November 2003 Selected News Clips

(Especially noteworthy articles’ headings highlighted in gold.)

INTERVIEW: EFFECTS ON BAHAMAS OF PROPOSED TAX INFORMATION EXCHANGE ACT WITH THE U.S.

“If it is conceded that there is no or little reciprocity for The Bahamas (as The Bahamas is not a nation that imposes direct income tax), The we can expect to gain little or nothing in return from the act. What is in the best interest of The Bahamas and the Bahamian people? If this TIEA is to proceed in its present form, The Government of The Bahamas and Bahamians need to be fully informed as to the benefits expected to accrue. Is this yet another bill to kill or devastate our already severely depressed financial services industry in the wake of the 11-piece financial services legislative package? Can we afford to send over 4,000 financial professionals and associates to the unemployment queue? If we are serious about this legislation, we should, as a government, negotiate something in return that generates fair value in exchange... something that will make up for what we can expect to lose in the process?”

“We have heard repeatedly the argument that the 11-piece financial services legislative package was negotiated with a gun to our heads. Have we not learned from this experience after almost three years? Have we not seen the decline in our financial services industry?”

“The right of confidentiality, particularly the right of financial privacy, is the most telling and compelling of all justifications to reject this Bill in its entirety. With other legal acts, and in particular the recent Patriot Act, supplemented by the Sarbanes-Oxley Act, 2002, the USA has virtually eliminated its citizens’ rights to financial privacy. That is no reason for The Bahamas to do the same.”

CENTRAL BANKER THREATENS STEPPED-UP GOLD SALES, SOMEDAY

It has long been a standard policy of central banks to sell gold and invest the money gained in interest-bearing securities, which are usually government bonds of their own national treasuries. These sales are applauded by those politicians who believe academic monetary theory, whether Keynesian or monetarist -- a small group, indeed. Nobody else in government pays any attention. Gold is regarded as a dead asset or an unproductive asset because it does not generate interest. It just sits there, gathering dust.

The number of people who feel that government currencies should be backed by gold are few and far between. I am surely not one of them. For almost three decades, I have called for exactly what is happening: the sale of stolen gold by central banks to the public, in order to get gold back into private hands. I even had an article published in The Wall Street Journal in the 1970’s that recommended this. The gold should be in private hands. Gold is too important to be left to the discretion of central bankers.

Will there come a day when central banks will be able to conduct buying and selling activity without disrupting the market too much? How could that ever be? Only because the central banks will have sold their gold to the public. Well, not quite: to the public and to China’s central bank.

SECRET 9-11 CASE BEFORE HIGH COURT

It is the case that does not exist. Even though two different federal courts have conducted hearings and issued rulings, there has been no public record of any action. No documents are available. No files. No lawyer is allowed to speak about it. Period.

Yet this seemingly phantom case does exist -- and is now headed to the US Supreme Court in what could produce a significant test of a question as old as the Star Chamber, abolished in 17th-century England: How far should a policy of total secrecy extend into a system of justice? While secret trial tactics have reportedly been used by federal prosecutors to shield cooperating drug dealers, it is unclear whether the high court has ever directly confronted the issue. But that may change if they take up MKB v. Warden (No. 03-6747).

Despite the heavy secrecy, a brief docketing error led to a newspaper report identifying MKB by name in March. The report said MKB is an Algerian waiter in south Florida who was detained by immigration authorities and questioned by the FBI. MKB’s legal status remains unclear, but it appears unlikely from court documents that he is connected in any way to terrorism. He has been free since March 2002 on a $10,000 bond. The case is significant because it could force a close examination of secret tactics that are apparently becoming increasingly common under Attorney General Ashcroft.

THE PLUNGE PROTECTION TEAM: URBAN MYTH

I have had so many letters of late asking me what I think of and/or know about the existent of the so-called Plunge Protection Team, that mysterious group of government officials who secretly prop up the stock market when it drops too much, that I am going to jump in where wiser minds would just leave the subject alone. It will offer a good opportunity for you to understand concepts of arbitrage and how the markets really work. Plus, if you can prove me wrong, I will show you how to get a quick $100,000.

Every time the market drops and then “mysteriously” rallies, knowing individuals look at each other and nod, seeing the handiwork of the PPT (plunge protection team). Let’s say it straight out. The plunge protection team does not exist. It is an urban myth. Let me step by step prove it does not exist, and see if we can learn something in the process.

The Defense Responds: Not so fast, buster

I have the utmost respect for John Mauldin of FrontlineThought.com. His grasp of investment-financial affairs is encyclopedic, and the service he offers to the public is superlative. I read him with great pleasure every week. But I definitely must take issue with his recent essay on the existence of the Plunge Protection Team in which he declares the PPT to be impossible -- in his words an “urban myth”. I believe Mr. Mauldin has bought into the warped vision of CNBC’s Art Cashin, and in so doing has come to a very wrong conclusion about the reality of the PPT.

The problem with relying on the view of Art Cashin to determine the validity of the PPT’s existence is that you are asking a CNBC employee about the credibility of Wall Street as an institution. CNBC is a total captive of Wall Street. It could no more bite the hand that feeds it, than it could climb to the moon on a rope of sand. In other words, asking a CNBC employee about the existence of the PPT is like asking an IRS agent about the existence of Constitutional violations in their operation -- you are not going to get an objective answer.

After consulting with Cashin, Mauldin has concluded beyond all doubt that the market could not be manipulated. But is this true? Let’s examine these assumptions and see if they have merit. Let’s see if indeed the market is too huge to manipulate, and if it would actually require massive losses.

THE OECD IS IMPOSSIBLE TO PLEASE

The OECD claims to seek a level playing field for the financial regulation of all jurisdictions, but it is unlikely to be an impartial referee when 80% of the market is dominated by OECD members. A report titled “Towards a Level Playing Field”, prepared last year by the international law firm, Stikeman Elliott, makes it clear that not only is corporate transparency in the offshore financial centers already at a far higher level than that applicable in most OECD jurisdictions but, further, there appears to be no pressure from the OECD jurisdictions to improve their own transparency to a similar level.

No doubt should exist that these new standards of transparency have resulted from the highly successful OECD initiatives and in part from the pressure applied by the FATF with regard to money laundering. But given that those standards have now been introduced, why is it the case that no one has yet turned off the spigot that controls the negative information used to shape public opinion prior to these initiatives?

Few in recognized offshore centers had supposed that aiding and abetting crossborder tax evasion was either sensible, sustainable or permissible in light of the suspicious activity reporting obligations introduced in the mid 1990s. Yet press releases that emanate from treasury departments still relentlessly press on the subject of the offshore money laundering scourge. If this were an even-handed and objective debate, the offshore jurisdictions should now be anticipating from the OECD a more mature recognition of that which has been achieved -- but it seems that the offshore financial centers are entitled to no such recognition from the G7 countries nor their treasury departments.

