The System is Blinking Red

The Globe Has Seen This Play Before, Act II Brings Currencies To The Fore, Act III Brings War:

2010-10-11T19:28:00.000-07:00

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’:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8007629/US-China-clash-over-yuan-escalates-risking-superpower-stand-off.html

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:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8054066/Currency-wars-are-necessary-if-all-else-fails.html

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):

http://www.bloomberg.com/news/2010-08-15/china-favors-euros-over-dollars-as-bernanke-shifts-course-on-fed-stimulus.html

http://www.bloomberg.com/news/2010-08-17/china-cuts-long-term-treasury-holdings-by-most-ever-as-u-s-yields-decline.html

http://www.bloomberg.com/news/2010-09-28/u-s-dollar-is-one-step-nearer-to-crisis-chinese-former-adviser-yu-says.html

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

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/9/28_Ben_Davies_-_The_World_Monetary_Earthquake.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.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8026324/Gold-is-the-final-refuge-against-universal-currency-debasement.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 21^st 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).

http://www.telegraph.co.uk/finance/currency/8002719/Chinese-think-tank-warns-US-it-will-emerge-as-loser-in-trade-war.html

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:

http://www.bloomberg.com/news/2010-10-11/gates-rejects-china-demand-for-u-s-to-stay-out-of-asian-maritime-disputes.html

http://www.bloomberg.com/news/2010-08-16/china-seeks-military-power-in-indian-ocean-western-pacific-pentagon-says.html

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:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7909432/The-Death-of-Paper-Money.html

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:

http://www.bloomberg.com/news/2010-09-28/u-s-dollar-is-one-step-nearer-to-crisis-chinese-former-adviser-yu-says.html

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:

http://abcnews.go.com/International/iran-president-threatens-us-war-boundaries-nuclear-faclities/story?id=11689305&page=1

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:

http://abcnews.go.com/Blotter/exclusive-concern-terror-teams-selected-targets-ready-strike/story?id=11784233

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:

http://online.wsj.com/article/SB10001424052748703723504575425641972800902.html?mod=WSJ_hpp_LEFTTopStories

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:

http://www.telegraph.co.uk/news/worldnews/asia/pakistan/8053775/Pakistans-nuclear-arms-push-angers-America.html

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

The Hiatus Will End Soon...

2010-09-22T14:12:00.000-07:00

Forgive me TSIBR readers for my months long hiatus. Divorce is a doozy, and reconstructing my personal life while advancing my professional life has taken up all of my time. But with the mid-term elections approaching, we find the global cauldron of financial crisis and terror again simmering slowly to a boil. Will deflation or inflation rule the day? Will Israel unilaterally attack Iranian nuclear installations with the US supplying backup (likely)? Or will America take the lead (unlikely)? And along what new timeline does TSIBR believe events will unfold? These and more questions will be answered when TSIBR returns in October. Thank you for your patience and... Stay tuned!

Joshua Kane

Educated Premonition:

2010-05-10T16:25:00.000-07:00

Welcome back TSIBR readers! Allow me to apologize for the hiatus… but also note that the dates of the hiatus coincide near-perfectly with the death and resurrection of the ‘now becoming globally infamous’ Hakimullah Mehsud. Long time TSIBR readers know that TSIBR has been following the Mehsud led Pakistani Taliban (the TTP – Tehrek-e-Taliban in Pakistan – to the Pakistanis) for well over a year. Want proof? Just take a look up to your left and you will see a TSIBR blog search tool, plug in Mehsud, and you will find treatises on the developing threat dating back to at least June of 2009. Indeed, here is a video of Kane talking about the growing Mehsud threat – the post is entitled “The Dawn of the Mehsud Offensive” and was posted on July 12, 2009 – nearly a year prior to the Mehsud orchestrated (albeit failed) Times Square Bombing:

http://thesystemisblinkingred.blogspot.com/2009/07/kane-on-dawn-of-mehsud-offensive-video.html

Before we get into the failed bombing itself, let’s review a few of the key reasons why TSIBR keyed on Mehsud, and continued to, out of a panoply of key and scary terrorist figures in the world. This post should be particularly interesting to those most interested in premonition, for in the following description the many nexuses between education and premonition that led TSIBR to focus on Mehsud will be laid bare.

We began with an educated supposition – the initial supposition that led TSIBR to focus on the Mehsuds simply involved deteriorating leadership for the al Qaeda-Taliban Alliance – bin Laden, Ayman al-Zawahiri, and the like are becoming old and tired. This supposition led TSIBR to search for potential leaders; from what shadowy corner was new leadership likely to emerge?

TSIBR immediately focused on Pakistani terror groups in trying to answer that question. There are two main reasons why: 1) As has been harped on repeatedly at TSIBR, the main goal of the al Qaeda-Taliban Alliance today is to force the US or India or both to incontrovertibly cross Pakistani borders with guns ablazing. At best, such an event would widen legitimate calls for Jihad like few others could; at worst, it would foment a massive war between India and Pakistan, with the US (India’s staunch ally) and China (Pakistan’s staunch ally) potentially being dragged in as adversaries. 2) A main reason, if not the main reason, al Qaeda has had trouble extending its influence over the past years involves Pakistanis and Afghanis viewing al Qaeda as foreign interlopers. The Taliban on the other hand are viewed as homegrown. Thus TSIBR surmised that as long as Af-Pak remains the key front in the War on Terror (for lack of a better term), new leadership would necessarily have to be culled from a Taliban group, a Pakistani Taliban group.

Readers should therefore find it unsurprising that TSIBR watched with bated breath as the TTP formed around a leader known as Baitullah Mehsud, starting c.2005. By 2007 Baitullah had consolidated power, and along the way had also become very pro al-Qaeda. This was atypical for the Taliban in Pakistan, which previously shied away from links with foreign interlopers. But Baitullah’s charisma, backed with al Qaeda’s financing, succeeded in creating a powerful Pakistani Taliban umbrella group with an increasingly international focus. As we moved into 2008, Baitullah Mehsud gave two interviews to Islamic media outlets starkly threatening the US with attacks. As TSIBR remarked at the time, such a man does not do so without a greenlight from key leadership figures throughout the al-Qaeda-Taliban alliance. When TSIBR got wind of the interviews, goosebumps and hackles started to rise, an educated premonition was forming…

Now, imagine Joshua Kane sitting on his couch about to watch a Frontline focusing on terror in Pakistan. Now imagine Joshua Kane spitting out his soda as a NATO Hum-V appears on the screen carrying none other than Baitullah Mehsud and his right hand man and driver, Hakimullah Mehsud. These two men were going to sit for an interview with Frontline, and unsurprisingly, during the interview, Baitullah, with Hakimullah at his side, issued threats against the West. Suddenly, as Kane stared at the soda on his chest, an image was recalled, an image from a Frontline first aired in 1998, an image of bin-Laden in a blue turban issuing grave threats against the US and Israel. It was the only western media outlet in which bin-Laden himself threatened the West prior to 9/11. Surely anyone mimicking such a momentous interview was doing so with a generalized greenlight from Alliance leadership…

For that moment, if not from that moment, it was clear to TSIBR that Baitullah was likely their man – the next face of the al-Qaeda-Taliban Alliance. Although, at the time I do recall remarking that there was something extraordinary about Baitullah’s driver – the man, Hakimullah, clearly wanted to speak, and he clearly was revered by the Taliban surrounding Baitullah, on whose side he sat. When Hakimullah arose, prior to Baitullah, a large smile on his face, and fired up Baitullah’s captured NATO Hum-V, the Taliban let out a memorable roar, and it became clear to TSIBR that this young firebrand had the terrorist X-factor like few else – he could be a superstar terrorist. It all seemed a bit crazy then, less so now.

A few scant weeks after TSIBR went public with its disturbing views on Mehsud, Baitullah was killed in a drone attack. Confusion surrounded the affair for some three weeks until it became clear that Hakimullah Mehsud had risen to leadership of the TTP. Rather than review that messy affair, take a look at the posts that covered Baitullah’s death and Hakimullah’s rise, with the Zazi attempt quickly following on the heels:

http://thesystemisblinkingred.blogspot.com/2009/08/pitfalls-and-pleasures-of-social.html

http://thesystemisblinkingred.blogspot.com/2009/08/dark-forebodings-of-fall-timing-of.html

http://thesystemisblinkingred.blogspot.com/2009/09/obama-outsourcer-will-almost-spilled-be.html

From that point propagandistic pics of Hakimullah began appearing, like the following:

http://alertpak.files.wordpress.com/2009/08/hakimullah-mehsud_232561s.jpg

Again, such pics raised the hackles and goosebumps of TSIBR, still do in fact – the feedback loop between education and premonition was and is gaining strength in this case; TSIBR was and is onto something. Then, seemingly our of nowhere, there appears Hakimullah Mehsud sitting next to the CIA Khost bomber in the bomber’s posthumous video. Hakimullah asserts that the bombing was in retaliation for Baitullah (a point which we have continued to hear since); no other leader sits with the bomber. This bombing of the CIA Khost outpost, where drone strikes are orchestrated, was perhaps the best planned terrorist operation since 9/11. All intelligence points to the attack being organized by the Haqqani network, whose main focus remains Afghanistan. Haqqani is old, battle-hardened, and experienced. It makes far more sense that his network organized the successful attack (as TSIBR commented at the time). If so, then why was Hakimullah Mehsud sitting next to the bomber in his posthumous video? Here is the reason: all of the many terror groups based in Pakistan and allied with al-Qaeda have accepted Mehsud’s face as the new face of terror. This means that no matter what terror comes to American interests abroad or domestically, no matter whether its actually organized by Hakimullah’s Pakistani Taliban, no matter whether its successful or not, if the claim can be made that Hakimullah Mehsud orchestrated the event, such a claim will be made. In a bid to create new leadership for the al-Qaeda-Taliban Alliance, the Alliance members are stamping any and all terror with the face of Hakimullah Mehsud. As a young x-factor firebrand with few independent ties outside of his former master Baitullah Mehsud, Hakimullah makes perfect sense for this role. I spoke of this extensively in this January 2010 post:

http://thesystemisblinkingred.blogspot.com/2010/01/on-terror-front.html

Nevertheless, merely days after TSIBR had again reasserted such a view came the news that Hakimullah Mehsud had died in a drone attack. He had become target #1 for the CIA and they had gotten him. All intelligence agencies throughout the globe were in agreement – Hakimullah Mehsud was dead. I will not lie TSIBR readers, Kane became somewhat discouraged at that time. My hackles told me Hakimullah was alive, but the news assured me he was dead. Then a week passed, then another, then another, and still no news of new leadership for the Pakistani Taliban. Then Waliur Rehman, an old general within the Pakistani Taliban who is likely their actual leader, began giving interviews – Hakimullah is alive but underground he asserted again and again – the hackles became reinvigorated. Nightly Kane began looking for news on Hakimullah Mehsud, would he reappear? Could he be alive… from the twitter feed, dated February 5, 2010:

“Taliban continue to claim Mehsud lives. If so he's more powerful than ever. If not the TTP are less powerful than before.”

Those nightly searches continued until the early morning hours of April 29^th, when ABC reported that intelligence agencies now believed Hakimullah was alive. From the post on that day:

“If true, the implications for terror soon coming to American shores, stamped with the face of Mehsud, are grave.”

Which brings us up to date. Not only is Hakimullah alive, but his supposed death and resurrection have provided the Pakistani Taliban with a propaganda gold mine – undoubtedly Hakimullah’s role as key leader and dominant face has been solidified, and he now likely resides underground in a city where drone strikes cannot reach him. Moreover, intelligence agencies are finally reporting what TSIBR has long surmised – the Pakistani Taliban is becoming the umbrella group for the many dangerous and al-Qaeda sympathetic Pakistani terror groups – notably Lashkar-e-Taioba and Jaish-e-Muhammed:

http://www.nytimes.com/2010/05/07/world/asia/07pstan.html

These two terror groups, which focus exclusively on India, will continue to focus exclusively on India. But given their long histories, and their involvement with Pakistan’s intelligence agency (the ISI), these groups actually have an international infrastructure for terror, as indicated by the strange case of David Headley:

http://www.cnn.com/2010/WORLD/asiapcf/03/18/headlley.mumbai.profile/index.html?hpt=C1

It is precisely that international infrastructure for terror that Mehsud’s TTP is activating currently, it is Lashkar and Jaish that give the TTP a platform from which to strike the US. Add in the Haqqani network, and it becomes clear that very powerful forces are backing the rise of Hakimullah Mehsud. None of these groups want to pollute their center of attention by switching to an American focus, for that may affect their ability to agitate against India and/or Afghanistan (in the Haqqani case). Thus they require a face to attack the United States, and Hakimullah has become that face.

http://www.foxnews.com/us/2010/05/08/terrorists-new-focus-striking-officials-say/

Proof of the above abounds in the failed Times Square bombing attempt, with the bomber now being linked to both Jaish and the Pakistani Taliban:

http://www.latimes.com/news/nationworld/world/la-fg-pakistan-shahzad-20100506,0,2653766.story

http://blogs.abcnews.com/politicalpunch/2010/05/holder-pakistani-taliban-behind-times-square-attack.html

Of course, and however, the Times Square bombing attempt was pretty pathetic in various ways. Which leads to a number of questions TSIBR does not yet have an answer for. It boils down to this, did Pakistani Terror groups send their A-team or their C-team to do this job. If it’s the C-team, where is the A-team, was Zazi the A-team, or is the A-team still in the US? If TSIBR had to guess, a C-team was certainly sent to prepare the Times Square bombing, while the overarching point of the poorly orchestrated attempt, in the eyes of the TTP, was simply to announce the resurrection of Hakimullah Mehsud, nothing more nothing less.

http://www.csmonitor.com/USA/2010/0510/Times-Square-bomb-Did-Pakistan-Taliban-send-its-C-team

Regardless, inertia now is on the side of terror coming to the US in a graver form than what we saw earlier this month – as long as Hakimullah is alive and providing that umbrella for Pakistani Terror groups, the threat remains grave. Meanwhile the Pakistani ISI continues to pay lip service to America’s desire for eradication of Pakistani Terror groups, all while covertly supporting them in a bid to counter India and maintain power in Afghanistan:

http://www.prokerala.com/news/articles/a115580.html

http://www.ndtv.com/news/world/pakistans-isi-is-protecting-lashkar-us-17716.php

Returning to premonition - in terms of hackles – TSIBR believes something far bigger is on its way to American shores. In terms of further guesses – this may be a Mumbai style massacre in Manhattan or a nuclear event in LA – this is what my intuition tells me. Mind you TSIBR readers, I desire neither, I fear both, and pray that I am wrong. That being said, does anyone else find it curious that, with Iran set to go nuclear, Obama made his entire ‘nuclear conference’ about terrorists acquiring and deploying nuclear weapons. Does Obama know something we don’t?

http://www.usatoday.com/news/washington/2010-04-13-nuke-plans_N.htm

Well, TSIBR knows this much: there is much left to be said. In the coming days TSIBR will continue posting mega-updates – topics covered will include the quaking financial system, the role of China, and the coming strike on Iran. Stay tuned…

Joshua Kane

It is Official:

2010-05-09T10:45:00.000-07:00

Attorney General Eric Holder confirmed this morning that the attempted Times Square bombing was indeed orchestrated by Hakimullah Mehsud's Pakistani Taliban:

http://blogs.abcnews.com/politicalpunch/2010/05/holder-pakistani-taliban-behind-times-square-attack.html

Apologies for the spotty coverage and lack of time-sensitive updates, Kane could really use some help with TSIBR... Nevertheless rest assured that a TSIBR megapost is on its way... it's half-written already... By Tuesday at the latest...

Joshua Kane

Mehsud Shows His Infamous Face and Issues Grave Threats:

2010-05-03T03:15:00.000-07:00

Hakimullah Mehsud, previously thought dead, has shown his face in two new videos released hours after Sunday’s failed NYC bombing attempt. In both videos he issues stark threats against the American homeland. A video dated April 19^th shows Hakimullah Mehsud sitting next to a map of the US containing multiple explosion graphics. Mehsud declares that massive retribution will come to American shores within the month. The threats are being viewed as credible:

http://www.telegraph.co.uk/news/worldnews/asia/pakistan/7672214/Taliban-leader-Hakimullah-Mehsud-threatens-US-months-after-death.html

Meanwhile, an anonymous 911 caller has tipped off the NYPD that Sunday’s failed attempt was a diversionary tactic aimed at distracting law enforcement from a much bigger explosion coming within days. TSIBR will lend some credence to this view, in that terrorist events usually don’t occur while markets are closed. Is something bigger coming?

http://www.realclearpolitics.com/video/2010/05/02/local_nyc_channel_reports_failed_bomb_at_times_square_was_a_diversion_for_massive_explosion.html

Undoubtedly, at TSIBR, there will be much to cover going forward, and much to catch up on as well, as we continue to trace the path of world order collapse and reconstruction, peppered with a nice dose of educated premonition, just to keep things fresh. Mega-updates re-initiate on Thursday.

Joshua Kane

MEHSUD LIVES!?!

2010-04-29T01:42:00.000-07:00

New US intelligence reports suggest strongly that Hakimullah Mehsud is alive, just as TSIBR surmised:

http://abcnews.go.com/International/wireStory?id=10505681

If true, the implications for terror soon coming to American shores, stamped with the face of Mehsud, are grave. Within the next week or so, there will be a mega-update on TSIBR overviewing each of the many facets of the deteriorating world order and providing the inimitable TSIBR viewpoint. Get back in tune soon with TSIBR.

Joshua Kane

On The Terror Front:

2010-01-26T14:32:00.000-08:00

With each new passing day, the terror threats to the West seem to be picking up. Although most new reported threats have been of the small lone gunman variety, like this one from today:

http://www.foxnews.com/story/0,2933,583912,00.html?test=latestnews

Recall that following the Mumbai Attacks in late 2008 TSIBR asserted that the globe had likely entered a new wave of terror escalation wherein the fractures to American Hegemony, laid bare by the financial crisis, would foment mounting political crises and violent actions of various sorts:

http://thesystemisblinkingred.blogspot.com/2008/11/new-opening-on-terror-front.html

TSIBR feels, and perhaps you’ll agree, that the events of 2009 supported said prediction fairly well, and 2010 should send us further down a spiraling path towards heightened and graver political violence. Along that path TSIBR will narrow its focus to those groups and prospective events that carry with them potential for mass casualties in the American Homeland and/or the kernels for major state-on-state violence.

Of course, this is the stuff of core Al Qaeda central, namely the rasion d’être for bin Laden’s existence as ‘Bin Laden’. Thus with terror rising everywhere, TSIBR does not scoff at bin Laden’s latest threat of coming mass-casualty attacks; indeed, this message begins and ends with an offer and opportunity for apostate conversion prior to the catastrophic event. Such offers have been issued in the same precise manner with all the Bin Laden transmissions that have preceded attempts at catastrophic attacks in the West:

http://news.yahoo.com/s/afp/20100124/ts_alt_afp/attacksusnigeriabinladenthreat_20100124182004

Notice how Bin Laden also claims partial responsibility for the failed Christmas airliner attack. Global intelligence agencies consistently report that AQAP (Arabian Peninsula) and AQC (Central) have had little to no contact of late, so confusion abounds; if there are strong connections, then AQAP, and al Qaeda more generally, are far stronger than is being reported. TSIBR has many many doubts on that score, although, the following report regarding radicalized ex-convict American citizens increasingly finding their way into the arms of AQAP does have TSIBR concerned. For obvious reasons such men would make for excellent terrorists:

http://abcnews.go.com/Blotter/muslim-american-convicts-yemen-pose-threat/story?id=9602228

Nevertheless, the main and most dangerous front in the Terror War (no one even knows what we’re calling this mess anymore, more on that below) remains Pakistan and the quite coordinated network of terrorism there, composed mainly of AQC, Mehsud’s TTP, Lashkar-e-Taiba (LeT), and Jaish-e-Muhammed (JeM). TSIBR will say it yet again: if and when major terror returns to American shores, it will be traced back to this network, simply because, more than anything, AL QAEDA WANTS THE US AND/OR INDIA TO CLEARLY BREACH PAKISTANI BORDERS WITH GUNS ABLAZING.

