For those of you who don’t know or don’t recall, TSIBR is a blog covering the collapse, and someday reconstruction, of the global world order. As such, it delves into the long rhythms of history, concentrating on the intersections between financial collapse and ensuing violent conflict amongst the world’s leading nations and major political actors. Although TSIBR has been on hiatus since mid-May, its main protagonist – Joshua Kane – is somewhat pleased at the prescience already displayed. Said prescience, or lack thereof, will now be explored as TSIBR returns from hiatus.
To begin, we turn the page back to December of ’08, at the height of the financial crisis, amid incredible uncertainty; TSIBR stepped up to the plate and asserted that the financial crisis would soon morph into currency wars, which would soon morph into protectionism, which would soon morph into overt wars between hegemonic proxies:
http://thesystemisblinkingred.blogspot.com/2008/12/shades-of-1930s.html
Well, it looks like the globe is following that script fairly closely – currency wars are upon us, protectionism is beginning, international economic coordination has broken down, and proxy conflicts – such as the US battling the Pakistani Taliban and/or Israel attacking Iran – have all but begun. Let’s look a bit closer at each of these issues.
Although a global currency war centered on US Dollar-Chinese Yuan exchange rates has been brewing for quite sometime, it seems Geithner’s early September attempt to pressure China to let the Yuan rise faster moved the issue from ‘brewing war’ to ‘imminent danger’:
The danger of an intense currency confrontation became even more imminent when the Fed stepped in and vowed another round of quantitative easing (QE2).
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100007777/shut-down-the-fed-part-ii/
Further quantitative easing by the Fed amounts to a stealthy albeit extremely powerful method of countering China’s currency manipulation, as China will be inundated with inflation should it attempt to maintain Yuan parity with a dollar that is rapidly being debased by the Fed. Moreover, debasing the dollar devalues China’s massive dollar surpluses, and although the ramifications for the US in any dollar devaluation may be severe (in terms of inflation), the American economy clearly cannot recover without an amelioration of the imbalances caused by China’s manipulation of the Yuan. Thus the US finds itself between a rock and a hard place, needing a 20%-40% revaluation in the Yuan to economically recover, but not being in a strong enough economic or fiscal position to demand it:
http://www.nytimes.com/2010/10/07/business/global/07imf.html
Meanwhile, a 20%-40% revaluation of the Yuan could be absolutely disastrous for China, especially in terms of employment. To make a long story short, global overcapacity in production means there is going to be high global unemployment, and the US and China are playing ‘pass the unemployment hot potato’, through currency manipulations, as Pritchard explains here:
Unsurprisingly then, we presently see China ratcheting up anti-American rhetoric, as it acts ever more quickly to diversify away from US dollars and debt (TSIBR predicted such diversification would occur starting in 2008, imagining that diversification would occur gradually at first, and predicting it would soon gain pace as the world slowly awoke to the realities of China abandoning the US currency):
Also unsurprisingly, the dollar has declined rapidly since the Fed’s QE2 announcement (surely the intended effect), thereby pressuring nations around the globe to weaken their currencies as well (likely the unintended effect). In the week following the Fed’s QE2 announcement, upwards of 25 nations acted strenuously to weaken their currencies in international markets (in a bid to stoke their economies through increased exports, other nations be damned). Thereby leading Brazil’s finance minister to declare ‘A Global Currency War Has Begun’:
http://www.telegraph.co.uk/finance/economics/8029560/Brazil-warns-of-world-currency-war.html
Of these 25 nations, Japan went the furthest, taking the unprecedented action of including the purchase of ETFs in their new rounds of QE – people think about this, Japan is going to print up money and buy stock ETFs with it – they are printing up Yen to buy stocks!
