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?

Military Keynesianism: Keynes Prescribed War to Solve US Unemployment Problem in 1939

For vulgar Keynesians, the essence of economics is all about spending...even if it leads to widespread death and destruction.

In 1939, John Maynard Keynes prescribed war as solution to the Great Depression.

Writes the prolific Carmen Elena Dorobăț at the Mises Blog:

On the eve of World War II, Keynes delivered the following chilling address on the BBC, talking about the "great experiment" of curing unemployment through war expenditure:

Two years later to the day, in a lecture delivered shortly after his arrival in the U.S., Mises described how the great experiment really looked like:

We are witnesses to the most frightful and phenomenal occurrence in human history: the decay of Western civilization. London, one of the centers of this civilization... is almost completely destroyed. The buildings of the Parliament of Westminster are in ruins; the House of Commons holds its assemblies in the catacombs. [...] The theater of war is spreading, and the day seems not distant when peace will have lost its last refuge. It is a moral and material collapse without precedent.

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!

Geopolitical Risk Theater Links: More US Boots on the Ground, NeoCons versus Putin, Saudi Aramco Oil Fire, Proposed Russian Ban on US Dollar

1 Can’t get enough of Iraq.  Air warfare hasn’t worked, so the POTUS orders more boots on the ground: U.S. to Send 1,500 More Troops to Iraq New York Times November 8, 2014

2 There are no permanent friends only permanent interests: Obama sent 'secret letter' to Iran Daily Star November 8, 2014 (an expose by Israel to forestall sleeping with the enemy?)

3 The  POTUS panders to the opposition, the war lusting neoconservatives: Obama Call to Authorize Islamic State War Tests Congress Bloomberg/Businessweek.com November 6, 2014

4  War is a racket. Throw money at every problem charged to taxpayers for the benefit of the military industrial complex: Problems of U.S. nuclear forces must be addressed Washington Times November 5, 2014

Here is a quote:

U.S. strategic nuclear forces, both weapons and personnel, are experiencing serious problems that must be addressed urgently.

That is a central conclusion of a new study called the “Nuclear Enterprise Review” that the Pentagon is expected to release next week, according to defense officials familiar with the study.

Fixing nuclear forces’ problems will require the investment of billions of defense dollars in modernizing systems and greater leadership attention to training and readiness for the thousands of military personnel who operate and maintain the world’s most powerful arsenal.

5 Neocons are back on the seat of power. One of their likely goal will be to challenge Russia's Putin: Michael Rozeff: McCain versus Putin November 6, 2014

A confrontation is at hand between McCain and Putin. McCain will be the new chairman of the Senate Armed Services Committee. He wants to arm Ukraine. He’s anti-Putin and anti-Russia. Obama is in the middle, trying not to go as far as McCain while still coming out with his own anti-Putin and anti-Russia policies such as sanctions. Putin regards those as blackmail.

6  The easiest thing to do has been to spend or waste other people’s money: US Army Slow to Investigate Losses of Key Encryption Gear in Afghanistan; $420 Million in Gear Unaccounted For Anti-War.com November 5, 2014

An internal report by the Pentagon’s Inspector General found the US Army “lost” some $420 million worth of equipment in Afghanistan, including weapons, sensitive encryption devices, and even some vehicles. 

To make matters worse, the IG found that the Army brigade responsible for managing the gear failed to report the losses in a timely fashion, meaning there were no great efforts to recover it

7 Simmering Iraq battlefront: The Battle for Baiji Heating Up; 345 Killed, 48 Wounded Across Iraq Anti-war.com November 6, 2014

8 Developing brinkmanship across multi-fronts: Finland warns Europe is 'at the gates of a new cold war' in wake of Russian military activity Independent.co.uk November 5, 2014

9 Chinese government’s thrust towards modern warfare: This Video Of A Chinese 5th-Generation Fighter Prototype Shows The Plane Could Have One Huge Weakness Business Insider November 6, 2014

10 Developing geopolitical factional rivalry; the NATO versus SCO: Martin Katusa Putin Signs Secret Pact to Crush NATO Casey Research November 6, 2014 (bold mine)

But you can bet your last ruble that Vladimir Putin knows exactly where Tajikistan is. Because the group that met there is the Russian president’s baby. It’s the Shanghai Cooperation Organization (SCO), consisting of six member states: Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan.

