The Failure of Nominal Leadership in Beijing

Market volatility has its origin in two distinct sources, one is the change in Beijing’s exchange rate regime, another is the Federal Reserves unwinding.  This will be messy.

Chinese leadership will not demonstrate the requisite fortitude so as to liberalize its capital, current account.  Period.

Mull that one over for a minute.

The Chinese love institutionalized opacity.  It has served their interests for decades, they’re going to find a way forward without liberalization.  Why?  The boys in Beijing cannot stomach operating like a first world economy.  Transparency will not happen, because it isn’t useful to the regime.

China remains the world’s second largest economy and it has sought refuge in linking its nominal exchange rate and growth to the U.S. Dollar.  Its entire Central Bank has enjoyed operating passively for decades.  Now, with U.S. appreciation and the unwinding of our own mess, the Chinese have decided that inflation is the way to go. To Beijing, the link with the U.S. dollar must be less tenable, if only to partially threaten the Reserve status of the dollar.

Chinese technocrats are learning that nominal growth cannot be conjured.

Here’s the origin of China’s massive capital outflow:  Chinese firms with high debt have an incentive to get out of yuan.  The middle income trap is real and its sources lie in the indigenous social dynamics of Chinese political economy.  Don’t worry, they’re not alone.  Mexico, Russia, Indonesia and numerous other regimes have not navigated gradual overt changes out of authoritarian regimes.

The culture of Adam Smith’s invisible hand cannot be sutured on.

Currency devaluation.

Currency devaluation.

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Pakistan: The Citadel Feels Heat

Husain Haqqani and other South west Asian notables refer to Pakistan as ‘The Citadel’, because fiscally, the entire nation state devotes its monies to the maintenance of a security establishment whose interests cannot align to any meaningful geopolitical relation.  Historically, Pakistan has enjoyed favorable status with the Americans beginning with the Kennedy administration.  The nadir of our bi-laterial relation occurred during the second Bush administration when General David Petraeus and other C.O.I.N. specialists began recognizing that Pakistani civil-military relations prevented the American’s from achieving its war aims.  Fast forward to today and Pakistan is dangerously enveloped and in desperate need of friends.

Yesterday, just outside Peshawar, the Taliban completed another massacre at a college.  This is immediately after the Indian Prime Minister was graciously welcomed in Lahore to begin the long awaited peace process.  A few days later, Pakistani tribal Taliban launched terror attacks north of New Delhi to disrupt any favorable bi-lateral relation emerging that would displace Talibani interests.  This comes after December 2014’s massacre of 120 children at a school in Peshawar.  How did Pakistan come to this impasse.

The removal of hoards of cash from the American’s was the beginning, but then came Pakistan’s refusal to heed Riyadh’s call for ground troops in Yemen.  Remember, the Saudi’s were forced to employ Islamabad’s army when Mecca was besieged by terrorists; humiliated, the Saudi’s had to import help abroad.  It was Riyadh that hosted Nawaz Sharif’s exile and still, Pakistan had to turn down its favorable patron, the Saudi’s.  The House of Saud has underwritten Islamabad’s monetary policy for decades, its been told ‘no’ twice by Islamabad.

Enter Iran.

The Iranians have decided to subjugate Islamabad’s indigenous Shia to propaganda that the Pakistani’s are finding difficult to pacify.  They share a very fluid border with Pakistan, both states are nuclear and ideologically constituted.

Enter India.

New Delhi’s position is not to overtly encircle Pakistan, but to drive influence throughout Kabul, a region that Islamabad has historically thought of as its own.

The Pakistani Taliban are working in an environment that has traditionally been their own.  Not anymore.  The fracturing of the Jihadi movement into numerous camps, some aligned to overt Sunni nation states, some not, threatens Pakistan’s proxies.