An analysis of why the negative campaign continues follows.

A CONSTITUTION OF CONVENIENCE

The U.S. Constitution is the document that created the federal government. In broad general terms, it sets forth the government’s powers, establishes limits on those powers, and guarantees rights to all persons under the government’s jurisdiction. The most potent of the government’s domestic powers are the powers to enact federal criminal statutes and prosecute violations of them. Since the Constitution is the sheet anchor of the government’s powers, one would expect that the government would contend that it exists and subsists wherever the government wants to enforce federal law. But the government only wants to enforce part of the Constitution.

Just last year, the government successfully argued to four federal courts that the U.S. Constitution does not apply at American military facilities in Cuba and, thus, no American court has jurisdiction over the acts of the U.S. government and its personnel there. Comes now the same government a year later to argue that while one is not entitled to the protections of the Constitution when one is at an American military base in Cuba, one can still be prosecuted pursuant to powers given by the Constitution while at an American military base in Cuba.

The government knows that it cannot escape the Constitution merely by leaving the U.S. mainland because the Supreme Court has told it so. Does the government really expect Americans to believe that nothing restrains it, and it need not respect our rights, when it leaves U.S. soil? The government’s argument is nonsense. Wherever the government goes -- even to the moon -- the Constitution goes with it. Unfortunately, the government’s selective defense of the Constitution is not surprising or novel.

IN THE NAME OF NATIONAL SECURITY ...

Nobody likes to be criticized in public, especially all those politicians in Washington, who fervently hope to be re-elected. But the Bush administration has taken the desire to avoid critical commentary to an extreme. In incident after troubling incident, federal agencies have been quietly censoring information that previously had been available on their Web sites and otherwise curbing public oversight. About a week ago, the U.S. Army surreptitiously pulled the plug on one of its more popular Web sites, call.army.mil, after The Washington Post wrote about a report that had been posted on it. The report was not classified. It was merely a sober analysis of the Army’s problems in Iraq.

This is not an isolated example. In the two years since the 9-11 terrorist attacks, the Bush administration has systematically reduced the amount of information available to the public, which in turn has made government officials less accountable to taxpayers. National security was hardly at risk in the case of the Army and other now-unavailable sites.

In the last two years the government has extended secrecy far beyond what recent predecessors have dared. There are legitimate reasons for secrecy, but using the excuse of terrorist attacks to shield officials from embarrassment and critical scrutiny is unconscionable. The public deserves better.

RESOURCE REVISITED: VERNON K. JACOBS LEGAL TAX AVOIDANCE ARTICLES

It seems that a lot of taxpayers are frustrated with the high taxes imposed by the US government and have sought relief with the help of various promoters who advertise on the Internet. The problem is that a lot of the web sites that claim to offer help to save taxes are hustlers and con artists or just uninformed. This web site presents an extensive collection of articles about legal ways to save taxes without getting into a dispute with the IRS that you cannot win. One of the links below also provides an extensive collection of articles about illegal methods of tax avoidance that should be avoided by those who do not want to get into a dispute with the IRS that cannot be won.

21 Legal Ways to Save Taxes; and Protect Your Assets Offshore

A lot of Americans seem to be very interested in going offshore to save taxes. There are only a very few legal ways to save taxes offshore that are not also available “onshore”,i.e., in the U.S. For those who also want to move their money offshore for 1.) investment opportunities that are not available in the USA, 2.) business opportunities in other countries, 3.) personal and family reasons, 4.) a general concern for international diversification, or other reasons as described in Why Go Offshore, it is possible to combine domestic tax strategies with offshore asset protection methods.

AMERICA’S DETERIORATED FISCAL POSITION WILL NOT BE EASY TO REVERSE

While Team Bush touts tax cuts, it never mentions the other hallmark of this administration’s fiscal policy: soaring federal spending. For all his rhetoric about keeping Washington in check, Mr. Bush, as one Republican analyst puts it, has been spending like “a drunken sailor”. The widening war on terror, of course, accounts for much of that. But non-military discretionary spending has risen by 21%. Much of that increase is on homeland security, but not all.

The combination of a sharp economic slowdown, tax cuts and higher spending has transformed America’s budget. When Mr. Bush ran for office, the fiscal surplus was 2.4% of GDP, one of the highest among big rich countries. By fiscal 2003, the budget deficit had reached 3.5% of GDP. Next year, by official forecasts, it is expected to reach 4.3%. According to the Bush folk, this shift is unfortunate but hardly worrying. More sober analysts are worried. Who is right? The stakes in this debate are high, affecting not just America’s economic future, but the world’s. Deciding whether to be nonchalant or nervous means answering three questions. How bad is America’s fiscal position? What caused the deterioration? And how easily can it be reversed?

NEW BOOK: MUGGED BY THE STATE

It’s a scandal -- the misguided government policies and overzealous enforcement that have victimized ordinary Americans. That is the story Randall Fitzgerald tells in Mugged by the State. Fitzgerald uncovers example after example of government harassment, including: a woman taken to jail for not wearing a seatbelt; a family diner seized under eminent domain laws; a couple who found army helicopters hovering over their land in a dispute over wetlands; and others. Fitzgerald, a longtime reporter for Reader’s Digest, gives a voice to the countless Americans around the country whose freedoms are being violated by the very government that should be protecting them.

Excerpt 1: Mugged by the Drug War

John Clayton operated Uncle John’s Tavern, a small neighborhood bar in Seattle, Washington, for over four years without hearing any complaints from the police or the state liquor control board. An army veteran and a retired U.S. Public Health Service employee, Clayton had invested his life savings to renovate the bar and buy equipment. The business provided income for him and his wife, Louise, while realizing his lifelong dream to host a social gathering spot for his friends and neighbors.

All of his ambitions began to evaporate on July 20, 1995, with receipt of a registered letter from the Seattle Police Department warning that “drug activity has been reported” on or around his property. In early August Clayton met with representatives of the Seattle Police and received a “drug elimination plan” with a list of actions he must take, or face closure of his business and confiscation of his property under the state drug abatement law. That statute, passed by the Washington legislature in 1988, had been designed to seize and close crackhouses. After Mark Sidran became Seattle city attorney in 1990, he expanded enforcement of the abatement law to include nightclubs, bars, and restaurants.

Excerpt 2: Mugged by Monopoly Power

On a visit to New York City in June 1997, the Reverend Nathaniel Craigmiles, a church pastor from Chattanooga, Tennessee, happened to walk past a funeral casket store and noticed a steel casket with an $800 price tag. “Hey, look at this!” Craigmiles exclaimed to his wife, “This is the same exact casket we paid $3,200 for back in Chattanooga to bury your grandmother in.”

