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Posts Tagged ‘Reality’
Why Italian Bonds Have A Long Way Down To Go

As we hinted last night, and as the market is starting to realize, one of the bigger downstream casualties of the first rumblings that Abenomics is starting to crack, have been peripheral bond yields, with Spanish, Italian and Portuguese yields all wider by 10 bps and rising: after all who will buy this worthless garbage (in which Spain’s pension fund has gone all in) if the Japan hot money flows stop or even reverse?

However, that is only half the story. The other half is that, with its usual 6-8 week delay, the market is finally grasping the biggest danger in Europe – one which we have been pounding the table on week after week after week (most recently here): the soaring non-performing loans held by European banks. In fact, it took the FT to confirm (Read more…) we have been warning about all along. And just so the market has a sense of how much downside may be imminent if indeed reality reasserts itself and frontrunning the Japanese carry trade both occur at the same time, here is a rather unpleasant chart courtesy of Diapason, of what expects all those who bought up Italian bonds in the recent dash-for-trash, oblivious of the collapsing fundamentals, and driven purely by FOMO. The downside could be big to quite big.

    



 
Is America’s Economy Being Sovietized?

Submitted by Brandon Smith of Alt-Market blog,

The foundation of the Soviet model of trade and investment was centralization under the guise of “universal public ownership”. The entire goal of communism in general was not to give more social and political power to the people, but to extinguish alternative options and focus power into the hands of a select few. The process used to reach this end result can vary, but the goal always remains the same. In most cases, such centralization begins with economic hegemony, and it is in our fiscal structure that we have the means to see the future. (Read more…) Sovietization in our financial life will inevitably lead to sovietization in our political life.

Does the U.S. economy’s path resemble the Soviet template exactly? No. And I’m sure the very suggestion will make the average unaware free market evangelical froth at the mouth. However, as I plan to show, the parallels in our fundamentals are disturbing; the reality is that true free markets in America died a long time ago.

The Tyranny Of Planned Economy

The characteristics of a free market society defy the use of centralized planning. Adam Smith’s original concept of free market trade stood as an antithesis to what was then referred to as “mercantilism,” a select few “joint stock companies” (corporations) monopolizing production while using government ties to destroy any new competition. Unfortunately, there are to this day economists and politicians who believe that corporate centralization is a “natural” function of a free market. In reality, corporate monopolies are an unnatural creation of collusion between governments and big-money interests designed to suffocate any entrepreneurship outside of their sphere of influence. Over time, as we now see in the United States today, government power and corporate power begin to hybridize, until one can barely be distinguished from the other.

The bottom line is that you cannot have planned structures, monopolized production or controlled capital flow within an economy and still claim it to be a “free market. There are no exceptions to this rule.

The Soviet system was the ultimate in centralization. Every aspect of financial life was dictated by the communist government, from industrial input and output to investment to food production and rationing to wages and retail prices. Some people might argue that this structure is a far cry from what we now have in the United States, but let’s look at the fundamentals.

Controlled Money Creation

One of the primary tenets of The Communist Manifesto was the creation of a central bank meant to keep tight controls over currency issuance. The existence of a central bank immediately disrupts any chance of a true free market. Central banking without competition allows an oligarchy, whether corporate or political or a meshing of the two, to manipulate interest rates as well as adjust prices through inflation. Lending standards (which the central bank determines arbitrarily) built on fractional reserve banking opens the door to murky debt instruments and toxic financial products that are further used to either fabricate a “high” standard of living (as we saw in the U.S. in the 90s and early 2000s) or execute a bubble implosion causing a lower standard of living (as the U.S. is experiencing today).

Since the establishment of the Federal Reserve through subversive collusion between banking interests and corrupt politicians in 1913, America has not had a free market system. From that point forward, every boom and bust, every interest rate disaster, every inflationary increase in prices has been scientifically engineered.

Dominance Of Industry

Soviet controls on industrial output are legendary. Every part of the resource allocation process became subject to bureaucracy, and this led to stunted manufacturing growth as well as a culture of misrepresented economic data. In the United States, the establishment has taken a slightly different approach but with the same end result.

Heavy taxation on business ventures within the U.S. against entrepreneurs not lucky enough to run in elitists circles has erased incentives for manufacturing experiments within our borders. In the meantime, members of the corporate glee club receive government subsidization while they simultaneously outsource industrial projects to Third World nations. Controlled industry within communist Russia was meant to force the population to depend upon the government for every means of survival. In the United States, dependency on government has been replaced by interdependency on the globalized model in general. Necessities are now compartmentalized, and only select international businesses with cooperation from government have the ability to bring all the pieces together to keep our domestic economy running smoothly. Our society has been so distanced from self-sufficiency that many people now consider the globalist dynamic indispensable.

The next step in this degradation of free market industry is the introduction of “public works projects” by the federal government, which gives the illusion that job creation through centralization is possible.  This is the same strategy used in the Soviet Union and to this day, socialists still argue that the communist design for industrial expansion was “effective”.  In truth, the soviet public works plan with all its trains and transits and bridges and buildings was an absolute failure, as the collapse of the country made clear.  Tax funded infrastructure is no replacement for free market invention, and at bottom, no public works enterprise can be undertaken without the government first stealing capital from one area in order to fund another.  Governments can never and will never create wealth or jobs.  They can only present the semblance of economic progress while siphoning wealth away from private citizens.

