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.

Does Syria Want a War?

We know for sure that Syria intentionally shot down a Turkish — and thus protected by NATO — warplane in its airspace. We also know that Syria is comfortable enough to admit it.

The AP reports:

Syria said Friday it shot down a Turkish military plane that entered Syrian air space, and Turkey vowed to “determinedly take necessary steps” in response.

It was the most clear and dramatic escalation in tensions between the two countries, which used to be allies before the Syrian revolt began in March 2011. Turkey has become one of the strongest critics of the Syrian regime’s brutal response to the country’s uprising.

Late Friday, Syria’s state-run news agency, SANA, said the military spotted an “unidentified aerial target” that was flying at a low altitude and at a high speed.

“The Syrian anti-air defenses counteracted with anti-aircraft artillery, hitting it directly,” SANA said. “The target turned out to be a Turkish military plane that entered Syrian airspace and was dealt with according to laws observed in such cases.”

It seems pretty clear that the Syrians know the consequences of their actions. NATO (including deluded US hawks who are happy to ignore the disastrous consequences of the drug war on the US border while talking up more intervention in the middle east) and the NATO-backed Syrian opposition has been looking for any excuse to get stuck into a new interventionist mission. We know that the NATO-backed opposition were prepared to try and get a British journalist killed in a false flag operation in order to trigger a Western intervention.

So why did Russia-armed Syria do it? And why (given the age of F-4 aircraft, it could easily have crashed of its own accord giving the Syrians a lot of plausible deniability) are they not at least denying that they shot it down?

Is it possible that the wider Eurasian anti-American coalition led by the Russians and the Chinese are confident that NATO will not intervene out of fear of triggering a wider war? After all the Russian naval base has been a great obstacle to NATO intervention. Libya didn’t have any Russian bases, and it took far less internal violence for NATO to intervene there.

Is it even possible that the Eurasians are trying to provoke NATO into another costly and damaging war? After all, the American Empire is much more indebted and militarily overstretched than it was before 9/11. Osama bin Laden’s goal of dragging the United States into the middle eastern quagmire, and thereby bankrupting America has been an unmitigated success. Could the Eurasians be trying to provoke a regional war in order to weaken NATO and draw attention away from their own weakened economic picture?

Or is this just a case of an overzealous Syrian military commander taking a potshot at an unidentified flying object and provoking a diplomatic crisis?

As someone who does not believe that war is in any way an economic stimulus and should be avoided beyond self-preservation, I hope that this crisis — and the wider Syrian situation — can be defused.

Those who want to see a big military-Keynesian stimulus may be hoping for an escalation…

Springtime for the Military-Industrial Complex

The FT erroneously concludes that the boom-times are over for the military contractors:

The wars in Afghanistan and Iraq have been a boon to US contractors. The US has used so many of them in the conflicts that at times they outnumbered the military they supported. But the boom times are coming to an end and military service companies in particular are being squeezed.

Moody’s, the rating agency, expects revenue and margin pressure on defence service companies to become visible soon as the US Department of Defence, the world’s biggest military spender, negotiates tougher terms for contractors, reduces spending on them and brings its troops home from Afghanistan in time to meet the end 2014 deadline set by President Barack Obama.

In Iraq and Afghanistan the top contractor was Kellog, Brown & Root, the engineering and construction services company. It earned $40.8bn during the past decade, while Agility, the logistics company, and DynCorp, which specialises in security, earned $9bn and $7.4bn respectively, according to a US government report.

After a decade of unrivalled prosperity thanks to war and a booming global economy the defence service sector will have to work harder through innovation, as well as lean and well-focused management, to prosper.

In a word, nope. What cuts? The Obama budget aims to increase military expenditures far-above their already-puffed-up status quo:

Offering a military budget designed to head off charges that he’s weak on defense, President Obama unveiled a Pentagon spending plan that fails to cut any major procurement programs and calls for spending $36 billion more on the military in 2017 than it will spend this year.

