The Fed Wants to Twist Again, Until the Election

Topher Morrison

PurpleSerf.com

Fed Chairman Ben Bernanke and the Federal Open Market Committee.

The once arcane strategy – “Operation Twist” – is evidently becoming a trusty financial tool as much as a screwdriver is to a repairman.  The Federal Open Market Committee (FOMC), charged with overseeing the buying and selling of US Treasury securities, is to meet this week and it looks like another round of Operation Twist is on the table.  The FOMC’s decision whether to inject more liquidity into US markets, in an attempt to inoculate them from European debt crisis, or proceed with other more temperate measures will help influence the financial trajectory of America and with it the rest of the planet for the remainder of the year and beyond.

Operation Twist, selling short-term treasuries in order to buy longer term ones in an effort to bring down long-term yields, is one of many tools available to the Federal Reserve.  In general it is more palatable than firing up the printing presses or plugging fresh zeros into the digital currency supply and then purchasing billions (or potentially trillions) in assets, which is how quantitative easing (QE) is employed and what the Wall Street Oligarchy and Gold Bugs hope occurs.  It may, for the time being, be sufficient for markets to feel the Fed is doing something and therefore Twist 2.0 may be just the ticket.

In previous rounds of QE benefits were double edged, as one can never fool the markets. There was ‘good’ inflation (high prices for equities, corporate bonds, remember: will the Dow hit record high in 2011?) making the rich richer, so to speak, and then there was the collateral damage – ‘bad’ inflation via surging commodity prices – making the poor poorer.  This is of course how the Fed steals for the 1% and the logic, which explains how the Fed triggered the Arab Spring.

While both QE1 and QE2 became intensely controversial Operation Twist, aside from the dubious name, looks to become the preferred method of intervention.  Forbes reports on the upcoming FOMC meeting with regard to the latest limping economic numbers:

“Barclays Capital called Operation Twist ‘the most likely outcome,’ saying it would give the Fed more time to sort out whether recent softness in data is mainly ‘payback’ for hiring during a warm winter or a more prolonged slowdown. ‘If the latter is the case, then more outright asset purchases that expand the balance sheet (QE3) would become likely,’ Barclays said.”

To be sure, as the frequency of crises increase moves like Operation Twist allow the financial engineers to manipulate the economy without having to deal with the underlying causes of addicting entitlements, long term debt and growing corporate malfeasance (got Zucked lately?) and without addressing public concern over persistent and reckless intervention.  But again, nothing changes, Operation Twist is a shell game as much as everything else the Fed attempts. 

The political calculation here, however, is important.  Should Ben “Bubbles” Bernanke go on a printing spree, say by injecting a cool $500 billion, look for Obama to win in November.  If the Fed doesn’t it may harm him according to Gary Dorsch writing for Seeking Alpha:

“Without the artificial life support of QE3, the U.S. stock market could sink ahead of the upcoming election and torpedo Mr Obama's chances. On the other hand, a $500 billion printing operation could lift the Dow Industrial above the May 1st highs, and tilt public opinion in favor of the president over his Republican challenger.”

This would undoubtedly raise Republican ire like no state recognized gay marriage or stimulus bill could and would likely fuel a harder line conservative (sound money anyone?) to take place of a lukewarm Romney in 2016.  The Federal Reserve doesn’t like attention and especially the pesky kind from sound money conservatives like Ron Paul.  Not doing anything that would help Obama will sap any animosity a resurgent and victorious GOP harbors for the Fed in November.

The alternative is of course, Twist 2.0 or perhaps another series of secret European loans or some derivative thereof.   If the Federal Reserve can lay the economic turmoil entirely on Barack Obama’s doormat, which Republicans will happily aid, Ben Bernanke and crew are as usual in the clear.  Suffice it to say that has always been the magic of the Federal Reserve – out of sight and out of mind of the electorate.

NATO's Ring of Fire: The Western Flank and Russia

Topher Morrison

PurpleSerf.com

When it comes to the growth of domestic government it may be arguable that administrations of either Democrat or Republicans pursue different agendas, albeit usually revolving around the prevailing social issues of the day.  When it comes to foreign affairs, however, there is a seamless continuity of agenda aimed at maintaining and growing – American hegemony.

