Monday, May 31, 2010

Geithner Rushes To Sabotage

Geithner Rushes To Sabotage
German Derivatives Ban
Schäuble Prepares New Moves Against Speculators
By Webster G. Tarpley

The German government is now fully committed to escalating its ongoing counterattack against international financial speculation. These moves represent an historical watershed as Germany becomes the first major economic power to roll back the tide of financial globalization, under which crackdowns on hedge funds, derivatives, and the world gambling casino were branded as taboo for national governments. German Finance Minister Wolfgang Schäuble has announced that the Merkel government is sending a draft bill to the German parliament (the Bundestag) targeting "turbulence" and "volatility" through further regulation of "certain transactions [which] amplify the crisis." The bill reaffirms the most fundamental German measure enacted so far, the May 18 blanket ban on all naked credit default swaps issued against the treasury bonds of the eurozone nations. This ban represents the most aggressive move anywhere in the OECD against these most toxic derivatives, which have figured prominently in the AIG bankruptcy and the recent Goldman Sachs Abacus scandal. They are also the derivatives being widely used by hedge fund hyenas and zombie banks to attack such nations as Greece , Spain , and the rest of the Southern tier of the euro.

The naked CDS ban protects euroland government bonds, To that would now be added a ban on the naked shorting of those Euro zone government bonds themselves. This means that a speculator wishing to sell a Euro zone government bond short must own that bond in advance. This makes speculation more complex and expensive, and is all to the good.

Schäuble's new measures also expand protection for certain stocks and for the euro itself. The draft bill would outlaw naked shorts of all German stocks, meaning stocks whose primary listing is at a German exchange. The original May 18 package had banned naked shorts against a list of 10 large German banks, insurance companies, and reinsurance firms. The obvious next step is to ban naked shorting of stocks altogether. From now on, speculators who wish to short German stocks must own those stocks before they sell, making it more difficult and costly for said speculators to operate. The new draft bill would also outlaw the naked shorting of the euro itself in the foreign exchange markets. The Bundestag needs to approve this bill on the fast track, and then do more.

Tiny Tim Geithner's US Treasury is attempting, but not succeeding, to conceal its apoplectic hysteria over the German ban. Geithner announced that he was flying from China to Europe in order to confer with George Osborne, the new Bilderberger Chancellor of the Exchequer, and Bank of England boss Mervyn King in London, followed by consultations with European Central Bank chief Trichet and Bundesbank leader Axel Weber in Frankfurt, followed then by a meeting with Schäuble in Berlin. There was no doubt that the overriding purpose of Geithner's mission was to sabotage the German moves against derivatives in particular and speculation in general.

An unnamed US Treasury official speaking off the record on condition of anonymity told Dow Jones that the German ban on naked credit default swaps was "damaging to the market and counterproductive." The band was "one-sided," he added, making clear that Geithner & Co. did not expect the German ban to be adopted on a large scale. Geithner was evidently deeply concerned that the German ban might be imitated by some of Germany 's closest economic partners, including the Netherlands , Belgium , and Sweden , as well as by other nations much farther afield. Who was the anonymous official? It might have been Tiny Tim himself, or it might have been Mark Patterson of Goldman Sachs, Geithner's chief of staff and chief lobbyist for carbon offset boondoggles.

Spain is an example of a country which would have been very well advised to join in the German measures when they were first proposed. Observers have noted with some astonishment that the self-styled "socialist" Zapatero of Madrid is unable or unwilling to embrace the measures against the casino economy which the center-right Christian Democratic/Liberal government in Berlin is actively pursuing. The explanation is obviously that the Socialist International as a whole (with figures like Papandreou of Greece and Socrates of Portugal, as well as Zapatero) is acting as an abject puppet of the financiers.

Spain is now paying the price for its inaction through an incipient banking panic emerging on the weekend after the German ban was announced. The Caja Sur, a savings bank representing about 1% of the Spanish banking system, became insolvent, quickly followed by eight banks over the next three days. This meant that the hedge funds had succeeded in spreading the Greek contagion, thus raising questions about the short-term survivability of such overextended speculative operations as Banco Santander and Banco de Bilbao. The Spanish parliament approved a draconian austerity program by a single vote, offering the lunatic spectacle of a country already mired deeply in economic depression, with an official unemployment rate of 20%, embracing its own self-cannibalization with a deflationary austerity program in the vain effort to regain the confidence of international financial markets and investors. Spain needs to understand that there are no "markets" today, but only oligopolies and cartels. They need to understand that they are dealing with ruthless speculators, and not with investors. They might as well try to regain the confidence of Bonnie and Clyde , Dillinger, and Ma Barker.

Another country that urgently needs to join the anti-derivatives front is Italy , where a large-scale debate on economic populism broke out on the weekend after the German ban. The financiers Franco Debenedetti and Paolo Savona, camouflaged amidst a group of free-market quackademics, are desperately campaigning to convince Prime Minister Berlusconi to maintain the sanctity of hedge funds and derivatives. My answer to these market fetishists appears below. Berlusconi is moving in the wrong direction on draconian austerity with the ¤30 billion package of cuts which he has presented to the parliament. If this is all Berlusconi has to offer, the Italian economy is in danger of entering a death spiral in which tax increases and cuts to spending and public services inevitably cause rising unemployment, falling real production, and constantly lower government revenue receipts. Berlusconi should concentrate on suppressing speculation and on launching a recovery program, not on austerity.

Reactionary commentators around the world continue to parrot the line that the great crisis is a crisis of the welfare state," and spells the doom of any and all government measures designed to defend and secure the health, education, and welfare of their respective populations. The Greeks, we are told, are "profligate." This legend of the profligate Greeks conveniently ignores the fact that Greece is the second poorest nation of pre-1990 Europe ­ only Portugal is poorer. The Greeks have 18% official unemployment, with 20% of the population living below the official poverty line. The average Greek office worker earns about $1500 per month, or barely 40% of the wage level of their German counterparts. And the average pension for Greek government worker is about $750 per month. This is hardly a king's ransom. Greece is also an example of one of the peripheral countries where the depression first began to hit. Greece is heavily dependent on tourist revenue, which began to decline sharply in 2007 and 2008 as the world derivatives panic began to lash Germany and northern Europe , spelling fewer foreign visitors on the Acropolis and on Mykonos and the Dodecanese .

The pro-financier ideologue Robert Mundell, speaking in Warsaw , has voiced his evaluation that a restructuring of Greek government debt is now inevitable. The Greeks and many others would be well advised to act on this advice immediately. For many of these countries, it is already obvious that their current debts cannot be repaid in the physical universe as presently constituted. For them, default is simply an inevitable necessity, not a choice. Their only choice is now when they will default, and with what strategy. In this regard, their choices are essentially two. On the one hand, they can destroy their national economies, dilapidate their capital stock, and destroy the living standard of productive working families through criminally stupid austerity programs and budget cuts of the vandalistic type dictated by the monetarist crackpots at the International Monetary Fund, European Commission, World Bank, Bank for International Settlements, and similar institutions. At the end of all this unspeakable torture of austerity, they will find their political institutions destroyed, their internal governability and stability deeply compromise or totally wrecked, and their ability to pay lower than when they started. At the end of all this, they will default anyway, and drift like derelict wrecks on the world ocean. Many of them will fall under dictatorships, or even fascist regimes.

The alternative to this nightmare scenario is to use the time-tested weapon of the unilateral financial debt moratorium as a means of national survival and national sovereignty. (If Republican US President Herbert Hoover could successfully propose an international financial debt moratorium among Germany, France, and Great Britain, and the United States in June 1931 to fight that depression, this approach cannot be regarded as wild radicalism.) This freeze on all payments of interest and principal on international financial debt must be conducted in an orderly, legal fashion, fully explained to the population and presented as an integral part of a strategy for national economic recovery. Plans should be made in advance for suppressing financial speculation, while mobilizing domestic economic resources for the most ambitious projects of national public infrastructure as a means to radically reduce unemployment and poverty. Raw materials must be secured in advance through barter deals and other ad hoc arrangements with the relevant countries, and these transactions must necessarily occur outside of the straitjacket of IMF and World Trade Organization rules.

Countries using the weapon of debt moratorium should normally be able to reduce their foreign debt exposure by about one half. If they play their cards correctly, they can do even better for their people.

Every country needs to identify at least one area in which it can produce the most advanced high technology capital goods for export, and strive to become the world leader in that department. This production must be capital-intensive, energy intensive, and high value added, and it must target the world export market. The goal is to produce something which the world will find simply indispensable, independent of whatever protectionist measures may or may not be enacted elsewhere. This effort can be used as a science driver along with other science drivers to restart scientific discovery and technological research and development throughout the entire national economy. This is the kind of strategy which the leaders of the southern tier nations of the euro should currently be elaborating.

And they need to act fast. By September, the tide of financial panic which is now engulfing Greece and Iberia will be in the suburbs of Paris and London .


the Filipino Mind: Beyond Elections, Beyond Corruption -Imperatives.Necessary changes for the "Common Good"

Beyond Elections, Beyond Corruption: Imperatives/Necessary Changes for the "Common Good"
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"Those who profess to favor freedom
and yet deprecate agitation
are men who want crops without
plowing up the ground;
they want rain without thunder and
They want the ocean without the
awful roar of its waters.
This struggle may be a moral one
or it may be a physical one
or it may be both moral and physical
but it must be a struggle.
Power concedes nothing without a
It never did, and never will." – Frederick Douglass, American Abolitionist,Lecturer, Author and Slave, 1817-1895)
(quoted in Fr. Salgado's book: Philippine Economy - History and Analysis, 1985)


Hi All,

As you may note, the last two postings were about the 2010 elections back home and I have alluded to the futility of this democratic exercise, which is essentially and in practice a joke on our native people.

An election in our homeland, whether rigged or not, has so far not brought us the necessary changes for the common good, i.e. for the native majority.