Today Pakistan remains a nation on its knees.  Its fiscal health continues to be underwritten by Riyadh, the I.M.F. and the World Bank together.  The American’s are gone.  But the jihadi business is in full swing, and Islamabad no longer runs its proxies, we should remember the archaic, ideologically fertile mind of the jihadi has sought easy targets:  civilian children from the Pakistani government.   This will not end well for either side.

The massacre of innocents in Pakistan on this scale is a direct threat to Islamabad.  If anything, civilian supremacy must be the tract the citadel chooses if it wants to gauge its near/abroad friends as well as envelop its domestic enemy.  Pakistan now needs friends.  And money.  It needs an economy, and it needs what Beijing insisted; normalized relations with New Delhi or no pipe line.  The citadel isn’t stupid, it knows that IT cannot command the intellectual resources to run the Pakistani political economy.

Here’s where it gets dangerous.  News reports throughout Pakistan refuse to shape their story lines from credible intelligence sources from New Delhi and Washington, that substantiate that Pakistani Taliban militants, using cell phones within Afghanistan controlled their terror proxies on both sides of the Durand Line.  The military spokesman Lt. General Asim Bajwa confirmed this statement of fact.  Even Pakistan’s esteemed Army Chief Raheel Sharif confirmed such intelligence sources.

Still, ‘The Citadel’ peddles lies that India and the U.S. are the source of Pakistan instability.  

Here’s why:  the archaic mindset that animates Pakistani polity serves the Army’s interests.  Just ask Riyadh.

Pakistan’s best hope is civilian supremacy in Islamabad.



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Assad, Oil & ISIS

Robert Bartley’s boys have done it again: the unrelenting lament over the atrocities of the Gulf Monarchies proxy, namely ‘The Islamic State (ISIS)’ reveals a stunning lack of strategic acumen, for who else will meet the Iranian onslaught moving west from Tehran.  The rising Shia crescent enveloping both Israel and Saudi Arabia isn’t news.  What is news are the latest names released by U.S. Treasury Department regarding Russian proxies used to facilitate Assad’s purchase of oil from the very Islamic State he’s supposed to be fighting.

Let’s settle on who’s fighting who.

Assad continues to battle any/all Syrian miscreants internally.  This means he’s abandoned the fight against ISIS, leaving his ally Russia to do Iran’s regional bidding.

Assad’s complicity with the Islamic State was revealed last week, when Treasury publicly cited the names of two prominent Russians acting as intermediaries for Assad’s purchase of oil, from the Islamic State!  The former president of Russia’s World Chess Federation Kirsan Ilyumzhinov was named along with George Hasani, a Syrian businessman responsible for oil transactions.

This confirms what knowledgable analysts have suggested in characterizing the Russian regime as a criminal oligarchy.

Remember Hobbes, conflict is war of all, against all.


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Tyrannic Impulse in Gallic Thought Comes Home: A Militant Welfare State Meets Charismatic Jihad

If Solzhenitsyn and Arthur Koestler defeated the French left, who will France summon to confront the indigenous jihadi’s that thrive throughout France?  The question isn’t even contemplated, for France, like so much of Europe today, has turned inward and cannot be summoned to defend itself.  This will end badly.

The left cannot seem to untether itself from the intellectual contortions of idealism.  This remains a perennial problem for Gallic thought, as evidenced in last nights brutal coordinated assault that has left over 150 French citizens dead.  No marching, nor hand wringing will testify to the reversal needed IF the French are to counter what has already engulfed them.

The propaganda of ‘the deed‘ remains a potent political tactic for jihadi’s throughout western Europe.  We must anticipate that last nights terror was in fact the embodiment of political jihad.  Those old enough to remember can surmise that the jihadi war against France really is decades old, as is French strategic perfidy regarding its relation to the Atlantic alliance via Khomeini, Arafat and numerous others.

Regarding policy.  What is to be done?  Hollande can begin with preventive detentions and rendition back to north Africa.  We should remember that France possesses the absolute finest counter-terror divisions in Europe; and what of its political class?