Bureaucracy And Food Production

U.S. Environmental Protection Agency and U.S. Food and Drug Administration regulations, based on dubious junk science and often instituted on high without congressional oversight, further erode business possibilities, especially for young companies as well as private agriculture, while giving free reign to elitist entities like Monsanto, an organization the government actually PROTECTS through specialized legislation making it nearly immune to civil litigation.

While farms in the United States are not exactly “controlled” by the Federal government in the Soviet sense, many of them are subsidized through welfare on the condition that they grow only particular kinds of crops, raise particular animals or grow nothing at all. This subsidization is an indirect form of price control, creating engineered scarcity or abundance. At the same time, agricultural empires like Monsanto make private farm ownership increasingly difficult by using their government protection to harass and squeeze out independent food producers.

This destabilization of private resource management by common citizens has culminated in the passage of President Barack Obama’s executive order National Defense Resource Preparedness, which allows under a “national emergency” (which the President can declare for any reason) the confiscation of any and all private resources, including farms and businesses, to be redistributed by the government to ensure security conditions. This is the Stalinist model, pure and simple.

Centralized Control Of Investment

We now know that since at least 2008, the U.S. stock market, often presented by the mainstream as a paragon of free market prowess, has actually been propped up and inflated by Federal Reserve fiat. Both former Fed Chairman Alan Greenspan and current branch head Richard Fisher have openly admitted in separate news interviews that the central bank spends considerable energy in “artificially sustaining” equity markets. This has been done, I suspect, with full knowledge of the U.S. Treasury and the Obama Administration.

The Soviet model for investment was to remove all uncertainties from their domestic markets, often in the name of preventing manipulation by “speculators.” The speculator rationale was generally a distraction away from the attempt to dictate the natural forces of supply and demand. The idea was that if the government could dismiss legitimate demand or lack of demand or hide excess supply or lack of supply, the perception of a balanced economy could be conjured for the population. This led to strict redirection of capital to areas where manipulation was needed to artificially pump up (or deflate) a particular part of the economy. The government became the sole investor of the Soviet system and, thus, the sole determinant of the success or failure of any particular market.

This is EXACTLY what is going on in America today, in what mainstream economists now call “the new normal”. Federal Reserve fiat is being printed and dumped into every financial mechanism that supposedly maintains our country’s fiscal health, including stocks, Treasuries and municipals, while trade volume remains low and private investment disappears. The Federal government now owes its very existence to the continued support of central bank dollars, and the Dow Jones does as well. If this is not the Soviet ideal, then I don’t know what is.

Labor Oppression, Dismal Living Standards And Government Dependency

Poverty levels within the United States are at record highs. Nearly 50 million Americans are now dependent on government-subsidized food stamps for their survival. Nearly 100 million Americans receive welfare (or Social Security) in one form or another from the establishment. That is almost one-third of our entire population that relies on the system for at least a part of their sustainment. If Obamacare is fully realized, millions more Americans will also be conditioned to become dependent on government-designated healthcare providers. The point is not to pass judgment on those people who get money or services from the government, only to make clear our progression away from freedom and into centralized servitude.

For a Soviet structure to thrive, poverty among common citizens has to be institutionalized. Dependency requires a constant state of desperation. In America, this has been accomplished through a combination of inflated prices and reduced wages in conjunction with the destruction of labor options.

At the height of the communist machine in Russia, employment was ample; but the kind of employment one could apply for was dependent on bureaucratic red tape and availability based on a worker’s record. Only the academic “elite” within the government-run cesspools of Soviet universities and military schools had their choice of employment; even then, they were often pressured into particular specialized fields, depending on the kind of labor the state needed done at that particular time.

In the United States anyone can certainly aspire to do whatever job he hopes to do. But again, options have been removed economically; and the same academic elitism pervasive in Soviet Union labor markets exists in America today. In a recent installment of his weekly radio show, New York Mayor Michael Bloomberg said it was better for “so-so” high school students to pursue a career in plumbing rather than go to college.

Though I rarely agree with Bloomberg on anything, my initial reaction was surprise at his willingness to steer American youth away from university indoctrination centers. However, upon further examination, it became clear that Bloomberg was not trying to save the next generation time and money. Instead, he is promoting a shift in the labor dynamic of the U.S. economy toward a Soviet-style foundation. Bloomberg knows well that the U.S. labor market will never return to its former glory, partly because he is a supporter of the globalist policies that ruined our economy in the first place. Instead of suggesting ways to reverse the trend of progressive poverty and the lack of high-end jobs that engender ingenuity and invention, elitists like Bloomberg are saying “forget your dreams and get used to being a drone.”

In a 70% service and retail economy, where job availability is increasingly degraded and independent business is discouraged, Americans will have two choices:  Excel in the world of federally funded and propagandized education and sell your soul just for a chance at obtaining a professional career in a field of influence, or, settle for the leftovers.  Modern socialists often sing the praises of the soviet educational model for raising the literacy rates of once agricultural and isolated people to 98%, but what they fail to mention is that this literacy was only encouraged in order to create a more efficient servant class that was easier to propagandize.  The U.S. is moving into a similar paradigm.  For some people, being a plumber is a fine thing; but it should not be the only thing. In a true free market, a smart man can make his own way, even if he does not conform to the ideologies of the educational racket. In a Sovietized market, a smart man is prohibited from accomplishing anything unless he conforms to the ideologies of the educational racket.