Back home Craigmiles, fifty-two years old, proposed to a member of his congregation, seventy-five-year-old Tommy Wilson, who had spent much of his life working as a nightshift ambulance driver for local funeral homes. These two men formed a storefront business, Craigmiles Wilson Casket Supply, and obtained business licenses from the city and county. From their savings they spent $6,200 to purchase eleven caskets, and on March 1, 1999, they opened for business offering caskets at prices half that charged by area funeral homes. Four months later Craigmiles received a letter from Arthur Giles, executive director of the Board of Funeral Directors and Embalmers, a state agency in Nashville with oversight of the funeral industry. “You must immediately cease and desist all sales of caskets,” read the notice, threatening them with prosecution. “Neither you nor Mr. Wilson hold current and valid funeral director licenses.”

Excerpt 3: Mugged by Eminent Domain

A newspaper reporter’s phone call first alerted Randy Bailey to the disturbing news that city officials of Mesa, Arizona had condemned Bailey’s brake repair shop under the state’s eminent domain law and intended to turn his land over to a hardware store owner. Bailey, forty years old, was aware that the hardware store owner had purchased land behind his brake repair shop. Bailey also suspected that the richer man coveted his quarter-of-an-acre corner lot, but he never imagined the city would or could intervene to favor one businessman over another.

Randy and his father began scouring every piece of vacant land in Mesa in an attempt to find a suitable site for relocating the shop. “We quickly found out we had no place to relocate for what the city was offering to pay us. There is simply no replacing our location because it’s at a major intersection. It would cost me another $250.000 in borrowed money to relocate. I can’t afford that. I would be out of business.”

Excerpt 4: Mugged by Zoning Laws

Tom and Doris Dodd walked into the Hood River County, Oregon planning department barely able to contain their excitement. For five years they had been working and saving to build their retirement dream house on forty acres they owned twelve miles outside the town of Hood River. The site offered a spectacular view of Oregon’s tallest peak, Mt. Hood. All they needed was a building permit.

But after looking up their land records an assistant county planner confronted them with stunning news. “You can’t build here. The area has been rezoned.” The Dodds, both fifty-seven years old, were thunderstruck. No one had ever informed them of any zoning change. Tom had quit a lucrative job with an oil services company in Houston so they could move to Hood River and start construction on the house.

The Dodds had received a series of communications from Hood River county offices affirming their right to build. In a January 24, 1984, notice, for example, the Hood River County Planning Commission informed the couple that their proposed dwelling conformed to statewide land-use regulations. The Dodds had been blindsided. On February 21, 1984, the county changed the zoning for their property to a Forest Zone, and on December 17 the count enacted an ordinance banning houses on tracts of forty acres or more located in such zones.

Excerpt 5: Mugged by Public Health Regulations

For nearly a century the McCurdy Fish Company had been an employment mainstay in the village of Lubec, Maine, processing smoked and salted herring caught by local fishermen. Ownership had passed down from grandfather to father and then to son John, who was sixty-four years old when the problems began. Herring smokehouses had been a foundation of Lubec’s economy since 1797, but by 1975 America’s eating habits had changed and McCurdy’s was the last commercial smoked herring processor in the nation.

At least once a year, the U.S. Food and Drug Administration inspected the McCurdy Fish Company’s facilities, and never in the company’s history had it ever been cited for a serious violation of health and safety regulations. Three outbreaks of botulism in 1981, 1985, and 1987, produced a total of eleven illnesses in New York City, had been traced to Great Lakes Whitefish which had been processed by layering ungutted fish in salt and then air-drying it. The FDA decided to ban the distribution of any fish that was salt-cured and air-dried prior to being gutted. In May 1990, just a few weeks before the fish season would begin, an FDA official visited John McCurdy and handed him an FDA Policy Guide regulation labeled 7108.17. As McCurdy read the regulation he knew immediately that it would put him out of business. To comply with the regulation he would have to purchase gutting machines and refrigerated salting tanks costing more than $200,000.

With his economic future hanging in the balance, McCurdy phoned FDA officials in Washington, D.C., to explain how there could be no possible comparison between the whitefish targeted by the agency and the herring he processed. Besides that, as the FDA conceded, not a single case of botulism had ever been reported in sea herring. Totally unmoved by McCurdy’s logic or his pleas for understanding, an FDA official restated his agency’s position.

Years later McCurdy remained understandably hurt and angry about his forced retirement. Those feelings are only compounded by the continued sale in the U.S. of Canadian herring using the exact process the FDA outlawed for American producers.

OFFSHORE TRUSTS HELP PROTECT ASSETS, BUT RARELY SAVE ON TAXES

Anyone who tries to tell you that moving your assets to an offshore trust can eliminate a big chunk of your tax bill is either deluded or a scamster. Congress and the IRS have tightened the screws since A.N. Pritzker established his trusts. A U.S. citizen setting up a Caribbean trust today should gain some protection from future creditors, but will rarely save income or estate taxes. Not legally, that is. The main exception: when all beneficiaries are foreigners.

As for trying to evade taxes by using offshore trusts, the penalties are harsh, and the IRS has beefed up its once-meager ability to detect offshore cheats -- thanks to the new reporting requirements Congress adopted in 1996 and new information-sharing agreements with tax-haven countries.

Today, if you park assets in an offshore trust with any possible U.S. beneficiaries, the law automatically treats it as a “grantor” trust. That means all income earned by the trust is taxable to you personally, as the grantor, each year, even if it is left in the trust to grow or is distributed to other beneficiaries. Moreover, you will have to file annual returns (on Forms 3520 and 3520A) with the IRS. The penalty for failing to report a transfer of assets to an offshore trust is 35% of the amount moved; each year you fail to report income from an offshore grantor trust brings the risk of civil, even criminal, penalties.

THE RAMPANT PREVARICATION THAT UNDERGIRDS GOVERNMENT

If a politician or government official were to tell me the time, I would check my watch for confirmation. And the basis for my wariness gets reconfirmed each day, as members of the political establishment announce new falsehoods. Most people misunderstand why governments continually lie to their own citizens. It is too often explained that dishonesty in high office is brought about by disreputable, ambitious men and women attracted to positions of power; that if honest and principled persons could be persuaded to seek high office such problems would be resolved.

This attitude completely misconceives the symbiotic nature of political systems and untruthfulness. Lying is more than just an easy or habitual course of conduct to the state. It is so intrinsic to and ingrained into the system that truth operates as a kind of virus to its well-being. The very existence of the state is postulated on an intricate network of falsehoods; each one depending upon and, at the same time, supporting, the others. Should any one proposition fail, it might -- like a house of cards -- bring about the collapse of the entire structure.