Having the west ‘lead from behind’ permits the enemy collective surprise; our own policy/strategic failure will breed more such incidents.  That Mediterranean Muslim lake has yet to open its bowels to sway the indigenous throughout Europe.  It will come.  The heartland of Islam is already aflame and moving westward, as is Tehran.  Turkey, Sinai, Continental Africa, Mesopotamia and Persia are on the move.  Kurdish Sinjar and the recent death of ‘Jihadi John’ can’t weigh in the balance against the geopolitical, ideological tsunami awaiting the west.

Take no comfort.  This war has a very long pedigree.  And the West isn’t ready.

Ou est notre Soljenitsyne


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70th Anniversary of U.N. Human Rights Charter

Source:  October 2015 pg. 21

From the wrought iron gates of Auschwitz, to the hot gates of Srebrenica, we continually witness man hunting his fellow man.  If life is Hobbesian, then man isn’t at home in this world.  A profound, and lasting evil continues to haunt, and it must be vanquished.

Who among us will assume the burden of witnessing the plight of the refugee; of hunted children and worn out men.

Is there no limit to the depravity man imposes on his brethren?

The world’s architects assign pithy pronouncements heralding the gift of enclosed space, a monument or statute bearing remembrance.  Who remembers the plight of those unhoused in this world?  The asylum seeker, those persecuted for their identity; criminalization of political, ethnic and religious differences has pedigree.  Dostoevsky:

“This was a time, when, all things tending fast

            to depravation, speculative themes –

            that promised to abstract the hopes of man

             Out of his feelings, to be fixed thenceforth

             Forever in a purer element –

            Found ready welcome.  Tempting region that

             For Zeal to enter and refresh herself

             Where passions had the privilege to work,

             And never hear the sound of their own names.”

At the end of the second World War, the victors established a forum devoted to redress the seemingly endless moral anarchy that western civilization had bequeathed.  As the Allied forces poured into Berlin behind the Red Armies advance, Roosevelt’s dream of an international security organization, conceived in the heat of war, began taking shape.  On April 12, thirteen days before the opening conference in San Francisco, Roosevelt died.  The United Nations remains the personal creation and achievement of two men, Roosevelt and Russian born economist Leo Pasvolsky.  Both men sought a centralized world body devoted to averting the calamity that befell the west beginning in Sarajavo. Both wanted a global organization hewed from the political, moral heritage underwriting the wests achievement of political liberty.  The Charter, written while the war was raging, took the wartime alliance as the basis for the framework embodying collective security.

Upon taking office, Harry Truman kept in his wallet, the visionary verses from Tennyson’s Lockley Hall, that culminates in the lines:

                            “Till the war drum throbbed no longer

                              and the battle flags were furl’d

                              In the Parliament of Man,

                              The Federation of the World.”

The achievement of 70 years of faithful inheritance, of bearing witness, of promoting reconciliation among belligerents remains unprecedented.  The achievement in a perspective seeking symmetry between ethics and national self-interest is unique in the annals of man’s self governance.  Seventy years of questioning the inviolability of sovereign states is worthy of remembrance.  For if a sovereign state can’t make multinational companies conform to its tax laws, can’t ignore international regulations on air traffic safety or food manufacture, and can’t block the cross-border flow of money and goods without facing the wrath of various international agencies and banking authorities, why are we so quick to acknowledge its right to rape and murder its own citizens? 

Clearly their remains much work to do, for the challenges threatening a viable U.N. Charter are bred from within nation states.  For the most significant problems bearing upon international relations today have to do with the moral foundations of society.  Of trends, beliefs and practices unalloyed from threatening idealisms. Of firm secular beliefs that progress continues unabated, tied to a forward moving positivism, seeking permanent rupture of ethics from the created order.  Of policy convictions hewed from a morally undifferentiated pluralism; a tyranny of ideas is among us now, where shall the refugee find solace?