Significant factors militating against needed fundamental changes being the available/offered choices of candidates, most -if not all- anti-Filipino (anti-Filipino nationalism) that is: traitors to the native people through their constant subservience and mendicancy to foreigners and local -mostly anti-poor elites, through their thievery and corruptness, through their knowing neglect and cannibalization/distortion of people-oriented reforms, through their use of official/state terrorism against the voices of protests, through their cooperation with foreigners in dismantling Filipino nationalism, through their tacit and cooperative deceit with foreigners and our Finance Ministers in deceitfully pontificating about the great benefits from imposing Globalization or Neoliberalism into our underdeveloped homeland, which at the end of the day has only brought the worst economic calamity to the ever increasing native poor in the last 15 years or so, etc.

We see a number of Filipino discussion groups in the internet where the homeland and our people are the subject of interest. Oftentimes they end up in oneupmanship, in so-called "flaming", sadly a seeming characteristic of ourselves despite the obvious intelligence of many participating fellow Filipinos. And oftentimes, we the so-called educated seem, at best and maybe quite sincerely, unable to "see the forest for the trees" (or at worst, we consciously avoid talking about ideas considered subversive to the existing socioeconomic-political order and mindset; thus censoring and limiting our Filipino mind within the box/cage - our Filipino caged minds). Ergo, we have not solved our chronic and perpetual national predicament.

Below is another IBON article, which presents (as a start) concrete ideas and proposals on what necessary (I would say imperative) changes towards a truly better homeland and native Filipinos. It provides and expresses the specific realities in our homeland which oftentimes I can only rant about.

- Bert

“There is no literate population in the world that is poor; there is no illiterate population that is anything but poor.” – John Kenneth Galbraith (1908-2006)
"What luck for rulers that men do not think" - Adolf Hitler

“The true Filipino is a decolonized Filipino.” – Prof. Renato Constantino (1919-1999)

“Nations, whose NATIONALISM is destroyed, are subject to ruin.” - Colonel Muhammar Qaddafi, 1942-, Libyan Political and Military Leader


Beyond an anti-corruption drive or ‘successful’ elections and a peaceful transition from the Arroyo administration, the real test of democracy in the country depends on identifying the real problems and the right set of tools to solve them.

By Sonny Africa

IBON Features— There is a moment of optimism in the country due to relatively ‘credible’ election results, an incoming ‘legitimate’ government, and a supposedly anti-corruption Aquino administration. The hopefulness may persist for a while unless reports of automated election irregularities and of traditional political maneuvering reach crisis proportions.

But the prospects for change depend on the real problems being identified and the right set of tools being used to solve or manage them. More than an anti-corruption drive or ‘successful’ elections and a peaceful transition from the Arroyo administration, these are the real test of political and economic democracy in the country.

The incoming administration faces long-standing challenges that have kept the Philippines poor and underdeveloped. These are even aggravated by persistent instability in the world economy due to a global economic crisis that is still unfolding.

If the populist tag line, “Kung walang corrupt, walang mahirap” is used as framework in achieving genuine reform in the country, then it is deficient. The drive against corruption is only a small part of the comprehensive and concrete platform of governance needed that decisively breaks from the failed approaches of the past.

The country’s problems are so many and varied that it makes the insistent anti-corruption rhetoric– as if these were the main cause of the country’s problems – actually dangerous.

Overemphasizing corruption?

Corruption is admittedly pervasive, long-standing and has always reached to the highest levels of government. It is also true that this drains public resources and in so many ways undermines sound economic management and stifles productive activity. But without understating the damage caused by corruption, it is important to see the deeper and greater damage from ‘free market’ policies of globalization.

Despite lamentations about corruption and even of ‘political instability’, globalization policies have still been successfully implemented over the past decades: removing trade barriers, taking away investment controls, privatization of public utilities and social services, deregulation of the economy, and continued debt payments. All together these have eroded local manufacturing and agriculture, caused record joblessness and rising poverty, and forced millions of Filipinos abroad.

Indeed the corruption mantra is being used as a smokescreen to hide the failure of globalization policies. Since the 1990s when evidence of failure of neoliberal reforms started to pile up and the legitimacy of the International Monetary Fund and World Bank was being challenged, neoliberal proponents concocted and sold the Post-Washington Consensus idea—that it was bad governance, and not ‘free market’ policies, that must be blamed for the worsening poverty and crisis in underdeveloped countries that implemented neoliberal reforms.

The economic decline is blamed on corruption rather on how ‘free market’ policies have removed state support for local producers and prematurely exposed them to foreign competition. Deteriorating public health and education services are blamed on corruption rather than on privatization amid uninterrupted debt servicing. Poor governance is blamed on corruption rather than on undemocratic elite domination of political processes and economic policy-making. Corruption has become a convenient scapegoat to cover up the serious ills of neoliberal policymaking.

Worsening unemployment due to globalization means many hundreds of billions in pesos in lost potential output every year from idle manpower, aside from the human misery that joblessness causes. Privatization and austerity measures mean a hundred billion less pesos spent annually on health, education and housing. Meanwhile unceasing debt service sees interest and principal payments steadily approaching a trillion pesos a year. The amount skimmed off public funds by corrupt officials is considerable – with some estimates placing this at up to US$2 billion a year– but nonetheless still pales in contrast to the social losses due to globalization.

The role of liberalization, privatization and deregulation policies in actually feeding large-scale and systemic corruption in the country is also important. The ‘free market’-driven surge of foreign capital and goods in the country has created rich opportunities for commissions, bribes and smuggling by politicians and bureaucrats even as vital mechanisms of public control, scrutiny and transparency have been dismantled or made inutile.

Overemphasizing corruption as the root of social and economic backwardness diverts from the basic reforms that the country needs as well as disguises the continued implementation of policies that the country can do without. Transparency and accountability in policymaking and implementation are desirable, but the lack of meaningful policies for national development– and the pervasiveness of those benefiting mainly narrow elite interests– has much farther-reaching adverse effects on people’s welfare.

The problem

The overarching development objective is to improve the economic and political well-being of the majority of Filipinos. The central economic challenge is to address distortions in the economy that keep Filipino working people from fully benefiting from their labor and the country’s natural resources, and that inhibit the nation’s economic potential.

For too long, the approach has been to rely on creating a globalized open economic policy environment desired by foreign and domestic investors. While they are only a small minority of the economically active population, it is argued that the success of their enterprises will create jobs, increase incomes and support economic progress.

There has certainly been economic growth, rising corporate profits and mounting personal wealth of a few. Yet economy-wide real joblessness has been at a record sustained high for nearly a decade and which has forced around nine million overseas to find work. Around 66 million Filipinos are poor and try to survive on P86 or much less each day—with half of the population actually struggling on just P18-54 per day.

The economy’s prospects are undermined further by problems in the sectors expected to create jobs and dynamism: local manufacturing has shrunk to as small as its share of the economy in the 1950s while agriculture is at its smallest in the country’s history. Small and medium producers across the country have been hit by waves of bankruptcies.

The approach of relying on a narrow section of big private sector interests has clearly failed. The policy priority must instead be on giving the vastly more numerous Filipino working people a greater share of the products of their labors as well as real access to land, capital and government support—likewise with any genuinely local small and medium enterprises. The excessive reliance on external sources of growth such as exports and remittances is also a failure. The focus rather must be on building domestic economic foundations to be able to gain net benefits from international trade and investment.

The immediate political challenge in turn is to arrest the worst anti-democratic and anti-nationalist tendencies of the Philippine state. The Arroyo administration and its allies controversially used the powers of government for grand-scale electoral fraud and to accumulate uncounted tens of billions of pesos in kickbacks, payoffs and ill-gotten wealth. The military, police and courts were wielded in a crackdown on the Left and progressive groups so brutal and methodical as to draw international condemnation.The Philippines– one of the largest countries in the world (ranking 13th by population)– became ever more linked to the United States (US) geopolitical agenda including being opened up to greater military intervention.

The further damage wrought to the country’s political institutions needs to be remedied. The long process for this can only begin if there is first accountability for the high-level corruption as well as the widespread human rights violations in the course of the government’s counterinsurgency programs Oplan Bantay Laya (OBL) I and II. The impunity will only end if, aside from rhetoric, there is real accountability.

The commission to investigate Pres. Gloria Macapagal-Arroyo that presidential frontrunner Aquino announced during the campaign period is a start even if there are fears that this would be undermined by Arroyo-leaning allies in the Ombudsman andSupreme Court. But also important is to take advantage of international judicial bodies such as the International Criminal Court (ICC) set up by the United Nations (UN) to try war crimes when local courts are unwilling or unable to do so.

Democratic governance in the people’s best interests has also been hampered by foreign policy being overly deferential to foreign powers, especially the US, and in contrast refusing to deal with the country’s armed groups in a principled manner. The political atmosphere for domestic development would be greatly served by an immediate assertion of national sovereignty vis-à-vis the US as well as by using the venue of peace talks to take up meaningful social, economic and political reforms that address the roots of armed conflict.

Initial solutions

The new administration has yet to be proclaimed but it is in the best interests of the people to craft and demand, as soon as possible, concrete steps towards real change, progress, prosperity and sovereignty. The Aquino administration’s ‘reformist’ credentials will depend on how far it is able to reverse the failed policies of past administrations including of the outgoing Arroyo administration.

There are policy results immediately achievable or that can be begun in the first 100 days of the new administration that can be first steps towards real reform in the country:

1. Repeal the VAT Reform Law (RA 9377).

2. Repeal the automatic appropriation for debt service by amending Section 31 of PD 1177 that provides for this, and also by amending Section 26, Chapter 4, Book VI of EO 292 (Administrative Code of 1987) that reiterates in toto Section 31 of PD 1177.

3. Ensure a budget of at least P281 billion for education, P39 billion for health and P13 billion for housing in the 2011 national government budget to bring social services to their most recent respective annual peaks of education spending per school-age child (1998), health spending per capita (1997), and housing spending per capita (2000).

4. Suspend and review the Japan-Philippines Economic Partnership Agreement(JPEPA) and the on-going negotiations with the European Union (EU) on aPartnership Cooperation Agreement (PCA).

5. Convene a multi-stakeholder review of government negotiating strategy and of deals approved in talks as part of ASEAN (i.e. Japan, China, Korea, Australia-New Zealand, India, EU, US and the ASEAN Trade in Goods Agreement).