TSIBR has been saying exactly that for years: there is no better way to stress American Hegemony and the American led global system than stoking enmity between Pakistan and India. This is because China is allied with Pakistan and the US is allied with India over Pakistan / India’s longstanding Kashmir dispute, and perhaps no other dispute in the world (excepting Palestine) is viewed as more legitimate for Jihad.

What TSIBR remained astounded at for years is how few Americans, including America’s military leadership, seemed aware of this very clear al Qaeda strategy. Well the Mumbai attacks seems to have set in motion a series of events enabling American military leadership to now admit that this is indeed a key strategic goal of al Qaeda. Defense Secretary Gates laid it out very plainly during his visit to Pakistan last week:

http://online.wsj.com/article/SB10001424052748704320104575014752587809016.html?mod=WSJ_hpp_sections_world

And just prior to his visit, the Council on Foreign Relations released their seriously disturbing report on the potential for warfare between India and Pakistan, warfare which would likely be triggered by another terrorist event on the scale of Mumbai:

http://www.cfr.org/publication/21042/terrorist_attack_sparks_indopakistani_crisis.html

Believe it or not TSIBR readers, it gets scarier than that. Here is the Indian ‘Home Minister’, a leading official, claiming that key information has been extracted from David Headley, the double agent American accused of helping plan the Mumbai attacks, clearly indicating that Pakistan security officials had prior knowledge of the attacks. Notice how the article ends with the Home Minister issuing an only slightly veiled threat – India will attack Pakistan if Lashkar or its ilk successfully terrorize India again, count on it:

http://www.littleabout.com/news/62002,state-state-terror-actors-pakistan.html

Regardless, India and Pakistan might just come to direct blows over Kashmir without terror, as gunfire is being exchanged across Kashmir’s uncertain borders:

http://www.thisislondon.co.uk/standard/article-23796489-gun-battle-between-indian-and-pakistani-troops.do

Hmmm… as if from TSIBR’s keypad to god’s ears: one of the main things that India seems to be worried about presently is Pakistan employing Chinese advisors and technology as it builds defense-related tunnel networks along key parts of the Indian border. In short, the globe will likely witness hot war between India and Pakistan sometime fairly soon, as there are too many variables in the equation, and stability is being overwhelmed:

http://news.oneindia.in/2010/01/25/indiamonitoring-situation-in-pakistan-closely-sayskrishna.html

Of course, if India and Pakistan do come to blows, their conflict will not occur in a vacuum. In early January TSIBR covered the critical bombing of the CIA outpost in Khost Afghanistan. All indications were that the Haqqani network had planned it. And then, seemingly out of nowhere, appears the young, and dare I say somewhat strikingly handsome (for a Taliban), Hakimullah Mehsud, sitting next to the dead Jordanian bomber:

http://www.nytimes.com/2010/01/10/world/middleeast/10balawi.html?hp

Al Qaeda has allowed the 28 year old and newly christened leader of the TTP to take full credit for the most masterfully planned al Qaeda attack sine 9/11. Notice the language TSIBR is employing here. Recall that last year TSIBR devoted a lot of time to Baithullah Mehsud, then head of the strengthening TTP. TSIBR robustly felt that 34-year-old Baithullah was being groomed to be the new face of al Qaeda. Please see last year’s posts regarding Baithullah for all of the logic behind the prediction, for now recall that Baithullah had suddenly been giving multiple interviews to western media outlets, something Baithullah was clearly uncomfortable with, and not very good at. Nevertheless, when al Qaeda Central pushes a leader into the media spotlight, as Baithullah was, there is usually good reason – these people do not like to share power unnecessarily. Interestingly, sitting beside Baithullah in every interview was this striking young man, a man seemingly very comfortable to be on camera, and a man who would fire up Baithullah’s captured NATO Hum-V prior to their departure. The man was Hakimullah Mehsud, 28, a relative of Baithullah, placed in charge of Baithullah’s security.

As chief bodyguard for Baithullah, Hakimullah became known for his brazen and fearless actions, he just seems to be one of those guys that bombs miss (Macarthur is the most famed American known for similar strange luck; such luck holds… until it doesn’t). When the bomb that killed Baithullah found Baithullah, Hakimullah was there. Indeed, they say it was the presence of the Hakimullah driven NATO Hum-V that tipped off the drone operators to Baithullah’s whereabouts.

Upon Baithullah’s demise, the Pakistani Army released a number of reports claiming the TTP was in total disarray, but rather quickly, it became clear that the TTP and AQC had rallied around Hakimullah; he was securely in command with the powerful and older Waluir Rehman as his right hand man. TSIBR speculated then that AQC may have wanted Baithullah dead because they felt he was bristling at the TTPs shift towards a more international focus. The speed with which the striking looking Hakimullah has ascended to the top ranks of both the TTP and AQC strongly support this speculation. Regardless, it now seems clear to TSIBR that Hakimullah Mehsud will become a vital leader in both Al Qaeda Central and Pakistan’s increasingly coordinated terror networks – he will be the glue that holds the two together and a face that Jihadis can come to love. All this will become crystal clear to Americans if and when AQC successfully attacks America, until then, the prediction waits for further confirmation or complication. Meanwhile, Pakistan has fully rejected calls for a North Waziristan offensive, where the TTP is now setting up camp, and where Haqqani already is, along with who knows how many AQC leaders:

http://www.foxnews.com/politics/2010/01/21/gates-discuss-afghan-war-pakistanis/?test=latestnews

Which means more drone attacks, which means more problems:

http://www.nytimes.com/2010/01/23/world/asia/23drone.html?hp

Moreover, Pakistan is working on anti-drone technology, while the US gives it drone technology to experiment with:

http://www.daily.pk/pakistan-test-fires-anti-drone-technology-14953/

http://www.nytimes.com/2010/01/22/world/asia/22gates.html

When is the US going to realize that Pakistan does not, and will not ever, actually support the US in any critical 21^st century battle? The global system has shaped up in a way such that the US and Pakistan have increasing contact but decreasing shared interests, and that’s that. Americans will realize that’s that… if and when, if and when:

http://timesofindia.indiatimes.com/world/us/Headley-case-reveals-LeTs-global-ambitions-of-mass-killing-US/articleshow/5453657.cms

http://blogs.reuters.com/pakistan/2010/01/12/pakistan-seen-drifting-away-from-the-west/

Ah, the ifs and the whens… well, those are TSIBR’s raison d’êtres, so follow with me as we turn briefly to discuss the prospects for WWIII. The world in 2010 finds itself once again immersed in spiraling political violence, and yet throughout the world the present global surge of politically motivated violence has not been christened with a grand name. The US now views itself in a pitched battle with al Qaeda remnants, rather than terrorism itself, while conflict is spreading beyond terrorism, as indicated by Iran’s 2009 incidents. Indeed the main proponents in the emerging global conflict are being fleshed out as the true political actors they are, rather than the strategies they employ. It seems likely that the Iranian confrontation will come to a head in 2010, and both America and Israel will be engaged. It also seems further likely that terror events will force the US to breach the Pakistani border, perhaps also in 2010. By any measure that would amount to WWIII for America; i.e. America will likely lurch into its own isolated version of WWIII in 2010.

But will Americans and the globe know it as such, and will they follow? What if India invades Pakistan following a massive terror event within Indian borders? What if that happens after the US and Israel have engaged Iran? How would said stress already rapidly deteriorating relations between America and China? I mean, look how ferociously China responded to America’s indirect attack on Chinese hacking – China’s state controlled press is apoplectic, charging the US not only with politically motivated cyber-warfare against China, but further raising the stakes by saying that US cyber-warfare is responsible for the social unrest in Iran:

http://www.wired.com/threatlevel/2010/01/china-accuses-us?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wired%2Findex+%28Wired%3A+Index+3+%28Top+Stories+2%29%29&utm_content=Google+Feedfetcher

http://www.nytimes.com/2010/01/26/world/asia/26google.html?hp

Read between the lines here people – the US indirectly attacked the Chinese government and China immediately responded by supporting Iran in its conflict against the West – the global system is fracturing along clearer lines at a heightened pace… How is it that Americans do not see the potential for full-out global war in this? With America occupied by its own personal WWIII, it would be rather surprising if opposing hegemonic contenders did not take the opportunity to try to push the American led system entirely off the precipice, thereby multiplying the level of global violence past whatever threshold it needs to reach until global citizens can comfortably say: god damn, global financial collapse actually does precede global war (a shared effect of the grander and deeper hegemonic cycle TSIBR assures you); and we are witness, indeed we have been witness, knowingly or not.

Joshua Kane

The 21st Century Battle For 22nd Century Liberty:

2010-01-20T17:34:00.001-08:00

In case you remain unaware, allow TSIBR to welcome you to The 21st Century Battle For 22nd Century Liberty; it’s going to be a long one, fraught with fear and uncertainty regarding humanity’s ultimate fate. On one side sits relatively open and liberal western style democracies; now perhaps past their apogee, these nations are plagued by cumbersome governmental processes, slowed by years of special interest induced rigidities. Increasingly beholden, indebted, and crumbling, these states find themselves unmoored in a self-created world that they no longer comprehend. The greatest cost from that lack of comprehension, indeed the greatest peril to these states, is their inability to streamline governance; liberal democracies are becoming increasingly encumbered as the pace of civilization hyper-explodes… and whether their denizens have yet to realize it or not, the liberal-democratic form of governance may be extinct by the 22^nd century.

Counter-posed and counterpoised to take global lead are those nations displaying the new-fangled face of tyranny – repressed and controlled societies where IT is deployed as a means to hide and maintain the citizenry’s oppressed state – China, Russia, Iran, the UAE, the Saudis, Venezuela, what Pakistan is becoming, what Iraq was and maybe again, etc.

Within these two antipodes one can perceive the paradoxical nature of information technologies. At once, IT streamlines administration while multiplying exponentially the magnitudes of governable data; it simplifies and complexifies simultaneously. The streamlining makes it possible to manage what already exists in a more efficient fashion, thereby freeing up resources for innovation. But it is the innovation itself that provides informationalism with a robust developmental dynamic; without innovation, informational economies would not grow.

Opportunities for innovation should multiply as economies and societies become more complex, and throughout the West that has indeed been the case. Of course, nowhere in the West has this been more so than in America, and that is because America is an open and diverse society that embraces novelty regardless of the corner from which it came. The innovation-inducing institutional structure of America, and the novelty-seeking qualities of Americans, has vaulted the US to the fore of informationalism… But China, moving in a streamlined and focused fashion, thumbs its nose at democracy while nipping at America’s technological heels.

Thus we come full circle: on one side stands China (and the nations it seeks to lead), buttressed by its ability to administrate quickly, if tyrannically, in an era of swirling and rapidly unpredictable change. On the other side stand the deteriorating leviathans of the 20^th century, led by America – a relatively open and intensely innovative society, but bearing the burden of a governmental system likely fit for no age, and certainly not fit for this one.

Clearly then, the paradoxical nature of information technologies is reflected in the global system, but that paradox has unfortunately fomented grave instabilities within the global system. In 2008 the paradoxical global system passed a point of no return, a point where the main stabilizer – decent economic growth – no longer held. Since that point the global system has become ever less stable. Nations around the globe seem to be seeking for governance structures that will contain and stabilize the new and unsettling IT paradoxes, but they are finding that no known form of national governance is proving suitable.

History strongly suggests that by the 22^nd century humanity’s governance structures will be designed specifically to contain and stabilize all the many paradoxes fomented by informational development. The questions TSIBR poses today then are these: will those governance structures be democratic, will they be liberal, will they be open, will there be freedom of information? Or will those governance structures be incredibly efficient, yet at once, incredibly repressive? This is your battle 21^st century Americans: it’s a battle to see whether 22^nd century America will be a democracy in more than name.

Having said all that, let’s review the political-economic events that shook up the world in the first half of January 2010. We of course start with the quick, and quick to repress, state of China. As TSIBR has covered closely, China has been playing hardball with the US, thwarting and avoiding Obama while chumming up to fellow repressive states. If anyone thinks the Communist government’s plan is to eventually democratize, think again; the Communist Party in China is certain that their form of governance, and their nation more generally, will prove most adept at navigating the rapidly shifting seas of informationalism. For example, peep the following NYT article, which reviews the potential pitfalls regarding China’s economic boom:

http://www.nytimes.com/2010/01/12/world/asia/12china.html?hpw

The key point to be drawn from the article is that China’s brand of ‘exceptionalism’ is at least as instilled in their people as American exceptionalism is in Americans. And I quote: “Beijing’s state-run news media, indulging in a moment of self-congratulation, have hailed China’s new economic prominence as proof of national superiority.

The country’s economic miracle, the newspaper People’s Daily boasted last week, exists because its leaders — unlike those in other, unnamed nations — can make quick decisions and ensure underlings carry them out. The Great Recession, the newspaper said, has laid bare cracks in plodding Western-style capitalism.” China is playing the Great Game for keeps, while Americans remain asleep; but know this – TSIBR will take indirect capitalist oppression over direct governmental repression anyday, so in that way, long live the USA.

Nevertheless, Americans have yet to realize that the Great Game goes on whether America plays it well or not; moreover, the Great Game (for Hegemony) is not at all a pleasant or fair game. Hmmmm… well perhaps America is beginning to play the Great Game better. TSIBR would argue that it’s only a matter of weeks until the Western media progresses from labeling the mounting US-China trade war as ‘brewing’ to ‘occurring’:

http://www.marketwatch.com/story/china-still-offers-opportunities-2010-01-04?siteid=nwhnwhnr

And that was before Google entered the fray:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=adXrfDqH4pGo

Google potentially leaving China has been all over the news, so TSIBR is now going to tactically (i.e. quickly and efficiently) provide its unique insight regarding how said plays into the battle for 22nd century liberty. Notice that Google is representing a consortium of over 20 American companies that have also fallen prey to pernicious cyber-attacks in China. Notice that Hillary Clinton released a formal prepared statement in concert with Google’s announcement, literally simultaneously. TSIBR thus believes that Google is getting tremendous, albeit still hidden, quid pro quo from the entire consortium for Google’s bold attack, not on the Chinese hack per say, but on Chinese censorship, which amounts to an attack on the entire Chinese government itself.

Does Google confront the Chinese government without first consulting the State Department? Clearly not, as Hillary was prepared in advance. Indeed, TSIBR would like to take this a bit further here. Recall that over the last two years 10-20 terabytes of info (1/5 the Library of Congress) has been stolen from American defense cyber-installations, with China as the suspected culprit:

http://www.washingtonpost.com/wp-dyn/content/article/2009/11/10/AR2009111017588.html

Now, if the State or Defense departments were to comment directly on that, it would be tantamount to accusing China of an act of war. Clearly the US is not ready to go there, yet. But when China played hardball at the Climate Conference:

http://motherjones.com/blue-marble/2009/12/obamas-copenhagen-speech-end-deal

The Obama administration was likely roused to play some hardball back, and they went straight to the problematic hack. Confronting China on hacking is one thing, and it’s not hard to find a plethora of American companies who have previously fallen victim. But America’s main comparative advantage regarding China – our openness – is not necessarily revealed by attacking Chinese hacking. Thus the State Department needed a bridge from Chinese hacking to censorship to human rights; Google was willing to become that bridge (for some serious quid pro quo no doubt). Perhaps more importantly, Google is a really pretty face for America to put on as it seeks to expose the underbelly of Chinese repression. To make a long story short, it seems quite probable to TSIBR that the State Department organized this consortium behind the scenes in order to confront China indirectly regarding their hacking, while at the same time directly publicizing their unacceptable repression. The message is becoming clear: play hardball with Obama, and Obama’s State Department will shrewdly play hardball back. TSIBR remains confident that Obama can become a stellar wartime President, and if conservatives love America, they will embrace that outcome.

But war with China, who could fathom such a thing? Such a war would necessarily be fought through proxies for years, if not decades, prior to the two behemoths coming to direct blows. The first proxies would likely be economic, and indeed they have been, they are; whether it’s Google regarding censorship, or Morgan Stanley regarding derivatives:

http://www.ft.com/cms/s/0/1e56dd62-fb2e-11de-94d8-00144feab49a.html

As economic relations continue to sour, the proxies will increasingly become political – for example, China will do its shrewdest to block sanctions on Iran, Pakistan will emerge as another serious confrontational hotspot, and Taiwan remains a flashpoint waiting to spark:

http://www.nytimes.com/2010/01/13/world/asia/13china.html?hpw

In the end, it seems most likely that a victor will emerge from these proxy battles without America and China ever directly engaging in war. Nonetheless, these proxy battles will foment mounting financial catastrophe. Governments around the world will be brought to their fiscal knees. We are already seeing this in and around Europe, where the governments of Iceland, Greece, and Spain, along with the Eastern European and Baltic governments, already find themselves near financial collapse:

http://www.bloomberg.com/apps/news?pid=20601109&sid=axVdWLT3aee0&pos=13

http://www.telegraph.co.uk/finance/comment/7012297/ECB-prepares-legal-ground-for-euro-rupture-as-Greek-crisis-escalates.html

http://www.marketwatch.com/story/whats-really-absurd-about-greek-situation-2010-01-14

http://www.marketwatch.com/story/dollar-slips-vs-most-rivals-but-up-against-yen-2010-01-18

http://www.marketwatch.com/story/greece-feels-heat-as-europe-weighs-budget-plan-2010-01-15

http://www.longwavegroup.com/publications/winter_warning/2010/_pdf/2010_Winter_Warning_Volume_13_Issue_1.pdf

Japan is well advanced upon that route as well:

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100002951/a-global-fiasco-is-brewing-in-japan/

As nations fall victim to fiscal peril they will begin seeking administrative structures more suited to containing the many paradoxes of informationalism. These nations will look to models, and two will stand out clearly: the American model, which is slow but open; and the Chinese model, which is quick but repressive. Which shall prevail?

The curious thing about governments benefitting from repression is that the ruling party tends to fall in love with itself, and hubris ensues. It’s the sort of hubris that does not last long in a democracy, but can last forever in a tyranny. And it’s the sort of hubris that causes social pressures to intensify. History shows that those pressures in turn elicit administrative errors born of fear, eventually stoking repeated social crises. Then the hubris state, still in love with its streamlined power, begins to err repeatedly and quickly, thereby undercutting its own legitimacy in a rapid fashion, until it is eaten by its own people and replaced with something new.

The curious thing about governments administratively burdened by democracy is that they tend to be goal agnostic, in that the goals are ever changing. Furthermore, goals are viewed as ends to be reached through whatever means the open society deems most suitable; novel means may be preferable. Increased speed could be a goal achieved through novel methods. Various means could get America quicker while strengthening its liberalism – for example, major fundamental lobbying and campaign finance reform could help our democracy become more efficient. There are options, but we must remain open.

It has become en vogue to view America as a declining Empire. Undoubtedly, the era of American Hegemony is coming to a close. Most Americans assume America will remain democratic post-hegemony. Don’t be so sure, that’s an open question; fascist movements don’t start out fascist, they begin, invariably in democracies, amidst widespread social disgust, mistrust, and confusion – it is a toxic brew that Americans are coming to know well. If American denizens remain asleep to the Great Game being waged for liberty in the 22nd century, their grandchildren will surely wake up to an America that looks far more fascist than anything they would’ve imagined or wish. And yet, history reveals a more likely path, a path that grand-humanity has taken whenever previously confronted with the choice between freedom and speed; deepened internationalism becomes the solution, while liberalism maintains the day:

http://www.nytimes.com/2010/01/20/opinion/20friedman.html?hp

Stay tuned TSIBR readers. Later this week (by Friday 5pm) TSIBR will post an original essay covering the terror front, and the resurgence of the Mehsuds.

Joshua Kane

Reader Question - Funding An Iranian Confrontation?

2010-01-12T08:49:00.000-08:00

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

The Global Financial System Braces For An Iranian Confrontation:

2010-01-07T15:14:00.000-08:00

Good afternoon TSIBR readers! Today we follow up with the political side of the 2010 political-economic coin. Well America, December was certainly a doozy! The US lurched apprehensively towards broader conflict in the Middle East while Iran and its Western adversaries took steps to prepare for direct violent confrontation. 2010 will likely bring forth some of the more ferocious episodes this current generation will witness; thus we all should brace ourselves accordingly. Perhaps fortunately, the global financial system has already been braced for us, but I get ahead of myself.

