Saturday, October 30, 2010

U.S. Wars Are Bankrupting the World

U.S. Wars Are Bankrupting the World

By David Swanson

Global Research, October 21, 2010 - 2010-10-20

The endless and infinite "war on terra" is bankrupting the planet. I don't mean moral bankruptcy; that goes without saying. I mean financial bankruptcy. And don't take my word for it. This is the argument made in a new book called "Terrorism and the Economy: How the War on Terror Is Bankrupting the World," by Loretta Napoleoni, a financial reporter for Internazionale, l'Unita, il Caffe, Mondo e Missione, El Pais, Vanity Fair Spain, and Vanity Fair Italy.

Perhaps Napoleoni is insufficiently subservient to Wall Street to write for U.S. newspapers -- unlike, say, the United States government: "Washington needs Wall Street's help to keep international investors funding the U.S. debt," the author explains, "which in turn provides the $1.6 billion needed each month to keep troops in Iraq and Afghanistan." Which explains the lack of criminal prosecutions and serious regulation of Wall Street.

Napoleoni traces some surprising changes in the world financial system over the past nine years to the latest U.S. warmaking spree: "Though it may sound implausible, as soon as the West focused its attention on the war on terror, the United Arab Emirates and the rest of the Persian Gulf began experiencing an unprecedented economic boom. Money started to flow toward their economies." The U.S. government did not investigate the sources of terrorist funding, but did put restrictions in place through the PATRIOT Act that led money launderers to take their business to Europe, which suffered from that transfer as well.

The U.S. claimed it wanted to cut off the terrorists' lifeline, but Napoleoni finds little evidence of action behind the claim. Instead she sees Bush's failure to pursue bin Laden's bankers as in line with his failure to try to prevent 9-11 or to capture or bring bin Laden to trial. The 9-11 attacks were Bush's excuse for war, and war was what he wanted.

Napoleoni sees the "war on terror" as a response to Islamic jihad and draws a comparison to Saladin's jihad as a response to the Christian crusades. The Pope's call to "liberate" the holy land in 1095, Napoleoni writes, was for "the starving masses of Europe . . . a way of feeding themselves and an escape from a life of misery and suffering. For the knights and nobility, it offered an opportunity for economic expansion. . . . Europe was a colony of Islam. Today the Muslim world feels equally subjugated to the West."

One of the ultimate aims of the Islamic insurgency, Napoleoni writes, is "to bleed the American economy until it is bankrupt." Bin Laden has "even calculated the amount of profits that Americans have accumulated from the sale of Arab oil. For every barrel sold over the last twenty-five years, he claims they pocketed $135. The total loss of income adds up to a staggering $4.05 billion per day, which he describes as the greatest theft in history."

U.S. actions these past nine years have tended to self-inflict the economic wounds bin Laden desires, while simultaneously building al Qaeda into a more powerful and efficient enterprise. The United States had tended to tolerate money laundering because it benefitted the economy and the domestic money supply. The PATRIOT Act imposed regulations on money laundering and therefore on international banks, which immediately began advising their clients to avoid and divest from dollars. International crime syndicates took their money laundry to Europe. The war on terra also drove the price of crude oil through the roof. But it was the otherwise unregulated free-for-all on Wall Street that did the most damage to the U.S. and world economies. "The likelihood that bin Laden will destroy us is extremely low," writes Napoleoni, "the likelihood that finance will do so is, on the other hand, extremely high, a virtual certainty."

U.S. propaganda "magnified al Qaeda's power exponentially. . . . On 9/11, few knew that this was nothing more than political theater and that few Muslims had ever heard of al Qaeda. . . . Saddam Hussein's Iraq had no ties whatsoever to bin Laden. . . . [T]he invasion of Afghanistan decimated al Qaeda. Yet we believed what politicians told us." Our policies -- destabilizing Iraq, Indonesia, Pakistan, and the Horn of Africa -- created shell states and easy recruitment for terrorism, which we thereby helped make more affordable. "The 9/11 attacks cost al Qaeda $500,000, while the Madrid massacre cost only $20,000, and the London suicide bombings less than $15,000. Osama bin Laden no longer operates costly training camps but relies upon the proliferation of jihadist websites to indoctrinate and train a new generation of jihadists at rock-bottom prices." The U.S. has spent trillions on war, while Iraqis have successfully fought back for less than $200 million.

We can't waste money this way without Wall Street, which is "as free and unregulated as it was before the credit crunch." We'd transferred "bad risk accumulated by the private sector to the balance sheet of the state," rather than eliminating it as needed. "In March 2009, the share prices of companies and banks 'saved' by governments were all below the levels at which the state had purchased them. . . . The desire to maintain, at any cost, a damaged and anachronistic system will only bring ruination."

Instead, Napoleoni suggests, we should restructure the financial system, nationalize the banking sector, prune all the deadwood that does not serve the real economy, outlaw damaging products like derivatives, and preserve insurance operations while allowing gambling operations to collapse. We might learn from Islamic economics, which Napoleoni describes as "the opposite of capitalism":

"In the Eastern world, the selfish behavior of each individual, aimed at maximizing profits and minimizing costs, is not believed to miraculously enrich entire nations. In the short shadow of the minarets, wealth comes from cooperation and joint ventures between banks and clients." Drawing on this source, we might require that money always be invested in the real economy, thereby banning speculation on securities not tied to the underlying companies.

And instead of paying people to do nothing, through unemployment compensation, Napoleoni argues we should pay people, the unemployed and recent graduates, to convert our industries to clean energy, build infrastructure, and redesign our manufacturing base. Sounds like a plan that would even take care of the much bemoaned enthusiasm gap.

David Swanson is the author of "Daybreak: Undoing the Imperial Presidency and Forming a More Perfect Union"

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U.S. Nuclear Missile Incident in Wyoming Requires Thorough Investigation

U.S. Nuclear Missile Incident in Wyoming Requires Thorough Investigation

Global Research, October 28, 2010

Voice of Russia

Russia calls on U.S. to keep better eye on missiles

The incident when a computer glitch took 50 US nuclear inter-continental ballistic missiles offline for 45 minutes on Saturday requires thorough investigation, Mr. Andrei Kokoshin, a deputy at the Russian State Duma and former Secretary of the Russian Security Council, said in an interview with the Interfax news agency.

“It is a matter of global security to ensure permanent control over these strategically important systems, Mr. Kokoshin said.

The incident took place at an air force base in Wyoming.


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Friday, October 29, 2010

Imminent Big Bank Death Spiral

Imminent Big Bank Death Spiral

By: Jim Willie CB,

-- Posted Wednesday, 27 October 2010 | Digg This ArticleDigg It! | Share this article| Source:

The mortgage & foreclosure scandal runs so deep that ordinary observers can conclude the US financial foundation is laced with a cancer detectable by ordinary people. The metastasis is visible from the distribution of mortgage bonds into the commercial paper market, money market funds, the bank balance sheets, pension funds under management, foreign central banks, and countless financial funds across the globe. Some primary features of the cancerous tissue material are mortgage bond fraud, major securities violations, absent linkage to property title, income tax evasion, forged foreclosure documents, duplicate property linkage to single mortgage bonds, NINJA (no income, no job or assets) loans to unqualified buyers, and more. In fact, more is revealed it seeems each passing week toward additional facie to high level and systemic fraud. The world is watching. The growing international reaction will be amplified demand for Gold, from recognition that the USDollar & USEconomy have RICO racketeering components extending to Wall Street banks and Fannie Mae mortgage repositories.

The centerpiece question, when the US bond fraud is coupled with European sovereign debt distress, comes down to WHAT IS MONEY? The answer is Gold & Silver and not much of anything else. Other assets like crude oil or farmland are effective hedges against tainted money, but when they contain debt tethers, they too are vulnerable. Huge flows of funds are fleeing traditional asset groups. Some mistakenly still believe the USTreasurys to be a safe haven. A shock of cold water comes to them when that bubble goes into reverse perhaps several months later after reaching 2% yields. The big magnificent epiphany in the last couple years has been that a house is not a hard asset, but rather a debt instrument extension. Important questions have arisen as to what assets are free from counter-party debt risk. The grand demands for physical gold prove that the futures gold contracts are not money either, but tainted Wall Street and London securities contracts that keep the system going.

The big banks have been called too big to fail. What a ruse! They are too big to plow under without removal from power of the bankers themselves. They are too big to permit their balance sheets to be liquidated without a US banking system seizure together, and a 30% to 50% additional housing market price decline. They are too big to send into receivership without igniting a credit derivative sequence of explosions. They are too big to block the widespread practice of fraud and enforcement of law of regulations. However, a wondrous spectacle has begun to shine light. The mortgage & foreclosure scandal could turn out to be the big US Bank tombstone epitaph, as bank revenues from mortgages halt, as home owners refuse to make mortgage payments, as court cases unfold in full view, as class action lawsuits prove racketeering at a systemic level, as MERS and REMICs are frozen by the courts from further activity. Time will tell. Time will reveal extraordinary efforts by the USCongress to pass ex-post facto laws that legalize the bond fraud and contract violations from the past. Remember back in July 2007 when Bernanke claimed this was just a subprime mortgage problem. The Jackass called it an absolute bond crisis.


Two critical elements have been identified. The MERS electronic title registry system was designed to facilitate recording of property titles as associated mortgage bonds traded freely and changed ownership hands. Unfortunately, the title database has no legal standing, as declared by several state courts, including some supreme courts. Banks or financial firms holding the mortgage notes cannot team with the title database and force eviction during the home foreclosure process. That is the first gaping flaw. The second is the REMIC funding facility. The Real Estate Mortgage Investment Conduit was designed to facilitate funding mortgages, in particular Fannie Mae mortgages. Unfortunately, the conduit funding vehicle intentionally omitted citation of the mortgage income stream owner, so as to avoid income taxes. The lack of identification means that the Fannie Mae asset backed securities might lack any legal tie to the mortgage loan income stream.

