The Meaning of Words in Times of Great Stress

Thucydides once noted that under times of great economic and political stress, the meaning of words used in everyday language undergo change. This was an interesting observation that he made in studying the Peloponnesian War.

Today I went to the auto dealership for car inspection. I was told that I would receive a "complimentary" car rental. This always meant "free." Then the same person told me the cost was $29.95 per day.

Toyota is not the car company it was in the past. I am on my second recall. This time it is the ECM!

Unusual Laws in Ohio

1. Yesterday, I went to get a haircut just down the street and the shop had a sign on the door something like, "no weapons allowed on the premises." I was shocked to see such a notice in Avon Lake.

Folks tell me that Ohio has a law that allows carrying a concealed weapon (I assume after a license has been granted), however, if a place of business posts notice no one can enter with a concealed weapon on their person. This is part of the law.

2. I had a minor prescription from NH that needed to be filled. I went to a store close by and the pharmacist informed me that he could fill the prescription via transferring it from NH. However, the NH pharmacy would not be able to transfer the prescription back because of a new Ohio state law.

Evidently, a prescription can only be transferred between pharmacies one time after writing.

Exxon and Oil Reserves - Excellent Article

The issues of petroleum reserves is huge.

The following article highlights concerns that Exxon is not finding adequate reserves to replace depletions, and is engaging in some manipulation to make total reserves listed as assets appear to be better than is actually the case.

Gold, Russell, Gonzalez, Angel, 2011. Exxon struggles to find new oil. The Wall Street Journal, Feb. 16.

I believe this is a massive issue that will play out over and over again as the world approaches peak oil.

From the article:

"In its closely watched annual financial report released Tuesday, the company said that for every 100 barrels it has pumped out of the earth over the past decade, it has replaced only 95."

This is an extremely good article and reflects many things I have heard during the past five years. Given political turmoil in the Middle East, there is not much surplus pumping capacity. If reserves begin to dwindle, prices are going up. This will force big changes. The restructuring from the 2008 Financial Crisis along with gradually rising oil prices will reshape the face of the American economy by 2020.

Farmland and Markets

I think this is a very good indication that for the long-term, agriculture is gaining rising prominence:

"Our own feeling is that gold and oil are a rare species of investments that ought to be bought on dips and, just to show how magnanimous we are, you can put farmland in that treasured category as well." bold added

Abelson, Alan, 2011. Crude awakening. Barron's, Feb. 26.

I sometimes wonder if a different general model is needed for the buying and selling of farmland. My view is that the market is perhaps not very efficient and dominated by local interests such as community banks. Of course the Federal government has its hand in the matter through various means of financing.

Perhaps a national market will evolved for trading farmland based on a wider number of factors including accepted measures of soil fertility. With the Internet, I think many things are possible in this area.

I will have more to write about this thought soon.

Capital Goods Orders - January

This is an interesting tidbit from Barron's as related to reported statistics (by the Commerce Dept.) for durable goods, which was up 2.7%. Transportation accounted for the major junk of the gain.

"The shocker came in the form of orders for capital goods that business needs to expand and modernize, including, of course, all the magical implements that tech provides as well as the big bulky things that rust in the rain. The usual definition of capital goods is things that are destined to last at least three years (which seems like a lifetime these days). Orders for those precious items, once you knock off the wayward defense and transportation orders, dropped a humongous 6.9% and did so across a broad slice of the economy."

Abelson, Alan, 2011. Crude awakening. Barron's, Feb. 26.

Though this is just one month of data, the implications are somewhat concerning for 2nd quarter GDP.

Perhaps this is the reason Tech stocks took a dive this week.

George Armitage Miller

In 2004, Brock and I had a conference call with Prof. George A. Miller of Princeton University and a team of his researchers.

It was a very interesting call or many reasons.

Our interest was the M Dictionary. At the time, I do not think we knew that Prof. Miller had published the most widely quoted article in the history of psychology. The article deals with the concept of chunking and the constraints on working memory for humans.