Among the more prominent lies are those defining the state as the product of a “social contract” -- implying a voluntary social arrangement binding only upon those who chose to be bound. Such a lie clouds the truth that all political systems have arisen by violent conquest. Written “constitutions” are held up for our consumption, telling us that state power has been limited therein, while our individual liberties have been protected. But because the state is the body that interprets this document, its powers have consistently been given an expansive definition, and our liberties a restricted one.

THE GOLD/SILVER RATIO STRATEGY & THE CASE FOR SILVER

If you spend all your money on gold, you will have none left for silver. Which should you choose? The one that will rise fastest and farthest. I believe that will be silver, but how do we make that decision? Is there some measure, some clue other than our bald opinion?

Throughout history silver has served mankind as the primary monetary metal. However, unlike fellow monetary metal gold, most silver use is non-monetary. But the key to the silver price is monetary demand. Other categories of demand alter only slowly over time due to technological or economic changes.

Compared to gold silver is a tiny market, so the same amount of money drives silver much higher. That is why you expect to see silver rising faster than gold in a bull market -- the gold/silver ratio ought to be trending down as both metals rise. Today silver is on sale against gold. In the last precious metals bull market, silver lagged gold about three years, and then passed gold without ever looking back. I will be first in line to admit that the gold/silver ratio chart has been very, very hard for me to interpret lately -- maliciously tricky.

How to buy gold and silver.

When to buy is the eternal question. What to buy is probably just as difficult. There are many different ways to purchase actual gold and silver such as: bullion coins (my favorite), bullion bars, legal tender coins and numismatics (collectibles). The key thing to remember here is value. I believe in getting as much gold or silver as possible for price. Rest of this how-to here.

Introduction to silver futures and options here. Introduction to precious metals certificate programs, with the metal stored either domesticly and overseas here.

Jim Grant: Go long silver, short Fed arrogance.

Grant self-deprecates about the continued postponement of his forecast for the Fed to finally overplay its hand, but he has a point that we are currently witnessing one of the great monetary dramas of all time and he makes a very persuasive case for being long precious metals.

TWO-DECADES OLD CONVICTION OF EX-CIA MAN WILSON THROWN OUT

In 1982 and 1983, the federal court in northern Virginia -- the same hang-‘em-high court the feds now use to try terrorism cases -- along with courts in New York and Texas, sentenced Edwin Wilson to a total of 52 years in prison for selling arms, including 22 tons of explosives, to Libya. He was also convicted on shaky charges of attempted murder. Wilson, now 75 years old, has served 20 years in a maximum security prison. Last week, Houston Federal District Judge Lynn Hughes threw out Wilson’s two-decades old conviction. She wrote: “Government knowingly used false evidence against him,” concluding “honesty comes hard to government.”

Victim of a CIA change in policy vis a vis Libyan strongman Moammar Khadafy, Wilson and his operations partner, Frank Terpil, were cut adrift and proclaimed outlaws. During numerous trials after his capture, Wilson maintained he had been working for the CIA. But he was not allowed to cross-examine CIA witnesses for “security reasons” -- shades of today’s terrorism trials. A high-ranking CIA official provided a false affidavit to U.S. Justice Department prosecutors that the agency “had no knowledge of Edwin P. Wilson.” Judge Hughes called the case “double-crossing a part-time, informal government agent.” She aptly used the term “framed” to qualify this disgusting legal outrage.

The Wilson case should remind us of all the Justice Department’s recent and ongoing “terrorism” prosecutions, where individuals, mostly foreign-born, poor, and uneducated, have the book thrown at them and are threatened with life terms if they do not confess to crimes. While truth is the first victim of nationalist hysteria, justice is always the second.

AMERICA: A NATION APART

At 9:00 a.m. September 11th 2001, President George Bush sat in an elementary school in Sarasota, Florida, listening to seven-year-olds read stories about goats. “Night fell on a different world,” he said of that day. And on a different America. Francis Fukuyama, a professor at Baltimore’s Johns Hopkins University, suggested that “America may become a more ordinary country in the sense of having concrete interests and real vulnerabilities, rather than thinking itself unilaterally able to define the nature of the world it lives in.”

But America has not become “a more ordinary country”, either in foreign policy or in the domestic arena. Instead, this survey will argue that the attacks of 2001 have increased “American exceptionalism” -- a phrase coined by Alexis de Tocqueville in the mid-19th century to describe America’s profound differences from other nations. The features that the attacks brought to the surface were already there, but the Bush administration has amplified them. As a result, in the past two years the differences between America and other countries have become more pronounced.

ECONOMICS AND PROPAGANDA

Yes, it’s true, I recently worked in a Bush administration for some 16 months as chief economist in the United States Department of Labor. I took a walk on the dark side, you might say, eager to sip from the cup of power.

Condemn me if you must, yet I saw economic policy and propaganda being made in close relief. My conclusion? The low opinion I held of government before I went to Washington was not elevated by participation in it. I saw a complete disconnect between reality -- the economics of the business slump -- politics, and proper policy. I repeat: there was a complete and total disconnect between economics and politics.

FBI’S REACH INTO RECORDS IS SET TO GROW

A little-noticed measure approved by both the House and Senate would significantly expand the FBI’s power to demand financial records. Traditional financial institutions like banks and credit unions are frequently subject to administrative subpoenas from the FBI to produce financial records in terrorism and espionage investigations. Such subpoenas, which are known as national security letters, do not require the bureau to seek a judge’s approval before issuing them. The measure now awaiting final approval in Congress would significantly broaden the law to include securities dealers, currency exchanges, car dealers, travel agencies, post offices, casinos, pawnbrokers and any other institution doing cash transactions with “a high degree of usefulness in criminal, tax or regulatory matters.”

Officials said the measure, which is tucked away in the intelligence community’s authorization bill for 2004, gives agents greater flexibility and speed in seeking to trace the financial assets of people suspected of terrorism and espionage. Critics said the measure would give the federal government greater power to pry into people’s private lives. Some Democrats have begun to question whether the measure goes too far and have hinted that they may try to have it pulled when the bill comes before a House-Senate conference committee. Other officials predicted that the measure would probably survive any challenges in conference and be signed into law by President Bush, in part because the provisions already approved in the House and the Senate are identical.

Editorial: Better SAFE Than Sorry

The USA Patriot Act was a mixed bag when it was passed two years ago in the aftermath of the 9/11 attacks. There were necessary elements, such as some of the provisions authored by Senator Bob Graham allowing for greater cooperation in antiterrorism investigations among the nation’s intelligence agencies. But along with pluses came a number of encroachments on civil liberties that were not needed to ensure national security.