If the casual observer concludes that Fannie Mae mortgage bonds have no value, then that observer matches the same thought pattern of the Jackass, and the same as an increasing number of financial experts. The mortgage finance boom was more a racketeering scheme to send financial products through the pipeline, earn fees, set up arbitrage, enable leveraged schemes, and justify executive bonuses. At the same time, the scheme had the perceived benefit of putting money in people's hands to spend when their jobs were shanghaied on a ship to China. It concealed the destruction of the USEconomy. It made homes very convenient piggy banks to abuse in consumer binges, as people eagerly burned their furniture. Harken back to the Great Macro Asset Economy, a slippery chapter scripted by Greenspan, one of several heretical chapters. Many citizens were turned into paupers who lost all their home equity, while 22% of the nation today lives in homes bearing negative equity overhead. To claim an elaborate Ponzi Scheme seems a fair characterization. The USGovt hands are dirty. The reflection on USTreasurys is filled with risk of a popped bubble. The reflection on the USDollar is filled with risk of downdrafts since a corrosive currency.

The Europeans have their damaged sovereign debt, but the Americans can boast twin beasts in the USTreasury Bond bubble and the USAgency Mortgage Bond scam. The scam involves mortgage bond fraud from improper perfection of property title that ensures revenue stream. The scam involves securities violations from usage of the MERS title database, duplicate properties in multiple bonds, and forged documents. The scam involves faulty finance vehicles (REMIC) with deep intractible flaws in the structure of funding the loans, whose remedy would come with a $1 trillion tax bill due (estimated by bank analysts). Just last weekend, the state of California demanded as part of a class action lawsuit, with MERS at the center, between $60 and $120 billion in unpaid property title recording fees. One might wonder if any potential criminal fraud was avoided in the mortgage industry during the last decade that saved a few bucks and added to bank profit. The MERS & REMIC twins represent the two unfixable banking Achilles Heels. Can the USCongress forgive the fraud with a fresh piece of supercharged legislation?? If they do, then civil disobedience will blossom across the land, in the form of public demonstrations, marches on Washington, non-payment of monthly mortgage bills, and demands to prove property title. The global response will be to sell any bonds with a US$ denomination.

The fallout comes as shattered integrity of the USDollar after broken credibility of the USFed and ruined prestige of Wall Street, all while a sanctioned USTreasury Bond bubble puffs. The full USGovt guarantee of the Fannie Mae clearinghouse cesspool contents bridges the gap between USTBonds and USAgency Mortgage Bonds. One might argue that Agency Bonds differ from USTBonds only in the claim of linkage to mortgage income and ultimately home seizure, except that linkage is being removed in plain view to the public. The USDollar will suffer. Rather than fall versus other major currencies, the wrecked monetary system will take down all major currencies. Each fiat paper currency is being exposed as illegitimate in different ways. The consequences will be:

* All cost structures will rise, causing a worse global recession, a very heavy painful consequence.
* Income levels will not rise to meet the challenge, since monetary inflation destroys capital and erodes wealth engines in corporate structures.
* The US$-based bond markets take on a racketeering glow in global view.

The vast monetization schemes are set to come into motion for the bond market in general. The objects are hardly just USGovt debt securities, not even just Fannie Mae mortgage securities, but big bank Corporate Bonds as well. The scheme will paint the USDollar in a light with a RICO tint, as in racketeering, sanctioned by the US finance ministry and shielded from prosecution by US legal authorities and regulatory bodies. Worse still, the Financial Accounting Standards Board has permitted accounting fraud to the big dead US banks. Since April 2009, they have been permitted to declare any value they wish on their toxic balance sheets. That has enabled them to take advantage of USGovt largesse, direct USFed redemption of toxic bonds, called widely banker welfare. That has enabled them to tap the 0% money tree that produces carry trade profits. The only stipulation was the banks were required to place their excess cash at the USFed itself, which thereby hid the central bank's insolvency, and distracted attention from the absence of Loan Loss Reserves for the banks. Details on the USFed balance sheet, and big bank vulnerability to further losses, are provided in the October Hat Trick Letter. Toss in the High Frequency Trading schemes, and the US financial markets look to contain more crooked venues than the Las Vegas casinos. The USDollar lies at great risk in the process.


The next QE2 is a done deal but with the details missing. The next TARP-2 bailout package is having its justification and foundation fashioned from the building blocks of need and desperation, along with the cement provided by banking lobbies. The two initiatives will likely meld paths. A disorderly condition comes. An armada of lawyers is on the job ready to challenge mortgage securities, foreclosure orders, and much more. Class action lawsuits are on the docket. The US financial platforms are unraveling. The USDollar will follow a path to oblivion, locked in a destructive spiral. The Competing Currency War assures that other major nations will undermine, debase, and devalue their currencies rather than seek out, plan, and establish a new monetary system. The investment in a broken system will soon be realized as infinite, with unchecked aid, even $trillions tossed in Black Holes. The sound money experts have always argued that accelerated funds are required to maintain a bubble. Gold will therefore skyrocket in price, as the monetary system will be actively ruined from unchecked money creation. The silver price gains will be at least double the gold gains. Markets are beginning to take control, and kick aside the corrupt control levers. The horizon features a big US bank on death watch. The ripple effects will be shocking even to those who expect it. Other big banks will be dragged down in a chain reaction, while illicit control in certain key markets will be stripped away. Control will be lost by the Powerz. Confusion will rein. The bank stock index BKX signals an imminent breakdown. The dustbin awaits!!

The pressured bank stock index breakdown will be led by Bank of America, HSBC, and Wells Fargo. The Wall Street firms remain protected bastions. The comprehensive fraud in a chain link, from home loan origination to bond securitization to debt ratings to ultimate foreclosure, reveals a corrupt protected broken bankrupt system. Its financial status will be clearly broken soon in full view. Further accounting fraud sanctioned by the FASB might come about, but the date with the destiny of failure is assured. My best source from the banking world believes the wheels come completely off the renegade wagon train that blocks the free market for determining a fair gold price when HSBC fails, and that event is imminent. That renegade wagon train has trademarks bearing the name USGovt and Wall Street nameplates, a merged enterprise. A chain reaction will follow. HSBC manages the SPDR gold exchange traded fund for its gold bullion inventory (symbol GLD). To those who were shocked by the mortgage fraud, wait until they witness the broken suppression levers and devices holding down the gold market. An estimated 50 to 60 thousand tonnes of gold bullion have been naked shorted by the biggest banks. Its value is worth between $2.16 and $2.60 trillion. Wait until the GLD fund lawsuits line up, since most of their gold has been leased by the COMEX and LBMA, since many of its shares have been used to cover short gold contracts.


The USFed is showing some reluctance, remorse, or second thoughts about launching a gigantic second Quantitative Easing ship loaded with acid into icy waters. John Hilsenrath has reported the hesitation in the Wall Street Journal, claiming only a few hundred $100 billion of bond debt might be monetized. The prevailing sentiment is that QE2 might not succeed in reviving the USEconomy and not might succeed in clearing the sclerotic condition in the banks. Whether wrenching constipation or multiple sclerosis in the banking channels and arteries, what difference!! My main question is WHEN DID 'QE1' EVER END?? The grand bond monetization is mostly hidden from view for USTreasurys, since almost every auction is a failure. The grand bond monetization is mostly hidden from view for USAgency Bonds, since mammoth activity in Fannie Mae basements keeps the lid on evidence that their bonds have gone worthless, and contains the acidic spillover. Watch the backdoor bank welfare in a TARP-2 package soon to be tossed into QE2. Watch the overall debt monetization be kept much more hidden from view, a new national priority. The USDept Treasury and the USFed do care what the world thinks, when the threat of them pulling the global plug on the United States seems a viable option to stop the cancer from spreading even more on a global scale. A cancer has been exposed in the global reserve currency. Reaction should be much more evident in the Gold price than in currency exchange rates. They move relative to each other.

An enormous pressure point in the legal process right here, right now is the threat of Put-Backs. A mortgage security is put back to the bank that packaged the securities from a portfolio neatly arranged in tranches of loans, when the mortgage backed bond is forced by the courts to be bought back by the bank, after fraud or negligence or contractual defects were demonstrated. A fiduciary responsibility is enforced in the bond securitization process. Estimates wildly have come forth that $2 trillion, give or take a few hundred $billion, in mortgage bonds will be put back to the big banks. They are scrambling to win support from the USCongress for quick action. The TARP-1 package worth almost $800 billion was motivated by declines in the housing market. To be sure, plenty of Bait & Switch was evident, but leave that aside. The TARP-2 package might be required at least $1.5 trillion, motivated this time by securities violations, defective fraudulent MERS & REMIC devices, and contract fraud, when the specter of class action lawsuits, even with RICO claims, hangs overhead. These are felony crimes, a far cry from a declining market.

The second round of big bank TARP bailouts certainly has come in a vastly different light. To solve the challenge, look for the USDept Treasury (controlled by Goldman Sachs) and the USFed (controlled by godfathers to Wall Street banks) to conduct a more secretive monetization of the big bank bond exposure. THEY WILL MONETIZE THE PUTBACKS IN THE DEAD OF NIGHT, DONE IN SECRET, WITHOUT FANFARE, IN A MORE DIRECT CABAL EXERCISE. They will use Fannie Mae as a bad bank, a bond garbage can, its reason for being, its raison d'être. When caught, they will claim they did it to avoid a USEconomic Depression. The truth is more that they will conceal their activity in order to retain power, to enable much more banker welfare courtesy of the captured USGovt, even to prevent a collapse on US soil.


