

Folks, we're talking real numbers here, not theory or conjecture. It's your choice: odds of one in three of dying or one in half a million. In this case paranoia - and a broken legal system – won out with the result that US society is highly vulnerable to a smallpox outbreak, either natural or instigated by terrorists.

I hate to say it but this is just one more indication of a society in decline if not in danger of collapse. Is it possible that malevolent forces in the government could be plotting to use vaccines to turn Americans into zombies. Sure. It's also possible that the sun revolves around the earth which is really flat after all.

And its also possible – not likely but possible – that fear of vaccines is being deliberately fanned to get people NOT to take them so the gullible will die off quickly in the next pandemic even if a vaccine is available to protect them. Those who are really looking for conspiracy theories are sure to find them.

The deeper problem with people who are prone to believe any conspiracy theory that comes along is that it makes them highly vulnerable to manipulation. The only real defense against manipulation, whether by our own government, or by foreigners, or by scam artists is good information and a citizenry that thinks critically and analytically, that seeks not just evidence that fits some preconceived theory but evidence that challenges it as well.

Good information can be hard to come by. Sometimes we have to make decisions based on the best available evidence at the time. But if we take the emotion out of it, and calmly use our rational brains, we're a lot more likely to arrive at the correct answer to the question: So What's the Truth?

Otherwise, it's back to witches, goblins, vampires, and superstition. In other words, the Dark Ages.