In foreign affairs at-large this American influence leads an Anglo-European coalition through its military arm – NATO.  It should be clear, however, that when NATO acts it is invariably at the behest of U.S. interests as it “contributes between one-fifth and one-quarter of NATO’s budget.  In FY2010 that contribution totaled $117.8 million…But that factors only direct payments, not deployments of personnel,” reported CBS News last year.  U.S. equity in NATO has been concentrated even more as European member nations’ contributions shrank by $45 billion over the past two years due to fiscal turmoil.

Nevertheless, NATO and its 28 member countries flexed their collective muscle last month during their summit in Chicago.  NATO announced its first step toward implementation of a ballistic missile shield, to be deployed in four phases by about 2020, sending clear signals to those not in the Club – namely China, Russia, Iran and North Korea – that amid growing security threats NATO is ready to counter any potential aggressor.  According to a statement released by NATO leaders:

"We have declared an interim ballistic missile defence capability as an initial step to establish NATO’s missile defence system, which will protect all NATO European territories, populations and forces against the increasing threats posed by the proliferation of ballistic missiles…”

Given the current threat of asymmetrical warfare from non-state actors it seems as though conventional confrontations may not be a thing of the past.

This is a layout of just some of the players involved in the Sino-Russian
containment zone NATO and the U.S. are attempting to install.
The real containment sphere, as it were, is 4-dimensional incorporating
land, sea, air, space, and the internet.

Western Flank, Europe

The U.S. and NATO now have bases and/or military operations in former Soviet spheres of influence: Poland, Hungary, Bulgaria, Romania, Lithuania, Estonia are among those little known.  Moscow, understandably rejects the idea that the NATO missile shield in this area is merely for Iran.  Russia offered to operate the missile shield jointly with NATO, but was dismissed by the alliance revealing the ruse for what it is.  NATO’s secretary general Anders Fogh Rasmussen called Russian “concerns groundless.”

Before NATO leaders met last month Russia threatened to strike the NATO missile shield should progress continue.  Despite the threats, NATO’s deputy secretary general, Alexander Vershbow, told the conference last month the shield is "not and will not be directed against Russia" and that Russia's intercontinental ballistic missiles (ICBM) are "too fast and too sophisticated" for the planned system to intercept.  If this is true, NATO countries will be even more vulnerable as Russia recently tested a new ICBM, which according to the Russian military improves its ability to overcome current or future missile defense systems.

Western Flank, The Middle East

It has been the plan since 1991, soon after the fall of the Soviet Union, to have the U.S. infiltrate – diplomatically or otherwise – its former client states right up to the Russian motherland.  The plan, referred to more appropriately as a “foreign policy coup,” was revealed by Gen. Wesley Clark to an audience in California in 2007.  He claims Paul Wolfowitz, then undersecretary of defense, told him that the U.S. has 5-10 years to "clean up those old Soviet client regimes, Syria, Iran, Iraq, before the next great superpower comes on to challenge us."

In 2001, the timetable was given an extension after the attacks of 9/11.  While visiting the Pentagon, a classified strategy was revealed to Gen. Clark that the U.S. planed to dismantle and replace the governments of seven nations: Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran.  Other than Iran of course, five of the seven governments have already been deposed.

Somalia remains in the throws; corrupt, occupied by a coalition of African armies, fending off fundamentalist factions and offering little more than 21^st century pirates.  Lebanon was coaxed into uprising in 2006 through a sophisticated “color revolution” strategy piloted successfully by the likes of the U.S. government funded National Endowment for Democracy (NED) – a sort of social CIA.

And Syria as we have documented in detail is in the midst of a dangerous foreign backed insurgency focused on delegitimizing the Syrian government in the eyes of the rest of the world.  Should Syria fall, Russia will lose its only direct ports of access to the Mediterranean – Tartus and Latakia.  As late as 2007 it was revealed the Russians were to re-establish a permanent naval presence in the Mediterranean through access to these new ports.  Needless to say, this alarmed many in Washington and Tel Aviv.

A brief by Stratfor.com, a private U.S. intelligence firm, offered this analysis:

“A Russian naval presence off the Syrian coast could allow Syrian president Bashar al-Assad's regime to better inoculate itself against a potential attack by the US or Israel ... The Russians would be offering an attractive insurance policy."