6. Convene a multi-stakeholder review to identify local products that can be given increased tariff protection initially up to the simple average bound tariff already allowed under WTO rules of 25.8% (from the simple average applied tariff of only 7.1%).

7. Cancel the Hacienda Luisita stock distribution option (SDO) scheme and distribute the land to the farmers.

8. Implement an immediate across-the-board nationwide wage hike of P125.

9. Investigate and prosecute Representative- elect Gloria Macapagal-Arroyo for electoral fraud and the various corruption scandals during her administration involving herself, her family and allies.

10. Transmit the 1998 Rome Treaty of the International Criminal Court (ICC) to the Philippine Senate for ratification.

11. Suspend and review the Visiting Forces Agreement (VFA) with the US and, in the meantime, expel all US military personnel in the country and stop all on-going or planned operations, trainings, exercises, projects and other activities involving US forces.

12. Immediate resumption of formal peace talks with the National Democratic Front of the Philippines (NDFP) and Moro Islamic Liberation Front (MILF).

These are necessary initial key elements towards a progressive tax regime, rational debt servicing, greater state responsibility for essential social services, genuine agrarian reform, repudiation of obsolete globalization policies, repairing the damage to the country’s political institutions, giving momentum to a democratization process, and addressing the roots of armed conflict in poverty and underdevelopment.

Any new administration aiming to be ‘reformist’ has to contend with important realities: drastically weakened industry and agriculture; accumulated economic laws and policies; an entrenched bureaucracy further complicated by pressures for post-election political payback; and self-interested interlocking political and business interests (even among its own ranks). Local democratic processes are still developing and elite oligarchs still dominate. In particular the Aquino administration faces counter-maneuvering by the Arroyo, Estrada and Villar camps which each have their own bases in the Senate, Congress and local governments.

Amid such difficulties, it becomes all the more important to immediately send a strong signal of real reform and establish substantial momentum among the real forces for change in the country. In current conditions the most essential strategy for achieving these initial policy results is then to rely on the strength of progressive forces within and outside government—they are the main source of pressure for implementation and the main constituency that would support these first steps to reform. IBON Features

Mr Sonny Africa is the research head of IBON Foundation, an independent development institution established in 1978 that provides research, education, publications, information work and advocacy support on socioeconomic issues.
BAYAN KO by Freddie Aguilar <--- click to play.

“Nations, whose NATIONALISM is destroyed, are subject to ruin.” - Colonel Muhammar Qaddafi, 1942-, Libyan Political and Military Leader

Sunday, May 30, 2010

US money supply plunges at 1930s pace as Obama eyes fresh stimulus--Da' Con is On

US money supply plunges at 1930s pace as Obama eyes fresh stimulus
The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

By Ambrose Evans-Pritchard
Published: 9:40PM BST 26 May 2010
Comments 389 | Comment on this article

(Anemia sets in, by design, and we scream for “more money” like we will scream for more oxygen...)

(In an article just circulated, “Ezra Pound on Money,” we have the following quote, or concept, by Silvio Gesell, a chap Ezra purportedly studied: Gesell recognized that the economy is like a body and money is like its blood. If blood builds up systematically in any one place, a disease results. Commander spoke about his in one of the Phoenix Project Journals :, what to expect? An electronic money system, which we fundamentally have anyway, will be established based upon “credit,” not “debt.” Nations must agree that “credit” is based only and always upon CREATIVITY—Creator initiated inventions through Human Minds, doing more with less. The ability to coin money and place value thereon is Congress’, period!, and Congress does that upon PEOPLE’S CREDIT—FULL FAITH AND CREDIT OF THE PEOPLE, their Creative Capacity, extend by God. See Article I, Section 8, Clause 5. The Monetarists would have us believe that it is the lack of money that is the problem. Yes, it is their lack they would have us believe is ours also, since they control their printing presses.

Nay, is but the lack of REAL CREDIT, REPUBLIC’S CREDIT, and we can have that simply by placing the FED in the Republic’s Treasury, after exposing the USA-Corporate Raiders, and as Rand Paul said, “...taking our country—REPUBLIC—back.” Thoughts are “prayers,” and so keep these thought in the uppermost part of your MINDS and it shall be so! The Master taught, “what ye sow, sow shall ye reap.”

For a radio to pick up a certain channel, wave length, or band, it must first send out an impulse wave it wishes to have tuned in...and then the wave from the Universal Wave pool connects to that which is sent forth, by the radio. The Human Being is a transceiver, a “radio sender and receiver,” and through our “thoughts,” which are prayers, we shall receive that upon which we focus. That is the Tea Party issue. Guide it properly, Dear Ones!)

The stock of money in the US fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc Photo: AFP
The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

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"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to "grit its teeth" and approve a fresh fiscal boost of $200bn to keep growth on track. "We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on," he said.
David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. "You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip," he said.
The White House request is a tacit admission that the economy is already losing thrust and may stall later this year as stimulus from the original $800bn package starts to fade.
Recent data have been mixed. Durable goods orders jumped 2.9pc in April but house prices have been falling for several months and mortgage applications have dropped to a 13-year low. The ECRI leading index of US economic activity has been sliding continuously since its peak in October, suffering the steepest one-week drop ever recorded in mid-May.
Mr Summers acknowledged in a speech this week that the eurozone crisis had shone a spotlight on the dangers of spiralling public debt. He said deficit spending delays the day of reckoning and leaves the US at the mercy of foreign creditors. Ultimately, "failure begets failure" in fiscal policy as the logic of compound interest does its worst.
However, Mr Summers said it would be "pennywise and pound foolish" to skimp just as the kindling wood of recovery starts to catch fire. He said fiscal policy comes into its own at at time when the economy "faces a liquidity trap" and the Fed is constrained by zero interest rates.
Mr Congdon said the Obama policy risks repeating the strategic errors of Japan, which pushed debt to dangerously high levels with one fiscal boost after another during its Lost Decade, instead of resorting to full-blown "Friedmanite" monetary stimulus.
"Fiscal policy does not work. The US has just tried the biggest fiscal experiment in history and it has failed. What matters is the quantity of money and in extremis that can be increased easily by quantititave easing. If the Fed doesn’t act, a double-dip recession is a virtual certainty," he said.
Mr Congdon said the dominant voices in US policy-making - Nobel laureates Paul Krugman and Joe Stiglitz, as well as Mr Summers and Fed chair Ben Bernanke - are all Keynesians of different stripes who "despise traditional monetary theory and have a religious aversion to any mention of the quantity of money". The great opus by Milton Friedman and Anna Schwartz - The Monetary History of the United States - has been left to gather dust.
Mr Bernanke no longer pays attention to the M3 data. The bank stopped publishing the data five years ago, deeming it too erratic to be of much use.
This may have been a serious error since double-digit growth of M3 during the US housing bubble gave clear warnings that the boom was out of control. The sudden slowdown in M3 in early to mid-2008 - just as the Fed talked of raising rates - gave a second warning that the economy was about to go into a nosedive.
Mr Bernanke built his academic reputation on the study of the credit mechanism. This model offers a radically different theory for how the financial system works. While so-called "creditism" has become the new orthodoxy in US central banking, it has not yet been tested over time and may yet prove to be a misadventure.
Paul Ashworth at Capital Economics said the decline in M3 is worrying and points to a growing risk of deflation. "Core inflation is already the lowest since 1966, so we don’t have much margin for error here. Deflation becomes a threat if it goes on long enough to become entrenched," he said.
However, Mr Ashworth warned against a mechanical interpretation of money supply figures. "You could argue that M3 has been going down because people have been taking their money out of accounts to buy stocks, property and other assets," he said.
Events may soon tell us whether this is benign or malign. It is certainly remarkable.

Saturday, May 29, 2010

Deadly silence at the DMZ


Deadly silence at the DMZ
By Donald Kirk, Asia Times, May 29, 2010

SEOUL - In the duel between North and South Korea, the question now is who will pull the trigger first? The answer may be neither, but don't count on it. The dueling now focuses on two quite different flashpoints.

The first is the West or Yellow Sea, where North Korea has vowed to open fire against any South Korean vessel intruding in its waters.

One issue there is how to define which waters are North Korean. The North refuses to recognize the Northern Limit Line, set by the United Nations Command after the Korean War (1950-1953) and challenged by North Korea in bloody gun battles in June 1999 and June 2002. A North Korean boat was sunk in the former incident, killing at least 40 sailors on board. Six sailors died on a South Korean patrol boat in the second battle.

It's almost June again, the height of the crabbing season in the fish-rich seas and the month when the North is most likely to threaten South Korea's defense of the line, including islands wrested from North Korean troops in the Korean War.

The announcement by the North Korean command that it's abrogating a safeguard agreement reached between North and South in 2004 to stop "accidental" exchanges of shots may or may not be mere rhetoric. The agreement was anyway more or less meaningless, since it seems North Korean commanders were able to meticulously plan an attack in March when a midget submarine torpedoed a South Korean corvette, sinking it and killing 46 of its 104 crew members.

Both sides are likely to be more inclined than ever to open fire in the wake of that episode. South Korea is staging exercises with an emphasis on anti-submarine warfare and increasing patrols in which the orders are to fire warning shots first - and then shoot at their targets. In the current atmosphere, commanders on both sides may not want to play a waiting game.

If the Yellow Sea is an obvious battleground, however, almost anywhere along the 248-kilometer-long demilitarized zone that's divided the Korean peninsula since the end of the Korean War could erupt in gunfire. That's possible quite soon if South Korea makes good on its notion of switching on mega-loudspeakers capable of spewing forth propaganda for the benefit of tens of thousands of North Korean soldiers within shooting distance.

North Korea has said it will respond to the verbal volleys with live fire targeting the loudspeakers. The North Koreans presumably know where they are since they used to shout out the propaganda until both sides agreed to stop the shouting six years ago. That was at the height of the decade of the "Sunshine" policy of North-South reconciliation initiated by the late president, Kim Dae-jung, in 1998.

