henry kissinger

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Deindustrialisation & Male Jobs

A whole lot of pundits are spending column inches trying to explain the cruel reality of the last forty years — stagnant wages for full-time male workers, and falling wages for men as a whole:

And there has been a huge outgrowth of men who aren’t in the labour force. In 1954, 96 percent of American men between the ages of 25 and 54 worked. Today, that number is down to 80 percent. That’s a humungous decrease.

The question is why.

Mainstream media pundits are suggesting that men are unsuited to the present economic landscape. The suggestion is that men have been bad at adapting to change, and that women have been good at adapting to change:

In The End of Men: And the Rise of Women, Hanna Rosin argues that changes in the world economy have dramatically shifted gender roles. Women have adapted more skillfully to the new socioeconomic landscape by doggedly pursuing self-improvement opportunities, rebranding as the economy requires it, and above all possessing the kind of 21st century work attributes — such as strong communication skills, collaborative leadership and flexibility — that are nudging out the brawny, stuck-in-amber guys. Rock steadiness, long a cherished masculine trait, turns out to be about as useful in our fleet-footed economy as a flint arrowhead. Life favors the adapters, and it turns out they’re more likely to be women.

Now two things have very clearly changed for women — access to birth control, and the end of the traditional social compact where women did housework, and men did wage work. In regard to the vast majority of expanding occupations today — teaching, medical services, bureaucracy — women no longer are at a material disadvantage due to their (on average) smaller size and lesser strength.

Overall, this has meant proportionally less jobs for men, and proportionally more for women.

But it’s not just that women have been advantaged. Men have been deeply disadvantaged. In sectors that due to physical characteristics men have traditionally been dominant in — manufacturing, agriculture, forestry, mining and heavy industry — there has been a vast decline in output-as-a-percentage-of-GDP, whereas in services — a sector in which men have not traditionally dominated — there has been a vast increase.

Yet it is not the case that there are less manufacturing jobs globally. As we mostly already know, this is a case of manufacturing and industry being exported overseas, most obviously to China. China manufactures, and America consumes. This is America’s trade balance with China:

This is reflected in China’s sectoral employment balance compared to Western nations, and the world at large:

So it’s not at all the case that the United States is cutting back on industrial jobs because industry is less in demand. The United States still has plenty of demand for industry. America has cut back on industrial jobs because it has the ability to run huge trade deficits, through the dollar’s role as global reserve currency, and shipped its manufacturing industry abroad. Other countries have required dollars for trade purposes, so have been more than happy to sell to the United States, making dollars and debt the United States’ greatest exports.

Yet the present paradigm has severely damaged the prospects of young men, for whom a generation ago jobs in industry and manufacturing were once plentiful. Quantitative easing led to a jobs boom — in China, for Chinese industrial workers. That doesn’t help the growing chunk of the male population in the United States who have been shut out of the job market by the rise of America’s Chinese addiction.

And it seems unlikely that the industrial jobs are coming back any time soon. Although there are reasons why America may soon import less from China — rising energy and transport costs, rising Asian wage costs, and questions of the dollar’s sole reserve currency status — there are plenty of places in Latin America with cheap and plentiful labour for America’s corporate elite to set up factories. Even the manufacturing jobs that remain in America will be under threat from increased automation and robotics.

This implies that barring a miracle, joblessness and stagnant or falling real wages will continue to be a significant and worsening challenge for young Americans, and particularly men, in the coming years.

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The Real Fiscal Cliff

It’s that time of year again — time to kick the can.

No prizes for guessing what investors expect Congress to do:

And 2013 seems likely to give way to can-kicking in 2014, and 2015 and 2016 and 2017 and on — the GAO estimates that by 2080 the US public could hold 8 times as much government debt as the US generates GDP. Just as Japan has never truly dealt with its debt complex — and instead chose the path of cycles of deflation, an endless liquidity trap, a soaring debt-to-GDP ratio, and mandating financial institutions into buying treasuries — so America will continue to kick the can as long as rates and nominal inflation can be kept low, and goods and energy (the real underlying economy) kept flowing. Which — going by the Japanese example — could be a very long time.

