The Uniting States of Eurasia

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 The Sun:

Pakistan yesterday warned Britain to help stop the American “Drone Wars” that are slaughtering hundreds of its innocent civilians.

The nuclear power chillingly declared it “has the means” to retaliate unless the carnage ceases.

Pakistan’s High Commissioner to Britain Wajid Shamsul Hasan told The Sun in an exclusive interview that his country’s relations with America are at their lowest ebb.

He said: “Patience is definitely reaching exhaustion levels.” Mr Hasan said Pakistan backs the War on Terror waged by Britain and the US.

But he urged PM David Cameron to condemn US drone attacks on al-Qaeda and Taliban training camps in the north west of his country — dubbing them as “war crimes” and “little more than state executions”.

Tough-talking Mr Hasan also declared Pakistan would have no choice but to support Iran if “aggressive” Israel attacks it

This isn’t a joke. This isn’t “just rhetoric”. This is Eurasia uniting to keep America out, to trample American and Israeli interests, and to dominate geopolitics. Let me be clear: this is the systemic and complete failure of 40 years of American foreign and domestic policy

From Zbigniew Brzezinski’s Grand Chessboard (pp. 31):

[H]ow America manages Eurasia is critical. A power that dominates Eurasia would control two of the world’s three most advanced and economically productive regions. A mere glance at the map also suggests that control over Eurasia would almost automatically entail Africa’s subordination, rendering the Western Hemisphere and Oceania (Australia) geopolitically peripheral to the world’s central continent. About 75 per cent of the world’s people live in Eurasia, and most of the world’s physical wealth is there as well, both in its enterprises and underneath its soil. Eurasia accounts for about three-fourths of the world’s known energy resources.

With Eurasia uniting around Russia and China (exemplified by their joint veto on Syria) it seems like America — stripped by globalisation of her productive base, and thus dependent on Eurasian resources and manufacturing — is about to lose the colossal free lunch she has enjoyed since the 1970s. And American aggression to impose its will on the Eurasian powers is becoming less and less viable. America is not only deeply in debt to her enemies, but would find herself gravely injured by any future trade war.

Of course, there is a path forward for America. But it is not the path desired by the current administration:

A sensible American plan going forward would recognise [these issues], and would be developing the means and the infrastructure to end America’s free lunch — specifically, through redeveloping American manufacturing capacity and supply chains, and scaling back America’s role as global policeman. Unfortunately, I see no such thing from government, and very little from private industry. America is clinging onto the old foreign policy doctrines — that if America is powerful enough, and if it can retain its role as global hegemon and world policeman, then it will always be free to consume a chunk of the rest of the world’s production and resources, because its currency will forever be the global reserve. But that simply isn’t true — Russia and China have already ditched the dollar for bilateral trade.

But this is bigger than just the implications for America. We are moving into a new era; a new world order, a multi-polar (bipolar? tripolar? apolar?) world.

What will this mean for the rest of the world and all her citizens? I have very little clue — but hopefully not world war, or trade war, or proxy war. Hopefully America will gracefully accept the end of American hegemony. Hopefully the new powers will be gracious and fair toward the old ones. Hopefully the new world will be friendlier to liberty, friendlier to freedom.

But given that the new bloc’s powers all exude authoritarian rhetoric, I doubt it.

Most concerningly, regular readers will be aware that Pakistan are the second Eurasian power to pledge military support to Iran in the case of an Israeli attack. These nations know the score:  the last hope for American imperial hegemony is to bring the Arab Spring to Moscow, Beijing, Tehran, and Islamabad.

The Complex Syrian Situation

I have talked at length about the growing monetary, ideological and political schism developing between the Eurasian powers, and the Western ones.

I have talked at length about the growing Eurasian coalition of resistance against American interests, against American interventionism, against the dollar.

I have talked at length about that coalition’s fear of further American encroachment into Eurasia.

So I was especially prepared for further spats between the two coalitions during 2012, and especially over Iran and Syria.

But the nastiness and disdainfulness of today’s events surprised even me.

