8/30/07
DON’T LET YOUR EYES HAZE OVER-THIS IS VITAL INFORMATION
It was inevitable that someone who read my last newsletter on the upcoming CREDIT CRUNCH asked an intelligent question. Not only intelligent but a logical question that everyone following the developing disaster is asking. WHO OWNS THESE SUBPRIME MORTGAGES NOW?
In my newsletter #114 I tried to make it very simple by using the hedge funds to illustrate how the crisis came about, but I did not make clear that hedge funds and private banks, money managers own about 2/3 of what is now called “toxic waste loans.”
What will make politicians “angry” and the public furious just in time for the 2008 elections is the fact that 1/3 of the toxic waste was sold to pensions and insurance companies by rating agencies and major banks. The “bundles” or packages of securities backed by bonds, mortgages including subprime loans are highly secretive and it is hard to determine how much of the toxic paper is included in each bundle. Nobody is taking the responsibility of rating these bundles in an accounting scandal that will dwarf the Enron fraud. We will discover illegal accounting practices and a conspiracy to sell off the high-risk toxic debts to pensions at a profit.
The title page of the September 4, 2006 issue of BUSINESS WEEK asked HOW TOXIC IS YOUR MORTGAGE? With subtitles: DECEPTIVE LOANS; PHANTOM PROFITS; AND COMING SOON A WAVE OF DEFAULTS.
It was no secret what was about to come. Yet we are too financially illiterate to understand what was happening to us to complain until the proverbial feces hit the fan.
I owe you just one additional sequence of events how this could have happened:
- Homeowners have found themselves sitting on a bundle of equity built up in their homes due to a surge in real estate market values nationwide.
- Lenders who specialize in first and second mortgage loans have been very aggressive in pursuing business in telling home owners that they are sitting on untapped gold mines in the property they own and they should use it to get rid of credit card debt, etc.
- Loan arrangements were available allowing homeowners to borrow above 100 percent the value of their property or enabling poor credit risks to buy a home or refinance the note on their property. The goal was to generate substantial fees while loading the mortgage market with substandard toxic waste loans.
- A variety of loan types of questionable merit for the borrower, but fully secured for the lender were everywhere. Loans such as interest-only and adjustable rate loans currently account for 2/3 of all new mortgages.
- Growing numbers of homeowners with poor credit records were victimized by sub-prime lenders who specialize in lending money secured with real estate in return for interest rates well into the double digits.
So how will the politicians solve these problems besides blaming it on Bush? How will Wall Street come up with another moneymaking gimmick to push the problem down the line to another generation? How will disgruntled homeowners react to the loss of their “American Dream”? Will Uncle Sucker step in and pick up the tab? Will the world market idly stand by as we continue to denigrate the dollar?
Stand by for interesting developments.
Ol' Fossils Never Die. They just get stoned. I am already Petrified.
9/12/07
HE WHO BELIEVES HAS NO QUESTIONS- HE WHO DOES NOT BELIEVE HAS NO ANSWERS
This is a quote from a small booklet I wrote about thirty years ago, before the advent of desk top publishing and the personal computer: ONE HUNDRED OLD “HUNGARIAN” SAYINGS – Short Sentences Based on Long Experience. Little did I realize how significant this sentence would become within just a few decades?
We are now facing the continuation of a historical feud started over a thousand years ago by fanatical believers. To them, the greatest evil is modernity, or in other words, the modern scientific mentality, which replaces certainty with doubt, dogmatism with skepticism, authority with evidence, faith with agnosticism, coercion with persuasion, violence with words and ideas, and hierarchy with democracy and equality of opportunity – all of which fills them with overwhelming dread and terror, amounting to panic.
In 2001 I wrote another book: THE DUAL 1991-2002 PALINDROME - Is the Past Prologue? The book described the successive jihads and military actions between Islamic forces and the West for the last one thousand years commencing with 1001 and ending with the Gulf War.
Here is a quote from the book:
“It is also predicted that the continued confrontation between
the Muslim World and the West may escalate into a major war
starting in 2002 with consequences dominating the next millennium.
An attempt will be made, by declaring a “Jihad”, to recreate the
Ottoman Empire and to unite Muslims against the infidel. The
conflict between “modernization” and “westernization” of Islam
will be eventually resolved by reformation of the Muslim religion,
similar to the Reformation of Christianity. The age of the Muslim
religion and it’s intolerance of other religions reflects the
conditions of the Christian religion of the Dark Ages. This is the
Dark Age period of the Muslim religion. Reformation will eventually
lead to liberation of women and peace between the religions.
I attempted to learn from history and understand what we are facing.
The urge to understand one’s enemies is modern phenomenon. Previous generations did not consider national aspirations, human rights, and wishes of others. Understanding leads to compassion leads to defeat. The Allies neither agonized over legitimate national aspirations of German people, nor studied their racial doctrines to find some flaws and attempt to persuade them of the errors of their thinking.
A fanatic’s life consists of deeds following to the rules. Priests, mullahs, rabbis reject attempts at explaining the rules. The rules can be explained, but an attempt to do so undermines their authority. If you allow the question Why it would give a false impression that differences can be understood and settled rather than ignored and fought over. This applies to the issue of illegal immigration as well as to murder or bank robberies.
Recent events around the world remind us of historical phenomena observed since the dawn of civilizations: wars, genocides, oppression, conquests, occupations, and, of course, killings in the name of God. In the “HUNGARIAN” SAYINGS booklet, on the same page, you will find the following: “As the men of God blessed the armies marching to war, one wonders which side God is on.”
Although the underlying principles of Jihad are the same, modern killings are more sophisticated, spectacular, and effective than those in the past. In a matter of hours, you can now hijack a plane and crush it against an office building killing thousands, or you can detonate an atomic bomb in a city killing hundreds of thousands of civilians. You can see all that on TV.