Yet America is not Japan. The key difference? The balance of trade, and the flow of goods and services. While Japan’s debt is overwhelmingly domestically held, and while Japan has long been a net-exporter, the USA imports more goods and services than any nation in history:

And more and more US debt and currency is in the hands of the nations that export the goods and services on which America’s economy functions. Here’s the total debt held by foreigners:

And here’s the dollar reserves of various Asian exporter nations:

So when the can is kicked, the Asians — and especially the Chinese — feel they are getting screwed.

As Xinhua noted the last time America faced the fiscal cliff:

The U.S. has long been facing the same problem: living beyond its means. At present, the country has debts as high as 55 trillion U.S. dollars, including more than 14 trillion U.S. dollars of treasury bonds.

And last October:

Economists agree that as the United States’ largest foreign creditor, China should contemplate ways to pull itself out of the “dollar trap,” as the U.S. economy is faltering with its debt piling up and its currency on the brink to depreciate.

China must make fuller use of the non-financial assets in its foreign reserves, as well as speed up the diversification of investing channels to resist a possible long-term weakening of the dollar, said Xia Bing, director of the Finance Research Institutes of the Development Research Center under the State Council.

Zheng Xinli, permanent vice chairman of China Center for International Economic Exchanges, has suggested that Chinese companies boost overseas investment as a way to absorb trade surpluses and fend off the dollar risk.

Now to some degree the Asians knew the bargain they were getting into in buying US treasuries. They were never buying a claim on the US economy, or on the US gold reserves. They were buying a claim on reproducible Federal Reserve notes, and since 1971 the bargain has been that this is a purely fiat currency. Ultimately, if they do not feel like the US will be solvent in the long run, they should not have started lending to it. But now they are the largest real creditor, they have no choice but to keep on buying and keep on stabilising, simply because a functional US economy and a solvent US treasury is about the only way they will see any return at all.

Yet if they don’t exert leverage on the US, then the US seems unlikely to do much at all. Without a little turmoil, legislators have very little incentive to act. If the exporter nations feel as if they are getting screwed, they are only more likely to escalate via the only real means they have — trade war. And having a monopoly on various resources including rare earth minerals (as well as various components and types of finished goods) gives them considerable leverage.

More and more Asian nations — led by China and Russia — have ditched the dollar for bilateral trade (out of fear of dollar instability). Tension rises between the United States and Asia over Syria and Iran. The Asian nations throw more and more abrasive rhetoric around — including war rhetoric.

And on the other hand, both Obama and Romney — as well as Hillary Clinton — seem dead-set on ramping up the tense rhetoric. Romney seems extremely keen to brand China a currency manipulator.

In truth, both sides have a mutual interest in sitting down and engaging in a frank discussion, and then coming out with a serious long-term plan of co-operation on trade and fiscal issues where both sides accept compromises — perhaps Asia could agree to reinvest some of its dollar hoard in the United States to create American jobs and rebuild American infrastructure in exchange for a long-term American deficit-reduction and technology-sharing agreement?

But such co-operation would require real trust and respect — and I just don’t see it. China’s leaders deeply resent the West for the opium war years, and the humiliation that came with the end of the Chinese empire — and they see America as profligate, and culturally degenerate. And America’s leaders see China as an unstable anti-democratic dictatorship, not a prospective partner.

So the future, I think, will more likely involve both sides jumping off the cliff into the uncertain seas of trade war, currency war, default-by-debasement, tariffs, proxy war and regional and global political and economic instability.

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We’re All Nixonians Now

People have got to know whether their President is a crook

Richard M. Nixon

I often wonder who is worse: George W. Bush — the man who turned a projected trillion dollar surplus into the greatest deficits in world history, who bailed out the profligate Wall Street algos and arbitrageurs, who proceeded with two needless, pointless and absurdly costly military occupations (even though he had initially campaigned on the promise of a humble foreign policy), who ignored Michael Scheuer’s warnings about al-Qaeda previous to 9/11, who signed the Constitution-trashing PATRIOT Act  (etc etc ad infinitum) or his successor Barack Obama, the man who retained and expanded the PATRIOT Act powers under the NDAA (2011), who claimed the right to extrajudicially kill American citizens using predator drones, who expanded Bush’s expensive and pointless occupations (all the while having run on a promise to close the Guantanamo Bay detention centre and reverse Bush’s civil liberties incursions), who proceeded with Paulson’s Wall Street bailouts, authorised the NSA to record all phone calls and internet activity, and continued the destructive War on Drugs (even though he had in the past been a drug user).

