I'm going to talk about the corrupt origins of central banking in America. And this is based on some research I've done. And the type of research is kind of similar to things that I've published in the past on antitrust. And I was, years ago, I was in a bit of a debate with sort of mainstream economic researchers over antitrust, because the method of analysis, as it is in most of these areas, was, you know, recommendations to reform antitrust. You know, there's, you know, paper after paper is published. They should do this, they should do that, they're doing this wrong, doing that wrong. And the same with monetary policy. When I was in your shoes as a student, you know, we learned all about the great debates between Milton Friedman and the Keynesians and the proper type of monetary policy. But the conclusion I came to pretty quickly with antitrust is that trying to reform antitrust is kind of like trying to reform kudzu. I don't know if you know what kudzu is. Some of you from the South know what kudzu is. It's that vine you see on the side of the highways that grows, some people call it inch and night vine. It grows an inch and night. And you can't reform kudzu. You can't trim it or clip it or make it look nice. It just grows like crazy.  You can't do it. And I'm the same, my thinking is the same way with central banking. There are thousands of articles written about how to reform central banking and maybe putting better people in charge, smarter people in charge, better educated. The Fed and my university, maybe some of yours, they have the Fed challenge where a lot of our students go before a tribunal of Fed bureaucrats and they debate over how best to centrally plan the economy.  And I say these things to my colleagues who teach monetary economics. They don't appreciate it much, but that's the truth. And so you can't reform the Fed anymore than you can reform Kudzu or antitrust regulation because of the inherent nature of the beast. And so what I'm going to talk about is some of my research that shows it's sort of a direct link to my early research on antitrust. I published a paper many years ago called The Origins of Antitrust. It's online. You can look at it. And because I was getting sort of aggravated with these mainstream economists who kept telling the story that, well, there once was a golden age of antitrust, where there was rampant monopolization and market failure, cartels, and the government came to the rescue. And that always sounded kind of fishy to me. So I looked into it and I found, lo and behold, the industries that were accused of being monopolies were cutting prices and expanding output and inventing new products for 20 years in a row. They were the most competitive industries in the country. And so in this research I'm going to talk about today, I did something similar by looking into the very origins of central banking in America because I want this to be a sort of a look at it as sort of a counter to the arguments that monetary policy can somehow be the reforms. And maybe there once was a golden age of monetary policy when we needed a Fed. And I'm going to argue that, no, it always was an engine of corruption, among other things. And it always was designed to create boom and busts and to inflate big government even bigger than what the Constitution would allow. And it starts with the very first central bank in America. It was called the Bank of North America. It wasn't even the Bank of the United States. Some of you who may have studied this might think the Bank of the United States were the first. But it's called the First Bank of North America. And Murray Rothbard wrote about this in the Mystery of Banking. And this was the project of one of the wealthiest men in America during the time of the American Revolution, Robert Morris, a native of Liverpool, England. And here's what Murray Rothbard said, Robert Morris, who was a wealthy businessman from Philadelphia, why he wanted a government-run bank. And so think about this. They just fought a revolution against the British Empire financed by the Bank of England. And so there's a big group of people in America who wanted to bring an American version of the Bank of England to America. And so as you would expect, there was a lot of opposition to this. But Rothbard said, what they wanted was, quote, to reimpose in the new United States a system of mercantilism and big government similar to that in Great Britain against which the colonists had rebelled. The object was to have a strong central government, particularly a strong president or king as chief executive, built up by high taxes and heavy public debt. The strong government was to impose high tariffs to subsidize domestic manufacturers, develop a big navy to open up and subsidize foreign markets for American exports, and launch a massive system of internal public works, road building, canal building, and that sort of thing, government funded. In short, the United States was to have a British system without Great Britain. And so what happened was, after they fought a war to secede from British mercantilism, there was a clique in American politics led by Robert Morris and his young protege, Alexander Hamilton, to create the British and American version of the rotten, corrupt British mercantilist system that they had fought a war against. And I usually, when I first realized this, it reminded me of the Mel Brooks movie, History of the World. I forget if it was part one or part two of the comedian Mel Brooks, where Mel Brooks plays the king of France. And he's out there skeet shooting. And he has a gun in his hand, a musket. And he has a servant who has serfs, serfs. And they grab ahold of one of these guys by the feet, throw him up in the air, and the king shoots at him. And one of his aides, I'm paraphrasing, there's not the exact dialogue.  And then Mel Brooks, the king of France, says something like they certainly are. Anyway, that's one of my favorite things. But in another scene, the big laugh line of Mel Brooks, he kept saying, it's good to be the king, good to be the king. And at the right point, in the right delivery, it was always really funny. Oh, of course it's good to be the king. But that's how I look at Morris and Hamilton and the Federalist Party in early America. They just fought this revolution against this rotten, mercantilist system. But they understood that if you're on the money collecting end of that system, it's good. It's good to be the king. But if you're on the paying end, like the American colonists were, not good. It might even be worth fighting an eight-year war to get away from that. But it was not good. So to organize this, Murray Rothbard called it the Morris Scheme. It was to organize and head a central bank, which they did. They got the Bank of North America was given a monopoly in currency issue. And it was so unworthy and so untrustworthy that it only lasted two years. And nobody had any confidence in the currency. And so the bank was privatized. So that didn't work very well. But they never gave up. Look where we are today. We've got the Fed. They never gave up ever. 200 years later, they're still at it. Not the same individuals, but they're political descendants. And so Rothbard then says that Morris, after this happened, after the Bank of North America imploded, he called on what Murray called him his, quote, youthful disciple, Hamilton. And Hamilton knew nothing at all about finance and banking, economics, contrary to what the historians will tell you. He was a dunce on that. He never studied it. He worked as a clerk for some slave-owning molasses merchants in the West, in the Caribbean as a young man. But that's the only experience he had, really, with anything related to commerce, economics. And these were British mercantilists who he worked for in the British Virgin Islands. And so he learned about the British mercantilist system and political connections and political cronyism. And so in Ron Cherno's book, which is The Big Biography of Hamilton, he talks about this, about how Robert Morris chose the young Hamilton as his protege, because he had been George Washington's protege in the Revolutionary War. And he wrote George Washington and said, I would like Hamilton to be the Treasury Secretary. And George Washington turned to Hamilton at that point and said, I didn't know you knew anything about finance. We never talked about it.  And so Hamilton decided he needed to learn something about money and finance then at that point. And so here's what Cherno says. Hamilton brushed up on money matters and had Colonel Timothy Pickering. This is at the very end of the revolution. Pickering would later become George Washington's Secretary of State and Secretary of War. It had him send him some primers, David Hume's political discourses, tracks written by the English clergyman and polemicist Richard Price, and his all-purpose crib, Postal Weights Universal Dictionary of Trade and Commerce. So he basically read some Cliff Notes-type books on commerce. Just enough to write a letter, an April 30 of 1781 letter to Robert Morris. This is Hamilton at the very end of the revolution, looking for a job, basically. This is how he introduced himself to the wealthiest man in the world. He was the assistant to the most powerful man in the colonies, George Washington. And he was thinking, well, what am I going to do when this war is over? I'll write a letter to the wealthiest guy in the country. See me, I'll work for him. So he wrote this letter saying, I've studied up on economics. And here's what I think we need in the letter. It's protectionist tariffs, a central bank, taxes on property, poll taxes, and a large public debt. He said, a national debt will be to us a national blessing, national debt. And the reason he said that, the reason he gave for calling the national debt a blessing, was that he believed the government needed to be much bigger than what the Constitution would allow. He believed this, certainly, with the Articles of Confederation, which was the first Constitution. And then also, when the actual US Constitution, the colonies seceded from the Articles of Confederation and created the US Constitution. And Hamilton thought even the US Constitution was too weak. He called it a frail and worthless fabric once it was ratified. But he thought a big public debt could take care of that, could counter that. And here was his theory, it was kind of Machiavellian. He thought that if the government would sell a lot of bonds to raise money, then it would be the wealthier people of the country who would be buying most of these bonds. They're the ones with the means to purchase all these bonds. And so they would have a personal interest in making sure that government always had enough revenue to pay off the principal and interest on their bonds. And so that you would create sort of a lobbying class for bigger government and higher taxes among the wealthy and more influential people of the country. It's sort of the opposite of today where the welfare parasite class is the big voting block for bigger government in the eyes of most politicians. But it was also the wealthy class in the eyes of Hamilton. And so these two worked together to lobby for a resurrection of a national bank, which they eventually did. Here's what Hamilton later said about why we needed a bank run by politicians. You know, there's a good idea for you. He said, Great Britain is indebted for the immense efforts she has been able to make in so many illustrious and successful wars because of the existence of the Bank of England. So that's a good reason for having a bank run by politicians. We can get in more wars. And Hamilton spoke about the imperial glory that many Americans would achieve with more wars, especially a war against France. He was itching to start a war with France. And then he said, the tendency of a national bank is to increase public and private credit. The former gives power to the state for the protection of its rights and interests. So it balloons the state and it creates boom and bust cycles by creating too much private credit. He didn't say boom and bust cycles, but