September 18, 2021
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Does this make sense? by Ramin Pasa, thanks to Jfasb for sending
August 27, 2017
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March 16, 2017
Strategika Issue #39, You Say You Want A Revolution? Thomas Donnelly [nc]
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Strategika
Issue 39
You Say You Want A Revolution?
by Thomas Donnelly
Wednesday, March 15, 2017
Image credit:
Image credit: Poster Collection, CU 032, Hoover Institution Archives.
To paraphrase the Beatles: Well, you know, you’d better free your mind instead; you may want a revolution but ought to settle for some evolution.
It is an article of revealed religion among defense elites that “we live in a relentlessly changing and fiercely competitive world.” Those words were from former Defense Secretary Ashton Carter, once a physicist and someone deeply imbued with the idea that technological change and competition were the elements propelling change, and that those who failed to “innovate” were doomed to defeat: “Today’s era of military competition is characterized by the additional variables of speed and agility, such that leading the race now frequently depends on who can out-innovate faster than everyone else, and even change the game.”
Such attitudes took root in the late Cold War, back when the Pentagon had a “director for defense research and engineering”—a powerful post separate from the actual weapons-buying bureaucracy—and invested substantial sums in the Defense Advanced Projects Research Agency. These agencies were dominated by engineers, practical people whose goal was not science per say but to find ways to put new technologies into the hands of soldiers, sailors, airmen, and Marines. But the combination of the Cold War’s end and the endless small wars of the post-9/11 years has inverted this traditional approach; the leaders of the Defense Department have been driven by the immediate need to respond to today’s enemies—all of them unpredicted—and have luxuriated in an extreme form of futurism—dreams that must inevitably go unfulfilled.
The failure to build and field in important numbers the weapons designs of the 1990s has all but deprived U.S. forces of the conventional-force superiority that is a premise of their strategy. The past failures to innovate incrementally have added up, even though the Russians and Chinese—and, increasingly, their Iranian partners in what Walter Russell Mead has dubbed the “Axis of Weevils”—have done little more than attained the level of lethality and sophistication reached by U.S. forces during Desert Storm. And since the Weevils are, for the moment, entirely engaged in moving into the vacuum created by American withdrawals rather than testing their strength directly, it is hard to know what level of tactical competence they have really derived from their belated modernization, but the balance of military power has undoubtedly shifted. National Security Advisor Lt. Gen. H.R. McMaster put the matter succinctly: “When we minimize our Army, we maximize the risk to our soldiers, the risk that in a crisis they will be forced to enter a fight too few in number and without the training and equipment they need to win.”
In such circumstances, broad programs of military “transformation”—Donald Rumsfeld’s dream or a “third offset,” and Ash Carter’s homage to former Defense Secretary William Perry and the creation of “stealth” aircraft—are not relevant. Photon torpedoes, warp drives, and cloaking devices remain in the realm of the starship Enterprise. Better the urgency of President John Kennedy, who vowed to put an American on the moon “in this decade,” than the spirit of Captain James Kirk. And in fact, there are fairly mature military technologies that meet the test of restoring the tactical advantages that U.S. troops once enjoyed.
Perhaps the most tantalizing near-term technologies are related to the substitution of intense amounts of electrical energy for the explosive power of gunpowder. This comprises a kind of catch-all category that subsumes several developments and could have—at least to leaders with an engineering mindset—multiple applications. Fielding electrical-energy-based weapons depends upon the ability to generate and to store immense amounts of power, and then release it either as a destructive force on its own or to propel a projectile at extremely high speeds. Stored electricity might prove to be the gunpowder of the future.
The Defense Department and the military services have been experimenting with these technologies for a decade and more. The Army and Navy have tested a number of “railgun” designs. Railguns are electromagnetic launchers with a parallel set of conductors—the “rails”—that accelerate a sliding armature by passing a very strong current down one rail, along the armature to the other rail. In essence, it’s a 21st-century slingshot that hurls a very dense, but inert, projectile about twice as fast as a traditional cannon; the kinetic energy of these projectiles is enormous.
It does appear that the science of railguns has reached some level of maturity. The main technological challenges are generating and storing enough electrical power—that is to say, a big engine and a good set of batteries—to allow for repeated pulses of direct current that would yield militarily relevant rates of fire of something like six rounds per minute. Other challenges are to build durable and practical rails, since the launch process generates extreme heat that stresses the rail materials. Further, designing guidance mechanisms that can withstand the heat generated by the speed of the projectile may be difficult. On the plus side, the design of munitions ought to be simplified, as should storage, handling, and logistics, since there is no “warhead” atop a railgun round and explosives are not required. Moreover, the range of railguns would far exceed that of any cannon.
But again, the railgun literature strongly indicates that these are challenges for engineering, not basic science. The Navy is interested in railgun technology as a potential solution to the rising challenges of surface fleet air defense and, especially, cruise and ballistic missile defense. Ironically, the otherwise-disastrous Zumwalt-class destroyer—which is now a $4 billion-per-copy pocket battleship—would make a practical platform for a railgun-based system. The ship is huge for a “destroyer”; at almost 15,000 tons it’s almost twice the size of the current Arleigh Burke-class ships. And it has an electric engine that can not only drive the ship at 30 knots, but also generate huge amounts of additional electricity. The Navy originally planned to buy 32 Zumwalts, but the program has long since run aground—because of its technological and cost problems, but also, most importantly, because the ship was misconceived—and halted at just three. To redesign and revive the project would involve great further expense and be an engineering risk, surely. But it could also result in fielding a game-changing technology that would go far toward solving the “anti-access” problem posed by the growing arsenals of Chinese, Russian, and Iranian anti-ship missiles within the next decade rather than several decades. There is no reason to believe that designing a new class of ships would be any less expensive; indeed it is irrational to think that starting over would save money.
On a smaller scale, electromagnetic guns might become the main armaments on tanks and howitzers. While all the same challenges would recur and be compounded by the need to reduce both the source of the electricity and the storage device to the size of a ground combat vehicle, the fundamental engineering challenges are the same as for ships. And the Army already is experimenting with modifying existing howitzers to shoot the same projectile as an electromagnetic weapon. “It turns out that powder guns firing the same hypervelocity projectiles gets you almost as much as you would get out of the electromagnetic rail gun, but it’s something we can do much faster,” says Deputy Defense Secretary Robert Work, who has been held over from the Obama Administration to ensure continuity in defense planning. “We are [saying to the next administration]: ‘Look, we believe this is the place where you want to put your money, but we’re going to have enough money in there for both the electromagnetic rail gun and the powder gun.’”
A related development, also resulting from the ability to generate and store immense amounts of power, that is on the cusp of science fiction and reality is the prospect of using directed energy itself as a weapon. Indeed, some low-level forms of directed energy have been employed by the military for some time: microwave systems that heat the water in skin cells, causing irritation, have been used as a crowd-control measure; microwaves also have been fielded to fry enemy electronic systems. Even the radars on combat aircraft may have limited applications in disrupting the sensors of attacking missiles. And, as far back as 2002, the U.S. Air Force began flying an “Airborne Laser”—basically, a giant high-energy chemical laser stuffed inside a 747 commercial aircraft body—as a missile defense test system. In January 2010 the system successfully passed an intercept test and a month later destroyed two targets in a single engagement. But shortly thereafter, amid one of the many rounds of defense budget reductions during the Obama Administration, the effort was scrapped. In many ways, fielding the system as designed was a bad idea—the laser itself needed to be more powerful and would have required a large and vulnerable aircraft to fly within range of enemy air defenses—but the underlying concept was sound and indicative that such systems were technologically feasible, if tactically immature. Also, it was clear that using electricity rather than chemistry as a power source was a better solution.