From the BBC:

An Arab and Western-backed resolution condemning the violent crackdown in Syria has been vetoed at the UN Security Council by Russia and China.

The two permanent council members rejected the draft resolution, which came hours after activists accused Syrian security forces of killing at least 55 people at Homs.

The US ambassador said the vetoes were “shameful”, Britain was “appalled”.

China and Russia defended their move, saying the draft was “unbalanced”.

Russia says the draft resolution had singled out the government of President Bashar al-Assad, and did not containing measures against armed opposition groups.

But proposed Russian amendments to the text were described as “unacceptable” by the US ambassador to the UN, Susan Rice.

Russian Foreign Minister Sergei Lavrov is due to have talks with Mr Assad in Damascus on Tuesday.

To be clear: this resolution was a step toward military intervention against Bashar al-Assad. I am extremely sceptical that this is a good idea. I believe that the best thing that the global community can do is facilitate dialogue between the government and the protestors, and work toward a peaceful compromise.

This is not because I believe al-Assad deserves to remain in power. He is certainly a tyrant and despot of the highest order. But can we honestly say that committing guns, blood and money to deposing him will guarantee peace and stability? Can we honestly say that the next regime might not be worse? I do not believe we can — especially considering that almost every nation involved in the “Arab Spring” has since elected Islamists to power.

Even with the support of the Arab league, is getting entangled into another messy and open-ended conflict in Russia and China’s backyard really a good idea?  Some voices in China are already rumbling that they would be willing to go to war to prevent an American takeover of Iran.

If avoiding nuclear proliferation is our goal, intervention is certainly a bad idea. Qaddafi’s deposition — in stark contrast to nuclear-armed North Korea — was a signpost to rogue regimes that the only way to ensure their survival is to pursue nuclear armaments.

So the biggest story here — and the real reason for the Sino-Russian veto — is the rumbling tension between the Western and Eurasian blocs.

It is a hornets’ nest the West should not stir. Instead, I believe, we should be more concerned about our own economies, particularly the factors of energy independence, resource independence and domestic manufacturing. For the Eurasian powers are not merely nations far across the world: they are our productive base, our resource base, our labour base. Without their support and co-operation the West’s physical economy will be severely damaged.

In insisting upon picking sides in the Syrian Civil War, we might well be shooting ourselves in the foot. Or the head.

The Decline and Fall of the American Empire

Does the hypochondriac who is ultimately diagnosed with a real, physiological illness have the right to say “I told you so”?

Well, maybe. Sometimes a “hypochondriac” might be ill all along, but those diagnosing him just did not conduct the right test, or look at the right data. Medical science and diagnostics are nothing like as advanced as we like to hope. There are still thousands of diseases and ailments which are totally unexplained. Sometimes this means a “hypochondriac” might be dead or comatose before he ever gets the chance to say “I told you so.”

Similarly, there are are many who suggest that their own nations or civilisations are in ailing decline. Some of them might be crankish hypochondriacs. But some of them might be shockingly prescient:

Is Marc Faber being a hypochondriac in saying that the entire derivatives market is headed to zero? Maybe. It depends whether his analysis is proven correct by events. I personally believe that he is more right than he is wrong: the derivatives market is deeply interconnected, and counter-party risk really does threaten to destroy a huge percentage of it.

More dangerous to health than hypochondria is what I might call hyperchondria.


This is the condition under which people are unshakeably sure that they are fine. They might sustain a severe physical injury and refuse medical treatment. They brush off any and all sensations of physical illness. They suffer from an interminable and unshakeable optimism. Government — or, at least, the public face of government — is littered with them. John McCain blustered that the economy was strong and robust — until he had to suspend his Presidential campaign to return to Washington to vote for TARP. Tim Geithner stressed there was “no chance of a downgrade” — until S&P downgraded U.S. debt. Such is politics — politicians like to exude the illusion of control. So too do economists, if they become too politically active. Ben Bernanke boasted he could stanch inflation in “15 minutes“.