This provides more information:

Prof. George A. Miller

In addition, he developed WordNet.

Fellbaum, F., Ed. 1998. WordNet: An Electronic Lixical Database (Language, Speech, and Communication. 1st Ed. The MIT Press.

Taking an imaginative view, I think there are many applications or WordNet that are yet to be discovered. The conference calls with Prof. Miller were very nice. I wish The Data Center Program would have done more to take advantage of this wonderful opportunity in 2004.

The Human Language in Speech and Writing

This is an exert from some of our (Schuster, Lee, Ehsani, Allen, Rogers) recent research:

"At the most basic level of communication, words are the glue that connects nearly everything together. The power of words can give descriptive meaning to the most complex physical objects existing in nature, and to the most diffuse ideas that exist only in the mind. Words establish not only the limits of human imagination and intellect, but also the possibilities for the computing systems of the future.

The fundamental problem with employing words as a descriptor is that a single word can have several different definitions and multiple words can have the same definition. This paradox means that natural language often does not have the internal consistency required for straightforward application as an identifier or a unit of meaning within computer systems.

Further, words frequently change meaning over time. In a famous passage from Cratylus,* a dialogue by Plato, one of the main characters named Heraclitus states, "All is flux, nothing is stationary." The early Greek thinkers were so concerned about the effect of flux (change) on written and spoken language that some felt a rigorous system of logic based on words impossible to accomplish. Achieving the goal of word descriptions that are constant and machine understandable requires a deeper appreciation of the role of semantics in computing systems.

Since about 1600 AD, various published dictionaries of English have overcome many of the problems associated with language flux. With higher education levels in Western society during the industrial revolution the use of words as descriptors, improved writing, and rapid communication by telegraph became fundamental to the growth of commerce.

The modern emergence of WordNet (Fellbaum, 1998), a comprehensive online dictionary developed by Professor George A. Miller and colleagues at Princeton University, goes a step further in enhancing the consistency of English. WordNet includes the innovation of a weak ontology for groupings such as synonyms and antonyms. This provides powerful word relationships. Even so, the intent of WordNet is for reference. It has not been a tool widely used in computer science until recently."

Fellbaum, F., Ed. 1998. WordNet: An Electronic Lixical Database (Language, Speech, and Communication. 1st Ed. The MIT Press.

*Sedley, D. 2007. Plato's Cratylus. 1st Ed. Cambridge University Press.

Academic Writing

I would like for academic research and writing to include some link to the real world, perhaps to include supporting quotes from high quality business publications such as Barron's.

All too often, academics write with the purpose of communicating to each other.

I do not know the value of academics communicating to each other via journal articles. However, I do know that if academics communicate directly with the public then there is much value created.

My experience is that the public often provides some of the best criticisms. In the end, everything must have value in the real world.

Alan Abelson

I think it is important to read about the background of columnists and other writers. If nothing else, this gives perspective on how a writer approaches their work.

The approach might be as powerful as the writing because it involves the process of research, organizing, and thinking.

For me, I think about writing almost all of the time.

This is the background for one of the best writers on Wall Street:

Alan Abelson

Up and Down Wall Street

Alan Abelson, editor of Barron's from 1981 to March 1993, writes the weekly column “Up and Down Wall Street” that he started in 1966. Abelson joined Barron's in 1956, editing the Investment News & Views section and writing corporate and industry features. In 1965 he was named managing editor of the magazine and in 1981 he became Barron's editor. From July 1982 to October 1990, Abelson was the regular business commentator for NBC-TV's "News at Sunrise." Abelson is a native New Yorker. He received a bachelor of science degree in chemistry and English from City College of New York and a master's degree in creative writing from the Writers' Workshop at University of Iowa.

In 1949, after spending two years in New York City freelancing and writing book reviews, Abelson was hired as a copy boy for the New York Journal-American. He later became a reporter on the city side and then moved to the financial desk. From 1952 to 1956, he was the paper's stock-market columnist.