Electromagnetic guns, hypersonic projectiles or even directed energy death rays would by themselves not necessarily constitute a revolution in warfare. But these technologies could yield a substantial increase in the capabilities of a wide variety of legacy platforms—and, importantly, again provide U.S. forces with a significant battlefield edge. Most of all, such investments could get the American military back in the habit of continuous modernization and the operational innovation that comes from actually fielding new capabilities. The enthusiasts for “transformation” of the past generation have been looking through the wrong end of the telescope; their model of innovation was that, starved of funds, the U.S. armed services would have to think of new ways to fight. But, through history, the process of change in war has been one that more frequently rewards practical tinkering—matching organizations and doctrine to technologies—more than bold conceptualization. Imagining the tank or the fighter aircraft was the basis for a revolution, but to realize it demanded their integration into combined-arms formation and figuring out how to keep that organization supplied with fossil fuel.
Finally, the experience of recent decades ought to debunk the transformationists’ idea that the United States could afford a geopolitical “strategic pause” to pursue a strategy of innovation. Nor can a global power afford an “offset” approach. To paraphrase the Beatles one last time: Evolution is the real solution. And you can see the plan.
March 10, 2017
January 11, 2017
December 17, 2016
Note on Pearl Harbor, Capt John [c]
To jrj@combatveteransforcongress.org
Dec 7 at 3:35 AM
December 7, 2016: The 75th Anniversary of the Sneak Attack by Japan on Pearl Harbor
The surprise attack on Pearl Harbor by the Imperial Forces of Japan, executed by Admiral Isoroku Yamamoto’s strike plan “Z”, commenced at 7:48 AM Hawaiian Time. The base was attacked by 353 Imperial Japanese fighters, bomber, and torpedo planes in two waves, launched from six Japanese aircraft carriers. All eight U.S. Navy battleships were damaged, with four sunk. All but the USS Arizona (BB-39) were later raised, and six were returned to service and went on to fight the Imperial Forces of Japan in the WWII. The Japanese also sank or damaged three cruisers, three destroyers, an anti-aircraft training ship, and one minelayer. In addition 188 U.S. aircraft were destroyed; 2,403 Americans were killed and 1,178 others were wounded. However, important base installations such as the power station, shipyard, maintenance, and fuel and torpedo storage facilities, as well as the submarine piers and headquarters building (also home of the intelligence section) were not attacked. Japanese losses were light; 29 aircraft and five midget submarines were lost, and 64 servicemen killed. One Japanese sailor, Kazuo Sakamaki, was captured.
In the wake of the attack, 15 Medal Of Honor, 51 Navy Crosses, 53 Silver Stars, 4 Navy and Marine Corps Medals, one Distinguished Flying Cross, four Distinguished Service Crosses, one Distinguished Service Medal, and three Bronze Star Medals were awarded to the American servicemen who distinguished themselves in combat at Pearl Harbor. Additionally, a special military award, the Pearl Harbor Commemorative medal was later authorized for all military veterans of the attack
Japan’s Prime Minister’s Will Visit Pearl Harbor Today
Japanese Prime Minister Shinzo Abe announced he would travel to Pearl Harbor today, to recognize the 75th Anniversary of Japan’s attack on the home port of the, US Navy’s Pacific Fleet. Prime Minister Abe is the first Japanese leader to visit Pearl Harbor to “pay tribute [and] comfort the souls” of those who died from both countries during World War II. Admiral Isoroku Yamamoto said that Japan’s attack on Pearl Harbor “awoke a sleeping giant”. The attack was labeled “A Day of Infamy” by President Franklin Delano Roosevelt. In the next 3 years, 7 months, and 25 days, the US Armed Forces and their Allies in the Pacific Theatre, defeated the Imperial Forces of Japan. On September 2, 1945, General Douglas MacArthur, USMA ’03, USA, representing the Combined Allied Forces, accepted the “Unconditional Surrender” of the Imperial Forces of Japan aboard the USS Missouri (BB-63) in Tokyo Bay.
Pearl Harbor – 75 years on
In the below listed Op Ed, by Admiral James A. Lyons, Jr. USNA ’52, USN (Ret), who was the Commander–in-Chief, of the US Pacific Fleet, and the Senior US Military Representative to the United Nations, exposes the US military personnel who were responsible for failing to alert Admiral Husband E. Kimmel, the Commander-in-Chief of the US Pacific Fleet, and Lt. General Walter Short, who was responsible for the defense of Hawaii, of the pending attack by Japan, were accused of dereliction of duty following the attack. Admiral Kimmel was reduced in rank to Rear Admiral, and retired from the US Navy. Lt General Short was reduced in rank to Major General and retired from the US Army. Admiral Lyons recommends in the below listed Op Ed that Rear Admiral Kimmel and Major General Short have their honor, reputations, and ranks restored by Congress.
Joseph R. John, USNA ‘62
Capt USN(Ret)/Former FBI
Chairman, Combat Veterans For Congress PAC
2307 Fenton Parkway, Suite 107-184
San Diego, CA 92108
http://www.CombatVeteransForCongress.org
https://www.facebook.com/combatveteransforcongress?ref=hl
Then I heard the voice of the Lord, saying, “Whom shall I send, and who will go for Us?” Then I said, “Here am I. Send me!”
-Isaiah 6:8
From: James A. Lyons, Jr
Sent: Monday, December 05, 2016 6:27 AM
To: Joseph R. John
Subject: Op-Ed – Pearl Harbor – 75 years on
My latest op-ed published in the Washington Times.
As an aside, it made the cover of the National Enquirer.
All The Best
Ace
James A. Lyons, Jr.
Admiral, USN (Ret)
Pearl Harbor, 75 years on
Remembering the grim day and an ongoing injustice
By James A. Lyons – – Sunday, December 4, 2016
ANALYSIS/OPINION:
The 75th anniversary of the Imperial Japanese surprise attack on Pearl Harbor will soon be remembered again as a “Day of Infamy.” On Dec. 7, 1941, Japan launched over 353 aircraft from six carriers, flawlessly executing Adm. Isoroku Yamamoto’s strike plan “Z” and succeeded in crippling the U.S. Pacific Fleet.
How could the commanders in Hawaii be so unprepared when in Washington both the Army and Navy intelligence organizations had broken key Japanese diplomatic codes, including the high level “Purple” code in which Japan was conducting its peace negotiations with the United States? Whether the Japanese naval code “JN-25” was broken prior to the attack remains unknown.
In their new book, “A Matter of Honor,” by Anthony Summers and Robbyn Swan, the authors provide information never before revealed. The authors make the case for restoring the personal reputation, honor and ranks of the two Pearl Harbor commanders who were unjustly made the scapegoats.
