Wednesday, January 13, 2016

A Quick Run Around the Web--January 13, 2016

Isis suckling Horus

Here at TAI, we have been following the commodity crash story for some time—and not just as a piece of economic news mostly interesting to financial market speculators. This is a political and a geopolitical story as well. Falling commodity prices matter to everything from the security of Putin’s power base to the ability of the oil-dependent Nigerian state to wage an effective war against Boko Haram; the fate of democracy in countries like Brazil and South Africa is complicated by the prospective fallout from the commodity crash; Venezuela may implode into chaos as a result of the oil crash, and fears for Venezuela’s future were a major consideration in Cuba’s decision to respond to the Obama Administration’s normalization overtures. In other words, significant shifts in world commodity prices can tilt the balance of power, undermine the stability of some governments, and boost the prospects of others.
    But the story may be getting still bigger. We may be looking at something more serious than the unwinding of a commodity boom; we may be looking at the bursting of a bubble that could dwarf what happened in 2008. The China Bubble is bigger than the real estate bubble, and its liquidation could pose bigger risks for world politics than the subprime implosion.
      There’s a difference between China and the China Bubble. China is a middle-income developing country bumping up against the limits of a growth model built on massive exports of manufactured goods. There are lots of bubbles inside China, largely because both national and local governments have pursued a mix of stimulative policies even as the health of the underlying growth model deteriorated. Massive over-investment in real estate, infrastructure and manufacturing capacity, overvalued stock prices and poorly priced financial assets have created an increasingly toxic and dangerous economic situation inside China, and a rattled government is doing its best to keep the system from imploding. The government is hoping to achieve a “soft landing” as China switches away from growth led by manufacturing for export to growth led by services and internal consumption. We shall see; China’s regulators and managers are skilled and have a lot of ammunition. But this is a difficult maneuver to execute and as Chinese society and the Chinese economy both become more complex, the task of running the country keeps getting harder.
        The China Bubble on the other hand is an international phenomenon. All over the world, the producers of commodities and manufactured goods have bought into the idea that Chinese demand is a perpetual growth machine. Producers of everything from cotton to copper to soybeans to silicon chips have assumed that double digit growth in China’s appetite for the components of its industrial machine will continue indefinitely—and they have invested to create the capacity to match this inexorably growing demand. From the jungles of Africa and the backwoods of Brazil to the rice paddies of Thailand and the Australian Outback there have been massive investments in mining, agriculture, energy production and infrastructure that assume continuing and even accelerating growth in Chinese demand.
          These investments, the excess capacity they represent, and the stocks and bonds dependent on these investments (both inside and outside China) are what the China Bubble is about.
            The Chinese government may or may not succeed in stabilizing the economic situation there, at least for now, and Beijing may or may not succeed at avoiding the dreaded “middle income trap” in which formerly rapidly growing developing economies hit a wall after reaching a certain level of per capita prosperity. And the inevitable deceleration of Chinese growth that comes with the transition to a less export-dependent economy may or may not result in a financial crash inside China. But whether or not China’s economic planners execute their new strategy effectively, the China Bubble is going to burst.
              That is to say, if China’s economic managers fail, the financial system implodes and China faces a wrenching transition and a hard landing, the massive global investments built to sustain China’s manufacturing growth will fail—dramatically, suddenly, and expensively. But even if China’s economic managers succeed, and the country moves to a soft landing with growth still strong but increasingly based outside manufacturing and the export economy, the global investments predicated on China’s continuing hunger for the commodities and components it needs for a manufacturing export boom will also fail.
              • "Stand by for Collision"--Richard Fernandez at PJ Media. Fernandez explains that it is too late for Europe to easily resolve the immigrant crises because they are caught in a flash-flood, from which they are only, just now, witnessing the first trickles:
                In belated mea culpa former senior adviser to president Obama Dennis Ross at last took his boss to task in an article titled: "How Obama Created a Mideast Vacuum". It's too late Dennis.   What "too late" means was driven home years ago when one of the volunteer members of the Philippine Airlines cadaver recovery team described an accident which took the lives of 5 members of a university mountaineering club.  The party was trekking along a dry riverbed on the lower slope of an 8,000 foot volcano in Mindoro.  The weather was fine and the mountaineers were doomed.  Unknown to them a squall had dumped a slug of rain on the peak high above them.  The first warning they had of oncoming tons of water was a rumbling sound round the corner of the gorge.  Then the flood came and only those fast enough to clamber up the riverbanks survived.