The following essay will cover developing events in the three conflict hotspots most likely to foment violent incidents on the global stage in 2010. We’ll move from the least pressing to the most pressing (from the perspective of real-politics), thus our path will start with Yemen, move onto the Af/Pak region, and close with Iran. Away we go…

YEMEN:

On Yemen, much is being said… One thing that seems to be lost in the shuffle is that on December 17^th 2009 the US, without warning or apparent direct provocation, greatly expanded its drone program in Yemen, with at least two devastating strikes:

http://www.foxnews.com/politics/2009/12/18/launched-missile-strikes-al-qaeda-yemen-sources-say/

How many were killed, and precisely who, is still classified as far as TSIBR can tell, but initial reports suggested that the infamous former American citizen and now powerfully persuasive Yemeni radical Imam, Anwar al-Awlaki, was killed or seriously injured in the attack. Awlaki, you all will recall I’m sure, had contact with the Fort Hood shooter. Question: did Obama decide to go after Awlaki without even publicizing the Fort Hood massacre as terrorism?

Obama clearly wants Americans to view terror events more as crime than warfare (thus KSM’s NYC trial). I believe that want, and the conflicting realities born from that want, led Obama to consider the Fort Hood bombing a terror event, but to treat it publicly as a crime. Clandestinely he may have responded as if it were an act of war by directly trying to kill Awlaki, and decimate his growing terror network (al Qaeda in the Arabian Peninsula – AQAP). The attempt seems to have failed, as indications now suggest Awlaki is not only alive, but immediately activated at least one plot that was already formed within his network and close to going operational. Thus, I think it’s important that Americans realize that this particular failed bombing attempt could be viewed as blowback from Obama’s strange handling of the Fort Hood massacre.

It’s like this – Obama by nature is not a wartime President. America needs one desperately (and Bush was not a good one). Personally I think Obama is slowly becoming an acceptable wartime President, but such a transition for any such man necessarily takes time; time amid crisis. What will not help him get there, and will not help America in a dire hour of crisis should one arrive, is mounting Republican treason. That’s right, treason – the Cheney led rhetoric against Obama is becoming downright treasonous. No one with a conscience or a true concern for America should seek to delegitimize the most legitimated American President in a generation, let alone during a time of deep crisis and mounting conflict. This is sick, and anyone who supports Cheney, now or in the past, Republicans or otherwise, should be disgusted:

http://www.politico.com/news/stories/1209/31054.html

Terror events coming to American shores was baked into the global cake during the Clinton administration. Bush administration actions guaranteed that America would be dealing with this threat for decades to come. Obama is dealing with it, perhaps not excellently at the moment, but blaming him for lapses he had no control over… is an avenue towards what?

Let’s consider that for a moment. The CIA sat on incredibly key and obviously urgent information here, claiming they were waiting for a picture, when they had access, through his family, to any information on the soon-to-be bomber they required:

http://www.foxnews.com/politics/2009/12/30/fingerpointing-begins-aftermath-attempted-terror-attack/

Question: who has better connections to the anti-terror components of the American intelligence apparatus today, Obama or Cheney? It seems to me that Cheney may, wittingly or unwittingly, be attempting to set the stage for a complete and total delegitimation of the entire Obama administration should something very dire come to American shores from abroad. To what end? Time may well answer that question.

But in the present, how dangerous is AQAP? As compared to the Qaeda aligned Taliban groups in Pakistan, TSIBR would say far less of a threat currently. The most dangerous aspect of AQAP, of course, is their proximity to Saudi Arabia, its oil wells, and its many potential fundamentalist militants. Thus Yemen could play a similar destabilizing role to Saudi Arabia as Afghanistan does to Pakistan, and that is certainly AQAP’s main goal. But in the decade since 9/11, there has been little indication that AQAP can be successful in said endeavor. That may be changing, but as of yet there is no real indication that it is changing. TSIBR will cover AQAP deeply if and when the network begins to succeed in its attempts to destabilize Saudi Arabia.

As for more terror coming to America from AQAP, if it does its likely to be on the same small scale as the failed Christmas attempt. TSIBR is of the opinion that something big is far more likely to come from Lashkar or the TTP in Pakistan – for example, the Zazi attempt, formulated in Afghanistan and Pakistan, likely would have been much more spectacular had it gone fully operational. In any case, here are some of the more informative articles I have encountered on AQAP:

Awlaki’s involvement:

http://www.foxnews.com/politics/2009/12/29/radical-imam-tied-plots-gone-operational-yemen/

http://www.foxnews.com/story/0,2933,581445,00.html

Yemen as terrorist haven:

http://abcnews.go.com/Politics/yemen-obamas-top-anti-terror-target/story?id=9479807

Background on AQAP:

http://english.aljazeera.net/news/middleeast/2009/12/2009122935812371810.html

Yemen and the US are working together to hide US military involvement in the dismantling of AQAP:

http://www.cnn.com/2009/WORLD/meast/12/29/us.yemen.strike.targets/

http://www.foxnews.com/story/0,2933,582156,00.html?test=latestnews

THE AF/PAK REGION:

Our second destination today is the ever-pleasant Af/Pak region, an area lovingly known as The Place Where Empires Go To Die. Shall American Hegemony die there? Perhaps. Americans seem to think that the Taliban everywhere is a disorganized mess. This is not so. Last year TSIBR highlighted an article by a British journalist captured by the Taliban. He reported that behind the front lines the Taliban are organized around shadow governors and governments that are actually more effective than the pro-Western governments in Afghanistan. McChrystal then confirmed this in September, and now the fact is basically common knowledge, as this McClatchy article entitled “Time is Running Out” reveals:

http://www.mcclatchydc.com/251/story/81358.html

The above article also indicates that there really is no separating the War in Afghanistan from the al Qaeda/Taliban support bases located inside Pakistan. In fact, the Afghan Taliban are becoming quite adept at deploying nitrate fertilizer IEDs; and, unsurprisingly, the fertilizer and components have consistently been traced back to Pakistan. That alone suggests the US will soon be fighting in Pakistan, but the following does more so…

During the last week of December a Jordanian double agent was allowed inside the CIA’s forward operational base in Khost province near the Pakistan border, he detonated himself thereby decimating the CIA base and killing the eight officers inside. Al Qaeda in Afghanistan has claimed responsibility and linked the bombing to the high profile successful drone attacks of last year (this CIA base undoubtedly plays a fundamentally strategic role in drone attacks):

http://www.foxnews.com/politics/2010/01/04/cia-base-bomber-jordanian-doctor-source-says/

http://www.nytimes.com/2010/01/06/world/06intel.html?hp

http://www.google.com/hostednews/afp/article/ALeqM5jXJ8mL9bAv_EFJOIAWRVIRtvK6-w

Nevertheless, the US seems to have actionable intelligence that the plot was in some way organized by the Haqqani network, based in North Waziristan inside Pakistan. Haqqani is a key leader of the Afghan Taliban, and has been a powerful tribal leader in Af/Pak throughout the region’s post 1979 turmoil; he undoubtedly now resides in Pakistan’s North Waziristan:

http://in.reuters.com/article/southAsiaNews/idINIndia-45226320100107?feedType=RSS&feedName=southAsiaNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FINsouthAsiaNews+%28News+%2F+IN+%2F+South+Asia+News%29

http://www.foxnews.com/story/0,2933,582122,00.html?test=latestnews

As the two above articles discuss, America has long pressured Pakistan to do something about the Haqqani network in North Waziristan. Recall that last year’s Pakistani South Waziristan offensive faltered at the borders of North Waziristan, even after it had become abundantly clear that the Mehsud led TTP, formerly in South Waziristan, was setting up new camps in North Waziristan.

Clearly North Waziristan will now be taking center stage in the 2010 Pakistani front, and if Pakistan can’t, or won’t, do something about Haqqani, then US defense leaders may increasingly come to realize that America must take the fight into Pakistan. Meanwhile drone attacks in North Waziristan have been rising continuously since the CIA bombing, thus further complicating a complex and dangerous situation:

http://www.nwotruth.com/drone-strikes-reported-in-pakistan/

Of course, it’s also possible that a 2010 domestic terror event, traced back to Pakistan, will drive US forces across the Pakistani border. Interestingly, the connections between American born jihadists and the Pakistani Kashmiri freedom-fighting outfit, Lashkar-e-Taibia (responsible for the Mumbai attack), appear to have become surprisingly deep of late. In fact, an American, David Headley, apparently helped case Mumbai targets for Lashkar, and he may have been a US double-agent who at one time worked for the DEA. Never has TSIBR encountered a backpage story with such intrigue and potential for the revelation of shocking interconnections within the shadowy global intelligence world. TSIBR will attempt to immediately post any new information that breaks on this strange Headley story:

http://www.stratfor.com/weekly/20091216_tactical_implications_headley_case

And here is an article on five Pakistani-Americans that recently traveled to Pakistan, apparently seeking either al Qaeda or Lashkar to train them for jihad.

http://www.mcclatchydc.com/251/story/80394.html

Add these stories in with the Zazi case and I think it becomes obvious that Americans, and even American authorities, do not have a clear understanding of the linkages between Pakistani terror groups and those seeking to bring terror to American shores. TSIBR continues to believe that pro-al Qaeda Pakistani terror groups remain the greatest terror-event threat to domestic America.

Anyone who thinks Pakistan is likely to limit that threat will likely find themselves mistaken. Listen folks, there are few more anti-American nations on the planet than Pakistan. Here is an NPR article regarding how much Pakistan hates America:

http://www.npr.org/templates/story/story.php?storyId=121748916

Here are a couple of NYT articles that clearly imply Pakistan hates America:

http://www.nytimes.com/2009/12/17/world/asia/17visa.html?_r=1

http://www.nytimes.com/aponline/2010/01/07/world/AP-AS-Pakistan.html?_r=1

And here is the best article on Pakistani hate, from Slate:

http://www.slate.com/id/2239339/

If there is any singular reason why Pakistan contains so much hate for the US, it’s that many Pakistanis believe America will ultimately support India against Pakistan in their ever-looming conflict over Kashmir. Many Pakistanis also believe that America’s plan is to leave Afghanistan with Indian forces pretty much in command, thereby destabilizing Pakistan vis-à-vis India greatly. Moreover, Afghanistan is strategically important to India as most of its energy needs either come from or must flow through Afghanistan. Thus many Pakistanis truly believe that the US and India are in cahoots to take over Afghanistan in order to destabilize Pakistan in preparation for a Kashmiri offensive and the ultimate dissolution of Pakistan. The following two articles discuss such issues. As you read them, keep in mind the TSIBR view that al Qaeda’s two main goals in Pakistan are to 1) Have the US incontrovertibly cross the Af/Pak border with guns a-blazing; and/or 2) Have India cross over into disputed Kashmir with guns a-blazing. Either or both of these things would send calls for jihad reverberating throughout the media and Islamic world; and either or both could easily be fomented by terror events in America and/or India:

http://www.nytimes.com/2009/12/15/world/asia/15haqqani.html?_r=1

http://www.npr.org/templates/story/story.php?storyId=113781764

As if that’s not bad enough, Pakistan’s civilian government remains on the verge of collapse, under attack by Army forces that are not particularly friendly to American interests:

http://www.sphere.com/world/article/end-to-pakistan-amnesty-law-poses-new-problems-for-us/19289477

IRAN:

Believe it or not TSIBR readers, Pakistan is not the most pressing hotspot with the potential for unleashing explosive violence in 2010. That mantle has clearly passed to Iran (truthfully it never really left Iran). In fact, TSIBR readers, anytime you look at, or think about, a map of the Middle East, just go ahead and cover Iran with a sign reading: Bomb Or Bust in 2010. That’s where we are at folks. In mid December a story broke indicating that Iran is presently working on a trigger component for a nuclear bomb:

http://abcnews.go.com/International/wireStory?id=9331457

There must have been some truth there, because said news kicked Ahmadinejad into extreme Fuck You mode (pardon my French):

http://abcnews.go.com/WN/diane-sawyers-exclusive-interview-mahmoud-ahmadinejad/story?id=9383487&page=1

http://www.foxnews.com/story/0,2933,580845,00.html?test=latestnews

http://online.wsj.com/article/SB126254286128213977.html?mod=WSJ_hpp_MIDDLTopStories

http://www.breitbart.com/article.php?id=D9CVO0NO0&show_article=1

Around the same time (the morning of December 17^th) the Revolutionary Guard took the provocative move of occupying a disputed Iraqi oil well near the Iranian border:

http://www.foxnews.com/story/0,2933,580560,00.html?loomia_ow=t0:s0:a16:g2:r3:c0.094572:b29436344:z10

The move confounded analysts worldwide, and most made little of it, but TSIBR noticed something awfully strange. On the morning that Iran occupied the well, there was a massive Twitter hack attack. Anyone who went to Twitter was redirected to an image hailing ‘The Iranian Cyber Army”:

http://www.techcrunch.com/2009/12/17/twitter-reportedly-hacked-by-iranian-cyber-army/

As far as TSIBR is concerned, on December 17^th Iran declared war on its global detractors. It was a shot across the bough, and a highly meaningful one at that. The powers that be in Iran will be opting for war with the West, of this TSIBR is near certain. There is no nation on the face of the Earth today that requires the ‘fleshing out of foreign demons’ like the state of Iran. Besieged from the inside and out, the powerful and wealthy Iranian Revolutionary Guard are in a pitched fight for their survival; they’re doubling down on fascist oppression, and have clearly become willing to sacrifice their own populace in a drive to torpedo the entire American led global system, should their survival ultimately become in doubt:

http://abcnews.go.com/International/iran-protests-grow-regime-nervous/story?id=9479733

http://www.jpost.com/servlet/Satellite?pagename=JPost/JPArticle/ShowFull&cid=1261364515941

http://www.timesonline.co.uk/tol/news/world/middle_east/article6971053.ece

Let me say this absolutely plainly: the world cannot let the Revolutionary Guard obtain a nuclear weapon. There really is very little difference between the Revolutionary Guard and Hitler’s Nazis, and that’s all there is to it. Buck up Americans, we’re going to war with Iran, and for once it’s the good fight. The reform movement in Iran appears to be quite capable, they’ll likely have a democracy in place that can develop alongside the West rather quickly once the Guards have been removed. And if Obama is smart, for that reason alone, he won’t leave this to Israel; however, it seems unlikely Israel will wait past 2010:

http://www.foxnews.com/story/0,2933,581277,00.html

Now let’s talk a bit more about time horizons on this ticking time-bomb. In the middle of ’09 Obama set a six-month deadline for negotiations. That deadline has now expired with no progress having been made, precisely as TSIBR expected. TSIBR then tacked on another 2-3 months for the sanctions push to fail, yielding a prediction for Iranian-US direct conflict to initiate sometime in March 2010:

http://thesystemisblinkingred.blogspot.com/2009/07/march-to-march-2010.html

Well now that we are approaching March, please realize that there is nothing special about March in particular (other than its double-meaning makes for great titles); TSIBR has no crystal ball. Let’s more realistically predict the initiation of Iranian violent confrontation as occurring sometime within a six-month window starting March 1^st; we’ll see how that prediction holds up. Btw, China is already blocking sanctions:

http://www.reuters.com/article/idUSTRE6045E720100105

Ultimately, not only will sanctions not work, but the US is going to need boots on the ground in Iran. Believe it or not, Ahmadinejad is some sort of obsessed expert on the construction of massively fortified deep-underground tunnels:

http://www.nytimes.com/2010/01/06/world/middleeast/06sanctions.html?hp

With troops on the ground in Iraq and Afghanistan, it’s probably difficult, if not impossible, for Americans to imagine a ground-war with Iran right now. Do me a favor though, remove emotion and let’s look at this clinically: the Revolutionary Guard are clearly in ‘bomb or bust mode’, and allowing what amounts to a modern day fascist outfit acquire a nuclear bomb is simply not an option. Green-lighting an Israeli strike is also not an option, because an Israeli strike would be like a gift from god to the Revolutionary Guard. So the US has no choice but to strike. Iran will retaliate in the Straits of Hormuz, Israel, Iraq, and possibly America itself. From there all bets are off and war is on; the rapidity with which humanity adapts to this situation will surely astound all observers.

Ah, humanity, what a strange, beautiful, and yet complexly disturbing manifestation of life. Prone to open-ended development by lurch and crisis, and yet somehow seemingly on a path of greater design… Journey with me then for a moment: in order to prosecute WWII, America was forced to socialize its entire economic system; America was a planned economy through and through. No government can have its economy collapse when it is in a pitched fight for its way of life, and American authorities did what needed to be done. But today the economy is entirely globalized and deeply interconnected. America socializing its economy alone would be rather meaningless to its overall prospects for survival. The point I am getting at is this: in today’s world the only way to prevent catastrophic global economic collapse, should two leading global nations come to direct blows, would be to semi-socialize the global financial system in its entirety. Otherwise uncertainty and panic would breed collapse in the chaotic and nearly ungovernable realm of global finance.

Lo and behold TSIBR readers, as we approach war with Iran, the global financial system has already been effectively socialized. And although official outbreak of hostilities will likely cause traders to jump for Treasuries, dollars, oil, and gold; the system may not entirely seize, as it surely would have had it not already been braced for crisis. I bring this up not so much to say now is a good time to confront Iran (although it is, in fact, its high time); I bring up this digression to suggest that the political chaos that preceded the financial crisis, the financial crisis itself, and the impending war with Iran are all symptoms of the same disease – our global governance and societal institutions have not yet assumed a shape in accordance with the globe’s powerful new form of development: informationalism.

Informationalization and resultant globalization have come up against Middle Eastern barriers to further global integration and development. Easy money was necessary for informationalism to take hold, but it eventually pushed oil near $150. The financial crisis was triggered by the Fed’s attempt to reign in oil prices. From that moment, America, the leading informational nation, has come into ever more direct confrontation with Iran, the leading anti-informational nation. That’s why Iran attacked Twitter during the Revolutionary Guards’ trial breach of the Iraqi border. See how these events are connected at the depths where long-wave historical rhythms dwell?

All of human capitalist history incontrovertibly indicates that informationalization will not stop, and the Middle East will ultimately get on board. America must be willing to assist that transition, by any means necessary (especially when we’re threatened), or suffer not only the loss of future informational development, but perhaps also the loss of human civilization itself. Confronting Iran and removing the fascist Revolutionary Guards is the most direct and clear path towards the deepened internationalism necessary to tackling mounting global problems and securing a prosperous future for young Americans. It is how America can get its mojo back. (McCain’s bastardized version of Barbara-Ann hums away... hauntingly... mockingly... in the background…)

Joshua Kane

China Plays Hardball While America Parties On:

2010-01-06T13:22:00.000-08:00

Welcome TSIBR readers to the first major essay update of 2010. Before we begin, allow me a word regarding my life and this blog. Longtime readers understand that this blog is, in effect, Josh Kane, Ph.D., writing a book in real-time, that will be presented in the future as having been written in real-time during one of the most momentous junctures in known human history. That’s a mouthful, but what it means is that this blog has a key motivating factor, beyond readership, that will keep it going whether people visit or not… we’ll be here. Nevertheless, people have been visiting, and I couldn’t be more pleased or grateful; the more hits I get, the more excited I become about this project, and it shows in the quality of the work. But please understand that Joshua Kane is only one man, a man that spends a lot of time investing, working on his entirely unrelated academic book (as an avenue toward re-entering professional academia at a high level if I ever should so choose), and raising his son.