Some people may respond that the centralization conspiracy within the American economy is an obvious thing today, and that there is little need to expose it any further.  I would point out that centralization is not the only issue here; the guidebook by which that centralization is being implemented is also important.  This has all been done before on the other side of the world only decades ago, and the end result was a horrifying cascade of social enslavement and mechanically inclined death.

In the end, the Soviet economy was so utterly fraudulent that the final breakdown of the system came as a complete surprise to many in political and economic fields of the era.  This is what happens when governments control all source data for financial statistics; transparency dies and collapse creeps in. Centralization is an absolute affront to the natural laws of supply and demand and an oppressive hindrance to the innovation that humanity thrives on. Such systems require constant theft from the populace in the form of reduced employment, reduced wages, reduced resources, increased taxes, increased price controls and a highly ignorant citizenry in order to function even for a short time. Sadly, the United States is well on its way in all of these areas, emulating a poisonous fiscal system and lending itself to a global economic tyranny in which all of us work much harder, for much less, and all for a government that seeks to use our very labor against us.

    



 
Full Text And Wordcloud Of Obama’s “Don’t Drone Me, Bro” Speech

One can read “The Lethal Presidency of Barack Obama” to get a true sense of Obama’s “the best defense is a relentless drone everyone offense, ignore collateral damage and take out a few Americans in the process” policy. Or one can stare at rising stawks and enjoy their Obamaphones. Obe can’t have both.

Word cloud:

(Read more…)

And full speech (via WaPo):

President Obama’s May 23 speech on national security

President Obama delivered remarks on national security on May 23, 2013, at National Defense University in Washington, D.C. Here are his full remarks as prepared for delivery.

It’s an honor to return to the National Defense University. Here, at Fort McNair, Americans have served in uniform since 1791– standing guard in the early days of the Republic, and contemplating the future of warfare here in the 21st century.

For over two centuries, the United States has been bound together by founding documents that defined who we are as Americans, and served as our compass through every type of change. Matters of war and peace are no different. Americans are deeply ambivalent about war, but having fought for our independence, we know that a price must be paid for freedom. From the Civil War, to our struggle against fascism, and through the long, twilight struggle of the Cold War, battlefields have changed, and technology has evolved. But our commitment to Constitutional principles has weathered every war, and every war has come to an end.

With the collapse of the Berlin Wall, a new dawn of democracy took hold abroad, and a decade of peace and prosperity arrived at home. For a moment, it seemed the 21st century would be a tranquil time. Then, on September 11th 2001, we were shaken out of complacency. Thousands were taken from us, as clouds of fire, metal and ash descended upon a sun-filled morning. This was a different kind of war. No armies came to our shores, and our military was not the principal target. Instead, a group of terrorists came to kill as many civilians as they could.

And so our nation went to war. We have now been at war for well over a decade. I won’t review the full history. What’s clear is that we quickly drove al Qaeda out of Afghanistan, but then shifted our focus and began a new war in Iraq. This carried grave consequences for our fight against al Qaeda, our standing in the world, and – to this day – our interests in a vital region.

Meanwhile, we strengthened our defenses – hardening targets, tightening transportation security, and giving law enforcement new tools to prevent terror. Most of these changes were sound. Some caused inconvenience. But some, like expanded surveillance, raised difficult questions about the balance we strike between our interests in security and our values of privacy. And in some cases, I believe we compromised our basic values – by using torture to interrogate our enemies, and detaining individuals in a way that ran counter to the rule of law.

After I took office, we stepped up the war against al Qaeda, but also sought to change its course. We relentlessly targeted al Qaeda’s leadership. We ended the war in Iraq, and brought nearly 150,000 troops home. We pursued a new strategy in Afghanistan, and increased our training of Afghan forces. We unequivocally banned torture, affirmed our commitment to civilian courts, worked to align our policies with the rule of law, and expanded our consultations with Congress.

Today, Osama bin Laden is dead, and so are most of his top lieutenants. There have been no large-scale attacks on the United States, and our homeland is more secure. Fewer of our troops are in harm’s way, and over the next 19 months they will continue to come home. Our alliances are strong, and so is our standing in the world. In sum, we are safer because of our efforts.

Now make no mistake: our nation is still threatened by terrorists. From Benghazi to Boston, we have been tragically reminded of that truth. We must recognize, however, that the threat has shifted and evolved from the one that came to our shores on 9/11. With a decade of experience to draw from, now is the time to ask ourselves hard questions – about the nature of today’s threats, and how we should confront them.

These questions matter to every American. For over the last decade, our nation has spent well over a trillion dollars on war, exploding our deficits and constraining our ability to nation build here at home. Our service-members and their families have sacrificed far more on our behalf. Nearly 7,000 Americans have made the ultimate sacrifice. Many more have left a part of themselves on the battlefield, or brought the shadows of battle back home. From our use of drones to the detention of terrorist suspects, the decisions we are making will define the type of nation – and world – that we leave to our children.

