The Garden of Finzi Contini & The Praetorians

It was hard if not impossible for Churchill to conceive of political realities outside the commanding heights of imperialism.  Its writ had no hold on Ireland nor India.  It fell to Truman after Roosevelt to politely admonish him to conceive of policy or military strategic aims in any British framework.  When Eisenhower threatened to kill the pound Sterling during Suez, the British knew the trajectory of Empire was really over.  England has never really recovered from this reality.  It has never supplanted any regime to replace what imperial writ gathered unto Whitehall.

The immediate future for England is dark.  Here’s why.  Having an unwritten Constitutional order will tether England’s identity to the dominant factions of Islamism.

Our own founders implicitly knew the dangers of not having numerated rights.  England’s Brexit is the run up to an all encompassing conflict fraught with national suicide.

When Thatcher summoned that British socialism was a perennial threat to any sound comity, she registered a policy, a social insight that enemies at home were always stronger than the near or far abroad.  The IRA in Belfast new it, so did Gorbachev. And still she won. This calculus is nearly impossible for British leadership to duplicate.  Unless. . . unless London heed to the moral compass laid out by John Paul II.  Without a return to policy that would affirm the moral foundations of liberty, the unenumerated English Constitutionalism will not be distinguished from Islamic ethics.  Having no recourse outside either positivism or flaccid pluralism, British relativism has no resolving center to envelop and defeat Dawa.

Only a Tocqueville or Solzhenitsyn can help now.

Arnold Toynbee wrestled with the components of this reality when he asked ‘what is the criteria for growth?’  His twelve volume set of A Study of History laid out the answer:  the criteria for growth is self-determination.

Nation states that hew their governing institutions to a Judaeo-Christian heritage have an advantage.  They have the moral framework to acknowledge both individual identity as the source underwriting civil society.  This isn’t a reality Islamic Civilization acknowledges, and it remains a permanent fault line for Islamic polities.

For contemporary nation states in thrall to both domestic and transnational threats, the question looms large; what secures governing institutions from confronting emerging threats?  The answer is growth as stasis.  Growth prevents dominant majorities from having to do the difficult work required to coalesce leadership.  Statesman know this, its what defines them as perennial.  Expansion serves the requisite opacity securing a fatal dissonance.

This is glaringly evidenced with the Islamic State, but there remain more prominent examples of this reality.  Once could just as easily choose Egypt, Saudi Arabia or the United Arab Emirates.  In fact, the UAE is the prime example of a nation state openly thwarting growth through expansion.

The ancient Swahili port of Berbera, just south of Djibouti (pronounced Jah-Booty) in Somaliland resides as the center of east African trade into Arabia.  It currently houses both Chinese and American listening posts.  Now the United Arab Emirates, an arriviste of sorts has emerged to underwrite Emirate geopolitical ambitions, much to the consternation of Saudi elites.

Possessing a homogenized social base and profound oil wealth, UAE officials are expanding after having failed to secure the Islamic State in Mesopotamia.  ISIS was originally financed by Dubia and Qatari autocrats.  Embarrassed at having to acknowledge identical foreign policy craft as Riyadh, it now seeks to finance and open nationalized ports throughout the southern tip of Saudi Arabia, linking the Swahili East African cost to ports moving east along the Indian littoral of Yemen, Oman & Iran.  The southern rim of Arabia is now linking old port cities of Limassol and Benghazi eastward toward the trans-Sahel.  Rapid port expansion in Chabahar in Iran, Duqm in Oman and King Abdullah Economic City in Arabia all pose stark social, governing challenges for each regime.  Delivering economic growth isn’t going to happen without profound transformation of each ports political economy.

The pursuit of regional influence is heavily dependent on myriad factors outside the control of any political center.  East African trade routes were always heavily dependent on human trafficking into Arabia from East Africa, now the Saudi’s have to incentivize a lumpen social base unwilling to work.

The expansion of UAE throughout the Arabian littoral demonstrates a profoundly interventionist regime unstable and unanchored to any coherent policy of a Westphalian nation state.  Being the world’s largest importer per capita of arms, Emirati’s are becoming proxies for Riyadh’s bid to outmaneuver Tehran.