South Korea's conservative president, Lee Myung-bak, has turned the clock back on Sunshine since his inauguration a decade later, in 2008. This week he suspended North-South trade, cut off most humanitarian aid, barred South Koreans from visiting the North and opened a global diplomatic offensive in which he's trying to get the rest of the world, notably China, to go along with condemnation of North Korea and strengthened sanctions.

The diplomatic campaign won't upset the North Koreans nearly as much, however, as propaganda falling on the ears of their own troops. Lee faces a serious test of nerve. Will he dare order the loudspeakers to blast away knowing the North Koreans may take potshots at them?

And if the North Koreans do fire, will South Korean gunners fire back at the North Korean positions? There's no telling when the shooting would stop, or whether North Korean troops would try to challenge the South Koreans on the ground.

Such an exchange could seriously be the opening shots of the second Korean War. In other words, just as this society is basking at all-time economic heights, the peninsula could plunge again into deadly chaos with thousands if not millions of lives at stake.

It's difficult actually to imagine that scenario. Perhaps Lee will hold off on the loudspeaker broadcasts. Or perhaps they will turn on traditional Korean music familiar to North and South Koreans. It's just as easy to imagine the sounds of Arirang, the haunting song that's sung by Koreans everywhere, as it is to conjure the squawking of imprecations for North Korean soldiers to desert their positions and rise up against their masters.

North Korea, though, has another nasty card to play, as the South Koreans are well aware. The North has already expelled a handful of South Korean officials from the Kaesong economic complex just across the line about 64 kilometers north of Seoul.

Now the North is saying it may cut off access to the complex for the nearly 1,000 technicians and engineers who run the factories in the zone, which are owned by South Korean medium and small enterprises. More than 40,000 North Koreans slave away at the assembly lines in a deal in which the South Koreans are paying the North Koreans upwards of $50 million a year in salaries that the workers never see.

The fear is that North Korea, in a showdown, would hold the South Korean workers inside the zone, keeping them as hostages until the South agreed to innumerable demands beginning with revision of the Northern Limit Line. That fear is enough to raise doubts here about the wisdom of annoying North Korea's leaders with unbridled propaganda assaults.

Such concerns extend to the sacrosanct Joint Security Area in the truce village of Panmunjom that's next to Kaesong. About 600 troops are responsible for rotating on guard duty at Kaesong in a largely ceremonial role. Among them are 40 American troops, the last of a much larger US force that used to patrol all along the southern side of the Demilitarized Zone.

Over the years Panmunjom has become a standard tourist destination. Hundreds of tourists go there every day from Seoul, and tourists also come down from the northern side. They all have to remain on either side of a line that cuts through the middle of the security area. A highlight of trips from the southern side is to file into a small one-room structure on the line and step briefly onto the northern side.

Visitors are briefed before they get there to do as told and not step around the South Korean guards. At the end of a briefing that I attended on Thursday, a South Korean lieutenant surprised us by saying matters were now "tense."

Then, after we had filed in and out of the building on the North-South line, we were told our bus would not drive by the "bridge of no return" over which prisoners had been exchanged at the end of the Korean War. The bridge, a standard stop on visits to Panmunjom, would also expose visitors to the minimal chance of capture by the North Koreans.

It's safe to assume South Korea will bar tours to Panmunjom if the risks seem serious. For North Korea, though, the chance to seize tourists as hostages would be too tempting in a showdown that still seems almost unimaginable. As unimaginable, perhaps, as the North Korean invasion of the South in June 1950.

Donald Kirk, a long-time journalist in Asia, is author of the newly publishedKorea Betrayed: Kim Dae Jung and Sunshine.

Oil and Earthquakes: History Says Engineers Have Always Known

[JR: This has been proven in South Louisiana oil fields where the low marshland has been sinking for decades due to extraction of oil and much of the land mass is now below sea level, which removes the natural wind break barriers as inland protection from hurricane winds and Tidal surge.]

Oil and Earthquakes: History Says
Engineers Have Always Known

by Mitch Battros - Earth Changes Media

In 1958, a geologist calculated that injecting fluid into the ground increases the chance of earthquakes. [JR: I believe it was in California that seismic events coincided with the dumping of toxic chemicals into deep drilled wells for years until scientist made the connection.]

Thirty-one years later, another geologist has shown the reverse: pumping gas or oil out of the ground can also trigger earthquakes.

Pumping out underground crude contracts the rock in oil reservoirs and sets up large pressure changes over short distances, Paul Segall of the U.S. Geological Survey in Menlo Park, Calif., calculates in the October GEOLOGY. Vertical contraction makes the ground above the reservoir sink, while horizontal stresses pull surrounding rock inward. If the pull becomes strong enough to shear the rock, an earthquake results.

Although geologists have reported moderate earthquakes near gas and oil fields since the 1920s and have long suspected the wells as the cause, Segall's mathematical analysis shows specifically how and where the ground slips, says geologist C. Barry Raleigh of the University of Hawaii in honolulu. Segall's ground-breaking work discloses a dirty little secret oil engineers have always known.

"This is the first time that anyone has shown in any kind of analytical way that withdrawing fluid causes earthquakes," confirms John D. Bredehoeft of the USGS.

Because most earthquakes have been moderate in magnitude, petroleum engineers probably won't change their techniques, Raleigh says. But they didn't know about BP Oil drilling 5,000 off-shore in the Gulf of Mexico.



Switzerland Geologist on Trial for 'Causing Quakes' (December 15 2009)

The head of a geothermal energy company has gone on trial in Switzerland accused of damaging property by triggering earthquakes.

Markus Haering's company had been working to convert the heat in deep-seated rocks into electricity. But the project was suspended in 2006 when drilling triggered the quakes. They caused no injuries but led to $9 million in damages.

The project was shut down permanently after a government study found that similar quakes caused by the project would lead to millions of dollars worth of damage each year. Appearing in court in the town of Basel, Mr Haering rejected allegations that he deliberately damaged properties and claimed local people were aware of the risks.

He said those involved had "very little knowledge of seismicity" before drilling began in the Petit-Huningue area of the city. But the project leaders had an emergency plan and "every minute, we knew what was going on and were able to act instantly". Didn't BP Oil just say that?

The Swiss government report concluded that if the project had been allowed to continue there was a 15% chance of it triggering a quake powerful enough to cause damage of up to $500 million dollars. There just happens to be a major fault line that runs beneath Basel, which led to a huge quake that devastated the city in 1356. But hey ... that was 600 years ago.



China Earthquake Killing 80,000 People Caused by "Fluid Displacement" (May 12, 2008)

An earthquake that killed at least 80,000 people in Sichuan May 2008 was caused by 'fluid displacement'. Scientists in China and the United States believe the weight of fluid, and the effect of it penetrating into the rock, could have affected the pressure on the fault line underneath, possibly unleashing a chain of ruptures that led to the quake.

Fan Xiao, the chief engineer of the Sichuan Geology and Mineral Bureau in Chengdu, said it was "very likely" that the construction and filling of the reservoir in 2004 had led to the disaster. "There have been many cases in which a water reservoir has triggered an earthquake," said Mr Fan. "This earthquake was very unusual for this area.

Pumping Fluid In or Out is the Cause

Christian Klose, a scientist at Columbia University's Lamont-Doherty Earth Observatory, argued that the sudden shift of 'fluid displacement' in the region could have simultaneously relaxed the tension between the two sides of the fault, allowing them to move apart, and also increased the direct pressure enough to cause a violent rupture. The effect was "25 times more" than a year's worth of natural stress from tectonic movement.

The 7.9 magnitude quake struck May 2008 and left more than five million people homeless. It remains a raw and emotional topic for most Chinese, and the government has been quick to quash any suggestion that Zipingpu may have been responsible for the catastrophe. Researchers have been denied access to seismological and geological data to examine the earthquake further.



'You Need To Know' Discount Has Begun

Ends May 30th (Memorial Day) - We are making ECM news service memberships available at (our cost) $25. Why? (see below)

We are reducing our cost of the ECM news service due to current high-risk events. It has always been our mission to be a conduit to 'you'. Unlike any other news service, we get our information direct from top scientists in geo-physics(earth) solar-physics(space), honored elders from indigenous sacred tribes, and front-line emergency management workers from FEMA, Red Cross, Doctors without Borders, and more.

No one is more aware than I am regarding the delicate and needed responsibility of how best to disseminate current and coming events based strongly on highly credible scientific findings and recent discoveries, ancient text telling of prophecy and predictions which have a history of accuracy, and methods of emergency preparedness for both physical and mental stability.

Upcoming articles may seem alarming - and there is the risk of setting off inherent defense triggers every human possess. It is the very necessary 'fight or flight' defense mechanism which is 'hard wired' for survival. However, it is this very human and compulsory reflex which can work against us. I can tell you most of the DSM IV diagnosed "stress and anxiety disorder" patient's I have personally work with, was directly related to "over-use" or "mis-use" of this very natural reaction to life. We all need to watch for - and avoid something called "disaster fatigue".

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Crop circle 'inspired by most beautiful formula in mathematics' appears in Wiltshire

Crop circle 'inspired by most beautiful formula in mathematics' appears in Wiltshire
A crop circle thought to be inspired by a formula acclaimed as the most beautiful in all mathematics has appeared on a hillside in Wiltshire.

By Matthew Moore
Published: 5:30PM BST 24 May 2010
The circle, which is more than 300ft in diameter, was cut into a field of oil seed rape by Wilton Windmill at Wilton near Marlborough.
The circle, which is more than 300ft in diameter, was cut into a field of oil seed rape by Wilton Windmill at Wilton near Marlborough. Photo: PIN

The circle, which is more than 300ft in diameter, was cut into a field of oil seed rape by Wilton Windmill at Wilton near Marlborough.

Experts say that the design may be connected to Euler's Identity, a complex formula devised by the 18th Century Swiss mathematician Leonhard Euler.

Lucy Pringle, the crop circle researcher who photographed the formation from a helicopter after it appeared in the early hours of Saturday morning, said that each segment of the circle represented an element of the formula.

The pattern of dashes and spaces against each of the lines coming out of the centre forms the binary code for symbols and letters of the alphabet which feature in Euler's Identity, it is claimed.