Here’s what Obama intends to increase (and what Romney, of course, intends to increase more):

Yeah, America is spending more today drone-striking American citizens in Yemen, drone-surveilling Mexican drug lords and “turning our attention to the vast potential of the Asia-Pacific region” than she was during the cold war when a hostile superpower had thousands of nukes pointing at her.

Military contractors have nothing to fear. Whether it is the Pacific buildup to contain Chinese ambition, or drone strikes in the horn of Africa or Pakistan, or the completely-failed drug war, or using the ghost of Kony to establish a toehold in Africa to compete with China for African minerals, or an attempted deposition of Bashar Assad or Egypt’s new Islamist regime, or bombing Iran’s uranium-enrichment facilities, or a conflict over mineral rights in the Arctic, or (as Paul Krugman desires — and what the heck, it’s 2012, why not?) an alien invasion, or a new global conflict arising out of a global economic reset, it’s springtime for the military contractors. It’s everyone else who should be worried.

The Trouble with Rand Paul

Rand Paul just endorsed a man who is deeply hostile to human liberty.

Perhaps that’s Rand’s idea of playing politics? Come to the table, strike a deal, get what you can. Trouble is, it’s tough striking a good deal when the guy on the other side of the table believes that the government should be allowed to claim — without having to produce any evidence whatsoever — that certain people are terrorists, and therefore should be detained indefinitely without any kind of due process.

That’s textbook tyranny.

Yes, I would have [signed the NDAA]. And I do believe that it is appropriate to have in our nation the capacity to detain people who are threats to this country, who are members of al Qaeda. Look, you have every right in this country to protest and to express your views on a wide range of issues but you don’t have a right to join a group that has killed Americans, and has declared war against America. That’s treason. In this country we have a right to take those people and put them in jail. If I were president I would not abuse this power. But people who join al Qaeda are not entitled to rights of due process under our normal legal code. They are entitled instead to be treated as enemy combatants.

Mitt Romney

Except, if the government had any evidence they were really members of al-Qaeda and engaged in a war against America they could be charged with offenses under current laws and tried in front of a jury of their peers. As was proven when Judge Katherine Forrest struck down the indefinite detention provision of the NDAA as unconstitutional, the real detention targets are people like the ones who brought the case — writers, investigative journalist and whistleblowers: people like Chris Hedges, Noam Chomsky, Daniel Ellsberg, Jennifer Bolen, and Birgitta Jonsdottir.

Rand Paul might have done some good work trying to filibuster the Patriot Act, but endorsing Mitt Romney goes beyond the pale. The NDAA is Romney’s most egregious transgression against liberty, but not far behind are his desire to start a war against Iran, to increase military spending, to start a trade war with China and his belief that corporations are people.

I know I will never agree with any politician on every single dimension of every single issue, and that to some extent politics will always involve compromise. Certainly, I disagree with Ron Paul on some issues. But Mitt Romney’s stances on these issues seem much, much, much closer to Barack Obama than they do to Ron Paul. In fact, he might as well have endorsed Obama for President.

And the Ron Paul supporters are noticing: Rand has probably burnt most bridges to his Father’s supporters now. His Facebook page has seen a huge outpouring of fury:

Just lost a lot of faith in a man I otherwise adored.

You suck Rand! Traitor!

That’s why this country is doomed! Even the person you trust is a sell-out. I’m done with politics, people deserve what they get. Let the country run itself to the ground, and still people will not understand what freedom and self-responsibility is about. People want big gov’t, big brother every step of the way. Well, they got it. The rest of us, might as well try to move to another country or find an island and move there.

I knew I’d never vote for Mitt… Now I know I’ll never vote for Rand.

He has fully sold out to the bankers

Endorsing Romney is tantamount to an utter sell-out of conservative principles.

Did George Washington, Thomas Jefferson and James Madison try to compromise with King George? Or — when it became obvious that they were facing tyranny — did they stand up for the principles of liberty?