We must wait to see if the old Sultanate of Oman and Zanzibar can compete with Quods.

The Garden of Finzi Contini is a story about a wealthy Jewish merchant family residing in Italy before the Great War.  The plot resolves around the profound dissonance imparted on the Contini family as an idyllic facade crashes down on the imperial writ.  If Downton Abby had any antecedent, its the Garden of the Finzi Contini’s.

The impending doom of the Praetorian class is upon us.  What will Islamabad, Riyadh, Dubai, Aden do?

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Failure. What Milton Friedman & Hayek Are Teaching ‘The Collective’ Today

The State of New York just made every State, City College & University FREE as of the fall of 2017.  We know from Milton Friedman’s achievement in monetarist thought that the fall of Communism, the collapse of collectivism was due to the inability to procure meaningful price signals.  Without rules governing the social interaction between free peoples, the entire ideological edifice collapsed.

The last chancellor of The City University of New York decried the time (decades) it took to turn around a famed institution that used to house more Noble laureates than any other teaching institution throughout the world.  All that came collapsing when politicos in Manhattan wanted to ‘adjust‘ the unemployment rate in the early ’70’s’ to accommodate a political class unwilling to address anti-war protestors culminating throughout the urban East coast.  Witness the late, great Elie Wiesel, having been accosted by students attending his lectures in the parking lot of numerous City University Colleges, he and several other laureates abandoned CUNY (City University of New York) for Boston University.

An identical reality is currently engulfing Venezuela and Saudi Arabia.  Having spent their entire lives pampered by a single achievement of oil, both nation states are collapsing.  It is obvious where Venezuela is going, possessing 1,600% inflation, a distorted political economy remains in a death spiral that is consuming both its leadership and population.  By any reckoning, nearly 75% of its population has lost weight from food scarcity.  We should remember this distinct Malthusian famine, for its origin isn’t found in civil wars, genocide, or sectarian conflict.  Venezuela did this to itself!  A few decades ago Venezuela was in prime condition, often resented by other larger nation states, having its geopolitical orbit waver into Cuban territory, Venezuela always seemed to have pertinent leaders ground its institutions into functioning fiefdoms.  With the collapse of oil prices and a powerful northern neighbor exporting refined indigenous petroleum, Venezuela’s entire political economy as a nation state is unraveling fast.

Caracas is a specialist.  This means they operate under distinct conditions.  If these operating conditions change, the entire edifice dies.  Like Neanderthal’s, they were unstimulated because functioning empirical factors either didn’t exist or weren’t acknowledged.  When the environment changed, they died.  Venezuela’s entire economy is built on exporting oil.  Prior to the collapse of western economies in 2008, Caracas was awash in dollars.  Without adjusting its currency regime to float, the bolivar remained tethered to a dollar standard unanchored to any functioning reality.  Just ask Comrade Mugabe.  Its Zimbabwe all over again.  Without adjusting the bolivar to fall, every sinew broke in accommodating a cognitive dissonance that eventually led to today’s collapse.  Fiscally, when imported dollars became scarce, the bolivar ceased functioning; having no medium to procure price signals, Venezuela is dying.

Prior to Maduro, under Chavez, importers could swap bolivars for greenbacks, by tightening government control of dwindling dollar supplies, Venezuelan imports dried up, prices soared, dollars disappeared and black markets soared.

The entire problem is predicated on dependency.  Economic dependency has wrought an inability to function.  Enter the House of Saud.  Its current liberalization scheme isn’t serious policy of introducing Riyadh to western norms, its an accounting scheme to keep the ruling house in power.  McKinsey & Companies blueprint ignored both Friedman and  Tocqueville, no mention of the requisite Judaeo-Christian cultural foundations needed to underwrite functioning markets.  Anyone with a modicum of working knowledge of capital markets knows that positivist knowledge masks the theology, the moral foundations of liberty that remain the sine qua non that is the West.