She said: "This is one of the most profound and complicated equations of the past 2,000 years, and we think the crop circle is some form of visual translation."

The Wilton Windmill pattern is the latest in a long line of mathematical crop circles in Britain. In 2008 a coded image representing the first 10 digits of pi was discovered in a barley field in Wiltshire.

Euler's Identity is admired by mathematicians for linking several fundamental mathematical constants.

Keith Devlin, professor of mathematics at Stanford University in California, said that the formula "reaches down into the very depths of existence ... like a Shakespearean sonnet that captures the very essence of love."

New World Order Mind Control in Alpha State

Friday, May 28, 2010

From Failed Bombings to Armed Jihadist Assaults


From Failed Bombings to Armed Jihadist Assaults
May 27, 2010 | 0855 GMT

From Failed Bombings to Armed Jihadist Assaults

By Scott Stewart

One of the things we like to do in our Global Security and Intelligence Report from time to time is examine the convergence of a number of separate and unrelated developments and then analyze that convergence and craft a forecast. In recent months we have seen such a convergence occur.

The most recent development is the interview with the American-born Yemeni cleric Anwar al-Awlaki that was released to jihadist Internet chat rooms May 23 by al-Malahim Media, the public relations arm of al Qaeda in the Arabian Peninsula (AQAP). In the interview, al-Awlaki encouraged strikes against American civilians. He also has been tied to Maj. Nidal Hasan, who was charged in the November 2009 Fort Hood shooting, and Umar Farouk Abdulmutallab, the perpetrator of the failed Christmas Day 2009 airline bombing. And al-Awlaki reportedly helped inspire Faisal Shahzad, who was arrested in connection with the attempted Times Square attack in May.

The second link in our chain is the failed Christmas Day and Times Square bombings themselves. They are the latest in a long string of failed or foiled bombing attacks directed against the United States that date back to before the 9/11 attacks and include the thwarted 1997 suicide bomb plot against a subway in New York, the thwarted December 1999 Millennium Bomb plot and numerous post-9/11 attacks such as Richard Reid’s December 2001 shoe-bomb attempt, the August 2004 plot to bomb the New York subway system and the May 2009 plot to bomb two Jewish targets in the Bronx and shoot down a military aircraft. Indeed, jihadists have not conducted a successful bombing attack inside the United States since the 1993 World Trade Center bombing. Getting a trained bombmaker into the United States has proved to be increasingly difficult for jihadist groups, and training a novice to make bombs has also been problematic as seen in the Shahzad and Najibullah Zazi cases.

The final link we’d like to consider are the calls in the past few months for jihadists to conduct simple attacks with readily available items. This call was first made by AQAP leader Nasir al-Wahayshi in October 2009 and then echoed by al Qaeda prime spokesman Adam Gadahn in March of 2010. In the Times Square case, Shahzad did use readily available items, but he lacked the ability to effectively fashion them into a viable explosive device.

When we look at all these links together, there is a very high probability that jihadists linked to, or inspired by, AQAP and the Tehrik-i-Taliban Pakistan (TTP) — and perhaps even al Shabaab — will attempt to conduct simple attacks with firearms in the near future.

Threats and Motives

In the May 23 al-Malahim interview (his first with AQAP), al-Awlaki not only said he was proud of the actions of Hasan and Abdulmutallab, whom he referred to as his students, but also encouraged other Muslims to follow the examples they set by their actions. When asked about the religious permissibility of an operation like Abdulmutallab’s, which could have killed innocent civilians, al-Awlaki told the interviewer that the term “civilian” was not really applicable to Islamic jurisprudence and that he preferred to use the terms combatants and non-combatants. He then continued by noting that “non-combatants are people who do not take part in the war” but that, in his opinion, “the American people in its entirety takes part in the war, because they elected this administration, and they finance this war.” In his final assessment, al-Awlaki said, “If the heroic mujahid brother Umar Farouk could have targeted hundreds of soldiers, that would have been wonderful. But we are talking about the realities of war,” meaning that in his final analysis, attacks against civilians were permissible under Islamic law. Indeed, he later noted, “Our unsettled account with America, in women and children alone, has exceeded one million. Those who would have been killed in the plane are a drop in the ocean.”

While this line of logic is nearly identical to that historically put forth by Osama bin Laden and Ayman al-Zawahiri, the very significant difference is that al-Awlaki is a widely acknowledged Islamic scholar. He speaks with a religious authority that bin Laden and al-Zawahiri simply do not possess.

On May 2, the TTP released a video statement by Hakeemullah Mehsud in which Mehsud claimed credit for the failed Times Square attack. In the recording, which reportedly was taped in early April, Mehsud said that the time was approaching “when our fedayeen [suicide operatives] will attack the American states in their major cities.” He also said, “Our fedayeen have penetrated the terrorist America. We will give extremely painful blows to the fanatic America.”

While TTP leaders seem wont to brag and exaggerate (e.g., Baitullah Mehsud falsely claimed credit for the April 3, 2009, shooting at an immigration center in Binghamton, N.Y., which was actually committed by a mentally disturbed Vietnamese immigrant), there is ample reason to believe the claims made by the TTP regarding their contact with Shahzad. We can also deduce with some certainty that Mehsud and company have trained other men who have traveled (or returned) to the United States following that training. The same is likely true for AQAP, al Shabaab and other jihadist groups. In fact, the FBI is likely monitoring many such individuals inside the United States at this very moment — and in all likelihood is madly scrambling to find and investigate many others.

Fight Like You Train

There is an old military and law-enforcement training axiom that states, “You will fight like you train.” This concept has led to the development of training programs designed to help soldiers and agents not only learn skills but also practice and reinforce those skills until they become second nature. This way, when the student graduates and comes under incredible pressure in the real world — like during an armed ambush — their training will take over and they will react even before their mind can catch up to the rapidly unfolding situation. The behaviors needed to survive have been ingrained into them. This concept has been a problem for the jihadists when it comes to terrorist attacks.

It is important to understand that most of the thousands of men who attend training camps set up by al Qaeda and other jihadist groups are taught the basic military skills required to fight in an insurgency. This means they are provided basic physical training to help condition them, given some hand-to-hand combat training and then taught how to operate basic military hardware like assault rifles, hand grenades and, in some cases, crew-served weapons like machine guns and mortars. Only a very few students are then selected to attend the more advanced training that will teach them the skills required to become a trained terrorist operative.

In many ways, this process parallels the way that special operations forces operators are selected from the larger military population and then sent on for extensive training to transform them into elite warriors. Many people wash out during this type of intense training and only a few will make it all the way through to graduation. The problem for the jihadists is finding someone with the time and will to undergo the intensive training required to become a terrorist operative, the ability to complete the training and — critically — the ability to travel abroad to conduct terrorist attacks against the far enemy. Clearly the jihadist groups are able to train men to fight as insurgents in Afghanistan and Iraq, and they have shown the ability to train terrorist operatives who can operate in the fairly permissive environments of places like the Afghanistan-Pakistan border area. They also have some excellent bombmakers and terrorist planners in Iraq and Pakistan.

What the jihadists seem to be having a problem doing is finding people who can master the terrorist tradecraft and who have the ability to travel into hostile areas to ply their craft. There seems to be a clear division between the men who can travel and the men who can master the advanced training. The physical and intelligence onslaught launched against al Qaeda and other jihadist groups following the 9/11 attacks has also created operational security concerns that complicate the ability to find and train effective terrorist operatives.

Of course, we’re not telling the jihadists anything they don’t already know. This phenomenon is exactly why you have major jihadist figures like al-Wahayshi and Gadahn telling the operatives who can travel to or are already in the West to stop trying to conduct attacks that are beyond their capabilities. Gadahn and al-Awlaki have heaped praise on Maj. Hasan as an example to follow — and this brings us back to armed assaults.

In the United States it is very easy to obtain firearms and it is legal to go to a range or private property to train with them. Armed assaults are also clearly within the skill set of jihadists who have made it only through basic insurgent training. As we’ve mentioned several times in the past, these grassroots individuals are far more likely to strike the United States and Europe than professional terrorist operatives dispatched from the al Qaeda core group. Such attacks will also allow these grassroots operatives to fight like they have been trained. When you combine all these elements with the fact that the United States is an open society with a lot of very vulnerable soft targets, it is not difficult to forecast that we will see more armed jihadist assaults in the United States in the near future.

Armed Assaults

Armed assaults employing small arms are not a new concept in terrorism by any means. They have proved to be a tried-and-true tactic since the beginning of the modern era of terrorism and have been employed in many famous attacks conducted by a variety of actors. A few examples are the Black September operation against the Israeli athletes at the 1972 Munich Olympics; the December 1975 seizure of the Organization of the Petroleum Exporting Countries headquarters in Vienna, led by Ilich Ramirez Sanchez, aka “Carlos the Jackal”; the December 1985 simultaneous attacks against the airports in Rome and Vienna by the Abu Nidal Organization; and the September 2004 school seizure in Beslan, North Ossetia, by Chechen militants. More recently, the November 2008 armed assault in Mumbai demonstrated how deadly and spectacular such attacks can be.

In some instances — such as the December 1996 seizure of the Japanese ambassador’s residence in Lima, Peru, by the Tupac Amaru Revolutionary Movement — the objective of the armed assault is to take and intentionally hold hostages for a long period of time. In other instances, such as the May 1972 assault on Lod Airport by members of the Japanese Red Army, the armed assault is planned as a suicide attack designed simply to kill as many people as possible before the assailants themselves are killed or incapacitated. Often attacks fall somewhere in the middle. For example, even though Mumbai became a protracted operation, its planning and execution indicated it was intended as an attack in which the attackers would inflict maximum damage and not be taken alive. It was only due to the good fortune of the attackers and the ineptitude of the Indian security forces that the operation lasted as long as it did.