http://www.marketwatch.com/story/japan-cuts-rate-range-yen-falls-nikkei-rises-2010-10-05
http://www.cnbc.com/id/39526475
This, in TSIBR’s opinion, has always been the end game to QE money printing – why use the people as middlemen, just let the government print money and buy stocks. Hell, who needs people at all in markets? Just let the government be the market. The problem with that notion, of course, is that governments cannot create wealth; they can only move wealth around. So if government pushes up stock prices without real asset growth to back it, an inflationary tsunami will eventually engulf the entire financial system, as fiat money becomes nothing more than the paper from whence it came. One way or another, that appears to be the eventual outcome to the current global economic trajectory, as international economic cooperation has all but entirely broken down:
http://www.marketwatch.com/story/imf-chief-says-global-cooperation-falling-2010-10-07
http://www.cnbc.com/id/39609695
What is an individual to do in such an economic environment? Do what TSIBR has been urging you to do since 2007 – when gold, now at $1350, was hovering around $600 – get involved in the gold market:
http://thesystemisblinkingred.blogspot.com/2009/03/era-of-currency-chaos-has-only-just.html
http://www.marketwatch.com/story/gold-settles-at-fresh-record-high-tops-1350-2010-10-11
If an inflationary tsunami is the ultimate outcome here, what in the world comes after that? One world currency most likely:
http://www.wnd.com/index.php?fa=PAGE.view&pageId=213953
But of course, the road to one world currency will be fraught with trade protectionism and violent conflict, as nations attempt to uncover the true nation-state power-based pecking order existent on earth in the 21st century, and where each nation sits within it, as previously discussed in mid-2009:
http://thesystemisblinkingred.blogspot.com/2009/06/era-of-currency-confusion.html
Rumblings regarding protectionism have already reached a noisy din. With China asserting that the US will lose in any trade war (not so fast China, it’s the surplus countries that suffered the greatest after the Depression Era Smoot-Hawley Tariff Act).
And the US House passing legislation that paves the way for protectionism if China fails to let the Yuan appreciate rapidly:
http://countingpips.com/fx/2010/10/09/us-house-of-representatives-passes-bill-to-counter-yuan/
Now, a main raison d’être for TSIBR remains tracing, in near real-time, the ways in which financial collapse breeds violent conflict amongst the globe’s major political actors. And indeed, over the past few months we see financial collapse morphing with hot-button conflict spots at an increasing, if not alarming, rate. To begin with, Chairman of the Joint Chiefs of Staff Mullen has declared America’s debt to China a ‘national security threat’, while powerful Chinese military leaders suggest using it as a weapon:
http://www.executivegov.com/2010/08/mullen-national-debt-is-a-security-threat/
http://www.washingtontimes.com/news/2010/feb/10/chinese-see-us-debt-as-weapon/
Next we have China and Japan conflicting over disputed territory in the South China Sea. The financial backdrop to this old conflict arising once again is that Japan and China are major export rivals, and both are now attempting to devalue their currencies and ‘beggar thy neighbor’:
http://www.reuters.com/article/idUSTRE68K1DB20100921
The US has stepped into this messy mix, asserting its rights to patrol the South China Sea while condemning China’s massive naval buildup clearly aimed at projecting power into Asian domains previously reserved for American dominance. No to mention that the US and China broke off all military contacts in January over Taiwanese arms sales:
Longtime TSIBR readers should recall a phrase penned here in 2008: ‘The Fleshing Out of Foreign Demons.’ The phrase is meant to connote one process through which financial dislocation becomes nation on nation war. It’s like this – economic pain causes social unrest. The best way for governments to manage that unrest, assuming the economy itself is unmanageable (which it clearly has become currently), is to ‘flesh out a foreign demon’ and direct anger towards it. Undoubtedly this is going on around the globe today, as indicated by the Japanese-Chinese dispute above. America will of course participate in this game, indeed has begun to participate in this game in a serious way already. Just peep the following article that covers the growing role of anti-Chinese advertisements in American political campaigns:
http://www.nytimes.com/2010/10/10/us/politics/10outsource.html?_r=1