The answer, by the way, is Richard Nixon. For almost forty years after that man’s resignation, it is arguable that almost every single administration (with the possible exception of  Carter as well as Reagan’s first year in office) — but especially that of Bush and Obama — has been cut from his cloth. It was Richard Nixon who inaugurated the War on Drugs — that despicable policy that has empowered the drug gangs and obliterated much of Latin America. It was Richard Nixon who so brazenly corrupted the White House and tarnished the office of the Presidency through the Watergate wiretapping scandal.  It was Nixon’s administration that created the culture of government surveillance that led directly to the PATRIOT Act. It was Nixon who internationalised the fiat dollar, so trampling George Washington’s warnings about not entangling alliances, and of course setting the stage for the gradual destruction of American industry that continued apace under NAFTA and into the present day, where America runs the greatest trade deficits in human history. It was Richard Nixon who set the precedent of pointless, stupid, blowback-inducing militarism, by continuing and expanding the Vietnam war. It was Richard Nixon whose administration authorised the use of chemical weapons (or as George W. Bush might have put it, “weapons of mass destruction”) against the Vietcong.

Presidents since have followed — to a greater or lesser extent — in his mould. This is particularly acute this election cycle; you vote for Obama and you get Richard Nixon, or you vote for Romney and you get Richard Nixon. Nixon’s words: “we’re all Keynesians now” have a powerful resonance; not only has every administration since Nixon retained the petrodollar standard and spent like a drunken sailor in pursuit of Keynesian multipliers, but every President since has followed in the Nixonian tradition on civil liberties, on trade, on foreign policy. Henry Kissinger — the true architect of many Nixonian policies, and Obama’s only real competition for most bizarre Nobel Peace Prize recipient — has to some degree counselled each and every President since.

It is hard to overstate the magnitude of Nixon’s actions. The demonetisation of  gold ended a 5,000 year long tradition. It was a moment of conjuring, a moment of trickery; that instead of producing the goods, and giving up her gold hoard to pay for her consumption habits (specifically, her consumption of foreign energy), America would give the finger to the world, and print money to pay her debts, while retaining her (substantial) gold hoard. The obvious result of this policy has been that America now prints more and more money, and produces less and less of her consumption. She has printed so much that $5 trillion floats around Asia, while the American industrial belt rusts. Industrial production in America is where it was ten years ago, yet America’s debt exposure has ballooned.

America has had not one but two Vietnams in the past ten years.

First, Afghanistan, in the pursuit of the elusive Osama bin Laden (or, “in the name of liberating women”, presumably via blowing their legs off in drone strikes), where young Western soldiers continue to die (for what?), even after bin Laden’s supposed death in a Pakistani compound last year.

Then, Iraq, presumably in the interests of preventing Saddam Hussein from using non-existent Weapons of Mass Destruction, or liberating more women by blowing their legs off (or as Tom Friedman  put it: “SUCK! ON! THIS!”).

Like Nixon’s Presidency, the Nixonian political system is highly fragile. Debt is fragility, because it enforces the inflexibility of repayment, and the Nixonian political system has created staggering debt, much of it now offshore. The Nixonian economic policy has gutted American industry, leaving America uncompetitive and dependent on foreign productivity and resources. The Nixonian foreign policy has created a world that is deeply antipathetic to America and American interests, which has meant that America has become less and less capable of achieving imperatives via diplomacy.