The SCO was founded in 2001, ostensibly to collectively oppose extremism and enhance border security.But its real reason for being is larger. Putin sees it in a broad context, as a counterweight to NATO (a position that the SCO doesn’t deny, by the way). Its official stance may be to pledge nonalignment, nonconfrontation, and noninterference in other countries’ affairs, but—pointedly—the members do conduct joint military exercises…

As always, Putin is not thinking small or short term here. Among the priorities he’s laid out for the Russian chairmanship are: beefing up the role of the SCO in providing regional security; launching major multilateral economic projects; enhancing cultural and humanitarian ties between member nations; and designing comprehensive approaches to current global problems. He is also preparing an SCO development strategy for the 2015-2025 period and believes it will be ready by the time of the next summit.

We should care what’s going on inside the SCO. Once India and Pakistan get in (and they will) and Iran follows shortly thereafter, it’ll be a geopolitical game changer.

11 The right hand doesn’t know what the left hand (see number 2 Obama sends letter to Iran--under the table deal?) has been doing: Pentagon: Iran Giving ‘Lethal Aid to the Taliban’ to Fight U.S. Freebeacon November 6, 2014

12 On Oil politics, I recently wrote (bold mine): 

Saudi Arabia has lately stated that they will protect their oil market share. What if those affected oil welfare deficit governments resist? What if Russia or any of Saudi’s chief adversaries, say Iran, for instance finance rogue groups within Saudi to sabotage the latter’s pipelines?

Saudi oil pipeline fire under control, security source says Reuters Africa November 5, 2014

The source said that the fire was "not the work of terrorists".

Not the work of terrorist? Perhaps. But the Saudi government goes on an abrupt manhunt for terrorists where 26 suspected militants has been arrested “following security raids across the kingdom” aawsanet.com November 7, 2014 

Some coincidence eh? Hmmm.

13 American linguist and philosopher warns on the risk of US imperialism: Chomsky to RT: US and its NATO intervention force may spark nuclear war November 7, 2014 (italics original)

How dangerous is the current confrontation between Russia and the West? Noam Chomsky believes that NATO expansion and US quest for hegemony has put the world in a situation so unstable where any accidental interaction could result in a nuclear war.

The “new NATO” that emerged after the Soviet Union collapsed is basically a US-run intervention force, with a completely different mission as compared to the original, Chomsky tells RT’s Sophie&Co.

“In fact, one might ask why NATO even continued to exist,” he said. “The official justification for NATO was that its purpose was to defend Western Europe from Russian hordes who might attack Western Europe.”

With no more “Russian threat”, the natural conclusion in the 90s would be to disband the alliance, but instead the opposite happened – against all agreements NATO expanded all the way towards the Russian borders.

“Its mission changed. The official mission of NATO became to control the international, the global energy system, pipelines. That means, to control the world.”

14 Looking for a catalyst for World War III? Russia may ban circulation of US dollar APA.com November 5, 2014

If the bill is approved, Russian citizens will have to close their dollar accounts in Russian banks within a year and exchange their dollars in cash to Russian ruble or other countries’ currencies.

Otherwise their accounts will be frozen and cash dollars levied by police, customs, tax, border, and migration services confiscated.

Have a nice day.

David Stockman: The Ukrainian crisis is the outcome of the mindless 20-year drive of the Warfare State to push an obsolete NATO to the very doorstep of Russia

The public loves the visible, so they are easily swayed by media who sell political messages by focusing on the visible and the sensational. Yet it has hardly been reckoned that much of social activities have been a product of history.  This means that to ignore history is to neglect an important component of reality.