The G-20 ministers have come forth with a vacant pledge as a working theme. Regard it as the billboard message of crisis. Ignore the words, but take serious note of the theme, since it wraps words around the alarm. The competitive currency devaluations will be devastating, even as fast moving trade deficits will be the visible outcome. National trade gaps will go out of control. The G-20 finance ministers issued an opening preliminary statement, a working theme. They will pledge to refrain from competitive devaluations and endorse market based exchange rates, whatever that means. Of course, the silent vote is not made by nations that shun attendance, like Brazil. They decided not to attend, due to stated concerns over growing hostility in competitive currency policy. China might have pulled that cord, as Brazil earned a favor. A US proposal was evaluated to set targets for current account gaps on the pathway to rebalancing global growth and realigning exchange rates. The United States will surely be kept exempt, causing more friction. The G-20 Meeting is telling of the crippling devastation coming in the Competing Currency War, which will take down the entire monetary system. And furthermore, the evidence will be seen in the trade deficits. For instance, even Turkey is setting record deficits. Large deficits will be unavoidable. The obvious outcome of the G-20 Meeting was a sharp pullback in the US monetization project planning, but it will be temporary.

Talk of a Plaza-2 Accord has begun, but it will find zero traction. Unfortunately, any such accord requires nations to take the lead in sacrificing their domestic economies and banking systems. Such nations would have to agree to higher currencies, which harm their economies. Not gonna happen!! Instead, expect conflict, disruption, and chaos to grow. What is needed is consensus and order to depreciate the USDollar in relation to the other major world currencies by direct intervention. The present day environment has no maturity, no cooperation, and no order. It is loaded with resentment, animosity, and a desire to topple the horribly corrupt and recognized villains in Wall Street and London, where power is wielded without respect and thefts are perpetrated without conscience. In fact, a spirit of retribution and deserved vengeance permeates the FOREX winds. Witness the Competing Currency Wars soon in full glory, which have moved past first gear, and are well into second gear. USFed Chairman Bernanke has in essence threatened to inflate with QE2 to infinity in order to support a system that cannot any longer be supported, a rickety US$-centric system. Commodity prices are surging, and emerging economies are battling against fast rising price inflation. The USEconomy operates under 7% to 8% annual price inflation, but emerging nations have it a bit worse. Currency appreciation is a necessary tool to keep prices under control for other nations. The BIG problem here is that they are reluctant to allow significant currency appreciation as long as the Chinese Yuan remains static and fixed. The key is China. No nation will agree to a currency rise without China doing so first, and doing so with some magnitude to matter. Emerging nations are cutting deals, even with non-Anglo industrial nations, to avoid usage of the USDollar in trade settlement. If Plaza-2 happens, it will have China as its champion.

The Yen Carry Trade has a vast hidden doorway. Japan has revealed a hidden pressure point. It is the unwind of the great Yen Carry Trade. It was the greatest financial engineering project in modern history. The Jackass found it utterly amazing that the venerable Kurt Richebacher had no idea what it was, and his popular acclaimed newsletter had a moniker devoted to credit and currency markets. Its unwind is coming to an end finally with a climax upward thrust in the Yen, amidst clouding factors like the rise of China. In fact, China is diversifying its FOREX reserves to some extent by using USTreasurys to purchase Japanese Govt Bonds, which has drawn great anger from Tokyo. Witness more currency war battles, bigger than skirmishes.

The climax chapter of the USTreasury Bond bubble, with its benchmark 0% label, removes the Yen Carry Trade since both sovereign bonds offer near 0% yield. The yield differential is eliminated. The end of the great carry trade signals a monetary system breakdown and finally a USGovt debt default. The carry trade provided tremendous demand for the USTreasurys, which has been replaced by the Printing Pre$$. The Yen currency is the quiet litmus index of the competing currency war, its turbo-charge. It remains hidden from view and free from discussion. Details are provided on it in the October issue of the Hat Trick Letter, along with many implications of the bank condition on the gold price.


The gold price rose almost 200 points from the beginning of August to the first week of October. It is consolidating the gains, a digestion process. The resistance was broken. More importantly, the big US bank chokehold of the gold market was somewhat broken. A bull market remains, and the strong seasonal months of December and January lie around the corner. The effect of a seasonally strong September has been seen. The Competing Currency War, the deadly round robin exercise to devaluate currencies, feeds the gold bull in magnificent style. The G-20 platitudes will be brushed aside. The gold bull is given a rich diet in huge volumes of fiat money from strained monetary presses, justified to protect export trade, committed to serve the broken banks. In the middle of the sovereign debt crisis and the mortgage bond eruption and the insolvent bank condition, GOLD IS REGARDED AS THE SAFER HAVEN, since not tied to debt and not associated with counter-party risk. Gold has emerged as a global reserve asset, a competing currency!!

Expect a consolidation in the gold price while the USDollar attempts to bounce up. The Euro currency defense is only beginning. The Euro hit 140 per US$, and has come down with a mild selloff. The damage to be done to the European Economy is being evaluated. The 78 level on the US$ DX index was not defended. A bounce was made possible at 77 instead, a firmer support level. The monetary system is crumbling. All attention is on the USDollar, especially after the mortgage foreclosure scandal erupted. Pay note to the bearish crossover of the 20-week MA below the 50-week MA. It signals a test of the 75 critical support, which will bring about a thrust move in Gold past $1400. Notice how the bullish MA crossover in March signaled a test of the upside resistance. A full 800 basis point run-up followed the reliable sentinel signal. My expected 78 to 84 range was blown out. An eerie calm does not seem likely, not with the mortgage bond fraud and home foreclosure scandal in full blossom. The United States financial structures have never looked more corrupt or broken in the national history. As the US$ standard bearer of the monetary system takes severe damage, look for the Gold price to march toward $1500 and the Silver price to march toward $30. It is written; it will be done. The bankers in the temple will eventually be placed in their deserved domicile or find themselves on the run.


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Date: Thursday, 28 October, 2010, 9:10 PM


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By Ralph Forbes

Longtime AMERICAN FREE PRESS readers may recall that DARPA (Defense Advanced Research Projects Agency) has some creepy tentacles: the Information Awareness Office (IAO); TIA (Total Information Awareness, renamed Terrorism Information Program); and TIPS (Terrorism Information and Prevention System). By 2003, an irate American people forced the government to drop these spooky command-and-control police state operations—or did they?

The “vampire coven” was seemingly dead and buried—but was the stake actually driven through its evil heart?

In 2002, Divya Narendra had an idea for a social network site. By the fall of 2003, she and twin brothers Cameron and Tyler Winklevoss were looking for a web developer who could bring their idea to life. On Nov. 30, 2003 they hired Mark Zuckerberg to finish their program’s codes. Little did they know what a monster Zuckerberg would hatch.

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Above, Mark Zuckerberg

Zuckerberg bragged about taking their money so he could make his own social networking site. He boasted that his creation, which became the popular “Facebook” online social network, would naturally succeed. While pretending to work on college projects, he was sabotaging his clients by stalling. He claimed he was backed by the “Brazilian Mafia”—but AFP’s revelations will show, it is dangerous to believe anything Zuckerberg says.

Notably, The Social Network, is a new movie based on Zuckerberg and the pre-CIA founding years of Facebook, starring Jesse Eisenberg as Zuckerberg. Check upcoming issues of AFP to see how closely the script depicts the shocking facts.

But as bad as the beginning of Facebook is, the parallels between the CIA’s backing of Google’s dream of becoming “the mind of God,” and the CIA’s funding of Facebook’s goal of knowing everything about everybody are spookier.

Congress stopped the IAO from gathering as much information as possible about everyone in a centralized nexus for easy spying by the United States government, including internet activity, credit card purchase histories, airline ticket purchases, car rentals, medical records, educational transcripts, driver’s licenses, utility bills, tax returns, and all other available data. The government’s plan was to emulate Communist East Germany’s STASI police state by getting mailmen, boy scouts, teachers, students and others to spy on everyone else. Children would be urged to spy on parents.

Facebook, however, does what no dictator ever dreamed of—it has a half billion people willingly doing a form of spy work on all their friends, family, neighbors, etc.—while enthusiastically revealing information on themselves.

The huge database on these half a billion members (and non-members who are written about) is too much power for any private entity—but what if it is part of, or is accessed by, the military-industrial-national security-police state complex?

We all know that “he who pays the piper, calls the tune,” therefore, whoever controls the purse strings controls the whole project. When it had less than a million or so participants, Facebook demonstrated the potential to do even more than IAO, TIA and TIPS combined. Facebook really exploded after its second round of funding—$12.7 million from the venture capital firm Accel Partners. Its manager, James Breyer, was formerly chairman of the National Venture Capital Association and served on the board with Gilman Louie, CEO of In-Q-Tel, a venture capital front established by the CIA in 1999. In-Q-Tel is the same outfit that funds Google and other technological powerhouses. One of its specialties is “data mining technologies.”

Dr. Anita Jones, who joined the firm, also came from Gilman Louie and served on In-Q-Tel’s board. She had been director of Defense Research and Engineering for the U.S. Department of Defense. This link goes full circle because she was also an adviser to the secretary of defense, overseeing DARPA, which is responsible for high-tech, high-end development.

Furthermore, the CIA uses a Facebook group to recruit staff for its National Clandestine Service.

Ralph Forbes is a a free-lance writer who lives in Arkansas.

WikiLeaks and the Culture of Classification


WikiLeaks and the Culture of Classification
October 28, 2010 | 0853 GMT

WikiLeaks and the Culture of Classification

By Scott Stewart

On Friday, Oct. 22, the organization known as WikiLeaks published a cache of 391,832 classified documents on its website. The documents are mostly field reports filed by U.S. military forces in Iraq from January 2004 to December 2009 (the months of May 2004 and March 2009 are missing). The bulk of the documents (379,565, or about 97 percent) were classified at the secret level, with 204 classified at the lower confidential level. The remaining 12,062 documents were either unclassified or bore no classification.