Future historians may finger George W. Bush as the worst President in history, and the one who broke the American empire. But smarter scholars will pinpoint Nixon. True, the seeds of destruction were sown much earlier with the institution of permanent limited liability corporations. This allowed for the evolution of a permanent corporate aristocracy which eventually bought out the political echelon, and turned the Federal government into an instrument of crony capitalism, military Keynesianism and corporate welfare. Nixonianism has been the corporate aristocracy’s crowning achievement. And to some extent, this period of free lunch economics was a banquet, even for middle class Americans. The masses were kept fat and happy. But now the game is up — like Nixon’s Presidency — its days are numbered.

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Putin is Back

Yeah.

Let’s just remind ourselves what we’re dealing with here.

Here’s what Putin observed last August:

America are living beyond their means and shifting a part of the weight of their problems to the world economy. They are living like parasites off the global economy and their monopoly of the dollar. If [in America] there is a systemic malfunction, this will affect everyone. Countries like Russia and China hold a significant part of their reserves in American securities. There should be other reserve currencies.

It should be no surprise to anybody, then, that the last Russian government — as well as their autocratic ASEAN friends in China, Pakistan, Iran and so on — began taking proactive measures to extricate itself from the dollar system.

I expect the new government to accelerate such measures.

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Brazil Slams the West’s Currency War

Mitt Romney is not the only global figure to unleash allegations of currency manipulation. In fact, most of the allegations are aimed at America and the West.

From Reuters:

Brazilian President Dilma Rousseff slammed rich nations on Thursday for unleashing a “tsunami” of cheap money that threatened to “cannibalize” poorer countries such as her own, forcing them to act to protect struggling local industries.

Rousseff’s words amounted to some of the highest-profile criticism to date of efforts by the European Central Bank, the Bank of Japan and others to spur their economies through low interest rates and cheap loans.


I just want to flag up Henry Kissinger’s words from his recent Foreign Affairs piece:

The current world order was built largely without Chinese participation, and hence China sometimes feels less bound than others by its rules. Where the order does not suit Chinese preferences, Beijing has set up alternative arrangements, such as in the separate currency channels being established with Brazil and Japan and other countries. If the pattern becomes routine and spreads into many spheres of activity, competing world orders could evolve. Absent common goals coupled with agreed rules of restraint, institutionalized rivalry is likely to escalate beyond the calculations and intentions of its advocates. In an era in which unprecedented offensive capabilities and intrusive technologies multiply, the penalties of such a course could be drastic and perhaps irrevocable.

Competing world orders could evolve? No; competing world orders are a reality, and it seems like Latin America — most obviously Argentina and Venezuela, but now also Brazil, and perhaps even Colombia and Mexico — are moving closer toward the emerging ASEAN bloc, and away from the West.

Ironically, the emerging currency war is as much as anything else a side-effect of Bernanke’s admitted preoccupation with fluffing and puffing up U.S. equities.

And it looks like he’s going to be getting a hand.

From Bloomberg:

The Bank of Israel will begin today a pilot program to invest a portion of its foreign currency reserves in U.S. equities.

The investment, which in the initial phase will amount to 2 percent of the $77 billion reserves, or about $1.5 billion, will be made through UBS AG and BlackRock Inc., Bank of Israel spokesman Yossi Saadon said in a telephone interview today. At a later stage, the investment is expected to increase to 10 percent of the reserves.

Zero Hedge prognosticates:

In other words, while the Fed’s charter forbids it from buying US equities outright, it certainly can promise that it will bail out such bosom friends as the Bank of Israel, the Swiss National Bank, and soon everyone else, if and when their investment in Apple should sour.

Luckily, this means that the exponential phase in risk is approaching as everyone will now scramble to frontrun central bank purchases no longer in bonds, but in stocks outright, leading to epic surges in everything risk related, then collapse and force the Fed to print tens of trillions to bail everyone out all over again, rinse repeat. We say luckily, because it means that the long overdue systemic reset is finally approaching.

Developing nations have a legitimate concern: Western central banks will throw liquidity around to no end to save the status quo. And that means that developing nations will themselves feel they have to compete in order to remain competitive. It’s messy.