In an effort worthy of widespread support, a bipartisan coalition of lawmakers is now pushing to roll back some of the Act’s worst excesses. The Safety and Freedom Ensured (SAFE) Act, introduced by Sen. Larry Craig (R-Idaho) and Sen. Richard Durbin (D-Illinois) is supported by advocacy groups as disparate as the American Civil Liberties Union and the American Conservative Union. The bill would address the Act’s most controversial provision -- the FBI’s access to records of any sort. The bill would also narrow the use of roving wiretaps.

In the meantime, as the SAFE Act waits for action, it appears Congress is on the verge of giving the FBI even broader access to private records. The bill will soon come before the House-Senate conference committee,where lies the only hope of deleting the rash new FBI power. A responsible Congress would not go along.

THE AMERICAN EMPIRE: EASY COME, EASY GO

Empires are noted for military strength at the beginning and fiscal weakness at the end. The military budget grows as a percentage of the total budget. This will not be true of the American empire. The expenses of the welfare system for the aged will swamp the military budget long before there is a significant military threat to the United States. It will not be enemies at the gates who overwhelm the American empire. It will be the army of politically armed economic dependents inside the gates.

Private Asian investors and central banks have been buying dollar-denominated assets in order to keep their currencies from rising against the dollar. The decision-makers do not want their export markets to fade. But, in effect, when governments and their central banks follow a policy of debasing their currencies for the sake of their export markets, they have adopted a foreign aid program for America. By the end of 2003, according to JP Morgan Chase, the combined countries of Asia are expected to hold an astonishing 70% of the world’s currency reserves. Updating Senator Everett Dirkson’s comment, “a trillion here, a trillion there, and pretty soon we’re talking big money.”

For many years, America’s strong-dollar policy served the world and chiefly the United States very well. But America’s strong-dollar policy has been matched step for step by Asia’s weak-currency policies. Asian central banks insist on subsidizing exports to Americans. This policy comes at the expense of Asian domestic consumers and American manufacturers. It cannot go on indefinitely. In the immortal words of the late Herb Stein, when something cannot go on, it has a tendency to stop.

On the fringes of opinion from the fringes of Asia has come a remarkable prognostication: Christopher Wood, global emerging-markets equities strategist for Credit Lyonnais Hong Kong (a company that makes money by advising clients, not selling newsletters), predicts that by the end of the decade there will no longer be a possibility that the world’s central banks can control the situation, and there will be a truly massive devaluation of the US dollar. “The view here is that the US dollar will have disintegrated by the end of this decade. By then, the target price of gold bullion is $3,400 an ounce.”

Introducing “The BED Spread”

Technically speaking, the TED spread is the difference between interest rates on the 90-day U.S. Treasury and the 90-day Eurodollar deposit contract. The spread measures of systemic risk. It is premised on the belief that the U.S. bond market is the financial world’s safe haven of last resort. But what, to borrow a phrase from Michael Moore, if that’s a big fat lie? If the U.S. bond market is not as safe as you have been told, how would you know? How can you actually measure how close we are to the day of gloom and doom and $8,000 gold?

You would begin to have an idea that the world was going to hell in a hand-basket if you could measure the spread between U.S. debt (which we know to be risky) and debt that the market considers risky, namely baseline emerging market debt (BED). A BED spread, you say? To get it, I established a spread between emerging market debt and U.S. government debt. If I am right about the U.S. bond market losing its gold-standard reputation, the spread should converge over time.

OPINION: ELECTRONIC VOTING DEBACLE

Grave concerns over the security of electronic voting machines in the United States means the heart of American democracy is at risk. After the 2000 election debacle in Florida (and actually in plenty of other locations around the U.S.) Congress passed the Help America Vote Act in 2002. One of the functions of the new law was to provide $4 billion for states to use in updating their often antiquated voting equipment. With federal money available, and the cautionary story of Florida as a warning, states began turning in droves to electronic voting machines.

A litany of problems and odd results have shown up in recent elections. In Georgia in 2002 there were six electoral upsets in that election, including one in which the incumbent senator, who was far ahead in the polls, lost by 11 points. Diebold had changed the software used by the voting machines seven or eight times, without anyone examining it, and then after the election the company immediately overwrote the flash memory of all the cards used by those machines, so it is now impossible to know what the vote counts really were.

Problems abound. But it is actually much, much worse. After extensive reading, I have come to the conclusion that electronic voting as a concept needs to be scrapped, or at least placed on hold while basic concerns are addressed. Unfortunately, I am not very convinced that those basic concerns will ever be addressed, and that has me greatly concerned about the trustworthiness of elections in the United States.

WHERE ARE THE CUSTOMERS’ YACHTS?

Forty percent of the purchases of prime properties in the middle of London in the boom years were by City types, though as these have been culled, so prices have dropped off a bit. The same is true of Wall Street, broadly defined, which has generated huge wealth for those who work in it, and helped drive up the price of Manhattan property. But the friction costs of capitalism have been unduly high.

The wealth of those that have handed over their money to be invested by experts seems to have shriveled at about the same rate as it has grown for those that do the investing and the hoards of expensive hired hands that have advised them, worked for them or apparently kept an eye on their activities. The mutual-fund scandals demonstrate, first, that a gluttonous financial-services industry has been more concerned to make money for itself than for those whose capital it looks after; second, that most of this is done entirely legally, by getting clever people to get round outdated rules; and third, that wise investors would have left the casino long ago.

Simply put, the mutual-fund scandal is about one group of active investors trading at old prices at the expense of smaller, more passive investors. Much as Wall Street is keen to draw a line under this latest scandal, you do not need to be unduly perspicacious to find links between this one and other, very recent scandals. For one thing, shareholders have lost out in all of them.

Despite the evidence that fund managers care more about their own finances than those of their investors, the hope that the bull market would continue ad infinitum is intact. In October American equity mutual funds enjoyed a near-record net inflow of $25-30 billion. For anyone tempted by the thought that this means the good times will continue to roll, the record was set in February 2000.

THE TRAGEDY OF THE COMMONS AND FRACTIONAL RESERVE BANKING

In his now famous 1968 essay, The Tragedy of the Commons, Garrett Hardin describes how common, i.e., public, property, is overused until it deteriorates or is destroyed. In Dinero, Crédito Bancario y Ciclos Económicos, which will soon be available in English, Huerta de Soto applies the concept of the tragedy of the commons to an analysis of fractional reserve banking.

Huerta de Soto’s application clearly explains why fractional reserve banks, by their very nature, are always tempted to expand credit. He also explains why fractional reserve banks in a free banking system are under immense pressure to introduce a central bank. As he points out, the problem of the tragedy of the commons always appears when property rights are defined improperly. In the case of fractional reserve banking, bankers can infringe on property rights because it is not clearly defined who owns the deposit.