Recognizing western efforts to deny Russia this access reveals that the Syrian “civil war” is really a microcosm – or if its allowed to succeed, a prelude – of World War III.  There are no less than seven countries involved in the hostilities in one way or the other and because of it Russia has recently buttressed the Assad government and Russian strategic interests with new attack helicopters, weapons and advisors.  Secretary of State Hillary Clinton and the Pentagon, least to say, have not welcomed the move.

Western Flank, Central Eurasia

The U.S. and NATO now have bases and/or military operations Uzbekistan, Tajikistan, and Kyrgyzstan among other Central Asian states including Georgia where U.S. forces are training their military.  While all these young, recently emancipated countries, are ostensibly democratic there has been evidence of rampant corruption, rigged elections and ethnic strife as can be expected from a region carved up quite arbitrarily.

The U.S. has nonetheless embraced whatever system these post-Communist orphans have come up with as long as they didn’t run back to a resurgent Russian Empire.  Afghanistan might also be included as one of these former Soviet states, but of course only for a brief period as the USSR was rebuffed and sent packing after its botched invasion during the 1980s.

The U.S. and NATO have been in Afghanistan for over ten years now.  Detractors scratch their heads and wonder why the U.S. would be sucked into another Vietnam, mired in scandal and setbacks.  Some call it a quagmire, however, a sober assessment might conclude we were never intended to leave.  Afghanistan, amidst this vast containment strategy is an ideal outpost.  It sits atop trillions of dollars of mineral reserves, a crossroads for oil essential oil pipelines and offers a perfect peak into Russia and China.

Since NATO hasn’t been the best houseguest, killing hundreds of civilians and military personnel in the most aggressive drone war to date, Pakistan is no longer willing to serve as a NATO supply conduit.  NATO and the U.S. military will now use a “reverse transit” through three former Soviet satellites (Kazakhstan, Kyrgyzstan and Uzbekistan) to ship military equipment out of Afghanistan bypassing Pakistan altogether.  The move is purportedly six times more expensive.  Whether this is a bonafide exit route or merely a way of creating better partnerships closer to Russia remains to be seen.

What is clear is that Pakistan serves a similar role to China as Syria serves Russia – naval access.  While many are talking about Syria few are talking about the fact the Pentagon admits the U.S. is at war in Pakistan.  While the cover story is of course the favored fiction – Al-Qaeda reigns in Pakistan – groups, which are funded by staunch pro U.S. allies Saudi Arabia and UAE, the ultimate goal is denial of access as much as it is in Syria.

The Wall Street Journal reported last year that the Port of Gwadar, in coastal Balochistan region of Pakistan, is scheduled to be the latest in China’s “’String of Pearls’ wherein China has also funded construction or upgrades of ports in Sri Lanka, Bangladesh and Myanmar,” a stratagem aimed at strengthening economic ties, securing access to crucial resources and projecting force into the Indian Ocean, Arabian Gulf and the African Continent.

As the U.S. exits (at least publicly) its relationship with Pakistan, China is taking over.  In addition to the Port of Gwadar China sees the Iran-Pakistan pipeline, the Turkmentistan-Afghanistan-Pakistan-India (TAPI) pipeline as vital to its economic health.  To this end China has delivery of 50 JF-17 fighter jets, a unspecified number of 4,400 ton frigates, submariner training and possibly China’s more advanced FC-20, also known as the J10, but details are thin.  In the final analysis Balochistan has been and will continue to be the victim (like Syria) of subversion, destabilization and political sabotage, "a nexus," writes Eric Draitser at Stop Imperialism, "the point at which diametrically opposing strategic interests converge."  These are the typical tools of the realist school of geopolitics.

Part II will cover the South China Sea, the South Pacific and India, the Asian linchpin.

Escape from EU: Rise of the 4th Reich

Topher Morrison

PurpleSerf.com

Where is Snake Plissken when you need him?  Greece is in shambles.  Spain is on the brink and the planet is on the verge of realizing it never recovered from the last recession.  Japan evidently already realizes it as Tokyo’s stock market hit a 28-year-low today, New York will undoubtedly react.  While some in Europe are rallying jittery technocrats to centralize and unite, reason urges otherwise.

The New York Times reports:

“Mario Monti of Italy called for using euro bonds to create a quicker path to common debt for Europe. And Mariano Rajoy of Spain floated the idea of a common fiscal authority in Europe to synchronize budgets and manage debts.