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Iran Squeezes the Petrodollar

I have, these last few months, been documenting the current state of geopolitics —specifically the growing isolation of the West, the ditching of the dollar as the global reserve currency, the growing unity between the authoritarian Eurasian nations, and the brewing storm in the middle east between Israel and Iran.

Now another piece of the puzzle falls into place.

From Zero Hedge:

Much has been spun in recent weeks to indicate that as a result of collapsing trade, Iran’s economy is in shambles and that the financial embargo hoisted upon the country by the insolvent, pardon, developed world is working. We had a totally different perspective on things “A Very Different Take On The “Iran Barters Gold For Food” Story” in which we essentially said that Iran, with the complicity of major trading partners like China, India and Russia is preparing to phase out the petrodollar: a move which would be impossible if key bilateral trade partners would not agree to it. Gradually it appears this is increasingly the case following a just released Reuters report that “Iran will take payment from its trading partners in gold instead of dollars, the Iranian state news agency IRNA quoted the central bank governor as saying on Tuesday.”

The Eurasian powers — centred around the troika of Russia, China, and Iran — continue to ransack the dollar’s legitimacy as the global reserve currency.

Meanwhile, in a Foreign Affairs piece, the architect of our current world order, Henry Kissinger, seems to see the writing on the wall:

The current world order was built largely without Chinese participation, and hence China sometimes feels less bound than others by its rules. Where the order does not suit Chinese preferences, Beijing has set up alternative arrangements, such as in the separate currency channels being established with Brazil and Japan and other countries. If the pattern becomes routine and spreads into many spheres of activity, competing world orders could evolve. Absent common goals coupled with agreed rules of restraint, institutionalized rivalry is likely to escalate beyond the calculations and intentions of its advocates. In an era in which unprecedented offensive capabilities and intrusive technologies multiply, the penalties of such a course could be drastic and perhaps irrevocable.

Kissinger recognises the Eurasian endgame — also described by me quite throughly over the six months:

Some American strategic thinkers argue that Chinese policy pursues two long-term objectives: displacing the United States as the preeminent power in the western Pacific and consolidating Asia into an exclusionary bloc deferring to Chinese economic and foreign policy interests. In this conception, even though China’s absolute military capacities are not formally equal to those of the United States, Beijing possesses the ability to pose unacceptable risks in a conflict with Washington and is developing increasingly sophisticated means to negate traditional U.S. advantages. Its invulnerable second-strike nuclear capability will eventually be paired with an expanding range of antiship ballistic missiles and asymmetric capabilities in new domains such as cyberspace and space.China could secure a dominant naval position through a series of island chains on its periphery, some fear, and once such a screen exists, China’s neighbors, dependent as they are on Chinese trade and uncertain of the United States’ ability to react, might adjust their policies according to Chinese preferences. Eventually, this could lead to the creation of a Sinocentric Asian bloc dominating the western Pacific. The most recent U.S. defense strategy report reflects, at least implicitly, some of these apprehensions.

He ends the piece flatly:

Both sides should be open to conceiving of each other’s activities as a normal part of international life and not in themselves as a cause for alarm. The inevitable tendency to impinge on each other should not be equated with a conscious drive to contain or dominate, so long as both can maintain the distinction and calibrate their actions accordingly. China and the United States will not necessarily transcend the ordinary operation of great-power rivalry. But they owe it to themselves, and the world, to make an effort to do so.

But — in reality — American and Western policy is nothing like as respectful toward China as Kissinger might hope.

As I wrote earlier this month:

The last hope for American imperial hegemony is to bring the Arab Spring to Moscow, Beijing, Tehran, and Islamabad.

Kissinger — while not explicitly endorsing such an eventuality — recognises the possibility:

The political scientist Aaron Friedberg writes, for example, that “a liberal democratic China will have little cause to fear its democratic counterparts, still less to use force against them.” Therefore, “stripped of diplomatic niceties, the ultimate aim of the American strategy [should be] to hasten a revolution, albeit a peaceful one, that will sweep away China’s one-party authoritarian state and leave a liberal democracy in its place.”