That being said, I believe there are two main ways that this blog can serve the general public: 1) By getting out in front of backpage news stories that will soon burst into headlines. 2) By tactically providing key insights into stories that have already broken into headlines. I try my best to do the former with great alacrity and precision, but the task is beyond difficult. So I most often find myself stuck in number two, which is where we are now – providing key and unique insights into stories that have already broken. I hope, and profoundly believe, readers will find the following insights and interconnections somewhat unique and ultimately useful. In two major essays posted over the next two days we’ll be covering TSIBR’s 2010 market outlook first, and in the second essay the developing situations in Yemen, Af/Pak, Iran, and all of their many interconnections. Away we go…

TSIBR 2010 MARKET OUTLOOK:

So far early 2010 seems to be shaping up like early 2008; and that should not be surprising, as nothing fundamental has changed since that time. At the beginning of 2008 the markets had reached a point where all the monetary excesses of the previous decade had gravitated into commodities; some called this a bubble, TSIBR called it inflation. The commodities ‘bubble’ was the only real way for Wall Street to make money in 2008, and since Wall Street had become the entire economy (another consequence of monetary excess), the entire economic edifice built up around Wall Street was bound to crumble if the commodities ‘bubble’ burst. Starting in June of 2008, with oil soaring towards $150 and global fears regarding inflation mounting, the financial authorities of America, led by the Fed, pricked the commodities bubble, by raising interest rates and using other more surreptitious methods of preventing money from flowing into key commodities. By that August the wheels were coming off the entire global financial system, and we entered a period of acute and rapid deleveraging that tanked prices in all asset categories across the globe (what TSIBR referred to as a deflationary wave).

The solution to that problem of course has been to fire up the printing presses to levels heretofore unforeseen in a bid to reflate the economy, and it has worked, kind of… HOWEVER, we are right back in the same situation we were in prior to the collapse, i.e. the only real place for Wall Street to make money is the commodities ‘bubble’, and Wall Street remains the economy. As long as the Fed continues printing as necessary to keep the commodities bubble inflated, the wheels will stay on the financial system. But what happens when oil again approaches $150 and the world begins to fear hyperinflation? Second half of 2008 redux, but probably far worse this time, mainly because Bernanke has already thrown his whole playbook at this mess, and everybody knows it.

So how does TSIBR plan to play these churning waters – the TSIBR portfolio will be looking to game rising gold, energy, and agriculture prices with a mix of ETFs, midcap, and large-cap stocks. However, TSIBR will be on the lookout for events that will tip us back into acute deleveraging at a moments notice. Kane’s finger will be on the sell trigger daily, believe dat; the possibility is there for a stock portfolio to drop by half in a blink of an eye this year, believe dat; trade accordingly.

Now let’s look at some of the potential occurrences that would likely foment a renewed bout of acute deleveraging (i.e. collapsing asset prices), and there are many. Here Paul B. Farrell reviews 12 of the most erudite financial and market mavens the world has to offer, most are scarily pessimistic, and expect a renewed and deeper collapse within the next two years:

http://www.marketwatch.com/story/12-dr-dooms-shred-2010-investing-optimism-2010-01-05?pagenumber=1

Meanwhile the banks are still very much on life-support, and are in no shape to withstand any sort of serious financial downturn or renewed crisis:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aNQ2cLJ8kCLo&pos=6

Most attempts at reworking loans have failed, and new foreclosures will be hitting key markets, thus the housing sector looks to be rolling over again. A few bad housing numbers would tank the entire US stock market quickfast:

http://www.marketwatch.com/story/pending-home-sales-index-plunges-16-2010-01-05?siteid=nwham

http://www.nytimes.com/2010/01/05/opinion/05tue1.html?hp

Additionally, commercial real estate, globally, has yet to fully correct from a decade of excesses, and as TSIBR harped on last post, the issues in commercial real estate are sizeable, complex, largely remain hidden on bank balance sheets, and intricately intertwined with the sovereign debt crisis. That complex intersection is the most likely area where an event could suddenly develop that would have Americans waking up to a 20% general loss in their stock portfolios, even though Europe has far more exposure to emerging sovereign debt / global commercial real estate problems. That is because if the Euro tanks (which it will on sovereign debt default fears), the dollar rises, and commodities get smacked in the US market. The three following articles review the key issues and interactions:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aD30hm2UDGeU&pos=3

http://online.wsj.com/article/SB10001424052748704398304574597832779853024.html

http://www.bloomberg.com/apps/news?pid=20601110&sid=a1R_ghfZ20rw

While the following articles focus more specifically on the EU and the serious potential for a default coming from Greece and/or Spain (and let’s not forget the Eastern European and Baltic states besides):

http://www.marketwatch.com/story/debt-disaster-fears-rumble-from-athens-to-london-2009-12-16

http://www.marketwatch.com/story/ecbs-stark-warns-no-bailout-for-greece-2010-01-06

Here we have an article covering the rushed opening of the tallest building in Dubai, and the world, now named after the Abu Dhabi King, whom so far has deigned to save Dubai’s butt. Nowhere are the intersections between sovereign debt and commercial real estate more clear than in Dubai. We’ll not re-delve too far into that here, but just take a look at these pictures and quotes – tell me they don’t scream the apogee of a deluded age:

http://www.dailymail.co.uk/news/worldnews/article-1240280/Burj-Dubai-tallest-building-world-opens-just-months-debt-crisis.html

Moving on, let’s review how Chinese-American relations are fairing during this economically momentous era. In a few words – not too well. Here is an excellent article by Morgan Stanley economist Stephen Roach that reviews the potential for a double-dip in 2010 (Roach places the likelihood at 40%), and closes by mentioning that deteriorating Chinese-American relations might in and of themselves foment a double-dip:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1J8dLRoGYgU

China is really playing hardball here, and Americans don’t get it at all. While paying lip service to the importance of the dollar, China is moving at breakneck pace to diversify away from dollars while lingering fears of crisis put a bid under US Treasuries, thereby camouflaging China’s determined path towards exit. And of course, what is China doing to diversify? Shifting into commodities in a big way:

http://online.wsj.com/article/BT-CO-20100103-703765.html

http://www.reuters.com/article/idUSTRE5BS33Y20091229

TSIBR is convinced that China has few interests in the US coming out of its indebtedness to China in a way that allows the US to maintain and enjoy continued hegemony and supremacy in the world. It makes far more sense for China to expect a dollar collapse, and position itself accordingly so that it comes out of that dollar collapse in an entirely strengthened position vis-à-vis the US. When the dollar collapses, China will have all the resources it needs to further and heighten its power. Will the US?

One can see that China is playing this kind of hardball, with little respect for former US power, and even less for current US economic institutions, and even less for future America, in the way that Chinese officials are managing their currency, trade, and derivatives portfolios. To begin with, the main factor behind global imbalance and monetary excess has been China’s constant decades long devaluation of the Yuan. As TSIBR has covered and covered, the global economy will never find balance without China floating the Yuan, but China will float the Yuan only when it is in China’s interest to do so. In other words, only once China feels diversification out of dollars is proceeding rapidly enough will China begin to let the Yuan float. This is because when the Yuan floats, the dollar will tank.

The game that is on then is this: China wants American debt to be rather meaningless to its overall economic prospects before it floats, which means that the US has to become rather meaningless to China’s future economic prospects before China will float. In the end, the US will default on its debt, but China will hardly be hurt by this because China will have moved enough of their dollars into commodities (and anything else they may need) before the collapse, and therefore emerge relatively unscathed. The consequences for the US meanwhile would be absolutely disastrous, as a Weimar type hyperinflation sets in. That is the game China is playing, and if the US doesn’t wake up to it soon, its going to be left an economic shell of itself, hollowed out by shrewd Sun Tzu type Chinese financial hardball. Peruse the following series of articles on Chinese-American financial/trade relations and tell me you don’t read this hidden Chinese Agenda between the lines:

Trade war brewing:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aWprXfE.mEZQ

China’s recent refusal to pay Goldman Sachs on state-owned company derivatives losses is another hidden avenue by which a renewed bout of acute deleveraging could obtain. As the following three articles explain:

http://www.ft.com/cms/s/0/9d3ce434-e029-11de-8494-00144feab49a.html?nclick_check=1

http://news.goldseek.com/RickAckerman/1260255720.php

http://www.reuters.com/article/idUSSGE5BS09T20091229

The world needs a global currency, and yet China won’t even cooperate on the Yuan:

http://www.business24-7.ae/Articles/2009/12/Pages/26122009/12272009_b60d075ae8834ca981282abc0ee85802.aspx

http://www.bloomberg.com/apps/news?pid=20601087&sid=acJMghnTtDt4&pos=5

http://www.bloomberg.com/apps/news?pid=20601080&sid=aLHD8QY9fQsU

In the final analysis, the key imbalance that has caused all of the other imbalances in the global economy is China’s refusal to float the Yuan and America’s allowance of this for well over a decade. TSIBR is of the mind that there is no escaping the current levels of imbalance without entire reconstruction, which for obvious reasons requires near-absolute collapse. Truthfully, the sooner the collapse comes the better it will be for the US. China is only gaining in power, if they can wait to float the Yuan until it doesn’t hurt them much, meaning the US and its dollars are relatively meaningless to China and its resources at that point, then the US will have entirely lost the game for future global economic and political power. The consequences for American children could be grave.

That being said, does TSIBR believe the imbalances of 2010 will resolve in a hyperinflationary melt-up and then crash, or will a sudden renewed bout of acute deleveraging (a deflationary wave) take us by surprise before that point? These are the two most likely paths going forward, but which is most likely? Prior to 2008 TSIBR was firm in its belief that the path would be hyperinflationary to the end. Now we’re far less certain. What became clear in late 2008 is this: yes the government has the power to print up dollars at will, and yes, in the final instance the government will print up dollars at will. But the global financial system has become unimaginably complex, and although the government can print dollars, what it cannot do is get those dollars everywhere they are needed at once in order to forestall panic; and once panic sets in that problem becomes only greater, until panic finally subsides. This then is the path that TSIBR sees most likely in 2008: building inflationary pressures until some surprise event stokes panic thus causing a renewed bout of acute deleveraging, with the dollar and Treasuries rising as everything else rapidly sells off. Stay nimble, stay informed, and stay tuned. TSIBR turns to the political side of the 2010 political-economic coin tomorrow.

Joshua Kane

Dubai or Not To Buy:

2009-12-01T16:04:00.000-08:00

On the Wednesday before Thanksgiving, seemingly after the bell, Dubai World broke the news that it would seek a halt and restructure on somewhere between $20 billion and $120 billion of debt. Given the opaqueness of Dubai World's books, the secrecy of their 'managers' (ultimately the key royal families in the UAE), their complex interconnections throughout global business worlds, their use of advanced derivatives and CDS, along with the fact that the news was initially 'hidden' on the Wed before T-giving, thereby trying to fool the market into ignoring this (which has worked for the moment)… well there just is no telling how this will all ultimately play out.

However, the way this is breaking does seems quite similar to the initial subprime related bond defaults. Fact is, it is absolutely impossible to know what the short, mid, and long-term effects of Dubai Worlds’ debt defaults globally will be, and yet leaders throughout the globe are assuring us that the Dubai problem is ‘small’ and ‘contained’. Sound familiar? It sounds like subprime, but this time the troubled debtors are no longer citizens of nations, they are the governments who have sought to bail their citizens out; nations themselves are now beginning to have trouble servicing debts. Thus, what we are now seeing could very well be the beginning of a crisis in sovereign debt – nations will not be able to service the huge debt burdens taken on in response to the first wave of financial crisis.

If the response to the first wave of financial collapse was to spend spend spend, and that spending itself is now fomenting the next wave of crisis, what will be the solution to the second wave of panic now nascent? Decades and decades of study went into Bernanke’s programs of panaceas applied to halt the Depression 2.0, but what if the Depression 2.0 was not ultimately halted, what if it’s merely been on pause? How do governments stop the next panic if they themselves are the source of the next panic in the first place? There may be no bottom next time.

Uncertainty still abounds regarding Dubai Worlds' total debts, and global institutional exposure to this, along with the uncertainty regarding how to deal with billions of dollars worth of sukkuk (Islamic bonds) that have never before gone into default with these sort of notional values. TSIBR believes it’s only a matter of time before such uncertainties begin effecting global investment in a large way. In fact, the only thing we can be certain about right now is that leadership throughout the globe will not be honest about their exposures to Dubai, whatever contagion falls out from it, and the possibility of similar defaults in the future. Uncertainty is anathema to markets, that much is certain. Uncertainty causes panic, I can certainly guarantee you that. And thus TSIBR believes a new panic storm is beginning to brew. Nevertheless, until TSIBR sees some serious technical damage to the trends in the major indices, gold, oil, and the dollar, the TSIBR portfolio will remain right around 50% cash and 50% commodities stocks and ETFs.

Before we move on, here are the articles on Dubai and sovereign debt more generally that TSIBR found most useful in the last week. We start with a discussion of the fallacies of the Dubai Boom (initiated around 1995):

http://www.slate.com/id/2236959/?from=rss

Here is China’s view on the crisis, with a leading Chinese communist party member speaking some truth: “While the impact of the Dubai crisis on the global economy and on China was not known yet, it would last a while at the very least, Ji Xiaonan, who chairs the supervisory board for big state-owned companies under the State Council's state assets commission, told the Economic Information Daily.”

http://abcnews.go.com/Business/wireStory?id=9202792

Here is an excellent FT article on mounting sovereign debt problems in the developed world:

http://www.ft.com/cms/s/0/f4f9a4f0-d791-11de-b578-00144feabdc0.html

Here is an article detailing the bankruptcy of the FDIC and how the only solution there is more borrowing and printing:

http://www.reuters.com/article/ousivMolt/idUSTRE5AN36P20091124

And here we have a detailed analysis of Japan’s debt problems, which truly dwarf those of the US (although few seem to realize this):

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6480289/It-is-Japan-we-should-be-worrying-about-not-America.html

Now onto the Dollar. The big news for the dollar over the past couple of weeks has been that no one seems too concerned about its drop. In fact, Obama went hat in hand to China asking them to let the Yuan float, which would put even more downward pressure on the greenback. Floating the Yuan is of course necessary to restoring global economic balance, but before said float restores balance, it may just tank the whole system by initiating a dollar collapse. Regardless, Obama was made to look a bit the fool in China, where he was consistently chastened concerning the US financial order (or lack thereof), and largely ignored on nearly every other pressing issue:

http://online.wsj.com/article/SB10001424052748704431804574540052282519972.html

China is really starting to play hardball here, with financial leaders now labeling US economic policy a threat to Chinese and global economic recovery:

http://abcnews.go.com/Business/wireStory?id=9087854

Meanwhile China’s refusal to let the Yuan float amounts to a daily devaluation policy for the Yuan, which has facilitated China’s recovery, but has created difficulties everywhere else, from Europe to Brazi to Korea. In other words, China is stealthily ‘beggaring its neighbors’ by keeping its currency artificially low so that it recovers quickest and best. The next two articles suggest this is a crucial mounting problem, with no real potential solutions:

http://www.bloomberg.com/apps/news?pid=20601080&sid=a_4PcxlBMzzc

http://www.telegraph.co.uk/finance/economics/6533287/Europes-industry-slams-China-over-currency.html

And of course, Russia certainly isn’t looking to help, as they seek to devalue their currency while moving away from dollars as well:

http://www.ft.com/cms/s/0/d33fcd32-cddf-11de-95e7-00144feabdc0.html

http://www.bloomberg.com/apps/news?pid=20601083&sid=at5XsdLU.68w

Shades of the 1930s indeed:

http://thesystemisblinkingred.blogspot.com/2008/12/shades-of-1930s.html

Just in case you haven’t caught on by now, TSIBR has switched modes from pure market speculation, to looking for the beginning of that ‘double dip.’ The case can be made that recent economic data indicates it may already be starting:

http://www.marketwatch.com/story/its-beginning-to-look-a-lot-like-a-w-2009-11-24

And with the government propped zombies Fannie and Freddie keeping prices artificially inflated in the US housing market, should we expect any different? How can markets be expected to clear if no one will allow them to? As a renter, it disgusts me that my tax money is being spent to keep clueless risk takers in houses they couldn’t afford in the first place (and still can’t) thereby preventing me from buying a house I can afford. Man it really pisses me off:

http://www.minyanville.com/articles/government-homebuyers-tax-credit-fannie-freddie-frank-dodd-housing-market/index/a/25311/from/home

Meanwhile banks are still hiding losses on their ridiculously overly complex and inscrutable balance sheets:

http://www.reuters.com/article/ousivMolt/idUSTRE5AN4QD20091124

http://www.marketwatch.com/story/obama-leading-us-right-to-great-depression-2-2009-12-01

Summation to all the above = the major and well respected French Bank, SG, expects a massive global financial collapse starting sometime next year:

http://www.telegraph.co.uk/finance/economics/6599281/Societe-Generale-tells-clients-how-to-prepare-for-global-collapse.html

How said will interact with the Iranian and Af/Pak situations should prove incredibly interesting. Economists from Greenspan to Roubini to Stiglitz are predicting troubled waters ahead for the US economy, starting around March 2010 as the stimulus runs out. March 2010, sound familiar TSIBR readers? That’s six months from the time Obama’s six month clock on Iran started ticking back in September. Here is Ahmadinejad ridiculously thumbing his nose at the West, claiming Iran will build ten new nuclear reactors in a matter of months (which is impossible):

http://www.bloomberg.com/apps/news?pid=20601087&sid=a.hw9NY6jWkw&pos=8

Does anybody else think war between the West and Iran, in some form or another, is already a fait accompli? Everybody should, I have no idea why anybody wouldn’t. What other outcome is possible here? The global economic downturn is shaking the legitimacy of governments and global institutions everywhere; far better to channel that anger outwards towards enemies than allow it to fester domestically. This is one major reason serious and coordinated global economic downturns tend to morph into war, what TSIBR has previously termed ‘the fleshing out of foreign demons’: economic collapses cause massive civic anger and social dislocation; leaders quickly realize that these angers must be channeled outwards if they are to maintain their power. So for Iran certainly, opting for war would actually make some sense here.

The US will likely be fighting in Pakistan as well soon, for it seems the Pakistani army is already losing its will to pursue the TTP militants as they melt out of S. Waziristan and into the lawless tribal regions that surround it, as the next two articles suggest:

http://online.wsj.com/article/SB125849588108752677.html

http://news.yahoo.com/s/mcclatchy/20091124/wl_mcclatchy/3364464

Meanwhile the TTP has taken to focusing on the Punjab region in Pakistan, which for complex reasons, puts pressure on numerous young Punjabi army members and officers to give up the ghost against the Pakistani Taliban, indeed maybe even join them, as these next two articles explain:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a2qCUXznYB8Y

http://blogs.cqpolitics.com/spytalk/2009/05/young-pakistan-army-officers-m.html

And to make matters worse, much worse, the civilian Pakistani government is now under extreme attack from all quarters over decades of hidden corruption. Certain sectors of the Pakistani Army are using this push ‘to root out corruption’ as a cover for pushing out key pro-American leaders, such as Zardari. These sectors of the Pakistani army believe the Pakistani civilian government does not put enough pressure on America regarding its ties with India, and India’s growing presence in Afghanistan; they are, plain and simple, anti-American:

http://www.thedailybeast.com/blogs-and-stories/2009-11-30/gunning-for-zardari/

In a few hours, Obama will make the case for committing further to our presence in Afghanistan. Make little mistake about it, Obama now seems to be on the same page as TSIBR: the main threat to the US from this region remains terror networks and their organizing leadership who use the swirling tribal alliances of the region to both hide and clandestinely promote attacks on the US and its global interests, and the threat is too real and dangerous to ignore or withdraw from:

http://www.foxnews.com/politics/2009/11/16/obama-terror-networks-largest-threat/?test=latestnews

What Obama certainly must now understand, and we’ll see if he hints at this tonight, is that the war in Afghanistan is less about Afghanistan itself, and more about declining American Hegemony amid rising enmity between China and India, the next potential Hegemons. As TSIBR has harped on time and again, Pakistan is the crux where Chinese, Indian, and American interests in global hegemony dangerously dovetail. In fact, here are three articles from the last month each detailing new and growing troubling wrinkles in emerging Chinese/Indian global competition, most involve Pakistan in some way or another:

http://in.reuters.com/article/domesticNews/idINDEL33993420091127

http://abcnews.go.com/WN/india-china-face-off-war-words/story?id=8898062

http://online.wsj.com/article/SB125625173429702481.html

So TSIBR readers, I ask, how is it that humans can be so blind, as to interpret the Dubai debacle as a do buy signal, while the world that once provided so much stability, morphs to swirling sands before our very eyes. Why should reality ever stand in the way of making money? Well, it shouldn’t… but it eventually always does.

