The Absurdity of NATO

The whole world knows the name Gavrilo Princip, and that of he man he assassinated, Archduke Franz Ferdinand. Princip’s shot triggered the Austro-Hungarian invasion of Serbia that set in motion the chain of events leading to the Great War of 1914.

After Serbia appealed to Russia for help, Russia began moving towards mobilization of its army, believing that Germany was using the crisis as an excuse to launch war in the Balkans. Upon hearing news of Russia’s general mobilization, Germany declared war on Russia. The German army then launched its attack on Russia’s ally, France, through Belgium, violating Belgian neutrality and bringing Great Britain into the war as well.

Is it possible that a similar chain of events may have already begun unfurling with the Syrian downing of a Turkish F-4 fighter jet? Turkey have already invoked a full meeting of NATO,  claimed that Syria have fired on a second Turkish plane, and vowed that Syria’s actions “won’t go unpunished”.

The vast and sprawling system of national alliances that existed prior to the events 1914 were considered by policy makers of the time to be a counterbalance against excessive tension and the threat of war. The great powers created alliances ostensibly for the purpose of deterring war. The dominant view was that the potential for dragging in allies reduced the chances of an attack. In reality, it just meant that one spark could set the entire world aflame.

This is functionally the same as the interconnecting mesh of derivatives and shadow intermediation that foreshadowed the crash of 2008. As financial parties sold each other more and more “hedges“, the consensus of the time was that this made the system safer, as it allowed risk to be dissipated around the system. The theory was — and there were plenty of inaccurate mathematical models to back this up — that spreading risk around the system made the financial system safer. As it turned out, it didn’t. In the wake of MF Global and the London Whale, we know that the financial system has not learned the lessons of 2008. But it seems even more absurd that the diplomatic system has not really learned the lessons of 1914. 

The NATO system — set up to oppose the Warsaw Pact system, which no longer exists — functions the same way — rather than dissipating risk, it allows for the magnification of international tensions into full-on regional and global wars. In the late 20th century the threat of nuclear war proved a highly-effective deterrent which limited the potential for all-out-war between the great powers, offsetting much of the risk of the hyper-fragile treaty system. Yet the potential for magnifying small regional problems into bigger wars will continue to exist for as long as NATO and similar organisations prevail.

We do not know exactly what arrangements Syria has with Russia and China — there is no formal defensive pact in place (although there is one between Syria and Iran) though it is fair to assume that Russia will be keen to maintain its Syrian naval assets, a view which is supported by the fact Russia heavily subsidises the Syrian military, and has blocked all the UN-led efforts toward intervention in Syria.

After the Cold War, the Warsaw Pact was allowed to disintegrate. Until NATO is similarly allowed to disintegrate, the threat of magnification will remain large. Could a border skirmish between Syria and Turkey trigger a regional or even global war? Under the status quo, anything is possible.

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Another Sign of Coming Blowup?

Last week I asked:

Look at the following graph from the St. Louis Fed. It is the amount of deposits at the US Fed from foreign official and international accounts, at rates that are next to nothing. It is higher now than in 2008. What do they know that you don’t?

Here’s another sign that powerful insiders are increasingly running scared.

From Zero Hedge:

Back in the summer of 2007 two important things happened: the market hit an all time high, and the smart money realized what was about to happen (following the subprime and the Bear hedge fund blow up, it was pretty clear to all but Jim Cramer) and bailed out of stocks and into bonds, with Treasury holdings of Primary Dealers soaring at the fastest pace in history.

Finally, disgraced ex-President of the IMF Dominique Strauss-Kahn has weighed in, to confirm what everyone already knew.

From the Wall Street Journal:

The former International Monetary Fund’s Managing Director, Dominique Strauss Kahn, Sunday said Greece is unable to pay its debt and its creditors will have to take losses on the debt they hold.

“Greece got poorer, we can say Greeks will pay on their own, but they can’t,” Strauss Kahn said in an interview on French TV channel TF1. “There is a loss and it must be taken by governments and banks,” he said.

Yes — and so the real question, which nobody in a position of global or national authority has addressed — is just how will the global financial system be made to cope with the another Lehman-style cascade of defaults?