So, between outsiders like Ron Paul who have consistently warned of the possibility of economic disaster, and insiders like Ben Bernanke who refuse to conceive of such a thing, where can we get an accurate portrait of the shape of Western civilisation and the state of the American empire?

Professor Alfred McCoy — writing for CBS News — paints a fascinating picture:

A soft landing for America 40 years from now?  Don’t bet on it.  The demise of the United States as the global superpower could come far more quickly than anyone imagines.  If Washington is dreaming of 2040 or 2050 as the end of the American Century, a more realistic assessment of domestic and global trends suggests that in 2025, just 15 years from now, it could all be over except for the shouting.

Despite the aura of omnipotence most empires project, a look at their history should remind us that they are fragile organisms. So delicate is their ecology of power that, when things start to go truly bad, empires regularly unravel with unholy speed: just a year for Portugal, two years for the Soviet Union, eight years for France, 11 years for the Ottomans, 17 years for Great Britain, and, in all likelihood, 22 years for the United States, counting from the crucial year 2003.

Future historians are likely to identify the Bush administration’s rash invasion of Iraq in that year as the start of America’s downfall. However, instead of the bloodshed that marked the end of so many past empires, with cities burning and civilians slaughtered, this twenty-first century imperial collapse could come relatively quietly through the invisible tendrils of economic collapse or cyberwarfare.

But have no doubt: when Washington’s global dominion finally ends, there will be painful daily reminders of what such a loss of power means for Americans in every walk of life. As a half-dozen European nations have discovered, imperial decline tends to have a remarkably demoralizing impact on a society, regularly bringing at least a generation of economic privation. As the economy cools, political temperatures rise, often sparking serious domestic unrest.

Available economic, educational, and military data indicate that, when it comes to U.S. global power, negative trends will aggregate rapidly by 2020 and are likely to reach a critical mass no later than 2030. The American Century, proclaimed so triumphantly at the start of World War II, will be tattered and fading by 2025, its eighth decade, and could be history by 2030.

Significantly, in 2008, the U.S. National Intelligence Council admitted for the first time that America’s global power was indeed on a declining trajectory. In one of its periodic futuristic reportsGlobal Trends 2025, the Council cited “the transfer of global wealth and economic powernow under way, roughly from West to East” and “without precedent in modern history,” as the primary factor in the decline of the “United States’ relative strength — even in the military realm.” Like many in Washington, however, the Council’s analysts anticipated a very long, very soft landing for American global preeminence, and harbored the hope that somehow the U.S. would long “retain unique military capabilities… to project military power globally” for decades to come.

No such luck.  Under current projections, the United States will find itself in second place behind China (already the world’s second largest economy) in economic output around 2026, and behind India by 2050. Similarly, Chinese innovation is on a trajectory toward world leadership in applied science and military technology sometime between 2020 and 2030, just as America’s current supply of brilliant scientists and engineers retires, without adequate replacement by an ill-educated younger generation.

Wrapped in imperial hubris, like Whitehall or Quai d’Orsay before it, the White House still seems to imagine that American decline will be gradual, gentle, and partial. In his State of the Union address last January, President Obama offered the reassurance that “I do not accept second place for the United States of America.” A few days later, Vice President Biden ridiculed the very idea that “we are destined to fulfill [historian Paul] Kennedy’s prophecy that we are going to be a great nation that has failed because we lost control of our economy and overextended.” Similarly, writing in the November issue of the establishment journal Foreign Affairs, neo-liberal foreign policy guru Joseph Nye waved away talk of China’s economic and military rise, dismissing “misleading metaphors of organic decline” and denying that any deterioration in U.S. global power was underway.

Frankly — given how deeply America is indebted, given that crucial American military and consumer supply chains are controlled by China, given how dependent America is on foreign oil for transport and agribusiness — I believe that the end of American primacy by 2025 is an extraordinarily optimistic estimate. The real end of American primacy may have been as early as 9/11/2001.

The Great Treasury Dumping Game Continues

A few months ago I wrote:

A couple months ago, I hypothesises about the possibility foreign treasury dumping:

It is becoming clearer and clearer that America cannot and will not produce a coherent economic strategy. China seems to be beginning to offload not only its Treasury balance, but also its dollar pile.