Most nation states just build up reserves of hard currencies for future use, some procure sovereign wealth funds to siphon off profits from other capital markets throughout the world; everyone knows that the ruling House of Saud has permanently moved its monies offshore.  Nevertheless, the moral, social capital baseline of both the Saudi’s and Venezuela aren’t diversified.  Their collapsing while in the process of diversifying.  Under Chavez, spending crowded-out growth in foreign exchange reserves.  This is Beijing’s plan under One Belt – One Road; it seeks to bankrupt America’s privilege of being a reserve currency.  China wishes to mimic in positivist fashion, the ascendancy of western norms.  It will fail. Like Nigeria under president Goodluck Jonathan, the dominant political class robbed governing institutions, leaving them permanently undercapitalized.

Is America’s capital base eroding under the pall of entitlements?  The only thing saving the American regime is our exorbitant privilege; but this too isn’t enough. . . Like the Saudi’s, Venezuela’s political class sought to buy-off all rivals and political threats.  Now that too has ended. The U.S. under Obama’s administration sought the overt expropriation of civil society in distributionist regimes that sought to overtly identity a particular social lumpen and pit them against other citizens.  This careless mismanagement is currently unfolding before us, with rising geopolitical costs.

With every opportunity squandered, the Saudi and other export dominated regimes like Venezuela are exhausted in their reach, their need for security.  Its all told in their desperation, their willingness to field and accept long-run risks in exchange for short term fixes.

Shakespeare was right, when the King lay dying, the clowns cash in.

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The Political Challenge that is Irak

By any stretch, the last eight years was a disaster for U.S. Mesopotamian regional policy. Being handed a win in 2008, the Obama administration felt that its own ideological preference for appeasement was ratified, even though that policy sentiment was never fielded to the American public for exposure.  Having plowed ahead without ever seeking approval, team Obama’s idealism erased the blood and treasure sunk into Irak procuring fragile yet definitive national unity leading up to 2008.  With Anbar province secure, Irak’s three main divisions of Sunni, Shia and indigenous minorities felt secure by American suzerainty.  But it never lasted.

It has been said that the most difficult terrain for any wartime executive is the management of alliances.  True enough, but American progressive leadership under team Obama thwarted reality until it buckled.  Having shielded both the American public and his own political domestic coalition, Obama sought cheap wins, and he got them with drones, contractors and special operators.  It barely did the job, but that’s all team Obama ever wanted.  Eight years of non-existent leadership has wrought numerous crisis’ worthy of our best efforts.  This time though, U.S. leadership may have no winning hand to procure.  Strengthening our threat deterrents maybe our only effort in Mesopotamia.

Irak was always marked by extreme social, ideological, theological divisions.  What the Obama administrations policy did was exacerbate each aggregate harnessing the Iraqi political economy.  Emerging splits between varying dominant social, ethnic, even theological camps is bewildering Tehran.

What the American progressive left handed Mesopotamia was a gratuitous opportunity harnessed by Iran.  Moving west in a concentric movement enveloping everything, the Iranian Revolutionary Guard has sought imposition of its writ all the way to the eastern Mediterranean.  A gift Tehran recognized and moved quickly to consummate.  Having enveloped its arch rivals of Riyadh and Jerusalem, the Iranians arch of history extends well into South-Central America, the Balkans and most of Mesopotamia.

Now comes the hard part.  Governing.  Irak today is splintering in ways difficult for U.S. war planners to engage.  Having witnessed collapsing U.S. deterrence for nearly a decade, Iraqi ethnic groups have openly sought to counter Tehran.  What we’re witnessing is the opening salvo of civil war.  The geopolitical gains of Anbar have no currency anymore.  To get a game changer, the American’s need to do what they’ve always sought to evade:  openly confront Iranian theocrats.

Churchill once remarked that the funny thing about the American’s is that they’ll try everything first; then they’ll do what needs to get done.  We’re at that place now.

The fracturing of Mesopotamia cannot be favorably resolved without eliminating Iran.

The ugly truth is this:  we’re only going to build requisite alliances when we take off the glove and begin unleashing HELL upon Iran.  Short of that, they’ll grind us up.

The American’s have near permanent allies throughout the region.  But Kurds, Israeli’s, Sunni’s and others too numerous to mention are waiting; measuring the American hand.

Let’s not keep them waiting any longer.

Next stop:  Pyongyang and Tehran.