that's what it is. So if you're wondering, it's my hunch this is one of the reasons why so many New Yorkers have been flocking to this play on Broadway. Hamilton is that, you know, he's their big government guy. He's their favorite left winger. And a friend of mine who happened to be in New York City and visited Hamilton's grave, which is in this church yard right across from the 9-Eleven site from the Twin Towers site. He said he stood there and watched it for, this is Butler Schaefer told me this, stood there and watched it for about five minutes and there was no movement. So he felt safe enough to leave. The grave site, it's still there, I've seen it, I've been there, I saw Hamilton's grave. Okay, so the purpose of the America's first national bank, according to its founders, was one, to dispense corporate welfare and subsidies to politically connected businesses. And two, to grow the government, to finance government by disguising the cost of government through debt, debt finance. That's so, you know, if you have ever read the chapter on war in human action, I recommend everybody do it. It's one of my favorite chapters in human action. It very clearly states, you know, the basic economics that, you know, if you finance wars with taxes, there will be fewer of them and they'll be shorter. But if we finance them with debts, there'll be more of them and they'll be longer. And if we finance them with inflation, printing of money, that's the worst possible thing of all, because they all disguise the true cost of government. But the most explicit cost is there when you have to finance these with taxes. And so Hamilton, he favored this, this is why he favored this big debt to grow the government, okay? And here's a statement of what the Federalist Party was up to by Douglas Adair. He was the editor of one of the editions of the Federalist Papers. And here's what he said in the introduction to the Federalist Papers, Douglas Adair, the historian said, with devious brilliance, Hamilton set out by a program of class legislation to unite the property interests of the Eastern Seaboard into a cohesive administration party while at the same time he attempted to make the executive dominant over the Congress by a lavish use of the spoil system that is giving government jobs when he was Treasury Secretary, giving government jobs to political supporters. In carrying out his scheme, Hamilton transformed every financial transaction of the Treasury Department into an orgy of speculation and graft in which selected senators, congressmen and certain of their richer constituents throughout the nation participated. Sounds like the Clinton administration, doesn't it? Clinton Foundation or something like that. An example of what Adair is talking about is as Treasury Secretary, Hamilton nationalized the state debts, the federal government took over the state debts and he purposely created a huge arbitrage opportunity for the politically connected class because this was, of course, before the internet. And so the word went out among the political class that here's the plan, there's all these bonds out there, a lot of them are held by revolutionary war veterans who were paid in government bonds for their service in the war. And so all throughout the hinterland, there were all these bonds out there and they were being traded, some of them between two and 10% of par value. So the insiders, the congressmen, the senators, the executive branch people, the financiers like Robert Morris who were politically connected, they knew this. They knew that at some point the government was planning on paying par value, 100% face value of these bonds. But in the meantime, if you could go and buy them up at 2% of face value and then sell them at six months later at 100% of face value, you could make a good penny doing that. And so there was this mad rush, like a gold rush, up and down the eastern seaboard where the politically connected people like Robert Morris himself hired people to go and stagecoaches, boats, whatever, however they could go, up and down the eastern seaboard to buy up as many of these bonds as they could from whoever would sell them out there. And as a result of this, Robert Morris himself made, according to the New York newspapers, made $18 million. And this is before the 19th century. Okay, Governor George Clinton of New York made $5 million. Hamilton himself hired buying agents, bond buying agents in Philadelphia and New York. How corrupt is that? That sounds like an early Henry Paulson trick to get into the government and use it to enrich your company that you work and yourself like this. Talk about insider trading. You know, there's some real political insider trading there. Okay, and so this is what happened. And so, okay, so fast forward a little bit. After Hamilton is dead, Gary North once told me, by the way, that he once started up an Aaron Burr society. And their logo was not soon enough. Aaron Burr is the guy who shot Hamilton dead, by the way. So no love there. But so, and that was in 1804, in the year 1818, Jefferson, Thomas Jefferson wrote an essay describing what Hamilton and his party were up to regarding central banking. He said, Hamilton's financial system, and his financial system was a central bank, corporate welfare for internal improvements, road building and all that, and protectionist tariffs. Hamilton called it labeled at the American system and Henry Clay took that over after Hamilton died in the 1830s. But anyway, Jefferson said, Hamilton's financial system had two objects, first as a puzzle to exclude popular understanding. That is, to make government finance as confusing as can be so that even most members of Congress would have no idea what the heck is going on. And let alone the public, they just befuddle the public and then not let them be privy to how the system works. That's one. And secondly, this is Thomas Jefferson saying this. Secondly, as a machine for the corruption of the legislature, okay. What does it mean by the corruption of the legislature? Well, the purpose of this arbitrage policy of the nationalizing the debt was to get all these congressmen, make them rich. And if they're made rich by Hamilton and the federalists, they would be the followers of Hamilton and the federalists. Where did they want them to follow them to? They wanted them to follow them to a central bank, high protectionist tariffs and government subsidies for roads and canals and a big public debt. That's what they wanted them to vote for. That's why they made them rich through this arbitrage opportunity. But Jefferson went on to say that there's a problem here with these people in the problem that they had. He said this, and he understood what happened here in describing what happened to the bondholders, all these old veterans. He said the distresses of those people that is the original bondholders often obliged them to part with these for half, the fifth, even a tenth of their value. And speculators had made trade of cosening them from the holders by the most fraudulent practices and persuasions. So these slick New York banksters went down south and everywhere else and talked all these revolutionary war veterans out of their bonds, okay? And Jefferson goes on to say in this essay, men thus enriched by the dexterity of a leader would follow, of course, the chief who was leading them to fortune and thus become the zealous instruments of all his political enterprises. So he understood that the purpose wasn't just to make a bunch of people rich. It was to get them to owe you. You got to vote for me and I'll make you rich. You don't vote for me in our program, you're left out of all of this.  But the problem was that this was a one-time event. Hamilton's debt assumption policy was a one-time event. Here's what Jefferson said. He said, the political power created here would be temporary and it would be lost with the loss of the individual members whom it had enriched. So okay, they'll take a vote for a central bank, protectionism, government debt, but that'll only last as long as these men are still in power.  And so Jefferson then said, and I quote, some engine of influence more permanent must be contrived. An engine of influence more permanent they would be able to use to finance the buying of votes from members of Congress permanently. Who would like to take a guess of what Jefferson had in mind of what that engine, corrupt engine of influence would be? A central bank and a bank run by politicians, of course, one way or the other. And that's what he said in Jefferson's words, quote, this engine was the bank of the United States. And that was the name of the next central bank, the bank of the United States. And there was a bit of a debate over that. George Washington was president and he asked Jefferson, who was the secretary of state to write his opinion on the constitutionality of a central bank and Hamilton, the secretary of the treasury, they're his opinion of the constitutionality bank. And of course, the whole purpose Hamilton was in politics and was put in there in place by Robert Morris was to create a central bank. That's why he was there. So you know what he was gonna say. So they had this famous debate over the central bank and Jefferson pointed out that the constitutional convention debated this issue and rejected it. They voted down the whole idea of a national bank. And that would seem to be pretty good evidence that it's not constitutional, that the constitutional convention said, no, we don't want anything like this. And it's not, and so there's nothing in the constitution. The US constitution gives the federal government the right to coin money, but not to print currency, coin money, coin money. And even that George Washington sort of anecdote, they wanted to put his image on some of the coinage and he turned them down. He said, no, that's how the tyrants of Europe, it's one of the tools they had always used to solidify their political power over the people is to put their image on the coinage. And so he didn't want his picture to be on the coinage like the tyrants of Europe, but the appropriately, the first politician in America to have his mugshot on the coinage was Abe Lincoln on the penny. They used to have just trees and leaves and things, but he was the first politician to have his mugshot on the coinage anyway. Okay, so they had this big debate and it was obviously unconstitutional and this is where Hamilton, who was a lawyer of course, he invented the idea of implied powers of the constitution. It was with his debate with Jefferson over the constitutionality of a national bank. He basically said, well, yes, there are no delegated powers explicitly to create a bank run by politicians, but you need to read between the lines here. And Jefferson essentially said, I have read between the lines and there's blank space in there. And he didn't say that exactly, but that's the essence of what his argument was. And so that's the insidious idea of implied powers. Once you go down that route, then the powers of government or whatever any politician can imagine and make the case for it's implied somehow, okay. And so we did get the bank. George Washington, the story goes that he cut a deal with a federalist on this bank. He said, if you move the, they were in the process of moving the nation's capital from New York to Washington DC. And he said, if you move the border of DC to the edge of my property in Mount Vernon in Virginia, then I will vote for this bank. I will sign the legislation for this bank. And so they did. And so my reading this, it seems like this debate didn't even matter. It was just a sort of a corrupt political deal between George Washington, who was quite the wealthy real estate investor and the federalist party to do this. So we got, that's how we got the first bank in the United States. And so the whole purpose of it was always corruption, to be an engine of corruption to finance politics, to finance, to make people rich, insider trading deals and so forth, and to provide cheaper credit to politically connected businesses. And of course that has led to a lot of boom and