And — for all the hullabaloo about war with Iran —the Arab Spring model is the State Department’s last best hope for maintaining American primacy in the face of (as Tyler Durden puts it) insolvency. War, proxy war, or trade war with the Eurasian powers is too costly, too risky, too open-ended for America today.

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Solar Dissenters

Quite often, an energy doomer will turn up commenting that I am overlooking the fact that the expansion of the last century has been oil-fuelled and that this century’s new oil scarcity means that the party is over.

These people are wrong — for the same reason that Malthus (and all Malthusians) have always been wrong about everything — they have ignored the hard-to-measure variable of human ingenuity.

Back in September I remarked:

The solar energy hitting the earth exceeds the total energy consumed by humanity by a factor of over 20,000 times. More solar energy hits the world in a day, than we use in fifty years, at current rates.

Nuclear fission has massive unquantifiable tail risk. Solar power has almost zero tail risk.

Goodbye, Fukushima.

The dissenters soon appeared, screaming unintelligibly about solar panels not working at night. Not so.

A new high efficiency solar cell design that can use almost the entire solar spectrum has been announced by Lawrence Berkeley National Laboratory.

What this means is that the resulting solar panels will be able to generate power while it’s dark! What’s more, the new solar technology can be made using existing low cost methods already in operation.

A conventional solar cell captures light from one part of the spectrum. This new solar technology uses different materials stacked in layers, which use different wavelengths. Significantly, these include low and mid-energy wavelengths.

Human ingenuity triumphs again. The beauty of solar is that nothing can compete with its ubiquity, its reliability and its decentralisation. The growth of solar energy melds with nature: solar energy is by far the most abundant source of energy on our planet, far more so than hydrocarbons. Oil and gas are a necessary stepping stone to the solar revolution, nothing more. They are, ultimately, solar energy from aeons ago locked away beneath the earth.

Directly harnessing the power of the stars is an obvious step in the development of any sustainable terrestrial species.

None of this excuses the excesses of Solyndra, though. Solar will deploy as it becomes economically viable for it to do so, not via the assent of politicians.

With conventional energy prices continuing their century-long march upward, that will not be long.

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Gold in 2012 & the Coming Bond Crash?

Since that spurt up to $1917, and the slump down to $1528 gold has been on ice below $1700. The technical analysis suggests that there is little to get excited about until gold breaks out of the $1600 to $1700 range, and I tend to agree. This is a slow-motion degeneration: triggers for a breakout seem limited to a deeper Euro meltdown (coming — and ultimately leading to a default cascade, and a derivatives meltdown), more American money printing (coming), or (most importantly) a large scale and visible dumping of dollars or treasuries by foreign creditors. Black swans like another Fukushima, incidences of terrorism, or broader social unrest might be bullish for gold in the long term, but gold right now (at least in the West) is up against a wall of perceptions: namely, that haven assets are limited to dollars, and to US treasury bonds. In the mainstream lexicon, gold is used to hedge tail risk and to make jewellery, and until that perception is shattered then I don’t think the funds will begin to significantly increase gold allocations.

There are two very strong pieces of evidence here for dollar and treasury weakness and instability: firstly, the very real phenomenon of negative real interest rates (i.e. interest rates minus inflation) making treasury bonds a losing investment in terms of purchasing power, and secondly the fact that China (the largest real holder of Treasuries) claims to be committed to dumping them and acquiring harder assets (and bailing out their real estate bubble). So when these perceptions will be shattered? Here are bond yields since 2007:


The bond market is a market, and like any other it is determined by supply and demand (Zero Hedge readers — algorithmic trading is still a form of supply and demand, albeit a fucked-up one). Low yields mean high prices, which mean that demand is still high — pretty close to all-time highs — which means that in the market the belief that treasuries are a haven still mostly holds.

A large sovereign treasury dumper like China with its $1+ trillion of treasury holdings throwing a significant portion of these onto the open market could very quickly outpace the institutional buyers, and force a small spike in rates (i.e. a drop in price). The small recent spike corresponds to this kind of activity. The difference between a small spike in yields and one large enough to make the market panic enough to cause a treasury crash is the pace and scope of liquidation.