When customers make their deposits, the promise is that the deposit is always available for withdrawal. However, the deposits, by the very definition of fractional reserve banking, are never completely available to all customers at one time. This is because banks will take a part of these deposits and loan them out to other customers. In other words, they issue fiduciary media. By issuing more property titles than property entrusted to them, the banks violate the traditional property rights of their customers. Banks that infringe upon and abuse the property rights of their clients can make very good profits. The temptation to expand credit is almost irresistible. Moreover, they will try to expand credit and issue fiduciary media as much as they can possibly get away with.

The question now concerns how the banks can increase the profits from credit expansion while keeping the risk of bankruptcy low. The solution, obviously, is to form agreements with each other in order to avoid the negative consequences of an independent and uncoordinated credit expansion. Enter a central bank ... a centrally administered cartel with the imprimatur of the government.

THE PATRIOT ACT LETS THE FEDS SPY ON YOUR FINANCES. DOES IT HELP CATCH TERRORISTS?

Sound familiar?: “While an act conferring such broad authority over transactions such as these might well surprise or even shock those who lived in an earlier era, the latter did not... live to see the heavy utilization of our domestic banking system by the minions of organized terrorism as well as by millions of legitimate businessmen. [I do not] think it was strange or irrational that Congress, having its attention called to what appeared to be serious and organized efforts to avoid detection of terrorist activity, should have legislated to rectify the situation.” In fact the quote concerns the Bank Secrecy Act (BSA) of 1970, with the only change made to this decades-old quote is to substitute the word “terrorist” for “criminal” and “terrorism” for “crime”.

The reason the arguments sound familiar is that the BSA set the precedent for much of the PATRIOT Act, not to mention other government fishing expeditions. The law authorized the government to require bank reports of all transactions over a dollar value set by the Treasury Department, even if there is no reason to suspect a criminal connection. A district court struck down the BSA’s reporting requirement, but its decision was reversed by the Supreme Court. In a complicated majority opinion, Rehnquist said that banks, as businesses, do not have the same Fourth Amendment rights as individuals. The BSA can now be thought of as a 30-year experiment in subverting the Fourth Amendment.

Legal fine points aside, two important questions remain: 1.) Are financial surveillance programs consistent with the principles of a free society; and 2.) Just how effective have they been? Have we gotten more security during the last 30 years in exchange for the sacrifice of privacy? Looking specifically at the BSA and other bank surveillance measures, prominent experts in law enforcement, national security, and technology say the answer is no. The record of FinCEN, the agency that was charged with tracking terrorist financing prior to 9/11, seems to vindicate their arguments. The lack of success with the financial information that the government has long been collecting does not bode well for more-ambitious data dredging plans. Indeed, experience suggests that piling up more data could make it harder to zero in on terrorists.

UNDER THE POLITICAL PROCESS GOOD INTENTIONS WILL BE DISTORTED AND ULTIMATELY TAKEN TO ABSURD ENDS. COUNT ON IT.

The political process always manages to turn idealistic dreams inside out. For an excellent example, look no further than the civil rights laws passed in the last 40 years. The Civil Rights Act of 1964 did not simply repeal state laws compelling segregation. It prohibited racial segregation -- voluntary or otherwise. Although the activists believed coercion served the noble objective of bringing the races closer together, it was coercion nonetheless. And coercive laws never stand still. No matter what a law’s backers say at the time of passage, the law always stretches in surprising directions. The expansion occurs on at least two fronts: The law almost always is enforced more broadly than intended, and when government benefits one group, other groups are encouraged to seek similar benefits.

Has far has the law been stretched? It has been stretched all the way inside out. The civil rights laws originated to end segregation of the races in the South, but in 1992 a Florida court used these laws to award a white woman permanent disability benefits -- ruling that her employer should have provided a segregated workplace to accommodate her fear of blacks. Although the decision seems absurd, something of the kind was inevitable. You cannot limit coercion to the uses you think are right. Don’t think of this case as an example of a government program gone wrong. It is an example of a government program -- period.

Whatever social reform you may envision, the version the government implements will be something completely different. However lofty your purpose, it will be debased by compromises in the legislature, in the administration of the program by thousands of government employees, and in the settling of the inevitable disputes. You are not a dictator. You cannot control the actions of politicians, bureaucrats, and judges. Please remember that the next time you think some law will solve some great social problem.

GEORGE SOROS: “THE BUBBLE OF AMERICAN SUPREMACY”

September 11 introduced a discontinuity into American foreign policy. Violations of American standards of behavior that would have been considered objectionable in ordinary times became accepted as appropriate to the circumstances. The abnormal, the radical, and the extreme have been redefined as normal. The advocates of continuity have been pursuing a rearguard action ever since.

To explain the significance of the transition, I should like to draw on my experience in the financial markets. Stock markets often give rise to a boom-bust process, or bubble. Bubbles do not grow out of thin air. They have a basis in reality -- but reality as distorted by a misconception. Under normal conditions misconceptions are self-correcting, and the markets tend toward some kind of equilibrium. Occasionally, a misconception is reinforced by a trend prevailing in reality, and that is when a boom-bust process gets under way. Eventually the gap between reality and its false interpretation becomes unsustainable, and the bubble bursts.

Exactly when the boom-bust process enters far-from-equilibrium territory can be established only in retrospect. During the self-reinforcing phase participants are under the spell of the prevailing bias. Few bubbles reach the extremes of the information-technology boom that ended in 2000. The sooner the process is aborted, the better.

The quest for American supremacy qualifies as a bubble. The dominant position the United States occupies in the world is the element of reality that is being distorted. The proposition that the United States will be better off if it uses its position to impose its values and interests everywhere is the misconception. It is exactly by not abusing its power that America attained its current position.

A LESSON IN ECONOMICS AND MARKETS FROM A BASEBALL TEAM OWNER

Ask Boston Red Sox owner John Henry for his thoughts on the economic landscape in baseball, and you will not get a sound bite in return: “It looks as if it was hard to make deals with everyone trying to unload contracts on one another... People want to unload the contracts that were signed when [General Managers] and team owners labored under the belief that player salaries and franchise values could never go down. That’s what happens at the end of every bubble...

“This offseason, in the aftermath of the bubble, you have most people saying ‘Whoops’. Nothing in what is happening is strange if you have even the slightest understanding of how markets work. There has never been a bull market in history in any sector, in any country that was not followed by a bear market with repercussions...

“So player salary inflation went through the roof, very analogous to the way Tokyo real estate soared before it crashed. Now it is coming back to earth. There is nothing strange, nothing unnatural about that, but whenever a peak is reached in any market no one believes it for quite a while. Most people continue to think for some time it will make new highs in short order. Markets don’t work that way, however. Trees don’t grow to sky and keep growing. Revenues only support a certain payroll. Deficit spending for individual businesses in general stops when debt levels reach a certain proportion of equity.”