It is in the name of Allah and the his prophet Mohammed who provides the moral values that define what the absolute and ultimate peace is supposed to be, and who is supposed to impose it. There should be no surprise then if we see their religious leaders calling for holy wars, fighting the Evil in the name of the Good, and justifying in the name of peace the bombing of civilians.
So now that you understand what motivates them, does that lead to compassion and eventual surrender?
10/4/07
DUE TO HEALTH REASONS I HAVE NEGLECTED SENDING OUT INTELLIGENCE TIDBITS THAT YOU WON'T READ ABOUT BUT THAT MAY CAUSE YOU TO UNDERSTAND THAT THERE IS MORE GOING ON THAN WHAT YOU READ OR HEAR ABOUT. HERE ARE SOME GOOD NEWS:
Fear and Loathing in Iran
Information coming out of Iran indicates that the military there is very dismayed at how ineffective new Russian anti-aircraft systems were during the Israeli September 6th air strike on a Syrian weapons development facility near the Iraqi border. Syria and Iran have both bought billions of dollars worth of the latest Russian anti-aircraft missile systems. Apparently the Israelis were able to blind these systems electronically. Syria isn't saying anything, nor are the Israelis, but Iranian officers are complaining openly that they have been had by the Russians. The Iranians bought Russian equipment based on assurances that the gear would detect and shoot down Israeli warplanes.
The Iranians fear an Israeli air strike against their nuclear weapons development facilities. It was thought the new Russian missiles and radars would persuade the Israelis to stay away. But now the raid on Syria looks like a dress rehearsal for one a little further east. Since Iranian leaders have openly called for the destruction of Israel, one can't deny the Israelis a little self-defense. Thus the cries and whispers in Iranian military headquarters. A lot of this is leaking on to Farsi language email and message boards. There is much angst and unhappiness.
Why Blackwater is Invulnerable
: Iraqis are upset with Blackwater International, the security firm that provides protection for American diplomats (and many other VIPs) when they travel about. Blackwater recruits experienced military veterans, especially commandos, to do the job. When Blackwater is attacked, they attack right back. Blackwater's aggressiveness and competence is well known in Baghdad, and Iraqi police and civilians stay out of the way. As a result, Blackwater has never lost any of the State Department people they have escorted. But 30 Blackwater personnel have been killed, along with hundreds of Iraqis (armed and unarmed, the terrorist attacks often use civilians for cover). American politicians, who are opposed to the Iraq war, are joining in to attack Blackwater, and accuse it of misbehavior. The State Department remains silent, but is unwilling to give up Blackwater. There are enough experienced people inside the State Department who understand that Blackwater is professional and effective, and you can't beat a perfect record when it comes to security. Considering what high value targets U.S. diplomats are, and the success of Blackwater in defeating hundreds of attacks, the State Department cannot afford to abandon Blackwater. But the diplomats cannot afford to openly defend Blackwater either, lest they anger Democratic politicians who run Congress. So the media circus will play out, and life goes on.
Al Qaeda has lost half its leadership over the Summer, and American intelligence collectors have amassed a huge number of desperate messages from al Qaeda leaders and operatives. Terror attacks are down by more than half because al Qaeda keeps getting run out of their refuges, and, in desperation, keeps asking each other for help. There is not much help. Couriers are still getting through with cash, to buy people and bomb making materials. But most of this stuff is now getting captured, as safe houses are quickly abandoned. When the terrorists are unable to escape, they more frequently surrender, rather than fight to the death. This is a sign of falling morale. This is what the psychologists predicted as the number of desperate messages grew. For the troops, this is a mixed blessings. But as more of the hard core are cornered, you also come up against heavily armed men, ready to fight to the death. Sure, you can eventually clear out the civilians, back away and let the smart bombs finish the job. But that initial encounter with desperate terrorists, determined to take an infidel with him, can be unnerving, and dangerous. Increasingly, large groups of terrorists are being cornered. Over the weekend, at least sixty terrorists were killed in several engagements.
An offer that's hard to refuse.
France has a new, $400 million, satellite tracking system, and is using it to blackmail the United States. Using special radar and telescopes, the Graves Radar System (GRS) seeks to keep track of satellites and space debris. Currently, the largest satellite tracking system, the U.S. Defense Department's Space Surveillance Network (SSN), has been doing this for decades. But it has long been known that, while the SSN public catalog lists huge numbers of satellites and space debris, it leaves out many low flying American spy satellites. The new French system has discovered about two dozen of these, and has offered to keep details secret if the U.S. will reciprocate and not publish similar data on some French spy satellites. If you know the orbits, or other details, of these low flying birds, you can hide some activities, but keeping stuff under cover when the satellites come over. Since all this involves highly classified projects, any agreements in this area will probably also be classified.
Con Game against Iran
While there's been no invasion of Iran, there has been a lot of Information War type operations against them. For example, all the leaks and punditry over imagined plans to invade Iran have had an impact on the Iranians. Not just the published remarks by Iranian leaders and journalists, but the private, often coded (and decrypted), messages by Iranian officials that get captured by the NSA or CIA. This kind of "information operation" is an ancient tactic, and it's getting more blatant, and interesting with regard to Iran. The best example of that are the recent interviews of U.S. Air Force planners about work being done on, well, how best to attack Iran. These interviews brought attention to an organization within the air force called Operation Checkmate. This was a Cold War era creation, whose job was to, as they like to say in the military, "think outside the box." If you can do that, you can gain the element of surprise. That often is a decisive edge in battle.