Now, no sovereign seller in their right mind would fail to pace their liquidation just slowly enough to keep the market warm. After all, they want to get the most for their assets as they can, and panicking the market would mean a lower price.

But there are two (or three) foreseeable scenarios that would raise the pace to a level sufficient to panic the markets:

  1. China desperately needs to raise dollars to bail out its real estate market and paper over the cracks of its credit bubbles, and so rashly goes into full-on liquidation mode.
  2. China retaliates to an increasingly-hostile American trade policy and — alongside other hostile foreign creditors (Russia in particular) — organise a mass bond liquidation to “teach America a lesson”.
  3. Both of the above.

Now the pace and scope of any coming treasury liquidation is still uncertain and I expect it to very much be dictated by how the Chinese real estate picture plays out — the worse the real estate crash, the more likely a Chinese liquidation.

The pace of events might also be significantly accelerated in the light of a full-blown Eurozone default.

So in conclusion — give or take the inevitable QE3 spike — I expect gold prices to be stable or lower — even in the context of low real interest rates — up ’til a significant treasury liquidation. I don’t know when or if this will occur, but if it does, I would expect gold prices to soar in the following months. If it doesn’t occur and markets return to stronger organic growth, the gold bull market will probably end.

It must also be noted that a stock market crash will probably send gold lower in the short term, as with 2008. Ironically, the subsequent flight into treasuries (driving rates lower still) might be a NASDAQ-esque “blow-out top” that signifies the end.

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Palestine: Obama Plays With Fire

Barack Obama discovered very early in his Presidency that in spite of his campaign promises he cannot be all things to all people. And, with the UN gearing up to a highly-charged vote over whether or not to recognise Palestine as a sovereign state, the future status of Palestine, Israel and the Middle East lies with the Obama administration, which is expected to veto any such proposal.

From the BBC:

Barack Obama has told the UN General Assembly the Palestinians deserve their own state, but that this would only be achieved through talks with Israel.

The US president’s speech came as diplomatic efforts for Palestinian UN membership intensified, while thousands rallied in the West Bank.

“Peace will not come through statements and resolutions at the UN,” he said.

He added there could be no “short cut” to peace, and is expected to urge the Palestinians to give up the initiative.

Mr Obama is holding talks with Israeli Prime Minister Benjamin Netanyahu, and is to meet Palestinian leader Mahmoud Abbas later.

Mr Abbas is set to launch the statehood bid on Friday, after his address to the UN General Assembly, with a written request to Secretary General Ban Ki-moon.

If his request is approved by Mr Ban, the Security Council will then examine and vote on it. In order to pass, the request must get the votes of nine out of 15 council members, with no vetoes from the permanent members.

If America vetoes this resolution, global opinion — which is broadly favourable to the Palestinian cause — may treat Obama and America rather unkindly. The middle east has recently seen a wave of revulsion toward Israel, including frenzied mob attacks on embassies in Jordan and Egypt. Turkey has cooled relations with Israel. Globally India, Russia and China have all expressed support for the resolution.

If America vetoes this resolution against the global consensus, Israel and America will simply be alienating themselves from other nations, by pursuing a widely detested course that puts all of the power in the hands of Israel.

And alienation is bad, both for Israel and for America, because they are both dependent on imported energy, imported natural resources, and imported goods. America spends trillions of dollars a year on military hardware, manpower and infrastructure to police the world and keep the global infrastructure stable. Why would Obama choose to stir the hornets’ nests by going against the wishes of the world? Certainly, the American political system and the Obama administration is influenced by Jewish interests who have no wish to see a Palestinian state.

But should those interests be of more importance to Obama than the wishes of global powers like China, India, Russia, and the European Union?

The real question is what impact these events will have on regional power. Does the Arab world have the chutzpah to bend Israel to its will? Or will Israel take stronger action to meet its interests?

UPDATE:

Ehud Olmert states this is the last chance left for the two state solution. From the NYT:

AS the United Nations General Assembly opens this year, I feel uneasy. An unnecessary diplomatic clash between Israel and the Palestinians is taking shape in New York, and it will be harmful to Israel and to the future of the Middle East.