The second new book, “Into the Lion’s Mouth” by Larry Loftis, discusses the most successful British double agent, “Dusko Popov,” the real life inspiration for Ian Fleming’s James Bond and Popov’s relationship to Pearl Harbor. In short, the Japanese were fascinated by the British surprise airstrike at Taranto, which destroyed the Italian Fleet primarily by dropping torpedoes in relatively shallow water. They prepared questions and passed them to Germany who in turn gave them to Popov. He turned them over to the FBI on his arrival in New York in August 1941. The U.K. raid on Taranto became the blueprint for the Japanese surprise attack on Pearl Harbor. Mr. Loftis contends that J. Edgar Hoover, the FBI Director, never turned over the questions to the military or to the president. Former CIA Director William Casey made the same charges in 1988 and blamed Hoover for failing to share the information with the military. However, according to Mr. Summers and Ms. Swan, Hoover did turn over paraphrased versions of the question to military intelligence who failed to recognize the significance of this information.
Of the eight official inquiries, the most biased conducted was by Supreme Court Justice Owen Roberts shortly following the attack. Neither Adm. Husband E. Kimmel, the commander in chief of the Pacific Fleet, or Lt. Gen. Walter Short, who was responsible for the defense of Hawaii, received any information from the decrypted codes which would have alerted them to the Japanese fleet’s intentions. Yet the Roberts commission declared Adm. Kimmel and Lt. Gen. Short derelict in carrying their duties and held them solely responsible for the Pearl Harbor disaster. None of the 10 Washington officials authorized to receive the decrypted information was held accountable. Cover up?
The Washington officials authorized to receive the decrypted “Purple” intelligence, referred to as “Magic,” included the Army Chief of Staff Gen. George Marshall; Chief of Naval Operations Harold Stark; Chief of Navy War Plans RADM Richmond K. Turner; Brig. Gen. Gerow; head of Army War Plans; heads of both Army and Navy Intelligence, Secretary of War (Army) Stimson; Secretary of Navy Knox; the president and the Secretary of State Cordell Hull.
The president only saw brief summaries of “Magic” decoded information and at times only received verbal briefings. Further, Marshall and Stark at one point denied the president and secretary of State any “Magic” information for four months because they didn’t trust people around them. Of course, one person who did see Magic was Winston Churchill. The U.S. provided three “Purple” machines to the U.K. to facilitate their breaking of the code. Another machine went to the U.S. Army and two went to the Navy. Interesting, one “Purple” machine was sent to the naval station CAST at Cavite in the Philippines for use by Gen. Douglas MacArthur and Adm. Harold Hart. Astonishingly, none were provided to the Hawaii Commanders Adm. Kimmel and Lt. Gen. Short. What use MacArthur made of the Purple intelligence is unknown. Further, he was unprepared for the Japanese attack that destroyed our FAREAST Air Force at Clark AFB nine hours after the attack on Pearl Harbor. He was never held accountable.
One other aspect that is seldom mentioned is that the Dutch Army cryptanalysts had also broken the Japanese diplomatic code “Purple.” According to Brig. Gen. Elliot Thorpe, USA (ret.) when he was the army attaché in Java, Gen. Tec Pooten, CINC of Far East Dutch Army, provided him a decrypted message from Tokyo to the Japanese Ambassador in Bangkok which told of the upcoming attack on Hawaii, Philippines, Malaysia and Thailand. After sending four messages about the upcoming attack, Thorpe as he recalled was directed by our War Department to send “no more on this subject.”
“Magic” decrypted information held a wealth of information. There was the “bomb plot” grid message #83 of Sept. 24, 1941, which divided the fleet anchorages in Pearl Harbor into bombing sectors. We also had the Nov. 30, 1941 message to designated Japanese Embassies to destroy their codes, files, etc. Washington cleared officials also had the 14-part message on Dec. 6 1941, the Japanese response to the secretary of State’s Nov. 26 ultimatum, ceasing all negotiations to which President Roosevelt remarked, “This means war.” Yet none of this critical intelligence was passed to the Hawaii Commanders. As an aside, Churchill was getting much of this information as well. We do know it was his goal to involve “isolationist” America in the war.
The three principals that should have been held accountable were Gen. Marshall, Adm. Stark and Adm. Turner, who assumed responsibility for distributing the decrypted information for the Navy. It clearly is time for Adm. Kimmel and Lt. Gen. Short to have their honor, reputations and ranks restored. It is a matter of honor for the Navy, Army, and country to correct this terrible injustice.
• James A. Lyons, a retired U.S. Navy admiral, was commander in chief of the U.S. Pacific Fleet and senior U.S. military representative to the United Nations.
[Personal note on this: for over 40 years I have been a proponent of the position that FDR withheld information for the purposes of involving the U.S.A. in the war and to get himself out of the Great Depression. The first purpose is self-evident. However, few know that FDR kept the U.S. in the depression for longer than necessary by, among several wrongful acts, allowing the dollar to become the global currency, and by fixing the dollar to gold during this economic crisis instead of letting it float. By 1938, most of Europe was out of the depression as they prepared for war. FDR did not. Instead, this stalwart liberal insisted on domestic policies that included the National Recovery Act, unconstitutional on its face, called the Negro Ruination Act by integrationists. The NRA permitted businesses to fire colored employees before firing white employees, just one of many discriminatory and crony features. JPB]
August 30, 2016
August 11, 2016
August 4, 2016
June 10, 2016
March 23, 2016
The Lost Eastern Christian Empire, Matt Shipley Cmdr USNret [c]
The Lost Eastern Christian Empire
Mar
20
Western Christian orthodoxy, in which American culture is rooted, came out of the dispute with the eastern Christian Church. There was a time when Christianity was the predominant faith throughout what is now known as the Middle East and it reached all the way to modern China. The eastern Christian empire, however, did not hold to the same beliefs as the western one. Today, except for a few pockets of Christians in what is now an Islamic dominated region, Christianity in that area has all but disappeared. The eastern Christian empire and their different understanding of the nature of Christ are vital, not only to the story of Christianity, but to the understanding of American culture and reasonable expectations concerning the future of our nation given its present political course.
To better understand the chain of events that led to the growth, schism, and ultimate destruction of the eastern Christian empire one should start in the first century, before the transition from the apostolic era to the early church fathers. After Pentecost, religious persecution by the Jews caused the apostles to scatter to the known world, spreading Christianity in their wake. During the second century AD, Christianity continued to grow in all the regions of the Roman world, but, without apostolic direction to set the course for orthodoxy, disputes rose. Many of these disputes centered on the nature of Christ’s humanity and divinity. By the fifth century AD, the main dispute between eastern and western branches of Christianity ranged from Christ having two separate wills to His having only one divine will, with modern western orthodoxy laying somewhere in between these two positions.
Eastern Christianity had a cultural edge over its western counterpart. Christianity had originated in Palestine, or modern day Israel, which lay in the eastern portion of the church; much of the New Testament was written in Greek, which remained prevalent in the eastern churches as compared to the western churches; and three out of the five jurisdictions of the patriarchs, by the fifth century, were located in the East. “Christianity had five great patriarchates, and only one, Rome, was to be found in Europe. Of the others, Alexandria stood on the African continent, and three (Constantinople, Antioch, and Jerusalem) were in Asia.”[1]
Consequently, even the Papacy had a strong Eastern influence to it.
The papacy was as thoroughly Eastern in language and culture as anywhere in Asia Minor, with the dominance of Greek (which was by now known as the “Roman” language) and Syriac. Between 640 and 740, no fewer than six popes derived from Syria, in addition to several Greek natives.[2]
Eastern Christianity even produced influential theologians.