Before we move further to the political-violence side of the global systemic collapse equation, I want to conclude the financial discussion by laying out the path that TSIBR views as most likely as we approach the dollar-based financial system’s ultimate demise. The main point I want to make is: watch out for a deflationary wave or two as we move towards dollar dislocation. With commodities markets on fire since the beginning of September, it certainly seems as though the world economy has tipped over towards inflation. And with the Fed now clearly using dollar devaluation as a tool to promote economic recovery, it seems likely that global inflation will continue to build. Recall that the first half of 2008 witnessed a massive inflationary wave, and it was the machinations of the Federal Reserve to combat that inflation that resulted in deflation and the Financial Crisis:
http://thesystemisblinkingred.blogspot.com/2008/09/deflationary-waves.html
TSIBR believes we are following a similar script now. As the Fed enacts QE2, commodity prices will soar around the globe. Indeed, we already see inflation feeding into foodstuffs. The Fed’s eventual attempts to control the inflation it is creating will almost certainly panic the marketplace at some point. Once the marketplace is panicked, all the monetary easing in the world won’t keep counterparties from selling assets to meet margin calls, thus resulting in a deflationary wave, as the following article so eloquently explains:
http://www.cnbc.com/id/39419371
But eventually panic always subsides, although imbalance remains. At that point the Fed may opt to kick its money printing (QE3) into high gear. As the Fed’s balance sheet grows ever-larger without achieving balance, the globe’s realization of total systemic breakdown will likely take the form of a massive and wanton selling off of American dollars and debt, thus ushering in an outright dollar collapse. This my friends is what TSIBR sees as the most likely trajectory going forward, and we have some real good company. If you read one article in this post the following ought to be it:
Then again, we may see inflation just build and build from this point, eventually bringing hyper-inflation and a dollar collapse; or alternatively, the next deflationary panic may never tip back into inflation, and we may just get an outright deflationary collapse with the dollar soaring and every other asset class plummeting. Whatever the case, balance is something we will not get, cannot get, until the economic pecking order at work today is more fully fleshed out, likely via rising conflict. In the final analysis, TSIBR is in general agreement with Yu, a former advisor to the Chinese Central Bank, who argues that one way or another, the Fed’s attempts to print the global economy back into balance will eventually cause a dollar collapse:
Nuff said on that score for now; let’s move onto Israel and Iran. Recall that at the beginning of the year, TSIBR predicted that war would break out between Israel and Iran somewhere between March and October. Well that prediction has turned out largely incorrect. But listen, getting the events right and the dates wrong is what TSIBR is all about. No one can predict the timing of a ‘Black Swan’ event, but its still fun to try. At the depths of my 2010 depression, I realized that the predicted timing on this event, although not the prediction of the event itself, was turning sour. The main occurrence that made me realize this was the March falling out between Obama and Netanyahu as Biden visited Israel:
http://www.newsweek.com/2010/03/21/it-s-iran-stupid.html
It is in TSIBR’s considered opinion that this ‘falling-out’ was mostly for show (political pomp). The falling-out was largely manufactured in order to create a political space where Israel could launch attacks on Iranian nuclear installations with the US professing to having known little to nothing about it. Of course, Iran has said it will retaliate asymmetrically against American interests if Israel does launch strikes, so the US will be drawn into the fray regardless of whether it greenlights Israel’s attack or not:
The point being that, in this way, Obama can enter into an Iranian confrontation without in anyway initiating it, thereby limiting political fallout and giving America a freer hand to do what it must in Iran. Obama is clearly refusing to activate Bush’s doctrine of preemptive attack, and whether by design or by default, it seems likely that the Obama administration now wants Israel to take the lead in any Iranian confrontation, with Obama having Israel’s back, a clearer conscience, and a freer hand as a result. We shall see, but if the above is even somewhat correct, we should see violent confrontation between Israel and Iran initiate sometime during the first half of next year. And hey, if you count cyberwar, TSIBR’s original temporal prediction regarding the initiation of Israeli-Iranian hostilities was actually correct, as cyber warfare at Iranian nuclear installations began in earnest at the end of September:
