Geopolitical Risk Theater: Russian Jets Buzzed Over a US Destroyer!

Will a global arms race, inspired by a cauldron of ideology based on economic military keynesianism and the rise of nationalism, financed by inflationism, lead to a detente or a world at war? 

Perhaps a clue to the answer may be seen from the other day's close encounter between US and Russian forces at the Baltic Sea.

Apparently, Russians wanted to test the defenses of the US navy. So Russians jets buzzed over a US destroyer, not once but several times in a "simulated attack" formation.

From the Business Insider/Reuters

Two Russian warplanes with no visible weaponry flew simulated attack passes near a U.S. guided missile destroyer in the Baltic Sea on Tuesday, a U.S. official said, describing it as one of the most aggressive interactions in recent memory.

The repeated flights by the Sukhoi SU-24 warplanes, which also flew near the ship a day earlier, were so close they created wake in the water, with 11 passes, the official said.

A Russian KA-27 Helix helicopter also made seven passes around the USS Donald Cook, taking pictures. The nearest Russian territory was about 70 nautical miles away in its enclave of Kaliningrad, which sits between Lithuania and Poland. "They tried to raise them (the Russian aircraft) on the radio but they did not answer," the official said, speaking on condition of anonymity, adding the U.S. ship was in international waters.

The incident came as NATO plans its biggest build-up in eastern Europe since the Cold War to counter what the alliance, and in particular the Baltic states and Poland, consider to be a more aggressive Russia.

The three Baltic states, which joined both NATO and the European Union in 2004, have asked NATO for a permanent presence of battalion-sized deployments of allied troops in each of their territories. A NATO battalion typically consists of 300 to 800 troops.

Moscow denies any intention to attack the Baltic states.

Videos of the incident seen from the links here and here.

Charts of the Day: Global Military Spending Soars!

Brinkmanship geopolitics has prompted a surge in global military spending

The Bloomberg reports:

Global military spending has begun rising in real terms for the first time since the U.S. began its withdrawal of troops from wars in Iraq and Afghanistan, according to the Stockholm International Peace Research Institute.

Defense budgets rose 1 percent to $1.68 trillion in 2015, making up about 2.3 percent of the world’s gross domestic product, Sipri said in a report Tuesday. While the U.S. spent the most at $596 billion, that was down 2.4 percent compared with 2014, while China’s outlay increased 7.4 percent to $215 billion.

Concern about a possible advance by Russia into North Atlantic Treaty Organization territory following the Crimea invasion and hostilities in east Ukraine led to a surge in spending in Eastern Europe, as Chinese ambitions in the South China Sea spurred arms purchases among Southeast Asian states.

Defense budgets have been under pressure since the financial crash, with some of the world’s biggest spenders, including the U.K., France and Germany, scaling back amid austerity programs. Following the November terror attacks in Paris and the expansion of campaigns against Islamic State, those countries plan “small increases” in 2016, Sam Perlo-Freeman, the report’s author, said.

Russia, where slumping oil receipts have weighed on the economy, fell to fourth position in the global rankings, with Saudi Arabia taking third spot. The Mideast country, also hurt by the lower price of crude, would have cut spending too had it not been for the $5.3 billion cost of its military campaign in Yemen.

Russia’s defense budget is set for a slight fall in nominal terms and an 8 percent real decline, Perlo-Freeman said, while Saudi Arabia plans a “large cut,” though with a significant budgetary reserve.

From the economic perspective: how will these spending surges be funded, given that the world economy has been materially slowing down? Will these translate to even more taxes? Or bigger government deficits financed by expansionary debt? Or financed by even more inflationism (ZIRP, NIRP and QEs)? Will the next QE be focused on subsidizing the defense industry? Who will bear the burden or economic-financial-social costs from the du jour military keynesianism? Will it not be the currency holding and tax paying citizenry? And who benefits from the transfer of resources from the currency holders and the tax paying public? Are they not the military industrial complex and the warfare state? Or is war really a racket?

From the geopolitical perspective: will such arms race serve as an effective detente? Or will such fan the flames of belligerency that increases the risk of a full scale world at war?

Quote of the Day: The Saudi Arabian Government is the Ultimate Inspiration and Financial Benefactor of the Islamic State

A lengthy excerpt from analyst David Stockman from his latest article on the Middle East crisis:

The truth is, the long era of the so-called oil crisis never happened. It was only a convenient Washington invention that was used to justify statist regulation and subsidization of energy domestically and interventionist political and military policies abroad.

Back in the late 1970s as a member of the House Energy Committee I argued that the solution to high oil prices was the free market; and that if politicians really wanted to cushion the purely short-term economic blow of a Persian Gulf supply interruption the easy and efficient answer was not aircraft carriers, price controls and alternative energy subsidies, but the Texas and Louisiana salt domes that could be easily filled as a strategic petroleum reserve (called SPRO).

During the Reagan era we unleashed the energy pricing mechanisms from the bipartisan regime of price and allocation controls which had arisen in the 1970s and began a determined campaign to fill the SPRO. Thirty-five years later we have a full SPRO and a domestic and world economy that is chock-a-block with cheap energy because the pricing mechanism has done its job.