I know that things could and should have been different.

I truly believe that a two-state solution is the only way to ensure a more stable Middle East and to grant Israel the security and well-being it desires. As tensions grow, I cannot but feel that we in the region are on the verge of missing an opportunity — one that we cannot afford to miss.

The Palestinian president, Mahmoud Abbas, plans to make a unilateral bid for recognition of a Palestinian state at the United Nations on Friday. He has the right to do so, and the vast majority of countries in the General Assembly support his move. But this is not the wisest step Mr. Abbas can take.

The Israeli prime minister, Benjamin Netanyahu, has declared publicly that he believes in the two-state solution, but he is expending all of his political effort to block Mr. Abbas’s bid for statehood by rallying domestic support and appealing to other countries. This is not the wisest step Mr. Netanyahu can take.

In the worst-case scenario, chaos and violence could erupt, making the possibility of an agreement even more distant, if not impossible. If that happens, peace will definitely not be the outcome.

The parameters of a peace deal are well known and they have already been put on the table. I put them there in September 2008 when I presented a far-reaching offer to Mr. Abbas.

According to my offer, the territorial dispute would be solved by establishing a Palestinian state on territory equivalent in size to the pre-1967 West Bank and Gaza Strip with mutually agreed-upon land swaps that take into account the new realities on the ground.

The city of Jerusalem would be shared. Its Jewish areas would be the capital of Israel and its Arab neighborhoods would become the Palestinian capital. Neither side would declare sovereignty over the city’s holy places; they would be administered jointly with the assistance of Jordan, Saudi Arabia and the United States.

The Palestinian refugee problem would be addressed within the framework of the 2002 Arab Peace Initiative. The new Palestinian state would become the home of all the Palestinian refugees just as the state of Israel is the homeland of the Jewish people. Israel would, however, be prepared to absorb a small number of refugees on humanitarian grounds.

Because ensuring Israel’s security is vital to the implementation of any agreement, the Palestinian state would be demilitarized and it would not form military alliances with other nations. Both states would cooperate to fight terrorism and violence.

These parameters were never formally rejected by Mr. Abbas, and they should be put on the table again today. Both Mr. Abbas and Mr. Netanyahu must then make brave and difficult decisions.

We Israelis simply do not have the luxury of spending more time postponing a solution. A further delay will only help extremists on both sides who seek to sabotage any prospect of a peaceful, negotiated two-state solution.

Moreover, the Arab Spring has changed the Middle East, and unpredictable developments in the region, such as the recent attack on Israel’s embassy in Cairo, could easily explode into widespread chaos. It is therefore in Israel’s strategic interest to cement existing peace agreements with its neighbors, Egypt and Jordan.

In addition, Israel must make every effort to defuse tensions with Turkey as soon as possible. Turkey is not an enemy of Israel. I have worked closely with the Turkish prime minister, Recep Tayyip Erdogan. In spite of his recent statements and actions, I believe that he understands the importance of relations with Israel. Mr. Erdogan and Mr. Netanyahu must work to end this crisis immediately for the benefit of both countries and the stability of the region.

In Israel, we are sorry for the loss of life of Turkish citizens in May 2010, when Israel confronted a provocative flotilla of ships bound for Gaza. I am sure that the proper way to express these sentiments to the Turkish government and the Turkish people can be found.

The time for true leadership has come. Leadership is tested not by one’s capacity to survive politically but by the ability to make tough decisions in trying times.

When I addressed international forums as prime minister, the Israeli people expected me to present bold political initiatives that would bring peace — not arguments outlining why achieving peace now is not possible. Today, such an initiative is more necessary than ever to prove to the world that Israel is a peace-seeking country.

The window of opportunity is limited. Israel will not always find itself sitting across the table from Palestinian leaders like Mr. Abbas and the prime minister, Salam Fayyad, who object to terrorism and want peace. Indeed, future Palestinian leaders might abandon the idea of two states and seek a one-state solution, making reconciliation impossible.

Now is the time. There will be no better one. I hope that Mr. Netanyahu and Mr. Abbas will meet the challenge.

by

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?