In the case of the Ukraine crisis, which risks morphing into World War III, analyst David Stockman at his Contra Corner website explains how the past and present US foreign policy warfare state-imperialism agenda has brought upon the current tensions. The key excerpts from the article (bold mine, italics original)

The Kiev government is a dysfunctional, bankrupt usurper that is deploying western taxpayer money to wage a vicious war on several million Russian-speaking citizens in the Donbas—-the traditional center of greater Russia’s coal, steel and industrial infrastructure. It is geographically part of present day Ukraine by historical happenstance. For better or worse, it was Stalin who financed its forced draft industrialization during the 1930s; populated it with Russian speakers to insure political reliability; and expelled the Nazi occupiers at immeasurable cost in blood and treasure during WWII. Indeed, the Donbas and Russia have been Saimese twins economically and politically not merely for decades, but centuries.

On the other hand, Kiev’s marauding army and militias would come to an instant halt without access to the $35 billion of promised aid from the IMF, EU and US treasury. Obama just needs to say “stop”. That’s it. The civil war would quickly end, permitting the US, Russia and the warring parties of the Ukraine to hold a peace conference and work out the details of a separation agreement.

After all, what is so sacrosanct about preserving the territorial integrity of the Ukraine? Ever since the middle ages, it has consisted of a set of meandering borders in search of a nation that never existed owing to endemic ethnic, tribal and religious differences. Its modern boundaries are merely the fruit of 20th century wars and  the expediencies of a totalitarian state during the decades of its rise, rule and disintegration.

There was until recently a neighboring “state” of equally artificial lineage called Czechoslovakia. It was carved out of the German and Austrian empires by the vengeful victors at Versailles, urged on by scheming Czech nationalists who coveted the resources of the Slovaks. But notwithstanding revolutions, the Stalinist oppression, the Cold War, the Prague Spring and all the rest of the 20th century mayhem—-the machinations at Versailles didn’t birth a state that was viable or sustainable. Accordingly, separation has been had, and the parties are better off for it—as are its neighbors and the larger world.

And on the topic of partition there is the ghost of Yugoslavia–another state that emerged in whole cloth  from the madness of Versailles. Yes, it has been partitioned now into half a dozen smaller states—-Slovenia, Macedonia, Serbia, Montenegro, Croatia, Kosovo and Bosnia. But the operative point is that the partitioner was none other than Washington and its European groupies who had no regard for those happenstance 20th century-made borders when it suited their purpose. 

So the sanctimonious yelping from Washington about the sacred territorial integrity of the Ukraine is ahistorical tommyrot. In fact, however, it is a thin fig leaf for a far more insidious purpose. Namely, the self-aggrandizement of the Warfare State machinery that was left stranded in Imperial Washington without purpose or justification when the Cold War ended two decades ago.

So the Warfare State machinery—including its spy network, state department, aid agencies and NGO supplicants— invented enemies and missions to justify their continued existence and their massive dissipation of fiscal resources. Those are upwards of $1 trillion annually if you count everything including veterans and homeland security.

Thus, after arming the mujahedeen in Afghanistan against the Soviets in the 1980s, their Taliban successors were deemed our enemy after the cold war ended—even though they never poised a scintilla of threat to the citizens of Lincoln NE or Worcester MA.  So too with our 1980′s ally Saddam Hussein, and also with Khadafy, Assad and the warring tribal potentates and cutthroats of Yemen, Somalia and Waziristan, to name just a few.

But it is in eastern Europe that the Warfare State machinery has most egregiously made an enemy and mission out of whole cloth. As the Cold War was drawing to a close in the late 1980s, then Secretary of State James Baker made a sensible deal with Gorbachev. In return for Soviet acquiesce in the reunification of Germany, the US would insure that NATO did not expand by a “single inch”. 

Since then, of course, there has been a senseless bipartisan betrayal and stampede in the opposite direction. Starting under Clinton and extending through Bush and Obama, NATO has been expanded from 16 nations at the end of the Cold War to 28 countries today. 