Then I noted some of the prospective dangers:

Now we get the news that creditors are currently engaged in a huge Treasury liquidation.

A new post from Zero Hedge establishes that Russia is joining the Treasury-dumping party:

  • IMF’S LAGARDE SAYS EUROPE DEBT CRISIS `ESCALATING’
  • IMF’S LAGARDE: CRISIS REQUIRES ACTION BY COUNTRIES OUTSIDE EU

Well, we know the UK is now out, courtesy of idiotic statements such as this one by Christina Noyer. So who will step up? Why Russia it seems.

  • RUSSIA CONSIDERS PROVIDING UP TO $20B TO IMF, DVORKOVICH SAYS

Why’s that? Because like China (more on that in an upcoming post), Russia just dumped US bonds for the 12th straight month and instead both Russia and China are now focusing on making Europe their vassal state. So now we know where the money is coming from – sales of US debt of course!

Source: TIC

Is the US quietly becoming increasingly isolated in global affairs?

The question as to whether the US is becoming increasingly isolated is completely spurious; the United States isolated herself politically way back when in 1971 she took itself off the gold standard, and decided that she could get a free lunch at others’ expense from printing money.

The key thesis I have advanced seems to be hotting up:

What would a treasury crash look like? Most likely, it would be dictated by supply — the greater the supply of treasuries coming onto the market, the more there are for buyers to buy, the lower prices will be forced before new buyers come onto the market. Specifically, a treasury crash would most likely begin with a big seller dumping significant quantities of treasuries bonds onto the open market. I would expect such an event to be triggered bylower yields— most significant would be the 30-year, because it still has a high enough yield to retain purchasing power (i.e. a positive real rate). Operation Twist, of course, was designed to flatten the yield curve, which will probably push the 30-year closer to a negative real return.

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

Hillary Clinton is a Hypocrite

From AP:

U.S. Secretary of State Hillary Rodham Clinton said Monday the U.S. has “`serious concerns” about the conduct of Russia’s parliamentary elections.

She said “the Russian people, like people everywhere, deserve the right to have their voices heard and their votes counted. That means they deserve free, fair, transparent elections and leaders who are accountable to them.”

When it comes to deficits of democracy, and a lack of accountable leadership, Clinton would do better to look at America:

  1. Young people exercising their constitutional rights to protest against the disgusting, vile, anti-capitalist and unconstitutional bailouts of Wall Street financials are being pepper sprayed, beaten down to the ground and stamped on.
  2. The American Senate passed the NDAA — an act that authorises the military to arrest and indefinitely detain any citizen without trial, and that defines the entire United States as a battlefield.
  3. Banks and Washington insiders get pumped flush with cash while wider society remains in the throes of a devastating contractionary depression and crippling unemployment.
  4. The Guantanamo Bay detention camp remains open, almost three years after Obama pledged it would be closed.
  5. No Bush administration figure has been prosecuted for violating the Constitution and the Geneva Convention by authorising torture.
  6. Obama continues to renew the illiberal, reactionary, unconstitutional and widely-abused Patriot Act, a piece of legislation that mandates mass surveillance of Americans in violation of the 4th and 5th Amendments.

While it is impossible to hold up Russia under Putin as a paradigm of human rights and democracy, America today can hardly consider itself any better.

Of course, this isn’t really about democracy.

From the Guardian:

Vladimir Putin has accused the US of encouraging the protests over Russia‘s parliamentary election and warned of a wider crackdown on unrest.

The Russian prime minister said Hillary Clinton, the US secretary of state, “gave a signal” to Kremlin opponents by describing the country’s parliamentary election as rigged. “They heard this signal and with the support of the US state department began their active work,” he said.

Russia is a mineral- and resource-rich nation with the largest landmass in the world. Quite a prize.