From; http://topics.barrons.com/person/A/alan-abelson/6032

I have been a subscriber to Barron's or many years. It is an impressive source of knowledge about many things. A large part of life links in some way to finance. Over the years, I have learned so much by reading Barron's every week.

Social Networking in China

I was told by some of by friends that LinkedIn was blocked in China during the past week. I am so sorry to hear this news.

Social networking is a powerful way to communicate and the learn. It has many benefits. I participate in Facebook and to a lesser extent in LinkedIn. I have Twitter and Myspace accounts but do not use them as much. This blog, ingehygd.blogspot.com, is a great help to me in organizing my thoughts.

I think shutting down social networking in China will have negative economic effects for the country. The existing Chinese-originated social networks in China are extremely popular and have huge membership. However, I do not think much if anything is communicated beyond basic information relating to family and friends.

Oil Price Climb and Regional Agricultural Systems

Folks should take note of this article that will appear in the Tues. edition of the WSJ:

DiColo, Jerry A., Baskin, Brian, 2011. The stealth return of $100 oil. The Wall Street Journal, eb. 22.

Higher oil prices will be a drag on the US economy as the following quote from the article indicates:

"Economists watch oil prices closely because a rise in the cost of oil can crimp economic growth. Each $10 move higher in oil prices can knock a few tenths of a percentage point off any increase in gross domestic product, though economists differ as to precisely how much."

Even more concerning:

"Nobuo Tanaka, head of the International Energy Agency, said Friday that if oil prices remain above $100 a barrel, that could create a significant burden on the global economy. At current levels, the amount of money the world spends on oil could hit 5% of GDP, or the total value of all goods and services produced, a level last seen in 2008, when oil briefly hit $150 a barrel."

Higher oil prices means there will be significant impacts for American agriculture. Commodities are already experiencing rapid price increases. Higher energy costs will add to the rise.

We began the Regional Food Systems project in Mar. 2008. Had the project been fully funded by the USDA, there would be a solution in place by now. For those interested in this topic, please see:

The Oil Price Increase and Regional Agricultural Systems

As petroleum prices increase, Americans will cut back driving. However, it is hard to cut back on transport of food given the geographical concentration of agriculture in the US.

Technologies for Regional Agricultural Systems are an important national priority.

Europe Stock Markets are Down for the Day

Today there is a moderately severe sell off of stocks for Greece, Italy, and Spain. Nearly all European markets are down.

Perhaps the sell-off is because of spreading unrest in the Middle East. Several oil companies are closing exploration operations, hopefully only on a temporary basis. It could also be from simmering sovereign debt issues for several European countries.

I notice that Russian markets are up a bit, probably because the country is an alternative to the Middle East or supplying oil.

Semantic Distance for Concepts and the Semantic Web

This is the reason why Semantic Web standards are are difficult to use in practice:

"variable semantic distances between concepts* of a same class, and dynamic variations of these distances due to contextual representation"

Pellegrin, L, Bastien, C, Roux, M., 1994. Representation of medical concepts of the thyroid gland by physicians in anatomy and pathology. Methods in Medicine 33, 382 -389.

Our upcoming paper on the topic will be complete soon. We hope the revision finds acceptance in Computers and Electronics in Agriculture published by Reed Elsevier.

Overall, the Semantic Web is an important area. Even though it is not yet as widespread as Facebook or Twitter, the research efforts do highlight the difficulty in connecting concepts and from a broader perspective the potential of modeling knowledge. We believe our approach using the M Language is simpler and less ambitious, and perhaps will gain wider acceptance in practice.

*A concept is a cognitive unit of meaning, see Wiki def. for concept

I like to use "unit of meaning" rather than "concept." This could be a word, a phrase, or a sentence.