On the other hand, surprise is best obtained by keeping your plans secret from the enemy. You want to hit your foe unexpectedly. Discussing openly that you are working on radical new techniques for attacking is giving the game away. Or is it? Maybe someone in the Pentagon has been paying close attention to what's going on inside Iran. The ruling clerical junta is composed of some very smart, and very insecure, people. There are also a lot of paranoid types. So bringing up Operation Checkmate, and its legendary capacity for creating unexpected tactics, is meant to freak out the easily frightened among the Iranian clerical establishment. Of particular interest will be what is said in private, and what Iranian military decisions that leads to. It is known that there is a major disagreement in the Iranian government over military strategy. On one extreme there are those who believe in, basically, guerilla tactics. Rather than fight the invader toe-to-toe, create a swamp of Islamic terrorists. At the other extreme are those who want to build up a conventional military force. The clerics have compromised, and given support to both camps. As a practical matter, the "modern military" crowd are just getting window dressings, as there isn't enough money to do it right. The "guerillas" are better liked by the clerics, because religious fanaticism is involved. But even the most pious Iranian leaders has a fear of what kind of surprises the Americans might come up with. So going public with Operations Checkmate is stirring the pot, and scaring the hell out of who would like all Americans dead.
10/14/07
You folks who live in the big city have no idea about interesting complications we country folks experience. “Bang!” For days we have been under attack and I might as well let you in on some of the little known secrets of country life. “Bang!” I am sitting at my computer and I will accurately report the sound effects I am experiencing. Luckily it is late in the evening and the wind has stopped otherwise this page would be full of sound effects. About one every 10 seconds.
It starts with our metal roof that has stood the rigors of temperature changes, rain, hail, wind, and piles of oak leaves for 40 years. It is now under attack by the biggest rainfall of acorns in recent memory. We had a good rainy spring and summer and the oak trees are having a great time. They are not stupid. As a matter of fact they only produce acorns several years apart, sometimes more than 5 years pass before you’d find an acorn under our trees.
This year the ground is covered solid. Using a little arithmetic I calculated that the oak directly above the house dropped 157,000 acorns. ”Bang!” Excuse me. 157,001. It was easy to calculate if you consider the radius of the tree to be 50’ and every square foot has about 20 acorns underfoot. Now we have about 20 big oak trees around the house which makes it over 3 million acorns are under our feet cracking as we walk on them.
So oaks are not stupid. If there were large crops every fall, populations of squirrels, mice and deer would increase until no amount of acorns could satiate them. So the oaks intermingle good production years with poor ones, during which many of the seed predators starve. And don’t underestimate the value of a large squirrel population. In Texas everyone has heard of squirrel stew. In fact there wouldn't be a Texas if it weren't for squirrel stew. That's right! Davy Crockett and his Tennessee sharpshooters wouldn't have reached puberty if it were not for squirrel stew. Besides, what do you think they ate on the long trip from Tennessee to the Alamo? Enchiladas? Nope! You guessed it--squirrel stew. “Bang!” More about acorns later.
10/14/07
The reaction to my “acorn” story ranged from enthusiasm -“Squirrel stew and dumplings, hell I’m heading your way!”” Great article. Send it in to the paper for publication.””Very informative. Give us more instead of bad news.”- to a lack of enthusiasm:” I am absolutely amazed that a person of your high intellect would engage in such trivia!”
In order to accommodate all sides let me fill you in on some other aspects of these oak trees. To start with some are older than the United States. It is wonderment about the past that you feel while sitting in the shadows of these magnificent trees. One tree had shown an amazing example of what I have been advocating over the years. In order to survive you must adapt to circumstances. This oak tree was knocked down during the 1900 hurricane that destroyed Galveston. Half of its branches were broken off and half of its roots were cut off above the ground. The tree refused to die but continued to grow for the next 107 years. Its horizontal surviving limbs became the new main trunks rising to almost 100 feet into the air. The old trunk is now horizontal. About a 6 foot high portion of the root system is above ground and been used over the years by numerous small animals and kittens as a safe shelter to grow up in.
This is not a good day to sit under the trees. The wind from the south is gusting and acorns hit amazingly hard for their size. The tree is not the only one that provides an example of adapting to circumstances. Our big retriever has been barking fiercely when the acorns first started to fall because he assumed that his archenemy targets –the squirrels – romping on the roof caused the noise. After letting him observe that the true cause was the rain of acorns, he now ignores the noise and no longer bothers to react.
Isn’t it strange how a tree and a dog can learn to adapt to circumstances and the people of this country ignore the circumstances facing them and go on their merry ways to the mall and the games, living in oblivion? In Rome they called it panem et circenses. "Bread and circuses" that Roman politicians offered to pacify the citizenry with low-cost, low-quality, high-availability food and entertainment that have become the sole concern of the People, to the exclusion of more important matters. Just listen to our presidential candidates offering short-term government palliatives in place of solutions for significant, long-term problems. Could we learn from a tree and a dog?
PS I was wrong about the acorn count. It is still coming down heavily. I am working on some interesting acorn recipes.
10/27/07
INTEL BITS YOU WON'T READ ABOUT ANYWHERE
Ignored by the media and carefully avoided by the Congress is the significance of the Israeli raid on Syria. The Syrian are so afraid of the issue that they have carefully and fully removed every bit of the remnants bombed and destroyed by the Israeli Air Force. Aerial recon pictures show that the site has been totally cleared and every bit of rubble removed so that nuclear inspectors of the UN won't find any trace of what was going on before the building was destroyed. Now the rest of the story can be told with certain reservations.
The most recent rumors, of what enabled the Israelis to slip past Syria's air defenses during the September 6th raid, describe a system that has been used in Iraq to detect transmissions from terrorist communications and zap IED detonation systems. This system is referred to as Suter, and such a program has been described in trade journals for several years now. The basic elements of Suter are powerful sensors, for detecting all manner of electronic emissions. This is coupled with some very fast computers, and a large database of known emitters. The computer software quickly identifies the emitters, and potential entry points into enemy communications networks. Suter transmitters can shut down some or all enemy emitters, just monitor them, or inject misleading information.