German policy makers have said that kind of deeper budget integration and supervision is a prerequisite before any sort of euro bonds could be issued.”

This process, to embolden Brussles, is estimated to take between five and ten years, but the wonderful thing about a crisis is its ability to motivate.  To be sure, whatever happens will happen soon.  George Soros predicts three months and Joschka Fischer, Germany’s former vice-Chancellor, gives EU leaders two weeks to save the project.

Either the EU will crumble beginning with Greece’s departure on June 17^th after their elections and return to the Drachma (test trading since last week) or a more powerful central government in Europe will emerge.

If this sounds a bit scary it should.  Spain’s Rajoy urged the 17-nation union to “cede more sovereignty” to a central fiscal authority and parroted the European Commission’s call for a banking union with a single regulator and deposit guarantee fund.  Joining the pro union chorus is also new French Finance Minister Pierre Moscovici: “We need to go toward a banking union,” he said on RTL radio.  With that the socialists are officially on board in Paris.  The thing is who has the money to put where their mouth is?  Not Rajoy.  Not Monti.  Maybe Moscovici, but Germany on the other hand…

Given the current crisis Soros sees a possible 4^th Reich ahead, “a German empire with the periphery as the hinterland,” he said.  While CNBC says this was a “warn[ing]” from Soros his statements clearly suggest he wrestles with little misgivings on the prospect.

With northern creditor nations bailing out ailing Spain and Greece, Germany is effectively at the helm and Soros knows it.  “We need to do whatever we can to convince Germany to show leadership and preserve the European Union…the future of Europe depends on it,” said Soros, reports Bloomberg News.

If you listened to Mosocovici the entire planet depends on what happens in Europe and therefore how Germany plans its next move. “Let’s not delude ourselves: If the euro falls apart, so will the European Union, triggering a global economic crisis on a scale that most people alive today have never experienced,” he said, reports The Daily Telegaph.

In a way he might be right, the world is walking a tight rope finer than frogs hair.  US employment numbers are wilting, a fact Obama “lays at the feet of European leaders.”  Brazil, China and India all see anemic growth.  Iran has been writhing in hyperinflation since at least January with fresh sanctions taking their effect at the beginning of the month and the rest of Middle East on perpetual red alert with Syria in the throws of civil war.  To top it all off the first world isn’t setting any kind of example. The OECD club is at a record average public debt of 106% of GDP and the red flags in bond markets couldn’t be raised higher:

“German 10-year Bund yields closed at 1.17pc. The two-year notes turned negative. British Gilts closed at 1.53pc, the lowest in 300 years. US Treasuries fell to 1.45pc, lower than at any time during the Great Depression.”

Greece is aflame with persistent protests, Cyprus isn’t looking good, neither is Portugal and Italy’s ex-premier Silvio Berlusconi claims his “people are in shock.  Confidence has collapsed. [And they] have never had such a dark future.”  The Daily Telegraph’s Ambro Seevans Pritchard agrees:

“Indeed, the jobless rate for [Italian] youth has jumped from 27pc to 35pc in a year. Terrorism has returned. Anarchists knee-capped the head of Ansaldo Nucleare last month [and] Italy’s tax office chief was nearly blinded by a letter bomb.”

If the real politik lesson holds – let not crisis go to waste – who will pass this global opportunity up?

Should history provide us prologue as it often does.  This is exactly the time when the fearful and insecure turn to anything for security.  With these nations biting their nails strength will need to come from somewhere, lets hope it comes from independence not unity.  Perhaps this is a time when Germany should exit, followed shortly by France and allow the EU to stand on its own for what it is, “a valueless and physically unattractive monument to the hubris of bureaucrats who valued an economic ‘system’ over any actual economies,” writes Tim Cavanaugh of Reason.

The European experiment has failed.  Attempting to prolong the endeavor will only beget more crises down the road.  Individual states should stand on their own, go through the necessary withdrawals and kick the bailout addiction and let the pusher banks sucker some other region.  Let not your hearts be troubled, if the euro is destroyed it will be scary, but we’ll all be the better for it.

It is interesting to note, however, with all the buzz talk about the zombie apocalypse and 2012 how fitting it would be to see Germany’s Angela Merkel leading her zombie states army into perpetual debt slavery.