We discussed above the long string of failed and foiled bombing attacks directed against the United States. During that same time, there have been several armed assaults that have killed people, such as the attack against the El Al ticket counter at the Los Angeles International Airport by Hesham Mohamed Hadayet in July 2002, the shooting attacks by John Muhammed and Lee Boyd Malvo in the Washington area in September and October 2002 and the June 2009 attack in which Abdulhakim Mujahid Muhammad allegedly shot and killed a U.S. soldier and wounded another outside a Little Rock, Ark., recruiting center. The most successful of these attacks was the November 2009 Fort Hood shooting, which resulted in 13 deaths. These attacks not only resulted in deaths but also received extensive media coverage.

Armed assaults are effective and they can kill people. However, as we have noted before, due to the proficiency of U.S. police agencies and the training their officers have received in active shooter scenarios following school shootings and incidents of workplace violence, the impact of armed assaults will be mitigated in the United States, and Europe as well. In fact, it was an ordinary police officer responding to the scene and instituting an active shooter protocol who shot and wounded Maj. Hasan and brought an end to his attack in the Soldier Readiness Center at Fort Hood. The number of people in the American public who are armed can also serve as a mitigating factor, though many past attacks have been planned at locations where personal weapons are prohibited, like the Los Angeles International Airport, Fort Hood and Fort Dix.

Of course, a Mumbai-like situation involving multiple trained shooters who can operate like a fire team will cause problems for first responders, but the police communication system in the United States and the availability of trained SWAT teams will allow authorities to quickly vector in sufficient resources to handle the threat in most locations — especially where such large coordinated attacks are most likely to happen, such as New York, Washington and Los Angeles. Therefore, even a major assault in the United States is unlikely to drag out for days as did the incident in Mumbai.

None of this is to say that the threats posed by suicide bombers against mass transit and aircraft will abruptly end. The jihadists have proven repeatedly that they have a fixation on both of these target sets and they will undoubtedly continue their attempts to attack them. Large bombings and airline attacks also carry with them a sense of drama that a shooting does not — especially in a country that has become somewhat accustomed to shooting incidents conducted by non-terrorist actors for other reasons. However, we believe we’re seeing a significant shift in the mindset of jihadist ideologues and that this shift will translate into a growing trend toward armed assaults.

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Wednesday, May 26, 2010

US warns over Beijing’s ‘assertiveness’

US warns over Beijing’s ‘assertiveness’

By Kathrin Hille in Beijing

Published: May 25 2010 17:50 | Last updated: May 25 2010 23:59

The commander of US forces in the Pacific has warned that China’s military is more aggressively asserting its territorial claims in regional waters.

Admiral Robert Willard told the Financial Times: “There has been an assertiveness that has been growing over time, particularly in the South China Sea and in the East China Sea.”

He said China’s extensive claims to islands and waters in the region were “generating increasing concern broadly across the region and require address”.

The admiral’s remarks follow complaints by Japan in recent weeks about aggressive behaviour from a Chinese coastguard vessel in contested waters and a Chinese military helicopter in international waters.

Some of China’s neighbours have been watching the People’s Liberation Army’s modernisation and efforts at expanding the navy’s reach with unease, and defence experts see this expansion as one factor behind a developing arms race in south-east Asia.

Adm Willard said the US viewed China’s growing influence in Asia as positive. But Beijing needed to be more transparent, not only with the US but also with its neighbours.

Adm Willard was speaking ahead of talks with Ma Xiaotian, deputy chief of general staff of the PLA, the first meeting between senior US and Chinese military officers since Beijing suspended bilateral military-to-military dialogue in January after US arms sales to Taiwan.

“US-China military dialogue is officially still in suspension,” said Adm Willard, who visited Beijing at the invitation of Hillary Clinton, secretary of state, in the context of the Strategic and Economic Dialogue, the bilateral exchanges that concluded on Tuesday.

But he interpreted the fact that Beijing had agreed to his presence as a sign it viewed some high-level exchanges as beneficial.

“What was very striking yesterday was my impression of the very advanced, sophisticated and mature dialogue that’s occurring across a wide range of subjects between China and the US,” he said.

“That is in contrast with a very immature military-to-military relationship.”

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Tuesday, May 25, 2010

RP: "China's Rise Challenges U.S. Influence"

I was searching for info on "Uruguay"
http://www.thetrump php?search= uruguay
when I came upon this:

Description: Newly elected President Benigno Aquino III has called for amendments to the Visiting Forces Agreement, which permits and defines joint U.S.-Filipino military exercises. (Ted Aljibe/AFP/Getty Images)

The Philippines: China's Rise Challenges U.S. Influence
May 21, 2010 | From
China's charm offensive toward Manila undermines Washington's position as the Philippines' foremost security and economic partner. By Jeremiah Jacques

A shift has emerged in Manila's attitude toward the U.S. and toward China, which is fortified by Beijing's inroads into what has long been considered "the United States' backyard."

Like two men vying for the affections of the same woman, China and the U.S. compete for the dominant influence in the Philippines, the Pearl of the Orient. And as Washington grows complacent in its pursuit and distracted by other geopolitical pressures, Manila, with increasing consistency, welcomes Beijing's advances.

Edging Toward Beijing

Fifteen years ago, a Sino-Philippine strategic partnership seemed impossible. The two nations were mired in disputes over the Spratly Islands in the South China Sea, and Manila reacted to Beijing's obstinacy by shoring up its defense ties with Washington.

But, in 2002, Beijing signed the historic Declaration on the Conduct of Parties in the South China Sea with the Association of Southeast Asian Nations, of which the Philippines is a core member. A year later, China signed the Treaty of Amity and Cooperation in Southeast Asia, which calls for greater political and economic cooperation in the region and forbids reverting to military force.

In 2004, the two nations signed a Memorandum of Understanding on Defense Cooperation, and agreed on annual defense talks and joint military training. The same year, China gifted $6 million worth of military equipment to the Philippine Army.

During Chinese President Wen Jiabao's January 2007 visit to Manila, he and his Philippine counterpart declared that Sino-Philippine ties had attained a "golden age of partnership" as the two nations upgraded bilateral cooperation and dialogue on political and defense affairs.

Most recently, Beijing eased tensions with Manila over the long-simmering Spratly dispute when it agreed to abide by the UN Law of the Sea.

Bilateral ties have also flourished in the realm of trade and investment. Today, China is the Philippines' largest trading partner, and largest source of financing for energy, agriculture and infrastructure. These flourishing economic ties with Beijing will impede Manila's ability to open any new security initiatives with Washington which might be perceived as opposing Chinese strategic moves in the region.

Beijing's overtures to Manila are not going unnoticed among the people of the Philippines. In the past 12 months, the momentum has tilted the balance of popular opinion as Filipinos shift toward a more favorable perspective of China. In 2009, a majority of 52 percent of Filipinos held a negative view of China, but this number has dropped 21 points in the last 12 months. Now, a clear majority of 55 percent hold a positive view, which is up 16 points from the 2009 figure. At the same time, opposition to "U.S. imperialism" is growing among the populace.

Although resistance to U.S. military presence and Washington's hand in Manila's affairs is nothing new for certain segments of the Philippines' civil society, politicians have maintained a restrained official stance. But, recently, suggestions of dissatisfaction have bubbled to the surface.

Early Signs of Ebbing U.S. Relations

In July 2004, then President Gloria Arroyo withdrew Philippine troops from Iraq in exchange for the release of a kidnapped Philippine truck driver. Arroyo's concession to the demands of the terrorists rankled Washington and chilled U.S.-Philippine ties. In the aftermath of this withdrawal, it was Beijing's courtship that provided Manila with the vital diplomatic leverage it needed.

Benigno Aquino iii, elected Philippine president on May 10, has called for amendments to the Visiting Forces Agreement (vfa), which permits and defines joint U.S.-Philippine military exercises. Former President Joseph Estrada, who came in second in the election, had also called for a revision of the vfa. Though the politicians' specific requests about the agreement are minor, they reflect the trend in the Philippines toward a more assertive and independent stance in regard to its self-interest and sovereignty.

Ongoing uncertainty over the presence of U.S. military bases in Japan is only the most recent of reasons Washington values its current position as a dominant political and military influence in the Philippines. Because it is a location from which Chinese adventurism in Southeast Asia can be forestalled, a U.S. foothold in the Philippines is crucial for Washington. But as China's influence increases, American power in Asia stands challenged. Since World War ii, the U.S. has relied on Asian allies like the Philippines and Japan to stabilize the balance of power in Asia and the Pacific. But these partnerships are less reliable every month.

Distracted by pressures in the Middle East and elsewhere, Washington is neglecting relations with Asian nations like the Philippines—and Beijing is there to fill the void. Manila, long dependent on the U.S. for military and trade, is proceeding carefully in its interactions with Beijing and Washington. Tension between these two powers could force Manila into a decision it dreads: choosing a single suitor.

Will it be the proven security ally—or the newfound political and economic partner?

Expect anti-American grumbling among the Philippine populace and politicians to grow louder, rather than quieter, in the coming months and years. As China's soft-power diplomacy and hard-power buildup continue to solidify the Asian nations into a global power, America's influence in the region will steadily wane.

In the longer term, Asia's unification points to the approach of the most hope-filled event in history! To understand more about this sure hope, read Russia and China in Prophecy. •

http://www.thetrump php?q=7196. 5741.0.0

Germany After the EU and the Russian Scenario


Germany After the EU and the Russian Scenario
May 25, 2010 | 0857 GMT

Readers Comment on STRATFOR Reports

By George Friedman

Discussions about Europe currently are focused on the Greek financial crisis and its potential effect on the future of the European Union. Discussions these days involving military matters and Europe appear insignificant and even anachronistic. Certainly, we would agree that the future of the European Union towers over all other considerations at the moment, but we would argue that scenarios for the future of the European Union exist in which military matters are far from archaic.
Russia and the Polish Patriots

For example, the Polish government recently announced that the United States would deploy a battery of Patriot missiles to Poland. The missiles arrived this week. When the United States canceled its land-based ballistic missile defense system under intense Russian pressure, the Obama administration appeared surprised at Poland’s intense displeasure with the decision. Washington responded by promising the Patriots instead, the technology the Poles had wanted all along. While the Patriot does not enhance America’s ability to protect itself against long-range ballistic missiles from, for example, Iran, it does give Poland some defense against shorter-ranged ballistic missiles and substantial defense against conventional air attack.