Yet the very recitation of its new members underscores the historical farce that this needless expansion amounted to. For better or worse, the formation of NATO in the late 1940′s involved what were perceived to be vital national security interests against a Stalinist policy that by the lights of the hawks and militarists of the day amounted to a violation of his Yalta obligations. Accordingly, NATO constituted an alliance of real nations—England, France, Italy and West Germany—-that could make a meaningful contribution to collective security against the perceived Soviet threat of the times.

But Albania, Bulgaria, Latvia, Slovakia and Slovenia?  And that is not to forget Moldova, Georgia, Macedonia and the Ukraine—all of which are still coveted for membership by the NATO apparatchiks. What could these micro-states possibly contribute to American security? That’s especially the case since the Warsaw pact had been dissolved; the Soviet Empire has erased from the pages of history; and the Russian successor was left with an Italian sized GDP encumbered with the destructive legacy of a state-dominated economy that had been appropriated by a passel of thieves, opportunists and oligarchs.

In short, today’s Ukrainian crisis is the outcome of the mindless 20-year drive of the Warfare State to push an obsolete NATO to the very doorstep of Russia, and into the messy remnants of the Soviet disintegration. Stated differently, Putin has been in power for 15 years, yet during 13 of those years there was no hue and cry from Washington, London and Brussels that he was an incipient Hitler bent on sweeping conquest. Even the so-called invasion of Georgia in 2008 was a tempest in a teapot provoked by local pro-Russian separatists who did not want to be ruled by a de facto American interloper in Tbilisi.

Pls read the entire article here

Oil Prices and The Possible Black Swan Risk from a Syrian War

Columnist Philip Coggan of the Buttonwood’s Notebook at the Economist writes (registration may be required) that risks from the escalation from a Syrian military strike shouldn’t be dismissed.

Analysts have been quick to point out that markets often wobble in the run-up to military interventions but then recover quickly as soon as they start; this was the case in the two Iraq wars. It may well be that a much more limited intervention in Syria (if, as is by no means certain, Congress approves it) will follow a similar pattern. What worried investors in the past, of course, was the wider ramifications of military action; whether the region would be set ablaze and oil supplies disrupted.

That remains the concern today. The Arab spring seems to have turned into an Islamic version of the Cold War, with proxy battles taking place between Sunni nations, led by Saudi Arabia and the Shia camp, led by Iran. (Syria is a predominantly Sunni nation but Assad draws his support from the Alawites, a branch of Shia). An attempt to dislodge Assad by the West could intensify this conflict, leading to an upsurge in terrorist incidents, attacks on Israel and so on; on the other hand, advocates of intervention argue that the long-running nature of the Syrian conflict has already destabilised the region.

Just because previous interventions did not lead to a wider war, does not mean the same will apply in Syria; if you juggle with a grenade long enough, it may go off. This is one of those scenarios where there are no clean outcomes, and it is foolish to predict which way events will turn out. But investors are well aware of this problem, which makes them uncertain at the prospect of western involvement.

Such palpable complacency from the lack of escalation is one reason why war mongers keep pushing for wars.

Of course wars are good businesses for the political class, their favored cronies (military industrial complex and banking) and welfare beneficiaries. And part of this agitation for war comes from ideology. 

As David Stockman writes at the Lew Rockwell.com

Indeed, the tragedy of this vast string of misbegotten interventions—from the 1953 coup against Mossedegh in Iran through the recent bombing campaign in Libya —-is that virtually none of them involved defending the homeland or any tangible, steely-eyed linkages to national security. They were all rooted in ideology—that is, anti-communism, anti-terrorism, humanitarianism, R2Pism, nation-building, American exceptionalism. These were the historic building blocks of a failed Pax Americana. Now the White House wants authorization for the last straw: Namely, to deliver from the firing tubes of U.S. naval destroyers a dose of righteous “punishment” that has no plausible military or strategic purpose. By the President’s own statements the proposed attack is merely designed to censure the Syrian regime for allegedly visiting one particularly horrific form of violence on its own citizens.