“China Will Not Hesitate To Protect Iran Even With A Third World War”

From Zero Hedge:

Fast forward to 2:08: “It is puzzling to some that Major General Zhang Zhaozhong, a professor from the Chinese National Defense University, said China will not hesitate to protect Iran even with a third World War. Professor Xia Ming: “Zhang Zhaozhong said that not hesitating to fight a third world war would be entirely for domestic political needs….”

Now, I don’t think a Third World War will really be of much benefit to China right now: they are strengthened by the status quo; power and wealth is flowing from West to East. They have humungous treasury and FX reserves that would be better discharged into productive assets, physical assets, etc.

But perhaps I underestimated the strategic importance to China of keeping America out of Eurasia, and retaining access to Iranian oil.

Ultimately — unless America unleashes a nuclear holocaust — it is a war that I think China would be certain to win, slowly, painfully and excruciatingly. The key card China holds is that it retains control over many American supply chains, not just for finished goods, but for components and resources. America has grown hugely dependent on importing energy and resources through the global trade web; a global trade shutdown would trigger hyperinflation in America, and force a long, painful transition period. America — even with European support — does not have enough manpower or enough leverage over global resources and energy to win a conventional war against Russia, China, and Iran.

I hope that sanity prevails, and there is no new war against Iran.

Kinetic Peace Action #2

Following NATO’s war in Libya, hawkish commentators have been salivating over the prospect of more “liberal interventionism” in the middle east.

Now, thanks to the Arab League, they might just get their wish.

From Zero Hedge:

Yesterday we reported that the Arab League (with European and US support) are preparing to institute a no fly zone over Syria. Today, we get an escalation which confirms we may be on the edge. Just out from CBS“The U.S. Embassy in Damascus urged its citizens in Syria to depart “immediately,” and Turkey’s foreign ministry urged Turkish pilgrims to opt for flights to return home from Saudi Arabia to avoid traveling through Syria.” But probably the most damning evidence that the “western world” is about to do the unthinkable and invade Syria, and in the process force Iran to retaliate, is the weekly naval update from Stratfor, which always has some very interesting if always controversial view on geopolitics, where we find that for the first time in many months, CVN 77 George H.W. Bush has left its traditional theater of operations just off the Straits of Hormuz, a critical choke point, where it traditionally accompanies the Stennis, and has parked right next to Syria.

The point, I think, is that the Arab League and NATO would be very happy to see Iran’s wings clipped through regime change in Syria. I’ll be absolutely clear: I think that this is an attempt to get Iran to directly intervene in Syria, and get their fingers burnt by a humiliating NATO counter-offensive. The preferred outcome would be a resurrection of the Green Revolution, a bringing of the Arab Spring to the streets of Tehran, and regime change.

I don’t think Ahmadinejad is that stupid. He long ago absorbed the lessons of Saddam Hussein (now confirmed by the demise of Qaddafi). As I wrote last month, these are:

  1. Nuclear weapons are an essential prerequisite to holding off NATO-sponsored regime change.
  2. Western nations and organisations — including NATO, the United States, Britain, France and the UN — cannot be trusted.

Ahmadinejad would not respond. Iran is preparing for the coming Israeli-NATO onslaught, and doing everything in its power to urge China and Russia to heavily discourage any such move. China and Russia — strong Iranian trade partners (and to some extent ideological partners) — already have a strong interest (energy and resources) in resisting regime change in Tehran.

But this is all part of a greater game: America and the West are locked in a proxy war with the Eurasian autocracies (Pakistan, Russia, Iran, China — for short, the PRICs) for both Eurasia’s huge resources and manpower, and global military and financial supremacy. American policy is to retain the petrodollar-standard, and continue enjoying the free lunch such a system yields.

Iran’s fall could give America — as heavily indebted and zombified as America is — a significant boost toward retaining primacy in years to come, and scare the other autocracies into compliance. For that reason, Russia and China — who have gained a very strong position through accumulating American currency, and become hubs of global trade — will not be keen to see further American encroachment into their back yard.

Forward-thinking readers are urged to get a copy of Zbigniew Brzezinski’s masterpiece The Grand Chessboard, and study it.