This large batch of documents is believed to have been released by Pfc. Bradley Manning, who was arrested in May 2010 by the U.S. Army Criminal Investigations Command and charged with transferring thousands of classified documents onto his personal computer and then transmitting them to an unauthorized person. Manning is also alleged to have been the source of the classified information released by WikiLeaks pertaining to the war in Afghanistan in July 2010.

WikiLeaks released the Iraq war documents, as it did the Afghanistan war documents, to a number of news outlets for analysis several weeks in advance of their formal public release. These news organizations included The New York Times, Der Spiegel, The Guardian and Al Jazeera, each of which released special reports to coincide with the formal release of the documents Oct. 22.

Due to its investigation of Manning, the U.S. government also had a pretty good idea of what the material was before it was released and had formed a special task force to review it for sensitive and potentially damaging information prior to the release. The Pentagon has denounced the release of the information, which it considers a crime, has demanded the return of its stolen property and has warned that the documents place Iraqis at risk of retaliation and also place the lives of U.S. troops at risk from terrorist groups that are mining the documents for tidbits of operational information they can use in planning their attacks.

When one takes a careful look at the classified documents released by WikiLeaks, it becomes quickly apparent that they contain very few true secrets. Indeed, the main points being emphasized by Al Jazeera and the other media outlets after all the intense research they conducted before the public release of the documents seem to highlight a number of issues that had been well-known and well-chronicled for years. For example, the press has widely reported that the Iraqi government was torturing its own people; many civilians were killed during the six years the documents covered; sectarian death squads were operating inside Iraq; and the Iranian government was funding Shiite militias. None of this is news. But, when one steps back from the documents themselves and looks at the larger picture, there are some interesting issues that have been raised by the release of these documents and the reaction to their release.

The Documents

The documents released in this WikiLeaks cache were taken from the U.S. government’s Secret Internet Protocol Router Network (SIPRNet), a network used to distribute classified but not particularly sensitive information. SIPRNet is authorized only for the transmission of information classified at the secret level and below. It cannot be used for information classified top secret or more closely guarded intelligence that is classified at the secret level. The regulations by which information is classified by the U.S. government are outlined in Executive Order 13526. Under that order, secret is the second-highest level of classification and applies to information that, if released, would be reasonably expected to cause serious damage to U.S. national security.

Due to the nature of SIPRNet, most of the information that was downloaded from it and sent to WikiLeaks consisted of raw field reports from U.S. troops in Iraq. These reports discussed things units encountered, such as IED attacks, ambushes, the bodies of murdered civilians, friendly-fire incidents, traffic accidents, etc. For the most part, the reports contained raw information and not vetted, processed intelligence. The documents also did not contain information that was the result of intelligence-collection operations, and therefore did not reveal sensitive intelligence sources and methods. Although the WikiLeaks material is often compared to the 1971 release of the Pentagon Papers, there really is very little similarity. The Pentagon Papers consisted of a top secret-level study completed for the U.S. secretary of defense and not raw, low-level battlefield reports.

To provide a sense of the material involved in the WikiLeaks release, we will examine two typical reports. The first, classified at the secret level, is from an American military police (MP) company reporting that Iraqi police on Oct. 28, 2006, found the body of a person whose name was redacted in a village who had been executed. In the other report, also classified at the secret level, we see that on Jan. 1, 2004, Iraqi police called an American MP unit in Baghdad to report that an improvised explosive device (IED) had detonated and that there was another suspicious object found at the scene. The MP unit responded, confirmed the presence of the suspicious object and then called an explosive ordnance disposal unit, which came to the site and destroyed the second IED. Now, while it may have been justified to classify such reports at the secret level at the time they were written to protect information pertaining to military operations, clearly, the release of these two reports in October 2010 has not caused any serious damage to U.S. national security.

Another factor to consider when reading raw information from the field is that, while they offer a degree of granular detail that cannot be found in higher-level intelligence analysis, they can often be misleading or otherwise erroneous. As anyone who has ever interviewed a witness can tell you, in a stressful situation people often miss or misinterpret important factual details. That’s just how most people are wired. This situation can be compounded when a witness is placed in a completely alien culture. This is not to say that all these reports are flawed, but just to note that raw information must often be double-checked and vetted before it can be used to create a reliable estimate of the situation on the battlefield. Clearly, the readers of these reports released by WikiLeaks now do not have the ability to conduct that type of follow-up.

Few True Secrets

By saying there are very few true secrets in the cache of documents released by WikiLeaks, we mean things that would cause serious damage to national security. And no, we are not about to point out the things that we believe could be truly damaging. However, it is important to understand up front that something that causes embarrassment and discomfort to a particular administration or agency does not necessarily damage national security.

As to the charges that the documents are being mined by militant groups for information that can be used in attacks against U.S. troops deployed overseas, this is undoubtedly true. It would be foolish for the Taliban, the Islamic State of Iraq (ISI) and other militant groups not to read the documents and attempt to benefit from them. However, there are very few things noted in these reports pertaining to the tactics, techniques and procedures (TTP) used by U.S. forces that could not be learned by simply observing combat operations — and the Taliban and ISI have been carefully studying U.S. TTP every hour of every day for many years now. These documents are far less valuable than years of careful, direct observation and regular first-hand interaction.

Frankly, combatants who have been intensely watching U.S. and coalition forces and engaging them in combat for the better part of a decade are not very likely to learn much from dated American after-action reports. The insurgents and sectarian groups in Iraq own the human terrain; they know who U.S. troops are meeting with, when they meet them and where. There is very little that this level of reporting is going to reveal to them that they could not already have learned via observation. Remember, these reports do not deal with highly classified human-intelligence or technical-intelligence operations.

This is not to say that the alleged actions of Manning are somehow justified. From the statements released by the government in connection with the case, Manning knew the information he was downloading was classified and needed to be protected. He also appeared to know that his actions were illegal and could get him in trouble. He deserves to face the legal consequences of his actions.

This is also not a justification for the actions of WikiLeaks and the media outlets that are exploiting and profiting from the release of this information. What we are saying is that the hype surrounding the release is just that. There were a lot of classified documents released, but very few of them contained information that would truly shed new light on the actions of U.S. troops in Iraq or their allies or damage U.S. national security. While the amount of information released in this case was huge, it was far less damaging than the information released by convicted spies such as Robert Hanssen and Aldrich Ames — information that crippled sensitive intelligence operations and resulted in the execution or imprisonment of extremely valuable human intelligence sources.

Culture of Classification

Perhaps one of the most interesting facets of the WikiLeaks case is that it highlights the culture of classification that is so pervasive inside the U.S. government. Only 204 of the 391,832 documents were classified at the confidential level, while 379,565 of them were classified at the secret level. This demonstrates the propensity of the U.S. government culture to classify documents at the highest possible classification rather than at the lowest level really required to protect that information. In this culture, higher is better.
WikiLeaks and the Culture of Classification

Furthermore, while much of this material may have been somewhat sensitive at the time it was reported, most of that sensitivity has been lost over time, and many of the documents, like the two reports referenced above, no longer need to be classified. Executive Order 13526 provides the ability for classifying agencies to set dates for materials to be declassified. Indeed, according to the executive order, a date for declassification is supposed to be set every time a document is classified. But, in practice, such declassification provisions are rarely used and most people just expect the documents to remain classified for the entire authorized period, which is 10 years in most cases and 25 years when dealing with sensitive topics such as intelligence sources and methods or nuclear weapons. In the culture of classification, longer is also seen as better.

This culture tends to create so much classified material that stays classified for so long that it becomes very difficult for government employees and security managers to determine what is really sensitive and what truly needs to be protected. There is certainly a lot of very sensitive information that needs to be carefully guarded, but not everything is a secret. This culture also tends to reinforce the belief among government employees that knowledge is power and that one can become powerful by having access to information and denying that access to others. And this belief can often contribute to the bureaucratic jealously that results in the failure to share intelligence — a practice that was criticized so heavily in the 9/11 Commission Report.

It has been very interesting to watch the reaction to the WikiLeaks case by those who are a part of the culture of classification. Some U.S. government agencies, such as the FBI, have bridled under the post-9/11 mandates to share their information more widely and have been trying to scale back the practice. As anyone who has dealt with the FBI can attest, they tend to be a semi-permeable membrane when it comes to the flow of information. For the bureau, intelligence flows only one way — in. The FBI is certainly not alone. There are many organizations that are very hesitant to share information with other government agencies, even when those agencies have a legitimate need to know. The WikiLeaks cases have provided such people a justification to continue to stovepipe information.

In addition to the glaring personnel security issues regarding Manning’s access to classified information systems, these cases are in large part the result of a classified information system overloaded with vast quantities of information that simply does not need to be protected at the secret level. And, ironically, overloading the system in such a way actually weakens the information-protection process by making it difficult to determine which information truly needs to be protected. Instead of seeking to weed out the overclassified material and concentrate on protecting the truly sensitive information, the culture of classification reacts by using the WikiLeaks cases as justification for continuing to classify information at the highest possible levels and for sharing the intelligence it generates with fewer people. The ultimate irony is that the WikiLeaks cases will help strengthen and perpetuate the broken system that helped lead to the disclosures in the first place.