Russia is the only country capable of such attacks on Poland with even the most distant potential interest in doing so, and at this point, this is truly an abstract threat. In removing a system that was really not a threat to Russian interests — U.S. ballistic missile defense at most can handle only a score of missiles, meaning it would have a negligible impact on the Russian nuclear deterrent — the United States ironically has installed a system that could affect Russia. Under the current circumstances, this is not really significant. While much is being made of having a few U.S. boots on the ground east of Germany within 40 kilometers (about 25 miles) of the Russian Baltic exclave of Kaliningrad, a few hundred technicians and guards are simply not an offensive threat.

Still, the Russians — with a long history of seeing improbable threats turning into very real ones — tend to take hypothetical limits on their power seriously. They also tend to take gestures seriously, knowing that gestures often germinate into strategic intent. The Russians obviously oppose this deployment, as the Patriots would allow Poland in league with NATO — and perhaps even by itself — to achieve local air superiority. There are many crosscurrents in Russian policy, however.

For the moment, the Russians are interested in encouraging better economic relations with the West, as they could use technology and investment that would make them more than a commodity exporter. Moreover, with the Europeans preoccupied with their economic crisis and the United States still bogged down in the Middle East and needing Russian support on Iran, Moscow has found little outside resistance to its efforts to increase its influence in the former Soviet Union. Moscow is not unhappy about the European crisis and wouldn’t want to do anything that might engender greater European solidarity. After all, a solid economic bloc turning into an increasingly powerful and integrated state would pose challenges to Russia in the long run that Moscow is happy to do without. The Patriot deployment is a current irritation and a hypothetical military problem, but the Russians are not inclined to create a crisis with Europe over it — though this doesn’t mean Moscow won’t make countermoves on the margins when it senses opportunities.

For its part, the Obama administration is not focused on Poland at present. It is obsessed with internal matters, South Asia and the Middle East. The Patriots were shipped based on a promise made months ago to calm Central European nerves over the Obama administration’s perceived lack of commitment to the region. In the U.S. State and Defense department sections charged with shipping Patriots to Poland, the delivery process was almost an afterthought; repeated delays in deploying the system highlighted Washington’s lack of strategic intent.

It is therefore tempting to dismiss the Patriots as of little importance, as merely the combination of a hangover from a Cold War mentality and a minor Obama administration misstep. Indeed, even a sophisticated observer of the international system might barely note it. But we would argue that it is more important than it appears precisely because of everything else going on.
Existential Crisis in the EU

The European Union is experiencing an existential crisis. This crisis is not about Greece, but rather, what it is that members of the European Union owe each other and what controls the European Union has over its members. The European Union did well during a generation of prosperity. As financial crisis struck, better-off members were called on to help worse-off members. Again, this is not just about Greece — the 2008 credit crisis in Central Europe was about the same thing. The wealthier countries, Germany in particular, are not happy at the prospect of spending taxpayer money to assist countries dealing with popped credit bubbles.

They really don’t want to do that, and if they do, they really want to have controls over the ways these other countries spend their money so this circumstance doesn’t arise again. Needless to say, Greece — and countries that might wind up like Greece — do not want foreign control over their finances.

If there are no mutual obligations among EU member nations, and the German and Greek publics don’t want to bail out or submit, respectively, then the profound question is raised of what Europe is going to be — beyond a mere free trade zone — after this crisis. This is not simply a question of the euro surviving, although that is no trivial matter.

The euro and the European Union will probably survive this crisis — although their mutual failure is not nearly as unthinkable as the Europeans would have thought even a few months ago — but this is not the only crisis Europe will experience. Something always will be going wrong, and Europe does not have institutions that could handle these problems. Events in the past few weeks indicate that European countries are not inclined to create such institutions, and that public opinion will limit European governments’ ability to create or participate in these institutions. Remember, building a super state requires one of two things: a war to determine who is in charge or political unanimity to forge a treaty. Europe is — vividly — demonstrating the limitations on the second strategy.

Whatever happens in the short run, it is difficult to envision any further integration of European institutions. And it is very easy to see how the European Union will devolve from its ambitious vision into an alliance of convenience built around economic benefits negotiated and renegotiated among the partners. It would thus devolve from a union to a treaty, with no interest beyond self-interest.
The German Question Revisited

We return to the question that has defined Europe since 1871, namely, the status of Germany in Europe. As we have seen during the current crisis, Germany is clearly the economic center of gravity in Europe, and this crisis has shown that the economic and the political issues are very much one and the same. Unless Germany agrees, nothing can be done, and if Germany so wishes, something will be done. Germany has tremendous power in Europe, even if it is confined largely to economic matters. But just as Germany is the blocker and enabler of Europe, over time that makes Germany the central problem of Europe.

If Germany is the key decision maker in Europe, then Germany defines whatever policies Europe as a whole undertakes. If Europe fragments, then Germany is the only country in Europe with the ability to create alternative coalitions that are both powerful and cohesive. That means that if the European Union weakens, Germany will have the greatest say in what Europe will become. Right now, the Germans are working assiduously to reformulate the European Union and the eurozone in a manner more to their liking. But as this requires many partners to offer sovereignty to German control — sovereignty they have jealously guarded throughout the European project — it is worth exploring alternatives to Germany in the European Union.

For that we first must understand Germany’s limits. The German problem is the same problem it has had since unification: It is enormously powerful, but it is far from omnipotent. Its very power makes it the focus of other powers, and together, these other powers can cripple Germany. Thus, Germany is indispensable for any decision within the European Union at present, and it will be the single center of power in Europe in the future — but Germany can’t just go it alone. Germany needs a coalition, meaning the long-term question is this: If the EU were to weaken or even fail, what alternative coalition would Germany seek?

The casual answer is France, as the two economies are somewhat similar and the countries are next-door neighbors. But historically, this similarity in structure and location has been a source not of collaboration and fondness but of competition and friction. Within the European Union, with its broad diversity, Germany and France have been able to put aside their frictions, finding a common interest in managing Europe to their mutual advantage. That co-management, of course, helped bring us to this current crisis. Moreover, the biggest thing that France has that Germany wants is its market; an ideal partner for Germany would offer more. By itself at least, France is not a foundation for long-term German economic strategy. The historic alternative for Germany has been Russia.
The Russian Option

A great deal of potential synergy exists between the German and Russian economies. Germany imports large amounts of energy and other resources from Russia. As mentioned, Russia needs sources of technology and capital to move it beyond its current position of mere resource exporter. Germany has a shrinking population and needs a source of labor — preferably a source that doesn’t actually want to move to Germany. Russia’s Soviet-era economy continues to de-industrialize, and while that has a plethora of negative impacts, there is one often-overlooked positive: Russia now has more labor than it can effectively metabolize in its economy given its capital structure. Germany doesn’t want more immigrants but needs access to labor. Russia wants factories in Russia to employ its surplus work force, and it wants technology. The logic of the German-Russian economic relationship is more obvious than the German-Greek or German-Spanish relationship. As for France, it can participate or not (and incidentally, the French are joining in on a number of ongoing German-Russian projects).

Therefore, if we simply focus on economics, and we assume that the European Union cannot survive as an integrated system (a logical but not yet proven outcome), and we further assume that Germany is both the leading power of Europe and incapable of operating outside of a coalition, then we would argue that a German coalition with Russia is the most logical outcome of an EU decline.

This would leave many countries extremely uneasy. The first is Poland, caught as it is between Russia and Germany. The second is the United States, since Washington would see a Russo-German economic bloc as a more significant challenger than the European Union ever was for two reasons. First, it would be a more coherent relationship — forging common policies among two states with broadly parallel interests is far simpler and faster than doing so among 27. Second, and more important, where the European Union could not develop a military dimension due to internal dissensions, the emergence of a politico-military dimension to a Russo-German economic bloc is far less difficult to imagine. It would be built around the fact that both Germans and Russians resent and fear American power and assertiveness, and that the Americans have for years been courting allies who lie between the two powers. Germany and Russia would both view themselves defending against American pressure.

And this brings us back to the Patriot missiles. Regardless of the bureaucratic backwater this transfer might have emerged out of, or the political disinterest that generated the plan, the Patriot stationing fits neatly into a slowly maturing military relationship between Poland and the United States. A few months ago, the Poles and Americans conducted military exercises in the Baltic states, an incredibly sensitive region for the Russians. The Polish air force now flies some of the most modern U.S.-built F-16s in the world; this, plus Patriots, could seriously challenge the Russians. A Polish general commands a sector in Afghanistan, something not lost upon the Russians. By a host of processes, a close U.S.-Polish relationship is emerging.

The current economic problems may lead to a fundamental weakening of the European Union. Germany is economically powerful but needs economic coalition partners that contribute to German well-being rather than merely draw on it. A Russian-German relationship could logically emerge from this. If it did, the Americans and Poles would logically have their own relationship. The former would begin as economic and edge toward military. The latter begins as military, and with the weakening of the European Union, edges toward economics. The Russian-German bloc would attempt to bring others into its coalition, as would the Polish-U.S. bloc. Both would compete in Central Europe — and for France. During this process, the politics of NATO would shift from humdrum to absolutely riveting.

And thus, the Greek crisis and the Patriots might intersect, or in our view, will certainly in due course intersect. Though neither is of lasting importance in and of themselves, the two together point to a new logic in Europe. What appears impossible now in Europe might not be unthinkable in a few years. With Greece symbolizing the weakening of the European Union and the Patriots representing the remilitarization of at least part of Europe, ostensibly unconnected tendencies might well intersect.

Monday, May 24, 2010

The new order is chaos

The new order is chaos
By Chan Akya

I saw a wonderful cartoon this week, which had two kids (one of whom is holding a needle close to a balloon) approaching a balding middle-aged man reading one of the financial newspapers, with the caption "Watch him jump". Replace the adolescents with today's politicians (actually scratch that, most politicians are still adolescent at least as far as their mental growth is concerned) and the balloon as burst; you have the perfect picture of what happened in the markets.