In fact, OPEC is dead as a doornail, and the real truth has now come out. Namely, there never was a real oil cartel. It was just the House of Saud playing rope-a-dope with Washington, and its national oil company trying to do exactly what every other global oil major does.

That is, invest and produce at rates which are calculated to maximize the present value of its underground reserves. And that includes producing upwards of 10 million barrels per day at present, even as the real price of oil has relapsed to 50 year ago levels.

What this also means is that Imperial Washington’s pro-Saudi foreign policy is a vestigial relic of the supreme economic ignorance that Henry Kissinger and his successors at the State Department and in the national security apparatus brought to the table decade after decade.

Had they understood the energy pricing mechanism and the logic of SPRO, the Fifth Fleet would never have been deployed to the Persian Gulf. There also never would have been any Washington intervention in the petty 1990 squabble between Saddam Hussein and the Emir of Kuwait over directional drilling in the Rumaila oilfield that straddled their historically artificial borders.

Nor would there have been any “crusader” boots trampling the allegedly sacred lands of Arabia or subsequent conversion of Bin-Laden’s fanatical Sunni mujahedeen, which the CIA had trained and armed in Afghanistan, to the al-Qaeda terrorists who perpetrated 9/11.

Needless to say, the massive US “shock and awe” invasion thereafter which destroyed the tenuous Sunni-Shiite-Kurd coexistence under the Baathist secularism of Saddam Hussein would not have happened, either. Nor would the neocon war mongers have ever become such a dominant force in Imperial Washington and led it to the supreme insanity of regime change in Libya, Syria, Yemen and beyond.

In short, the massive blowback and episodic eruptions of jihadist terrorism in Europe and even America that plague the world today would not have occurred save for the foolish policy of Fifth Fleet based energy policy.

Still, there is an even more deleterious consequence of the Kissinger Error. Namely, it has allowed the House of Saud, along with Bibi Netanyahu’s political machine, to egregiously mis-define the sectarian and tribal conflicts which rage in today’s middle-east.

The fact is, there is no such thing as generic Islamic terrorism. The overwhelming share of the world’s 1.3 billion or so Sunni Muslims are not remotely interested in Jihaddism.

Likewise, the 200 million adherents of the Shiite Muslim confession are not terrorists in any religious or ideological sense. There are about 60 million Shiite in India and Pakistan and their quarrel, if any, is rooted in antagonisms with Hindu-India, not the West or the US.

Similarly, the 80 million Shiite domiciled in Iran, southern Iraq, southern Lebanon and the Alawite communities of Syria have been host to sporadic terrorist tactics. But these occurred overwhelmingly in response to efforts by outside powers to occupy Shiite communities and lands.

That is certainly the case with the 20-year Israeli occupation of southern Lebanon, which gave rise to Hezbollah defense forces. It is also true of the Shiite uprisings in Baghdad and southern Iraq, which gave rise to the various militias that opposed the US occupation.

Moreover, post-1979 Iran has never invaded anyone, nor have the Shiite communities of northern Yemen, who are now being bombarded by Saudi pilots driving US supplied war planes and drones.

In short, there has never been a Shiite-based ideological or religious attack on the West. The anti-Americanism of the Iranian theocracy is simply a form of crude patriotism that arose out of Washington’s support for the brutal and larcenous regime of the Shah—–and which was reinforced during Iraq’s US aided invasion of Iran during the 1980s.

By contrast, the real jihadi terrorism in the contemporary world arose almost exclusively from the barbaric fundamentalism of the Sunni-Wahhabi branch of Islam, which is home-based in Saudi Arabia.

Yet this benighted form of medieval religious fanaticism survives only because the Saudi regime enforces it by the sword of its legal system; showers its domestic clergy with the bounty of its oil earnings; and exports hundreds of millions to jihadists in Syria, Iraq, Libya, Turkey, Iran, Egypt and numerous other hot spots in the greater middle east.

At the end of the day, the House of Saud is also the ultimate inspiration and financial benefactor of the Islamic State, as well. Had it not provided billions in weapons and aid to the Syrian rebels over the last five years, there would be no civil war in Syria today, nor would ISIS have been able to occupy the dusty, impoverished towns and villages of the Upper Euphrates Valley where it has established its blood-thirsty caliphate.

So this weekend’s execution of a Saudi Shiite cleric who never owned a gun or incited anything other than peaceful protest among the downtrodden Shiite communities of eastern Arabia is truly the final straw. It was a deliberate provocation by a reprehensible regime that has so thoroughly corrupted the War Party that it even managed to have Washington shill for its preposterous appointment to head of the UN Commission on Human Rights!

Wow. Indonesian Government Sunk 41 Illegal Fishing Ships (including 11 from the Philippines and 1 from China)

This is incredible. 

The Indonesian government just sunk 41 (allegedly illegal fishing) ships!

From Today Online: (bold mine)

Indonesia yesterday sank a large Chinese vessel as well as 40 other foreign boats that had been caught fishing illegally in the country’s waters, a move likely to spark a strong reaction from Beijing and other regional capitals.

The 300 gross tonne Chinese vessel was destroyed with a low-explosive device on its hull in West Kalimantan, said Maritime Affairs and Fisheries Minister Susi Pudjiastuti.