So America is at a crossroads. We must define the nature and scope of this struggle, or else it will define us, mindful of James Madison’s warning that “No nation could preserve its freedom in the midst of continual warfare.” Neither I, nor any President, can promise the total defeat of terror. We will never erase the evil that lies in the hearts of some human beings, nor stamp out every danger to our open society. What we can do – what we must do – is dismantle networks that pose a direct danger, and make it less likely for new groups to gain a foothold, all while maintaining the freedoms and ideals that we defend. To define that strategy, we must make decisions based not on fear, but hard-earned wisdom. And that begins with understanding the threat we face.

Today, the core of al Qaeda in Afghanistan and Pakistan is on a path to defeat. Their remaining operatives spend more time thinking about their own safety than plotting against us. They did not direct the attacks in Benghazi or Boston. They have not carried out a successful attack on our homeland since 9/11. Instead, what we’ve seen is the emergence of various al Qaeda affiliates. From Yemen to Iraq, from Somalia to North Africa, the threat today is more diffuse, with Al Qaeda’s affiliate in the Arabian Peninsula – AQAP –the most active in plotting against our homeland. While none of AQAP’s efforts approach the scale of 9/11 they have continued to plot acts of terror, like the attempt to blow up an airplane on Christmas Day in 2009.

Unrest in the Arab World has also allowed extremists to gain a foothold in countries like Libya and Syria. Here, too, there are differences from 9/11. In some cases, we confront state-sponsored networks like Hizbollah that engage in acts of terror to achieve political goals. Others are simply collections of local militias or extremists interested in seizing territory. While we are vigilant for signs that these groups may pose a transnational threat, most are focused on operating in the countries and regions where they are based. That means we will face more localized threats like those we saw in Benghazi, or at the BP oil facility in Algeria, in which local operatives – in loose affiliation with regional networks – launch periodic attacks against Western diplomats, companies, and other soft targets, or resort to kidnapping and other criminal enterprises to fund their operations.

Finally, we face a real threat from radicalized individuals here in the United States. Whether it’s a shooter at a Sikh Temple in Wisconsin; a plane flying into a building in Texas; or the extremists who killed 168 people at the Federal Building in Oklahoma City – America has confronted many forms of violent extremism in our time. Deranged or alienated individuals – often U.S. citizens or legal residents – can do enormous damage, particularly when inspired by larger notions of violent jihad. That pull towards extremism appears to have led to the shooting at Fort Hood, and the bombing of the Boston Marathon.

Lethal yet less capable al Qaeda affiliates. Threats to diplomatic facilities and businesses abroad. Homegrown extremists. This is the future of terrorism. We must take these threats seriously, and do all that we can to confront them. But as we shape our response, we have to recognize that the scale of this threat closely resembles the types of attacks we faced before 9/11. In the 1980s, we lost Americans to terrorism at our Embassy in Beirut; at our Marine Barracks in Lebanon; on a cruise ship at sea; at a disco in Berlin; and on Pan Am Flight 103 over Lockerbie. In the 1990s, we lost Americans to terrorism at the World Trade Center; at our military facilities in Saudi Arabia; and at our Embassy in Kenya. These attacks were all deadly, and we learned that left unchecked, these threats can grow. But if dealt with smartly and proportionally, these threats need not rise to the level that we saw on the eve of 9/11.

Moreover, we must recognize that these threats don’t arise in a vacuum. Most, though not all, of the terrorism we face is fueled by a common ideology – a belief by some extremists that Islam is in conflict with the United States and the West, and that violence against Western targets, including civilians, is justified in pursuit of a larger cause. Of course, this ideology is based on a lie, for the United States is not at war with Islam; and this ideology is rejected by the vast majority of Muslims, who are the most frequent victims of terrorist acts.

Nevertheless, this ideology persists, and in an age in which ideas and images can travel the globe in an instant, our response to terrorism cannot depend on military or law enforcement alone. We need all elements of national power to win a battle of wills and ideas. So let me discuss the components of such a comprehensive counter-terrorism strategy.

First, we must finish the work of defeating al Qaeda and its associated forces.

In Afghanistan, we will complete our transition to Afghan responsibility for security. Our troops will come home. Our combat mission will come to an end. And we will work with the Afghan government to train security forces, and sustain a counter-terrorism force which ensures that al Qaeda can never again establish a safe-haven to launch attacks against us or our allies.

Beyond Afghanistan, we must define our effort not as a boundless ‘global war on terror’ – but rather as a series of persistent, targeted efforts to dismantle specific networks of violent extremists that threaten America. In many cases, this will involve partnerships with other countries. Thousands of Pakistani soldiers have lost their lives fighting extremists. In Yemen, we are supporting security forces that have reclaimed territory from AQAP. In Somalia, we helped a coalition of African nations push al Shabaab out of its strongholds. In Mali, we are providing military aid to a French-led intervention to push back al Qaeda in the Maghreb, and help the people of Mali reclaim their future.

Much of our best counter-terrorism cooperation results in the gathering and sharing of intelligence; the arrest and prosecution of terrorists. That’s how a Somali terrorist apprehended off the coast of Yemen is now in prison in New York. That’s how we worked with European allies to disrupt plots from Denmark to Germany to the United Kingdom. That’s how intelligence collected with Saudi Arabia helped us stop a cargo plane from being blown up over the Atlantic.

But despite our strong preference for the detention and prosecution of terrorists, sometimes this approach is foreclosed. Al Qaeda and its affiliates try to gain a foothold in some of the most distant and unforgiving places on Earth. They take refuge in remote tribal regions. They hide in caves and walled compounds. They train in empty deserts and rugged mountains.