Tuesday, October 26, 2010

The Greek Dollar Swap Window


The Greek Dollar Swap Window

By Jim Willie CB
Oct 21 2010 10:33AM

Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

The Chinese are clever people. Their leaders play a good game of chess in the global scramble for commodity supply and financial dominance. Their patient strategy has tied the arms & legs of the USGovt, using their own debt securities as the binding rope. The accumulate almost reached a staggering $1000 billion, the bitter fruit of the Low Cost Solution to invest in China from a decade ago. While much attention has come to saber rattling over currency manipulation and tiny 25 basis point interest rate hikes, even battles over rare earth metals, something has been happening in Europe of importance that involve a Chinese back door to dump USTreasurys. To be sure, the USGovt deficits and monetary policy have invited a selloff in the USDollar. In the latter months of 2009 and early months of 2010, the Jackass wrote frequently about the absurd notion of an Exit Strategy from 0% and Quantitative Easing. The USFed lost heavy credibility and looked just rather obtuse. The Japanese ZIRP and QE twin diseases were not the monogrammed cufflinks the USFed would choose for sartorial splendor. My forecast was for no Exit from 0%, but rather an embrace of QE2, the exact opposite. We have it. Only the details remain on the QE2 initiative. Bernanke looks scared, haggard, and a little desperate, like a captain on a ship listing to port and taking on significant water in the lower chambers. At least the water is at zero cost.

The Jackass forecast of QE2 was correct and quite easy, since fundamentals drove the call, not wishful thinking or the errant but popular notion that time heals all financial wounds. Not this time, since almost no effort to reform or to restructure debt have occurred. The Financial Regulation Bill handed the USFed more power, not less, another correct Jackass forecast. That too was an easy call, since the banker lobby would obviously write the legislation. The Exit Strategy was shown to be a ruse, pure hope laced next to the Green Shoots nonsense. My expectation of a Plaza-2 Accord is that it too will never happen, since it requires significant cooperation among the major and some minor nation central banks. To be sure, an orderly decline in the USDollar is urgently needed. It will not happen since the USGovt and USFed policies are utterly hostile and destructive toward the monetary system and in particular toward the USTreasury Bond holders. They are the USGovt creditors, and the USGovt is showing disrespect, while making wild accusations at them. The Competing Currency War will continue, accelerate, jump tracks, turn more hostile, and even pit former allies against each other. The spirit of cooperation between Japan and China has been totally de-railed. Europe has grown angry over a higher Euro exchange rate, one certain to slow the EU Economy. The upcoming G-20 Meeting in South Korea already has one member planning to shun the gathering, Brazil, the new Latin American partner to China.


The mortgage world is topsy turvy. The big US banks are facing additional credit losses again. My expectation is for a grand TARP-2 initiative to bail out the big banks, soon to come, already introduced as a topic of discussion. The USFed will do its usual denial, then in a few months mention its urgency. This second chapter program will cause much more problems and generate extreme anger even with the divided USCongress. The first TARP was caused by market declines. This TARP will be motivated to aid the big banks when accused of criminal behavior, very different. The same old arguments will be trotted out about Too Big To Fail Banks, systemic failure, depression, and an end to the American great society. Insolvent if not bankrupt entities control the USGovt finance, including its Printing Pre$$. The TARP-2 will pass but not before at least three or four months of haggling. The focal point will be Bank of America and JPMorgan Chase, two important banks. Part of the political cover will be that Bank of America did the USGovt a favor by taking on the Merrill Lynch and Countrywide toxic load of debt, and is weighed down by its burden. Part of the political cover will be that JPMorgan Chase is weighed down by the burden of size and broken businesses. The USFed will come out with research on why the TARP-2 is necessary and how the world will end without it, written by JPM analysts. So the USGovt will come to their rescue with TARP-2, perhaps a $1 trillion package of bank aid. One must wonder if Treasury Secy Geithner is being set up for a fall. The put-backs of large blocks of credit portfolios have been demanded by PIMCO, Blackrock, and the Federal Reserve of New York (owned by the Wall Street firms). Geithner led the FRB of New York during the entire mortgage bubble episode, its sumo regulator. The bank mostly on the damaged receiving end is Bank of America.

In the end TARP-2 will pass with at least $500 billion in new big bank rescue aid, which will require the big banks to provide strong meaningful home loan balance reduction. The package will contain a provision to kick in, which will deliver another $500 billion upon other contingencies. The total $1 trillion bank aid package would cause a firestorm. A key provision to win over public support will be promises by the big banks to finally give home loan balance reductions, what the people demand. That will enable the American public to agree to the package, except one year later they will be shown more revolving doors and dead end corridors. The major challenge for the USGovt and Wall Street firms will be to handle the court challenges. The legal actions have taken center stage, a development that has raised the stakes considerably. Look for Fannie Mae to play a key role in the TARP-2 package. They will likely be the Bad Bank for wrecked home loans to a much greater degree, even the benefactor to court settlements where concessions are given to the victims. They will portray themselves as the New Resolution Trust Corp, from soup to nuts.

Then by the end of 2011, the nation will embark on QE3, since nothing will be fixed and the USEconomy will by then be caught in a nightmarish whirlwind of price inflation, recession, and declining wages. It was called Stagflation, and it is coming in fierce style. The USFed overlooks the high cost of Quantitative Easing, namely higher price inflation without the benefit of higher wages. In fact, a quantum jump up in the entire cost structure is in the works, with its attendant profit margin pressures and discretionary spending pressures. So higher costs but lower wages, a monstrous squeeze on corporations and households, invites more crisis. The nation has no capacity for solution. Such is the utterly obvious outcome of QE2. Behind closed doors in conference rooms laden with polished marble or hardwood, the banking leaders realize the squeeze coming to the USEconomy from QE2. The movement to have Fannie Mae serve as the Politburo property owner for a sizeable slice of Americana will be in full swing.


China is dumping USTreasurys by way of the Europe, using a back door whose design was handed to them. Their support of the Greek Govt debt jammed that door wide open. Thus the rising Euro currency without justification, one of a few factors. Usage of the window has led to an indirect Chinese forced devaluation of the USDollar, an extremely clever action. China has never appreciated being repeatedly called a currency manipulator. From 1999 to 2005, the USGovt gave full support to the Chinese Govt, as the Yuan currency was pegged to the USDollar. The USGovt saw the policy as providing stability to the USDollar at a time when foreign investment by US firms in the Middle Kingdom was brisk and strong. In a three-year period, the US multi-national firms invested $23 billion in Chinese industrial plants, like the 160 Wal-Mart plants. The misguided USGovt and hapless US economists eagerly awaited the great bounty from Low Cost solutions that exploited cheaper Chinese labor, lower tax structure, even absent regulations. A decade wave of corporate profits evaporated, amidst growing debt and the housing bust. Meanwhile, the Chinese Govt would accumulate $2.5 trillion in savings, held as USTreasurys for over $800 billion. Suddenly, China is a currency manipulator. However, the vast monetization initiatives enacted by the USGovt and its partner USFed with $1.5 trillion in freshly printed money to support the US$-based bonds which few foreign creditors wanted, that action is highly manipulative to currencies!!

The missing piece is that the Wall Street helm has ignited the currency bonfire by not pursuing a multi-lateral agreement by USGovt creditors. They have never been consulted on monetary inflation, debt monetization, and austerity measures. The United States acts unilaterally with great privilege, as they claim some of sort of glorified mission, a Manifest Destiny ridden atop bond wagons. The Chinese apparently have a plan to swap their USDollars for Euros, using the Greek back door.

A well placed banker source in Europe passed an opinion along. The Jackass was aware of the Chinese nibbling with purchases of Greek debt. However, the initiative had a clever motive for an expanded role. The German Euro supporters have been caught flat-footed, inattentive to guard the door. By refusing to permit a default in Southern Europe of sovereign debt, the Euro Central Bank and EU leaders have exposed a vulnerable pathway soon possibly to turn into a highway. The banker source wrote, "After having de-facto bought Greece, the Chinese are now members of the Euro system or Greece is now a member of two currency systems, to be used at will. So China will now use its USTreasury Bonds to buy Euros, which will be used to buy Greek Govt bonds. These bonds will be guaranteed by Germany. This is very clever and no one saw the dual usage of the system, except a few very clever people. The politicians in Berlin and bankers in Frankfurt were sleeping at the wheel as usual and now will pay a heavy price." It goes deeper. Greece has agreed to support EU recognition of full market economy status for China, while China has agreed to support the call by Greece for UN mediation over Cyprus.

The Chinese have essentially created a Dollar Swap Window, a small one admittedly. It will grow over time. Attempts to rein it in will be difficult. Imagine runaway traffic at the window, the galloping process of the Greek Dollar Swap Window. The Europeans eagerly opened the window for China to invest money in Greek Govt debt, which European nations did not want to commit to. So China has a small pipeline in which to shove USTreasurys, to convert them to Euros will full blessing and approval of the Euro Central Bank, and to buy a stake in Greece. Beijing could not give a dragon's big toe of concern for Greece. They wanted a window to dump USDollars. Next look ahead, and remain objective. The Chinese might be motivated to invest in Spanish Govt debt, some Portuguese Govt debt, and later some Italian Govt debt and even some French Govt debt. Leave Ireland alone, a lost cause, after a foolish decision to adopt the suicidal IMF austerity plan. They are headed toward systemic failure.

So China has found a clever back door Dollar Swap Window. So far it only has a Greek label on the glass with Greek trucks on the dock, with Chinese standing in line. Soon the Latin debt will open up adjoining windows in an expanded Dollar Swap Window facility. The USFed and USDept Treasury were not invited to this planned project. The key point upcoming is not the volume of European sovereign debt to be covered by China, even at discount in implied writedowns. The key point is other broader usage of the window. Watch and observe how the Chinese will eventually be accused of swapping far more USTreasurys through the window than purchased Greek Govt debt, or any other sovereign debt. The Chinese will attempt to dump as much USTreasurys as they can before the window closes, shut under pressure by the USGovt. In the meantime, the Euro currency rose to touch 141 per greenback unit two weeks ago. That is a rather impressive run from 127 in early September. The European fundamentals do not justify such a big 11% move. At 140 the exchange rate is still lofty. If the Chinese expand the usage of their clever new Dollar Swap Window, the Euro could rise to 150. Such is the heavy price paid by the EuroCB and EU leadership for refusing to permit a Greek Govt debt default. The Open Door Policy to China found a back door !!!