Joshua Kane

Afghan Withdrawal II - This Ain't Vietnam:

2009-11-17T12:11:00.001-08:00

Unsurprisingly, the debates regarding America’s options in Afghanistan have been framed around the Vietnam debacle. While TSIBR is a major fan of learning from the past, TSIBR has also learned from difficult experience that one should never confuse learning from the past, with living in the present. In other words, humans like to fight the last battle rather than the current one.

That being said, there are certainly many commonalities on the ground between America’s Vietnam and Afghan experiences, as one would expect since both are guerilla style wars; such commonalities have received widespread coverage in the mainstream press. Regarding such commonalities, TSIBR would like to point out the obvious: since Vietnam there have been 40 years during which all American military doctrine was aimed at developing counter-guerilla-insurgency techniques and technologies (i.e. drones). To think that America is not better at conducting guerilla counter-insurgency today than in 1965 would be tantamount to saying that 1960s mainframes were as good as our portable laptops today.

More importantly perhaps, is the scant coverage lent to all the many strategic ‘Grand Game’ differences between the Vietnam and Afghanistan situations. Comprehending these type variations is crucial to understanding the stakes at play for Americans in this episode. Historical consensus now agrees that the US blundered into Vietnam as an incorrect proxy for a global ideological war on communism; rather quickly it became clear that neither the US, Russia, nor China had any hegemonic-type strategic or material interests in Vietnam being communist or otherwise. Thus Vietnam morphed into a strange war over ideological symbolism, it was never a war of material need, and barely a war about strategic threat. Given the hubris with which the US emerged from WWII, it is not particularly surprising that the US imagined beforehand that it would have the wherewithal to fight a third-world ideological battle with first-world material blood and treasure. But it didn’t; not that it couldn’t, more that it wouldn’t, for long.

Some 40 years later we come to Afghanistan, and I ask you kind reader, do we still revel in American hubris today? Hardly; America is on its heels, and its enemies smell blood:

http://thesystemisblinkingred.blogspot.com/2009/04/americas-enemies-smell-blood-and-so.html

Notice that the Viet Cong never attacked domestic America, or planned to, or even threatened to? What would they have to gain? At every level then the key factor that differentiates the war in Afghanistan from the war in Vietnam is America’s rapidly declining Hegemony. In Vietnam the question the world posed was: is the US so much stronger than the rest of the world that it can waste monumental amounts of blood and treasure on an ideological war without suffering any negative material consequences? The answer clearly was no. Today the question the world is posing is: has the US declined so far that it can no longer afford to adequately protect itself? And if the world increasingly decides the answer to that question is yes, global chaos will swell.

Longtime readers know that the key stories TSIBR follows all generally revolve around the global hotspots of political and economic chaos, and how happenings there interact with American decline here. Few if any global hotspots have received more TSIBR coverage than the Af/Pak region, particularly the terror events that make it clear that al Qaeda is using Pakistan as a launching pad to destabilize relations between nuclear armed India and Pakistan, in an attempt to stress key Chinese-American dynamics. The fact is that India and America have numerous deep and important bilateral alliances, many of which revolve around a scenario where India and Pakistan come to blows over Kashmir. On the other side, Pakistan and China too have numerous deep and important bilateral alliances (along with historic enmity for India), many revolving around a scenario where India and Pakistan come to blows over Kashmir.

Hence it is not surprising that al Qaeda in Pakistan has allied with the TTP, which in turn has strong connections to the Kashmiri Freedom Terrorist Groups Lashkar and Jaish. Al Qaeda is attempting to sew the seeds of chaos throughout their target nations (in this case Pakistan and Afghanistan), and the best way to do that is to force large powers with complex alliances to cross borders they’re not supposed to. The ensuing chaos foments an environment more conducive to enacting Caliphate type strategies (al Qaeda’s reason for existence remains their far-fetched attempt to create an Islamic Caliphate stretching from Afghanistan through Saudi Arabia). Moreover, the al Qaeda associated Lashkar not only launched the devastating Mumbai attacks, but also has numerous unknown and largely clandestine ties to the Pakistani ISI (intelligence services). Meanwhile, the ISI is quite aware that Pakistan, in the long-run, is far better off living in a world where China is Hegemon, and the US has declined (hopefully taking India with it). Hence, nuclear-armed Pakistan will never truly be on America’s side in any materially important political-economic issues over the next century or so, although they will hedge their bets by taking money from, and paying lip service to, the US; until they don’t that is.

Therefore it becomes clear that the true threat in the AF/Pak region comes, not from al Qaeda/Taiban per say, but from the potential reactions of India and the Pakistani government itself to increased terror originating in Pakistan and Afghanistan. It is the potential for significantly increased terror throughout Af/Pak that drives America’s continued presence. Its like this: if the US does withdraw, and the terror does increase, India and Pakistan would be more, shall we say, ‘free’ to deal with their issue. The consequences for the region, America/Chinese relations, and American hegemony more generally, would be grave.

The fact that the Afghan war coincides with the greatest financial crisis since the US won the mantle of hegemony should not be lost on Americans. What has been lost on Americans, what remains lost to the average American, is how much America gains from its position as global Hegemon. The Hegemon governs the global economy by managing the global reserve currency. That fact has allowed the US to pay off its global debts, for the last 40 years, with printed up dollars, thereby boosting American standards of living far beyond what they would could or should be otherwise.

Thus, a key support to the US economy today is the world’s belief in the US as the ultimate guarantor of global safety and stability; this is the trade-off for getting to be the global reserve currency custodian (nothing is free afterall). The US ascending to lead position was an example of how economic power gets translated into political power. When nations withdraw from battles that have key material and strategic consequences, well, that is how economic weakness gets translated into political decline. History shows once begun, hegemonic decline can become self-sustaining; especially, and perhaps counterintuitively, if hegemonic abdication is consistently opted for. Hegemonic abdication creates an ‘order’ vacuum, chaos ensues as the world searches and conflicts over future stabilizing mechanisms, and that chaos tends to quicken already existing trends, i.e. hegemonic decline.

Abdicating responsibility for the mess in Afghanistan would signal to the world that America is opting to abdicate its hegemony. The immediate effect on the dollar would likely be extreme as the final death knell for its reserve currency status is sounded. Going further, abdication in Afghanistan now would inestimably weaken America’s bargaining power as nations sit down to construct a more balanced global financial system going forward. The main consequence: with rapidly declining economic clout, and now also rapidly declining military clout, America will be left a rapidly DE-developing nation in a rapidly DEVELOPING world; a world it helped create, but now no longer prospers in… This is how Hegemons decline folks. Nation after nation says the right words, and the Hegemon wants to believe them. But each nation then takes actions that in the end serve their self-interest and leave the Hegemon a hollow shell of itself. That is the global dynamic at play for the last 500 years or so. America is going to have to demonstrate a willingness to boldly activate its remaining strengths if it wishes for a different outcome, or suffer the consequences.

Getting America through the next 20 years and having it remain a place most Americans would want to live is not going to be easy. America is going through a systemically forced hegemonic decline the likes of which the world has rarely seen, and never seen in the presence of WMD. History teaches again and again that when nations face such impasses, the ones that get through it well, do so by reaching outward, not turning inward. The decades during which Hegemons have shrunk from their systemic duties have been the worst decades in known human experience, WWI and the 1930s come to mind. The decades during which Hegemons have risen to the occasion, and taken a key role in shaping the next world order, were difficult, but were followed by multiple decades of global economic growth theretofore unseen, as during WWII and the postwar era.

What kind of declining Hegemon will Americans choose to make America today? An abdicator, or a lead reorganizer? As you seek the answer to that question, keep in mind that withdrawal is always the easier case to make, because peace is always preferable to war. But easy solutions elude humanity at difficult times. So I ask again, what sort of Hegemon do you wish America to be? The consequences for future and present day America could not be anymore stark.

Afghan Withdrawal? The TSIBR View (Part I):

2009-11-11T09:00:00.000-08:00

It's 2009, the fourth quarter, and the question of the day remains: should the US withdraw from Afghanistan? Here is the TSIBR view, Part I:

Clearly when it comes to the Taliban, al Qaeda, Afghanistan, and Pakistan all is shifting sand. Nevertheless, at certain times certain factions hold more sway generally, which is why the Taliban and al Qaeda have at times been able to implement grand strategies. How much sway al Qaeda presently has in the swirling tribal alliances throughout the Af/Pak mountains is very difficult to say, especially from a strategic perspective, since it makes sense for al Qaeda to take a backseat to Taliban leadership as long as the main front remains Af/Pak (where the Taliban are viewed as homegrown, al Qaeda are foreign interlopers). Al Qaeda (or what passes for it these days) almost certainly has laid strong bets with the TTP (Tehreek-e-Taliban in Pakistan, Mehsud’s tribe) for an alliance aimed at controlling future Pakistan, although the info coming from Waziristan tends to be rather untrustworthy.

If the Taliban are able to consolidate power in Afghanistan, there is little doubt that ties between the Islamic Emirate of Afghanistan and the Pakistani TTP would multiply and strengthen, becoming more effective and well capitalized. Anything that smacks of a Taliban victory in Afghanistan would likely ignite a recruitment and charitable donation bonanza to the Taliban and al Qaeda of inestimable impact. Al Qaeda would then quickly be able to re-ramp up operational capability, using key alliance networks in Afghanistan as support to make the TTP ever strengthened. As they strengthened, more and more tribal leaders would be force to appease the widening TTP/Qaeda alliance.

I believe something like this or similar would occur upon a US withdrawal because in conditions of great resource scarcity, violence, and swirling power alliances, leadership gravitates to capital, and much more capital will flow into the Af/Pak region seeking to connect the TTP with the Afghani Taliban if the US withdraws. Indeed, certain factions of the Pakistani ISI may even view such an outcome as a victory.

Does anyone really think the situation for northwestern Pakistan would not deteriorate considerably if the US leaves Afghanistan? Let’s not forget that the Taliban and al Qaeda exist largely because the US abandoned Afghanistan to begin with. Abandoning Afghanistan today is tantamount to abandoning the civilian government of Pakistan. What kind of civilian government in Pakistan could maintain control with a TTP on steroids existing in the Northwest?

Now, before readers flame me for being some sort of neo-con imperialist warmonger, notice that I have never said that the US must, or even should, stay in Afghanistan. Believe me when I say, TSIBR is quite uncomfortable laying down evidence that can be interpreted as pro-war. However, if the US withdraws, I believe what I have written may approximate the consequences; then again they may not.

My main point remains this: little will stop terror attempts coming from this region for the foreseeable future, and something significant will probably eventually get through. Given that Americans will likely react to that with war, American citizens generally should be prepared to be involved in Afghanistan for a very long time to come, and count on it sucking every step of the way. Obama calling our generation the ‘Greatest Generation’ in recent speeches, and all the sacrifice that the phrase connotes, suggests to me that Obama may have come around to such a view already.

Ever see an obstacle in your life that there is no way around, you’re gonna have to go through this, and its gonna take a long time, and its gonna hurt, its gonna suck? What do you do? Do you give up? Do you curse the gods? Or do you accept your fate, prioritize your situation, and try to get through it as quickly and cleanly as possible. Welcome to Afghanistan during your late hegemony, America; you’re not the first, but you may be the last.

Dollar Collapsistan:

2009-10-22T13:21:00.000-07:00

For those of us keyed into the long cycles of hegemony and history, two stories have lit up the world stage in October: 1) The tottering dollar and 2) The Pakistani offensive against the Taliban in South Waziristan. TSIBR will now lend its inimitable view on both.

On October 6^th, the following article roiled energy and currency markets by claiming to uncover covert meetings aimed at implementing a plan to price oil in something other than dollars ‘within the next decade’:

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

Of course, widespread denials and recriminations ensued; which reminded TSIBR of that old political saw – truth in politics is best measured by strength of denial. Perhaps then we should put faith in the words of lone-wolf Putin, who is apparently ready to conduct Russian-Chinese oil trades in Ruble-Yuan immediately:

http://en.rian.ru/russia/20091014/156468599.html

Meanwhile, US economic authorities remain powerless to defend the dollar – after all, there really is only one palatable path towards restoring economic balance – dollar debasement. Remove that printing in any significant measure, and collapse will almost assuredly begin anew:

http://www.bloomberg.com/apps/news?pid=20601109&sid=aPoUCijvAfCk

The flip side of that equation, however, is that dollar printing for the moment is causing a global reflation. How will we know when that reflation is becoming a damaging inflation (an effect of general monetary imbalance)? Probably when stocks decline while oil and other commodities continue to rise. Indeed, here are two excellent articles summing up all of the many negative consequences a falling dollar will have on American markets in the long-run:

http://online.wsj.com/article_email/SB10001424052748703298004574458923186941870-lMyQjAxMDA5MDAwODEwNDgyWj.html

http://www.telegraph.co.uk/finance/china-business/6266790/China-calls-time-on-dollar-hegemony.html#

Ah, what’s an American to do? Own gold of course:

http://www.reuters.com/article/newsOne/idUSTRE5963BX20091007

http://www.bloomberg.com/apps/news?pid=20601039&sid=ajPCIYcGX8t4

Now onto Pakistan. Whenever considering Pakistan, comprehending the basic grand strategy of the al Qaeda / Taliban Alliance is of paramount importance. Al Qaeda and the Taliban are seeking to establish an Islamic Caliphate (Kingdom) stretching from Afghanistan through Saudi Arabia. For obvious reasons, said would require the absolute collapse of the United States (owing to its many diverse interests throughout the wide region). The best means to that end, al Qaeda and the Taliban believe, is to sow seeds of chaos throughout the region, thereby bleeding the US in regards to troops, will, and most importantly, economic clout. The more US global financial / military hegemony totters, the greater the likelihood that the al Qaeda / Taliban Alliance will eventually succeed, or so they believe.

Now, let’s analyze the following article, which suggests that the Afghani Taliban have no qualms with the US as long as the US withdraws from Afghanistan, in light of the above elucidated grand strategy:

http://www.foxnews.com/story/0,2933,562160,00.html

Clearly this is an ill-disguised attempt by Qaeda/Taliban to use America’s lack of will for war to convince the US to give up the fight in Afghanistan. Not only would this lead to unspeakable terror for Afghani women, it would further score a win for the Qaeda/Taliban Alliance of immeasurable impact. The Taliban re-ascending to power in Afghanistan would accomplish the first major goal in the Qaeda/Taliban grand strategy. The next major goal would be to use Afghanistan as a launching pad to foment government collapse in nuclear-armed Pakistan.

As TSIBR has been indicating for several months, the Taliban are a far better face for the Qaeda/Taliban Alliance in the Af/Pak area than al Qaeda is – the Taliban are viewed as homegrown, while al Qaeda are viewed as foreign interlopers. Thus as long as Af/Pak remains the key front in the war against Islamic Militancy, expect al Qaeda to happily take a back seat to the Taliban. If one reads between the lines, that is the most useful conclusion that can be drawn from the following article:

http://www.huffingtonpost.com/2009/10/07/al-qaida-showing-smaller_n_311985.html

However, this does not seem to be the conclusion that the Obama administration or the mainstream press are drawing from the Afghan Taliban’s false and strategically projected split from al Qaeda. High up administration officials may be leaning towards some sort of appeasement with these despicable humans:

http://www.foxnews.com/politics/2009/10/08/obama-war-council-focuses-al-qaeda/

Meanwhile, the Taliban are daily growing in power, especially in Pakistan:

http://news.yahoo.com/s/ap/us_afghanistan_taliban_finances;_ylt=AqYnSQRmDJN_Ry17CaIg_zas0NUE;_ylu=X3oDMTNkaXRxbDJwBGFzc2V0A2FwLzIwMDkxMDEyL3VzX2FmZ2hhbmlzdGFuX3RhbGliYW5fZmluYW5jZXMEY3BvcwMyBHBvcwM2BHB0A2hvbWVfY29rZQRzZWMDeW5fdG9wX3N0b3J5BHNsawNvZmZpY2lhbHRhbGk-

http://www.google.com/hostednews/afp/article/ALeqM5jgvQygeGMBysviMWUUcBwtL_8BLA

Moreover, all the many anti-India Pakistani terrorist groups are now gravitating to the Pakistani Taliban. TSIBR has little doubt that al Qaeda is providing the glue, with maybe a little extra fuck you in their for Shiite Iran:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEW2xCPp8TLc

http://www.bloomberg.com/apps/news?pid=20601087&sid=agD_q6.0spFw

In the meantime, one would have to say the South Waziristan offensive against the Mehsuds is having mainly negative consequences, rather than positive, for the Pakistani Army (see the Twitter feed for the latest):

http://www.nytimes.com/2009/10/11/world/asia/11pstan.html?_r=2&em

And, finally, in case you are still a bit perplexed as to why Pakistan is central to US hegemonic decline and the TSIBR focus, here is an excellent back-page article revealing the little acknowledged simmering tension between the two ascending hegemonic contenders – China & India. If the hegemonic cycle continues as it has in the past, then China and India will both continue to develop and militarize, trade tensions would mount, eventually breaking out into total war, with China and Pakistan on one side, and the US and India on the other. India would likely win that war with American help, if the entire human race weren’t destroyed first. And although that is not the path that TSIBR views as the most likely outcome to these tremendously momentous times, the following article is of some concern, once one has learned to read for the hegemony between the lines:

http://www.reuters.com/article/rbssIndustryMaterialsUtilitiesNews/idUSDEL8101920091014

Joshua Kane

Li'l Fall Break Due To Family Illness:

2009-10-13T08:59:00.000-07:00

Hello TSIBR readers! As I'm sure you realize, things are heating up all over the stage of world affairs; exciting times are upon us. Nevertheless, I'll be visiting my ailing Grammy over the next week or so. Hence, expect spotty twitter coverage of key events until late next week, at which point you can assuredly expect a TSIBR mega-update.

Thanks for your continued interest!

Sincerely,

Joshua Kane

Mehsud is More Region Than Man:

2009-10-10T14:31:00.000-07:00

MEHSUD SUCCESSFULLY PENETRATES PAKISTANI CENTRAL HEADQUARTERS:

The above Hakimullah Mehsud orchestrated attack is the sort of attack that takes little in the way of initial capital, the weapons used are easily obtainable anywhere in the developed world, planning would be very difficult to detect, and in this case, Pakistan's equivalent of the Pentagon was penetrated. Hakimullah has threatened to bring such attacks to America.

Full Post Coming Soon...

Reader Questions Re Depression & War:

2009-09-30T13:51:00.000-07:00

Q: To your knowledge, has there ever been an adequate refutation of Marx's concept of the crisis of overproduction? From what I understand, there hasn't been, but I haven't studied economics for all that long.

A: Not to my knowledge, no. In fact, Marx's theories of overaccumulation (too much capital in too few hands) causing overproduction (too much productive capacity with not enough demand to create profitability) seems to describe the current global economic downturn fairly well. Today economists are resurrecting Marx's ideas on overproduction when they speak of 'articulation errors' – the partial or total lack of fit between what is wanted and what is available. And of course the study of articulation errors has become complex, however, nothing I have seen in that literature has entirely contradicted Marx's original understandings of major capitalist crises periodically arising as an effect of overaccumulation/overproduction.

And actually, this connects up well with the Dent/Depression thread floating around (see here). In that, Marx, along with a whole host of other scholars (myself included - and you can find previous threads about coming war and depression on the SF forum throughout last year), would agree with what Dent has predicted regarding coming Depression and War, even though they approach the topic from slightly different angles. For example, Marx argues that capitalism necessarily overcomes overproduction cries via a rapid reduction in the productive capacities of humanity along with a slowing in population growth. In other words, wide-scale war and crisis.

Q: The way you (paraphrasing Marx) worded that gives agency to capitalism itself. So what you're talking about here is people and institutions. If there is a direct link between the crisis of overproduction and war, doesn't that connection involve human consciousness of the crisis, and a pretty cynical and utilitarian (but practically omniscient) decision capacity on the part of those capable of controlling such things? And on a sidenote, would this theory suggest that (for example) ending the Depression was not merely a pleasant side effect of U.S. involvement in WW2?