In some of these places – such as parts of Somalia and Yemen – the state has only the most tenuous reach into the territory. In other cases, the state lacks the capacity or will to take action. It is also not possible for America to simply deploy a team of Special Forces to capture every terrorist. And even when such an approach may be possible, there are places where it would pose profound risks to our troops and local civilians– where a terrorist compound cannot be breached without triggering a firefight with surrounding tribal communities that pose no threat to us, or when putting U.S. boots on the ground may trigger a major international crisis.

To put it another way, our operation in Pakistan against Osama bin Laden cannot be the norm. The risks in that case were immense; the likelihood of capture, although our preference, was remote given the certainty of resistance; the fact that we did not find ourselves confronted with civilian casualties, or embroiled in an extended firefight, was a testament to the meticulous planning and professionalism of our Special Forces – but also depended on some luck. And even then, the cost to our relationship with Pakistan – and the backlash among the Pakistani public over encroachment on their territory – was so severe that we are just now beginning to rebuild this important partnership.

It is in this context that the United States has taken lethal, targeted action against al Qaeda and its associated forces, including with remotely piloted aircraft commonly referred to as drones. As was true in previous armed conflicts, this new technology raises profound questions – about who is targeted, and why; about civilian casualties, and the risk of creating new enemies; about the legality of such strikes under U.S. and international law; about accountability and morality.

Let me address these questions. To begin with, our actions are effective. Don’t take my word for it. In the intelligence gathered at bin Laden’s compound, we found that he wrote, “we could lose the reserves to the enemy’s air strikes. We cannot fight air strikes with explosives.” Other communications from al Qaeda operatives confirm this as well. Dozens of highly skilled al Qaeda commanders, trainers, bomb makers, and operatives have been taken off the battlefield. Plots have been disrupted that would have targeted international aviation, U.S. transit systems, European cities and our troops in Afghanistan. Simply put, these strikes have saved lives.

Moreover, America’s actions are legal. We were attacked on 9/11. Within a week, Congress overwhelmingly authorized the use of force. Under domestic law, and international law, the United States is at war with al Qaeda, the Taliban, and their associated forces. We are at war with an organization that right now would kill as many Americans as they could if we did not stop them first. So this is a just war – a war waged proportionally, in last resort, and in self-defense.

And yet as our fight enters a new phase, America’s legitimate claim of self-defense cannot be the end of the discussion. To say a military tactic is legal, or even effective, is not to say it is wise or moral in every instance. For the same human progress that gives us the technology to strike half a world away also demands the discipline to constrain that power – or risk abusing it. That’s why, over the last four years, my Administration has worked vigorously to establish a framework that governs our use of force against terrorists – insisting upon clear guidelines, oversight and accountability that is now codified in Presidential Policy Guidance that I signed yesterday.

In the Afghan war theater, we must support our troops until the transition is complete at the end of 2014. That means we will continue to take strikes against high value al Qaeda targets, but also against forces that are massing to support attacks on coalition forces. However, by the end of 2014, we will no longer have the same need for force protection, and the progress we have made against core al Qaeda will reduce the need for unmanned strikes.

Beyond the Afghan theater, we only target al Qaeda and its associated forces. Even then, the use of drones is heavily constrained. America does not take strikes when we have the ability to capture individual terrorists – our preference is always to detain, interrogate, and prosecute them. America cannot take strikes wherever we choose – our actions are bound by consultations with partners, and respect for state sovereignty. America does not take strikes to punish individuals – we act against terrorists who pose a continuing and imminent threat to the American people, and when there are no other governments capable of effectively addressing the threat. And before any strike is taken, there must be near-certainty that no civilians will be killed or injured – the highest standard we can set.

This last point is critical, because much of the criticism about drone strikes – at home and abroad – understandably centers on reports of civilian casualties. There is a wide gap between U.S. assessments of such casualties, and non-governmental reports. Nevertheless, it is a hard fact that U.S. strikes have resulted in civilian casualties, a risk that exists in all wars. For the families of those civilians, no words or legal construct can justify their loss. For me, and those in my chain of command, these deaths will haunt us as long as we live, just as we are haunted by the civilian casualties that have occurred through conventional fighting in Afghanistan and Iraq.

But as Commander-in-Chief, I must weigh these heartbreaking tragedies against the alternatives. To do nothing in the face of terrorist networks would invite far more civilian casualties – not just in our cities at home and facilities abroad, but also in the very places –like Sana’a and Kabul and Mogadishu – where terrorists seek a foothold. Let us remember that the terrorists we are after target civilians, and the death toll from their acts of terrorism against Muslims dwarfs any estimate of civilian casualties from drone strikes.

Where foreign governments cannot or will not effectively stop terrorism in their territory, the primary alternative to targeted, lethal action is the use of conventional military options. As I’ve said, even small Special Operations carry enormous risks. Conventional airpower or missiles are far less precise than drones, and likely to cause more civilian casualties and local outrage. And invasions of these territories lead us to be viewed as occupying armies; unleash a torrent of unintended consequences; are difficult to contain; and ultimately empower those who thrive on violent conflict. So it is false to assert that putting boots on the ground is less likely to result in civilian deaths, or to create enemies in the Muslim world. The result would be more U.S. deaths, more Blackhawks down, more confrontations with local populations, and an inevitable mission creep in support of such raids that could easily escalate into new wars.