China is dumping USDollars on a relatively substantial scale. They are buying resource properties. The volume is large in absolute standards, but minor when considering the Chinese rack up monthly trade surpluses with the United States over $20 billion. China has agreed to pour another $7 billion into Brazil's oil industry. A recent deal with Repsol of Spain to buy a 40% of its Brazilian business gave China access to the estimated reserves of 1.2 billion barrels of oil & gas in Brazil. The price premium paid to Repsol Brasil, which values the company at nearly twice previous estimates, is a sign of two factors. China is willing to pay up in order to lock in its future energy supplies. China might regard its USTreasurys as over-valued, and therefore discount them. This year alone, Chinese companies have laid out $billions buying up stakes in Canadian oil sands, a Guinean iron ore mine, oil fields in Angola and Uganda, an Argentinian oil company, and a major Australian coal-bed methane gas company.

To be sure, some bids have been interrupted, like with Canada's Potash Corp and Australian giant mining firms. The aluminium giant Chinalco failed in their attempt to buy Anglo-Australian Rio Tinto in 2009. China must keep itself supplied, and feed its growth. China has grown to become the second largest oil consumer in the world, far outstripping its domestic supplies. The Neptune consultancy estimates that it will need to buy two companies the size of British Petroleum each year for the next 12 years to meet its growing domestic energy demand. Furthermore, its demand for electricity is growing each year equivalent to Britain's entire output. The volumes in such deals seem big, but compared to USTreasury holdings and monthly trade surpluses, they are small. On the margin, China must find a destination for its new surplus while it dumps some of its bloated US$-based assets. Watch for quiet hidden expansion of their new handy European Dollar Swap Window. It explains in part the Euro currency rise, beyond what many analysts expected, including the Jackass.

The USGovt and USBanking leaders have other USDollar problems. Arab states have launched secret moves with China, Russia, and France to stop using the US currency for oil purchase. The demise of the USDollar is clearly an exaggerated claim, but the path toward its long drawn out demise is fast becoming laid out. These nations are planning to move instead to a basket of currencies. It might include the Japanese Yen and Chinese Yuan, the Euro, even Gold and possibly a future unified currency designed by the Persian Gulf states. Confirmation of the talks came to the UK Independent by both Gulf Arab and Chinese banking sources in Hong Kong. Meanwhile, oil revenues to OPEC states have been reduced in value by the USDollar devaluation. OPEC members seek a $100 crude oil price in order to counter US$ exchange rate weakness. The US$ DX index has fallen 13% since June. OPEC member nations are paying little attention to compliance quotas, and much more attention to reduced purchase power of their income. The nominal value of OPEC oil export revenue will be $818 billion in 2011, a nice 10% rise from last year, according to USDept Energy forecasts. However, the entire rise will be eaten up by the US$ devaluation, which no OPEC nation agreed to. They do not vote at Fed Open Market Committee meetings on US monetary policy. That makes them angry, motivated, and defiant. The consensus is growing for a $100 crude oil price, which is considered a reasonable target. Witness the upcoming rise in the entire USEconomy cost structure, led by a rising crude oil price. The only potential detour on the path to $100 oil is the platforms for financial markets eroding, sinking, and possibly collapsing.


Motive should no longer be to capture the cheap artificial price like in 2008 and 2009 under $1000 or $1200 for gold or in the teens for silver. Now the motive is to get out of the USDollar, avoid its declines, and stay clear of dangerous monetary downdrafts and whipsaws. The present day objective should be to preserve money as in avoid the harmful effects of currency debasement. One should prepare potentially for the US$ to lose 30% to 50% more purchase power before end 2013. Gold & Silver are much more than hedges against the lost US$ purchase power, a breakdown in the monetary system, or an insolvent dysfunctional corrupt banking system. They are investments in real money finding true value in fair markets. The true equilibrium price for Gold & Silver in my view is at least double the current price. Paradoxically, the same loss of purchase power for all major currencies is in the works. The media anchors and pundits are starting to comprehend the risk. They say a rising stock market is required to keep even with the falling USDollar. Exactly!!

One thing for sure, the Western Govts plus the Japanese Govt will go to extraordinary lengths to invest good money after bad in supporting the broken system until it becomes a ruined system. It was clear to the Jackass in September 2008 that the US banks suffered a death experience. In the last couple months, an increasing number of people among the system control team are realizing the moribund condition without remedy. They recognize the insolvency as growing worse, even for the US Federal Reserve balance sheet. The $1.4 trillion in mortgage related securities held by the USFed, including leveraged mortgage bonds (see Collateralized Debt Obligations) might actually be worth between 60% and 80% less than book value. My rough calculation shows the USFed to be a cool $1 trillion in the hole, an oversized vat of red ink. The role of bond buyer of last resort is very costly. The most insolvent banking institution is not Bank of America, but the USFed itself. The Powerz believes their free money output can bring the big US banks back to life. Each major initiative like QE2 guarantees another $1000 lift to gold and $40 to silver, all in time, as the potential true target. Next up is TARP2, a guarantee, to save the banks whose transgressions are being laid out in a grand spectacle.

The MERS property title database has no legal standing. The REMIC mortgage fund vehicle does not achieve assignment and perfection of title. The entire mortgage foundation in the US banking system appears to be faulty and defective. Short cuts to enable fast bond trades, short cuts to avoid income taxes, have left the big banks vulnerable to the extreme. When the states imposed moratoriums on home foreclosures, one might safely conclude that the mortgage securitization industry is dead too. The best protection is Gold & Silver, since sovereign debt paper and mortgage debt paper might soon be recycled into kleenix tissues.

The gold price will consolidate here, enough to enable the powerful buyers in The Dirty Dozen to continue their huge relentless purchases. The group permitted a small pullback in order to grab a much greater volume in the next round of purchases. The $1300 target was met and surpassed. Support can be found at the juncture of the upper rail to the trend channel, meeting the new aggressive trendline from the breakout. Never in 30 years has a breakout occurred with gradual stairstep pattern exhibited in my knowledge for any major price item over a full two month period. A message was made and heard, to break the market. Absolutely nothing has been remedied or repaired, no reform whatsoever. In fact, every resistance to reform has been evident, from bankers dug in. The TARP-2 package is being discussed behind closed doors. Instead of liquidating the big banks, they will continue to ruin the USDollar so as to prop the insolvent banks. They do not lend because of their profound insolvency, as they lack equity. They do not lend because their Loan Loss Reserves were indirectly confiscated by the USFed, with interest paid.


Unlimited USDollars will be devoted to support a broken system, rather than liquidate credit portfolios. They will not be plowed under, to make the soil fertile again. The USGovt needs the public 401k and IRA funds, and using tax law benefits as inroads, they will someday soon clutch them. They must feed the USTreasury Bond bubble. After that seizure, they will pursue the bank savings. The USGovt needs the public certificates of deposit, and using tax law benefits as inroads, they will someday soon clutch them. The accusations of a Gold bubble are as ludicrous, baseless, and distracting. They wish to deflect attention from the approved USTreasury bubble.

Given the heavy risk loaded in the mortgage bond arena with all the controversy over home foreclosures, the USAgency Mortgage Bonds are looking highly problematic, possibly worthless bonds. The nationalization of Fannie Mae stretched an umbilical cord from Fannie to Uncle Sam in a marriage made in a Banana Republic. The risk to the USDollar is total and absolute. The USDollar will fall hard, but so will all the major currencies in a round robin of destroyed value. The winner in the Competing Currency War in progress is Gold & Silver. The billboard reads $2000 gold and $50 silver, directly ahead, just a matter of time.


From subscribers and readers:

At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

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Narco News The Military Command Behind Mexico's Violent Drug War

The Military Command Behind Mexico's Violent Drug War
The US Northern Command's Work With Mexican Armed Forces Has 'Increased Dramatically' and May Be Expanded

By Erin Rosa
Special to The Narco News Bulletin

October 22, 2010

As drug war violence in Mexico continues to increase, the US military has taken a more active and stronger role inside the country, providing the Mexican armed forces with equipment, training, and classified intelligence to fight the narcotics trade. Behind all of this is the US Northern Command (NORTHCOM), a military unit created in 2002 for homeland defense missions.

With an alliance of the US Army, Navy, Air Force, Marine Corps, and Coast Guard, NORTHCOM “consolidates under a single unified command of existing missions that were previously executed by other Department of Defense organizations,” according to the unit’s website. Despite being created shortly after the September 11 attacks with a focus on homeland security, in the last few years NORTHCOM has taken a specific interest in Mexico and the drug war, and may be looking to expand it operations.

Last May, at NORTHCOM headquarters on Peterson Air Force Base in Colorado Springs, Colorado, Joint Chiefs of Staff Adm. Mike Mullen compared the challenges facing Mexico with what was happening in Iraq and Afghanistan, saying that “I also think there are wonderful opportunities to strengthen the relationship between our countries and between our militaries.”

Photo: DR 2006 Courtesy of
A few months before that in March, ex-commander of NORTHCOM Gen. Victor Renuart told the Senate Armed Services Committee that “our military-to-military relationship with Mexico is growing stronger.” Renuart cited “a shared responsibility for countering the transnational illicit trafficking activity affecting our nations” and stated that “the level of communication, interchange, cooperation, and training exchanges between U.S. and Mexican armed forces has increased dramatically over the last two years and represents a historic opportunity for long-term strategic improvement of the U.S.-Mexico security partnership.”

The State Department, which works with NORTHCOM in Mexico, has said the same thing about the unit. US Embassy Mexico City spokesman Alexander Featherstone told Narco News this month that “The level of communication and cooperation between U.S. and Mexican armed forces has increased dramatically over the past two years and represents an historic high.”