I have always been uncomfortable with the children of politicians becoming politicians. Every anointed child feels like a step away from meritocracy. Dynasties are dangerous, because the dynasty itself comes to be more important than the qualities of the politicians. Who would Rand Paul be if he wasn’t Ron Paul’s son? Just another neocon. Neocons often have a few “unfashionable” libertarian or constitutionalist sympathies; look at Charles Krauthammer. But — unlike Ron Paul — the neocon never has the spine to do much about their libertarian or constitutionalist sympathies. They just ride on the establishment steamroller, into foreign occupations, empire building, corporate welfare, and banking bailouts. Into Iraq, and soon into Iran.

Rand Paul just got on the steamroller.

Enter the Swan

Charles Hugh Smith (along with many, many, many others) thinks there may be a great decoupling as the world sinks deeper into the mire, and that the dollar could be set to benefit:

This “safe haven” status can be discerned in the strengthening U.S. dollar. Despite a central bank (The Federal Reserve) with an avowed goal of weakening the nation’s currency (the U.S. dollar), the USD has been in an long-term uptrend for a year–a trend I have noted many times here, starting in April 2011.

That means a bet in the U.S. bond or stock market is a double bet, as these markets are denominated in U.S. dollars. Even if they go nowhere, the capital invested in them will gain purchasing power as the dollar strengthens.

All this suggests a “decoupling” of the U.S. bond and stock markets from the rest of the globe’s markets. Put yourself in the shoes of someone responsible for safekeeping $100 billion and keeping much of it liquid in treacherous times, and ask yourself: where can you park this money where it won’t blow up the market just from its size? What are the safest, most liquid markets out there?

The answer will very likely point the future direction of global markets.

Smith is going along with one of the most conventional pieces of conventional wisdom: that in risky and troubled times investors will seek out the dollar as a haven. That’s what happened in 2008. That’s what is happening now as rates on treasuries sink to all-time-lows. And that’s what has happened throughout the era of petrodollar hegemony.

But the problem with conventions is that they are there to be broken, the problem with conventional wisdom is that it is there to be killed, roasted and served on a silver platter.

The era of petrodollar hegemony is slowly dying, and the assumptions and conventions of that era are dying with it. For now, the shadow of that old world is still flailing on like Wile E. Coyote, hovering in midair.

As I wrote last week:

How did the dollar die? First it died slowly — then all at once.

The shift away from the dollar has quickly manifested itself in bilateral and multilateral agreements between nations to ditch the dollar for bilateral and multilateral trade, beginning with the chief antagonists China and Russia, and continuing through Iran, India, Japan, Brazil, and Saudi Arabia.

So the ground seems to have fallen out from beneath the petrodollar world order.

Enter the Swan:

We know the U.S. is a big and liquid (though not really very transparent) market. We know that the rest of the world — led by Europe’s myriad issues, and China’s bursting housing bubble — is teetering on the edge of a precipice, and without a miracle will fall (perhaps sooner, rather than later).

But we also know that America is inextricably interconnected to this mess. If Europe (or China or both) disintegrates, triggering (another) global default cascade, America will be stung by its European banking exposures, its exposures to global energy markets and global trade flows. Simply, there cannot be financial decoupling, not in this hyper-connected, hyper-leveraged world.

And would funds surge into US Treasuries even in such an instance? Maybe initially — fund managers have been conditioned by years of convention to do so. But how long  can fund managers accept negative real rates of return? Or — much more importantly — how long will the Fed accept such a surge? The answer is not very long at all. Bernanke’s economic strategy has been focussed  on turning treasuries into a losing investment, on the face of it to “encourage risk-taking” (or — much more significantly — keep the Treasury’s borrowing costs cheap).