“This is not a show of force. This is just merely (us) enforcing our laws,” Ms Susi was quoted as saying by The Jakarta Post.

The Gui Xei Yu 12661 is the first Chinese boat to be sunk since Indonesian President Joko Widodo declared war on illegal foreign fishing boats last December.

The Indonesian Navy detained Gui Xei Yu in 2009 after it was caught fishing near the South China Sea, a hotly disputed area involving China and South-east Asian nations such as Malaysia and Vietnam.

Besides the Chinese ship, the authorities also destroyed 40 other vessels in different places across the country. They included five boats from Vietnam, two boats from Thailand and 11 from the Philippines, The Post reported.

Shortly after assuming office last October, Mr Widodo launched a campaign to protect Indonesia’s maritime resources and domestic fishing industry, which loses billions of dollars in revenues to illegal fishing each year. He has also pledged to transform Indonesia into a maritime power and, in December last year, orchestrated a much-publicised sinking of three empty Vietnamese vessels.

Dozens of foreign vessels from Malaysia, Thailand, Vietnam, Papua New Guinea and the Philippines have been sunk in recent months.

Wow.

Media will play up the China-Indonesia card as part of the escalation of territorial dispute. 

But most of the brunt of the Indonesian government measures to “protect Indonesia’s maritime resources” has been her neighbors, particularly the Philippines, Vietnam and Thailand. 

Some questions

What if ALL of ASEAN resort to or copy the Indonesian government’s paradigm of blasting ships of intruders coming from their neighbors under the justification of protecting maritime resources? 

What if the sinking of alleged illegal fishing ships expands more than just to protect maritime resources but uses such rational nevertheless? 

What if there will be mistaken identity/ies from such actions?

So what stops ASEAN from degenerating into a battlefield or a hotbed for military skirmishes? A battlefield not necessarily with the Chinese government as participant.

And what if the Chinese government will be provoked to conduct the same exercise? 

Will South China Sea serve as the cassus belli for a regional war or even World War III?

Whatever happens to ASEAN economic integration if territorial provocations becomes a key issue? 

Or has the Indonesian government been diverting the public’s attention from her economic woes?

Geopolitical Risk Theater Links: Russia Threatens Denmark with Nukes, Putin Signs Pact with Georgia Breakaway Group, US-China Square off over Missiles at South Korea

Underneath those record setting stocks and frantic central bank rescues have been risks developing in the sphere of geopolitics

Below are excerpts of some news articles and opinion columns and their corresponding links.

1) Russia threatens to aim nuclear missiles at Denmark ships if it joins NATO shield (Reuters, March 22,2015)

Russia threatened to aim nuclear missiles at Danish warships if Denmark joins NATO's missile defense system, in comments Copenhagen called unacceptable and NATO said would not contribute to peace.

Denmark said in August it would contribute radar capacity on some of its warships to the missile shield, which the Western alliance says is designed to protect members from missile launches from countries like Iran.

Moscow opposes the system, arguing that it could reduce the effectiveness of its own nuclear arsenal, leading to a new Cold War-style arms race.

War drums beat louder.

2) Putin Signs Pact With Breakaway Georgian Region (Radio Free Europe, March 18, 2015)

Russian President Vladimir Putin has signed a pact with a Moscow-backed breakaway region of Georgia, despite condemnation by Tbilisi and the West.

Putin and the de facto leader of South Ossetia, Leonid Tibilov, signed the "alliance and integration treaty" in the Kremlin on March 18. 

Part of the treaty gives Russia responsibility for ensuring the defense and security of South Ossetia, including guarding its borders.

Security and mliitary forces currently tasked with defending the region are to be incorporated into Russia's armed forces or Russia security bodies.

More brinkmanship geopolitics

3) U.S. Nuclear Warfighting Plan Could Wipe Out the Human Race (Executive Intelligence Review March 13, 2015)

The reality is that the United States is not only creating the “appearance” of preparing to fight and win a nuclear war, but it actually is preparing to fight and win a nuclear war, although the idea that the United States can do that against another nuclear power is a dangerous delusion. Gen. Maj. Andrei Burbin, chief of the Central Command Post of Russia’s Strategic Missile Forces (SMF), made this clear in an unusual March 1 on-air briefing on Russia’s RSN Radio. The message he delivered was that “utopian” military schemes for “limited nuclear war” or a “counterforce” destruction of Russia’s nuclear weapons are illusory: They will fail, and the result will be retaliation against the U.S. by Russia using the missiles of the SMF. (See “Hear These Russian Warnings: They Might Save Your Life,” EIR, March 6, 2015.)…

Indeed, the delusion that the U.S. could wage and win nuclear war against Russia could lead to the end of civilization itself.

Yikes!

4) Russia Sends Nuclear-Capable Bombers to Crimea (Daily Signal March 20, 2015)

As NATO and Russia simultaneously launch military exercises stretching from Eastern Europe into the Arctic, Russian defense officials said this week that supersonic bombers capable of carrying nuclear weapons will be deployed to Crimea.

According to the Russian news agency TASS, Tupolev TU-22M3 strategic bombers will be positioned in the former Ukrainian territory as part of a snap military exercise involving Russia’s Navy’s Northern Fleet, which has been put on full alert, and other ground and air units across Russia. The Russian military drills comprise 40,000 troops, more than 41 warships, 15 submarines and 110 aircraft and helicopters, according to RIA news agency.