bust problems. And so they got this bank and what did it do? The first bank of the United States, Rothbard wrote about this also, the result was, I'm quoting, quote, the outpouring of credit and paper money by the new bank of the United States was an increase in prices of 72% from 1791 to 1796. And so it immediately created price inflation and boom and bust cycles and sure enough, political corruption, they used the money, treasury deposits in the bank to finance the political careers and campaigns of politicians who favored the bank and were Hamiltonians and federalists. And as a result, it was so corrupt that it had a 20 year charter and the charter was not renewed 20 years later. Okay, and so in 1811 it was not renewed and the War of 1812 came along and after the War of 1812 was over, the Bank of the United States was resurrected. They got the second Bank of the United States to monetize the war debt from the war. And so it went back into being in January of 1817 and does anybody here know the title of Murray Rothbard's doctoral dissertation? The Panic of 1819. So the Bank of the United States, and I've always thought it's not just a coincidence that they resurrected the Bank of the United States in 1817 and then we had the Panic of 1819 and Murray wrote about how for the first time in American history, people observed large scale unemployment where there was something like a 75% loss in employment in Philadelphia and places like that in manufacturing such as it was in those days in the shops in cities like Philadelphia. And so it immediately created that and it had another 20 year charter. So that was 1817. And so by the time you get to the 1830s, it did more of the same. More corruption, more boom and bust cycles created by this Bank. Daniel Webster, we're talking in American history here in the 1830s. He was one of the prime supporters of a national bank. And in one of my books, I quote a letter from Daniel Webster threatening Nicholas Biddle, the head of the Bank of the United States saying, you'd better send me my retainer if you expect me to continue in the Senate supporting the Bank of the United States.  And also Henry Clay who was the leader of the Whig party at this era, he became the big proponent. Hamilton is long dead, hold your applause please. And Henry Clay became the big proponent. And so Clay, to show how rotten and corrupt this always was, he's the big proponent of national bank. He was also, if you read the biographies of him, he was a big gambler in Washington, D.C. And he had run up $40,000 in gambling debt, 40,000 bucks, this is in the 1830s. And so they gave him the job. He resigned from the government, the secretary of state, he resigned and to become the general counsel of the Bank of the United States. And according to his biographer, within just two years, he was very well paid, not only in salary, they gave him vast tracks of land that this bank had owned, and case by case payments for cases he had litigated. And so within two years, he made much more than a $40,000. And that's pretty big money. All the writing I've done about the Civil War era and all that to put it in perspective. I remember reading that even in the 1860s, 30 years later, the governor of Illinois made 3,000 a year. That was his salary. So this is $40,000 in two years in the 1830s. So this was a huge amount of money that it was made. And so Henry Clay did very well. That's so you can understand why he would be a proponent of the bank. But his great nemesis was Andrew Jackson, and Andrew Jackson understood all this. Murray Rothbard kind of liked Andrew Jackson. And so if you read some of Murray's works on American economic history, his big book, A History of Money and Banking in the United States, he's very favorably disposed toward the Jacksonian political movement. He thinks it was largely very libertarian political movement, although Murray was, his knowledge was so encyclopedic, of course he knew that Jackson, being a politician, did a lot of evil things in his life as well. But if you look at what he did when he vetoed the recharter of the Bank of the United States, that's something that he should have been applauded for, in Murray's view and in my view, certainly. So he had this big, big battle with the proponents of the bank all over the country. And he had a lot of help too, did Andrew Jackson. In the state of Ohio, for example, the Bank of the United States opened up two branches in the state of Ohio. And the people of Ohio, by this point, didn't want it. It was the 1830s, early 1830s. They had known that this, it created economic problems, it created boom and busts, it corrupted their politics. And so the state of Ohio imposed a tax of $50,000 a year on each branch of the Bank of the United States in the state of Ohio. And when they refused to pay, they sent armed marshals to the banks, carrying a big, empty chest, a big chest. And they went in there, and they went into the vaults and helped themselves to $100,000 and walked out, guns on their hip. So a legal bank robbery by state marshals. And of course, this created litigation. The state of Maryland did a similar thing, placed a heavy tax. And so, and that's where the Supreme Court case, McCulloch versus Maryland came from, that where Chief Justice John Marshall, who was a slavishly devoted Hamiltonian, in his opinion, in this case, was literally plagiarized from Hamilton's report on a bank, Central Bank, word for word, it was almost identical, big, long sections of it that were there. And that's where he coined the phrase, the power to tax is the power to destroy. And the people of Ohio were saying, well, yeah, that's the idea. Yeah, you caught on. Yeah, that's what we wanted to do. We wanted to destroy this bank by taxing it out of existence. And that's where that comes from. That was the meaning of the power to tax is the power to destroy. So this sort of thing helped. And by the way, at that point, when John Marshall said, therefore this bank is constitutional, Jackson wrote an opinion of his own. And he essentially said, thank you for your opinion, but my opinion is different, and I'm the president and you're just a judge, so there. And so, before the American Civil War, it was not true that five government lawyers with lifetime tenure had the sole responsibility of telling everybody in the entire country what their liberties were to be. That's a system we live under now. But in those days, it was common knowledge that we had three branches of government, not just a lawyerocracy at the Supreme Court. We had a president, we had a Congress, we had the judiciary, you know, and we also had the people of the States. They had a say in these things, like the Ohioans and the people in Maryland, their legislature, that did these things. So this idea that we have sort of black-robed deities telling us what our freedoms are in this country really didn't come about until after the Civil War. They had judicial review for a long, long time. John Marshall invented that out of thin air, by the way. There's nothing in the U.S. Constitution that says that, anything about that. And he just came up with this, the Hamiltonian judge, John Marshall. And so when Andrew Jackson vetoed the resurrection of the Bank of the United States, he accused it of this, of quote, subversive of the rights of the States and dangerous to the liberties of the people. That seems to me to be a good enough reason to veto something if it subverses the rights of the States and the liberties of the people. That's a pretty good reason. And the history profession hates him for this. As part of my research, the next question I asked myself, well, what do the historians say about this? Who have written about Andrew Jackson? I know they would, if they could dig his body up and hang him, they would do that. Because he critiqued the engine of corruption that creates the finance's big government force. So that's basically my story, and I'm sticking to it, that the origins of central banking were always meant to be corrupt. So when you see things like Paulson, the Bush's Treasury Secretary, who leaves Goldman Sachs, becomes US Treasury Secretary, he organizes a $180 billion bailout of the AIG insurance company. And Goldman Sachs had $18 billion in claims against AIG, which it got out of the bailout money. Then he leaves the government and goes back to Goldman Sachs. And I read an article in the New York Times about how his wife then went out and bought her a self-yet another $5 million house in the Hamptons. It doesn't get much more rotten and corrupt than that, but that was always the idea. That was always the purpose of central banking. As Jefferson smoked these people out 200 years ago when he wrote that essay, he knew exactly what it was. So all the talk about fine-tuning central banks and making them work more efficiently and so forth, as opposed to a free market and money and a gold standard is a big bunch of Fui, it always has been. And this is the tactic I take by looking at the corrupt roots of it. And so that's about all I was gonna say for today with this story, but I think we have about five minutes or so for questions, brilliant declarations or announcements of anybody who happens to be running for president or something like that. Any questions or comments?  Or your ears are still ringing from listening to Bob Murphy do karaoke. Maybe that's the problem. And you haven't heard a thing that I've said. Cool. So what you say the American Revolution was just because the upper gentry weren't involved in mercantilism in England? And they wanted to work on the American Revolution? Well, he's asking if the American Revolution was because the upper classes were not involved in mercantilism. Well, in my, you know, I've written about this, you know, the revolution, the taxes weren't that burdensome, but the direction they were going in with taxation without regulation was clearly abusive of the colonists. And so I don't think there's any one cause of any war like that. So I wouldn't say that this was the cause of the revolution. But then after the revolution, there were these two factions, the Jeffersonians and the Hamiltonians. It was the Hamiltonians in the Federalist Party who wanted to bring the whole rotten British mercantilist system here as long as they could be in charge of it. And that's why Jefferson thought Hamilton was not only just wrong, but he was evil. Because he was dangerous, because he was very smart, very brilliant, and he was corrupt. And another thing I didn't mention in the talk, that there was a famous dinner with, imagine this, you know, Thomas Jefferson, Alexander Hamilton, John Adams, and John Randolph having dinner at Jefferson's house. And Jefferson had a winery, so they're probably into their cups at this point. And John Adams, who was the president, said that if it weren't for the corruption of the British system, it would be the most perfect constitution in the world. The British, the unwritten constitution, but it's a constitution. Hamilton interjects. These are the words of Jefferson. Hamilton interjects and says, oh no, it's the corruption that makes it the perfect system because it's the corruption that grows government bigger than it would otherwise be. And so that dinner conversation, Jefferson said is what convinced him that Hamilton, he called him a monarchist, bottomed on corruption. Because at the Constitutional Convention, Hamilton wanted a king, a permanent president, he called it a king. They just fought a war against the king.  