Naturally, with a system like this, the users don't want to discuss details. For once lots of details are known, systems like Suter are easier to defeat. To that end, within days of the September 6 attack, Russia had technical people in Syria, trying to figure out what Suter, or whatever, had done to the modern Russian early warning systems Syria was using. Iran was also demanding answers, and what the Russians told the Iranians initially was not pleasant. The Iranians won't say what the Russians told them, but the fall out was a lot of very unhappy Iranian military people. Some Russian techies are telling the Syrians and Iranians that the September 6th raid was actually a gift, because now more is known about what Suter can do, making it easier to defeat the system. That talk sounds more like damage control, because Suter has been described as a rapidly evolving system. The Russian air defense radars and computers may now be better able to deal with the September, 2007, version of Suter. But that advantage will fade quickly over the next few months as Suter continues to evolve.
Suter has been getting quite a workout in Iraq and Afghanistan, which doesn't make the Iranians or Syrians feel any better. The U.S. and Israel have been sharing a lot of counter-terrorism technology and tactics, and this would appear to be just another example.
BLACKWATER UNDER ATTACK
Iraqis are upset with Blackwater International, the security firm that provides protection for American diplomats (and many other VIPs) when they travel about. Blackwater recruits experienced military veterans, especially commandos, to do the job. When Blackwater is attacked, they attack right back. Blackwater's aggressiveness and competence is well known in Baghdad, and Iraqi police and civilians stay out of the way. As a result, Blackwater has never lost any of the State Department people they have escorted. But 30 Blackwater personnel have been killed, along with hundreds of Iraqis (armed and unarmed, the terrorist attacks often use civilians for cover). American politicians, who are opposed to the Iraq war, are joining in to attack Blackwater, and accuse it of misbehavior. The State Department remains silent, but is unwilling to give up Blackwater. There are enough experienced people inside the State Department who understand that Blackwater is professional and effective, and you can't beat a perfect record when it comes to security. Considering what high value targets U.S. diplomats are, and the success of Blackwater in defeating hundreds of attacks, the State Department cannot afford to abandon Blackwater. But the diplomats cannot afford to openly defend Blackwater either, lest they anger Democratic politicians who run Congress. So the media circus will play out, and life goes on.
HIDDEN FACTS OF THE IRAQI WAR?
Al Qaeda has lost half its leadership over the Summer, and American intelligence collectors have amassed a huge number of desperate messages from al Qaeda leaders and operatives. Terror attacks are down by more than half because al Qaeda keeps getting run out of their refuges, and, in desperation, keeps asking each other for help. There is not much help. Couriers are still getting through with cash, to buy people and bomb making materials. But most of this stuff is now getting captured, as safe houses are quickly abandoned. When the terrorists are unable to escape, they more frequently surrender, rather than fight to the death. This is a sign of falling morale. This is what the psychologists predicted as the number of desperate messages grew. For the troops, this is a mixed blessings. But as more of the hard core are cornered, you also come up against heavily armed men, ready to fight to the death. Sure, you can eventually clear out the civilians, back away and let the smart bombs finish the job. But that initial encounter with desperate terrorists, determined to take an infidel with him, can be unnerving, and dangerous. Increasingly, large groups of terrorists are being cornered. Over the weekend, at least sixty terrorists were killed in several engagements.
The increasing amount of intelligence, from captured materials and interrogations, has also uncovered the identities of many Iraqi army and police personnel who are working for Sunni and Shia terrorist groups. The Shia militias have also been under increasing attack lately, producing much evidence of traitorous cops. As a result, dozens of security force personnel have been arrested in the last week, and accused of working for the enemy. Some worked out of conviction, but most were either bribed or blackmailed (threats of death or kidnapping of kin).
BIN LADEN ADMITS DEFEAT IGNORED BY OUR MEDIA AND CONGRESS
On October 22nd, Osama bin Laden admitted that al Qaeda had lost its war in Iraq. In an audiotape speech titled "Message to the people of Iraq," bin Laden complains of disunity and poor use of resources. He admits that al Qaeda made mistakes, and that all Sunni Arabs must unite to defeat the foreigners and Shia Moslems. What bin Laden is most upset about is the large number of Sunni Arab terrorists who have switched sides in Iraq. This has actually been going on for a while. Tribal leaders and warlords in the west (Anbar province) have been turning on terrorist groups, especially al Qaeda, for several years. While bin Laden appeals for unity, he shows only a superficial appreciation of what is actually going on in Iraq.
Bin Laden doesn't discuss how the Americans defeated him. It was done with data. Years of collecting data on the bad guys paid off. Month by month, the picture of the enemy became clearer. This was literally the case, with some of the intelligence software that created visual representations of what was known of the enemy, and how reliable it was. The picture was clear enough to maneuver key enemy factions into positions that make them easier to run down.
Saddam's henchmen, the main enemy, were no dummies. They were smart enough, and resourceful enough, to build a police state apparatus that kept Saddam in power for over three decades. However, for the last three years, that talent has been applied to keeping the henchmen alive and out of jail. But three years of fighting has reduced the original 100,000 or so core Saddam thugs, to a few thousand diehards. Three years ago, there were hundreds of thousands of allies and supporters from the Sunni minority (then, about five million people, now, less than half that), who wanted to be back in charge. Now the remaining Sunni Arabs just want to be left in peace. Thus the Sunni nationalists of in the Baghdad suburbs are shooting at, and turning in, their old allies from Saddams Baath party and secret police. This isn't easy for some of these guys, but it's seen as a matter of survival. While the fighting in and around Baghdad is officially about rooting out al Qaeda, and hard core terrorists, it's also about taking down the Baath party bankers and organizers who have been sustaining the bombers with cash, information and encouragement.