This ‘Church of the East,’ as it came to be known … had produced some very gifted leaders, teachers, and spiritual thinkers. They included not only such earlier figures as Barsumas and Narsai but also the theologian Babai the Great (d. 628), who composed a work on the union of the divinity and humanity in Christ, and a clutch of monastic writers whose works proved of enduring attraction, such as Sahdona (fl. Mid-seventh century) and Isaac of Nineveh (d. ca. 700).[3]
Eastern Christianity was so entrenched that even after the fall of the Roman Empire it retained its Eastern traditions. “After the fall of the Roman Empire in the West, Christianity maintained its cultural and intellectual traditions in the Eastern empire, in Asia Minor, Syria, and Egypt.”[4] In comparison, the fledgling western Christian empire provided no signs that its theological understanding of Christ’s nature would grow to be the most dominant and widely accepted one.
The church, leading up to the fifth century, was by no means monolithic or unified, not even among individuals within regions, but it was not until Nestorius came along that the eastern and western branches of Christianity started to solidify their differences. Unwittingly, Nestorius exposed the dichotomy of a church divided by two different languages, traditions, and understandings of the nature of Christ, which brought about one of the biggest church rifts that has lasted to modern times.
Nestorius, for whom Nestorianism is named, became the bishop of Constantinople in 428. In that same year, on the twenty-second of November, one of his bishops, Anastasius, gave a sermon in which he objected to the term “Theotokos” (“God-bearer”) as a title for Mary, the mother of Jesus. Nestorius’s defense of Anastasius started a firestorm of controversy that culminated in the Council of Ephesus (431) and ultimately the Council of Chalcedon (451). “Nestorius held that Mary could appropriately be called “Mother of Christ” (Christotokos), but not “Mother of God,” [(Theotokos)] since, he argued, this would imply that the divine nature of Christ had a birth and therefore a beginning.”[5]
Nestorius’s opponents, however, saw his reluctance to use Theotokos as a sign that he was denying the divinity of Christ and instead they thought he held that Christ was a mere man who was adopted by God as His son. In Nestorius’s defense, it seems he:
[A]ttempted to preserve the full humanity of Christ and at the same time preserve the immutability of the divine nature of Christ, by emphasizing the distinction between the two natures over against the unity of natures … Thus, like the Arians, he apparently rejected any kind of unity other than the unity of wills.[6]
Ostensibly, Nestorius believed there was a division between Christ’s humanity and His divinity in which His divinity was bestowed upon Him after His birth, whereas his opponents believed in a unity between the two natures of Christ that were circumscribed in the womb. “The Council of Ephesus (431), [called to settle the Nestorian dispute] condemned “Nestorianism” as a heresy, but they may have attributed ideas to Nestorius that he did not hold.”[7]
To be clear about the distinction between Nestorius and Nestorianism, Nestorius held that, “The two natures are not only distinct, they are separate. … Later Nestorians [followers of Nestorius] pushed the separation of the natures to the point where it sounded like they were talking about two separate ‘persons’.”[8] The councils of Ephesus and Chalcedon, on the other hand, held, “The two natures are distinct, but not separate. … The two natures are unified, but not confused.”[9]
These two distinctions, two separate natures or one unified nature, is important for its salvific implications. According to the western orthodox view, in order for Christ to be able to atone for the sins of mankind, He would need to be both human and divine without separation. Otherwise, according to this reasoning, His death would not be sufficient to satisfy God’s justice for the disobedience of mankind.
The Nestorian controversy also gave birth to an understanding of Christ’s nature that occupies the other end of the nature of Christ spectrum called Monophysitism. Monophysitism is a belief that Christ only had one nature without union. Eutyches, an abbot of a Constantinople monastery, started Monophysitism by overreacting to Nestorius and, instead, proposed “a Christology in which the divine nature completely absorbed the human nature, leaving no human nature after the incarnation.”[10]
Monophysitism became both an ecclesiastical and political problem, because it gained and maintained popularity. Its popularity not only divided the church, it divided the Roman empire and threaten the empire’s stability. It was very popular in the eastern portion of the eastern Christian empire, especially in Egypt and Syria where the knowledge of the New Testament Greek was still prevalent. “In Egypt and Syria [around the ecumenical council of Chalcedon in 451], Monophysites were so commonplace that they were known simply as Egyptians (Copts) and Syrians (Suriani), respectively.” [11]
Although the Council of Chalcedon condemned both Nestorianism and Monophysitism, these two beliefs continued to flourish. As the western church consolidated its authority within the western empire, dissenters from the state sponsored view of Christ’s nature had to move farther east to escape the persecuting grasp of the state sponsored church.
As the church-state alliance became ever more firmly entrenched in Rome and Constantinople, so evermore Christian believers were forced to flee beyond the frontier, especially into those weakly controlled borderlands that became such fertile territory for religious innovation and interaction. The number and importance of such religious dissidents grew steadily with the fifth-century splits over the relationship between Christ’s human and divine natures. Monophysite teachings dominated in Syria and Egypt, and also prevailed in the Christian states of Armenia and Ethiopia.[12]
As both Monophysitism and Nestorianism proliferated over the eastern Christian empire, the stage was set for further expansion of Nestorianism to the east. The capitol of the eastern Christian empire was Seleucia, a city on the Tigris River very close to modern day Baghdad, which was also a center for trade and communication and hence it was well positioned to spread Christianity outside of its borders. “Seleucia stood at the center of the world’s routes of trade and communication, equally placed between the civilizations that looked respectively to the Atlantic and Pacific.”[13] Significantly, the hub of communication and trade in Asia, after the Council of Ephesus, which was also the most populous city in the world at that time, followed the teachings of Nestorius, and spread that understanding of Christianity further east. “Within the Persian Empire, the main Christian church was based in the twin cities of Seleucia-Ctesiphon, the imperial capital that was the successor to ancient Babylon, and the most populous city in the world at that time. This church followed the teachings of Nestorius after 431.”[14]
At the same time the teachings of Nestorius was growing in the east, the western portion of the eastern Christian empire was solidifying around Monophysitism through the efforts of Jacobus Baradaeus, the bishop of Eddessa, (modern day city of Şanlıurfa, located in Turkey close to the Syrian border approximately half way between the Mediterranean and Syria’s modern border with Iraq). “In the sixth century, Asian Monophysites also developed their own church apparatus, through the organizing ability of Jacobus Baradaeus. From his base in Edessa, Jacobus created a whole clandestine church, in which he ordained two patriarchs and eighty-nine bishops.”[15] Jacobus’s underground parallel church became known as the Jacobites, which is now the modern Syrian Orthodox Church.[16]
Jacobus’s underground church reached past the borders of sixth-century Syria into Asia Minor, modern day Turkey, and the islands of the Aegean Sea to the west of Turkey. “Despite strong opposition from Chalcedonians, the charismatic Syrian leader Jacob Baradaeus (ca. 500-578) had already begun to engage in a highly successful program of clandestine expansion that extended a thriving ‘Monophysite’ church not only within Syria but in large areas of Asia Minor and Aegean.”[17]
Interestingly, Monophysitism expanded in the region just south of Chalcedon, the city where it had been condemned. One of the reasons for the expansion of the Monophysite church and the actions of Jacobus were the consolidation efforts of the Roman Emperor Justinian (527-565). In attempt to unify power and stability within his realm, Justinian coercively tried to bring the Monophysites in line with the findings of the Counsel of Chalcedon.