And so there was a big division there. And the Jeffersonians prevailed until the Civil War. The Civil War, we got the National Currency Acts, the Nationalized Money Supply, we got 60% tariffs, average tariffs that lasted for 60 years. We got the railroad subsidies by the government and it opened the door to corporate welfare. And so that was pretty much the end of the old Jeffersonian idea. We didn't get the central bank. We got the National Currency Acts and the Legal Tender Acts, but that was the precursor to the Fed. That was the next step to getting the Fed, I think, in that era. And we'll be one more and then we'll take a break. Why were the holders of war bonds willing to sell their bonds so cheap to the aristocrats? Why would they just hold them? I assume they needed the money because a lot of them were just ordinary yeoman farmers who had no money, had little money. And they were soldiers in the Revolutionary War when the Continental Congress didn't have the money to pay them. They paid them in promises of these and they probably thought that these were pretty much worthless. After all, they had seen the value go from all the way down to in some cases, less than 10% of what the face value was. So I imagine they thought, I might as well get something while I can or this can be worth zero pretty soon. They didn't know that the government was planning on paying the holders of the bonds face value in the near future. That's why I said it was before the internet where you couldn't find out this information. Why did the value of the bond drops so far in the first place? Oh, mistrust of the government, I assume. People have mistrust of the government. And when the bond, I lived in Maryland for many years, they would always brag about the high bond rating they had in Maryland, but it's a high tax state. They would tax the pants off the public to make sure they'd pay off all the bonds that they issued. So yeah, the bond holders, the Wall Street bankers would always give them a very high bond rating because it was the high tax state. But if you're not very good at raising enough tax money to pay this off, then the bond rating goes down and the value of the bonds go down. And that's probably the situation they were in at the time. The Federalist Party, by the way, when under Washington, they ran up a huge debt already and so they had already went on a wild spending binge as much as they had, much more than what the Constitution would have allowed to begin with. That's why I quoted Adair, the historian, Adair there. So I guess we're about out of time. It's time, I believe they have a free whiskey hour now as a stand for four o'clock to five o'clock. So a whiskey tasting. We do that every Wednesday at Mises University. So have at it. Thank you.


My next, our next presenter is Professor Pete Podroso. I retired Navy captain, I met Pete 24 years ago when I first came in, he was one of my instructors over Naval Justice School, sort of a mentor. 33, almost 34 years in the military, eight years in the Army, 82nd Airborne, and came over to the Navy. It was an amazing career. It was down in Just Cause, down in Panama, as a Navy lieutenant, I think manning a checkpoint with some great experiences. Operationally, none finer than Pete from a JAG perspective, been on a carrier group, things of that nature, was on the investigating officer for the Black Sea bumping off the Crimea coast back in the 1980s between the Soviet Union and the United States, a freedom of navigation ops, so he knows all about that. Then he went off to do some of the big tours in DC at the Pentagon, our office of policy, law of the sea, was the SGA for the Special Operations Seals out in Coronado, and ended up his career as the SGA at our Pacific commander. There's a lot of time talking about Asia-Pacific type items. It's great once again to have Professor Podroso here, so please give him a round of applause as you did. Thank you. Thank you, Kevin. Well, as you can see, we're going to talk about the Pacific maritime disputes over the next hour or so. That's what I've spent most of my time looking at these days, so without any further ado, what I want to do is, first off, I'm going to give you a little bit of background on the law, a basic on law of the sea so that you have a working knowledge of that when you do your seminars over the next two days, but then I'm going to shift and talk specifically about military activities because some nations are trying to alter what the law says about the right to engage in military activities in the exclusive economic zone. And then we'll look at some specific issues that have occurred within the last six months in the East China Sea and the South China Sea so that you can see the relevance of the law of the sea and other international law aspects of how they play out in the real world. So you can see the law of the sea convention, which the U.S. is not a party to, but reflects customary international law so we observe most of its provisions, basically divides the ocean into zones. The closer you are to the land, the more control the coastal state has, the further out you get the greater rights the user states have in the various maritime zones. Everybody, all coastal nations can draw baselines and all the water that is a land word of that baseline is internal waters subject to the exclusive sovereign control of the coastal state. You can't go into the internal waters of another nation without that coastal state's permission. Then they've got a 12 nautical mile territorial sea measured from the baseline and the sea is treated very much the same as sovereign land territory. The only exception is that ships, not aircraft, ships have a right of innocent passage in the territorial sea of another nation. Aircraft in the airspace above the territorial sea do not have a right of transit without the consent of the coastal state. Then you have an additional 12 mile contiguous zone. This is basically a law enforcement zone where the coastal state can exercise customs, fiscal immigration and sanitation laws and enforce those laws out to basically 24 miles into the contiguous zone. For purposes of navigation and overflight, the contiguous zone is treated like the high seas. All nations have a right to transit and operate in the contiguous zone of another nation so long as they're not violating one of those four laws. Then all nations can claim a 200 mile exclusive economic zone. That is a resource zone within the exclusive economic zone the coastal state exercises sovereign rights not sovereign T like they do in the territorial sea, sovereign rights over all of the resources in the exclusive economic zone. So the fish, the oil and gas etc. all belongs to the coastal state and if you want to exploit those resources in the exclusive economic zone of another nation, you have to have that nation's consent. In addition, the coastal state exercises environmental jurisdiction in the EEZ and they also exercise exclusive jurisdiction over marine scientific research in the EEZ. So if you want to engage in any of those types of activities, you have to have the coastal state's permission before you do that. Again, as the contiguous zone the EEZ purposes of navigation and overflight are treated like the high seas. So you can engage in military activities in the exclusive economic zone just like you can in the high seas areas so long as you're not unreasonably interfering with the coastal state's resource rights in that zone. So you can't go in there and conduct a military exercise within 500 meters of one of their offshore oil platforms that would be interfering with their resource rights. So there is some due regard that has to be paid to the coastal state's resource rights but at the same time the coastal state has to pay due regard for the rights of all users to operate in the exclusive economic zone consistent with international law. And then we have the high seas. High seas are open to all nations. No nation may subject the high seas to its sovereign control and all nations can operate in the EEZ again with due regard for the rights of other nations in those zones. That gives you a basic overview of the law of the sea. A couple other important provisions that you need to be aware of in the law of the sea is prior to the 1982 UN law of the sea convention, most international straits, you know, you look to think about Hormuz, Gibraltar the straits of Malacca, they all had a high seas corridor because back then the maximum breath of the territorial sea was only three nautical miles. So that meant that if you wanted to go through the straits of Hormuz you just stayed outside of the territorial sea of the coastal state and you could exercise high seas freedoms of navigation and overflight through the strait. But with the extension of the territorial sea from three to twelve nautical miles under the law of the sea convention all of a sudden 115 international straits were now overlapped by the territorial seas of the littoral coastal nations. What does that mean? Well, remember territorial sea, if you're a submarine you can't navigate through the territorial sea of another nation submerged. You have to be on the surface and you've got to be flying a flag. If you're an aircraft, you can't overfly the territorial sea of another nation. So what did that mean for purposes of international straits? All of a sudden we had a problem that we're not going to be able to get our ships and aircraft or submarines and aircraft into a Persian Gulf for example, because you would have to disclose your presence in effect or request permission if you're an aircraft. So the trade off was this concept of creating transit passage rights through international straits. So all these straits that are now overlapped by territorial seas, the international community still has a right of access through the international strait in the normal mode of operation. What's the normal mode of operation of a submarine? It's submerged. Normal mode of operation aircraft that you can fly through without requesting permission. So now we have a absolute right nonsuspendable right during peace time of transit passage through international straits. U.S. position is it applies shoreline to shoreline. Not all nations agree with that. And the reason we say it applies shoreline to shoreline is not for ship purposes because you're not going to navigate that close to the coast anyway. But you might want to have an aircraft fly that within a mile of the coast. And that would be permissible under the transit passage regime even though you would technically be in the national airspace of that coastal state. But because you have a right of transit passage, you do not have to have the coastal state's permission to transit through that corridor. One thing that the coastal state can do, they can go to the international maritime organization and have traffic separation schemes approved for safety of navigation purposes and most international straits that have a significant amount of traffic in them do have IMO approved traffic separation schemes in the strait. What does that mean for warships? Really it doesn't mean anything because under the Solas Convention which is the convention that traffic separation schemes are approved under there's a sovereign immunity exception that warships don't have to comply. They can comply if they want to but there is no legal obligation for a warship to comply with a traffic separation scheme. But in most cases they will because of safety of navigation concerns. A similar concept with transit passages archipelagic sea lanes passage. One other thing that the convention created was the right of an archipelagic nation and you think of island nations because an archipelagic nation has to be an island nation and then it has to meet certain tests of requirements of water ratio to land ratio in order for it to qualify as an archipelago but if it does qualify and here's an example of Indonesia is obviously an archipelago under the convention the Philippines. A lot of archipelagos about 17 or 18 that are recognized around the world but again the convention allows the archipelagic nation to draw straight baselines around all the islands and then all the waters inside the baselines are considered archipelagic waters and they're treated like the territorial sea for purposes of navigation. You cannot go overfly the archipelagic waters of an archipelagic nation without their consent because archipelagic waters are the same technically as territorial seas. So what the convention did was it created this right of archipelagic sea lanes passage very similar to the exact same rules for archipelagic sea lanes passage and what it does is that the international community can use all