Bin Laden can't openly talk about any of this, because that would be admitting he had made a deal with the devil back in 2004, when al Qaeda and the Iraqi Sunni Arab terrorists united. The Baath party has always been secular. Not exactly anti-religion, but not something al Qaeda could openly embrace. Many of the Iraqi Sunni Arab terrorists are religious, but not religious enough for the al Qaeda hard core. And it's the hard liners that usually set the agenda. That's a fatal flaw with groups that depend on terrorism to keep the fight going. Cracking down on the hard core requires more clout and muscle than al Qaeda possesses these days. And that's another unspoken reason by bin Laden is singing the blues.
Bin Laden's latest audio recording brought forth a furious reaction from many of his followers. The main complaint was that only excerpts of the message were being reported on by the Arab media, and that if the entire message were put out there, the excerpts would not appear so damaging. The excerpts concentrated on bin Laden admitting mistakes, criticizing al Qaeda operations in Iraq and urging Islamic radicals to get their act together.
Al Qaeda is under a lot of pressure of late. In addition to defeat in Iraq, the organization is being battered in North Africa, South East Asia, Somalia, Afghanistan and Pakistan. Bin Laden has not got any good news to talk about, and that's what's really got his followers angry.
THE GOOD NEWS IS THAT WE KNOW HOW TO HANDLE THE EXTERNAL ENEMY, BUT HOW ARE WE GOING TO HANDLE THE TRAITORS?
10/28/07
I HAVE NOT BEEN SENDING OUT BAD NEWS LATELY BECAUSE THERE IS SO MUCH OF IT. I MUST, HOWEVER, TOUCH ON THE DANGER FACING THE DOLLAR. WHEN GOLD IS NEARING $800/OUNCE AND OIL IS WITHIN DAYS OF $100. PERHAPS IT IS TIME I SEND YOU A DETAILED, AND LONG, REPORT THAT OUGHT TO INDUCE YOU INTO DEFENSIVE ACTION.
The U.S. dollar is standing at the edge of a cliff, and most people don’t even know it.
Data released by the New York Federal Reserve shows that foreign central banks have been net sellers of U.S. treasuries over the past five weeks, with $48 billion having been sold since late July, and $32 billion in just the last two weeks.
The U.S. runs budget deficits each year. If foreigners stop buying treasuries—or worse, start selling them—the dollar could be in big trouble.
The reduction in treasuries “comes as a big surprise and it is definitely worrying,” said Hans Redeker, foreign exchange strategy chief at bnp Paribas, one of Europe’s biggest banks.
The Telegraph reported that, according to Redeker, the numbers demonstrate “that world central banks are in a hurry to get out of the U.S.”
The nation that analysts are watching especially closely at this stage is China. Whether or not Beijing is selling its dollars can’t be officially confirmed until November, when the Treasury releases its tic data. However, top Beijing officials have been signaling for at least two years that dollar sales are increasingly imminent.
This past August, two Chinese government officials highlighted China’s massive U.S. dollar holdings (which include treasuries) and how it supports the value of the U.S. currency. They also noted that Beijing could use those holdings as a political weapon to counter congressional calls to revalue the yuan and impose trade sanctions on Chinese goods. Chinese state media referred to the country’s stockpile of U.S. dollars as its economic “nuclear option,” capable of destroying the dollar at will.
Beijing also clearly signaled that it would begin “diversifying” out of the dollar earlier this year when it announced plans to rebalance its $1.34 trillion currency reserves, which are mostly U.S. bonds. Already Beijing has created a $300 billion investment fund to use those dollars to purchase other assets in an attempt to increase its investment returns.
It should come as no shock, then, that China would now be selling its dollar holdings.
The danger, as the Telegraph notes, relates to the fact that China holds such a large amount of treasuries. Any confirmed evidence that China was no longer supporting the dollar, and was actually selling it, risks setting off “an unstoppable stampede” in which other nations would seek to dump their holdings before China swamps the market and demand for dollars is overwhelmed.
The implications of a run on the dollar due to Chinese treasury-dumping go far beyond just the value of the greenback.
Chinese demand for treasuries is one of the primary pillars supporting the dollar’s value. When China buys treasuries, it keeps the dollar strong, interest rates low, Chinese imports inexpensive, and consumers spending. Remove that pillar, and the whole U.S. economy is thrown into jeopardy.
The Trumpet has warned not only against the danger of relying on foreign creditors, but also that deteriorating economic conditions in general are frighteningly imminent. Even if China has not decided to dump the dollar yet, America’s massive and growing debt loads, huge trade deficit, ballooning government entitlement spending and corruption-plagued financial system based upon a precarious fiat currency mean that the dollar is certain to drop further in value.
Over the last 30 years, China’s economy has grown at an average annualized rate of nearly 10%. While this statistic alone is jaw-dropping, what is more impressive is the extent to which the nominally Communist country’s economy has become intertwined in the global economy. China now exerts enormous influence over the economies of virtually every country in the world, and a slight change in its domestic economic policy has the potential to send shockwaves rippling throughout the world. Nowhere is this more apparent-and frightening-then in China’s economic relationship with the United States, which is very much at the mercy of China when it comes to prices, wages, interest rates, most importantly, the value of the Dollar.
Forex Reserve Diversification
Let’s begin with an examination of China’s forex reserves, which is probably China’s biggest bargaining chip in its economic relationship with the US. Up until two years ago, China’s currency, the RMB or Yuan, was pegged to the Dollar. As with any peg, there often develops a discrepancy between the fixed value of the currency and the value that the market would assign if the currency were permitted to float. As China’s economy surged ahead, especially over the last five to ten years, tremendous pressure began to build under the RMB. In order to maintain the peg and hold down the value of the RMB, China began accumulating foreign exchange reserves by withdrawing foreign currency from circulation. Today, China’s foreign exchange reserves are massive, at $1.4 trillion as of September 2007.