Well, really? After having rained napalm, white phosphorous, bunker-busters, drone missiles and the most violent machinery of conventional warfare ever assembled upon millions of innocent Vietnamese, Cambodians, Serbs, Somalis, Iraqis, Afghans, Pakistanis, Yemeni, Libyans and countless more, Washington now presupposes to be in the moral sanctions business?  That’s downright farcical.  Nevertheless, by declaring himself the world’s spanker-in-chief, President Obama has unwittingly precipitated the mother of all clarifying moments.

Nonetheless policy actions based on complacency increases the likelihood of a black swan event as Nassim Taleb posted in his facebook….

Something people don't realize about fat-tailed probabilities: We may accept to take risks with .00001 pct chance of blowing up the planet. May be OK for some. But the inconsistency is that we do serially and collectively take A LOT of "one-off" risk. If nothing happens, we may do it again. And again. Or we may take many of these at the same time. Merely allowing such action will eventually mean that we will have 100% chance of blowing up the planet.

Just change blowing up the planet with Middle East, this describes exactly how US foreign policy have worked.

Brandon Smith enumerates the potential contagion from the explosion of the Middle East Powder Keg here

And trouble in the Middle East has already been putting upside pressure on oil prices as shown by the US WTI (above) and Europe’s Brent (below)

But welfare states of the Gulf States and other oil producing nations will be comforted by rising oil prices since their welfare based political economies has been tied to oil prices (see above graphs).

In other words, politicians of the many Arab and other oil producing nations have been buying off their mandates or their political privileges via increasing welfare benefits on the population that requires high oil prices. And this serves as another reason why governments will keep on printing money. And this is one of the probable reasons why some Middle East countries secretly desire for more conflict in the region.

And unfolding events in the Middle East and other factors will like mean higher oil prices, as the independent research outfit BCA Research writes,

Risks to oil prices remain strongly skewed to the upside for the rest of 2013. Middle East tensions have removed significant spare capacity, at a time when the market is seasonally tight. Hence, any further supply disruption would be damaging.

Another upside risk is the potential “product-pull” on crude prices. Strong diesel demand may already be challenging U.S. refinery capacity. U.S. distillate production is at its highest level in absolute terms and relative to gasoline. High distillate crack spreads motivate refiners to bid up oil grades with the highest distillate output. As a result, crude prices get pulled up.

The U.S. consumer will not feel the pinch until oil prices are much higher, because gasoline cracks are likely to absorb most of the increase in crude. This would support oil demand despite higher prices.

It's not clear if oil price dynamics will merely be 'consumption demand' based. There is a possibility that sustained inflationism by governments and increasingly fragile risk environment could extrapolate to an increase in 'reservation demand' for commodities. The public may want to hold commodities out of fear of a fall in purchasing power amidst a risk off milieu.

The bottom line:

Underestimating the potential contagion from a Syrian war could mean trouble for one’s portfolio. 

High oil prices are likely to magnify rising bonds yields and thus put a lid on risk appetite.

Gold and oil prices are likely beneficiaries from the current environment.

Chart of the Day: China’s Defense Spending

From Reuters (chart included)

China will raise military spending by 10.7% this year to 740.6 billion yuan ($119 billion). China’s defense spending is contained at about 5.4% of total expenditure, up from 5.3% last year, and remains at about one-fifth of the Pentagon’s spending 

This compares to the Philippines at $1.8 billion (2010) which represents .81% of GDP (Index Mundi) or $209 billion in 2011 or 1.08% of GDP (Wikipedia.org)

I am not suggesting that the Philippines should compete with China to bolster her military expenditures.

What I am also saying is that the Philippines lacks the capability to match China’s armed forces.

On the contrary the Philippines should cut government spending which should include that of the military’s. The focus instead should be on fostering trade relations with the every nation in this world. Trade relations will reduce the opportunities for conflict because trade promotes harmonious relations even among diversified interest groups.

Nevertheless expanding and nurturing a huge army will eventually take a toll on the economy as scarce resources are diverted for non-productive activities.