Powerful Quote on Scientific Language by John Locke

When researching sources for an upcoming article on the M Language, I came across the following quote:

"Vague and insignificant forms of speech, and abuse of language, have so long passed for mysteries of science; and hard or misapplied words with little or no meaning have, by prescription, such a right to be mistaken for deep learning and height of speculation, that it will not be easy to persuade either those who speak or those who hear them, that they are but the covers of ignorance and hindrance of true knowledge."

-- John Locke

From:

Hayakawa, S.I., 1964. The Language in Thought and Action. 4th Ed. Hardcourt Brace Jananvich, Inc.

This is perhaps the primary reason for the slow progress of the Semantic Web, namely the lack of precision for English.

Freely Exchanging Agricultural Data

Since 2007, the MIT Field Intelligence Lab has been engaged in various ways to apply computing to agriculture. Much o this effort involves the integration of data and the rapid analysis using Internet-based mathematical models.

I think there will be a new age for agriculture called general termed Internet Architecture for Bio-productivity. This technology will apply to food and biomass production.

The direction of this research is consistent with the observations of others within the agricultural community. For example, Nikkila et al. (2010) write,

"The [agricultural] information system must be able to manage various data formats, both standardized as well as proprietary and be able to exchange data with services that provide computation for precision agriculture."

Nikkila, R., Seilonen, I., Koskinen, K., 2010. Software architecture for farm management information systems in precision agriculture. Computers and Electronics in Agriculture 70, 328-336.

A Criticism of the Semantic Web

This recent link provides an interesting perspective on the use of the Semantic Web:

Top 10 Reasons Not to do a Semantic Web Project

I have similar experiences. Many of the Semantic Web and W3C standards are useful. However, other related networking technologies like Facebook and Twitter have made a larger impact in a shorter period of time.

I am not quite sure of the future for the Semantic Web.

We have recently completed a related paper for agricultural applications (see paper revision) that includes the spirit of the Semantic Web while using a different approach called the M Language. I think this approach is better although, like the Semantic Web, it has some limitations.

I notice that most of the published criticisms of the Semantic Web come from industry, the folks who need to make it work in practice.

For more info. see A Criticism of the Semantic Web II

Arranging Knowledge - Excellent Quote by Adam Smith (II)

This builds on a previous post:

Arranging Knowledge - Excellent Quote by Adam Smith

In many ways, I think the Semantic Web intends to fulfill the initial vision of Adam Smith. However, the approach used by the Semantic Web community falls short of what is needed to achieve the goal.

After more than ten years of work and a large amount of funding, the Semantic Web is not a day-to-day tool to organize the information contained in web pages or to provide machine understandable semantics. Other related social networking technologies such as Facebook and Twitter have far surpassed the Semantic Web in popularity and usefulness.

Civil War in Libya?

The WSJ is reporting about 10 min. ago that Libya is close to a civil war according to statements from officials in the country. There is the threat of burning oil supplies.

Solomon, Jay, and the Associated Press, 2011. Gadhafi's son warns of civil war in lybia. The Wall Street Journal, Feb. 20.

This is a major development in the Middle East. I wonder how this will affect the US stock market? Libya is not a huge supplier of oil, however, the odds are higher of a chain reaction of revolt in the Middle East.

Price Controls, Transportation Cost, and Agricultural Markets in China

For many things, prices are controlled in China. This includes gasoline and other petroleum products. I believe that without a free float Yuan the Chinese government, namely the National Development and Reform Commission, will have an increasingly difficult time in determining the right price to set. In 2008 when petroleum prices reached $147/barrel, there were reports of gasoline shortages within the country, a sure sign that price controls were in place.

There are many difficulties regarding price controls. One big issue is that prices tend to increase in jumps unlike free market conditions where prices rise gradually.

Chinese officials recognize this effect as evidence by the following WSJ report:

"To prevent a 'chain reaction' of price effects, the NDRC said it will continue to subsidize farmers, the fishery and the forestry, and that public-transportation prices won't be raised. The NDRC said Thursday that it will launch a price-inspection campaign in rural areas in a bid to keep agricultural product prices at reasonable levels and boost farm output."