In the eyes of American policy-makers, this presents a problem because the majority of these reserves are held in Dollar-denominated assets, namely in the form of US Treasury securities. The US government theoretically could not be happier that foreign Central Banks are willing to finance its perennial budget deficits. However, this borrowing has reached a point where foreigners now control over 40% of the US national debt. Moreover, long-term US interest rates are market-driven, based on the buying and selling of US government bonds. In other words, the US has gradually ceded control of its long-term interest rates to foreign Central Banks, namely China and Japan.
As the Dollar has depreciated over the last five years, many Central Banks have begun “diversifying” their forex reserves, by switching from Dollar assets to assets denominated in other currencies. This is problematic for the Dollar for two reasons. First, switching from US assets to European assets, for example, directly causes the Dollar to depreciate. Second, the bulk sale of US treasury securities (whether or not they are replaced with other US-assets) causes US bond prices to decline and hence, yields to increase. Thus, if China suddenly decided to diversify its reserves, for economic and/or political reasons, it could potentially crash the Dollar and send US long-term interest rates skyward.
Currency Manipulation
The second aspect of the China-US economic relationship which China could wield to its advantage is the RMB itself. American public officials enjoy criticizing China for failing to allow its currency to appreciate more quickly. In fact, there is a bill that has been lying dormant in the US Congress which threatens to slap a massive across-the-board tariff on all Chinese imports if China fails to allow the RMB to appreciate adequately against the Dollar. What policymakers don’t realize is that a rapid appreciation in the RMB would actually harm the US economy.
Coupled with its growing role as the world’s factory, China’s cheap currency has made Americans wealthier, by increasing their purchasing power. As production of labor-intensive goods was outsourced to China over the last decade, prices for finished products began to fall both in real terms and in nominal terms. While the effect on US employment trends is debatable, its effect on prices has been unambiguous. Thus, even while the American economy boomed, inflation remained relatively modest by historical standards. This allowed the Federal Reserve Board to hold interest rates down and foment economic growth.
Raw Material Pricing
In addition, there is the impact that China’s economic growth has exerted on global raw material prices. It has been said that 25% of the world’s construction cranes are currently located in China, to support the country’s building boom. These massive development and infrastructure projects require proportionally massive quantities of raw materials, namely cement and steel. Unfortunately, China is especially inefficient at converting raw materials into finished products. Combined with the CCP’s emphasis on the near-term (which inherently prioritizes low cost over efficiency), this is placing a tremendous strain on global energy supplies, driving prices skyward.
Competition for Energy
The global prices for oil and coal are already at record highs and China only consumes 1/15 the amount of per-capita energy as the US! Chinese energy companies are becoming increasingly visible, scouring the globe for stable supplies of energy and often coming head-to-head with American energy companies. Conveniently, China does not recognize the ethical issues which arise from purchasing energy from dictatorships and corrupt regimes, whereas US companies are limited from doing business in these places. From Sudan to Myanmar to Kazakhstan, Chinese companies have set up join ventures where US companies could not. While energy prices have certainly risen in the US, they have not kept pace with global energy prices. In this way, China is able to ensure that its citizens and its businesses have the oil, coal, and natural gas that they require, while their American counterparts may be forced to conserve.
Caution May Be Replaced.
While China is acting with caution not to suddenly devalue the dollar and thus their own holdings and also to protect its booming economy primarily based on sales to the US, political considerations may alter China's position. An attack on Iran by the US would seriously impact on China's ability to import Iranian oil. China is aggressively helping Iran by selling war planes and military supplies to Iran. China understands that a nuclear Iran my cut off oil to the West and if that should occur, China will be the beneficiary of using oil from the Mid-East for the benefit of its people and the political power of it communist government..
10/31/07
The U.S. has sent a message to Iran and North Korea by putting a request in the new emergency (for the war on terror) defense budget, an $88 million item for special B-2 bomber bomb racks to handle the new 15 ton bunker buster bomb (the MOP, or massive ordnance penetrator). There are no known targets for such a weapon in Iraq or Afghanistan, but there are plenty of such targets in Iran and North Korea. Moreover, even were there deep bunkers in Iraq or Afghanistan, you don't need a stealth bomber to deliver a MOP. The enemy in those countries have no way of detecting a high flying B-52, much less a stealthy B-2. But Iran and North Korea do have radars, and a B-2 could slip past those radars and take out the air defense system command bunkers, or any other targets buried deep. The 20 foot long MOP has a thick steel cap, and can penetrate up to 200 feet into the ground before exploding.
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Last Summer, the U.S. Army sent three armed robots to Iraq, where they were handed over to the 3rd Brigade of the 3rd Infantry Division. No reports on how those three Swords (Special Weapons Observation Reconnaissance Detecting System) droids have done. But the commander of the 3rd Brigade has asked for twenty more. The army already has 80 more on order.
The army is nervous about Swords because of the general fear of armed robots. The Swords droid can be pretty scary, especially at night. The device looks like a miniature tank, with an M-16 and a little camera mast mounted on it. In an unfriendly, and unlit, Baghdad neighborhood, anyone seeing a Swords moving slowly down the street, making those electrical motor noises, and pointing the M-16 here and there, is inclined to get a little nervous. But that's the point. Troops want to send Swords down those streets, to force the enemy to fire and give away their position. Swords don't bleed, troops do. An unarmed robot is less scary to the enemy, which is inclined to let such a harmless critter poke around. But Swords will not only find you, it can kill you, especially if you happen to be holding an AK-47. Worse yet, Swords can call out in Arabic and demand that you surrender. Most Iraqis are pretty superstitious, and in awe of American technology. Swords is a nightmare come true. The 3rd Brigade would like twenty more, quickly, before the Iraqis catch on. And that's probably why there have been no public reports about what the troops have done with Swords.