A: I'm not sure I understand what you are getting at here. All economics today, whether discussing micro or macro, assumes actions at the individual level are governed by bounded rationality. Such bounded rationality leads to the profit maximizing actions of financial and corporate agents and officers. At the macro level, over time, such individual actions aggregate into an overaccumulation crisis as described.

Any similar theories would most likely see WW2 ending the Depression as causal - WW2 widely destroyed productive capacities while allowing for a reintegration of the global economic system based on better technology, better economic understanding, and redistributed wealth.

Thinkin about this some more, I see what you are saying - that my writing above seems to reify capitalism as an individual with agency. But trust that the macro-effects that I am discussing above can each be traced back to actions taken by individuals participating in the economy based upon bounded rationality.

Q: I get the relationship between economics as a system and individuals as rational actors (WIKIing "bounded rationality" but the meaning seems apparent). Maybe I was too opaque. I'm saying, the move from OH FUCK CRISIS OF OVERPRODUCTION/OVERACCUMULATION to LET'S START A FUCKING WAR seems to me to require something more than the bounded rationality of individual political-economic actors. Going to war has no macro feature--it is the decision of an individual, or an oligarchy at best. And the link that would make this decision a rational response would be an understanding of war as a solution to the crisis of overaccumulation. See what I mean? I'm asking you, in your opinion, are the wars that deal with this crisis (WW2 as an example, specifically the destruction of productive capabilities) resulting from decisions made by, or advised by, people conscious of this relationship? Is someone up there saying: we need to bomb the fuck out of everything to lower supply (production capability) in keeping with realistic demand? Or is the war some kind of geo-political epiphenomenon of some other feature of the crisis? I guess I'm asking you to draw the map that gets us from the economic crisis to the war. Not how the war "solves" the crisis, but why the war inevitably happens?

A: Of course, each particular path to war differs, but there is clearly a correlation between capitalist crises born of overproduction, and war. Although the path to each capitalist crisis is made up of countless individual decisions, and each of those individual decisions sorta differ from any other decisions made in history, those differing decisions share one important feature: they are based on bounded rationality maximizing behavior, and thus, each capitalist crises has some overwhelmingly similar features (e.g. overaccumulation).

So too then does each lurch from crisis to war. On that path, no individual needs to understand the ultimate aggregation of everyone's individual decisions in order to have a similar historical outcome obtain. What history has shown is that political leaders, in trying to protect their country from further crisis, and also trying to protect their own leadership, make bounded rational decisions that in the end aggregate to ever further disintegration of the current global system. As the global system disintegrates, individual leaders attempt to formulate a new global financial order, but they find that the old order is dying precisely because it no longer fits the current balance of power on the globe. Which of course pushes leadership to question, well, what precisely is the current balance of power on earth? And what financial system would serve that best?

Now if global balance of power were a clear cut issue, there would be no need for war. But it isn't. So the question then becomes, which nation's interests will the new global financial system serve best? And it is around this question that war typically breaks out. War not only settles that question, but eliminates global productive capacity while ushering in new technology, thereby creating solid growth fundamentals once the new global financial system, that was forged in the crucible of war, is put securely in place.

So that's pretty much how it has happened in the past. I blog regularly about how it might be happening now, and here are some excerpts from Aug-Sept '08:

As far as choices go, I think people and populaces have little choice in political-economic events. There are systemic ebbs and flows and individuals and groups can change the flow slightly, and certainly can alter its timing, but at the grand level of history (Braudel called it the long duration), the system moves people more than people move the system (although one definition of history would be that it is the never-ending interplay between individuals and systemic institutions over time, but I digress). So my point with these Obama the Neo-Con posts is not to critique Obama or support McCain, but to document in real-time how the current state of the global political-economic order (with the US led system slowly collapsing) is shaping Obama far more than Obama will change the long building trends that have been buffeting the world political-economy in recent decades.

A different way of making a similar point:

America's debt burden is far past the point of no return, and with the baby boomers retiring, America already cannot make good on its debts (without stimulating massive hyperinflation that is). Given that America is likely to fight more in the near future, that debt burden is only going to get worse. At some point the only choice for America will be to scrap the current world financial order, and find a new one that is more amenable to American standard of living. The strength of the American military leaves the door open for America to fight if the world balks at allowing the US to have a primary say in determining the next financial order. In other words, America's main strength is state on state conflict. Rather than watch the globe reshape the world financial order into something that does not benefit America, America is far more likely to switch the game to bring into play our main and only remaining strength. If this seems somewhat confused, then forgive me, predicting catastrophe is difficult, if not impossible. All I can say with any certainty for myself is that I do not see how the present global political-economic order can go on given the imbalances that have developed. Given that America will not sit by and let a new world order develop without it having a major say, and given that America's only remaining strength is its ability to wage state on state war, the future does not at all augur well for peace. That's TSIBR’s confused and confusing take, and we’re sticking to it until events suggest otherwise...

And if you want even more about this sorta thing, see my original essay on how war might lead to an overall forgiving of American debt:

http://thesystemisblinkingred.blogspot.com/2008/10/forgiving-american-debt.html

Q: If A) the stock market, commodities trade, federal deficit, U.S. indebtedness to "X" (China, et al.), valuations of intangible assets/banks/businesses, etc. all reflect real-world goods and services (i.e. material and labor) somewhere down the line, and B) these economic abstractions are all indicating a declining American hegemony, and C) U.S. goes to war to change that (aside: I agree and have held for some time that the U.S.'s sole remaining global strength is its state-to-state military capability, and this terrifies me), then what does a military outcome in favor of the U.S. really mean?

A: Excellent question. Sometimes new things do happen under the sun, and this is the first time in capitalist history that the globe seems to be going through a hegemonic transition (America declining) without any other nation being powerful enough to reprise America's role. What we are witnessing is growing multipolarity, a direct result of rapid globalization. In my opinion, there is no 'winning' for America in this, there will not be a renewed American hegemony. The best that America can hope for is using its military might as a platform to create a world-system where America won't continue to decline economically and politically vis a vis developing nations.

Q: What is the relationship between the "global financial order" and the "balance of power"? It almost sounds, from the way you're using these terms, that in a WW3, if the U.S. wins the global financial order has been realigned to reflect the global balance of power, and if (say) China wins, the balance of power has been reshaped to fit the global financial order. Can you clarify that?

A: The global financial order is a direct consequence of the global balance of power. National power is based on many different variables (all the ones you would imagine). All those variables aggregate into: this nation can kick this nation's ass. Which over time gels into a global financial system that mainly benefits the nations who can kick other nations' asses. Thus if the US were to win in a hegemonic war against China, it would demonstrate that the balance of power lies in America's favor, and the US consequentially would take the lead role in developing the financial system, which would be certain to benefit the US more than China. The converse would obtain if China won a hegemonic war against the US.

But that's not the precise path I believe most likely going forward. Growing multipolarity is signaling the end of Hegemony as a solution to anarchy at the global level. The question now becomes whether humanity is ready for something new, something more multipolar. Is the world ready for global governance? The ultimate answer to that question will determine whether the human race continues on as a going concern, in my opinion.

Q: is sustained conventional warfare among any of these states even plausible? do you think war is a necessary in-between step? Or at least, inevitable given U.S. tendencies? Or is it possible to slide peacefully into multipolarity?

A: No, sustained conventional war between nuclear states is highly implausible. And if there is one main aspect of the current hegemonic cycle that makes this one 'new under the sun', it is the existence of nukes. Thus any 'world' conflicts in the offing will not appear that similar to previous world wars. More likely fighting will occur between proxies. In my view, before such fighting morphs into outright hegemonic style state on state war, random mass destruction events will occur. These events will force global leadership to bargain out a new world order prior to hegemonic conflict (i.e. conditions of total war) obtaining.

That being said, I do not believe a peaceful slide into a multipolar global governance structure is possible. The way in which the Iranian and Af/Pak conflicts are now coming to a head indicates that I am correct. As did America's invasion of Iraq.

The ability to wage war is pretty much all America has left now that our economy has been hollowed out by 30 years of deregulation and currency 'flexibility.' And wage it we will. But to what end? If its an attempt at renewed hegemony, America will fail. If its an attempt for an equal and fair spot at the table, in the scenario of an open global economy amongst mainly pro capitalist-democratic states that have willingly submitted to representative global governance, well, the US may win those sorts of battles. But first Americans have to decide that this is what we'll be fighting for. Alternatively, America is facing a bleak future of decline, violence, and societal breakdown. It may face that future regardless.

Obama The Outsourcer; Will Almost-Spilled Be Good Enough?

2009-09-23T14:36:00.000-07:00

With the stock market continuing to roar back to life, TSIBR pauses to reflect – how can it be that the TSIBR portfolio (now 60% in stocks and commodities ETFs, 40% in cash) is having its best year ever? Shouldn’t we be fast approaching the double dip in our W shaped recession/depression? That original double dip forecast, with the second dip expected in the Fall of this year, assumed that the Obama administration would prevent Wall Street from going back to business as usual once the government had saved Wall Street’s asses by protecting the major firms from any and all losses. As TSIBR has been covering all year, that is not what has taken place, Obama has outsourced the writing of financial reconstruction regulations to the same elite cabal that profited from the mess in the first place. These elites have of course dragged their feet, and with the US government protecting them from any and all losses, they have gone back to speculation as usual:

http://www.marketwatch.com/story/stocks-more-attractive-than-bonds-strategists-say-2009-09-21?siteid=nwhpm

Obama’s hands-off approach to financial reconstruction has been a terrible blunder for a number of reasons. One I would like to highlight now is that Obama has set up his four-year term to witness a stock market bubble in the first part, to be likely followed by a secondary crash in the second half of his first term. For obvious reasons, a first term President wants the opposite; Obama has really dropped the ball on financial reform.

As a result, there really is no telling how long the current stock market rally could last. It could be two more years; it could be two more days. The reason the market crashed in the first place was that speculation had become detached from economic reality. This remains the case. It used to be that the stock market predicted directions in the larger real economy, however, owing to the Fed’s loose money policies since 1995, speculation has run rampant to the point where the stock market no longer predicts the real economy; the stock market has now become the entire economy, or at least the main driver of it. Thus, as long as the perpetual money machine known as the Fed continues to provide limitless liquidity to rampant speculators, the stock market will rise, and the economy will be dragged higher behind it.

Sounds good right? Not so fast. What happened right before the Crash of ‘08? Commodities were rising to levels and at a pace theretofore unseen. This forced the Fed to begin to take the punch bowl away from housing speculators, thereby causing the entire economy to collapse. This then is the path that TSIBR sees as most likely going forward: choppy volatility in a generally rising market as commodity prices accelerate eventually turning into rapid inflation. Then the Fed starts to remove stimulus. Then the stock market drops precipitously. Then the economy follows.

Of course, complicating that view is the still lurking potential for a major deflationary wave to kick in. For example, debt issuance is still declining at a record pace in the US:

http://www.telegraph.co.uk/finance/financetopics/recession/6190818/US-credit-shrinks-at-Great-Depression-rate-prompting-fears-of-double-dip-recession.html

While cascading bank failures are still a real possibility in the near future:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYdgQkXu9eBg#

Hence TSIBR will be actively playing the speculative bubble that is developing in commodities, but we will also be staying highly nimble, watching out for deflation. More generally, TSIBR expects that in a few years we will have experienced a ‘ski-jump’ shaped crash, where there was a sharp drop, a rapid recovery, followed by an even shaper drop. Somewhat similar to this knowledgeable chap’s outlook:

http://prudentbear.com/index.php/thebearslairview?art_id=10274

Regarding the dollar, the only hope for the greenback these days appears to be economic collapse, because crisis seems to be the only thing that makes people want to hold dollars. As TSIBR has been tweeting about daily, the dollar broke support a couple of weeks ago and has continued to decline. Assuming no crises are in the offing (which they probably are), the path of least resistance for the dollar is certainly down. Especially with increasing talk of a global currency rebalancing to help eliminate China’s trade surpluses and America’s many deficits (which would involve mainly an immediate and specific devaluation for the dollar).

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6211858/HSBC-bids-farewell-to-dollar-supremacy.html

http://www.reuters.com/article/usDollarRpt/idUSLL68602920090922

If such a rebalancing does occur, we could wake up one morning to find gold up $200-$300 dollars and dollar purchasing power significantly reduced. The shock to consumers would be rough for a few months, but a coordinated devaluation of the dollar would at least begin to set the global economy on a path toward real recovery. Although, the consequential inflation in the West would likely blow the lid off of a whole range of other economic and political imbalances lurking right beneath the surface of our everyday perceptions.

To begin with, China’s reserves would be worth far less and they would have far less interest in increasing them. Meaning that China will have to hasten its push away from dollars both prior to and in the aftermath of a devaluation. In other words, a coordinated devaluation could unleash market forces that create an entirely uncontrolled and rapid dollar collapse. China won’t be waiting to find out, as it is already hastening its push away from dollars and into commodities, notably gold.

http://www.telegraph.co.uk/finance/economics/6146957/China-alarmed-by-US-money-printing.html

Indeed, learned gold market investors have started bandying around the idea that there is now a Chinese ‘put’ in the gold market, i.e. a price that China will desire to add gold positions at, thus putting a stable floor under gold prices, thereby limiting risk:

http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=88887&sn=Detail

If you ask TSIBR, relations between the US and China seem to be deteriorating. Here we have the Chinese government thumbing its nose at Western financial conglomerates, telling them it will protect Chinese firms from recent derivatives losses by simply allowing them not to pay (this is another potential deflation driver in the future):

http://www.reuters.com/article/rbssBanks/idUSSP47327420090831

And of course, last week the brewing trade war between the US and China was headline news:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7nGNZzouDOM

Let’s not forget that China is militarizing at an incredibly rapid rate right now. If China expects world peace, why bother?

http://www.breitbart.com/article.php?id=CNG.a2e736d334e760c3afc9d72bbc9a211c.bb1&show_article=1

Ah, world peace, that’s a funny one with the Iranian nuclear standoff slowly but surely coming to a head. There is little doubt that Iran could now assemble a bomb rather quickly if it felt the need to do so:

http://www.nytimes.com/2009/09/10/world/middleeast/10intel.html?_r=1&hp

To make matters worse, the Iranian stance at the initiation of negotiations was a non-starter. There was never anything for the US to talk about with Iran:

http://online.wsj.com/article/SB125249646237795391.html#mod

Really, the only talking that should be going on right now should regard the precise mechanisms of the strike – who leads in the first push and strategies for the aftermath. Clearly, the US needs to lead in the first wave of strikes on Iran:

http://online.wsj.com/article/SB10001424052970203917304574410672271269390.html

Can you imagine how it will look to the Muslim world if Israel unilaterally launches a strike on Iran? That would be a disastrous outcome of Obama’s outsourcing leadership style. He mistakenly outsourced the writing of financial reforms to Wall Street lackeys and he mistakenly outsourced the writing of healthcare reforms to bought and paid for members of congress. If he now mistakenly outsources the bombing of Iran to Israel, the attack on Iran would likely fail (politically if not strategically), and American stature in the world may never recover. Obama needs to internalize this bipartisan report on Iran, which concludes the US must be prepared to strike, and soon:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGXuRWqsEFos

Obama also needs to internalize the Netanyahu idea that the Iranian regime is not only dangerously tyrannical, but it is also weak. Now is the time to castrate them, before it is too late, both for their people and the world:

http://www.breitbart.com/article.php?id=CNG.a107751183efc761a95b7687cb8acd74.931&show_article=1

Man, even bin Laden knows that one way or another a war between the West and Iran is in the offing. Clearly he hopes Israel takes the lead, as he basically rewrote the history of al Qaeda to be only about its anti-Israel stance in his 9/11 anniversary address:

http://www.foxnews.com/story/0,2933,549780,00.html

All in all, given Netanyahu’s strange surprise visit to Russia (which many knowledgeable analysts, including this one, felt was a prelude to a strike on Iran):

http://virl.com/d5224/

Along with America’s surprise fig leaf to Russia in the form of abandoning the Polish and Czech missile defense sites:

http://roomfordebate.blogs.nytimes.com/2009/09/17/the-fallout-of-a-reversal-on-missile-defense/?hp

All followed by strange anti-dollar and anti-attacking-Iran statements by Medvedev:

http://ca.news.yahoo.com/s/capress/090918/business/eu_russia_economy_5

http://www.alertnet.org/thenews/newsdesk/LL693597.htm

One has to wonder what Netanyahu was in Russia to discuss, and what the US got in return from Russia for abandoning Poland and the Czechs? According to the press, the US seems to have gotten nothing. It seems more likely to TSIBR that the US and Israel got a greenlight from Russia on their plans to attack Iran, and Russia agreed that it should be circumspect about supporting the US and Israel in this, until negotiations have run their course. When then does TSIBR expect the attack to begin? Still March 2010.

So that’s pretty much the story West of Pakistan, now let’s shift east over to the Af-Pak region. Interestingly, the following article makes the case that al Qaeda locates in Pakistan precisely because from there it can easily foment trouble both to the East and West of Pakistan. Indeed, the article goes on to make the further point, one that TSIBR has been harping on for sometime, that al Qaeda and the Taliban cannot be defeated as long as the Pakistan and Afghanistan wars are conducted separately, by the US on one side and by the duplicitous Pakistani Army on the other:

http://www.atimes.com/atimes/South_Asia/KI24Df03.html

The duplicitous Pakistani Army is the real problem if you ask TSIBR:

http://news.bbc.co.uk/2/hi/south_asia/8260292.stm

The Pakistani Army loves US money, but it does not have US interests at heart, in fact quite the opposite. Pakistan is looking at a future with two main possibilities: continued US global hegemony that propels India (Pakistan’s arch-enemy) to developed world status in a matter of years; Or, a bleeding US that loses power to China (Pakistan’s ally) in the world-system, thereby increasing the chances of Pakistani development vis-à-vis its enemy India. Clearly the Pakistani Army wants the US to bleed while the US continues to send aid, and this is indeed what is occurring on a daily basis in the Af-Pak area. In short, don’t trust anything the Pakistani Army reports.

Especially regarding the Pakistani Taliban. Now that the dust has settled in the aftermath of Baitullah’s death, Hakimullah seems to be clearly in control. As expected, terror in Pakistan has been on the rise. Moreover, in his first two contacts with Western reporters since his ascension, Hakimullah has twice threatened America with attacks:

http://news.sky.com/skynews/Home/World-News/Taliban-New-Leader-In-Pakistan-Is-Alive-And-Vows-To-Continue-The-Unfinished-War-On-The-West/Article/200909315383871?lpos=World_News_Carousel_Region_4&lid=ARTICLE_15383871_Taliban%3A_New_Leader_In_Pakistan_Is_Alive_And_Vows_To_Continue_The_Unfinished_War_On_The_West_

Recall that al Qaeda’s one long term problem with Baitullah was that he was overly focused on Pakistan. Al Qaeda wants the Pakistani Taliban to have more of an international focus. Well, it sure seems like with Hakimullah they have gotten their man into power.

Also recall that such occurrences echoed the months prior to 9/11/01, thus giving TSIBR Dark Forebodings of Fall. Well, as if from the TSIBR keyboard to God’s ears, the FBI managed to foil the biggest al Qaeda connected plot targeting the US since 9/11. TSIBR has little doubt this was to be the next big one. It has all the hallmarks, and as suggested above (and for months), al Qaeda wants the next American terror event to be traceable back to Pakistan, thereby forcing the US into a bloody and costly war inside sovereign Pakistan, which could in turn collapse the Pakistani state and/or cause Pakistan to seriously ratchet up tensions with India. Unsurprisingly, the Denver/NYC based cell leader immediately copped to being trained in Pakistan:

http://www.reuters.com/article/domesticNews/idUSTRE58M4OA20090923

If anyone actually thinks the US will somehow be safer by abandoning the Af-Pak region, they’re sorely mistaken. Al Qaeda was days away from launching another 9/11 this Fall. The Af-Pak region is not Vietnam and this is not 1967. The Viet-Cong never threatened to attack America, let alone succeeded on a massive scale. I agree with Condoleeza Rice on this one: if you want multiple future 9/11s, abandon Afghanistan and Pakistan:

http://www.huffingtonpost.com/2009/09/22/condoleezza-rice-if-you-w_n_294755.html

American power is receding rapidly in the wake of the financial crisis, causing the world to ponder the ‘next world order.’ Al Qaeda seems to have a vision, but America does not. Al Qaeda understands that their vision indispensably includes the destruction of America. Al Qaeda will continue to make gains until America comes to understand that its vision of the next world order not only indispensably involves the destruction of al Qaeda and the Taliban, but it also necessarily involves the removal of the tyrannical and widely unpopular Iranian regime. But these are complicated and bloody needs. And Americans tend not to like bloody solutions unless their blood has been freshly spilled. Not almost spilled, but freshly spilled.