Moreover, huge armies become a temptation for adventurism and domestic instability. Japan’s pre-World War II political and economic policies which led to the dominance of the military in shaping national decisions should serve as example.

The ‘late’ al Qaeda leader Osama bin Laden once predicted that the overall strategy of guerilla warfare has been a war of attrition meant to bankrupt or financially bleed her foes, particularly the US. In the same way the Soviet Russia lost the Afghan War.

Developing political economic conditions in the US, predicated on the growing warfare and welfare state, have been indicating the path of such politics dictated internal decay.

And it must be remembered we are in the nuclear age, where the character of military conflict has changed relative to the 20th century.

As a final note charts of the US-China arms race in Asia I have previously posted here

How Foreign Interventionism Has Incited West Africa’s Political Woes

Government operation to free hostages ensnared by an al-Qaeda-linked group in a natural gas plant in a remote area in Southeastern Algeria apparently ended up in a fiasco: most hostages were slain along with their captors.(Bloomberg)

Historian Eric Margolis at the LewRockwell.com sheds us  insightful historical compendium of the recent revival of the political turmoil at West Africa.

I categorized his essay into different headings

1. Not an endemic Islam Story

Western governments and media have done the public a major disservice by trumpeting warnings of an "Islamist threat" in Mali. It’s as if Osama bin Laden has popped up on the Niger River. Our newest crisis in Africa is not driven primarily by religion but by a spreading uprising against profoundly corrupt, western-backed oligarchic governments and endemic poverty.

2. The Repercussions of Libya War and the French Client States

Mali’s troubles began last year when it shaky government was overthrown. Meanwhile, heavily-armed nomadic Tuareg tribesmen, who had served Libya’s late Col. Gadaffi as mercenaries until he was overthrown by French and US intervention, poured back into their homeland in Mali’s north. A major unexpected consequence. Fierce Tuareg warriors, who battled French colonial rule for over a century, were fighting for an independent homeland, known as Azawad.

They, a small, violent jihadist group, Ansar Din, and another handful of obscure Islamists drove central government troops out of the north, which they proclaimed independent, and began marching on the fly-blown capital, Bamako.

France, the colonial ruler of most of West Africa until 1960, has overthrown and imposed client regimes there ever since. French political, financial and military advisors and intelligence services ran West Africa from behind a façade of supposedly independent governments. Disobedient regimes were quickly booted out by elite French troops and Foreign Legionnaires based in West Africa that guarded France’s mining and oil interests in what was known as "FrancAfrique."

3. Contagion and Diversion from Domestic Political-Economic Affairs.

Overthrowing African regimes was OK for France, but not for locals. When Mali’s French-backed regime was challenged, France feared its other West African clients might face similar fate, and began sending troops to back the Bamako regime. President Francois Hollande, who had vowed only weeks ago not to intervene in West Africa, said some 2,500 French troops would intervene in Mali. But only on a "temporary basis" claimed Hollande, forgetting de la Rochfoucauld’s dictum "there is nothing as permanent as the temporary!"

Other shaky western-backed West African governments took fright at events in Mali, fearing they too might face overthrow at the hands of angry Islamists calling for stern justice and an end to corruption. Nigeria, the region’s big power, vowed to send troops to Mali. Nigeria has been beset by its own revolutionary jihadist movement, Boko Haram, which claims Muslim Nigerians have been denied a fair share of the nation’s vast oil wealth, most of which has been stolen by corrupt officials.

France’s overheated claim that it faces a dire Islamic threat in obscure Mali could attract the attention of numbers of free-lance jihadists, many who are now busy tearing up Syria. Paris was better off when it claimed its troops were to protect ancient Muslim shrines in Timbuktu. Or it could have quietly sent in the Foreign Legion, as in the past.

Instead, Mali has become a crisis with the US, Britain, West African states and the UN involved in this tempest in an African teapot. A nice diversion from budget crisis.