The TU-22M3 is capable of carrying the Kh-22 anti-ship missile, which was designed by the Soviet Union to target U.S. warships and is capable of carrying both conventional and nuclear warheads.

Russia’s military exercises began Monday and are scheduled to last until Saturday. The stated intent of the mobilization, according to Russian defense officials, is to evaluate Russia’s northern defenses and the capabilities of its Northern Fleet.

5) Russia Orders Surprise Test of Central Nuclear Base (Newsweek March 4, 2015)

The Russian armed forces’ strategic missile command (RVSN) have ordered a snap inspection of the state of the nuclear arsenal in one of the country’s central military bases near the city of Yoshkar-Ola.

The surprise test, announced today by RVSN, will assess the condition of the intercontinental ballistic and nuclear missile units, as well as test the readiness of the nuclear facilities near Yoshkar-Ola in hypothetical emergency situations.

“During the tests, specific attention will be paid to matters of the command’s preparedness to eliminate hazards in the event of an accident related to the nuclear weapons and also in the instance and it will test the emergency squad of the command,” Colonel Igor Yegorov, the RVSN spokesman, told press.

6) ‘Tanks? No thanks!’: Czechs unhappy about US military convoy crossing country (RT.com March 22)

Czech anti-war activists have launched the ‘Tanks? No thanks!’ campaign to protest the procession of US Army hardware through the Eastern European country. They say it has been turned into a “provocative victory parade” near the Russian border.

The American military vehicles, which took part in NATO drills in Poland, Lithuania and Estonia, plan to cross the territory of the Czech Republic between March 29 and April 1 on their way to a base in the German city of Vilseck.

The exercise, entitled the ‘Dragoon Ride,’ will involve over a hundred Stryker vehicles, which the US is expected to station in Europe, and will see the convoy stop in a new city every night. Last week, it was authorized by the Czech government, without any debate in the parliament, Pressenza news agency reported.

The US procession has been labeled “an unnecessary and dangerously provocative military maneuvers, which only increase international tension” on the ‘Tanks? No thanks!’ page on Facebook.

7) Is Russia building a new supersonic aircraft? (news.com.au March 21)

ACCORDING to a Kremlin propaganda media outlet, Russia plans to be able to deploy its army anywhere in the world within seven hours. It’s a future that involves a fleet of huge heavy transport aircraft that will be capable of moving around 400 Armata tanks, with ammunition anywhere in the world.

According to the Military-Industrial Commission in Moscow, a new aircraft, named the PAK TA, will be capable of flying supersonic speeds (up to 1235km/h), can carry up to 200 tonnes and have a range of at least 7,000 kilometres. Or roughly the distance between Sydney and Hong Kong.

Russia is supposedly hopeful to build 80 of the new PAK TA cargo aircraft by 2024.

Woe to the average Russians whose resources will be rechanneled for the production of unproductive and destructive goods or instruments.

 

8) Russia's Vladimir Putin brandishes the nuclear option (CBC.ca March 17)

The Kremlin has hardly been secretive about its overall strategy. Two years ago it unveiled a new military doctrine of what it called asymmetrical warfare, in effect high-tech guerrilla fighting alongside unrelenting technological and propaganda offensives against smaller, less militarily able neighbours.

That so many in eastern Ukraine see themselves as victims of Kyiv and not of Moscow is testimony to the success of the propaganda offensive.

Along with the doctrine came a vast increase in Russia's military budget.

According to the World Bank, it stood at over four per cent of Russia's gross domestic product in 2014 and was due to climb by almost 25 per cent in 2015.

When it comes to its military, Russia far outspends its European neighbours and now even spends more than the U.S., at least when measured as a percentage of its GDP.

'No more illusions'

Putin has been equally open about his regime's goals.

After annexing Crimea in 2014, he delivered a triumphant speech saying the Kremlin reserved the right to intervene to protect and defend Russians wherever they lived.

Within weeks Russian-speaking separatists in eastern Ukraine had begun a military offensive, setting up Soviet-style local regimes with Soviet names — the Donetsk People's Republic and the Lugansk People's Republic.

In the following months, according to Western intelligence, these rebels were heavily armed by Russia, which has also provided hundreds, if not thousands of troops.

The Putin doctrine simply thumbed its nose at two international agreements, the Helsinki accords of 1974 signed by Russia's predecessor state, the USSR, and the Budapest Memorandum of 1994, signed by Russia.

The first guaranteed the inviolability of all borders in Europe and the second specifically guaranteed Ukraine's borders and independence in return for handing over to Russia 1,900 Soviet-era nuclear weapons on Ukrainian soil.

Thanks in part to these Ukrainian weapons, Russia now has the largest nuclear stockpile in the world, 8,400 warheads to the 7,500 controlled by the U.S.

While Putin unleashes psychological warfare, the Russian economy will suffer.

9) U.S. Squares Off With China Over North Korea Missile Defense (Bloomberg, March 22)

The U.S. and China are squaring off over deployment of an anti-missile system in South Korea, the latest source of tension between the world’s two biggest economies as they vie for influence in Asia.