the normal routes used for international navigation through that archipelago in the normal mode of operation. So here you can see Indonesia has gone to the only nation that's gone to the IMO and has designated three north-south sea lanes with some associated spurs but while we were negotiating this at the IMO the US and Australia came in and said those aren't the only internationally recognized routes through the Indonesian archipelago there's also some major east-west routes that are available and the IMO agreed and what the bottom line is that even though Indonesia has only designated three archipelagic sea lanes the right of archipelagic sea lanes passage continues to apply in all the normal routes used for international navigation until such time as Indonesia goes back to the IMO and it does a full designation of all the normal routes. So that's where we are right now with regards to archipelagic sea lanes passage with Indonesia you can see in the sea lanes you have a right of archipelagic sea lanes passage and then you have a right of innocent passage in archipelagic waters. Alright so that's your very quick overview of the law of the sea the convention has very specific rules in it some of them are more open to interpretation in others and that leads some states to have what we call excessive maritime claims straight baselines being an example the normal the convention says that the normal baseline that a coastal state will use is the low water mark shown on this large scale chart however it does provide an exceptional circumstances where the coastline is deeply indented or there's a fringe of islands along the coast that allows the coastal state to use straight baselines along the fringing islands or to close off the deep indentations think Norway the fjords off Norway they can close those off with straight baselines the problem is that probably 95% of the countries that use straight baselines do so illegally under the law of the sea convention because they don't meet that criteria of deeply indented coastal fringing islands so that's a problem area and the problem is that when you have a straight baseline that's illegal what does that do it pushes all the maritime zones further out doesn't it because all the maritime zones are measured from the baseline so if you've got a country that has an excessive straight baseline all of a sudden what might have been an EEZ area is now a territorial sea area and that might create a problem when you want to have access and engage in military activities in that area restrictions on innocent passage as I mentioned all ships even warships have a right of innocent passage in territorial sea is that say if you're a warship you have to have my permission before you can transit an innocent passage through my territorial sea about 30 or 40 countries that do that out of the 160 some countries that are parties to the convention other restrictions on innocent passage might be nuclear power ships may require the permission of the coastal state before they can transit through the territorial sea and innocent passage again these are illegal requirements but some states try to enforce them another area security jurisdiction as I mentioned the contiguous zone really applies to four laws customs, fiscal, immigration, and sanitation but some states will say we also have security jurisdiction in the contiguous zone so you cannot engage in any type of military related activities in our contiguous zone because that violates our sovereignty again illegal claim but we see that in some cases the most problematic one for us right now is restrictions on military activities in the EEZ because we're talking about 200 mile zone off the coast that's pretty significant and I'll talk a little bit more about that in detail in a minute restrictions on transit passage Iran for example says that if you're not a party to the convention read United States you don't have a right of transit passage because you're not a party to the convention therefore you don't have a right of transit passage through the Straits of Hormuz some coastal nations will restrict transit passage for nuclear powered vessels for ships carrying hazardous cargo that's been a problem in the past again illegal requirements but some nations will do that same thing with the restrictions on archipelagic sea lanes passage and then historic bays historic waters are considered to be inter if it's a valid claim a historic bay would be internal waters which means you have to have the permission of the coastal state to go into that area Peter the Great Bay for example the Russians claim that to be internal waters in the old days Libya used to claim the Gulf of Sidra as historic waters it drew the line of death across the the Gulf of Sidra and resulting in a number of incidents with the United States over the years that's just an example of how even though the convention says one thing nations will interpret it in a different way and apply the the rules that suits their purposes now if you want to find out what excessive claims exist in the world just go to this website and Kevin you hung this on the they have access to these slides okay this website here run by the Navy Jag lists every it's the maritime claims reference manual lists every nation in the world that has the maritime claim and it lists whether or not it is an excessive claim in the view of the United States and if it is an excessive claim it will also state when we conducted a freedom of navigation assertion or when we filed a diplomatic protest against that nation objecting to their maritime claim so very useful reference when you're actually doing operations if you're doing operations off the coast of the nation you may want to pull the maritime claims reference manual and figure out what are the maritime claims of the neighboring nations are we going to somehow run into problems because they may have an excessive claim that may impact our operations so good reference point for you to take a look at sometime in the future alright I want to talk a little bit more about the exclusive economic zone because again this is also a creature of the convention the exclusive economic zone did not exist until the convention was finalized in 1982 there had been some fishery zones the United States being one had claimed 200 mile fishery zone some nations had claimed 200 nautical mile territorial seas which were very excessive but the convention kind of made a compromise and said okay we'll have this exclusive economic zone where the coastal state can exercise resource rights because that's really what the coastal state was interested in was having access to the resources in the exclusive economic zone but as you can see almost 40% of the world's oceans is comprised of exclusive economic zones so if you are one of these countries that claims the right to restrict military activities in the exclusive economic zone that creates a problem for user states because you can see that a lot of all of southeast of the south china sea obviously the Mediterranean the Persian Gulf they're completely overlapped by the 200 mile zones of the various coastal nations so if they can restrict military activities in the EEZ then that's a problem particularly for a maritime nation like the United States there you can see the 18 countries that purport to restrict military activities in the EEZ you can see it's regionalized by and large as you can see the red ones are the southeast Asia Pacific nations that purport to regulate military activities in the EEZ but you can see the other ones are also regionalized with and then what I call the Portugal conspiracy which is Portugal, Brazil and Cape Verde the former colonies of Portugal also have restrictions on military activities in the EEZ now the restrictions that are imposed by these nations vary from country to country they're not all the same some might prohibit military marine data collection so if you've got a special mission ship that's conducting surveillance in some of these EEZ if you're one of these nations like let's pick on china for example they're saying that you're engaged in marine scientific research and who has jurisdiction of a marine scientific research in the EEZ it's the coastal state but collecting intelligence isn't marine scientific research so they don't have jurisdiction over other requirements prior notice and consent before you go in there to do military activities they might be environmental restrictions imposed again some nations will say that low frequency acoustic sonar harms the marine mammals in their exclusive economic zone and therefore you can't engage in that type of activity in their EEZ problem with that argument is that that's an environmental jurisdiction and under the convention warships and other sovereign immune vessels do not have to comply with any of the environmental provisions of the convention there's a complete exemption in the convention that allows us to carve out all the environmental provisions from application to our sovereign immune warships and other government owned or operated vessels and then some national security restrictions now having said that we've got 18 countries that say you can't engage in these activities there's only been three countries that have used force to try to enforce their claims against the US most of you won't remember but in 68 you had the Pueblo about 16 nautical miles off of an island off of North Korea and sent to the area to collect intelligence overtly to gauge how the Soviets and how the North Koreans would respond to the presence of that ship there I think they got a little bit more than they bargained for the vessel was attacked by the North Koreans and the crew was held hostage for over a year or almost a year until they were finally released China however has been the more notable country that's interfered with military activities in the EEZ and this is just a sample of the events that have made it into the newspapers this stuff goes on all the time in the East China Sea in the South China Sea in the Yellow Sea where the Chinese will harass military vessels and aircraft that are within their EEZ but these are the ones that actually make the newspapers Bowditch an EP3 incident in 2001 this was during a timeframe where the administration had just changed over the Bush administration was coming into power most political appointees were not yet in place in the Pentagon or at the State Department I think China took the opportunity to see how the US would respond to this type of harassment you remember the EP3 incident was fairly significant because it resulted in mid-air collision of a US aircraft and a Chinese fighter Chinese pilot was killed and the aircraft had to make an emergency landing on Hainan Island and they were held captive there for about two weeks until we negotiated their release and got them out of there and got the plane out of there about July of that same year 2001 fast forward eight years from then and now Obama's administration is coming in what happens you got the victorious and you got the impeccable incidents in 2009 the George Washington incident occurred in 2010 somebody asked a question about the Cheonan sinking George Washington was sent to conduct exercises in the Yellow Sea with the Korean Navy following the sinking of the South Korean vessel the Chinese objected saying that the presence of a carrier that close to the Chinese coast was contrary to the national security interest and therefore the George Washington should not be allowed to conduct any type of operations in the Yellow Sea because that would be a threat to their security U-2 incident in 2011 intercept of the U-2 that was flying through the Taiwan Strait now the Taiwan Strait isn't one of these international straits because it's wide enough across to have a high seas corridor so really anybody can go through the Taiwan Strait outside of 12 miles of the coast of Taiwan and 12 miles off the coast of China because they have this high seas corridor but again Chinese intercepted the U-2 in 2011 not solely a US issue we've had Indian ships that have also been harassed by the