4. Hostage taking in Algeria and the Expansion of the Theater of War by Interventionists.

Another Algerian jihadist group just attacked an important state gas installation in revenge for France’s assault on Mali. This bloody action has awoken Algeria’s hitherto quiescent Islamic resistance groups. They waged a ten year war against Algeria’s US and French backed military regime, one of the continent’s most repressive regimes, after Algeria’s armed forces crushed Islamists after they won a fair election in 1991.

Over 250,000 Algerians died in a long, bloody civil war. The Algiers government often used gangs of its soldiers disguised as rebel fighters to commit gruesome massacres to blacken the name of the opposition. Algeria may again be headed for a new bloodbath, this time with minority Berber people calling for their independent state.

US air forces and small numbers of Special Forces from its new Africa Command are now entering action in Mali and Algeria. More are sure to follow as West Africa smolders

My comments

As diversionary ploy to distract the public’s attention, wars has usually been the recourse of economically strained nations to drum up political support (via nationalism), as well as, to “suppress dissension among members of the productive class” (Salerno)

Wars has been typically used as justification for further inflationism and for expansionary government or the “opportunity to intensify economic exploitation” (Salerno)

Wars have been used to promote the financial and political interests of vested interested groups represented by military industrial complex “the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex” (President Eisenhower), as well as, the neoconservative cabal through the ideological role of “global policeman” which formerly had been based on “global struggle against communism” (Gordon) and neocon goals of “continuing privileged hierarchical rule, and to continue to worship the nation-state and its war-making machine” (Rothbard).

Most likely today’s imperial foreign policies as evidenced by West Africa’s conflicts signify as cauldron of the factors above.

Quote of the Day: Government Redistribution Tends to Bring Out the Worst in Us

the creation of wealth is edifying. When only voluntary transactions are permitted, the creation of wealth requires cooperation, and this brings out the best in us.

Piles of wealth, however, tend to be corrupting. The fixed nature of a pile is all about apportionment, not cooperation, and this zero-sum game tends to bring out the worst in us.

It follows directly that no matter how noble the ends, government redistribution (which is hardly voluntary) tends to bring out the worst in us. Rising government redistribution over the past 75 years has produced ample evidence of this point.

We are in this mess because we have allowed our culture to be dominated by those who are bent on spreading the false and self-serving narrative that our economy is a giant zero-sum game.

As such, we might as well have the government do the dividing.

Small wonder why our politics have become increasingly about who you are for rather than what you are for.

(italics mine)

This spectacular quote is from University of Missouri-St. Louis Professor of economics David C. Rose at the letters section of the Wall Street Journal (hat tip Prof Don Boudreaux)

Direct or indirect beneficiaries of government programs will staunchly defend on what they perceive as unalienable entitlements, even if such programs are economically unsustainable and immoral, to the point of bringing out the worst in us.

Such political apportionment programs are mainly channeled through inflationism (for instance participants in the financial markets as bankers, stock market participants, bond holders and etc…), welfarism (welfare beneficiaries), bureaucratic politics (political appointees via mandates, regulations, prohibitions), warfare state (defense contractors and related interests) and cronyism (politically distributed economic opportunities).

In defending the status quo, these politicized agents resort to more than just stridently deceptive denunciations on those who question them, but to the recourse of violence ala the unfolding events in Greece. 

Politics does tend to bring out the worst in people.

Drone Warfare: Systematic Mass Killing of Innocents

It is sad and revolting to see how the recent gruesome shooting spree in Newtown Connecticut had claimed 27 innocent lives mostly children.

Yet what has been largely ignored by the public is how belligerent imperial US foreign policies continues to sow terror to unarmed civilians through drone warfare overseas.

This report from Daily Mail says that a US military personnel quit his job after learning of needless civilian deaths…many of them children.

A former U.S. drone operator has opened up about the toll of killing scores of innocent people by pressing a button from a control room in New Mexico.

Brandon Bryant, 27, from Missoula, Montana, spent six years in the Air Force operating Predator drones from inside a dark container.