Jacob saw Justinian’s policies as threatening the integrity of the anti-Chalcedonian tradition, and he labored not only to spread the faith among potential converts but also to win over existing Christians to a single-nature position. … The consequences of Jacob’s industry were remarkable, and the non-Chalcedonian Syrian believers, who broke with the patriarchate in Antioch and came to have an Episcopal succession of their own, began to be described as the Jacobites in honor of his influence.[18]
In spite of Justinian’s efforts, Monophysitism did not, however, remain localized in Asia Minor or the Aegean, it also grew along the Nile River.
In the Nile Valley, heading toward northern Sudan, the kingdom of Nubia was evangelized by mainly “Monophysite” missionaries in the 540s, and within a generation of the three Nubian territories of Nobatia Makuria, and Alodia were officially Christian, following the conversion of the their rulers. In Nobatia at least, and probably more widely, the theology adopted was “Monophysite.”[19]
Monophysitism extended as far South as Ethiopia, “In Ethiopia, where the kingdom of Aksum became an important Christian territory in the first half of the sixth century under King Kaleb, there were strong historical links both with the Coptic Church and with Syria, and there was also a marked predominance of ‘Monophysite’ conviction.”[20]
In its expansion, Justinian was not the only obstacle with which the Monophysites had to contend. Monophysitism “encountered its most able intellectual opponent in the gifted Byzantine monk, theologian, and ascetic writer, Maximus “the Confessor” (ca. 580-662).”[21] Maximus’s arguments explaining the reason for Christ’s two natures were very convincing and difficult for Monophysites to logically refute.
In a remarkably creative fashion, Maximus was able to underscore the authenticity of Jesus’s humanity, with its real choices and temptations, while also asserting that his human nature existed as it did precisely because it was the humanity of the Son of God. In becoming incarnate, the Word became all that humans are, yet he did so in his own unique way as a divine person, and thus it was that his human willing, while utterly genuine, was consonant with the will of God. Maximus thought that such a conception facilitated a vision of salvation as a mystical union between God and creation in which the integrity of the human is fully respected. To be saved is to be “divinized,” and such a union with God, so far from being an obliteration of the dignity of created beings, is in fact the realization of reactions true destiny.”[22]
Regrettably, Maximus was martyred for his Dyothelite views by the Roman emperor who was attempting to maintain unity in the Roman Empire by eliminating those who held views different from the region over which he was trying to maintain control. It was only later on that his understanding of Christ’s nature became politically useful and therefore acceptable to the Roman emperor.
The Dyothelite position that Maximus had championed finally prevailed at another council held in Constantinople in 680-681, the third in the city and the sixth of the general councils. The gathering took place at the behest of the emperor Constantine IV Pogonatus, who was convinced that the Monothelite stance was no longer very useful politically, as a large proportion of ‘Monophysitie’ were to be found in areas that had in any case fallen to Arab control from the late 630s onward and looked as if they would remain that way.[23]
As mentioned above, in the seventh century, the Islamic Arabs started to consolidate political control of the eastern portion of the Christian empire, which altered political considerations in the West that led to acceptance of theological positions that were previously unacceptable. At that time, in the world of theology, the geographic lines between Monophysitism, Nestorianism, and western orthodoxy were, for the most part, defined and established. “By the time of the Arab conquests in the seventh century, the Jacobites probably held the loyalty of most Christians in greater Syria, while the Nestsorians [modern day Assyrian Church of the East] dominated the eastern lands, in what we now called Iraq and Iran. The West Syrian church was Jacobite; East Syrians were Nestorian.”[24]
During the seventh century, the Monophysite and Nestorian Christian empire reached its zenith, and their forms of Christianity seemed to thrive under political masters who were adverse to its tenants. While Nestorian Christianity appeared poised to take over the world as the dominant Christian understanding of Christ’s nature, it had actually reached the point of diminishing returns and its efforts in the future would shift to survival instead of expansion. Additionally, by the end of the seventh century,
[T]here was plainly very little prospect of reconciling the friends and foes of Chalcedon. … [T]he orthodoxy of the main Byzantine church, headed up by the four patriarchates of Constantinople, Alexandria, Antioch, and Jerusalem, which remained in communication with the churches of the West. All of these believers adhered to Chalcedon and officially to the further qualifications of its emphases as specified at Constantinople in 553 and 680-681.
The other … orthodoxy was the position of a smaller but still very significant body of dissenters: the Armenians, the Copts, the Ethiopians, and a large number of Syrians [Monophysites]. They repudiated altogether the language of “in two natures” as violating the uniqueness of the incarnate word. …
Alongside both of these groups there was also, still farther to the east and the south but with a presence in other quarters as well, a significant constituency wedded to yet another position [Nestorianism].[25]
Such was the state of the Christian world when Bishop Timothy I of Seleucia reigned. “About 780, … Timothy became patriarch, or catholicos, of the [Nestorian] Church of the East, which was then based at the ancient Mesoptamian city of Seleucia.”[26] Timothy’s reign is significant because he oversaw the church in the East at its height, during a golden age of Christianity in the East.
Timothy himself presided over nineteen metropolitans [the head of an ecclesiastical province] and eighty-five bishops … Just in Timothy’s lifetime, new metropolitan sees were created at Rai near Tehran, and in Syria, Turkestan, Armenia, and Dailumaye on the Caspian Sea.[27]
The magnitude of the eastern Christian empire can be seen in the contrast between the metropolitans that Timothy presided over and those in England at that same time. “In England to give a comparison, the medieval church had two metropolitans: respectively, at York and Canterbury.” [28] The eastern Christian empire was so expansive and so well entrenched that even under Muslim rule it remained rather large leading up to the tenth century. “By the tenth century, the Byzantine Empire still had fifty-one metropolitans, supervising a hierarchy of 515 bishops, and of these, thirty-two metropolitans and 373 bishops were still to be found in Asia Minor.”[29]
Over time, the Islamic rulers in Asia Minor, the Middle East, and other portions of Asia restricted the spread of Christianity through rules, regulations, and persecution. In addition to non-Muslims having to pay a special tax, they were also excluded from other economic activities and restricted in their evangelization efforts. Although, persecution was not consistently present, it was effective when used and it was most severe when external threats, such as western Christianity, appeared to menace the Islamic state. “The severity of persecution or enforcement varied over time but was at its worst when an established religion faced a real or perceived danger to its own existence.”[30] For this reason, the western Christian empire was detrimental to the existence of the eastern one. For all of these reasons, eastern Christianity started to erode over several centuries to the point where it is now virtually non-existent in Islamic dominated countries.
Looking back over the history of the church, and by analyzing the schism between the eastern and western branches of Christianity, one can observe how western orthodox Christianity was defined by the disputes with its eastern brethren. One can also witness the fate of any system of faith that does not maintain favor of those in political power.
It is obvious, not only from observing Christian understandings in the past, but also the diversity of denominations in modern times, that Christianity is not, and never has been, a unified belief system. Nearly every forthright person struggles to understand truth, but each of us understands truth based on presuppositions that may or may not be correct. Error in human thinking, therefore, should always be the first presupposition in any epistemological pursuit. It is for this reason disagreement among believers can be helpful, but it also can be divisive and destructive.
Disagreement causes people to justify their position and think through why they believe what they believe. For example, without the Nestorian and Monophysite controversies, the Councils of Ephesus (431) and Chalcedon (451) most likely would not have happened. Both of these councils were integral for working out what we now know as the Nicene Creed, which has been foundational to western Christian orthodoxy as a statement of faith.