The U.S. is considering placing a Thaad ballistic missile defense system in South Korea to counter improved North Korean weapon technology. A group of lawmakers from the ruling Saenuri party has also begun lobbying for South Korea to purchase the Lockheed Martin Corp. missile system directly. China fears the U.S. could use Thaad to target its missiles and has called on South Korea to reject deployment.

“How can we fight with a knife when North Korea is brandishing a gun?” Won Yoo Chul, a lawmaker who heads the ruling party’s policy-setting committee, said in a March 20 interview. “North Korea’s nuclear and missile threat is advancing by the day and China’s response over Thaad is excessive.”

The Thaad issue has left South Korean President Park Geun Hye caught between the U.S, which maintains more than 28,000 troops in the country to defend against North Korea, and China, its biggest trading partner and ally in efforts to resolve historical and territorial disputes with Japan. Mounting evidence that the Kim Jong Un regime has developed the ability to launch nuclear-tipped missiles is adding urgency to the debate.

More encirclement strategy by the US government that will provoke a response in China.

10) Indonesia's president says China has no legal claim to South China Sea: newspaper (Reuters, March 22)

Indonesian President Joko Widodo says China's claims to the majority of the South China Sea have "no legal foundation in international law," Japan's Yomiuri newspaper reported.

The comments, in an interview published on Sunday ahead of visits to Japan and China this week, were the first time Widodo, who took office in October, has taken a position on the South China Sea dispute.

10) China Dominates the Scramble for the South China Sea (National Interest.org March 19)

Far from revisiting its assertive posturing in adjacent waters, China is seemingly determined to consolidate its position in the South China Sea at the expense of its smaller neighbors. The latest satellite imagery, released by the Center for Strategic and International Studies, indicate extensive Chinese construction activities in highly contested areas, particularly the Spratly Islands, which have been actively claimed by Vietnam, Malaysia, China, Taiwan, and the Philippines.

Though Vietnam has occupied the greatest number of contested features in the Spratlys, China is the most capable, ambitious (and geographically distant) claimant in the area. Given the magnitude of the power asymmetry between Beijing and its Southeast Asian neighbors, China has the wherewithal to unilaterally dictate the tempo and trajectory of maritime disputes in the South China Sea. Despite being a relative late-comer, China has rapidly augmented its position, artificially transforming highly strategic features such as the Fiery Cross Reef, which has been enlarged to eleven times its original size.

The reef is a formidable military garrison, with up to two hundred Chinese troops stationed there. It is expected to host its own airstrip in the near future, a crucial prelude to what could become a de facto Chinese Air Defense Identification Zone (ADIZ) in the South China Sea. This would complement China’s ADIZ in the East China Sea, paving the way for China to dominate the skies above the entire first chain of islands in the western Pacific.

Beating the drums of nationalism to divert the public’s attention from deepening economic troubles?

11) U.S. Navy Urges Southeast Asian Patrols of South China Sea (Bloomberg, March 18)

The commander of the U.S. Navy Seventh Fleet called on Southeast Asian nations to form a combined maritime force to patrol areas of the South China Sea where territorial tensions flare with China.

Countries could streamline cooperation on maritime security while respecting sovereignty and coastal space, as in the case of counter-piracy efforts in the Gulf of Aden, Vice Admiral Robert Thomas said Tuesday at the Langkawi International Maritime and Aerospace Exhibition in Malaysia.

The U.S. has reassured allies in the region it will back them against China’s assertions to about four-fifths of the sea. China has ratcheted up pressure on some Association of Southeast Asian Nations members, and has accelerated reclamation work on reefs in the waters criss-crossed by claims from Vietnam, Taiwan, Brunei, the Philippines and Malaysia.

More business for the US military industrial complex at the expense of ASEAN's economies.

12) China's Military Can Beat The US In South China Sea And Diaoyu/Senkaku Island Conflicts: Poll (International Business Times, March 13)

Public confidence in China's military is higher than ever. According to a public opinion poll, an overwhelming majority of Chinese citizens think the People’s Liberation Army is capable of facing and beating the United States if it comes to that over various disputed islands and maritime territories.

According to a study by the Perth USAsia Center, a foreign policy think tank that focuses on the Indo-Pacific region, over 87 percent of those surveyed agreed that China’s military was already equipped to “retake” the Diaoyu Islands, a cluster of resource-rich islands in the East China Sea, known as the Senkaku to the area's other claimants, the Japanese. Regarding potential military action in the South China Sea, where several Southeast Asian countries like Vietnam, the Philippines and Brunei all dispute China’s territorial and maritime claims, the Chinese public still echo a sense of confidence, with 86 percent saying the PLA is capable of taking the area.

Incredible delusions. If there should be a war, then this will mean the end human civilization as we know of.

13) Islamic State Rises in Libya (FreeBeacon, March 20)

The Islamic State terrorist group is expanding its operations in Libya with high-profile attacks following the recent beheadings of 21 Christians, according to a State Department security report.

In Libya, Islamic State (IS), also known as ISIS or ISIL, formed out of existing al Qaeda-affiliated and Islamist extremist groups in early 2015. It is said to number between 1,000 and 3,000 fighters and has been exploiting the conflict between two Libyan groups fighting for control of the oil-rich North African state, Libya Dawn and Operation Dignity.