NORTHCOM’s fourth and current commander Adm. James Winnefeld took his position in May, and since that time he has began conducting an informal assessment to determine a possible expansion of future operations into the counter narcotics fight, according to John Cornelio with NORTHCOM public relations, who when asked about the Mexico assessment said:

It is not a “formal” assessment where a written report is planned as much as it is an ongoing process by which the new commander is gathering information to uncover ways the command can more effectively work with our many partners. Admiral Winnefeld is inspired (instead of very encouraged) by the commitment of the Mexican government and its security forces to this important struggle for the future of Mexico, as well as by the level and quality of cooperation between Mexico and the United States. He and the rest of his team have also been impressed by the capability and courage of the Mexican military.

NORTHCOM Training Mexican Police, Military, Judicial Agencies

Before the assessment, and with officials already admitting to the US military’s increased role in Mexico, NORTHCOM has been significantly involved in the drug war with multiple levels of law enforcement. Working with the Mexican Navy (SEMAR in Spanish initials) and the Secretariat of National Defense (SEDENA in Spanish initials, which controls the country’s Army and the Air Force), NORTHCOM has conducted numerous “Subject Matter Expert (SME) exchanges” to train members of the Mexican armed forces.

This month Narco News reported that the State Department had been assisting NORTHCOM in trainings related to the drug war, which included the US Embassy in Mexico City paying for hotel rooms for the School of Americas and the Joint Special Operations University, a military school that teaches special operations tactics.

Through what are called “Mobile Training Team” events, NORTHCOM has worked to “to enhance respect for the rule of law and human rights within the Mexican armed forces,” according to Renuart’s testimony. “For example, USNORTHCOM attorneys and attorneys from the Mexican armed forces have already participated in conferences designed to develop curricula for the professional development of military attorneys.”

“These opportunities have recently included exchanges with Mexican counterparts on the U.S. military adversarial trial system, the discipline of operational law, and operational planning and intelligence, including the various roles of military, police and judicial agencies, as well as rule of law and human rights conventions,” says Cornelio, who confirms that the State Department is coordinating these trainings.

But as Renuart noted, NORTHCOM “also focuses on developing the ability to analyze and share the information that will allow the Mexican military to conduct operations against the drug trafficking organizations to systematically dismantle them. We are committed to a long-term military partnership with Mexico that is beneficial to both nations.”

NORTHCOM and Plan Mexico

NORTHCOM is tied to the State Department’s counter narcotics fight in other ways. Under Plan Mexico (also known as the Mérida Initiative), a 2008 security pact managed by the department in which the United States provides training and equipment to Mexican law enforcement and the armed forces to wage the drug war, the military unit has provided or is in the process of providing eight Bell 412 helicopters, five Sikorsky UH-60M Black Hawk helicopters, and four transportation aircraft valued at $415.5 million, according to Congressional testimony from NORTHCOM.

General Gene Renuart (center), ex-Commander of North American Aerospace Defense Command and U.S. Northern Command, speaks with John Brennan (right), Assistant to the President for Homeland Security and Counter-Terrorism, and Carlos Pascual (left), U.S. Ambassador to Mexico, prior to attending the Bell-412 Helicopter Formal Delivery Ceremony in the SEDENA Hanger, at Benito Juarez International Airport, Mexico City, Dec. 15, which marked the official handover of five helicopters to the Government of Mexico under the Merida Initiative.
(Photo: D.R. 2009 David Suarez, U.S. Embassy Mexico City)
This equipment is to be used to “improve the Mexican military’s ability to deploy rapid-reaction forces quickly in support of police operations against drug cartels, and to conduct maritime surveillance in an effort to deny the use of the eastern Pacific and western Caribbean to transnational criminal organizations, including drug traffickers and potential terrorists,” Renuart said.

Related assistance includes $14 million for Night Vision Goggles, Rigid-Hull Inflatable Boats, personal protective equipment, digital media forensics, tactical communications equipment, and specialized training. An additional $18 million is being used for pilot training, specialized skills training, and intelligence training.

Then there is “facilitated training support in the areas of Night Vision Goggle maintenance, Explosive Ordnance Disposal/Hazardous Material team training, and Aviation Training,” Renuart notes, saying “our service components are actively engaged with their Mexican counterparts in subject matter exchanges and sharing lessons learned from our experiences in the areas of civil-military relations and urban operations.”

With NORTHCOM serving as the military assistance arm behind Mexico’s drug war and Plan Mexico, and with officials of the military unit already expressing a desire for a long-term partnership with the Mexican government, the future NORTHCOM’s involvement in Mexico seems almost guaranteed.

This week, a SEDENA chief named Raúl Gámez Segovia acknowledged that while the terms of Plan Mexico technically ended in September, the US State Department has already proposed more funds for the drug war, and that “U.S. support for the acquisition of material and equipment to institutions in fighting drug trafficking is at a very advanced stage.”

On the human rights front, there is no accountability for members of the Mexican armed forces who commit acts of torture, or murders of civilians. In September, the State Department announced it was withholding $26 million in Plan Mexico funds due to concerns over abuses committed by the Mexican military.

Adding to that the increasing number of complaints of corruption against members of the Mexican armed forces, coupled with the estimated 28,000 people in Mexico who have died from drug war related violence in the last four years, the end to the drug war—and the US NORTHCOM’s numerous ways of supporting it—shows no signs of stopping.
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RIP: Carbon trading

RIP: Carbon trading
October 26, 2010

In a little reported move, the Chicago Climate Exchange (CCX) is ending carbon trading this year — the very purpose for which it was founded. CCX will remain open for business, however, as it transitions into the murky world of dealing in carbon offsets.

Outside of a report in Crain’s Chicago Business and a soft-pedalled article in the certain-that-cap-and-trade-will-happen trade publication Carbon Control News, the media has ignored the demise of the only voluntary U.S. effort at carbon trading.

CCX was sold earlier this year for $600 million to the New York Stock Exchange-listed IntercontinentalExchange (Symbol: ICE), an electronic futures and derivatives platform based in Atlanta and London. ICE also acquired the European Climate Exchange as part of the transaction. The ECX remains open to accomodate the Kyoto Protocol-required carbon trading among EU nations. The sale of CCX to ICE allowed climateers like Al Gore’s Generation Investment Management and Goldman Sachs to cash out of investments in CCX.

At its founding in November 2000, some estimated that the size of CCX’s carbon trading market could reach $500 billion. The CCX was the brainchild of Richard Sandor who used $1.1 million in grants from the Chicago-based Joyce Foundation to launch the CCX. Sandor received $98.5 million for his 16.5% stake in CCX when it was sold. Not bad for an idea that didn’t pan out.

Incredibly (but not surprisingly), although thousands of news articles have been published about CCX by the lamestream media over the years, a Nexis search revealed no news articles published about the demise of CCX in the five days since the CCX’s announcement.

With the demise of CCX carbon trading, only the still-pending Waxman-Markey bill is keeping cap-and-trade alive (technically, at least) in the U.S. According to’s Cap-and-Trade Death Clock, however, Waxman-Markey only has about 68 days of life left before it, too, turns into a pumpkin.

Green Hell Blog

How Environmentalists Plan to Control Your Life and What You Can Do to Stop Them

U.S. Midterm Elections, Obama and Iran


U.S. Midterm Elections, Obama and Iran
October 26, 2010 | 0851 GMT
U.S. Midterm Elections, Obama and Iran

By George Friedman

We are a week away from the 2010 U.S. midterm elections. The outcome is already locked in. Whether the Republicans take the House or the Senate is close to immaterial. It is almost certain that the dynamics of American domestic politics will change. The Democrats will lose their ability to impose cloture in the Senate and thereby shut off debate. Whether they lose the House or not, the Democrats will lose the ability to pass legislation at the will of the House Democratic leadership. The large majority held by the Democrats will be gone, and party discipline will not be strong enough (it never is) to prevent some defections.

Should the Republicans win an overwhelming victory in both houses next week, they will still not have the votes to override presidential vetoes. Therefore they will not be able to legislate unilaterally, and if any legislation is to be passed it will have to be the result of negotiations between the president and the Republican Congressional leadership. Thus, whether the Democrats do better than expected or the Republicans win a massive victory, the practical result will be the same.

When we consider the difficulties President Barack Obama had passing his health care legislation, even with powerful majorities in both houses, it is clear that he will not be able to push through any significant legislation without Republican agreement. The result will either be gridlock or a very different legislative agenda than we have seen in the first two years.

These are not unique circumstances. Reversals in the first midterm election after a presidential election happened to Ronald Reagan and Bill Clinton. It does not mean that Obama is guaranteed to lose a re-election bid, although it does mean that, in order to win that election, he will have to operate in a very different way. It also means that the 2012 presidential campaign will begin next Wednesday on Nov. 3. Given his low approval ratings, Obama appears vulnerable and the Republican nomination has become extremely valuable. For his part, Obama does not have much time to lose in reshaping his presidency. With the Iowa caucuses about 15 months away and the Republicans holding momentum, the president will have to begin his campaign.

Obama now has two options in terms of domestic strategy. The first is to continue to press his agenda, knowing that it will be voted down. If the domestic situation improves, he takes credit for it. If it doesn’t, he runs against Republican partisanship. The second option is to abandon his agenda, cooperate with the Republicans and re-establish his image as a centrist. Both have political advantages and disadvantages and present an important strategic decision for Obama to make.

The Foreign Policy Option

Obama also has a third option, which is to shift his focus from domestic policy to foreign policy. The founders created a system in which the president is inherently weak in domestic policy and able to take action only when his position in Congress is extremely strong. This was how the founders sought to avoid the tyranny of narrow majorities. At the same time, they made the president quite powerful in foreign policy regardless of Congress, and the evolution of the presidency over the centuries has further strengthened this power. Historically, when the president has been weak domestically, one option he has had is to appear powerful by focusing on foreign policy.

