READER QUESTION: Thanks Josh. Great round-up. Much to think on. What's going on with the 5 DC "skirt-chasers" (or should I say burka-chasers) in Pakistan? Are they still in Pak custody? Are they charged with anything? Are they going to be deported back to the US? If so, what would they be charged with here?
That Twitter story is fascinating. I think your subjective analysis is spot-on, something deep happened on Dec. 17th. Those two stories above I have not come across before now. Of course I don't stalk the same subjects that you do (and I don't tweet).
Where your analysis gets a little hazy for me is how such a war will be funded. I can see ways, but perhaps different than you do. I do not see it being funded through long-term Treasury sales to, say, the Chinese. And I do not see it being funded through Fed monetization either. It will have to be funded through taxes and sacrifice. Money itself may already be socialized, but stores of wealth cannot be controlled and pilfered in the same way. They require systemic confidence. This break in the monetary functions is going to cause a problem for military funding. And it is not a problem that can be solved by force.
Sacrifices will have to be made... voluntarily... by anyone, everyone, and every group (like Congress) in the world that wants to support war with Iran. Will it happen? Can it happen? And will it be of sufficient in size and scope? I don't know. Any way you cut it, this is not going to be easy, clear cut and simple to get through to the other side. The US may find that its Superpower status has suddenly been put on a budget at precisely the wrong time. Sincerely, FOFOA
TSIBR ANSWER: Hey FOFOA, thanx for checkin out the post! As far as I know the DC 'burka-chasers' (good one ;), have been charged with attempted terrorism (or something like that) in Pakistan. It looks like they will not be deported and may very well get the death penalty in Pakistan.
I wonder if there isn't alot more to December 17 than has been reported as well. Hopefully time will reveal more details on that score.
The funding question is spot-on and intriguing, thanx so much for pushing me further on this (I kinda figured you would ;). I think the answer to 'how does the US fund a major war against Iran' revolves around the temporal length of the conflict. If it somehow goes quickly (let's say less than eight weeks), then funding shouldn't be too much of a problem. War with Iran doesn't, in and of itself, come with bad debt, although it could make debt go bad in the long-run. In my opinion, owing to its prior socialization, the financial system will survive the initial shock.
Which brings us to the thorny question of where the dollar and gold will go upon the initiation of hostilities. Well, the run-up to the conflict should tell us more on that score, and TSIBR will cover it closely. For now: since reaction to conflict is more emotional than based on fundamentals, I think traders will turn to the same emotional playbook that was in effect during the '08 crash - they'll flock to dollars and Treasuries, at least initially.
I think the big difference between the '08 crash and the coming Iranian conflict reaction, however, will be that oil and gold soar in tandem with the dollar and Treasuries; whereas the relationship was painfully inverse for commodity traders in '08.
If hostilities progress past 12 weeks, then a dollar collapse may very well be triggered. I agree with you – China is not going to be happy about funding our war with Iran. If a dollar decline sets in, Chinese financial authorities are going to be, shall we say, extremely upset... yada yada yada... dollar collapse.
So, how does the US fund a war with Iran in the scenario of a dollar collapse? There are a plethora options from the annals of capitalist history, many have proven successful for a time. The US could put price controls and rations on key goods at first... in the final instance the US could scrap the dollar altogether, turn inward, socialize the economy and issue a national wartime currency until hostilities subside.
Always remember, at base level, money is no more than power in liquid form. The foundation of all power is the capacity for violence. When societal interaction has deteriorated to base power (i.e. foundational violence) competition, money can become merely an appendage to the state apparatus for violence, at least until the crucial resources of a nation have been entirely exhausted. If the state apparatus actually proves successful in its battles, it will have primary say in the reconstruction of the post-hostilities financial system; such a state can wipe away its own debt if it should so choose.
Interestingly then, FOFOA, this is where my work and your work intersects. At the depth of the historical long-wave, the fictions of humanity fall away – all fiat money becomes whimsy, all future contracts fantasy. What shines clearly, all that matters, is where the gold (histories’ true wealth storage mechanism) actually is; not where people want or expect it to be, nor where they have paid for it to be. In short, the long-wave of history issues from a cellar of gold. Question: is America's cellar currently full or empty? Unfortunately, that is the crucial question in need of answering: http://gata.org/
Joshua Kane
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