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The $1.5 billion deal that sold the unfinished Russian aircraft carrier Admiral Gorshkov to India, included a Russian shipyard performing $700 million worth of repairs, modifications and upgrades. Another $800 million will be spent on aircraft, weapons and equipment. The Admiral Gorshkov entered service in 1987, but was inactivated in 1996 (too expensive to operate on a post Cold War budget). The Indian deal was made in 2004, and the carrier was to be ready by 2008. But a year ago reports began coming out of Russia that the shipyard doing the work, Sevmash, had seriously miscalculated the cost of the project. The revised costs were now more like $1.1 billion. The situation has since gotten worse, with Sevmash now saying that it will cost over $2 billion to refurbish the carrier. The Indians are not happy, and expects the Russian government (which owns many of the entities involved in this deal) to make good. Given that India currently has $10 billion worth of Russian military items on order, and has been Russia's biggest, and most profitable customer for military equipment for decades, the Gorshkov is looking to be an error of gigantic proportions.
Just to add to the pressure, India is getting more interested in Western military equipment, including big ticket items like warplanes and ships. The Indians have grown tired of the poor performance of Russian equipment, and the poor service they often receive when it comes to spare parts, or fixing design errors. For decades, this was tolerated because Russian gear cost less than half what comparable Western stuff went for. Since India's major foe was Pakistan, which was equipped with equally shabby Chinese weapons, it all seemed to work out. But now many Indian generals and admirals, noting the high performance of American troops in the war on terror, are seriously considering the higher cost Western way of war. Especially since the bombing of the Syrian nuke facility by the IAF.
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The current Russian government, led by former KGB official Vladimir Putin, is very popular. Former KGB officers predominate, and they are well educated and capable. The KGB was always the place to be, in the old Soviet Union, if you were bright, ambitious and not troubled with an overactive conscience. Putin's people have got the economy going (at six percent, Russia has one of the lowest unemployment rates in Europe), cracked down (but certainly not eliminated) on the lawlessness and corruption, and played to the popular affection for "restoring Russia's place in the world" (becoming a superpower again.)
Russia can't become a superpower again because it's population is shrinking and all those nuclear weapons are great for defending the country, but you need non-nuclear forces to throw your weight around. Since the end of the Cold War in 1991, Russia has lost over 90 percent of its combat power. It was disarmament by starvation (massive cuts in the defense budget) and neglect (the military leadership tried to hold on to more equipment than they could afford to maintain or operate, making the situation worse.) Digging out of the hole is going to cost a few hundred billion dollars and over a decade of effort.
The quickest things to fix are aircraft, and long range bombers, especially the Tu-95s, are being refurbished, upgraded, and kept in the air over international waters a lot. This is mainly a PR exercise for domestic consumption. What also plays to the crowd is "resisting NATO." The Cold War enemy is seen as surrounding Russia. The American anti-missile systems being built in Eastern Europe, to block Iranian missiles from blackmailing Europe, are depicted as an attempt to stop Russian missiles. This appears absurd in the West, but makes perfect sense to most Russians. "They" are out to get us, is what most Russians think. Decades of Soviet propaganda about foreign plots to destroy Russia, enhanced by the widespread destruction of World War II, have left their mark.
What worries the West the most is that Russian democracy has been modified to suit local tastes. That means a concentration of power. This scares most other democracies, because it makes it easier for the supreme leader to do something rash. Without a separation of powers (executive, legislature and courts balancing each other), the top guy can easily start trouble the country cannot afford. But most Russians prefer this concentration of power. Old customs die hard.###
Russians see themselves as victims, having been swindled out of their former wealth, glory and real estate by foreign plotters and exploiters. All this seems irrational to Westerners, but it means something to many Russians, although often at a subconscious level. This leads to an "anything goes" attitude towards foreigners. That explains Russian refusal to crack down on Russian hackers who are plundering Western businesses via the Internet. It also explains Russia's casual use of energy embargoes against countries (usually weaker ones that cannot retaliate economically). Europe is a major customer for Russian natural gas, and gets this message loud and clear.
Meanwhile, there's still a war at home. Islamic terrorists continue to stir things up in the Caucasus. A few days ago, a female suicide bomber blew herself up in a bus in Dagestan, killing herself and wounding five others. That indicates a poorly constructed bomb vest, and the fact that the most capable Islamic radicals have been killed or captured. But the spirit is still alive, especially in areas adjacent to Chechnya. Russia is using a carrot and stick approach to this. Security forces have been increased in the Caucasus, and much support has been given to Iran. Selling weapons and nuclear energy technology to Iran is important, and vigorously supporting Iran's right to be well armed and in possession of nuclear technology, insures that Iran does not support Islamic terrorism inside Russia. Iran is a major player in providing that support, although Iran is very discreet about it. But not so discreet that the Russians haven't noticed.
11/26/07
A SHOW OF FARCE.
WHAT IS THE ANNAPOLIS PEACE SUMMIT ABOUT?
Anyone who believes the upcoming Annapolis peace summit is going to achieve anything substantive by territorial compromise is ignoring the reality of a century of conflict. Pushing such an idea is the worst possible thing President George W. Bush could do. The evangelicals who elected him will forgive him for virtually anything -- Iraq, immigration policy, government spending -- but they will not forgive him for abandoning Jerusalem or the Bible Lands to the Islamists .
In fact, this idea would be a double political suicide. In the United States, it would be the worst possible thing a president with a popularity rating of 24 percent could do 12 months before an election that will seal his legacy. In Israel, Prime Minister Ehud Olmert, whose popularity rating is also a bare 25 percent, is inviting his own political demise by announcing his intention to resurrect the Oslo agreement and the Road Map -- as if he had a true partner in peace while Palestinian terrorists fire daily salvoes of rockets and mortars from the Gaza Strip into southern Israel.