THE TRUTH ABOUT THE U.S. WAR ON TERROR

Terrorism and Tyranny: Trampling Freedom, Justice, and Peace to Rid the World of Evil, by James Bovard, has been out for several months now. (Several laudatory reviews of the book have been included and highlighted in previous Digest pages.) For those who support the government’s “War on Terrorism”, the book will reveal, in the starkest terms, how your government failed you. For those who oppose it, this book will confirm that everything you fear is true.

Bovard asks: Should the government have suspected that al Qaeda planned to launch attacks on the U.S.? Answer: Absolutely.

In 1998, the CIA determined that Osama bin Laden was “actively planning against U.S. targets.” Also in 1998, U.S. intelligence learned that al Qaeda planned to fly planes into the World Trade Center towers. In 1999, a study for the National Intelligence Council warned that al Qaeda could crash-land planes into the Pentagon. In 2000, U.S. intelligence learned that bin Laden planned to hijack 747s. In 2001, an FBI agent warned that an al Qaeda network was training pilots in the U.S. to hijack planes. In July 2001, a National Security Council counterterrorism specialist warned: “Something really spectacular is going to happen, and it’s going to happen soon.”

What was the government’s response? As of 9/11, the CIA had only five full-time analysts monitoring bin Laden’s terrorist network. Meanwhile, the FBI had over 2,000 agents working on drug cases. And on the night of 9/11, the FBI had 10 agents wiretapping a brothel in New Orleans.

SWEEPING NEW EMERGENCY LAWS TO COUNTER TERROR TO BE ANNOUNCED THIS WEEK IN U.K.

The Civil Contingencies Bill, which covers every kind of disaster from terrorism to the weather, will be the biggest shake-up of emergency laws since the early part of the last century, replacing legislation which saw the UK through a world war and the IRA bombing campaign.

Some of the proposals in the draft version of the Bill, drawn up in the summer, have alarmed civil rights activists, notably a clause that gives the Government the power to suspend parts or all of the Human Rights Act without a vote by MPs. Once an emergency has been proclaimed by the Queen, the Government can order the destruction of property, order people to evacuate an area or ban them from traveling, and “prohibit assemblies of specified kinds” and “other specified activities”. If these rules had been in force during the Iraq war, critics say, they could have been used to to ban street demonstrations, making anyone who travelled to protest guilty of a criminal offence.

THE RISE OF THE AMERICAN KGB

DNA profiles from hundreds of thousands of juvenile offenders and adults arrested but not convicted of crimes could be added to the FBI’s national DNA crime-fighting program under a proposed law moving through Congress. The FBI’s national DNA database holds genetic profiles from about 1.4 million adults convicted of state and federal crimes. The changes, in a little-noticed section of a bill that would authorize $755 million for DNA testing, were approved by the House of Representatives on Nov. 5. Backers say the Senate is likely to approve a similar version by early next year.

DNA database networks will soon be the de facto national ID card system. This proposed law, in addition to PATRIOT I, bodes ill for what remains of our justice system. It opens a brand new door to abuse by State agents. If you think that once that door is open, nothing bad will happen, you are not only naïve and deluded, you are smoking something that is not sold at 7-Eleven. Unlike fingerprints, DNA material is easily planted at a crime scene.

Once passed, this law will enable any State agent to arrest you for any reason, specious or otherwise, just to get DNA material from you. Once they have it, you can be freed, with all “charges” dropped. When the State needs a fall guy, all it has to do is plant one of your hairs at a crime scene. The FBI’s computer will then find the “criminal” and you will be quickly arrested, charged, tried, and convicted because, as we all know, DNA matching is virtually 100% proof positive.

PATRIOT I already enables State agents to search your home at any time, giving them plenty of opportunities to gather new DNA material that will then mysteriously appear at a crime scene. It will not matter who your attorney is, how much money you make, or what your alibi is, you will be convicted and sent to prison if/when the State targets you. Welcome to the Soviet Union, comrade!

THE BRITISH REICH

Claire Short, who resigned from the UK Cabinet shortly after the Iraq war, told a TV interviewer that her erstwhile Leader had “swallowed the whole argument of the American neo-Conservatives.” There will be few who argue with this assessment, whether from among the members of that sinister coterie which surrounds President Bush and fills his head with Apocalyptic visions of his role in history, or from among the hundreds of thousands of good British folk who have taken to the streets over the past year to protest Blair’s rush to war at the Imperator’s side.

More damning still, Ms. Short -- who, after all, must know the Leader very well indeed -- went on to declare: “He wants to be sort of messianic, and say everything’s about moral principle. He likes to be sort of right-wing, and he’s quite shallow ... He’s just taken this in, hook, line and sinker.”

A messianic leader who counters every argument through an appeal to his own inner voices and his unique moral compass? Does this not have an uncomfortable ring about it, calling to mind another “man of ideas” who, once he had risen to head another great country in Europe, led it inexorably to tyranny, barbarity, and -- at length -- utter ruin? But, no, we exaggerate, surely?

THE CONSTITUTION CON

I have always said that there is nothing wrong with this country that going back to the Constitution could not fix. It has long been my contention that, though liberals insist the Constitution is a “living” document intended to “evolve with the times”, the Founding Fathers wrote what they meant and meant what they wrote. It turns out I was kind of right, but completely wrong.

On Day Two of the 2003 Freedom Summit, one of the featured speakers was well-known pro-freedom author, Boston T. Party. Having long been an admirer of his, I could not wait to hear his speech. But in his opening remarks, Boston said that he was tired of those “whiners” who kept saying, “I just wanna go back to the Consti-tooooooo-shun!” Well, since I’m one of them, I was just a little offended by that remark. But what he said next was so shocking that it literally suspended time between one breath and the next. “Folks, we’re living under the Constitution right now!” I sat there with my mouth open, considering dozens of things I might say to refute his assertion, and that is when it struck me with the force of a lightning bolt: Boston is right.

After years of lamenting the state of affairs under US law and wishing for a return to the Constitution, I realize that my wish was actually granted long ago. There is no need to hope for a Constitutional government or a Constitutional set of laws. That is exactly what got us into this mess in the first place, and exactly how we are living right now. I have a new hope now, and that is this: I want to return to the Constitution as it was presented.

GARY NORTH ON THANKSGIVING

Thanksgiving Day is an old tradition in the United States. It really did have its origins in Plymouth Colony, in the fall of 1621, when the Pilgrims who had survived the first year invited Chief Massasoit to a feast, and he showed up with 90 braves and five deer. The feast lasted three days.

About half of the Pilgrims who arrived in Plymouth in 1620 were dead a year later. The Indians really did save the colony by showing the first winter’s survivors what to plant and how to plant it in the spring of 1621. The Pilgrims really did rejoice at that festival. They were lucky -- graced, they would have said -- to be alive. So are we. Ludwig von Mises wrote somewhere that Charles Darwin was wrong. The principle of the survival of the fittest does not apply to the free market social order. The free market’s division of labor has enabled billions of people to survive who would otherwise have perished.