The Islamist and pro-al Qaeda Libya Dawn and the anti-Islamist Operation Dignity, headed by Lt Gen. Khalifa Haftar, have created rival parliaments and military forces and are said to receive foreign government support.

What happened to the supposed role by the US as 'policeman' of the world? Or has the ISIS--not only been a Frankenstein (a monster created by the US government)--but has really been an ally of the US? 

The more the global economy sinks, the greater the risk of an outbreak of societal upheaval via revolutions or war. Inflationism will entrench on such prospects.

Abenomics: Weak Yen Not Equal to Strong Exports

In the view of the consensus, currency devaluation serves as a key policy to promote economic growth via implicit subsidies to the export industry through a weaker currency.

Yet Japan’s Abenomics appears to be falsifying such populist snake oil therapy.

From the Wall Street Journal Real Times Economics Blog. (bold mine)

Despite the generally held view that the weak yen can quickly boost Japanese exports by making them more price-competitive in the global markets, many Japanese companies cut their export prices gradually.

They typically employ what is known as “pricing-to-market,” where they basically set the prices of their exports to match prevailing levels in their target markets, and adjust prices so that they are in line with exchange rates at a measured pace.

“Just because the yen falls that doesn’t mean Japanese companies will rapidly slash their prices” if there is no change in internationally accepted price levels, said Takeshi Minami, chief economist at Norinchukin Research Institute. “If they aggressively cut prices, they could be accused of dumping.”

Since the ultimate goal of most companies is to make money rather than boost the amount of goods sold, other economists say that if consumers overseas are willing to buy Japanese products at current prices, firms will be most willing to oblige.

Concern that yen will rebound is another reason why Japanese firms are cautious about lowering export prices, people familiar with the BOJ’s thinking have said. While prices at the same high levels may help to maintain the status quo even if sales suffer, consumers tend to take a more negative view of sudden price increases.

Looking at the four times there was a major upward movement in the dollar against the yen between 1988 and 2007, the BOJ export-price index initially fell by just 1.8% on average.

The “ultimate goal of most companies is to make money rather than boost the amount of goods sold” is indeed why people engage in trade. It has been rare to see articles that gives a balance account of events.

From another Wall Street Journal Real Time Economics Blog (bold mine)

But Japan’s exports declined 2.4% in the July-September period from the previous quarter, according to preliminary gross domestic product data released Thursday.

Officials say, however, that while the weak yen did help exports, economic conditions and policy decisions in destination countries can trump the exchange-rate factor.

If such factors are one-off developments, that could mean there’s still room for export optimism.

Take Thailand, for example. Japanese exports there had been robust until recently due to ongoing reconstruction activities after the devastating floods in 2011 and generous government incentives for new car purchases.

But with the program having expired in December, orders dried up after a backlog of orders was met and imports started to go down.

“Once the Thai government’s car-buying incentives ended, the market quickly lost their impact on overall demand,” said Nobuyori Kodaira, Executive Vice President at Toyota Motor Corp.

Indonesia is another case. The country cut fuel subsidies in June in a bid to reduce its fiscal deficit. That has led to a drop in demand for Japanese cars, and materials for car production, such as steel and machine tools.

In the six months ended September, auto shipments to the rest of Asia dropped 10.4% from the same period a year earlier, according to Japan Automobile Manufacturers Association data.

In both cases, the decline in exports was a result of policy changes by the respective governments, much more than any financial turbulence caused by expectations for a U.S. monetary policy change, a senior Japanese official said.

Canon Inc. last month lowered its net profit outlook for the full business year through December to ¥240 billion from ¥260 billion. “China and other Asian nations accounted for one third” of the downward revision, said Canon Chief Financial Officer Toshizo Tanaka.

Japanese export volumes fell to the U.S. also, but for a different reason. As demand for Japanese cars picked up, auto makers began ramping up local production rather than boosting exports from Japan.

All these developments are likely to be one-off events, however.

The lesson from the above articles has been that trade represents a complex ‘subjective’ dynamic between contracting parties, which have not only been dependent on prices but to many manifold factors, some of which has been cited above. 

Yet the consequences from the combination of these factors are hardly knowable for policymakers to justify interventions. So the simplistic solutions end up backfiring.

Moreover since the initial spike of exports from Abenomics, Japan’s exports has hardly grown.

Importantly the deterioration of the Japan’s trade balance relative to pre-Abenomics (2012), shows how imports have been growing faster than exports. This reveals, so far, that falling exports hasn’t been a "one time event".

And aside from granting political privileges to select or favored members of society at the expense of the rest and inflating debt away via indirect gradualist default (where foreigners own 8.4% JGBs as of June 2013), another reason for devaluation has been to promote nationalism 

Writes the great Austrian economist Ludwig von Mises:

Devaluation of a country's currency has now become a regular means of restrict­ing imports and expropriating foreign capital. It is one of the methods of economic nationalism. Few people now wish stable foreign exchange rates for their own countries. Their own country, as they see it, is fighting the trade barriers of other nations and the progressive devaluation of other nations' currency systems.

Japan’s growing nationalism can be seen even outside the economic context. Geopolitical tensions such as territorial dispute with China over the Senkaku Island has prompted Japan’s government to increase defense spending and a adapt a “new defense equipment production strategy” with allies.