Additionally, without the Monophysite controversy, Maximus the Confessor may not have been inspired to work out the logical reasons for the unification of Christ’s humanity and divinity, which has also played a major role in western orthodoxy, salvation, and our understanding of the relationship to the Trinity.
Theological disputes can also be destructive when one side resorts to using un-Christian methods to suppress opposition to their perspective, such as the use of state sponsored power. The use of state power is destructive not only for the obvious harm it does to the persecuted, but also for the harm it does to the truth of Christianity in the minds of contemporary and historical observers. Using coercive state power to put down Christian opposition to one’s Christian perspective goes against the overall teachings of Scripture, namely love thy neighbor.[31] Yet, it is interesting to note that western orthodoxy has been passed down to us by these and other non-Biblically sanctioned means.
Given what happened to the Eastern Christian Empire after Islam took over the government in their region, it would be difficult to conclude that any system of faith can survive, over a long period of time, when faced with a hostile state-sponsored political climate. A belief system must either win over the hostile political system, like in the case of Constantine I, or face restrictions to their growth and persecution that ultimately leads to near non-existence over time.
Perhaps the reason the eastern Christian empire did not endure to the present is because, in the sovereignty of God, by dismantling the eastern Christian empire, He all but eradicated an inaccurate perception of Christ’s nature. If this is true, it does not necessarily mean that western orthodoxy, as we now understand it, is the all encompassing correct understanding of Christ’s nature and of salvation. It could be a stepping stone on the road to the correct understanding of these topics.
Each individual believer is a living stone being progressively placed over time to build a spiritual house.[31] Nations will rise and fall, but the spiritual house will continue towards its completion. With this view of history, it is possible the same fate awaits the church in the West as that of the eastern Christian empire, especially since the western churches grew from support of the state and are now facing hostile secular political environments.
[1]Philip Jenkins, The Lost History of Christianity: The Thousand-Year Golden Age of the Church in the Middle East, Africa, and Asia – and How it Died (New York: Harper Collins, 2008), 47.
[2] Jenkins, 47.
[3] Ivor J. Davidson, A Public Faith, vol. 2, From Constantine to the Medieval World (Grand Rapids: Monarch Books, 2005), 238.
[4] Jenkins, 47.
[5] James L. Papandrea, Reading the Early Church Fathers: From the Didache to Nicaea (New York: Paulist Press, 2012), 214.
[6] Papandrea, 214.
[7] Papandrea, 215.
[8] Papandrea, 240.
[9] Papandrea, 240.
[10] Papandrea, 216.
[11] Jenkins, x.
[12] Jenkins, 49.
[13] Jenkins, 14.
[14] Jenkins, 57.
[15] Jenkins, 57-58.
[16] Jenkins, x.
[17] Davidson, 231-232.
[18] Davidson, 232.
[19] Davidson, 232.
[20] Davidson, 233.
[21] Davidson, 236.
[22] Davidson, 236.
[23] Davidson, 236-237.
[24] Jenkins, x.
[25] Davidson, 237.
[26] Jenkins, 5.
[27] Jenkins, 10.
[28] Jenkins, 10.
[29] Jenkins, 49.
[30] Jenkins, 210.
[31] Lev. 19:18; Matt. 19:19, 22:39; Mark 12:31, 33; Luke 10:27; Rom. 13:9; Gal. 5:14; and James 2:8
[32] 1 Peter 2:5
[My memory is telling me that The Nicene Creed came from the Council of Niceae, about 190 AD. The five bishops, as enumerated in Matt’s article, included one Hereticus, from whence comes the word Heresy. Hereticus and the other four decided that there was too much floating around about the Christ, so they banned and destroyed about 60% of it. Thus, the recently discovered Gospels of Judas and of Mary have not been, as far as I know, authenticated by the Vatican. These two fall into what Matt is writing.
If y’all go back to the Feb 16 Imprimis, posted earlier, you will see how much of this dove tails, and why Europe is being eaten alive, and what we must do next.]
[Cmdr Shipley responded to my c with:]
americanfoundingprinciples commented on The Lost Eastern Christian Empire.
in response to americanfoundingprinciples:
Western Christian orthodoxy, in which American culture is rooted, came out of the dispute with the eastern Christian Church. There was a time when Christianity was the predominant faith throughout what is now known as the Middle East and it reached all the way to modern China. The eastern Christian empire, however, did not hold to […]
Thanks for dropping a line. I have been busy with school, so I have not written as much as I would like. I have some things I want to research, but I will have to wait until I get my school work out of the way. Other than that, I have been doing very well, thank you for asking.
The First Council of Nicaea took place in AD 325. Prior to that time, Christianity was struggling to survive in a hostile political climate. It was not until Emperor Constantine came to the thrown that the Church was able to convene ecumenical councils.
The Nicene Creed was initiated in that first council, but it was not completed, as we know it today, until after the councils of Ephesus and Chalcedon.
Scripture is self-authenticating, it does not derive its authority from humans or any human institution. If it did, no one should take it seriously or uphold anything it had to say, because all of humanity is powerless, flawed, and too frequently wrong.
The ecumenical councils, with respect to the canon of Scripture, only affirmed what most Christians already knew, i.e., what was scriptural and what was not. They used four basic criteria for logically coming to their conclusion about the canon of Scripture: 1. apostolic authority, 2. widespread acceptance, 3. consistency with the Hebrew canon, and 4. self-attesting authentication. The Apocrypha, including the extra books in the Douay-Rheims Bible confirmed by the Council of Trent between 1545 and 1563, does not meet one or all the above criteria.
Too often, people confuse canonization with recognition. What is difficult for many people to understand is that Scripture was canonical from the time it was first written no matter how long it took humans to recognize its authority.
I hope this explanation answered your question.
War on Currency and your savings, by Daren Fonda (Barron’s reporter)
[With stablecoin, my position on blockchains has changed. The following is why everyone with more than $600 in savings should be subscribing to both The Wall Street Journal and to Barron’s. Bill]
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William
Inside the Coming War Over Digital Currencies—and What It Means for Your Money
By
Daren Fonda
Updated September 18, 2021 / Original September 17, 2021
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The war over money is heating up: For the first time in more than a century, the dollar’s supremacy is being challenged. The rise of cryptocurrencies and “stablecoins” has spurred a rethinking of what a currency is, who regulates it, and what it means when it’s no longer controlled by a national government. The dollar itself may be getting an overhaul, transformed into a digital currency that can travel instantly around the world, holding up against Bitcoin or any other token.
The old battle lines between national currencies are being redrawn by an onslaught of crypto insurgents. These privately issued currencies are fragmenting monetary systems, banking, and payments. The landscape calls to mind the “wildcat” money era of the mid-1800s, when a scrum of banks supplied their own notes—prompting the Federal Reserve to establish a national currency. Commerce doesn’t run as efficiently without a “no questions asked” currency, and governments risk losing control over fiscal and monetary policies if multiple currencies vie for economic activity.
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What kind of upheaval will the new currencies wreak? No one knows. And there are plenty of legitimate use-cases for cryptos and applications built on top of blockchain networks. But the technology is so disruptive that it’s triggering calls for a cascade of new regulations, and it’s spurring governments around the world to think about digitizing their currencies, at least partly to remain relevant and maintain control over their economic interests. The Fed itself is expected to weigh in with its own report in coming days.