PLA Navy in the South China Sea and then in 2013 the impeccable incident and most recently in December of last year the cow pens incident cow pens was conducting surveillance of China's new aircraft carrier it was in the South China Sea doing military exercises one of the escort ships radioed the cow pens and told them to leave the area cow pens responded saying we're not leaving, we have a right to be here as a result then the Chinese ship maneuvered within 500 meters of the cow pens came to a full stop forcing the cow pens to take evasive action in order to avoid a collision now the initial response or I should say the justification given by the Chinese was that the cow pens had entered a 45 kilometer inter defensive layer and that was a trip wire for them and therefore cow pens didn't have any business being there however that ignores the fact that just the previous month there was a PLA frigate that had been within 30 kilometers of the George Washington battle group that was conducting exercises in the South China Sea so kind of a do as I say, not as I do type of mentality that sometimes the Chinese will try to impose on other nations and they also said that the cow pens was harassing the carrier and its formation which is absolutely a ridiculous argument to make how did we respond, how did they respond initially both sides and we tried to downplay the incident we did deliver a diplomatic protest because it was a violation of the collision regulations for the PLA warship to do what it did so we did file a protest but we pretty much tried to downplay it saying that both sides had acted professionally etc but then a couple days later we found out that one of the previous the Chinese had indicated they had issued a notice to mariners setting out the area where the aircraft carrier was going to be conducting its operations and that other nations should stay out of that area for their own safety and we do that all the time too, we'll set out a notice to mariners when we're going to do a military exercise on the high seas or in somebody's EEZ that sets out the parameters of the aircraft carrier, we want to make sure that innocent shipping doesn't go in there and get itself particularly if we're using live ammunition for safety navigation purposes we want to make sure that the area is clear so the Chinese said that they had issued this notice to mariners, well they did but they didn't issue until the day after the incident had occurred and when the Secretary Hagel found out that it hadn't been issued until the day after his response was a little bit more a tougher response than we had originally seen saying that this was unhelpful, irresponsible it could result in a eventual miscalculation and that this was a clear violation of the collision regulations, that's one of the only treaties that applies to warships, a warship has to comply with the collision regulations just like a merchant vessel does so in the United States and China are both parties to that treaty. Just to summarize I'll give you an example of how China uses the law to their advantage or to try to make their state their position more effective in the eyes of the international community. If you look back in 2001, when we had the Bowditch and the EP3 incident, these were the legal arguments that they were making we were saying that the fact that a US special mission ship or the fact that a surveillance aircraft was in their exclusive economic zone or in the airspace above their exclusive economic zone was a violation of their national security interest it violated the peaceful purposes provisions of the convention which basically they were trying to equate the presence of a surveillance vessel as a threat or use of force against the territorial integrity of China and then the proximity to the mainland they were arguing that why are we conducting operations 70 miles off the coast, why can't we do this 250 miles off the coast, is there a need for us to be within 70 miles of the coast the platforms that were used to harass were military either the PLAN or PLA Air Force were the platforms that were used to interfere with our military activities after the EP3 incident China got a lot of bad press the way they handled that incident as a result China started rethinking some of their legal arguments they never changed this even today in 2014 they're still arguing these same things but they started adding new legal arguments to their position so in 2002 they passed a domestic law a survey and mapping law and what that law does is it basically says that any type of data collection in the water column of the Chinese EEZ is subject to their to their control and consent again as I mentioned surveillance, collecting intelligence is not the same as marine scientific research it might look like it's the same thing but the purposes are different and the coastal state has no jurisdiction over the collection of intelligence in their exclusive economic zone based on an argument that it's marine scientific research again that didn't carry a whole lot of weight in the international community so beginning in about 2005 when we have a bilateral agreement with the Chinese called the military maritime consultative agreement where we get together once or twice a year to the extent that we're not you know not meeting because we've sold weapons to Taiwan or something but at the 2005 meeting of the MMCA in Shanghai was published by one of the Chinese lawyers and he started making this argument that our use of sonar was harming their marine mammals use of sonar was disrupting the fish patterns in the Chinese EEZ and that was an interference with their resource rights that was all in conjunction with about the same time that a lawsuit started in U.S. in California where some environmental groups sued the Navy saying the same thing that low frequency acoustic sonar was harming marine mammals and that was a violation of U.S. law for the U.S. Navy to engage in those types of activities the NGOs won at the district court they won at the night circuit court of appeals the case was then taken to the Supreme Court by the Navy and the Supreme Court overturned the lower court's decision saying that the Navy's interest in training realistically outweighed the interest of the environmental groups in protecting the marine mammals if in fact low frequency acoustic sonar did harm marine mammals there was no finding that that was actually the case but whatever the decision of the court the Chinese looked at that and they said well that might be a good argument for us to make against the United States and that their intelligences are now harming our resources platforms for harassment purposes have changed completely to their civilian law enforcement vessels you didn't see PLA vessels engaging in any type of harassment during this time period it was all being done by China Maritime the state ocean administration and the fisheries law enforcement command as well as their customs view again these arguments didn't carry a whole lot of weight so in 2013 we thought well maybe the Chinese have finally seen the light because at the Shangri-La Dialogue in 2003 one of the Chinese officers there publicly stated that the Chinese had been engaging in military activities in the USEEZ off of Guam and off of Hawaii without seeking consent of the United States so we figured well maybe they've come around they're trying to develop a blue water navy they see the value of being able to engage in military activities in other nations EEZ so maybe they've seen the light but then we have the impeccable in the cow pens incident a couple months later so have they changed their legal position I don't think so I still think that they want to be able to engage in military activities in our EEZ because we won't object to that but at the same time they don't want us for all of these reasons to engage in those types of activities in their exclusive economic zone okay let's switch gears now a little bit talk about some of the territorial disputes I'm not going to talk about all of them I'm going to focus primarily on the South China Sea territorial disputes with the parasails and the and the Spratly Islands because those are the ones that are in the news more often I'll also talk about the Senkaku Islands which is a dispute between China and Japan when I talk about the recently declared air defense identification zone in the East China Sea okay so you look at the South China Sea the islands in the South China are claimed in their entirety by China by Taiwan and by Vietnam portions are claimed by Malaysia the Philippines and then Brunei claims a fishing zone in the South China Sea these very proficient or prolific fishing grounds they're used extensively by the regional nations for sources of protein there's also potential oil and gas off the coast of all of these nations and strategic sea lines of communication a third of world shipping goes through the South China Sea every year 100% of the world's oil goes through the South China Sea every year so the very strategic sea lines of communication from a world economy standpoint you can see here the various claimants China basically draws a it's a nine dashed line we'll talk about that later but everything that's within the cow's tongue it's called the cow's tongue all of the land features within the cow's tongue China claims as sovereign Chinese territory you can see Vietnam also has a claims virtually all of the South China Sea islands the Philippines a portion not all but a portion Malaysia a small portion then as I mentioned Brunei it's really all about oil and gas you can see there's already a significant amount of oil and gas development off the coast of Malaysia and Brunei some not so extensive off the Philippines some off of Vietnam but potential for significant oil and gas in these areas so for the Philippines Reed Bank very proven reserves that could be instrumental to developing their economy about 130 some miles off the coast of the Philippines these are the features that are physically occupied by the various countries you can see Vietnam occupies the most of them Vietnam being the black squares Taiwan only has one island occupied it's been occupied by Taiwan since 1946 they were sent there as part of the Allied forces to disarm the Japanese forces that were stationed on Ituobu Island and they never left even though in March of 1946 pursuant to an agreement with the French all the Allied forces were supposed to leave occupied territory so that the French could come back into China and reestablish their control over French into China Ituobu by the way is the only island that has a fresh water source none of the other features in the South China Sea have fresh water source which is significant when you start talking about what maritime zones these features are going to be entitled to regardless of who has sovereignty what type of maritime zones can they claim if you're an island you get the same maritime zones that a coastal state does so you can get a 200 mile exclusive economic zone if you have an island if you're a submerged reef you get nothing but a maritime zone and if you're a rock which is a feature that's above water but can't sustain human habitation you only get a 12 mile territorial sea so depending on how these features are classified will depend on the maritime zone that they're entitled to and that could be significant in trying to resolve the ongoing dispute but you can see Vietnam occupies the most followed by the Philippines and then China and Malaysia by a number of the features talk about the cow's tongue this has been in existence since 1948 it was put out first by the Republic of China by the Taiwanese Chiang Kai-shek's folks it originally was an 11 dash line there was two additional lines that were over here in the Gulf of Tonkin but there was a once the China and North Vietnam entered into a bilateral agreement that resolved the boundary in the Gulf of Tonkin the two lines up here went away but they still have this 9 dash line and their argument is basically that they have all the islands, all the land features are sovereign