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JOURNEY: Steve Perry, the Hall of Fame & the Price of Growth

Today in Brooklyn, JOURNEY was inducted into the Rock ‘n Roll Hall of Fame, for most fans the wait of eternity lifted and walking out on stage was an era that for most is unrepeatable.  Cleary, on stage for the first time together since 1986, band members each spoke, it fell to Perry to speak last; clearly the band members have reconciled in ways untouchable to those outside their immediate family.  What I saw was a man completely reconciled to himself, his conscience and his craft.  A rare gift, if you saw it.

For months now we’ve been kept waiting, Perry’s representative never acknowledged if he would even appear and social media was alight to the possibility of a tour.  What was demonstrated today throughout the ceremony was exceedingly rare for our secular times.  A man moved on. . .

For those that don’t know, here’s the summary:  JOURNEY was by far the most successful musical group throughout the ’80’s.  Perry was working as a farm hand on his uncles Turkey coup when the call came.  Initially, the original band members rejected Perry’s vocal style and writing craft; until those members saw set record attendance in stadiums across the planet.  Each new release staggered previous recording achievements, Perry (lead vocals) arrogated to himself a plenary role of leadership that left fellow members confused.  In the end, his stardom and vocals carried him and JOURNEY to financial success.

This vortex ushered in a collapse that finally broke mid tour in 1986.

Immediately after the Great War, Arnold Toynbee gathered his belongings and boarded the Orient Express to Istanbul.  Upon waking in Thrace (ancient name for modern Macedonia), he conceived of a twelve volume study of the rise and fall of every civilization titled A Study of History.  The series would be completed shorty before his death in the mid 1970’s.  For Toynbee, the crisis of growth for civilizations is identical to individual identity.  The crisis of growth is resolved only in an act of perpetual self determination.  It is moral agency and its consequence that procures traits uninhabitable to the pre-crisis persona.

What was evident to me this evening was a reconciled adult acknowledging that to grow, he had to move on.

Bless the man and his conviction.

 

 

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The Moral Tragedy of the African National Congress

My aunt is buried in Botswana, I remember well the Soweto uprising and how South African security services were permanently aligned to Moscow’s geopolitical ambition to thwart, divide, disrupt the Atlantic alliance.  These were dangerous times, of Soviet subversion in Central, South America and throughout the Caribbean.  The soft underbelly of the American regime was always south of the border.  It remains so today.

My aunt was a Catholic nun, in third world nations like Africa the Church didn’t really acknowledge the non-aligned movement; it wasn’t that church officials ignored political realities, they openly sought accommodation.  But then the problem of John Paul II split wide open the dogmatic allegiances of its religious orders.  The Jesuits were known to openly seek insurrection throughout the Caribbean, and Central/South America.  The ideal of a Christian revolutionary was real.  And so was John Paul’s ambition to break the Warsaw Pact.

This story of insurrection, insurgencies and restoration isn’t well known.  John Paul II won Poland but lost most Spanish dependencies in the Americas.  The fault line that was El Salvador still burns today, even though Reagan won that terrible battle.  The world longest genocide remains Guatemala, it began under the Eisenhower administration and ended with Clinton; that rage consummated more lives than any other civilian conflict in the world.  Still, John Paul’s legacy remains intact, even if Vatican religious orders strayed.

The story of South African apartheid is just as ugly as the Vatican’s role in moving German Nazi’s after the war to new homes throughout South America.  The reasoning is simple:  the German Reich’s foundation was always thought of as conservative by European standards, while Russia’s growing atheism threatened all established order.

In the United States today and throughout the west, Russian Communism is depicted as benevolent because in distinguishes itself from the racial foundation of German fascism. But no one should be surprised to acknowledge the incipient social relation between Catholicism and European fascism.

Which brings me to Zuma and the African National Congress.

The embattled president (Zuma) has been hanging on to power for months; his entire presidency resembles Clinton’s; sordid tails of corruption, nuclear and fiscal deals with Putin, overt blackmail of colleagues, the wholesale moral depravity is well known throughout African political economies.  What isn’t well received is the moral reserve that was given under Mandela and de Klerk.