“The advent of digital currencies may allow people and businesses to get around banks,” says Thomas Hoenig, a former president of the Federal Reserve Bank of Kansas City. “If cryptos become a substitute for the dollar, they could create a separate money environment that would make monetary policies more difficult to implement.”
Cryptos are now worth $2.1 trillion, doubling in value this year alone. Bitcoin, worth nearly $900 billion, recently became legal tender in El Salvador—a controversial monetary shift in the country, but one that may pave a path for other developing nations. Capital is flooding into companies that are building everything from trading platforms to exchanges for trading new digital assets like non-fungible tokens, or NFTs. Investors are also trading tokens on decentralized exchanges like Uniswap, and they’re earning high yields by “staking” their tokens to network operators.
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Cryptos and other tokens aren’t (yet) close to denting the $19.4 trillion U.S. money supply or the 50% of international trade that’s invoiced in dollars. One measure of the dollar’s hegemony—its share of central bank reserves—has been declining for 25 years, but at 60% it remains three times that of its closest rival, the euro. Vast markets of global commodities are priced in the dollar. Trillions of dollars in sovereign and commercial debt are pegged to the “risk free” rate of Treasuries.
But challenges to the dollar posed by blockchain technologies aren’t so easy to dismiss.
Cryptos, stablecoins and NFTs are becoming the native tokens of gaming and e-commerce platforms. Virtual-reality platforms are being designed to incorporate NFTs or other private currencies. As economic activity shifts to these walled gardens, banks and government-backed money could wind up on the outskirts.
The Trillion Dollar ClubCryptocurrencies have surged in value, led by Bitcoin and EthereumMarket Value of CryptosSource: CoinMarketCap
billionOct. 2019Sept.05001000150020002500$3000
Challenging the Incumbents
Big money is at stake, especially for banks and other companies that effectively charge “rents” for moving dollars around. North American banks, card networks, and nonbank “fintechs” earn huge sums for payment and credit-card services—$500 billion a year, according to data from consultancy McKinsey. That amounts to an estimated 2% toll on U.S. gross domestic product—much of it in credit card fees.
Many banks and financial companies, including Visa (ticker: V) and JPMorgan Chase (JPM), are working to integrate cryptos and stablecoins, aiming to capture fees on brokerage, custodial, and payment services. But they face technologies that threaten their revenues—and, perhaps more important, access to data.
Solana, for instance, is a relative newcomer in crypto. Developed by a former software engineer at Qualcomm, the network claims to handle 65,000 transactions per second at a cost of $0.00025 per transaction, making it far faster and cheaper than bigger rivals like Ethereum. It’s taking off for stablecoins and NFTs—new digital playthings for art, video, and music. Solana’s blockchain network is also attracting high-frequency trading firms that see it as a platform for ultrafast data feeds and trading applications for cryptos, stocks, and other securities.
BTIG analyst Mark Palmer calls Solana the “biggest blockchain breakout of 2021,” noting that it’s powering a much-anticipated “metaverse” game called Star Atlas that uses NFTs for in-game assets. “The speed that Solana’s architecture facilitates is a literal game-changer in the NFT gaming world,” he wrote in a recent report. The network crashed this past week as usage surged, pulling its token down. But its fall may also reflect some profit-taking after a 9,166% rally this year, pushing the token from $1.50 to $139, giving it a $41 billion market value.
The Battle for a Digital Dollar
One of the biggest financial-policy battles that’s shaping up in Washington is over digitizing the dollar—turning it into a token that may be issued directly to consumers by the central bank. A much-anticipated report is expected soon from the Fed, outlining its perspective on a central-bank digital currency, or CBDC. Other countries, led by China, have already launched CBDCs in pilot programs, putting pressure on the Fed to develop a rival.
A digital dollar could take many forms. The basic idea is that the central bank would issue a new digital instrument for transactions and deposits, alongside physical cash or entries on a bank ledger (essentially deposits). Payments could settle in real time, proponents argue, and fees could fall sharply since the Fed doesn’t have a profit incentive. That could be a huge win for the 6% of the population that’s “unbanked” and pays steep fees for check-cashing. People sending money overseas could also pay much lower fees for “remittances,” cutting out middlemen like Western Union (WU) and MoneyGram.
International pressure is building as China and other countries take the lead in CBDCs. “The time has passed for central banks to get going,” said Benoît Coeuré, head of innovation at the Bank for International Settlements, in a speech in September. “We should roll up our sleeves and accelerate our work on the nitty-gritty of CBDC design.”
Fed officials seem split on the idea, however, let alone the specifics. Governor Lael Brainard, who may be in line for Chairman Jerome Powell’s job next year, has indicated support for a CBDC. But governor Christopher Waller is a skeptic, describing a digital dollar as a “solution in search of a problem.” As he sees it, commercial banks and the Fed are already developing real-time settlement; stablecoins may put pressure on banking fees, he argues, and most of the unbanked don’t even want accounts, according to surveys. “The government should compete with the private sector only to address market failures…and I don’t think that CBDCs are the case for making an exception,” he said in a speech last month.
Politicians, not Fed officials, are likely to have the final word. A bill backed by Sen. Sherrod Brown (D., Ohio) envisions the Fed offering “digital dollar wallets.” Commercial banks would maintain the wallets, entitling owners to a share of the bank’s reserves held at the Fed. For consumers without access to branches, he sees the Postal Service turning into a digital-dollar bank.
None of this appeals to bankers, of course, who worry that the Fed could siphon away their deposits and undermine lending. “The drawbacks appear to be more pronounced than the benefits, at least in the U.S.,” says Rob Morgan, a senior vice president with the American Bankers Association.
JPMorgan is calling for “minimally invasive CBDCs,” according to a recent report by Joshua Younger, head of U.S. fixed-income strategy. CBDC deposits that are limited to $2,500 would mitigate the potential for the Fed to “cannibalize” deposits, he argues. He also says that U.S. banks are already “partially nationalized,” with 15% of their assets held as Fed reserves and Treasury securities, levels that may increase if the Fed got into commercial banking.
Taming the Crypto Wild West
Regulators aren’t sitting idly as digital currencies plant roots. Federal and state agencies are working on rules to keep tabs on the industry. Gary Gensler, the new chairman of the Securities and Exchange Commission, laid out an expansive agenda to regulate crypto tokens, trading, and lending platforms in a Senate hearing this past week. “Large parts of the field of crypto are sitting astride of—not operating within—regulatory frameworks,” he said. Automated exchanges could be in for more scrutiny, along with lending platforms like BlockFi, where investors can earn high yields on crypto deposits.
Congress sees plenty of opportunity to raise revenue by taxing crypto. Democrats in the House have included “digital assets” in their $3.5 trillion reconciliation bill, including a provision that would subject cryptos to “wash sale” rules, which prevent investors from claiming a tax loss if they buy the same security within 30 days (before or after) of the sale. That measure alone could raise an estimated $16 billion over a decade.
Still, it won’t be easy for regulators to tax or police the entire industry. Crypto brokerages outside the U.S. handle much of the trading volume. Exchanges like Uniswap use protocols and “smart contracts” to process transactions, operating independently of any centralized entity like a bank or brokerage firm. “The underlying protocol is operating on its own, and users can still trade the assets, irrespective of the SEC,” says Anthony Georgiades, a crypto investor with Innovating Capital. “It’s sufficiently decentralized so that even if they try to delist the assets, they couldn’t.”