territory then they have each of those features can claim at least a 12 nautical mile territorial sea if not a 200 mile exclusive economic zone and then all the rest of the waters that are encompassed within the cow's tongue they have exclusive sovereign resource rights so basically they're treating it like an exclusive economic zone for purposes of resource rights but you can see it's been pretty consistent since 48 all the way up until 2013 when they published new official state maps of China now under international law the fact that you discover a land feature doesn't mean that it's your sovereign territory that used to be the rule so you know when the Spanish came to the new world they claimed the you know what Cuba or whatever for the kingdom of Spain that was okay back then but under contemporary international law if you discover a land feature then you still have to effectively occupy that territory before it can become your sovereign territory that's shown by two things public and permanent intent to occupy as well as a peaceful and continuous occupation of the feature now I've just completed a very extensive research project on Chinese claims in the South China Sea visa v vietnam's claims and my conclusion is that China has absolutely no claim whatsoever to any of the South China Sea islands so what is China trying to do they're trying to show that we have effective occupation of these areas therefore and they're under our administrative control so under international law these features are ours they don't belong to any other country so what are they doing to demonstrate this effective occupation well you recall in 74 as the US was withdrawing from South Vietnam during the war China took advantage of our preoccupation with our withdrawal and invaded the parasol islands the crescent group of the islands which was occupied by South Vietnamese forces and expelled the South Vietnamese garrison from the islands clearly a violation of Article 24 of the Charter for violating the territorial integrity of another nation at this time South Vietnam had inherited French claims France in my research France was the last country to really have clear title to the South China Sea islands so when the Japanese invaded in World War II at the conclusion of the war 1951 peace treaty Japan renounces its rights to the parasols into the Spratly Islands they revert back to France their original owner then South Vietnamese inherits those as the successor state to France leaves Indochina in the 1950s as a result of the French Indochina war then when the North and the South Vietnam unite now the socialist republic of Vietnam acquires South Vietnam Vietnam's interest in the South China Sea islands so Vietnam in my mind clearly has legitimate title to both the parasols and to the Spratlys fast forward 14 years later what's happening in 1988 the Soviet Union is imploding they are North Vietnam's ally so once again China takes advantage of the preoccupation of the Russian government, the Soviet government invades Johnson South Reef sinks a number of North Vietnamese vessels kills about 70 North Vietnamese sailors and then occupies 6 features in the Spratly archipelago again fast forward a few more years what's happening in 1995 US has withdrawn from the Philippines in the early 90s so what does China do they take advantage of this they know that the US isn't going to intervene and they occupy Mr. Reef which is off the coast and then in 2012 we had another incident involving the Philippines where two China Maritime surveillance ships prevented a Philippine warship from arresting illegal Chinese fishermen that were fishing in Scarborough Shoal, you can see it here it's about well within the 200 nautical mile exclusive economic zone of the Philippines and a great distance from Hanoi Island which is the nearest territory that China has clear jurisdiction over and most recently we saw again that they've pretty much taken control of Scarborough Shoal and are preventing Philippine fishermen from operating in the area some of the other things that China's been doing every year they impose a fishing ban south of the parasols probably arrest about 400 Vietnamese fishermen every year hold them for a year find them confiscate their boats and their catch anytime any of the other nations make any type of acclaim to the South China Sea area there will be diplomatic protests filed by the Chinese government they've increased their presence whether that be civilian law enforcement or naval exercises they're sending fishing fleets to the area for to have an increased presence they've enacted some domestic laws they've established a prefecture level city in 2012 that is now responsible for administration of both the parasols and the Spratly Islands stood up a military garrison there and have authorized the maritime police that operate from An An Island to board foreign vessels that are in the South China Sea that are illegally fishing and most recently they've issued some new fishing regulations that we'll talk about in a little bit other ways that they're trying to demonstrate that they exercise effective control and that the resources within the region belong to the Chinese government is through harassment of resource rights of the other coastal nations here you see there's a bank in 2011 we had a seismic survey ship that was conducting a survey of the Reed Bank area for oil and gas because there has been there's significant proven reserves of oil and gas in the area you can see it's 85 nautical miles off the coast of Palawan clearly within the 200 nautical miles exclusive economics under the Philippines and the vessel was ordered out of the area by Chinese vessels May of 2011 again 116 miles off the coast of Vietnam within the 200 mile exclusive economic zone of Vietnam you had a seismic survey ship the Bingmen 2 that had its cable cut by Chinese vessels while it was conducting a survey same thing in June Viking 2 also a Vietnamese vessel 60 miles off the coast was harassed by Chinese civilian law enforcement and then in November of last year another incident with the Bingmen about 45 nautical miles off the coast where China is interfering with their resource rights China has also indicated that it is going to lease a number of oil blocks and enter into joint development projects with foreign oil companies that all 9 of the blocks are within the 200 nautical miles exclusive economic zone of Vietnam who has jurisdiction over the resources in that area it is clearly not the Chinese it is the Vietnamese now the only country that really stood up to the Chinese is the Philippines they initiated a arbitral proceeding against China in January of last year under the compulsory dispute settlement provisions of the convention they are both parties of the law of the sea convention there is a process by which parties of the convention can file for compulsory dispute settlement and relief being sought by the Philippines is a declaration from the tribunal saying hey everybody should get their maritime zones that are authorized under the law of the sea convention their territorial seas and exclusive economic zones and their continental shelves continental shelves can go out to 200 miles or in certain cases even further if they meet certain scientific criteria they want a declaration by the tribunal that the Nang Dash line is illegal they want a determination on the status of the features and remember I mentioned if you're an island you get all the zones if you're a rock you only get a territorial sea and if you're a low tide elevation you get nothing so they want a determination as to what the status of all the features are so that you can start drawing a map that shows where the potential overlap claims might be and then they also want a declaration that they have a right to exercise their resource rights in their exclusive economic zone as well as the continental shelf. China has refused to participate in the proceedings the oral hearings will probably occur within the next few months the problem with the dispute settlement provisions of the convention are that there really is no enforcement mechanism so even if the Philippines prevails before the tribunal and the tribunal says yeah you're right everything that China is doing is illegal as long as China hasn't participated in the proceedings there is no enforcement mechanism that the Philippines can rely on other than public opinion world opinion to try to convince China to comply with the with the order of the tribunal how did China respond like I said they didn't participate what they did do was they've combined all of their civilian law enforcement bureaus into one China maritime police bureau that's restructured under the state ocean oceanic administration you can see there's five different law enforcement agencies that engage in maritime law enforcement for China what does this mean it means that now they've got really increased capacity to be able to have greater patrols as well as have increased manning vessels aircraft etc what's the US been doing since 2011 to 2011 well we've been negotiating this Trans-Pacific Partnership Agreement which is a really kind of like an economic type of an agreement China specifically being excluded from those negotiations for the first time a president of the United States attended the East Asia Summit that had never occurred before at the 2012 sharing a dialogue the Secretary of Defense announced our rebalance to the Pacific where the naval forces will be approximately 60% of our naval forces will be stationed in the Pacific in 2011 we also entered into a new defense cooperation agreement with Australia which allows for the rotational deployment of up to 2,500 Marines in the Darwin area of Australia in addition it gives us greater access to their airfields as well as some of their ports on the north and on the western side of Australia very important agreement with New Zealand in 2013 we've had strained relationships with New Zealand for many years because of their nuclear stance but this is a significant arrangement for the first time SECDEF now on a case by case basis can authorize a New Zealand warship to enter a US Navy port up until 2013 they couldn't do that so when a New Zealanders came to participate in RIMPAC for example in Hawaii they'd have to tie up the pier down where the cruise ships were they weren't allowed to tie up in Pearl Harbor with the rest of the naval ships that were participating in the exercise it's a very significant agreement we've also gotten increased access with Vietnam as well as increased military exercises with the Vietnamese as well as with the Philippines same thing a lot more ships and aircraft going into Subic and into Clark where our old bases used to be we're also looking to do a rotational deployment of Marines through the Philippines like we've done in Australia the agreement is very close to being completed I've read something probably by end of March or early April the new access agreement should be signed between the US and the Philippines one other thing for the first time we see a US official this isn't an official US government position because it's not something that we've communicated directly to the Chinese government but for the first time we see a US official criticizing the 9-dash line calling it into question with the legal validity of the 9-dash line so you got Assistant Secretary of State Russell as well as the ambassador in the Philippines saying that this 9-dash line doesn't pass the straight face when it comes to legal validity that's a significant step because up to now we've kind of taken a position of neutrality with regards to the 9-dash line so this is a good thing alright let's talk about some of the other incidents that have occurred under international law all nations can declare an air defense identification zone to include international airspace they can use unilaterally there is no organization that governs how or when you can declare an air defense identification zone and it's done so to establish conditions of entry into your national airspace so what it requires is if you're going to enter