The word amnesty is derived from amnesia, literally ‘to forget‘.  Forget the spirits crushed, the lovers parted, the secrets betrayed; forget the prison cells, the bloods walls, the shallow graves.  Forget the fear and the emptiness, the torment and the vapidity.  Forget the sound of the pistol being cocked, then fired, forget the petty sneer of the enemy.  For many, whenever the dawn of freedom has broken, but the memories of the long night remain, – the question is the same, seek peace or seek justice. 

For 70 Years the UN has welcomed those un-housed in this world:  Welcome Home.  October 2015

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China, Capital Controls & Digital Yuan

Everyone at the I.M.F. and World Bank knows what Chinese authorities want, convertibility of the Yuan and reserve currency status.  This would eventually warrent SDR, special drawing rights.  IF it ever gets going, we’ll see it deep inside China western corridor, the interior known as the ‘Silk Road’ where numerous weak authoritarian government thrive.

As of now though, that’s not what dominates the vision of Chinese authorities.  Currently, the yuan is now used for bitcoin transactions.  The nascent payment system has lost untolds amount of money from its high of $1,100 in late 2013 to $300 now.  Bitcoin has enormous momentum inside China.

The chief culprit isn’t just financial speculation, its mainly driven by people, traders, and institutions who move vast quantities of yuan out of mainland China circumventing currency controls.  The foundation of this movement is China’s halting economy providing fewer lucrative investment opportunities.  Simply put, bitcoins surging popularity underwrites the fragility of the world’s second largest economy.

While industrial output slows, debt is surging to $4 trillion in regional debt and $20 trillion national debt.  That’s only between 2008 to 2014.

Wait, it gets worse.  Hong Kong money changers are witnessing the rise of challengers to Bitcoin, which is tapped at $20 million.  Darkcoin is fast becomming the choice media of drug merchants and many other black market activites that thrive in China’s interior.

The hidden challenge to Zhou’s rule are crypto-currencies, thriving in an authoritarian world without a rule of law, independent courts or trusted agencies of governance.

China’s threats are growing.

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The Mythology of Authority: Keynesian Abdication Called Secular Stagnation

When Raymond Aron wrote The Opium of Intellectuals, he wasn’t thinking of defending a perfect asshole like Paul Krugman, the Keynesian authority cited as the source for the canard secular stagnation.  Nor was he thinking of Dreyfus on French Guyana, even though explicit racism and a resurgent republican ideal haunted him.  Instead, Aron sought to uncover the fatal propensity intellectuals have in citing extrinsic events in abdication for failed ideas.

The west is now in free fall.  The trillions in stimulus haven’t worked.

What do intellectuals do when they’ve failed?  Well, if their tenured radicals they often do two things, find an excuse or cognitive dissonance.  This brings me to Krugman’s canard of secular stagnation as a moral panacea excusing the failure that has become Keynesian ideology.

What Keynesians like Krugman have done is to secure an extrinsic source excusing failure to enforce a fallacy.  The trope that is secular stagnation cannot be reconciled to how we arrived at this failure.  Years of deficit spending, stimulative demand, quantitative easing, expansionary fiscal intervention and radical accommodate monetary policy have all contributed.  We’re simply at the end of accommodative policy.  All to what end?

Its now over, and it failed.  The fallacy that is quickly becoming cognitive dissonance is that the west is trapped in secular stagnation and must take additional fiscal, monetary measures to stimulate demand.  You read that right.

The fallacy that this trope maintains is the continued elusive authority of spent, failed ideas, namely Keynesian thought.

The Eurozone and by extension, the entire west has received extraordinary monetary assistance (stimulus) to little effect.  Capital markets are now so distorted that indices no longer embody reliable measures of utility. The prolonged effort toward normalcy now rattles capital markets.  Despite trillions of dollars of Q.E., despite trillions of dollars in federal deficit spending, GDP has NEVER reached 3% and workforce participation remains low.

Like cancer treatment, Q.E. is killing the patient.

How does the next President or Fed. Chair resolve this dilemma.  I have an answer.  Structural reform is essential.  An exit strategy that respects the spheres of autonomy in a Constitutional Republic.  An end to transfer programs.