Joshua Kane

Dark Forebodings of Fall / The Timing of Silence:

2009-08-24T14:52:00.000-07:00

The chaos following Baitullah Mehsud’s demise continues (the Taliban is sticking to their story that he is ‘severely ill’). Although, reports are now circulating that the new top commander of the Pakistani Taliban will be, either, Hakimullah Mehsud (a close younger cousin of Baitullah) or Waliur Rehman (an older more experienced Taliban commander, and also cousin to Baitullah, who may have been the main architect of Baitullah’s shift towards al Qaeda over the past couple of years):

http://www.google.com/hostednews/ap/article/ALeqM5hkiMxbHNH0BqgpWA2ZG6VD6wVTmAD9A8NTR80

Both potential leaders are pro al Qaeda, and the shift towards these two men suggests that al Qaeda may not find itself weakened in South Waziristan as a consequence of Mehsud’s ‘illness.’ Indeed, if Rehman rises to power, then al Qaeda in Pakistan may find itself strengthened. Although, Pakistani officials are asserting that the Taliban are fracturing along tribal lines once again:

http://www.nationalpost.com/news/story.html?id=1925351

Why the Pakistani Army has not pushed into Waziristan while the Taliban is in disarray is anybody’s guess; perhaps the Pakistani Taliban are not in as much disarray as the Pakistani Army would have the world believe? Its hard to say. Nevertheless TSIBR readers, come along with me for just a moment, as I describe why dark forebodings of Fall are plaguing us here at TSIBR. To begin with, hazy reports regarding changes in the al Qaeda / Taliban alliance leadership (especially regarding how they were streamlining hierarchies and pressing the fight against the Afghani Northern Alliance) emerged throughout the Summer of ’01. Recall that at that time, the Nasdaq crash was on hold. Having sold off hard from the Spring of 2000, the Nasdaq crash paused in March 2001, and began to recover the 3500 level (after having reached 5000 at the top). The index rose placidly into September as analysts became certain the worst was behind us…

Then came 9/11, sending the Nasdaq eventually to 1800. It should be apparent, even to the casual TSIBR peruser, that we find ourselves in a similar spot today. The indexes have stopped crashing and have begun to recover. Analysts are becoming more confident that the worst is behind us. Al Qaeda has a safe haven, still wants to destroy the US financially, and reports indicate leadership machinations behind the scenes.

Stop for a minute and consider this question: What sort of debacle serves America’s conservative elites best? Of course, having no debacle serves elite interests best, but many times societal debacles are unavoidable. So which sort of debacle would be preferable to leading American conservative elites: A debacle solely blamed on conservative elites from which springs popular legislation designed to curb their power? OR, a debacle that comes from outside the nation that then allows conservative elites to move on pressing international issues (e.g. Iran) that have been on their agenda for sometime. Clearly the conservative elites would prefer the latter.

Now, kind readers, I am going to lay out a few articles that describe, indeed almost guarantee, a secondary financial debacle coming down the pike as the stimulus effects and inventory restocking cycles wane, and we enter the oft mentioned and maligned ‘double dip’ of our likely W shaped recession/depression:

Master Roubini’s Call (also peep the Roubini article posted on the Twitter feed to the right):

http://www.telegraph.co.uk/finance/financetopics/recession/6080523/Nouriel-Roubini-warns-threat-of-double-dip-recession-is-rising.html

Commercial Real Estate Bubble Has Yet To Pop:

http://www.upi.com/Business_News/2009/08/18/Commercial-real-estate-bubble-looms/UPI-89211250607446/

Cody Blog – this guy gets it:

http://blogs.marketwatch.com/cody/2009/08/17/abby-joseph-cohen-is-a-genius/?siteid=nwhnwhnr

Toxic loans remain on bank balance sheets:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aTTT9jivRIWE

http://www.latimes.com/news/nationworld/nation/la-na-toxic-assets14-2009aug14,0,3865656.story?track=rss

China speeds diversification away from dollar:

http://english.people.com.cn/90001/90780/91421/6734461_txt.html

http://www.bloomberg.com/apps/news?pid=20601109&sid=aTZisOrCq1BY

http://business.timesonline.co.uk/tol/business/economics/article6736681.ece

Dollar crisis looms:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aeD0JMxdEA_c

Allow TSIBR to now put in concrete terms what has been suggested above. Crashes never occur in a straight line. But crashes always do scare the shit out of conservative elites who see their world of privilege and comfort called into question. Conservative elites also have privileged access to information, and wield their privileged access to information for power. During those moments where crashes pause, conservative elites will hide and cloud information regarding the potential for further crashing. Thus during those moments, conservative elites are more aware of the potential for further crashing than is the general public. They are also aware that the first wave of crashing has called into question their elite rule; they of course fear losing further power enormously. Thus, it serves elite interests if something outside the nation, something rather removed from global economics, ‘causes’ the secondary financial debacle that is certain to accompany a W shaped recession/depression.

In short then, it seems that there might be alignment between the interests of conservative American elites and al Qaeda terrorists in promoting some kind of large political ‘accident’ over the coming months. A similar alignment of interests existed in the months preceding 9/11. Now, TSIBR is not saying that some cabal of American conservative elites is actively planning a second 9/11; there is no evidence of that. TSIBR is also not saying that it has a clear understanding of the mechanisms that might lead to terror events when conservative elite interests suddenly align with those of international terrorists. What TSIBR is saying is that when those interests do align, for whatever reason, terrorism does tend to occur. So this Fall marks yet another dangerous moment for the homeland. And if you don’t believe that you should heed a TSIBR warning (which often accompanies the Fall months), perhaps then you’ll believe you should heed the words of the current undisputed champion mouthpiece of the American conservative elite, Dick(less) Cheney, who had been quite vocal about coming terror, but now is rather silent on the issue:

http://www.politico.com/news/stories/0209/18390.html

The timing of silence often speaks louder than words.

Joshua Kane

The Pitfalls (and Pleasures) of Social Forecasting:

2009-08-10T11:42:00.000-07:00

Although confusion abounds, it appears highly likely that Baitullah Mehsud was killed in a drone attack Thursday night. Mehsud’s likely demise has numerous implications, both for TSIBR itself, and the stories that TSIBR follows. Let’s begin with TSIBR itself; given the personal nature of the discussion, I’ll be using the first person...

Social forecasting has long been an obsession of mine, both professionally and personally, thus social forecasting was, and remains, the foundational premise for TSIBR. The main questions I have been posing are these (or similar): Can ‘sicence’ be marshaled to systematize the informational mechanisms and processes that allow the human mind to anticipate and intuit the future. Further, can those systematizations be applied to aggregations of individuals, or perhaps more importantly, their leaders, thereby enabling foresight into meaningful macro-level crises or events, which by their very nature are often shrouded in complexity and uncertainty.

Advanced game theory (as practiced by Bruce Bueno de Mesquita) likely offers the best option for advances along this trajectory; however, advanced game theory is incredibly dry. It is dry in part because the scientific systematization of choices leaves very little room for the studying of human intuition – that indefinable hard to pin down mental mechanism that endows human beings with a real or imagined notion of what lies in the future.

Ever meet anybody who says they knew 9/11 was going to happen? If you’ve met me, then you have, but there are many many other seemingly sane individuals who feel similarly. I for one had, from about 1988 onward, an overwhelming foreboding that a major attack was going to occur in NYC around the turn of the century. Anybody who knows me well will confirm this. Now, I neither have the time nor desire to rehash all the very solid informational and factual reasons that drove this intuition, or all the ins and outs of where my intuition was right or wrong; the key take away for our purposes now is that prior to 9/11 I identified the intuition, spent time researching and thinking about why that intuition existed in my mind, and in doing so the intuition improved, clarified, and strengthened… Until 9/11 occurred.

The following months were strange and interesting, for everyone of course, but for me what was most interesting was gauging people’s reactions towards my previous intuitions and predictions, which I felt I had been fairly vocal about. Very quickly, however, I realized I hadn’t documented all the various intuitions and research trajectories well enough, or how each new piece of vital information altered my intuition. I vowed I would never again be in such a strange position – trying to convince people of what I knew I had said while trying to reassure myself that I had indeed said it…

Fast-forward to 2009, and TSIBR is becoming an ever growing database containing intuition, facts, and remixed intuitions (mine and others) regarding perhaps one of the most momentous junctures in known human history – the decline of a global Hegemon replete with nuclear weapons. From a scientific perspective, I hope to one day systematize and ‘code’ the many predictions in TSIBR, and then run testing on them, searching for answers to questions concerning whether, and when, humans should trust intuition regarding approaching macro-level political economic events and crises; for example, what is the dynamic interplay between fear, fact, and prediction leading up to crisis, and then how does said dynamic change during crisis? At the strictly scientific level, these are the kind of questions TSIBR will be posing and tackling in the future.

Beyond that, I am of the opinion that reading an edited version of The System is Blinking Red in the future, once systemic reconstruction is well underway, will prove exceedingly interesting and entertaining – it is, after all, a real-time journal covering many of the seemingly limitless possibilities for alternative historical outcomes as America navigates hegemonic decline - or as TSIBR considers America’s hegemonic decline – a transition to something beyond hegemony. So, good readers, as you peruse TSIBR, know that any comments you make may very well end up in the final book: The System Was Blinking Red.

Which finally brings us to the reason for TSIBR’s first 1^st person post, the likely death of Baitullah Mehsud. If Mehsud is actually dead (again from recent reports this seems highly likely), I am fully willing to admit that my predictions for Mehsud (to become the new bin Laden) have turned out incorrect. I had thought that the Taliban/Qaeda leadership had become extremely adept at avoiding drone attacks; the lack of high profile deaths prior to 2009 suggested this, and Mehsud’s seeming fearlessness supported such a notion. Hence, either the drone attacks are becoming more effective (the recent death of Saeed bin Laden by drone attack suggests that this is the case), or Mehsud was less supported by the al Qaeda Taliban Alliance than TSIBR had originally thought, or both. Probably both, but let’s concentrate on the latter for the moment.

TSIBR has been arguing that the key factor driving whether the Pakistani Taliban poses a real threat to America revolves around the power of al Qaeda over the Taliban alliance; al Qaeda manufactures and maintains the Talibani international focus, without Qaeda support, the Pakistani Taliban would likely devolve back into a fractured regional power with a solely regional focus. Given the pervasive lack of information regarding the Pakistani Taliban, and the wildly complex and confused chain of command, it is very difficult to know how much power al Qaeda has over Taliban leadership, or the Taliban more generally.

The fact that Mehsud was recently giving interviews to Frontline and al Jazeera where he threatened future terror attacks on western soil suggested to me that al Qaeda had greenlighted those interviews, mostly because intelligence agencies throughout the globe were quite sure that Mehsud had originally risen to power owing to his Qaeda sympathies, and that al Qaeda and Mehsud remained close. The death of Mehsud and the immediate power struggle and battle for leadership over the Pakistani Taliban suggests that Mehsud and al Qaeda may have had a falling out; in other words it is possible that al Qaeda wanted Mehsud dead and they tipped off intelligence authorities regarding his whereabouts.

Alternatively, Obama may have simply got him. That’s certainly a more enjoyable story. We may not know which for sure forever, but we can intuit whether al Qaeda wanted Mehsud dead via the now ongoing battle for leadership over the Pakistani Taliban. All remains confusion as the following article demonstrates:

http://www.nytimes.com/2009/08/11/world/asia/11pstan.html?_r=1&hp

What might we be able to surmise from this battle for leadership? If the Pakistani Taliban have a protracted struggle over leadership, we can safely assume that Obama got Mehsud. If true, the Taliban al Qaeda alliance have been dealt a striking blow – if Mehsud is not replaced by a leader with strong Qaeda sympathies, al Qaeda will have lost their home in South Waziristan. Further, the Pakistani Taliban may fracture back along the tribal lines that separated them originally, making their eventual castration all but guaranteed.

However, if al Qaeda wanted Mehsud dead, they probably wanted him so because his death is viewed as an opportunity to strengthen al Qaeda’s operational control of the Pakistani Taliban. Such a move would be eerily similar to al Qaeda actions in Afghanistan prior to the 9/11 attacks. In the summer months of ’01 al Qaeda consolidated power and streamlined hierarchies. Later it became clear that these moves were in preparation for an American invasion. Thus, if a new leader of the Pakistani Taliban with clear al Qaeda sympathies emerges quickly, the timeline for domestic terror has been sped up, i.e. something big is in the works already.

Recall, TSIBR readers, that there were two main reasons why I felt that Mehsud would play a key role in the War on Terror going forward: 1) al Qaeda requires new younger leadership. This fact remains; there was never any real reason the new leader had to be Mehsud, it just, for all of the reasons discussed above, seemed likely it would be (at least to me). 2) al Qaeda wishes to draw the US into a long and bloody war within Pakistan, thereby bleeding the US financially dry while at the same time collapsing the Pakistani state and/or fomenting war between Pakistan and India. In short, al Qaeda is looking to sew the seeds of chaos that lead America to its financial ruin, and Pakistan, for various reasons covered in depth daily on TSIBR, makes for an excellent ‘sewing seeds of chaos’ nation, especially if al Qaeda can manage to launch a terror attack on America that can then be traced back to Pakistan.

Mehsud’s death does nothing to change al Qaeda’s needs and goals above. Although, it of course does change the potential for Mehsud to play a role in al Qaeda’s future needs and goals; on that point TSIBR has been misguided, and I do apologize. Hopefully forgiveness will come forthwith, as the focus on this terribly interesting individual was as much about entertainment as it was about social forecasting. In being so, it is my sincerest wish that TSIBR’s recent Mehsud focus will not confuse or obviate the systemic analyses and forecasts being regularly generated at TSIBR. For social forecasting is less about the specifics, and more about the systemic framework from which the specifics well up; social forecasting is less about being right, and more about figuring out why one has been wrong. So continue to come along with me as TSIBR analyzes all the many rights and wrongs sure to come, as we mutually navigate the demise and reconstruction of our global political-economic system.

Joshua Kane

The March to March 2010:

2009-07-28T15:07:00.001-07:00

As July comes to a close, TSIBR is reflecting on time’s tendency to fly by. My my, my my. Indeed, over the past week or so there has been much movement on the stories TSIBR tracks – coverage on Twitter has been solid and regular, so I hope you’re following. But I digress… Today’s post is composed of the past week’s most crucial articles as determined by TSIBR. First up, we have Pakistan requesting that the US slow its operations in Afghanistan, as fleeing Talibani are opening up various new fronts in the Pakistani insurgency:

http://www.heraldtribune.com/article/20090722/ZNYT03/907223015?Title=Pakistan-Objects-to-U-S-Expansion-in-Afghan-War

Meanwhile, the Mehsud offensive has stalled:

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/26/AR2009072602466.html

From these articles TSIBR can surmise at least two key facts regarding the stalled Mehsud offensive; 1) The Pakistani army hasn’t even mounted a serious operation in South Waziristan yet, and they are already stretched far too thin. 2) There is no way to rout the Taliban in Pakistan until the US has the ability to operate freely on either side of the border. In other words, the US will have to fight in sovereign Pakistan before the War on Terror can come to a close. As of now, TSIBR sees no trajectory by which said can occur without either the Pakistani state collapsing of its own internal contradictions, or a major terrorist event occurring on American shores (and tracked back to Pakistan). It’s not a matter of if; the system necessitates American involvement in Pakistan, period. For example, the stretched too thin and under-prepared Pakistani Army is already having trouble maintaining security in Swat:

http://online.wsj.com/article/SB124860097152481663.html

And even if the Pakistani Army was capable of routing the Taliban, its impossible to tell where allegiances truly lie within the Pakistani state. The reason these fundamentalist terror groups exist in Pakistan at all is because the Pakistani state promoted them as a challenge to Indian rule in Kashmir. How opposed to these anti-India groups can Pakistan really be with the US signing treaty after treaty with Pakistan’s archenemy, India (the most recent for nuclear subs)?

http://www.nytimes.com/2009/07/27/world/asia/27pstan.html?_r=2

http://www.csmonitor.com/2009/0728/p06s01-duts.html

Meanwhile, China continues its steady exit from dollar markets. The process is simple, and in the second article below, said process is reduced to three steps, three steps which the author urges Middle Eastern client states to take as well: “First, they should buy real assets as the Chinese have done and build up strategic industries. Second, they should engage in cautious currency diversification with gold being the ultimate dollar hedge. Third, they should engage in a reform of the international financial system and seek more influence in a reformed IMF against provision of capital injections.” B-dee, b-dee, b-dee, b-dee, that’s all for the dollar folks:

http://www.ft.com/cms/s/0/b576ec86-761e-11de-9e59-00144feabdc0.html?nclick_check=1

http://www.ft.com/cms/s/0/bf3e8d46-76cd-11de-b23c-00144feabdc0.html

And what, pray tell, can save America as the dollar collapses under the weight of American debt? Well, according to the following article, deep deep deep cuts in state spending, like those now occurring in Ireland, await us all:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5857074/Fiscal-ruin-of-the-Western-world-beckons.html

Then again, there may be another way out (FORMATTING ISSUES BELOW NOW FIXED):

http://thesystemisblinkingred.blogspot.com/2008/10/forgiving-american-debt.html

Bet you Obama, in his darker moments, is looking for a way out this mess of a Presidency as well. And that’s not to say Obama is doing a poor job, it is to say that doing a good job in this systemic environment is impossible. So, how long ‘til Obama realizes that the best way to save his Presidency will be a successful taming of the Iranian monster? Not long probably, and regardless, Israel is going to force his hand. Below are three articles showing Israeli leadership hardening on almost all key negotiating issues, particularly those involving Jerusalem. Clearly, the Israeli right is committed to attacking Iran, and all of Israel seems increasingly curious as to what negotiations with the Palestinians would look like once Hamas’ and Hezbollah’s main backer has been castrated:

http://apnews.myway.com/article/20090719/D99HI8T00.html

http://www.bloomberg.com/apps/news?pid=20601087&sid=aSiB6pijo7_I

http://www.foxnews.com/story/0,2933,534898,00.html

When then, you ask, will the Iranian conflagration begin? March 2010, or some day around then, TSIBR imagines…

Joshua Kane

Et Tu Japan, Et Tu?

2009-07-14T10:08:00.001-07:00

While Joshua Kane continues to research and uncover intriguing facts regarding Mehsud (the man, the place, the current, and the past), it again seems prudent to review some must-read articles. First up we have the leader of the leading opposition party in Japan suggesting for the first time that maybe Japan, like the rest of Asia, should start diversifying away from dollars. In other words, the man that is likely to soon lead Japan is contemplating a change in Japan’s long-term strategy of strictly following American policy dictates regarding the dollar. Is Japan jumping ship? Et tu Japan, et tu?