So, give thanks to God on Thursday, even if your only god is the free market. You did not obtain all that you possess all by yourself. The might of your hands did not secure it for you. A little humility is in order on this one day of the year.

PRICE INFLATION HAS NEVER DISAPPEARED

Some of you may have seen forecasts that the American economy is headed toward price deflation in the last three years. You may be new to all this. These predictions may seem like the latest and greatest. Actually, they are quite ancient, as economic forecasts go. J. Irving Weiss predicted imminent price deflation in 1967. His prediction was made at the very first gold investment conference, sponsored by Harry Schultz. According to the Inflation Calculator of the Bureau of Labor Statistics, it would take over $5.50 to purchase what $1 purchased in 1967. Mr. Weiss’s prediction was wrong. But he never changed his mind.

His son, Martin Weiss, continued the same theme after his father retired. In 1982 he was sure that deflation was imminent. Today, it would cost $1.91 to buy what $1 bought in 1982. As recently as 2002, he was quoted as saying: “Debt is dangerous. Deflation is worse -- it destroys the ability of borrowers to pay back debts. Throw the two into the same pot, and the resulting explosion can blow up the ‘strongest’ economies, sabotage the most ‘astute’ central bankers, and destroy the wealth of the ‘smartest’ investors.” Mr. Weiss has at long last abandoned the Weiss family forecasting heritage -- he warns that inflation is barreling down upon us, as quoted in a November 14 column in The Daily Reckoning.

Are we facing price deflation? Hardly. Are we facing the FED’s willingness to reduce the rate of economic recovery in an attempt to keep price inflation from escalating, thereby threatening the market for government bonds? I think so. So, it has shrunk the money supply. It will do what it can to delay the collision between monetary inflation and price inflation. Right now, it is betting that price inflation is a greater short-term threat than deflation is.

LOOKING AT GOLD

Gold briefly passed $400 an ounce on Wednesday and that might make many investors finally take notice, although gold has been in a bull market since April 2001, rising more than 50% in that time. But after two weeks of tiptoeing around $400 an ounce, gold has still not managed to breach this important psychological level convincingly. While this stuttering does not mean that gold cannot go higher, analysts say, it is a warning to investors getting in now to temper their expectations. Investors should not expect gold to repeat its recent history and rise another 50%, the analysts say.

But among the gold producers and the gold faithful who have lived though dark times -- the fall from over $800 an ounce in 1980 -- there is no worry: gold, which has been trading over $390 an ounce since Nov. 12, is surely going higher. Even Ian C. MacDonald, manager for precious metals at the New York branch of Commerzbank and a bear on gold for 15 years, said, “The scary thing is we don’t know how high this price can go.”

Investors attracted by the $400 headline could benefit by taking note of what is pushing the price of gold higher and considering whether these forces have the momentum to keep the rally going. It is also not a bad idea to listen to those analysts who argue that a small amount of gold in a portfolio, something under 5 percent, can be an effective way to diversify, regardless of the outlook for gold.

The chief argument for gold recently has been the weakness of the dollar. An analyst at a big hedge fund, who insisted that he not be quoted by name, put the argument bluntly. “I don’t think supply and demand matter,” he said. “What matters is the esteem people have for paper money and what we are seeing here is a flight to hard assets -- gold.”

EASY-TO-OBTAIN SUBPOENAS CAN UNLOCK YOUR INTERNET PRIVACY

When the Recording Industry Association of America started issuing subpoenas to Internet service providers last summer, the move unnerved computer users who had downloaded hundreds of tunes to their hard drives. But if you do not use music file-sharing sites, you have nothing to worry about, right? Wrong. The same law that allows the RIAA to find out who is illegally sharing Johnny Cash tunes also lets anyone -- including abusive spouses, online stalkers, and blackmailers -- find out personal information (perfectly legally in many cases) about people that they have corresponded with on the Internet.

The Digital Millennium Copyright Act (DMCA) allows copyright holders to seek damages from anyone who steals copyrighted material. But the RIAA by itself cannot get the names of the file-sharers. The organization only knows the file sharer’s IP address at the time of the alleged violation. Using those two pieces of information, however, the RIAA can file a form with a federal court clerk, and have the clerk issue a subpoena -- a legal demand for information from the suspected music pirate’s ISP -- to find out the name, mailing address, phone number, and e-mail address of the copyright violator.

Thanks to section 512(h) of the DMCA, literally anyone can walk into a federal courthouse, fill out a form alleging that they are the victim of a copyright violation, and walk out with a legal document in hand that gives them the right to ask an ISP for a customer’s contact information. The law requires only that you have a “good faith belief that someone violated your copyright,” says Sarah Deutsch, vice president and associate general counsel for Verizon, one of the ISPs fighting the RIAA’s subpoenas against Internet users. No judge reviews the request, and the clerk issues the subpoena on the spot.

And in fact someone could technically argue that an online acquaintance has violated their copyright. Every e-mail you write is copyrighted automatically, so an enemy could claim that you forwarded their e-mail message without their permission and thus violated their copyright.

MISTRIAL IS DECLARED IN TAX WITHHOLDING CASE

Jurors in Fort Worth, Texas failed to reach a verdict Tuesday in the trial of a Texas businessman who has not withheld taxes from his workers’ paychecks since 2000, the second significant setback in four months for the federal government in tax cases. The defendant, Richard M. Simkanin, 59, who says he is a citizen of the Republic of Texas and not of the United States, was returned to jail, where he has been held since July, until a new trial begins in Federal District Court.

In August, Vernice Kuglin, 58, a Federal Express pilot, was acquitted on six counts of tax evasion. She testified that she wrote letters asking the IRS what law required her to pay taxes. Her lawyer said the letters, which were not answered, showed that Ms. Kuglin lacked criminal intent. The acquittal does not excuse the taxes owed by Ms. Kuglin, which the IRS is trying to collect.

Mr. Simkanin made similar arguments when he testified at his one-day trial on Monday. Before he stopped withholding taxes from workers at his Arrow Custom Plastics in Bedford, Texas, Mr. Simkanin obtained written opinions from a lawyer and a certified public accountant that he was not required to withhold, his lawyer, said. “He sincerely believes he does not have to withhold,” said his lawyer, citing a Supreme Court standard for acquittal of tax evasion.

William Cohan, a lawyer in San Diego who has defended many tax protesters, said that “the statutes that impose filing requirements read like gobbledygook to the average person,” making convictions difficult. He said “the policy of the IRS is to retaliate against people who challenge their authority instead of saying, ‘Here’s the law.’”