Israel, Iran & War

Forget the Eurozone — this is surely the scariest news of the year.

From the Daily Mail:

  • Fears mount that Iran could be ‘nuclear ready’ in a matter of months
  • UN intelligence suggests Iran was helped by foreign experts – including rogue Russian scientist
  • Russia foreign minister says any military action would be a ‘serious mistake’
  • Condoleezza Rice: ‘We must do everything we can to bring Iran down’
  • Mahmoud Ahmadinejad remains defiant
Russia and China have expressed growing concern about a mooted American military strike against Iran over its alleged nuclear programme.The UN last week warned it had ‘compelling evidence’ to suggest Iran is secretly building an arsenal of nuclear warheads.

The UN’s International Atomic Energy Agency (IAEA) is this week due to publish a damning report on the findings fuelling fears Iran could be ‘nuclear ready’ within months.


Sticking my neck out a little, if a rampant communist dictatorship like the Soviet Union can have nuclear weapons for over forty years without nuclear apocalypse (not to mention ethnocracies like Pakistan and Israel) then I can’t see what the problem is with Iran having them. Surely a last ditch strike on a pre-nuclear Iran would confirm the scary post-Qaddafi reality that dictatorships, autocracies and theocracies are not safe from Western liberal interventionism until they have gained a nuclear arsenal?

More concerningly, a Western attack on a nation at the heart of Eurasia — and a friend to the other Eurasian autocracies, particularly Russia and China — is surely a message that America and Israel will do everything in their power to maintain the petrodollar status quo, something that rising powers like Russia and China find distasteful and disrespectful.

But the emerging reality of a multi-polar world will do nothing to stop the hawks from clawing and shrieking against the reality of change.

From Haaretz:

Former Secretary of State Condoleezza Rice has said she is sure the Israelis will defend themselves against the Iranians if they were to reach nuclear capabilities.

“I don’t have any doubt that the Israelis will defend themselves if the Iranians look as if they really are about to cross that nuclear threshold,” Rice told Newsmax in a TV interview.

I — on the other hand — have no doubt that the era of American-Israeli-British primacy is drawing to an end. The global system of floating fiat currencies is being gutted by years of competitive debasement. The international financial system is a house of cards, swaying in the breeze. Western industry has been gutted, and shipped to the East. Western capital is exported away to the East via humungous Western trade deficits. Western labour markets rot, beleaguered by high unemployment, evaporating skills, and huge inequality between the rich and poor. Western discontent is rising. Most dangerously, the West remains highly dependent on foreign oil — a supply that a new war, or some other black swan might disrupt — wreaking havoc.

So, as I wrote last month:

Sadly, we know how that aphorism from Winston Churchill goes: that Americans will do the right thing — after they’ve tried everything else.

Which is why I’m coming to believe that the military-Keynesian establishment might try and kill every bird with one stone — a new regional war in Eurasia, probably involving Syria, Iran and Israel. Let’s look at what that might accomplish:

  1. Create a new post-9/11-style hard-to-question patriotism — “There’s a war on — we all need to rally together around the flag — the complainers and protestors must hate America”
  2. Put America back to work — in weapons factories, and on the front lines.
  3. Give the economy a large Keynesian injection — through war spending.
  4. Take out Iran, a powerful enemy of America — and send a threatening message to other uppity Eurasian autocracies like Russia and China.
  5. Curtail civil liberties & censor the internet — “There’s a war on — we all need to rally together around the flag — and those who don’t must be working to undermine America”
John Maynard Keynes noted that in the long run, we’re all dead. I hope that in the short run, we’ll all still be alive.

The Emperor is Wearing No Clothes

As I’ve covered in pretty excruciating depth these past few weeks, the Euro in its current form is sliding unrelentingly into the grave.

Some traders seem pretty excited about that eventuality.

Why? There’s plenty of money to be made killing the Euro, (just like there was plenty of money to be made in naked-shorting Lehman brothers to death):

Markets are ruled right now by fear. Investors: the big money, the smart money, the big funds, the hedge funds, the institutions, they don’t buy this rescue plan. They know the market is toast. They know the stock market is finished, the euro, as far as the Euro is concerned they don’t really care. They’re moving their money away to safer assets like Treasury bonds, 30-year bonds and the US dollar.