So yes, the conflict with al Qaeda, like all armed conflict, invites tragedy. But by narrowly targeting our action against those who want to kill us, and not the people they hide among, we are choosing the course of action least likely to result in the loss of innocent life. Indeed, our efforts must also be measured against the history of putting American troops in distant lands among hostile populations. In Vietnam, hundreds of thousands of civilians died in a war where the boundaries of battle were blurred. In Iraq and Afghanistan, despite the courage and discipline of our troops, thousands of civilians have been killed. So neither conventional military action, nor waiting for attacks to occur, offers moral safe-harbor. Neither does a sole reliance on law enforcement in territories that have no functioning police or security services – and indeed, have no functioning law.

This is not to say that the risks are not real. Any U.S. military action in foreign lands risks creating more enemies, and impacts public opinion overseas. Our laws constrain the power of the President, even during wartime, and I have taken an oath to defend the Constitution of the United States. The very precision of drones strikes, and the necessary secrecy involved in such actions can end up shielding our government from the public scrutiny that a troop deployment invites. It can also lead a President and his team to view drone strikes as a cure-all for terrorism.

For this reason, I’ve insisted on strong oversight of all lethal action. After I took office, my Administration began briefing all strikes outside of Iraq and Afghanistan to the appropriate committees of Congress. Let me repeat that – not only did Congress authorize the use of force, it is briefed on every strike that America takes. That includes the one instance when we targeted an American citizen: Anwar Awlaki, the chief of external operations for AQAP.

This week, I authorized the declassification of this action, and the deaths of three other Americans in drone strikes, to facilitate transparency and debate on this issue, and to dismiss some of the more outlandish claims. For the record, I do not believe it would be constitutional for the government to target and kill any U.S. citizen – with a drone, or a shotgun – without due process. Nor should any President deploy armed drones over U.S. soil.

But when a U.S. citizen goes abroad to wage war against America – and is actively plotting to kill U.S. citizens; and when neither the United States, nor our partners are in a position to capture him before he carries out a plot – his citizenship should no more serve as a shield than a sniper shooting down on an innocent crowd should be protected from a swat team

That’s who Anwar Awlaki was – he was continuously trying to kill people. He helped oversee the 2010 plot to detonate explosive devices on two U.S. bound cargo planes. He was involved in planning to blow up an airliner in 2009. When Farouk Abdulmutallab – the Christmas Day bomber – went to Yemen in 2009, Awlaki hosted him, approved his suicide operation, and helped him tape a martyrdom video to be shown after the attack. His last instructions were to blow up the airplane when it was over American soil. I would have detained and prosecuted Awlaki if we captured him before he carried out a plot. But we couldn’t. And as President, I would have been derelict in my duty had I not authorized the strike that took out Awlaki.

Of course, the targeting of any Americans raises constitutional issues that are not present in other strikes – which is why my Administration submitted information about Awlaki to the Department of Justice months before Awlaki was killed, and briefed the Congress before this strike as well. But the high threshold that we have set for taking lethal action applies to all potential terrorist targets, regardless of whether or not they are American citizens. This threshold respects the inherent dignity of every human life. Alongside the decision to put our men and women in uniform in harm’s way, the decision to use force against individuals or groups – even against a sworn enemy of the United States – is the hardest thing I do as President. But these decisions must be made, given my responsibility to protect the American people.

Going forward, I have asked my Administration to review proposals to extend oversight of lethal actions outside of warzones that go beyond our reporting to Congress. Each option has virtues in theory, but poses difficulties in practice. For example, the establishment of a special court to evaluate and authorize lethal action has the benefit of bringing a third branch of government into the process, but raises serious constitutional issues about presidential and judicial authority. Another idea that’s been suggested – the establishment of an independent oversight board in the executive branch – avoids those problems, but may introduce a layer of bureaucracy into national-security decision-making, without inspiring additional public confidence in the process. Despite these challenges, I look forward to actively engaging Congress to explore these – and other – options for increased oversight.

I believe, however, that the use of force must be seen as part of a larger discussion about a comprehensive counter-terrorism strategy. Because for all the focus on the use of force, force alone cannot make us safe. We cannot use force everywhere that a radical ideology takes root; and in the absence of a strategy that reduces the well-spring of extremism, a perpetual war – through drones or Special Forces or troop deployments – will prove self-defeating, and alter our country in troubling ways.

So the next element of our strategy involves addressing the underlying grievances and conflicts that feed extremism, from North Africa to South Asia. As we’ve learned this past decade, this is a vast and complex undertaking. We must be humble in our expectation that we can quickly resolve deep rooted problems like poverty and sectarian hatred. Moreover, no two countries are alike, and some will undergo chaotic change before things get better. But our security and values demand that we make the effort.

This means patiently supporting transitions to democracy in places like Egypt, Tunisia and Libya – because the peaceful realization of individual aspirations will serve as a rebuke to violent extremists. We must strengthen the opposition in Syria, while isolating extremist elements – because the end of a tyrant must not give way to the tyranny of terrorism. We are working to promote peace between Israelis and Palestinians – because it is right, and because such a peace could help reshape attitudes in the region. And we must help countries modernize economies, upgrade education, and encourage entrepreneurship – because American leadership has always been elevated by our ability to connect with peoples’ hopes, and not simply their fears.