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ.CUWH3_7o8

Surely driving Japan’s hedging of bets is China’s increasingly rapid and successful diversification away from dollars. In fact, TSIBR is starting to find people’s continued belief that China cannot diversify away from dollars without hurting itself, straight-up comical. Article after article highlighted at TSIBR have shown that China already is successfully diversifying away from the dollar without hurting itself. Here is the latest:

http://www.bloomberg.com/apps/news?pid=20601109&sid=aqA9QhRSNeqM

The last dollar market China will exit will be the US Treasury market (perhaps in a decade or so), and by that time China will have more to gain than lose by leaving the US Treasury market as most of its ever-growing international trade will be denominated in Yuan, as will all further Chinese loans to America (if China has its way). If a dollar collapse hasn’t occurred by that point, it will occur once the globe realizes that China has managed to create an environment where it can exit the US Treasury market relatively safely. We’re talking a decade at most, perhaps sooner…

Moving onto other economic issues – no aspect of financial reform is more important than how we treat institutions that are deemed ‘too big to fail.’ Of course, the TSIBR view is that regulatory and capital requirements should be instituted so that no institution becomes too big to fail (market reforms aimed at decentralization are almost always a good thing for the market, although never a good thing for the already centralized market-makers). The following is an excellent article reviewing congressional arguments regarding ‘too big to fail’ and who lines up on what side:

http://www.marketwatch.com/story/democrats-and-gop-to-battle-over-too-big-to-fail

On a related note, in case you haven’t already figured it out, we’re just going to come out and say it: TSIBR despises Tiny Tim Geithner. Now asshole Geithner is ignoring congressional requests that he follow the very ‘not hard to follow’ reporting and auditing rules attached to TARP. This guy, whether he knows it or not, is way more attracted to the flash of Wall Street than to the realities of public service; he needs to be replaced:

http://www.huffingtonpost.com/2009/07/13/house-dems-take-on-geithn_n_230833.html

Indeed, after reading the following article, which paints an in-depth picture of the shadowy ‘central bank to central bankers’ – The Bank of International Settlements (BIS), you’ll probably feel every central banker needs to be replaced; bankers (and I mean the real ‘old money’ bankers) are a despicable bunch.

http://www.spiegel.de/international/business/0,1518,635051,00.html

Of course, the old money bankers will come out of all this basically unscathed (perhaps emboldened), while real people suffer in an economy that is far worse off than any of our leaders are willing to admit, especially regarding employment, as the next article discusses. Also peep the following article if you’d like some real talk regarding Obama’s stimulus – where are the millions of jobs?

http://online.wsj.com/article/SB124753066246235811.html

And to make matters (figuratively and perhaps literally) worse, here is Obama’s right hand man, Summers, declaring the worst is yet to come:

http://www.ft.com/cms/s/2/6ac06592-6ce0-11de-af56-00144feabdc0.html

Summation sign under all the above =

TSIBR’s market-strategy morphs toward outright risk-aversion.

Joshua Kane

Kane on the Dawn of the Mehsud Offensive (Video)

2009-07-12T10:50:00.000-07:00

The above video was shot on July 3rd by a friend (Mark Hendel) as an initial foray into adding 'off the cuff' video feeds to TSIBR. The vid is 5 mins of Josh Kane spouting on the Mehsud offensive, and although the vid starts out a bit rough, Kane soon hits a stride; regardless the vid should give readers a glimpse into Josh Kane and his 'off the cuff' opinions on the Pakistani Mehsud Offensive.

Quote of the Week:

2009-07-10T14:22:00.000-07:00

"Despite the drama of the stock-market crash that accompanied it, the downturn in 1929 was first perceived as just another recessionary trough in the waves of economic activity that periodically move across the ocean of prosperity. It was only in early 1931 - when the recession extended beyond the accustomed period, and the downward slide of economic activity, which had seemed to end late in the previous year, resumed - that businesses began to perceive this downturn as qualitatively different from others. Firms started canceling long-term investment projects that until then had only been slowed or postponed. Deep wage cuts were extended. The effect was to push the economy off the cliff" (Piore and Sabel, 1984, The Second Industrial Divide).

Second Half Warm Up:

2009-07-06T13:15:00.001-07:00

The second half of 2009 has begun, and it should prove interesting, to say the least. Although Joshua Kane is presently spending most of his TSIBR allotted time researching Mehsud, it seems prudent to tie up some loose ends on some other key stories TSIBR has been following. First up we have important articles regarding financial reconstruction. Longtime readers of TSIBR will recall that TSIBR does not support Ron Paul’s usual calls for an abolishment of the Fed (in short, such a demand is inconsistent with 300 years of capitalist history and economics). However, TSIBR is happy to hear that Ron Paul has reintroduced a bill calling for a greater degree of transparency for the Fed, culminating in a public audit. This REALISTIC bill is starting to gain traction in congress. The bill is discussed here:

http://www.foxnews.com/politics/2009/06/24/mr-popular-rep-paul-wins-supporters-fed-sunshine/

On the more negative side of the financial reconstruction ledger, here is a Bloomberg article detailing why Volcker got less than he wanted vis-à-vis Geithner and Summers. Clearly the globe would be better off if Volcker, who has few if any ties to Wall Street, had gotten his regulatory way. No reinstatement of Glass-Steagall is a big mistake, plain and simple:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a_S7ikIYpN8g

Frank Rich, in his inimitably critical manner, says the same and more regarding Obama’s financial reforms:

http://www.nytimes.com/2009/06/21/opinion/21rich.html

Here is an article from June that TSIBR should have highlighted originally – it quotes a senior Chinese economics researcher who is loudly arguing that China should diversify further away from the dollar and into gold in front of IMF SDRs becoming the new global reserve currency. Certainly Chinese leadership is aware of, and most likely supporting, the greater visibility of this researcher and his views:

http://www.iii.co.uk/news/?type=afxnews&articleid=7389276&subject=economic&action=article

Meanwhile, western oil companies are now dividing up the Iraqi Rumalia oil field, the same oil field that Saddam nationalized in the late 1970s, an event that marked the beginning of US machinations against Iraq:

http://www.marketwatch.com/story/western-oil-majors-wrangle-over-iraqi-oil-bids

And on the Israeli-Iranian front, Biden, along with Saudi Arabia, have basically given Israel a green light to move on Iran:

http://news.yahoo.com/s/ap/20090705/ap_on_go_pr_wh/us_us_iran_israel_6

http://www.timesonline.co.uk/tol/news/world/middle_east/article6638568.ece

So as we move into the second half of ’09 the world is increasingly questioning the future of the dollar, Pakistan is about to find out that announcing an offensive against one man was a terribly bad idea, Israel is preparing to attack Iran (TSIBR believes an attack will be launched earlyish next year), and America is waiting… for recovery, for revenue, for reprieve, for respect, for renewal. It will get little of any of these things. Systemic stability will have to erode further before America can shift the ‘Great Game’ (for Hegemony) onto a footing that America typically excels at. What sort of footing is that? Ask those who understand the history of the Iraqi Rumalia oil field. Better yet, learn the history for yourself:

http://search.barnesandnoble.com/The-Fire-This-Time/Ramsey-Clark/e/9780965691680/?itm=1

Joshua Kane

The Mehsud Mystery (forthcoming):

2009-07-01T08:11:00.000-07:00

TSIBR has commissioned Joshua Kane to work up a longer post regarding the centrality of Mehsud to global systemic collapse. The post will review the man himself, his history with the Taliban and al Qaeda, and why Mehsud presently is so important. TSIBR has encountered some resistance out there to seeing Mehsud as central, so the forthcoming post will explain and put TSIBR's growing Mehsud focus into perspective. Given the complexity of the topic, the post will be somewhat lengthy, and thus will take some time to put together. Hopefully the 'Centrality of Mehsud' (series of) posts will be up prior to July 4th, if not, shortly thereafter for certain. TSIBR Twitter updates will continue as usual.

Joshua Kane

Letting The Blind Drive Again:

2009-06-23T10:37:00.000-07:00

Our collective economic bus crash occurred because our drivers were willfully blind. Well, what happens when you let the blind drivers design and drive the new bus? Thanks to Obama’s fig leaf of a white paper regarding financial reconstruction, we’re all about to find out. The following post will lay out some of the main problems TSIBR sees in Obama’s proposals for financial regulatory overhaul, the associated articles delve into the issue in far more detail; also note that the following articles were chosen for their keen insight, brevity, and enjoyable style, so check ‘em out. And away we go…

To begin with, the Wall Street lackeys that are advising Obama have convinced him that the ‘size of banks’ was not the problem per say. Thus the solution is not to make sure that no bank gets so big that it can threaten the entire system, the solution is to create a regulatory structure for the biggest banks assuring that they will never fail! This is pure insanity. Now every bank will want to get so big that the government will never let it fail no matter how poorly the bank manages risk as it grows. Wouldn’t it have made more sense to take the time to write regulatory code that assured that no bank got so big that it could bring down the entire financial system? Not to the ‘wizards’ of Wall Street, who are obviously successfully lobbying to keep their wizardry labs, where profit mysteriously appears, up and running. For more on this and other large (flowery) problems with Obama’s proposals see:

http://www.marketwatch.com/story/obama-plan-doesnt-solve-all-the-problems?pagenumber=1

AND

http://www.marketwatch.com/story/public-enemies-run-not-rob-our-banks

The problems continue. Recall that TSIBR a couple of weeks ago mentioned that the Fed should come out of this crisis more democratized (if the people stayed on the ball). Well Obama’s proposal does lend the Treasury and a ‘Council of Regulators’ some more governmental oversight, but it also makes the Fed far more powerful, capable of making and breaking global financial institutions basically at will. TSIBR appreciates more representative oversight of the Fed (although having the Treasury monitor the Fed places power twice removed from the electorate), but like many contemplating the financial future, TSIBR questions whether it is smart to let the same people run the more powerful Fed that were asleep at the switch at the original Fed (i.e. Geithner and his ilk). For more on this sort of thing see:

http://www.marketwatch.com/story/obamas-proposal-seeks-major-changes-to-fed

Perhaps the largest gaping hole in Obama’s regulatory white paper is no mention of the ratings agencies. These companies basically get paid by the companies they rate to rate them. Is it any wonder that credit ratings proved useless during the collapse? They’re still basically useless:

http://www.reuters.com/article/ousivMolt/idUSTRE55G5SJ20090617

But these rating agencies are amazingly powerful lobbyists. And when it comes right down to it, that’s the problem. The problem here is not Obama, it’s the entire American system, which has developed a strong institutional inertia that allows for, even promotes, the raping of America by the rich. And the rich simply don’t want to take their dick out of America yet. Well, somebody is going to have to get tough and remove that cock. A good sign that Obama is finally getting tough will be if he introduces legislation to reinstate Glass-Steagall. Recall that the repeal of the 1930s era Glass-Steagall bill (in 1999) allowed for the development of the behemoth financial institutions that destroyed the 21^st century economy by allowing commercial and investment banks to merge. Reinstating the prohibition on merged commercial and investment banking would be a severe blow to Wall Street, and guess what, Obama’s plan doesn’t even mention it:

http://www.telegraph.co.uk/finance/comment/liamhalligan/5587809/Its-time-to-end-the-grotesque-fiscal-bail-outs-and-grapple-with-reality.html

If Obama does begin to mention reinstating Glass-Steagall in a serious fashion, it will be a sign that he is losing patience with the gentle method of prodding for change on Wall Street. And if Obama never does mention Glass-Steagall again? Well then I wouldn’t sit in the front of the bus that they’re constructing, if you know what I’m sayin’. Especially with the deflationists sounding more persuasive than ever:

http://www.huffingtonpost.com/ellen-brown/the-retreat-of-the-shadow_b_216564.html

Joshua Kane

The Era of Currency Confusion:

2009-06-16T13:33:00.000-07:00

Welcome to the Era of Currency Confusion! Or should I say – Ni Hao! As Geithner assures us that now is not yet the time to discuss stimulus plan exit strategies:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aq3lMVEOm878

Russia, China, India and Brazil have begun planning exit strategies of their own; but not regarding how to remove stimulus, these nations are discussing how to exit the dollar based financial system without torpedoing their own prospects for future growth. Their plans are certainly becoming more developed (as elucidated at the annual BRIC meeting which closed today). The following post and series of articles lays out those plans in some detail:

http://www.reuters.com/article/bondsNews/idUSLG67435120090616

To begin with, the IMF issued SDRs we’ve discussed previously are still being bandied about as a new reserve currency possibility. Here is TSIBR’s original discussion of SDRs:

http://thesystemisblinkingred.blogspot.com/2009/03/shell-of-itself-or-to-shell-everything.html

In order to make SDRs more representative and stable, the BRIC nations have now proposed adding Yuan, Rubles, and gold to the SDR mix. Recall that the dollar composes only 35% or so of the IMF SDR as is, so adding other currencies and gold would reduce the dollar proportion of SDRs even further. So let’s say the trade value of the dollar comes to represent 25% of an SDR, slowly but surely, as the globe transitions to an SDR based global financial system, the dollar will have to decline in value by approximately 75%. Imagine the bite out of Americans’ standards of living that sort of devaluation (i.e. dollar based inflation) will foment.

Believe it or not, the news for America gets worse. Recall last week TSIBR discussed what it would mean for the US if nations started asking the US to borrow, not in its own currency, but in the currency of the nation providing the credit. This would make it far more difficult for the US to fund its massive and massively growing debt, thereby pushing the US further towards bankruptcy and outright economic collapse:

http://thesystemisblinkingred.blogspot.com/2009/06/yuan-bonds.html

Well, a major step towards nations being able to dictate such a scenario to the US without getting hurt by it, would be for developing nations to create debt markets of their own that become as liquid and secure as US debt markets once were. Unfortunately for the US, BRIC nations are already taking large and rapid steps towards that eventuality, with plans to buy IMF debt securities along with each other’s debt securities:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5gjcu.tU2Kg

http://www.bloomberg.com/apps/news?pid=20601080&sid=a3VqQW.OiRqY

Now, the US has yet to take a defined stance on these developments, but rest assured, American leadership will likely fight to the, shall we say death, to prevent the kind of drop in standards of living the US will experience if BRIC nations (and their ilk) dictate to the US what the contours of the new global financial system will be (like they seem to be doing presently). In other words, an Era of Currency Confusion is upon us. History suggests a few truisms regarding such eras:

1) They persist for at least a decade as nations struggle to align and coordinate economic interests – a highly difficult and complex task.

2) As nations come to realize the difficulties in aligning economic interests globally, talks regarding economic change quickly morph into scuffles over pecking order. On key issues the question becomes: Which nations will be able to push through a currency regime that best benefits themselves?

3) In the end, violence determines pecking order regarding the stickiest issues, thereby aligning economic interests globally.

4) Throughout this multi-year process, gold rises in value as currency and global political uncertainty drives more and more investors towards the relative safety of gold.

5) Having once again resumed its role as a secure store of value, gold is then integrated into the new global currency regime as a fundamental indicator of real value vis-à-vis alternative national and global reserve currencies.

Obviously then, TSIBR is of the mind that trading gold and gold stocks over the next decade should prove fruitful for those schooled in ‘buy and monitor’ trading strategies; its certainly proved fruitful thus far this year. But as with any risk/reward scenario conditioned by uncertainty, beware. In this case, always be looking for signs that a new round of deflation is developing, and reduce gold positions accordingly. On that note, here is some sobering analysis regarding renewed deflation:

http://www.reuters.com/article/InvestmentOutlook09/idUSTRE55E6BM20090615

Round and round the economy goes, deflation or inflation, no one seem to know…

Joshua Kane

Yuan Bonds!

2009-06-09T11:32:00.001-07:00

The big economic news lately, which TSIBR has been tweeting about daily, is the bump up in interest rates that is occurring even though the Fed is injecting currency into the bond market. Understanding this process is indispensable to understanding how the economy will change going forward, so if you’ve been a bit confused by all the ‘bond conundrum’ talk, do yourself a favor and read this brief primer:

http://apnews.myway.com/article/20090606/D98L67500.html

Now that we all have a basic understanding of how too much debt leads to currency problems, let’s take a look at America’s massive currency problem (which is, as of yet, still developing rather slowly, albeit quicker than previously). To begin with, late last week Russia’s president unequivocally declared that the days of the dollar as global reserve currency have ended, and that Russia will soon be conducting most of its non-American bilateral trade in the relevant national currencies rather than American dollars:

http://www.bloomberg.com/apps/news?pid=20601087&sid=anvHhN4CqQOE

Meanwhile, China’s central bank wants the US to start issuing debt in ‘Yuan bonds’ rather than $ based bonds (at least in Asia):

http://www.reuters.com/article/newsOne/idUSTRE5561QK20090607

Although the article does not mention it, such talk is a serious threat to the US dollar and America’s ability to fund its future needs. Every nation around the globe, except the US, issues foreign debt in the currency of the bank or citizen buying the debt. The US has not had to do so, over the past 6 decades or so, because the whole world has wanted dollars. Not so anymore. When a nation issues debt in another currency, as most do, that nation has to convert its own currency into the foreign currency in order to service the debt. The US on the other hand has had a free hand to service its debt with dollars, and since the US has not been on a gold standard, it pretty much has had unlimited ability to print up its own currency, meaning that the US could not feasibly default on its dollar denominated debt – it would just print up dollars to service the debt (any inflationary effect would show up only later).

Now, if nations around the globe decide not to buy US debt denominated in dollars, then the US will be forced to issue debt in foreign currencies (as China is asking), meaning that the US will have to convert dollars into foreign currency in order to service its massive debt. This would drastically reduce the demand for dollars, meaning the US would have to convert ever greater amounts of its own currency (as the dollar declined in value) to service the same level of foreign debts. This is how nations go bankrupt, with the bankrupt nation experiencing a collapsed currency.

In short, the US would be far more vulnerable to outright economic collapse if it began to issue ‘Yuan bonds’ in Asia. On the other hand, China would be far less beholden to the US (and its $) if its credits to the US were denominated and serviced in Yuan. So there you have it folks, an impossible and complex economic impasse coming to the fore as a result of the Crash; a Crash that was, in part, a symptom of the very sorts of international imbalances we have been discussing at TSIBR for years. Fixing these international imbalances will be neither simple nor peaceful. Is it any surprise that more and more influential analysts are talking about dumping dollars while looking to gold?

http://www.bloomberg.com/apps/news?pid=20601087&sid=ajzmRUMx8Hoo

http://www.marketwatch.com/story/gold-gets-ahead-at-the-expense-of-the-us-dollar

Even the IMF is on board with a new global reserve currency:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aUYeJEwZaQrw

Key TSIBR extracted quote: ‘The largest debtor is unlikely to dominate any new currency arrangement.’ What the article fails to say is that the largest debtor is certain to dislike that fact. Thus the largest debtor will drag its feet as inflation and violence rise until some sort of massive catastrophe forces the world to seriously tackle all the many thorny issues involved in developing a novel global institutional structure suitable for the informational age. Perhaps no institutional issue during reconstruction will be as important as the future role of the Fed. Folks listen, as Americans the ‘Great Recession’ has handed us a golden opportunity to reform the Fed and make it more democratic. TSIBR has no greater wish than to see such a positive outcome:

http://www.bloomberg.com/apps/news?pid=20601103&sid=aXLmKxJCk3fY&refer=news

TSIBR also wonders whether peeps will still be calling this the ‘Great Recession’ after continuing rising unemployment torpedoes the banks’ stress tests thereby sending us down the second slope of our W shaped DEPRESSION:

http://www.voanews.com/english/2009-06-07-voa22.cfm

Finally, we get to the political front today, where Israeli settlers are making a mockery out of Obama’s ‘new’ approach to the Israeli-Palestinian conflict:

http://www.jpost.com/servlet/Satellite?cid=1244035005732&pagename=JPost%2FJPArticle%2FShowFull

While al Qaeda attempts to abduct an Israeli soldier, hoping that such action will initiate hot war in Palestine, as it did in 2006:

http://www.nytimes.com/2009/06/09/world/middleeast/09mideast.html?_r=2&hp

Over in Pakistan, question marks abound regarding whether the Army will push into South Waziristan, where Mehsud and the Taliban-Qaeda alliance make their home… TSIBR doubts it:

http://www.foxnews.com/story/0,2933,525552,00.html

And we’ll close today’s post with a quick mention of North Korea. The pattern for North Korea has been one of misbehavior followed by requests for money to stop said misbehavior:

http://www.mercurynews.com/ci_12542125?source=rss

That’s likely what is going on now, however, one main issue complicates that forecast: Obama, partially in response for the jailing of two American journalists, has asserted that the US and South Korea will be interdicting any North Korean ships suspected of carrying weapons or weapons material. Such a prospect raises the chances of hot war breaking out and/or Kim doing something crazy, but TSIBR s not holding its breath for either of those potentially terrible outcomes. All eyes are on Mehsud.

Joshua Kane