So aside from the failure to attain mercantilist goal of "favorable balance of trade", devaluation, which fosters nationalism, only increases the risks of military conflicts or war.

Philippine Politics: South Korean War Jets Means Bigger Taxes and More Financial Repression

From Today’s Inquirer headlines

Move over. The big boys are coming.

President Benigno Aquino III said the Philippines was close to finalizing a deal with a state-owned Korean aerospace firm to buy a squadron of FA-50 fighter jets worth P18.9 billion—a move seen to bolster the country’s aerial power and defend its territory in the disputed West Philippine Sea (South China Sea).

Mr. Aquino said he discussed the procurement of 12 brand-new multirole combat aircraft from the Korea Aerospace Industries Inc. (KAI) when he met with South Korean President Park Geun-hye at the Blue House, South Korea’s seat of power.

He said it was part of the commitment of both countries to improve their military cooperation, in line with a memorandum of understanding they entered into on Thursday.

The first statement should have read 

Filipino taxpayers beware. The big taxes are coming

Funny how media glamorizes what has been sold by political agents to the public as patriotic mirage of defending domestic territories. In reality, the territorial dispute has served as smoke screen for expansionist government via bigger deficit spending, more political control (lesser civil liberties), promoting US bases and the military industrial complex (here and abroad)

As the recent Zamboanga City crisis has revealed, superiority and capability plays little in the way the Philippine military operates. The sordid Zamboanga episode exhibits how the much 'superior' Philippine military bungled their operations relative to a much ill equipped, inferior in numbers and in training insurgents (Wikipedia note; MNLF participants 500, Philippines army participants 5,000 with tanks personnel carriers, and air support—attack aircraft, helicopters). 

Yet it took 16 days for the military to crush the insurgents (casualties Philippine military: 25 dead 184 wounded, MNLF: 183 dead, 292 captured). This is hardly an example to justify the government's claim to increase defense spending.

And it seems no more than wishful thinking for anyone to believe that new ‘modern’ armaments will serve to neutralize the far superior nuclear and drone equipped Chinese army. A chart comparing the US and Chinese military in Asia, I have previously posted here.

The reality is that invoking nationalism to defend “insignificant scrubby rocks” (John Keller) which supposed ‘rich’ resource reserves will only be beneficial to politically connected allies (cronies) via service contract permits issued by the government.

Societies hardly get rich from resources, they get rich from free trade, the market economy or economic freedom. 

Natural resources have in fact been a blight to many countries. This has been known as the resource curse. Resource revenues tend to cover up on government's mismanagement. Also the ruling elite who control these resources tend to pushback on economic reforms.

Yet politicians have been agitating for war, whose benefits will accrue to a few and whose costs will be distributed and paid for by the productive agents of the Philippine society.

Spurious nationalism will be funded by bigger taxes and by more financial repression (inflationism, negative rates, deposit caps and other capital controls)

Of course in case of actual shooting encounters, it won’t be the politicians life whom will be at stake but the lowly foot soldier, who either earnestly believe they are fighting for a righteous cause or out of the lack economic opportunities. Unfortunately they serve as unwitting pawns of grandstanding politicians.

But the best way to resolve such impasse will be to deepen trade and commercial relationships that will promote deeper social interactions that would empower the citizenry rather than brinkmanship politics from politicians.

As I have been saying, all these has partly been about promoting the return of the US military bases—a legacy the incumbent administration wishes to fulfill which had been terminated in 1992 during the incumbent’s mother’s administration. 

Despite denials by the US to seek permanent presence, the US wants extended access to Philippine bases. The rehashed US-Philippine military relationship has been framed in the context to become palatable to public opinion.

The Left has alleged that the Philippine government has spent Php 500 million in building base infrastructure in Palawan to accommodate US military. If true, then this has been foreordained as popularity ratings will be used to formally bring back US bases. Except of course, the pork barrel scam has frayed into these populist ratings.

While it is true that Philippines will be buying these jets from a Korean state defense industry, what has not been revealed is that the FA-50 has essentially been powered, equipped and armed by mostly the US-Israel military industrial complex 

From the Wikipedia (bold mine)

The FA-50 is the most advanced version of the T-50. It is equipped with a modified Israeli EL/M-2032 pulse-Doppler radar with further Korean-specific modifications by LIG Nex1, and has more internal fuel capacity, enhanced avionics, a longer radome and a tactical datalink The radar selected for the FA-50 has a range two-thirds greater than the TA-50's radar. The EL/M-2032 was initially chosen over Lockheed Martin's preferred AN/APG-67(V)4 and SELEX Vixen 500E AESA radars. Other AESA radars such as Raytheon Advanced Combat Radar and Northrop Grumman's Scalable Agile Beam Radar are options for future production, and will likely be shared with the same AESA radar chosen for the USAF and ROKAF F-16 fighters. Samsung Thales is also independently developing a domestic multi-mode AESA radar for FA-50/ In December 2008, South Korea awarded a contract to Korea Aerospace Industries to convert four T-50s to FA-50 standards by 2012. In 2012, The Republic of Korea Air Force has ordered 20 FA-50 fighters to be delivered by the end of 2014 The maiden flight of FA-50 multirole fighter variant took place in 2011. The 60 FA-50 aircraft are to be produced from 2013 to 2016. Korea Aerospace Industries (KAI) received a 1.1 trillion won ($1 billion) order for FA-50 fighter aircraft in May 2013.