All of this suggests a global crash or proto-crash will be followed by a huge global money printing operation, probably spearheaded by the Fed. Don’t let the Europeans fool anyone, either — Germany will not let the Euro crumble for fear of money printing. When push comes to shove they will print and fiscally consolidate to save their pet project (though perhaps demanding gold as collateral, and perhaps kicking out some delinquents). China will spew trillions of stimulus money into more and deeper malinvestment (why have ten ghost cities when you can have fifty? Good news for aggregate demand!).

So Paul Krugman will likely get something much closer to what he claims to want. Problem solved?

Nope. You can’t solve deep-rooted structural problems — malinvestment, social change, deindustrialisation, global trade imbalances, systemic fragility, financialisation, imperial decline, cultural stupefaction (etc, etc, etc) — by throwing money at problems. All throwing more money can do is buy a little more time (and undermine the currency). The problem with that is that a superficial recovery fools policy-makers, investors and citizens into believing that problems are fixed when they are not. Eventually — perhaps slowly, or perhaps quickly — unless the non-monetary problems are truly dealt with (very unlikely), they will boil over again.

As the devaluation heats up things will likely become a huge global game of beggar thy neighbour. A global devaluation will likely increase the growing tensions between the creditor and debtor nations to breaking point. Our current system of huge trade imbalances guarantees that someone (the West) is getting a free lunch , and that someone else (the Rest) is getting screwed. Such a system is fundamentally fragile, and fundamentally unstable. Currency wars will likely give way to economic wars, which may well give way to subterfuge and proxy wars as creditors seek their pound of flesh, and debtors seek to cast off their chains. Good news, then, for weapons contractors and the security state.

The National Attack Authorization Act?

We all know that the National Defense Authorization Act (NDAA) signed by President Obama on New Year’s Eve contained a now-struck-down provision to authorise the indefinite detention of American citizens on US soil.

But did you know that the NDAA also paves the way for war with Iran?

From Dennis Kucinich:

Section (6) rejects any United States policy that would rely on efforts to contain a nuclear weapons-capable Iran. Section (7) urges the President to reaffirm the unacceptability of an Iran with nuclear-weapons capability and opposition to any policy that would rely on containment as an option in response to Iranian enrichment.

This language represents a significant shift in U.S. policy and would guarantee that talks with Iran, currently scheduled for May 23, would fail. Current U.S. policy is that Iran cannot acquire nuclear weapons. Instead, H. Res. 568 draws the “redline” for military action at Iran achieving a nuclear weapons “capability,” a nebulous and undefined term that could include a civilian nuclear program. Indeed, it is likely that a negotiated deal to prevent a nuclear-armed Iran and to prevent war would provide for Iranian enrichment for peaceful purposes under the framework of the Non-Proliferation of Nuclear Weapons Treaty with strict safeguards and inspections. This language makes such a negotiated solution impossible.

At the same time, the language lowers the threshold for attacking Iran. Countries with nuclear weapons “capability” could include many other countries like Japan or Brazil. It is an unrealistic threshold.

The Former Chief of Staff of Secretary of State Colin Powell has stated that this resolution “reads like the same sheet of music that got us into the Iraq war.”

The notion of a “nuclear weapons capability” seems like a dangerously low standard. Let us not forget that Mossad, the CIA and the IAEA agree that Iran does not have a bomb, is not building one and has no plans to build one.

But the bill clearly spells out its intent:

SEC. 1222. UNITED STATES MILITARY PREPAREDNESS IN THE MIDDLE EAST.

Section 2 (A) pre-positioning sufficient supplies of aircraft, munitions, fuel, and other materials for both air- and sea-based missions at key forward locations in the Middle East and Indian Ocean;

(B) maintaining sufficient naval assets in the region necessary to signal United States resolve and to bolster United States capabilities to launch a sustained sea and air campaign against a range of Iranian nuclear and military targets, to protect seaborne shipping, and to deny Iranian retaliation against United States interests in the region;

(D) conducting naval fleet exercises similar to the United States Fifth Fleet’s major exercise in the region in March 2007 to demonstrate ability to keep the Strait of Hormuz open and to counter the use of anti-ship missiles and swarming high-speed boats.