http://www.alertnet.org/thenews/newsdesk/LDE68R0GB.htm
Yeah I know this TSIBR re-up is getting a little long, but what’s a TSIBR post with no mention of Mehsud? Surely TSIBR readers have noticed the recent Terror Alerts that have warned of coordinated Mumbai style commando attacks in European cities:
There is no doubt in my mind that Mehsud’s Pakistani Taliban has coordinated these attacks, or will be given responsibility for doing so if they become operational. For a summary of TSIBR’s views on Mehsud, and why the Pakistani Taliban are viewed as critical to the ongoing story of global systemic collapse, see:
http://thesystemisblinkingred.blogspot.com/2010/05/educated-premonition.html
The main point here being that Mehsud’s Pakistani Taliban have been anointed by the al Qaeda-Taliban Alliance as the central coordinating group for attacks aimed at the West, with the ultimate goal being to force the US to breach Pakistani borders with guns ablazing to get at Mehsud. Indeed, even word of these potential attacks caused the CIA to step up drone attacks against the Pakistani Taliban and the Haqqani Network. Blowback from stepped up drone attacks came last week when two Pakistani border soldiers became collateral damage. Our Pakistani ‘allies’ then opted to close a key transport route heading from Pakistan into Afghanistan, thereby enabling the Pakistani Taliban and Haqqani network to torch multiple NATO fuel tankers, in a scene seemingly reminiscent of “Road Warrior”:
http://www.nytimes.com/2010/10/07/world/asia/07diplo.html?scp=14&sq=pakistan&st=nyt
Meanwhile, the Pakistani military continues to balk at dismantling the Haqqani network, mostly because the Pakistani ISI (their CIA) continues to view the Haqqani network as a key strategic asset in its proxy war against India in Afghanistan:
Long story short, relations between the US and Pakistan have now begun to deteriorate rapidly, much as TSIBR predicted they would:
http://thesystemisblinkingred.blogspot.com/2010/01/on-terror-front.html
And to make matters worse, the civilian government of Pakistan is teetering on collapse, as a consequence of this summer’s massive torrential flooding and its pernicious economic effects:
http://www.nytimes.com/2010/09/29/world/asia/29pstan.html?scp=11&sq=pakistan&st=nyt
If a domestic terror event occurs in America, and US intelligence traces it back to the Pakistani Taliban, the US will be forced to invade Pakistan (on the hunt for Mehsud). It is highly likely that such an event would cause the Pakistani civilian government to fail. Some sector of the Pakistani military, likely even less friendly to American interests, would probably fill the vacuum, although simple chaos may ensue for a time… This is al Qaeda’s greatest wish – a failed state in an Islamic nation rife with Taliban and nukes. The potential for this scenario actually obtaining within the next two years is, TSIBR will hazard, quite high.
Let’s not forget that China and Pakistan are nuclear allies:
http://af.reuters.com/article/energyOilNews/idAFTOE68K05X20100921\\
And the US is none too happy about it:
And the US therefore has become a serious nuclear ally of India:
http://www.cfr.org/publication/9663/usindia_nuclear_deal.html
So we return to where TSIBR began back in 2007, making the arguments that economic collapse was imminent, that depression and increasing conflict would follow as US-Chinese relations deteriorate, with the potential for direct conflict escalating as India vs. Pakistan stressed US-Chinese intersections in the nuclear theater of the sub-Asian continent. Just as the globe rotates at 1000 mph and yet humans hardly notice, so too with global systemic collapse. Just as sure as the sun will rise and set tomorrow, so too goes the cycle of world orders. Do not doubt that Joshua Kane remains a willing slave to the TSIBR project. So come with me, follow the vicissitudes of economy and conflict in semi-real time as these historic times unfold. Daily twitter feeds resume tomorrow, and readers can expect new updates to appear about twice a month, far more if events warrant. Stay tuned!!!!
Joshua Kane
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