But, after following orders to shoot and kill a child in Afghanistan, he knew he couldn't keep doing what he was doing and quit the military.

'I saw men, women and children die during that time,' he told Spiegel Online. 'I never thought I would kill that many people. In fact, I thought I couldn't kill anyone at all.'

Mass killings should be seen in a broader context and not just in the US.

As John Aziz at the lewrockwell.com/zero hedge observed: (bold original)

And if we value life and are opposed to violence against innocents, why do we demand action when 27 innocent Americans die, but not when larger numbers of innocent Pakistanis, or Afghanis or Yemenis die? One drone strike in Pakistan killed 69 children, dwarfing the impact of the Newtown Massacre. With predator drones now in American skies, how long until the “collateral damage” (remember – the NDAA declared the entirety of America as a battlefield) eclipses the Newtown massacre? Or how long until a foreign power or terrorist group hacks into a predator drone (technically feasible) over America and uses it as a flying bomb?  And how many more terrorist attacks against America will be fuelled by anger derived from the civilian casualties of the drone wars?

Obama might cry for Americans in Newtown, but where are his tears for the Pakistani and Yemeni children he has slaughtered? And what about for the many victims who died as a result of thousands guns shipped by the US government to the Mexican drug cartels via Fast and Furious?

The US government seem to promote the kind of policies it pretends to condemn. Drones as pointed out above (and in my previous post) is likely to become a commonplace security feature in the US which may entail the unintended consequences described above.

Yet it is hard to ignore of the possible influence of US foreign policies or the warfare state on her constituency or population. Or put differently, could the recent killing sprees signify as a policy blowback, where these assailants may have sublimely construed government's action as justifying their own? 

Video: Revolving Door Relations Between Pentagon and Defense Contractors

The following investigative video is another wonderful example of crony capitalism. This can be seen through the lens of the political relationship between the military industrial complex and the Pentagon.  

We see how regulatory capture has evolved into revolving door relationships--former regulators (military officers) end up as officials for defense contractors, and where intense lobbying in shaping public policies, channeled through these former insiders, has reaped enormous "rent" profits for politically privileged firms. 

The implication is that the interventionist US "imperial" foreign policies (warfare state) are likely manifestations of the advancements of the interests of such clique.  

The Strategy Behind the US War on Terror: Initiate Terrorism to Justify Overthrow of Governments

The US foreign policy of the "war on terror" may have been a grand covert scheme engineered to promote the political and economic interests of several highly connected power blocs implemented through "false flags".

Writes the Washington's Blog (bold highlights original) [source lewrockwell.com]

Wesley Clark, Supreme Allied Commander NATO, testifies in this 2-minute video that the US planned to overthrow seven countries after 9/11: Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran.

The Pentagon admitted a strategy to do so (here, here, here):

1. the US conducts acts of terrorism in nations they want to control,
2. the US continues terrorism to provoke an act of reprisal,
3. the US labels the reprisal “terrorism” to justify covert and overt military operations to overthrow targeted governments.

Therefore, the US caused the “war on terror” as a policy choice; 9/11 was pretense and not the cause.

Indeed, war law and two UN Security Council Resolutions provided international cooperation for factual discovery of the 9/11 terrorists, arrests, and trial for lawful justice all nations supported.

The US rejects the rule of law, violates treaty obligations, killed over a million human beings from armed attacks since 9/11, and so far has long-term costs of $4 to $6 trillion to US taxpayers ($40 – $60,000 per household).

This rogue state of the US ends when enough Americans in military, law enforcement, government, media, education, and the general public have sufficient intellectual integrity and moral courage to accept the “emperor has no clothes” obvious facts.

This unlawful policy choice of the US for Wars of Aggression has killed 20-30 million people in covert and overt wars since 1945.

Read the rest here 

In the world of politics, one should be leery of what "appears" to be.  Or what has been peddled or communicated to the public as the cause, by politicians and the politically influenced mainstream media, may most likely just be the effects of an underlying unseen design or plot.