The truth here is a very difficult one to acknowledge in South Africa, but it is playing out throughout other political economies throughout the world.  Incompetent governance underwriting profound moral folly.  Zuma is likely to survive, why?  Because the mandarins in South African politics conceive of their writ outside the moral reserve hued by Mandela.  It will take another generation of African leadership after Zuma before a true African solidarity emerges, and when it finally does, we should pray it NOT salvage those unfit to serve.

In our rage, we should only admonish ourselves knowing how vengeance is reserved for the Crucified one; and just as the Father demanded payment for sin on Good Friday, the Lord shall have his vengeance among those who were favorably positioned and openly fell short.

Don’t pray for Zuma, and don’t pray for peace in South Africa.

Pray for African leadership worthy of Mandela’s & de Kirk’s political solidarity.

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Beijing’s Mercantilist Regime

Beijing wishes to sustain its side of the U.S. – China bilateral relation, Beijing cannot afford to find itself alienated because it cannot replace an American partner.  Beijing also has to recognize that it has already implicitly declared war against America.  Masking that reality will require a deft statecraft worthy of any real challenger.  What remains to be seen is how well Beijing is willing to push the American’s.  Look for changes throughout the Pacific periphery in North Korea, Australia, Japan and the southern tier of Southeast Asia, for Beijing’s limits are exposed throughout this ring of fire.

Having hired Peter Navarro to lead the National Trade Council will only expose the deft mercantile statism that has characterized east Asian political economies since Reagan.

Here’s the dirty little secret:  absent statism, the dynamism animating the Pacific rim would fall.  There are geographic reasons for this, but by far, the source of this crutch is human capital.  The political economies throughout the east Asian rim aren’t home to liberty.  They’ve grafted on export based regimes, usually by overt mercantile policies of subsidies, currency depreciation and overt favorable labor laws that the Unites States cannot duplicate.  This works for gross manufacturing, and service based economies, but not for the commanding heights of first world economies that thrive in nano-based technological breakthroughs in miniaturization, micro-biology, robotics and artificial intelligence.  The theological sources of culture are unfavorably exposed for Beijing.  They know it, that’s why government sponsored entities are running to invest in American capital markets, if only to offset current imbalances.  What Chinese leadership knows, is this:  trade isn’t the only show in town, there’s always foreign direct investment.

They cannot hope to compete with Hayek’s ‘extended order’.  Ask the Russians how that went.

With surging capital controls, China’s emerging middle class cannot swap its yuan denominated monies for dollars; if it should ever be able to do that, it would destroy China overnight.

Has anyone discerned how Lincoln kept European powers out of the emerging civil war?

He threatened to kill off England’s powerful cotton industry by not honoring massive British bond holders.  Here’s what Treasury knows:  the U.S. Federal Reserve is capable of buying more assets than anyone; if the boys in Beijing think they’ve got the upper hand in financial mechanics as statecraft, they should think again.  Beijing cannot dictate U.S. interest rates, nor the size or pace of Treasury auctions.  They remain wary of dollar volatility, why?  Because Chinese firms borrow heavily abroad, dollar denominated debt ratios are difficult for Beijing to manage.

Having covered their own financial exposure by heavily investing in American capital markets, the American’s need to push Beijing aggressively by enveloping Beijing from within, by waging preemptive war from Seoul, by out maneuvering Manila and establishing heavily fortified industrial bases throughout India.

If the American’s ever get serious about China we’ll do Reaganite tax reform tied to a Taylor monetary rule, effectively sinking Beijing’s ambitions.

The future trajectory of Beijing’s power doesn’t reside in its emerging middle class, it resides in U.S. domestic policy.

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The Nature of War & Contemporary Conflicts

It isn’t easy to discern the exact nature of emerging conflicts, however, those that grasp the interior social, political, even geopolitical components of conflict usually possess both the tenacity and fortitude to secure strategic clarity as war progresses.  This is significant because as a conflict progresses through time, it changes; having grasped emerging components early, one can discern trends of great strategic value.  When Clausewitz discerned four major components of conflict, he discerned that war has political, humanist and geopolitical components shaping the character of any conflict.

Why is this significant?