Success on these fronts requires sustained engagement, but it will also require resources. I know that foreign aid is one of the least popular expenditures – even though it amounts to less than one percent of the federal budget. But foreign assistance cannot be viewed as charity. It is fundamental to our national security, and any sensible long-term strategy to battle extremism. Moreover, foreign assistance is a tiny fraction of what we spend fighting wars that our assistance might ultimately prevent. For what we spent in a month in Iraq at the height of the war, we could be training security forces in Libya, maintaining peace agreements between Israel and its neighbors, feeding the hungry in Yemen, building schools in Pakistan, and creating reservoirs of goodwill that marginalize extremists.

America cannot carry out this work if we do not have diplomats serving in dangerous places. Over the past decade, we have strengthened security at our Embassies, and I am implementing every recommendation of the Accountability Review Board which found unacceptable failures in Benghazi. I have called on Congress to fully fund these efforts to bolster security, harden facilities, improve intelligence, and facilitate a quicker response time from our military if a crisis emerges.

But even after we take these steps, some irreducible risks to our diplomats will remain. This is the price of being the world’s most powerful nation, particularly as a wave of change washes over the Arab World. And in balancing the trade-offs between security and active diplomacy, I firmly believe that any retreat from challenging regions will only increase the dangers we face in the long run.

Targeted action against terrorists. Effective partnerships. Diplomatic engagement and assistance. Through such a comprehensive strategy we can significantly reduce the chances of large scale attacks on the homeland and mitigate threats to Americans overseas. As we guard against dangers from abroad, however, we cannot neglect the daunting challenge of terrorism from within our borders.

As I said earlier, this threat is not new. But technology and the Internet increase its frequency and lethality. Today, a person can consume hateful propaganda, commit themselves to a violent agenda, and learn how to kill without leaving their home. To address this threat, two years ago my Administration did a comprehensive review, and engaged with law enforcement. The best way to prevent violent extremism is to work with the Muslim American community – which has consistently rejected terrorism – to identify signs of radicalization, and partner with law enforcement when an individual is drifting towards violence. And these partnerships can only work when we recognize that Muslims are a fundamental part of the American family. Indeed, the success of American Muslims, and our determination to guard against any encroachments on their civil liberties, is the ultimate rebuke to those who say we are at war with Islam.

Indeed, thwarting homegrown plots presents particular challenges in part because of our proud commitment to civil liberties for all who call America home. That’s why, in the years to come, we will have to keep working hard to strike the appropriate balance between our need for security and preserving those freedoms that make us who we are. That means reviewing the authorities of law enforcement, so we can intercept new types of communication, and build in privacy protections to prevent abuse. That means that – even after Boston – we do not deport someone or throw someone in prison in the absence of evidence. That means putting careful constraints on the tools the government uses to protect sensitive information, such as the State Secrets doctrine. And that means finally having a strong Privacy and Civil Liberties Board to review those issues where our counter-terrorism efforts and our values may come into tension.

The Justice Department’s investigation of national security leaks offers a recent example of the challenges involved in striking the right balance between our security and our open society. As Commander-in Chief, I believe we must keep information secret that protects our operations and our people in the field. To do so, we must enforce consequences for those who break the law and breach their commitment to protect classified information. But a free press is also essential for our democracy. I am troubled by the possibility that leak investigations may chill the investigative journalism that holds government accountable.

Journalists should not be at legal risk for doing their jobs. Our focus must be on those who break the law. That is why I have called on Congress to pass a media shield law to guard against government over-reach. I have raised these issues with the Attorney General, who shares my concern. So he has agreed to review existing Department of Justice guidelines governing investigations that involve reporters, and will convene a group of media organizations to hear their concerns as part of that review. And I have directed the Attorney General to report back to me by July 12th.

All these issues remind us that the choices we make about war can impact – in sometimes unintended ways – the openness and freedom on which our way of life depends. And that is why I intend to engage Congress about the existing Authorization to Use Military Force, or AUMF, to determine how we can continue to fight terrorists without keeping America on a perpetual war-time footing.

The AUMF is now nearly twelve years old. The Afghan War is coming to an end. Core al Qaeda is a shell of its former self. Groups like AQAP must be dealt with, but in the years to come, not every collection of thugs that labels themselves al Qaeda will pose a credible threat to the United States. Unless we discipline our thinking and our actions, we may be drawn into more wars we don’t need to fight, or continue to grant Presidents unbound powers more suited for traditional armed conflicts between nation states. So I look forward to engaging Congress and the American people in efforts to refine, and ultimately repeal, the AUMF’s mandate. And I will not sign laws designed to expand this mandate further. Our systematic effort to dismantle terrorist organizations must continue. But this war, like all wars, must end. That’s what history advises. That’s what our democracy demands.

And that brings me to my final topic: the detention of terrorist suspects.

To repeat, as a matter of policy, the preference of the United States is to capture terrorist suspects. When we do detain a suspect, we interrogate them. And if the suspect can be prosecuted, we decide whether to try him in a civilian court or a Military Commission. During the past decade, the vast majority of those detained by our military were captured on the battlefield. In Iraq, we turned over thousands of prisoners as we ended the war. In Afghanistan, we have transitioned detention facilities to the Afghans, as part of the process of restoring Afghan sovereignty. So we bring law of war detention to an end, and we are committed to prosecuting terrorists whenever we can.