US national airspace for example you've got to provide advance notification to the US government that you're going to do that if you're not if you're just going to transit through the air defense identification zone and have no intentions of entering the US national airspace so within 12 miles then there's no requirement for you to comply with the ADIS procedures as I mentioned we were the first nation with Canada to declare air defense identification zone around North America in the early 1950s we also have one around Alaska we have one around Hawaii and we have one around Marshall Islands so that's the novel about this for us for the United States to have a nation declare an air defense identification zone under our ADIS procedures if as I mentioned if you're going to enter US national airspace then you've got to provide identification and what that requires is you've got to fire a flight plan you've got to have an operating two-way radio so you can communicate with their traffic controllers and you have to have an operable radar beacon transponder to indicating who you are and again these procedures only apply to aircraft that have an intention of entering US national airspace so what's China done in November of 2013 they declared a fairly extensive air defense identification zone in the east China sea to include the disputed Senkaku islands with Japan the object stated objective of the air defense identification zone to defend their national territory sovereignty and territorial air security etcetera all aircraft entering the zone have to comply and if you don't comply then they have these unspecified defensive measures would be taken against aircraft that did not comply with the ADIS procedures now as I mentioned we didn't have a problem with them declaring an ADIS because we've got our own ADIS so it would be kind of disingenuous for us to say well the US can have an ADIS but China can't you can't make that kind of an argument the problem is that it applies to all aircraft whether they intend to enter national airspace or not so if you're flying out here if you're going from South Korea and you're flying to the Philippines and you cross the outer edge of the air defense identification zone China requires you to provide notice that you're going to do that and comply with their ADIS procedures so that's a problem the additional problem is that it overlaps pre-existing air defense identification zones in the region both South Korea and Japan have had air defense identification zones that the US declared back in the early 50s after the war and then in the 1960s the South Koreans and the Japanese assumed control of these air defense identification zones but they've been around for a long time so what does China do without consulting with these other nations they just went ahead and established their own ADIS to overlap the pre-existing zones of these other nations again an effort to in my mind is aimed directly at the Senkaku Island dispute to try to change the status quo again a demonstration on their part that they effectively have administrative control of the Senkaku Island by establishing this air defense identification zone as you can imagine the Japanese weren't happy they basically said that this unduly infringes freedom of flight in the international airspace remember I told you over the high seas nobody has the right to regulate the water or the airspace above the high seas the international airspace because it requires all aircraft to comply whether they have an intent to enter China's national airspace or not the Japanese are saying that that therefore infringes on freedom of overflight not valid and to them as I mentioned is a clear effort on their part to change the status quo of the Senkaku Island dispute South Korea responded a little differently as you recall their identification zone used to be right here well they've extended it now south into the Chinese air defense identification zone to include Suyeon Rock or Ayodo Reef which is a dispute between China and South Korea as to who owns this submerged rock is a rock that's four feet below sea level and both of them are claiming sovereignty over it saying that it's their sovereign territory so pretty ridiculous argument on both their side but still that was the response from South Korea to extend their air defense identification zone to encompass the disputed area in response to the Chinese efforts to do the same U.S. our State Department issued some concerns increases tensions in the region we don't support efforts to apply these procedures aircraft that are not attending the international airspace and we have defense commitments to our allies i.e. South Korea and to Japan in this area DOD statement very similar destabilizing attempt to change the status quo it's not going to change how we conduct our military operations in the area and we reaffirm our defense obligations under our treaty with Japan because we specifically apply the mutual defense treaty to the Senkaku Islands because they are islands that are under the administration of Japan after World War II the Senkakus and the other Ryukus islands including Okinawa were placed under U.S. administration in 1972 we turned administrative control of the Ryukus and the Senkaku Islands back to the government of Japan so as a result they are territory that fall within the scope of our defense obligations under our mutual defense treaty with Japan just some other reactions from some other countries both within the region and out of the region you'll have access to this later we also conducted a freedom of navigation assertion shortly after the ADIZ was announced by sending B-52 bombers from Guam to enter the southern end of the air defense identification zone without providing notice to the Chinese government Japan and the Koreans did the same the Koreans in the vicinity of Ayodo Rock conducted a FON challenge as did the Japanese in the vicinity of the Senkakus down here and then they did a joint search and rescue exercise as well in the air defense identification zone without notifying the Chinese and another exercise by the Koreans now as I mentioned the US said well this isn't valid because it applies to all aircraft that are going to transit through the ADIZ whether they have intent to enter the national airspace of China or not but then we did something somewhat strange we had the FAA issued a notice to Airmen saying that all civilian carriers so United Delta etc. you will comply with China's new ADIZ requirements so on the one hand we're saying that it's invalid and we don't want we're not going to comply and on the other hand we're telling our civilian aircraft to comply the stated purpose being for safety of navigation which I think is somewhat ridiculous because China is stupid enough to shoot down a civilian aircraft that's flying a couple hundred miles off their coast it's just not going to happen Japan and the Korea on the other hand told their aircraft their civilian aircraft not to comply they don't view this as a valid air defense identification zone the requirements are invalid therefore they're telling their aircraft do not comply but other countries have joined the US side indicating that their aircraft will comply with the ADIZ requirements the second issue that we'll look at is on the 14th of January of this year China issued new fisheries regulations that basically says anybody that wants to fish in the South China Sea has to have the permission of the Chinese government to do so if you don't have the permission of the Chinese government we will seize your catch and you will be fined $82,000 for non-compliance with the sufficient of China to fish in the South China Sea again our response provocative no bases under international law Philippines they're obviously upset they rely heavily on their fishermen rely heavily on the South China Sea for their livelihood escalate tensions threat to peace and security contrary to the 2002 declaration of conduct which is something that China has signed is a non-binding agreement but still requires the parties, the ASEAN and China not to do things to increase tensions in the South China Sea as they're trying to resolve the underlying territorial disputes in the area Vietnam also illegal requirement on a part of China and here's China's response this has been in existence for a long time and this is in practice with, or in line with international practice in order to preserve the fish stocks in the South China Sea so just to sum up when we look at China's claims remember I enlisted all those excessive claims on that one page China has excessive claims on all of those areas whether it be illegal straight baselines historic bay claims EEZ you name it they have an excessive claim for every one of those we have protested all of those either diplomatically or through a freedom of navigation assertion with ships or aircraft South China Sea islands our position is we do not take a position on the underlying sovereignty dispute in the South China Sea whether it's a parasel of the Spratlys however we do have a national interest in freedom of navigation and access to the South China Sea because it is a strategic sea lines of communication and it's an area where we exercise routinely and we support what the Philippines is doing which is multilateral dispute settlement and as well as a binding ASEAN code of conduct as opposed to just a non-binding declaration of conduct we expect that all maritime claims will be settled in accordance with international law and that the one side won't use threat or coercion to try to intimidate the other parties to settle the dispute with regards to our defense obligations to the Philippines and the South China Sea we have told the Philippines that the mutual defense does not apply to the land territory that they claim in the South China Sea because we don't take a position on the underlying validity of those claims. However the treaty does provide that or does apply to any attack on Philippine forces in the Pacific so right now we've got about a half dozen or a dozen Philippine Marines that are living on a on a hull of a ship that they beached in to Thomas Shull and the Chinese have prevented their resupply by by civilian ships they did drop some supplies by air but what happens if the Chinese use force against those Marines on to Thomas Shull does our defense obligations under the treaty apply and I would argue that it does because it's an attack on Philippine forces in the Pacific same thing with the Senkakus we do not take a position on the underlying territorial dispute however I will say I've just started a new research project to determine China's claim versus Japan's claim versus the Senkaku Islands and one thing that I've found in my initial research is that our position used to be that Japanese did exercise sovereignty over the Senkaku Islands because if they didn't there was no reason for them to be placed under US administration after the war they would have just been given back to China like Taiwan and the Pescadoras were given back to China and Manchuria was given back to China so our initial position back during the negotiations of the 1951 peace treaty was that they had residual sovereignty in the Senkaku and they were just being placed under US administration however that changed in the 70's we got some pressure from Taiwan they were in the process of losing their seat at the UN there was also some we were engaged in some trade negotiations with Taiwan and as a result of that we changed our position to basically say we don't take a position now on the underlying sovereignty claims to the Senkaku Islands however we have said very specifically that our mutual defense obligations under the treaty do apply because the treaty is written to say that it applies to all territory that is administered by Japan not that it's Japanese territory as long as it's administered by Japan then the treaty applies so we've been very emphatic to state that our mutual defense obligations apply in the Senkakus we're China to take some type of measure use of force against Japanese in the Senkakus questions