For decades, only a small handful of professional soldiers had the temerity to acknowledge what General Creighton Abrams experienced in Vietnam after Westmoreland; that the conflict in Vietnam was not three wars in one, but one conflict.  Albeit Abrams instinctively knew the changing character of war, his genuine war fighting intuition told him that Vietnam as a conflict was not properly understood by either the Army, the Joint Chiefs nor Defense or Pentagon.  Perceiving empirical insights as the sole positivist quality, the groupthink emerged that Vietnam was a communist insurgency, civil war and geopolitical chessboard, all in one.  Abrams proved otherwise.

Prudence and superior tacit knowledge is invaluable for officers residing in high command.  The only other senior official who knew General Abrams’ insight was General Harold K. Johnson, the Chief of Army Staff.  Johnson paid dearly when he confronted Westmoreland for misplaced strategic insight forming U.S. policy in Southeast Asia.  Both Abrams and Johnson knew that the Americanization of the war was fatal when President Johnson openly refused to activate reserves.

We must prepare to understand early on, both the correct nature of any emerging conflict as well as difficult civil-military relations in conflicts that aren’t well understood early on. If the service chiefs fail to puncture through endemic bureaucratic groupthink, it can be fatal for any Republic.  Think France after Algeria!

The past eight years has witnessed China, Russia and Iran test U.S. resolve.  Each time, we’ve been found wanting.

The American alliance network is really in an advanced state of crisis.  Even though coalition management is many times more difficult than theatre level engagements, alliances provide redundancies that are sine qua non for victory.

Throughout Aleppo, Crimea, Libya, assassinations abroad in U.K., the subversion of the Balkans as well as aggravated menace on the high seas, Putin continues to engage in dangerous levels of force that resemble probing actions of U.S. resolve.

If we don’t openly counter the aggressive probing of China, Russia and Iran, it will be impossible to deter escalated aggression.  Geopolitically, both Russia and China possess superior interior lines of communication and engagement, so U.S. countermeasures are quite limited.

American enemies are demonstrating aggressive diplomacy, deft geoeconomics and overt military aggression to secure their interests while probing or openly weakening U.S. alliance partners.

Just look at how Putin enveloped Crimea while indirectly openly targeting Ukraine.  Witness Chinese belligerence throughout the South China Sea, or the Iranian Shia crescent moving west from Baghdad into northern Israel.  These are all examples of probing.

For these regimes, challenging American power is central to their statecraft.

Regarding the growth of Islamic insurgencies throughout North Africa or Mesopotamia, we must note the political, historical, religious and contingent complexity that characterize these conflicts.  Why?

Because like Vietnam, if leadership fails to access, to properly understand the character of emerging conflicts we simply cannot hope to address U.S. policy properly.  From President Kennedy right through Nixon, war planners didn’t really know nor understand who we were fighting.

The complex social, political and geopolitical dynamics of emerging insurgencies is abstract, yet it requires deft tacit handling if U.S. war instruments are to prevail.

Pentagon planners have demonstrated a deft handling of U.S. limits throughout Southwest Asia, acknowledging how Pashtun, Punjabi intransigence tied to opaque civil military relations throughout Islamabad aren’t U.S. war objectives.

Pentagon, Joint Chiefs and distinct members of Defense are up to the challenge.  Is America’s political class?

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Fiscal & Military Solvency

The United States currently resides in a position of strategic weakness, we’ve got a fiscal solvency problem and a posture-readiness problem.  Truth is, we’re unable to address either quickly, or at least sufficiently.  We need time.  But we don’t really have the time; our enemies are growing, our economy is basically stagnant, our alliances are weak.  Its a very dangerous time to an American hegemon.  We can’t return to isolation and we have no true ally like Briton had when its empire collapsed turning to Roosevelt, Truman and Eisenhower.  We’re alone.  And time is running out.

Walter Lippmann wrote “brining into balance, with comfortable surplus of power in reserve, the nation’s commitments and the nation’s power.”  Frankly, if a statesman should fail to address this balance quickly and judiciously, disaster is imminent. This is the precipice that team Trump must reckon.