Hong, Shen, 2011. China raises gasoline, diesel prices. The Wall Street Journal, Feb. 21.

The article goes on to state:

"The Ministry of Commerce measure would aim to combat 'abnormal' market developments such as serious shortages of key goods including meat, vegetables, sugar, salt and dairy products, and to counter large-scale panic buying and price surges due to natural disasters or accidents, according to a draft published Thursday on a website of the State Council, China's cabinet."

Transportation is an important cost for fruits, vegetables, and other agricultural products. As petroleum prices go up along with inflation triggered by short crops, I think the view that panic could spread out is a reasonable expectation.

For these reasons, I continue to believe that marketing efficiency for agricultural products is extremely important. Efforts like Eden's Bowl, Inc. are a good thing to make specialty crop agricultural markets more efficient.

I will be writing more about Eden's Bowl, Inc. during the next few weeks.

Control and Suppression of Free Speech

If history is any gauge, it is nearly impossible to control the ideas in any society. Further, the more efforts for control, the more pressure builds-up in society.

Regimes in the Middle East, Asia, and other parts of the world that use technology in attempts to sensor free speech and influence public opinion toward government or party positions are going down a perilous path that risks the stability of civil society.

I think rising food and housing costs and the difficulty in finding work are some of the main reasons that civil unrest appears to be on the rise. This causes an unpredictable situation, as was the case in Egypt.

China and Internet Filtering

This is an amazing quote from President Hu of China published in the WSJ today:

"President Hu called for even stronger Internet restrictions in his speech on Saturday at the Central Party School in Beijing, which trains rising leaders.

'At present, our country has an important strategic window for development, but is also in a period of magnified social conflicts,' he said. Among the steps Beijing had to take, Mr. Hu said, was 'further strengthening and improving management of the Internet, improving the standard of management of virtual society, and establishing mechanisms to guide online public opinion.'"

Page, Jeremy, 2011. Call for protests unnerves china. The Wall Street Journal, Feb. 20.

It is the last phrase that gives me pause.

I sometimes wonder if aspects of the M Language are being used as part of censorship efforts in China, namely Internet filters to block content based on keywords. Of course if this were true, it would be against the state goal of the M Language and perhaps against MIT TLO policies.

Free speech is prerequisite for economic growth. There is every reason to believe that rapid increases on food and housing costs are placing a great deal of strain on the Chinese people. Covering up these problems is not a solution.

Free speech and intellectual property protections are among the top issues that China faces as it seeks to expand its economy and take a role in global affairs.

Arranging Knowledge - Excellent Quote by Adam Smith

Below is an insight of deep meaning from Adam Smith.

Though some of my colleagues at MIT might disagree, I think the activity of arranging and organizing to be extremely important. I will continue to pursue these activities.

"It seems to be the peculiar talent of the French nation, to arrange every subject in that natural and simple order, which carries the attention, without any effort, along with it. The English seem to have employed themselves entirely in inventing, and to have disdained the more inglorious but not less useful labour of arranging and methodizing their discoveries, and of expressing them in the most simple and natural manner."

Adam Smith

Edinburgh Review of 1775-6

and

Phillipson, Nicholas, 2010. Adam Smith: An Enlightened Life. 1st Ed. Yale University Press.

Fred W. Riggs - The Theory of Prismatic Society (III)

To build on these previous posts:

Fred W. Riggs - The Theory of Prismatic Society (II)

Fred W. Riggs - The Theory of Prismatic Society

The context of Prismatic Theory was from the Comparative Organization Group (CAG) of the American Society for Public Administration.

During the late 1950's, CAG received a grant of $500,000 from the Ford Foundation to study comparative public administration. The goal was to improve public administration in developing countries. At the time, many probably believed that more effective public administration would stimulate economic growth. Of course, Ford, Inc. perhaps saw this effort as a way to sell more automobiles.