For presidents like Clinton, this was not a particularly viable option in 1994-1996. The international system was quiet, and it was difficult to act meaningfully and decisively. It was easier for Reagan in 1982-1984. The Soviet Union was strong and threatening, and an aggressive anti-Soviet stance was popular and flowed from his 1980 campaign. Deploying the ground-launched cruise missile and the Pershing II medium-range ballistic missile in Western Europe alienated his opponents, strengthened his position with his political base and allowed him to take the center (and ultimately pressured the Soviets into agreeing to the Intermediate-Range Nuclear Forces Treaty). By 1984, with the recession over, Reagan’s anti-Soviet stance helped him defeat Walter Mondale.

Obama does not have Clinton’s problem. The international environment allows him to take a much more assertive stance than he has over the past two years. The war in Afghanistan is reaching a delicate negotiating state as reports of ongoing talks circulate. The Iraq war is far from stable, with 50,000 U.S. troops still there, and the Iranian issue is wide open. Israeli-Palestinian talks are also faltering, and there are a host of other foreign issues, ranging from China’s increasing assertiveness to Russia’s resurgent power to the ongoing decline in military power of America’s European allies. There are a range of issues that need to be addressed at the presidential level, many of which would resonate with at least some voters and allow Obama to be presidential in spite of weak political support.

There are two problems with Obama becoming a foreign policy president. The first is that the country is focused on the economy and on domestic issues. If he focuses on foreign policy and the U.S. economy does not improve by 2012, it will cost him the election. His hope will be foreign policy successes, or at least the perception of being strong on national security, coupled with economic recovery or a plausible reason to blame the Republicans. This is a tricky maneuver, but his presidency no longer offers simple solutions.

The second problem is that his presidency and campaign have been based on the general principle of accommodation rather than confrontation in foreign affairs, with the sole exception of Afghanistan, where he chose to be substantially more aggressive than his predecessor had been. The place where he was assertive is unlikely to yield a major foreign policy success, unless that success is a negotiated settlement with the Taliban. A negotiated settlement will be portrayed by the Republicans as capitulation rather than triumph. If he continues on the current course in Afghanistan, he will seem to be plodding down an old path and not pioneering a new one.

Interestingly, if Obama’s goal is to appear strong on national security while regaining the center, Afghanistan offers the least attractive venue. His choices are negotiation, which would reinforce his image as an accommodationist in foreign policy, or continued war, which is not particularly new territory. He could deploy even more forces into Afghanistan, but then would risk looking like Lyndon Johnson in 1967, hurling troops at the enemy without a clear plan. He could, of course, create a massive crisis with Pakistan, but it would be extremely unlikely that such an effort would end well, given the situation in Afghanistan. Foreign policy presidents need to be successful.

There is little to be done in Iraq at the moment except delay the withdrawal of forces, which adds little to his political position. Moreover, the core problem in Iraq at the moment is Iran and its support of disruptive forces. Obama could attempt to force an Israeli-Palestinian settlement, but that would require Hamas to change its position, which is unlikely, or that Israel make massive concessions, which it doesn’t think it has to do. The problem with Israel and the Palestinians is that peace talks, such as those under Clinton at Camp David, have a nasty tendency to end in chaos.

The European, Russian and Chinese situations are of great importance, but they are not conducive to dramatic acts. The United States is not going to blockade China over the yuan or hold a stunning set of meetings with the Europeans to get them to increase their defense budgets and commit to more support for U.S. wars. And the situation regarding North Korea does not have the pressing urgency to justify U.S. action. There are many actions that would satisfy Obama’s accomodationist inclinations, but those would not serve well in portraying him as decisive in foreign policy.

The Iranian Option

This leaves the obvious choice: Iran. Iran is the one issue on which the president could galvanize public opinion. The Republicans have portrayed Obama as weak on combating militant Islamism. Many of the Democrats see Iran as a repressive violator of human rights, particularly after the crackdown on the Green Movement. The Arabian Peninsula, particularly Saudi Arabia, is afraid of Iran and wants the United States to do something more than provide $60 billion-worth of weapons over the next 10 years. The Israelis, obviously, are hostile. The Europeans are hostile to Iran but want to avoid escalation, unless it ends quickly and successfully and without a disruption of oil supplies. The Russians like the Iranians are a thorn in the American side, as are the Chinese, but neither would have much choice should the United States deal with Iran quickly and effectively. Moreover, the situation in Iraq would improve if Iran were to be neutralized, and the psychology in Afghanistan could also shift.

If Obama were to use foreign policy to enhance his political standing through decisive action, and achieve some positive results in relations with foreign governments, the one place he could do it would be Iran. The issue is what he might have to do and what the risks would be. Nothing could, after all, hurt him more than an aggressive stance against Iran that failed to achieve its goals or turned into a military disaster for the United States.

So far, Obama’s policy toward Iran has been to incrementally increase sanctions by building a weak coalition and allow the sanctions to create shifts in Iran’s domestic political situation. The idea is to weaken President Mahmoud Ahmadinejad and strengthen his enemies, who are assumed to be more moderate and less inclined to pursue nuclear weapons. Obama has avoided overt military action against Iran, so a confrontation with Iran would require a deliberate shift in the U.S. stance, which would require a justification.

The most obvious justification would be to claim that Iran is about to construct a nuclear device. Whether or not this is true would be immaterial. First, no one would be in a position to challenge the claim, and, second, Obama’s credibility in making the assertion would be much greater than George W. Bush’s, given that Obama does not have the 2003 weapons-of-mass-destruction debacle to deal with and has the advantage of not having made such a claim before. Coming from Obama, the claim would confirm the views of the Republicans, while the Democrats would be hard-pressed to challenge him. In the face of this assertion, Obama would be forced to take action. He could appear reluctant to his base, decisive to the rest. The Republicans could not easily attack him. Nor would the claim be a lie. Defining what it means to almost possess nuclear weapons is nearly a metaphysical discussion. It requires merely a shift in definitions and assumptions. This is cynical scenario, but it can be aligned with reasonable concerns.

As STRATFOR has argued in the past, destroying Iran’s nuclear capability does not involve a one-day raid, nor is Iran without the ability to retaliate. Its nuclear facilities are in a number of places and Iran has had years to harden those facilities. Destroying the facilities might take an extended air campaign and might even require the use of special operations units to verify battle damage and complete the mission. In addition, military action against Iran’s naval forces would be needed to protect the oil routes through the Persian Gulf from small boat swarms and mines, anti-ship missile launchers would have to be attacked and Iranian air force and air defenses taken out. This would not solve the problem of the rest of Iran’s conventional forces, which would represent a threat to the region, so these forces would have to be attacked and reduced as well.

An attack on Iran would not be an invasion, nor would it be a short war. Like Yugoslavia in 1999, it would be an extended air war lasting an unknown number of months. There would be American POWs from aircraft that were shot down or suffered mechanical failure over Iranian territory. There would be many civilian casualties, which the international media would focus on. It would not be an antiseptic campaign, but it would likely (though it is important to reiterate not certainly) destroy Iran’s nuclear capability and profoundly weaken its conventional forces. It would be a war based on American strengths in aerial warfare and technology, not on American weaknesses in counterinsurgency. It would strengthen the Iranian regime (as aerial bombing usually does) by rallying the Iranian public to its side against the aggression. If the campaign were successful, the Iranian regime would be stronger politically, at least for a while, but eviscerated militarily. A successful campaign would ease the U.S. withdrawal from Iraq, calm the Saudis and demonstrate to the Europeans American capability and will. It would also cause the Russians and Chinese to become very thoughtful.

A campaign against Iran would have its risks. Iran could launch a terrorist campaign and attempt to close the Strait of Hormuz, sending the global economy into a deep recession on soaring oil prices. It could also create a civil war in Iraq. U.S. intelligence could have missed the fact that the Iranians already have a deliverable nuclear weapon. All of these are possible risks, and, according to STRATFOR’s thinking, the risks outweigh the rewards. After all, the best laid military plan can end in a fiasco.

We have argued that a negotiation with Iran in the order of President Richard Nixon’s reversal on China would be a lower-risk solution to the nuclear problem than the military option. But for Obama, this is politically difficult to do. Had Bush done this, he would have had the ideological credentials to deal with Iran, as Nixon had the ideological credentials to deal with China. But Obama does not. Negotiating an agreement with Iran in the wake of an electoral rout would open the floodgates to condemnation of Obama as an appeaser. In losing power, he loses the option for negotiation unless he is content to be a one-term president.

I am arguing the following. First, Obama will be paralyzed on domestic policies by this election. He can craft a re-election campaign blaming the Republicans for gridlock. This has its advantages and disadvantages; the Republicans, charging that he refused to adjust to the electorate’s wishes, can blame him for the gridlock. It can go either way. The other option for Obama is to look for triumph in foreign policy where he has a weak hand. The only obvious way to achieve success that would have a positive effect on the U.S. strategic position is to attack Iran. Such an attack would have substantial advantages and very real dangers. It could change the dynamics of the Middle East and it could be a military failure.

I am not claiming that Obama will decide to do this based on politics, although no U.S. president has ever engaged in foreign involvement without political considerations, nor should he. I am saying that, at this moment in history, given the domestic gridlock that appears to be in the offing, a shift to a foreign policy emphasis makes sense, Obama needs to be seen as an effective commander in chief and Iran is the logical target.

This is not a prediction. Obama does not share his thoughts with me. It is merely speculation on the options Obama will have after the midterm elections, not what he will choose to do.

Read more: U.S. Midterm Elections, Obama and Iran | STRATFOR