To achieve this, we’re going to need an engaged, seriously well read Executive that understands what Volcker and Reagan implicitly understood at the end of the Bretton Woods debacle; a policy mix that tacitly handles the simultaneous requirements of monetary, fiscal regimes grounded in sound political reform.

There’s no time for small ball, the Republic, the Union is badly hurt.  A reality that Aron implicitly understood.

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The Murder of Alberto Nisman: The Slaughter of Innocents Continues

When investigators are up against a wall, when all leads fail to show causation, then they begin to ask direct forensic questions in an attempt to square a circle.  That square has now come full circle.  There is only one way to answer a direct question regarding the death of Alberto Nisman.  Who would benefit from his murder?  Answer:  the Iranians.

As a prosecutor, Alberto Nisman has years of recorded wiretaps demonstrating criminal collusion between Iranian agents (Hezbollah) and the Kirchner government.  The Argentinian government wanted cheap oil, gas from Iran; the Iranians want a meddling prosecutor dead!

This entire case began in 1994 when Iranian agents abroad bombed Buenos Aries Jewish Community killing scores of Jews.  Nisman’s objective was never to bring down the President of Argentina, it was to extradite Iranian agents to face trial.

The Iranians are winning throughout the west.  Who will stop the satanic mullah’s?

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Economic Bastards

As time goes by, Dr. Allan Meltzer will be vindicated in his analysis of the great moral failure of the entire American political class’ handling of the ‘Great Recession’.  Dr. Meltzer had numerated his thought in several journals and lectures that I will briefly detail here at a later date.  Nevertheless, I found a comment by Ludgwig von Mises that is very relevant to Meltzer’s analysis.

The elitist political class buries its true agenda in completx economic models and tells its citizens that they are just too unsophisticated to understand.  Ultimately though, the political class knows what must be done, but they don’t know how to get re-elected once they’ve done it.”

There are in the field of economics, no constant relations.”  

All econometric models are useless because they fail to account for the coercive and distorting effects of government interventions.  The Federal Reserve, Fannie Mae, Freddie Max, the tax code and all the federal bureaucracies combined en masse are exogenous factors weighing on an economy that is taxed, regulated and coerced almost to death.”

Enough said.

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Hardly a Balkanized Federal Reserve

Let’s get power relations straight.  The Federal Reserve is a powerful, even a transnational power.  It is arguably the single most powerful institution on the planet.  It TOO can be defeated, weakened, and brought down.  The impact of weak purchasing power is well known, remember Weimar, Japan, Russia, Germany, Mexico, the list is nearly endless.  Every great political power that ever existed has had to deal with potentially life-threatening policy adjustments to keep parity.

But let’s remember that realpolitik is synonymous with relativism, and those at the helm of the Federal Reserve quietly know that they’re a creature of Congress!  They either play along or get played.  You’re either at the table, or your ON the table.  The Fed knows this and has historically dealt well with this arrangement.  I cannot say the same for the last ten years. The hit job(s) that are lining up to size-up the Fed will shake D.C.  I have no other way to say it but bluntly.

F.R.A.T. = Federal Reserve Accountability & Transparency Act has threatened to hamstring the hyper-expansionary, accommodative policies that characterizes EVERY failed Federal Reserve Chairman EVER!!  The adoption of the Taylor rule is simple:  it means that any expansionary policy to accommodate demand must watch two independent variables simultaneously, namely the output gap & inflation.  This is hardly a threat to balkanize the Fed.

AUDIT the FED is the second threat.  It has nearly nothing to do with accounting but instead asks that Fed managers expose their political philosophy in their attempt to accommodate excessive demand.  This would be done via the Government Accountability Office (GAO).  What Congress asks is that the voting members of the Federal Reserve provide transparency regarding monetary policy decisions.

How else to say it:  a truly independent Fed would welcome any policy attempt to strengthen its credibility.

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