I am not sure that the effort achieved the intended goal. However, I think what is clear is that there are perhaps no specific principles of public administration applicable to all countries.

Further, I am not sure the influence of politics was adequately studied. For example, in China there is only a single political party that permeates both public administration and business. Even businesses that are not "state owned" still have Communist Party members in senior management positions who make decisions based on government (and political party) policy.

I need to reread the work of Prof. Riggs sometime. It is interesting.

What happens when Quantitative Easing (QE2) ends in June?

I remain surprised that in the business press there is little if any discussion about what will happen when Quantitative Easing II expires in June.

From a congressional standpoint, there has been discussion designed to force an early end to the program. Others have gone in the opposite direction mentioning a possible QE3.

In my view, the economy is slowly picking up. Deflation is less an issue, manufacturing activity is up, and consumers are spending a bit more. Corporate profits have exceeded expectations for Q4 2010.

On the downside, the housing market shows no signs of improving and might not have yet bottomed. Trouble in the middle East could disrupt oil shipments. China appears to be experiencing uncontrolled inflation and an asset bubble that is about to burst. Europe is experiencing continued sovereign debt issues. Some analysts believe that the UK is in stagflation. Commodity prices are increasing rapidly. Corporations have no pricing power. The US labor market will take years to repair. And finally, US Budget deficit is out of control!!!

This all points to a tenuous financial environment at the time of QE2 expiration. For 2011, YTD stock prices might be negative.

Any yet the business press seems quiet on this issue ...

A Powerful Study and Thought - Science of Man

Adam Smith was thinking beyond the Wealth of Nations, his most famous book, toward a goal of important implications to humanity.

To this day, the path toward the goal continues:

"... Smith believed that it was now possible to develop a genuine Science of Man based on the observation of human nature and human history; a science which would not only explain the principles of social and political organization to be found in different types of society, but would explain the principles of government and legislation that ought to be followed by enlightened rulers who wanted to extend the liberty and happiness of their subjects and the wealth and power of their dominions."

Phillipson, Nicholas, 2010. Adam Smith: An Enlightened Life. 1st Ed. Yale University Press.

A Quote from Adam Smith

"The character of a man is never very striking nor makes any deep impression: It is a dull and lifeless thing, taken merely by itself. It then only appears in perfection when it is called out into action."

Adam Smith

Lectures on Rhetoric and Belles Letters

17 Jan. 1763

Sometimes I do not think we fully appreciate the contributions of the folks who lived during the 18th century Scottish Enlightenment, including Adam Smith. It was a tremendous time in Western history and thought.

Oil and and the Recovery in Developed Countries

Many of the governments in the Middle East are learning that a political system exists based of the consent of the people. This is very important to the political theory of America and perhaps it is a universal truth.

Given the upheaval and rumblings in the oil rich areas I am surprised that markets are so calm. Perhaps it is because of the Fed's efforts to inject money into the US economy. It also could be that favorable corporate earnings reports are stoking enthusiasm.

In general, America and almost all other countries in the world face a huge threat of disruption in oil shipments at a time when developed economies are gradually recovering from the Financial Crisis of 2008.

It appears that the risk of a cut-off of oil shipments will be with the US for a long time. The attention is on the Middle East, however, perhaps the bigger problem will be oil shipments from Mexico.

Housing Prices Continue to be Down the Tubes

Probably what most folks have known for going on five years is now confirmed ... there is no good news from the housing industry and what reports exist are inflated to show an improving outlook.

Consider this ...

"As Stephanie Pomboy in her always lively MacroMavens dispatch points out, the acrid aftermath of the big bust in housing has failed to dissipate and adamantly hangs on. The average homeowner with a mortgage, she notes, has a scant 2.6% equity in his house, and the already towering delinquency and foreclosure rates seem headed for a new thrust upward, with interest rates creeping up and jobs remaining anything but easy to come by."