The glaring exception to this time-tested approach is the detention center at Guantanamo Bay. The original premise for opening GTMO – that detainees would not be able to challenge their detention – was found unconstitutional five years ago. In the meantime, GTMO has become a symbol around the world for an America that flouts the rule of law. Our allies won’t cooperate with us if they think a terrorist will end up at GTMO. During a time of budget cuts, we spend $150 million each year to imprison 166 people –almost $1 million per prisoner. And the Department of Defense estimates that we must spend another $200 million to keep GTMO open at a time when we are cutting investments in education and research here at home.

As President, I have tried to close GTMO. I transferred 67 detainees to other countries before Congress imposed restrictions to effectively prevent us from either transferring detainees to other countries, or imprisoning them in the United States. These restrictions make no sense. After all, under President Bush, some 530 detainees were transferred from GTMO with Congress’s support. When I ran for President the first time, John McCain supported closing GTMO. No person has ever escaped from one of our super-max or military prisons in the United States. Our courts have convicted hundreds of people for terrorism-related offenses, including some who are more dangerous than most GTMO detainees. Given my Administration’s relentless pursuit of al Qaeda’s leadership, there is no justification beyond politics for Congress to prevent us from closing a facility that should never have been opened.

Today, I once again call on Congress to lift the restrictions on detainee transfers from GTMO. I have asked the Department of Defense to designate a site in the United States where we can hold military commissions. I am appointing a new, senior envoy at the State Department and Defense Department whose sole responsibility will be to achieve the transfer of detainees to third countries. I am lifting the moratorium on detainee transfers to Yemen, so we can review them on a case by case basis. To the greatest extent possible, we will transfer detainees who have been cleared to go to other countries. Where appropriate, we will bring terrorists to justice in our courts and military justice system. And we will insist that judicial review be available for every detainee.

Even after we take these steps, one issue will remain: how to deal with those GTMO detainees who we know have participated in dangerous plots or attacks, but who cannot be prosecuted – for example because the evidence against them has been compromised or is inadmissible in a court of law. But once we commit to a process of closing GTMO, I am confident that this legacy problem can be resolved, consistent with our commitment to the rule of law.

I know the politics are hard. But history will cast a harsh judgment on this aspect of our fight against terrorism, and those of us who fail to end it. Imagine a future – ten years from now, or twenty years from now – when the United States of America is still holding people who have been charged with no crime on a piece of land that is not a part of our country. Look at the current situation, where we are force-feeding detainees who are holding a hunger strike. Is that who we are? Is that something that our Founders foresaw? Is that the America we want to leave to our children?

Our sense of justice is stronger than that. We have prosecuted scores of terrorists in our courts. That includes Umar Farouk Abdulmutallab, who tried to blow up an airplane over Detroit; and Faisal Shahzad, who put a car bomb in Times Square. It is in a court of law that we will try Dzhokhar Tsarnaev, who is accused of bombing the Boston Marathon. Richard Reid, the shoe bomber, is as we speak serving a life sentence in a maximum security prison here, in the United States. In sentencing Reid, Judge William Young told him, “the way we treat you…is the measure of our own liberties.” He went on to point to the American flag that flew in the courtroom – “That flag,” he said, “will fly there long after this is all forgotten. That flag still stands for freedom.”

America, we have faced down dangers far greater than al Qaeda. By staying true to the values of our founding, and by using our constitutional compass, we have overcome slavery and Civil War; fascism and communism. In just these last few years as President, I have watched the American people bounce back from painful recession, mass shootings, and natural disasters like the recent tornados that devastated Oklahoma. These events were heartbreaking; they shook our communities to the core. But because of the resilience of the American people, these events could not come close to breaking us.

I think of Lauren Manning, the 9/11 survivor who had severe burns over 80 percent of her body, who said, “That’s my reality. I put a Band-Aid on it, literally, and I move on.”

I think of the New Yorkers who filled Times Square the day after an attempted car bomb as if nothing had happened.

I think of the proud Pakistani parents who, after their daughter was invited to the White House, wrote to us, “we have raised an American Muslim daughter to dream big and never give up because it does pay off.”

I think of the wounded warriors rebuilding their lives, and helping other vets to find jobs.

I think of the runner planning to do the 2014 Boston Marathon, who said, “Next year, you are going to have more people than ever. Determination is not something to be messed with.”

That’s who the American people are. Determined, and not to be messed with.

Now, we need a strategy – and a politics –that reflects this resilient spirit. Our victory against terrorism won’t be measured in a surrender ceremony on a battleship, or a statue being pulled to the ground. Victory will be measured in parents taking their kids to school; immigrants coming to our shores; fans taking in a ballgame; a veteran starting a business; a bustling city street. The quiet determination; that strength of character and bond of fellowship; that refutation of fear – that is both our sword and our shield. And long after the current messengers of hate have faded from the world’s memory, alongside the brutal despots, deranged madmen, and ruthless demagogues who litter history – the flag of the United States will still wave from small-town cemeteries, to national monuments, to distant outposts abroad. And that flag will still stand for freedom.

Thank you. God Bless you. And may God bless the United States of America.