I would say this to everybody who’s watching this. This economic crisis is like a cancer. If you just wait and wait thinking this is going to go away, just like a cancer it’s going to grow and it’s going to be too late.

This is not a time to wishfully think the governments are going to sort this out. The governments don’t rule the world. Goldman Sachs rules the world. Goldman Sachs does not care about this rescue package, neither do the big funds.

A few points:

“They’re moving their money to safer assets like Treasury bonds, 30-year bonds and the US dollar.”

Safer assets like the US dollar? Sure, that’s what the textbooks tell you has been the safest asset in the post-war era. But are they really safe assets? On dollars, interest rates are next to zero. This means that any inflation results in negative real rates, killing purchasing power. Let’s have a look at the yields on those “super-safe” 30-year bonds:

At 2.87%, and with inflation sitting above 3.5% these are experiencing a net loss in purchasing power, too. Yes, it’s better than losing (at least) half your purchasing power on Greek sovereign debt, or watching as equities tank. But with the virtual guarantee that stagnant stock markets will usher in a new tsunami of QE cash (or better still, excess reserves) expect inflation, further crushing purchasing power.” 

“The governments don’t rule the world. Goldman Sachs rules the world. Goldman Sachs does not care about this rescue package, neither do the big funds.” 

Well Goldman Sachs are the ones who convinced half the market to price in QE3. And they’re also making big noise demanding action in the Eurozone. I’m not denying Goldman don’t have massive power — or that they are ready and willing to book massive profits on Eurozone collapse. But — like everything in this crooked and corrupt system — they are vulnerable to liquidity crises triggered by the cascade of defaults that both myself and Tim Geithner (of all people) have talked about over the past week.

Of course, we all know that as soon as that tidal wave of defaults start, global “financial stabilisation” packages will flood the market to save Goldman and J.P. Morgan, and anything else deemed to be “infrastructurally important”, and survivors will take their pick of M&A from the collateral damage.

And kicking the can down the road using the same policy tools that Bernanke has been using for the past three years (i.e., forcing rates lower and-or forcing inflation higher) will result in harsher negative real rates — making treasuries into an even worse investment. Eventually (i.e., soon) the institutional investors — and more importantly (because their holdings are larger) the sovereign investors — will realise that their capital is rotting and panic. In fact, there is a great deal of evidence that China in particular is quietly panicking now. The only weapon Bernanke has is devaluation (in its many forms) — which is why he has been so vocal in asking for stimulus from the fiscal side.  

And — in spite of the last week’s gold liquidation, as China realised long ago — the last haven standing will be gold. Why? Because unlike treasuries and cash it maintains its purchasing power in the long run.

The Emperor is wearing no clothes.

European Leaders Scrabble For Agreement

From the BBC:

The outline of a large and ambitious eurozone rescue plan is taking shape, reports from the International Monetary Fund (IMF) in Washington suggest.

It is expected to involve a 50% write-down of Greece’s massive government debt, the BBC’s business editor Robert Peston says.

The plan also envisages an increase in the size of the eurozone bailout fund to 2 trillion euros (£1.7tn; $2.7tn).

European governments hope to have measures agreed in five to six weeks.

The bizarre thing is that the real issue is not whether or not some agreement can be reached, but whether or not any agreement will really have any real effect on the state of the European financial system. I am extremely dubious that the thrifty Scandinavian and Germanic nations will commit huge swathes of their wealth to save the Mediterranean ones. But even if an expanded EFSF can be brought together to successfully bail out Greece and recapitalise European banks who have to write down significant chunks of Greek debt, there is no guarantee whatever that any of these measures will address the underlying fracture in European budgeting. Namely, that European governments are spending like they are monetarily sovereign — in other words, behaving as if they can print as much money as they want to cover debts — when they are not.

Of course, there is no real guarantee that Europe will even effectively stabilise its banking system.

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