Abelson, Alan, 2011. Worse than you ever dreamed. Barron's, Feb. 19.

The article goes on to question the validity of statistics from the National Association of Realtors, something that should be a surprise to no one. Maybe the real numbers for existing home sales are 15 - 20% lower.

Folks are experiencing the drastic effects of a speculative bubble. This ranks along with inflation and excessive regulation as big downers for any economy.

So goes the housing industry so goes the US economy. The effects of the housing bubble are ongoing and even worse than I anticipated in 2002. The prediction by some of a turnaround for housing by 2014 might be optimistic!

Stocks at a Peak?

Mr. Abelson of Barron's has been around a long time. He gained fame during the 1960's by correctly seeing trends in equity markets showing a bubble and expressing these views in lively prose as part of weekly columns.

His column published this week in Barron's contains the following quote that should give pause for thought among investors:

"We've been saving the best for last: Equities extended their gaudy winning streak, blithely ignoring such trivia as disappointing retail sales and intimations that inflation's demise has been greatly exaggerated. This has been the most resilient market we've ever had the pleasure of witnessing. Enjoy it, by all means, as long as it lasts. You won't lack for company, as pros and the public are piling in, but keep in mind that an excess of bullishness, as manifestly exists today, has been know to lead to a fall." [bold added]

Abelson, Alan, 2011. Worse than you ever dreamed. Barron's, Feb. 19.

I think this is a very strong statement from a man who has observed some of the most dramatic changes in equity markets during the past 60 plus years.

My feeling is that Quantitative Easing II is somewhat responsible for the strength and resiliency of stock prices. I think QE2 was probably conceived to address two things, 1) the weakness of the US economy and the threat of deflation, and 2) the Chinese policy of pegging the Yuan. Folks who are interested should see my previous comments on global capital flow imbalances:

A Major Statement (and Warning) on Global Capital Flows

This is among the top issues that America and the global economy faces.

A Major Statement (and Warning) on Global Capital Flows

I think this is a very good article.

Hilsenrath, Jon, DiLeo, Luca, 2011. Bernanke defends fed policies. The Wall Street Journal, Feb. 18.

Though at first glance, quantitative easing might appear to be devaluing the US Dollar I think that within the context of the global situation the policy has some merit.

I agree with Mr. Bernanke's comments, particularly:

"He said policy makers abroad have plenty of tools to fight inflation and asset bubbles themselves, including allowing their exchange rates to adjust higher to prevent overheating. Mr. Bernanke also said surging growth in developing economies, spurred in part by their own economic policies, were causing trouble for America."

Though the US is not in a technical state of "trade war" (tariffs hindering exports and imports between countries), I do think we are in the midst of a new form of economic war. The American public needs to understand the basics of this new type of warfare, to the point of being able to participate in the policy debate and the political process.

These comments from Mr. Brenanke are right on the mark:

"For China, there also appeared to be an indirect but ominous warning. The U.S. and France, he noted, helped to cause the Great Depression in the 1920s and 1930s by keeping their currencies undervalued for too long. The undervalued dollar and franc led to large capital inflows into these countries, in part from investors anticipating appreciation, and ultimately destabilized the world's financial system, noted Mr. Bernanke, a scholar of the Depression."

As I have written many times on this blog, the Chinese policy of pegging the Yuan is reckless and will have global economic consequences perhaps to the level of causing Great Depression II.

This is a powerful theme:

"Mr. Bernanke dedicated much of his comments to a theme he has been exploring since 2005—the large buildup of savings in the developing world and among oil-producing nations, which in turn led to a flood of capital into the U.S. before the financial crisis.

'The global financial crisis is receding, but capital flows are once again posing some notable challenges for international macroeconomic and financial stability,' he said, adding, 'the maintenance of undervalued currencies by some countries has contributed to a pattern of global spending that is unbalanced and unsustainable.'"

In the absence of all of G-20 adopting free float currency policies, QE2 is perhaps the only alternative.