Anyone looking for the "new normal" doesn't have to look too far from the events that drove this week's trading so far. In summary, academics and economists (reportedly there is a difference between the two) have been searching for a "new normal" for the world economy as it attempts to recover from the crisis of 2007.

What they are missing is that the "new normal" isn't going to be

defined by the relative economic growth of various countries or the dynamics of inflation; what will define it (as is increasingly becoming clear) is the return of absolute, gut-wrenching volatility that makes investing a permanent state of siege. In that environment, investor behavior is reactive rather than proactive and surprises abound on both the up and down directions.

Welcome to a new world where the definition of order is a state of continued chaos.

What caused this meltdown?

The primary policy response globally since October 2008 has been Keynesian, that is, to throw good money after bad in the fervent hope that any resulting inflation would help to reduce the present value of debts while creating new asset bubbles that could encourage consumers to return to their big spending ways. For a while, the strategy seemed to have worked, what with all manner of risk assets rising over the course of 2009. The indicator that the financial media are most obsessed with is the stock market; and unfortunately for the headline-writers and other cheerleaders for the global economic "V-shaped-recovery" malarkey, that isn't looking in good health now.

As things stand today (May 20), European stocks (Euro Stoxx) are down 13.35% on average for the year (25% down in US dollar terms) within which there is a significant variance across the various countries - Germany's DAX index is only down 1.5% (15% in US dollar terms) while Greece (-27%) and Madrid (22%) have done horribly. In Asia, the Nikkei is barely flat for the year in US dollar terms while being down 5% or so in the local currency; for the Hang Seng index in Hong Kong the decline is 10.6% for the year. The US stock markets, which led the rally last year, were basically flat for the year on Wednesday; declines on Thursday pushed the S&P index down about 2% for the year.

The first polemic: Buyers of risk have the power in the markets today precisely because governments have abrogated fiscal responsibility. In that context, when you are in charge of a government that needs to borrow tens of billions of dollars from the markets every day, it may be a good idea neither to startle people nor indeed to lecture them. It doesn't look to me that German Chancellor Angela Merkel or President Barack Obama have got this particular memo, for they have done precisely the opposite thing.

The second polemic: Governments around the world and particularly in Europe can pretend that this bout of crisis is all about the evils of hedge funds, speculators, short-sellers and whatever have you; the truth is closer to home. Over-leveraged institutions and indeed instruments are prone to rapid bouts of volatility. Any solutions that fail to address excessive leverage would likely buy time and do nothing else. Governments cannot get away with this bluster much as they try to paint new villains into their own ghastly policy responses.

The third polemic: This relates to the political classes - no offense but do shut up. Buyers of risk (see polemic number one) have no appetite for lectures and have been forced to do more work on ensuring that whatever they buy is worth the trouble from a risk perspective. Add a whole bunch of unrelated political noise to these complex equations - and that means your speeches, my dear politicians - and what you have is the makings of a buyer's strike. And if that happens ... oh well, let's not consider that, okay?

Recent developments
This week would certainly never be categorized as "slow news" by any stretch of the imagination. Financial markets were abuzz with developments most of which proved extremely expensive for investors who owned risk (or "long" in the market parlance).

To be sure, there were enough other events that were non-financial: the continued oil spill in the Gulf of Mexico, the tragic events in Thailand, the escalation of rhetoric between North and South Korea over the torpedo incident and the new nuclear deal signed by Iran to defuse tensions. Unfortunately for investors, all of these events were considered strictly with the jaundiced eyes of those who panic; in other words, all of the above compounded the negative tone of the markets (admittedly most of the above is actually bad news).

A look here at the main developments from a financial perspective:
German short-selling ban
The biggest mover of the markets was the announcement by Germany on Tuesday to disallow short sales of European government bonds, "naked" credit default swaps (CDS) and the short positions in the stocks of Germany's 10 biggest financial institutions.

Market reaction ranged from the incredulous to the irreverent (example - a popular e-mail carried a fake headline as its subject "Germany bans goals against its team in the World Cup"). There were a lot of details left to be ironed out by the announcement made by the BaFin agency; not the least of which was how the new rules were going to be enforced and its geographical scope. The confusion only deepened when other European countries, including France and the United Kingdom, denied that the rules were applicable across the region.

As things stand, the rules, if adopted across Europe, would carry significant but unintended consequences. Bear with me for a moment here, but the complexity below is necessary to drive home the point about how clueless today's government officials are with respect to the market.

Take the ban on "naked" CDS; under the rules, no one may purchase protection on a European government without owning underlying bonds. Assuming that everyone complies, there is still a very big problem, that is, that while bonds carry pretty much any maturity date, most CDS contracts are set to mature in quarterly intervals (20th of March, June, September and December).

So if you owned a bond that matured on say February 10, 2015, you would want to buy protection close enough to that date; hence to March 20, 2015 - technically, the rules would disallow this CDS because your contract has a "naked short" exposure on the European government for a month longer than its maturity. Well, why couldn't you get a CDS to mature on February 10, 2015 - because the dealers would consider it illiquid and prefer not to trade with you for the date. Your other alternative would be to purchase protection until December 20, 2014; however, in that event, you as the investor would be left with a "naked long" position for 40 days (which, given this year's meltdown in European government debt, would be unacceptable).

The solution then would be for you to purchase a bond that matured exactly on the CDS rollover dates. This would in turn force governments around Europe to issue bonds that only matured on the appropriate CDS contract dates. Imagine a government having maturities of say 50 billion euros in a given year; that would mean going to the markets on just four days of the year with 12.5 billion euros each time (and remember that all other European governments would also be approaching the market for funding on those same days). The net result is that volatility in the bond markets would increase, not decrease due to such maturity concentrations.

(Yes, I am aware that there are many other solutions, but the point here is to highlight linear interpretations of ill-considered laws).

Other regulatory risks
Just to make things interesting, regulatory risk has increased manifold over the past week:
# The European Union is proposing a comprehensive hedge fund regulation that would target the operations of hedge funds across the continent and also limit the ability of European citizens to invest in hedge funds alongside. This is part of the political noise from Europe in recent days but is thought to have significant (adverse) consequences for market liquidity if it is adopted across Europe and particularly by the UK.
# There is the much-discussed financial reform bill in the US that is making its way through the process with more than its share of headlines; it was finally approved in the senate on Thursday and must now be merged with a House of Representatives version. It is expected to be signed off by early July. Among other things, the bill calls for new ways to watch for risks in the financial system and writes new rules for complex securities. It would also impose restraints on the large, interconnected banks and call for proof that borrowers could pay for the simplest of mortgages.
# The impetus towards a global bank tax has gathered momentum, with both Germany and the UK proposing different variations of the idea. This is a straightforward negative for the share prices of banks but as it highlights the notion of governments scrambling to impose retrospective taxes obviously to improve their fiscal positions the markets are looking at other sectors, including metals, mining, energy et al.

Poor economic data
Forget all the market noise; one can always depend on fundamentals, right? Oh well, not this week. Even as the US produced a surprise deflation print that suggested that sales were only happening at the expense of margins (thereby rendering questionable the market expectations of profits), there was worse news from employment, when claims increased a surprising amount for the week. Elsewhere, the UK produced a surprisingly aggressive inflation print that suggested the counter-effects of the marked decline in the pound sterling for the past few months as the country effectively imported its inflation; this has negative consequences for Europe, where much the same combination of fiscal/quantitative expansion and currency devaluation is happening now.

Commodities, Australia, miners and metals
Following from an Australian government's initiative to tax commodity exports in order to buttress its finances, prices have become more volatile both for companies operating in the business and for the actual commodities as financial markets grapple with the potential consequences. There is now elevated risk that other major exporting countries such as Chile, Brazil and Canada may follow suit, in turn making commodity prices more volatile.

The volatility itself is being fed by the decline in stock markets that has created a negative spiral of wealth for individuals, a postponement of large initial public offerings and share placements, including potentially the $25 billion deal mooted by Petrobras; and a general re-rating towards a negative view.

In credit markets, this has translated into significant bouts of panic. A number of large commodity-based companies have large outstanding lines of credit from global banks under which they would be able to draw down billions in funding whenever required. Given that banks are now paying much more for their funding - particularly if they are based in Europe - and the commodity companies have less illustrious future earnings (apparently), the urge to hedge has vastly increased, thereby driving CDS levels sharply wider.

Zero-sum game exposed
One of the factors keeping the US and emerging markets ticking away in the beginning of the European sovereign crisis was the notion that market flows represented a zero-sum game, ie that outflows from Europe would help market performance elsewhere.

This has now been exposed as a lie as markets have become more cognizant of two constraining factors - firstly, the economic effect of fiscal tightening being imposed across the continent, which would reduce aggregate demand for exports from the US and emerging markets; and secondly, the collapse of the euro, which dramatically escalates the competitive position of exports from the continent (at the expense of the US and emerging markets).

Thus, rather than a zero-sum game, the decline of Europe simply transmits itself to the rest of the markets as a negative.

The way forward
Much as this may seem counter-intuitive, the lesson for governments globally is to do as Germany did, not as they say. If one considers the experience of the country embracing real wage deflation from 2000 to improve its competitiveness and eschewing leverage in favor of a gradual build-up of productivity, it appears almost logical for a number of other countries that have similar demographic situations (much of Europe, the US and others) to follow.

The trick is to avoid listening to the German government as it stands today; where meaningful reforms are being sacrificed at the altar of political expediency in favor of some neighboring countries, such as France. With Germans voting against the current political equations, the rhetoric has become shriller as the attacks on hedge funds and naked shorts make clear.

Markets have woken up to the risks of the excessive debt build-up by governments globally. This will have credit consequences (ie some countries will have to restructure their debts) that then flow to interest rates (as bond yields become steeper or rise) and from there to the rest of the economy (savings will be forced higher, consumption down). These are precisely the objectives that policy responses should have focused on since the beginning of the crisis - it just so happens that when governments avoid tough action, markets go in and do it for them.

The larger lesson is that thanks to the counter-intuitive and eventually counter-productive actions of the Keynesians running global governments today, chaos is the new order; a constant state of crisis is the new normal.

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