The T-50 is the proposed base for the more advanced F-50 fighter with strengthened wings, AESA radar, more internal fuel, enhanced electronic warfare capability, and a more powerful engine. The proposal is designated as T-50 Phase 3 program by KAI. Wing strengthening is required to support three underwing weapons pylons, compared to two underwing pylons on the TA-50 or FA-50. The AESA radar was expected to be RACR, which has 90% commonality with the AESA radar of the Super Hornet, or SABR, both of which are competing for KF-16's AESA radar upgrade program. Samsung Thales' AESA radar is also a possible option. The aircraft was altered to a single-seat configuration to allow more space for internal fuel and electronic warfare equipment. The engine could be either Eurojet EJ200 or General Electric F414, upgraded to 20,000 lb or 22,000 lb thrust, which is about 12-25% higher than the F404's thrust. The engines are already being offered for the baseline T-50 for future customers. A similar Korean-led international fighter program exists named the KAI KF-X.

TA-50/FA-50 armaments again from Wikipedia

The TA-50 version mounts a three-barrel cannon version of the M61 Vulcan internally behind the cockpit, which fires linkless 20 mm ammunition. Wingtip rails can accommodate the AIM-9 Sidewinders missile, a variety of additional weapons can be mounted to underwing hardpoints. Compatible air-to-surface weapons include the AGM-65 Maverick missile, Hydra 70 and LOGIR rocket launchers, CBU-58 and Mk-20 cluster bombs, and Mk-82, −83, and −84 general purpose bombs.

FA-50 can be externally fitted with Rafael's Sky Shield or LIG Nex1's ALQ-200K ECM pods, Sniper or LITENING targeting pods, and Condor 2 reconnaissance pods to further improve the fighter's electronic warfare, reconnaissance, and targeting capabilities. Other improved weapon systems over TA-50 include SPICE multifunctional guidance kits, Textron CBU-97/105 Sensor Fuzed Weapon with WCMD tail kits, JDAM, and JDAM-ER for more comprehensive air-to-ground operations, and AIM-120 missiles for BVR air-to-air operations. FA-50 has provisions for, but does not yet integrate, Python and Derby missiles, also produced by Rafael, and other anti-ship missiles, stand-off weapons, and sensors to be domestically developed by Korea

The South Korean army has also essentially been supported (28,000 troops) by the US, as well as armed and equipped (from army, navy, air force to marine corps mostly by the US military and US defense contractors. 

So the Korean defense industry represents a token of real defense spending $31.7 billion (2013), where according to Wikipedia arms exports totaled $183 million (2012) compared to imports at $1.131 billion (2010). 

In July 2013, the South Korean military appealed to the Parliament for an increase 13.7% of the military budget which translates to $38.5 billion to beef up the nation's missile defense. 

The point is South Korean defense industry has been deeply tied with the US military complex. So this reflects on the dynamics behind the Philippine government's proposed buying of South Korean jets.

Bottom line: The fantasy of arming for defense by the Philippine government to protect against the far more powerful China serves as economic privileges for the US-Israel defense industry (also Korea’s KAI), the Philippine bureaucracy and the Philippine military as well as the US military. 

The first three will be charged to us, the Philippine taxpayers. The US military base/s will be charged to the American taxpayers but whose subsequent social and environmental costs will a burden to local communities in the Philippines who will serve as host/s to the base/s.

Short Note on the MNLF and Territorial Disputes

In the southern province, the Philippine government have been fighting off insurgents for five days.

Here is a snippet from today’s Inquirer headlines:

Seeking to derail the peace process with the MILF, Misuari declared an “independent Bangsamoro Republik” in July and his faction of the MNLF launched the attack on Zamboanga City on Monday, the eve of the resumption of negotiations between the government and the MILF in Kuala Lumpur, Malaysia.

About 200 MNLF rebels stormed several coastal villages, unaware that the government had discovered their plan three days earlier.

They ran into defensive fire from military troops and police and were boxed in the villages of Santa Catalina, Santa Barbara and Talon-Talon.

The rebels seized civilians and used them as human shields to thwart an assault by government troops.

Speaking on the fifth day of the fighting, President Aquino assured the residents of Zamboanga that the government had an “overwhelming number of troops” in the city to ensure that “those who have ill intentions will not succeed.”

What the above shows? If the “overwhelming number of troops” from the Philippine military can hardly contain the 200 or so native ill equipped rebels in 5 days, then why does the media and the gullible public think or believe that the former can beat the hell out of a far larger and more sophisticated Chinese military over the territorial disputes? This unfortunate MNLF encounter only exposes on the delusions and falsehoods of domestic politics.

Updated news say that the Philippine government and rebels have agreed to a ceasefire.

Two relevant quotes from sci-fi American Philip K. Dick (wiki Quotes)

The basic tool for the manipulation of reality is the manipulation of words. If you can control the meaning of words, you can control the people who must use the words.

Reality is that which, when you stop believing in it, doesn't go away.