The Islamofascists who deny Israel's right to exist while they send suicide bombers around the world to murder anyone else who disagrees with them don't consider Annapolis as mere theater.The Annapolis conference is not a peace conference, but an appeasement conference to coalition-build Arab nations in preparation for an attack on Iran. The Madrid conference in 1991 was the last significant US-sponsored peace conference. It was orchestrated by then secretary of state James Baker who in fact is pulling the strings of the Annapolis parley behind the scenes under the auspices of the Baker-Hamilton Report. Mr. Baker's stand on Israel is well known.
Annapolis is a smoke-and-mirror show in preparation for an attack that could, in fact, accomplish President Bush's declared goal of preventing World War III a war that Iran's nuclear armament program is bringing closer every day. So far UN sanctions have been shrugged off by Iranian President Mahmoud Ahmadinejad and the mullahs who control him. And as Iran continues to pursue Armageddon, one Gulf State after another is seeking to purchase nuclear components. The question is: What is George Bush asking Israel to give up, because the Arabs are not giving up anything and any agreement with infidels is automatically voidable according to the Quran.
Meanwhile, while talking peace out of one side of his mouth, Syrian President Bashar Assad has quietly been following his Iranian masters' lead by attempting to build a nuclear reactor in Syria. The result was an object lesson for Iran, its allies, and imitators: Israel's bombing raid in September. ABC News reported in July that Israel had shared intelligence on the Syrian nuclear site with the US. When America declined to act, Israel decided it had to strike in self-defense. It did so over the strenuous objections of Secretary of State Condoleezza Rice and Defense Secretary Robert Gates, who said Israel and the US should "confront not attack." (Strangely it was Hillary Clinton who approved the attack.)
The previous world war showed the disastrous folly by Neville Chamberlain of confronting but not attacking Hitler. Humanity will avoid a new world war only by attacking the threat posed by Ahmadinejad's Iran. In June 1981 in Baghdad and in Syria in September 2007, Israel has shown what must be done to keep the peace. So prepare for a show of farce at Annapolis.
12/7/07
WHAT HAPPENED TO IRAN'S NUCLEAR WEAPONS PROGRAM?
by TIBBY WESTON
A new U.S. intelligence analysis claims that Iran halted its nuclear weapons research program in 2003. This is odd, since the report was created by an agency that answers to the president of the United States and which has a reputation for pro-Iran opinions. Moreover, the "halt" angle has very little to back it up. This new analysis seems to be more for political than intelligence effect as evidenced by the cautious statement that the U.S. intelligence community has "high confidence" that the Iranians halted their nuclear weapons program in 2003, it also states that it has only "moderate confidence" that Tehran has not restarted the program. This can be read almost as the statement made by Israeli Defense Minister Ehud Barak has said that while it is "apparently true that in 2003, Iran stopped pursuing its military nuclear program for a certain period of time," nonetheless, he adds that "in our estimation, since then it is apparently continuing with its program to produce a nuclear weapon." Both saying the same thing except the International Atomic Energy Agency (IAEA) which recently confirmed official Iranian claims to have completed construction of the 3,000 centrifuges necessary to produce enough highly enriched uranium for at least one nuclear weapon per year. This may also be the basis for the statements by Israeli military and intelligence officials.
The differences in assessment can easily be explained. Israel is a neighbor directly threatened with annihilation therefore they can not afford to underestimate the Iranian threat. This means that Israel must focus on Iranian capabilities, rather than intentions, which can only be guessed. On the other hand the US is not in imminent danger and can afford to play political games by guessing at the intentions of Iran.
Another interesting aspect of the report is that that much of the assessment is based not on technical capabilities and information gathered from satellites and other sources, but rather on attempts to understand Iranian intentions. To make an assessment of intentions is a very difficult aspect of intelligence as Hitler found out many times during World War 2 trying to assess the intentions of the Allies. Just as in Hitler's time, the assessment of intentions more often reflect the interests, biases, and expectations of the people making the assessment. Even the NIE report admits the limitations of the U.S. intelligence community with respect to its ability to determine that the 2003 halt in the Iranian weapons program is permanent: "We do not have sufficient intelligence to judge whether Tehran is willing to maintain the halt of its nuclear weapons program indefinitely." Assessing intentions is even more difficult in the twisted world of the Middle East bazaar.
On the other hand Israel has been put in a difficult position. If it discloses justification for its assessment it would admit the existence of intelligence resources within Iran which may be compromised. In view of the continuing threat it seems more prudent to quietly go along with the political games conducted by the State Department while carrying a big stick of ability to take care of the problem should the need arise as was the case in Prime Minister Begin's decision to destroy Iraq's Osiraq reactor in 1981. This explains the Israeli cooperation exhibited at the Annapolis "show of farce" last week while Olmert had been fully informed of the content of the upcoming assessment. The perception in the upcoming weeks and months, however, will be that the US drastically changed its policy towards Israel, denying it access to intelligence about Israel's enemies now considered friends of the US pursuant to the State Departments' master plan.
There are number of other unconfirmed rumors explaining why the bomb program was halted in 2003. It was at the height of US prestige having just demolished the Iraq military and Iran had good reasons to fear for its own safety. It is rumored that Mr. Putin has agreed to a major business plan with Iran that included the speedy completion of a very large nuclear reactor and the delivery of a certain limited number of nuclear warheads. After Iran agreed to the plan and large payments were made to Russia, Mr. Putin slowly started construction on the promised nuclear facility but allegedly failed to deliver the warheads. This prompted the restart of the Iranian program. The capricious relationship between Putin and Iran, with its ups and downs, withholding of payments, stoppage of delivery of nuclear materials, seem all to indicate that Mr. Putin is playing games with Iran and his friend, Mr. Bush. The cocky attitude of Ahmadinejad, however, could indicate that Mr. Putin may have delivered. In the Middle East you never know if you are the screw-or or the screw-ee. So hold your applause, or panic until the fat lady sings.
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Labels: 2007 ON AND OFF THE RECORD