The truth is, the U.S. has possessed uncontested military dominance at bargain-basement prices.  Not anymore.  We must confront rising Asian powers more numerous and severe than any time in decades.  By any ledger, we’re losing.  We’re slipping into what Samuel Huntington termed ‘strategic insolvency.’  This means our force posture is dangerously insufficient to the tasks at hand.  We’ve relinquished the ultima ratio regum,  military strengths beyond challenge.  For decades, the U.S. possessed unrivaled primary in key checkpoints in Europe, Asia, and the Near East.  Having peerless global power projecting capabilities enabled us to procure institutions that served global liberal interests.

This comparatively benign environment IS OVER.

Not only is our strategic landscape rapidly changing, but our primacy is eroding.  Here’s why.

In Asia, the U.S. is entering a security environment that resembles 19th century great power competition.  Witness how both China and Russia field anti-access/area denial capabilities thwarting U.S. regional interests. Possessing the ability to thwart global norms; China and Russia will continue their belligerency so as to benefit from American hegemony.

Throughout the Near East, western Asia, and East Asia we witness regimes devoted to overt nuclear proliferation.  North Korea fields intercontinental ballistic missiles while Iran seeks to solidify breakout status with violent proxies enveloping both U.S. regional allies as well as South America.

The rapid spread of satellites, precision munitions, stealth and other coveted technology once the sole preserve of the American’s means we face actors who will openly contest Washington’s nuclear calculus.

The number of challenges and challengers is multiplying.  Both rogue states, jihadi enclaves, great-power rivalries, endemic fiscal-ideological instability and more. . animate today’s security environment.  The damage done by the great recession and sequestration is playing out before us all, if we have the courage to acknowledge it.  With alliances weak, adversaries emboldened and international order imperiled, the U.S. has to make decisions that halt the progress of our enemies.  Team Trump’s recent visit to Seoul and Beijing showcased how we’ll play our hand:  openly and weakly.

Great powers facing strategic insolvency really have three options:  reduce your commitments, live with greater risk in the hope that other rising powers will not openly test our commitments, or three, dramatically increase defense procurements.  It means strengthening our alliance network with open commitments played out before our enemies; it means economic growth at home and a high-low mix of defense assets that actually address our flailing nuclear triad.

Defense spending consumes about 13% of the federal budget, entitlements consume over 49%.  Do the math.  America’s fiscal solvency will hinge on our ability to control entitlement spending.

Look at it this way:  what’s cheaper, a Reagan style defense push or the full price of strategic insolvency.

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The Democrats, The Wilderness & the Affinity Between Statism & U.S. Business

During a crisis, if one possesses a sufficient enough grasp of identity, you turn outward not inward.  When the Republican’s lose bad they return from the wilderness stronger; having profound moral, political sources, the Republican party hardly suffers from renewal after a devastating loss.  The same cannot be said of the Democratic party.  The wilderness beckons and the turn isn’t so much inward as militant, archaic and bitter.  This will not end until they confront their own enduring sources.  My guess is the Democratic party will not return to leadership for at least a decade.

The 2008 Democratic win created a storm of controversy over legacy.  Immediately upon inauguration pliable allies of the left sought to mark a near permanent ascendancy.  Then it happened.  Obama-no-drama doesn’t do politics.  For anyone who makes a living off political craft, Obama’s grasp of his office left him and the milieu of D.C. wanting.

The sources the left used during Obama’s reign was palpable; it sought the outright expropriation of civil society.  It wasn’t that regulation was overdone.  The regulatory regime was used to accomplish what our Constitutional Republic refused to do, namely bend to majority rule in the executive.  If old wags in D.C. could talk they would have revealed what everyone else knew, but was afraid to say:  the political sources of the new left was alloyed outside the American Revolution.

Their is no way to address this problem, for the Democratic party seeks power in realist, Machiavellian terms.

And so do all the rent seekers that dominate the American political economy!

If we’ve learned anything since 2008, is this:  we don’t live in the land of freedom.  We live in an era of unmittigated militant equality.  A time that few really know how to handle.  A Tocqueville or Solzhenitsyn knows this terrain, the rest of us are to busy earning a living to find any place to resist the onslaught. What 2008 and the post-recovery period reveal is that American entrepreneurialism seeks a near permanent comity with the statism of the left.

The main culprit of the financial meltdown was Wall Streets compensation culture and the fair housing acts of Congress which sought to whipsaw entire financial, business fiefdoms as proxies of the progressive movement.