As Kucinich notes:

This is an authorization for the use of military force against Iran. It ignores the warnings of both current and former U.S. top military brass who have spoken in opposition to the use of military force against Iran, including former Secretary of Defense Robert Gates, and current Secretary of Defense Leon Panetta. A February 2012 poll demonstrated that less than 20% of the Israeli public supports an Israeli strike on Iran if approved by the United States. Congress must avoid the same mistakes it made in the Iraq war and reject any language that can be construed as authorizing war against Iran.

It seems like the framers of the bill are exceptionally keen on striking Iran as quickly as possible. Maybe they are receiving lots of money from defence contractors?

Unsurprisingly, the biggest Congressional recipient of donations from defence contractors was Howard “Buck” McKeon, the chairman of the armed services committee who also happens to be the sponsor of the NDAA:

The fact that Ron Paul is the number two recipient is a sign that not all defence contractors are keen to hit Iran. But some are.

Still, even though the bill hints very strongly toward it, it doesn’t mean that it is going to happen. Congressmen might be hungry for a war but the military — already overstretched — isn’t. Admiral Fallon was reportedly the force that kept Bush from hitting Iran, and it would not be surprising to see the Pentagon put up fierce opposition to a future war with Iran. It would be a long, expensive war, with the potential of massive negative side-effects, like dragging in other regional powers, disrupting global trade, and squeezing the US economy by spiking the oil price.

Peter Schiff Gets China

Supreme excellence consists in breaking the enemy’s resistance without fighting.

Sun Tzu

From Slate:

Slate: Your debate opponent Minxin Pei wrote in Foreign Policy last summer, “Although Asia today may have one of the world’s most dynamic economies, it does not seem to play an equally inspiring role as a thought leader.” Do you agree that China falls short on innovation?

Schiff: No. There’s a lot of creativity coming out of Asia, a lot of patents. The big problem for countries like China and India is that they still subsidize the U.S. They buy our Treasury bonds and lend us all this money so we can keep consuming. That’s a big subsidy and a heavy burden.

Slate: Doesn’t China need to lend us money so we’ll buy Chinese exports?

Schiff: No. They can use their money to develop their own economy, produce better and more abundant products for their own citizens. It’s a farce to think that the only thing China can do with its output and savings is lend it to the U.S. government, especially when we can’t pay it back.

Now I have not always seen eye to eye with Peter Schiff; I am still waiting for the hyperinflation that Schiff told us would hit sometime in 2010 (clue: hyperinflation is not coming without something like an oil shock, a war, a breakdown in the global trade infrastructure). But it’s nice to know that I am not just a lone voice in the wilderness.

It is sad and perplexing how many “serious thinkers” have not understood the fundamental fragility of the present arrangement.

As I wrote over the weekend (and as I have continually thrusted home over the past 6 months):

The truth is that there is no such thing as a service economy. Our economy today (other than in places like, say, North Korea) is truly global. All of those service workers — and every cent of “services” GDP — is supported by real-world productivity, much of which takes place outside the West — the productivity of the transport system, the productivity of manufacturers, the productivity of agriculture.

The continued prosperity of the West is dependent on the continued flow of goods and services into the West.

Schiff concludes the interview by describing what he believes will take place once Eurasia thrusts off America’s demands for a free lunch:

We’d have to immediately cut government spending dramatically. Diminish our consumption. We wouldn’t be going to the malls and buying stuff. The whole U.S. economy would have to restructure along the lines of Americans being frugal, saving their money, and working harder. A lot of government workers would have to lose their jobs. Those who didn’t would suffer big cuts in their pay. People who worked in the service sector — in banking, health care, or education — would also struggle if China stopped subsidizing us.

The first choice America will face is whether she will choose to continue to try to run her foreign military empire, or instead to maintain domestic infrastructure. The greater danger is that furious Western politicians might just go and start World War 3, in the name of trying to maintain American geostrategic primacy.