                  In the same way the present calm in Europe can be deceiving.  Even if its leaders were somehow to reconstitute its borders, a  gigantic flood from that vacuum upstream of the old continent is already rushing with irresistible force upon it. The UNHCR says refugee numbers are expected to increase in 2016. Some estimates say as many as 10 million more are on the way.  From the beaches of North Africa to the overcrowded camps in Jordan and Lebanon; from every nook and cranny in MENA -- they are on the way.  One way or the other a terrible smash is now in train.
                    There remains the belief that Western leaders can still fix this problem with a little tweaking.  But the time for easy action has passed.  The Golden Hour in which to prevent irreversible damage has lapsed, neglected by a Washington too sure of its own fantasies to act decisively.  Now the storm has broken and  Merkel is downstream of a dam opened by the policy of "leading from behind".  The valve with which Obama had hoped to shut down the Islamic civil war has been turned the wrong way to full open.  Worse, the wheel has broken off in his hand and he is staring at the snapped spindle.
                      That human tide of misery will combine with the denial which this generation of Western leaders are capable of to produce a separate catastrophe, still in the future, itself foreseeable, which can still be avoided.  If only ... if only... those who missed the chance the first time now wake up to act this second time.
                        Yet as Friedrich Hegel once observed what history teaches is that humanity learns nothing from history.  Our Tower of Babel is helpless to save itself.  Ironically if Europe survives it will be on account of the ghosts: in the remnants of the culture the left has come close to killing;  the providence of a God they no longer believe in;  the stirrings of memory of a nation they have doomed to oblivion; the struggles of a half-remembered honor we are told to disown.
                          The fact is, for West to survive, it must become something other than what our PC leaders have tried to make it.  For it is written that "the stone that you builders rejected has now become the cornerstone."  It's poetic justice to be sure but we have to accept the justice if we are to save what's left of the poetry.
                            In short, while the North Koreans have been thinking big — claiming to have built a hydrogen bomb, a boast that experts dismiss as wildly exaggerated — the Energy Department and the Pentagon have been readying a line of weapons that head in the opposite direction.
                              The build-it-smaller approach has set off a philosophical clash among those in Washington who think about the unthinkable.
                                Mr. Obama has long advocated a “nuclear-free world.” His lieutenants argue that modernizing existing weapons can produce a smaller and more reliable arsenal while making their use less likely because of the threat they can pose. The changes, they say, are improvements rather than wholesale redesigns, fulfilling the president’s pledge to make no new nuclear arms.
                                  But critics, including a number of former Obama administration officials, look at the same set of facts and see a very different future. The explosive innards of the revitalized weapons may not be entirely new, they argue, but the smaller yields and better targeting can make the arms more tempting to use — even to use first, rather than in retaliation.
                                    Gen. James E. Cartwright, a retired vice chairman of the Joint Chiefs of Staff who was among Mr. Obama’s most influential nuclear strategists, said he backed the upgrades because precise targeting allowed the United States to hold fewer weapons. But “what going smaller does,” he acknowledged, “is to make the weapon more thinkable.”

                                    Making smaller, "tactical" weapons, is the only way to make nuclear weapons usable. Large nuclear weapons--the giant megaton weapons developed during the Cold War--have only a limited use for existential threats. For instance, the U.S. would only use its current arsenal if it were faced with a massive nuclear attack from another country.  Smaller devices allow nuclear weapons to be used in a battlefield setting, such as stopping an armored formation, or a flotilla of ships. Small nuclear weapons are by far more useful and we should be developing and stockpiling them.
                                      The United States tried to fight guerrillas and terrorists as if they were modern states with their own industrial military organizations protecting their industrial core. This tactic made no sense in Vietnam or even Iraq because that wasn't the enemy we were facing. But states are built to fight other states. Tribes are built to fight other tribes. Religions are built to fight other religions.
                                        The modern multicultural super-tolerant western state of this century takes stock of its strongest point, and decides that it's not the old industrial machine, which destroys the environment, its traditional heritage, which is problematic, or its problem solving skills, which are too technical, but its values of super-tolerant multiculturalism. And so it wages war on those insane terms.

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