Obama did the same with Health care; get the hospitals, States and entire industries on board, then hammer away on expropriating civil society.

We’re a long way from Alexander Hamilton’s idea of having the federal government guarantee the full payment of its debt, thus establishing the unquestioned credit of the United States.  This was sharply criticized as rewarding evil speculators, but hostility toward the financial community has a very long history.

Even a cursory reading of Hayek’s ‘extended order’ reveals complexity on a magnitude unimaginable.  The role of finance in contemporary modern economy remains irreplaceable. How else can one explain the benefits we enjoy from the democratization of capital.

In distinguishing between finance and the politics of political economy, we forget how the degeneration of the U.S. political economy began.  It started in 1969, when an investment bank named Donaldson, Lufkin & Jenrette sold equity to the public.  All previous investment banks were partnerships whose capital originated from the net worth of the individual partners.  They assumed moderate risk only because investment failure may endanger their own life savings.  However, once a firms capital was increased by debt and equity financing (by other people’s money), the moral, ethical foundation of finance and its role in the U.S. political economy shifted.

Once these formidable institutions went public, they engendered a risk-reward culture that aimed for one thing:  the big, year end, annual bonus.

Just ask Bear Stearns or Lehman Brothers:  when they folded up, executive portfolio’s were capitalized with more than 30 parts debt to 1 part equity.  Know what that’s called?  Gambling.

Excessive leverage has sustained perverted incentives.  Equity holders got all the gain, debt holders were fleeced.

How does this get fixed?  It gets addressed politically.

By addressing the ethically bankrupted compensation system of taking big bets with other peoples money while avoiding accountability; we begin by returning to a compensation system that resembles a partnership culture.  We should require that Wall Street firms put their entire net worth on the line, their co-op apartments, their summer homes, art work and numerous other cash vaults in banks; all should be fodder for creditors.

Does anyone really believe that Congress and the SEC is capable of producing less burdensome regulations with a new compensation structure that penalizes bad behavior with permitting finance to do what it does best:  allocate capital for high return.

Don’t hold your breath.  Remember Shakespeare:  when the King is dying the clowns cash in.

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The Secular Stag is Gone, Lawrence Summers Call Your Office

This blog has tackled the cynicism animating most financial economists desire or need to evade intellectual, even moral responsibility for the collapse of confidence the American Republic has for the Federal Reserve and Congress to extract the Republic from the mires of statism that began in 2008.  Anyone worth reading has evidenced that soaring confidence trick a new election has wrought.  This is significant, but not for the usual reasons, for central banks around the globe are exhausted, inept and moored to an archaic Keynesian field manual.  Then again professionals get paid to work, not think.  If anything, the election of a Republican in November has slayed the secular stagnation thesis of Lawrence Summers.

The evasion was only noted by those not alloyed to Keynesian thought.  Any working professional knew that public confidence in team Obama is the source for chronically weak growth.  We’re living in an age of self-induced hysteria; the source of American growth is the American people, not technocrats ensconced away in field offices throughout D.C.

What we need to remember is that good times don’t indicate sound health.  This is lost in the current round of animal spirits running through Dow Jones & Company.

Since 2008, we’ve had a jobless recovery, funneling more credit to American households will not suffice.  We need tax and regulatory reform or the Republic is going over a cliff.

We don’t need credit expansion.  We don’t need new capital projects, nor large debt ridden public investment schemes.  If the U.S. don’t want to be identified as an emerging economy, we need to do something about taxes, regulations and permit working citizens to get to equity-capital formation.  What every emerging economy is witnessing now is surging capital outflows racked to raising interest rates.  Capital flight is coming home, but that will not provide the stimulus needed for Congressional leadership to reform the policy architecture providing growth.  Every other struggling nation is hoping to quietly install capital controls, wait for F.D.I. and build up their foreign exchange reserves.

The next several months will be difficult for nation states who tied their own monetary policy to the Fed.

Remember Nixon’s Treasury Secretary John Connally’s fiscal epithet “its our money, but its your problem”. 

john-b-connally-caricature-1971-politicards-single-swap-card-dd495a7c6d76a9f30702328ef93225df

Richard Nixon’s Treasury Secretary

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