Tokenizing the WorldThe number of cryptos has jumped almost140% in the past two years.Source: CoinMarketCapNote: In Oct. 2020 CoinMarketCap removedinactive cryptocurrencies from the totals.
2020’21200030004000500060007000
Washington still can’t agree on whether to classify cryptos as a currency, security, or commodity. The Internal Revenue Service calls cryptos “property,” while the Commodity Futures Trading Commission has oversight over the crypto futures market, and a patchwork of agencies oversee the banks and exchanges.
A few states aren’t waiting around for more federal rules. BlockFi is in trouble with regulators in New Jersey and Texas, states where it could soon be illegal for residents to open an account with the company. BlockFi CEO Zac Prince says uniform federal banking rules are needed. “It’s gonna come down to federal regulators…creating a path for this type of activity to happen,” he said at a conference this past week.
Stablecoins pose perhaps the biggest regulatory conundrum. The tokens have a fixed value of $1, typically pegged to the dollar. More than $110 billion are in circulation, primarily in Tether and USD Coin. Investors use the coins as dollar substitutes to transact on exchanges; they’re also gaining traction for international payments and peer-to-peer, or P2P, transactions.
A game-changing “stablecoin” may be coming from Diem, a consortium of 26 companies, originally conceived by Facebook (FB). Diem is trying to launch a “regulatory friendly” version, says Christian Catalini, chief economist of the Diem Association. Its underlying network, backed by companies including Uber Technologies (UBER), Coinbase Global (COIN), and Spotify Technology (SPOT), will levy fees expected to be less than 0.10% per transaction, far below what banks and card networks now charge.
Diem could be a blockbuster. The token could quickly gain traction for things like Uber fares, Gucci bags on Farfetch (FTCH), or subscriptions on Spotify—cutting out payment middlemen with lower transaction fees. The network is also designed for P2P transactions, including remittances, and the underlying blockchain technology could move programmable digital assets in the future. The Diem coin itself, however, might be short-lived if a digital dollar launches. “We’ve committed to phasing out the token when there is a digital dollar,” Catalini says.
Diem has pledged to hold high-quality assets as reserves for its coins, backed at least one-to-one by cash or Treasuries. It might not have much choice: Regulators are starting to view stablecoins as a source of financial instability, and they may be close to issuing new rules on capital and reserve requirements for issuers.
The concern is that coin issuers aren’t backing their tokens with 100% cash reserves, using proxies like commercial paper, bank “repo” agreements, and other securities. That might be fine in normal market conditions, but it could be destabilizing in a crisis. Money-market funds have experienced runs that spilled over into other areas, prompting the Fed to stabilize the market, most recently in March 2020. “It’s a central problem that the Fed worries about from a stability point,” says Morgan Ricks, a law professor at Vanderbilt University and former Treasury official.
Tether, the largest stablecoin, has run into legal trouble over its reserves, agreeing last February to more disclosure in a deal with the New York attorney general. But its reserve composition remains opaque. Tether, backed by the Bitfinex exchange, holds only 3.9% of the coin’s reserves in cash and 2.9% in T-bills, according to its latest disclosure, with 65% in commercial paper. Tether says its tokens are “always 100% backed by our reserves.”
The Treasury Department recently convened a task force to develop a framework for regulating stablecoins. Some leading economists say it’s overdue. “Policy makers may view stablecoins as an up-and-coming financial innovation that does not pose any systemic risk,” wrote Yale University economist Gary Gorton in a recent paper co-authored with a Fed attorney, Jeffery Zhang. “That would be a mistake because this is precisely when policy makers need to act.”
The Dollar Won’t Go Away
The dollar won’t go down easily. It has deflected multiple threats since President Richard Nixon ended its peg to gold in 1971, turning it into a free-floating “fiat” currency. A bout of inflation in the 1970s, the rise of the Japanese yen in the 1980s, and the euro’s ascent in the early 2000s all failed to knock it down.
A common marketing case for Bitcoin, the largest crypto, is that it’s “digital gold” with a fixed supply of 21 million tokens; by design, it can’t be increased, unlike fiat currencies that may be depreciated by governments for political or economic gains. Central banks have embarked on a money-printing spree—the Fed’s balance sheet has ballooned to $8.3 trillion from $1 trillion in 2008. Crypto backers argue that the dollar’s purchasing power will diminish due to inflationary forces tolerated by central banks, while cryptos will hold more of their value.
Taking a CutBanks and payment companies reap trillions of dollars for moving money aroundGlobal Payments RevenueSource: McKinsey
trillionEstimateAsia-PacificNorth AmericaEMEALatin America20102014201820192020E0.00.51.01.52.0$2.5
Yet for all the carping about currency “debasement,” or an erosion of purchasing power in the dollar, the economics are far more complex. Inflation hasn’t proved deeply problematic in North America since the early 1980s. Before the pandemic, it was so low that policy makers worried about deflation. Rising labor costs and global supply-chain disruptions pose near-term inflationary threats, but their persistence isn’t assured. The forces that have kept a lid on inflation—including aging populations in developed economies and productivity gains from technology—aren’t going away.
History is also on the dollar’s side in the sense that governments have never allowed rival currencies to usurp their authority. Technologies make the job tougher but not insurmountable, and the greater the success of currencies like Bitcoin, the more governments may try to kill it.
What It Means for Investors
What’s the impact for investors in crypto-infrastructure stocks and currencies? For now, not much. Crypto stocks and prices for digital currencies have climbed for months, despite tighter regulatory scrutiny. Capital is flooding into the industry as use-cases for cryptos, stablecoins, and decentralized-finance, or DeFi, networks expand. New rules will take months or years to be written and implemented by regulatory agencies. A digital dollar could become a partisan battle that gets bogged down in Congress.
Clarity from regulators may be welcomed, since they could open the floodgates to investment products and services, expanding the market with advisors and institutional fund managers that oversee trillions of dollars in global assets. Banks also want a level playing field to cut down on “regulatory arbitrage” that may now give pure-play crypto companies an advantage.
The crypto industry, for its part, is also becoming a lobbying force. The industry exerted its influence in August as lawmakers added tax-reporting requirements on crypto companies to the Senate infrastructure bill. The lobbying blitz failed, but the battle isn’t over—it will probably shift to regulatory agencies.
As for the dollar, the very currencies that are nipping at its heels could help preserve it. Cryptos and other tokens haven’t been tested in a crisis when investors dump anything with a whiff of risk. The diciest currencies fall the hardest during panics, and cryptos could follow precedent. “If there is a crisis, all these parallel currencies will take flight into the sovereign,” predicts Hoenig. Digital or not, the dollar will live to fight another day.
Write to Daren Fonda at daren.fonda@barrons.com
[Explains why gold, silver, and copper haven’t risen as they should. With stablecoins not being supported by trimetalicism or necessary fungible commodities, but by debt and tradable assets, the implication is a currency bubble that may lead to a bust, as all bubbles do, and market downturn, as these assets are sold to redeem stablecoins, but the attack on liberty and freedom, as shown by the Harris/Biden cabal’s pushing the IRS to have complete access to all bank accounts over $600 w/o the restrictions of the Vth Amendment or Probable Cause will lead to a Chinese style of global tyranny. Consider, we will all live in the world of Terese Xu of Beijing (WSJ Weekend 9/18-19-2021 p A8). And, of those who died incarcerated in their apartments in Wuhan to prevent the spread of the PLA-Fauci COVID bio-weapon.
Justplainbill]