Jihad & Hunger

Did a little light reading tonite and came across a few things that are quite unsettling. First on the list is a report from a top Kuwaiti newspaper that some Arab states, along with Turkey, are preparing to impose a no fly zone over Syria. If this turns out to be true-- a big if-- this has the chance to light up the Middle East quite quickly. Syria will activate it's Hizb'Allah ally in Lebanon to begin launching missiles into Israel in the hopes of drawing Israel into this mess and kicking off another round of Israeli-Arab war, though this time with much more devastating consequences.  Likewise, Iran has a mutual defense pace with Syria and will not stand idly by. In addition, it appears that Russia has sent a fleet to sit off the coast of Syria to help the Syrian regime. 
http://www.zerohedge.com/news/no-fly-zone-over-syria-imminent


The other, more insidious thing is that in Egypt, the people are again in rebellion against the Egyptian Army government, demanding their ouster immediately. In response, the Egyptian Army has announced elections will be moved up to June, but this does not appear to be appeasing the protesters. The protests are growing very serious, with dozens killed and hundreds injured. As it turns out, Egypt actually has a more serious problem than their own Army-- their economy. And they're not alone. 


It appears that Egypt's military government has been defending the worth of their currency instead of letting it float and possibly devalue. Why ? Probably because many of Egypt's military officers have enormous holdings in the local currency. Their government is trying to hold the value of the currency so that many of these officers can have time to move the money outside the country. Their Army appears to be looting the nation six ways from sunday. Egypt is running out of cash reserves in the attempt. When it does, their currency's value will collapse-- and the price of rice, which the government heavily subsidizes, will skyrocket. All of this is happening alongside the aforementioned riots against the Army. Hunger and instability go hand in hand, feeding off each other-- Satan's Handmaidens. Take a look at my last post in regards to capital flight. 


It's not only Egypt. Turkey's economy is also overheating and due for an ugly correction. I'm in a hurry and cant post as much as I'd like, but I will post a link to a must read article on Middle East economies. This will, likely very soon, again be the driving force behind the ongoing upheavels: http://pjmedia.com/spengler/2011/11/22/egypt-and-turkey-middle-east-basket-cases/

Remembering Argentina

In my normal readings this weekend, I came across something quite disturbing.... it seems that there has been a run on Greek banks for the last month or so. People who have large amounts of money in Greek banks {shipping magnates, industrialists and other wealthy folk} are closing their accounts and setting up savings accounts in Swiss banks, which have always been seen as a safe haven. This run on Greek banks has the potential to force them to collapse. These people are rightly fearful of what may happen to their money with the Greek government essentially insolvent and increasing rumors that the Greeks might re-introduce the Drachma {their old currency}. In response, I found this:

"BRUSSELS—The European Commission is helping Greece negotiate an agreement with Switzerland to repatriate as much as $81 billion believed to be hidden in Swiss bank accounts, a high level European Union executive body official said Nov. 17"


This type of response, if it's actually enacted, could set off a chain reaction these officials don't want. Other nations-- Spain, Italy and Portugal specifically-- are slowly stumbling towards insolvency. If I were a Spanish business owner with a large amount of money in a Spanish bank and I see what happened to the Greeks, I'd think long and hard about moving my money-- very quickly-- and out of reach of EU bureaucrats. Banco de Bolivia anybody ? If enough people do this, Italian and Spanish banks could very quickly find themselves in even more trouble than they already are. The most important thing in today's banking world is confidence. If the guy in the street feels his money is about to be taken, he panics and withdraws. As always, those with the most money are the first to see it coming and they move very, very fast at the first whiff of trouble. Then we come to the delightfully complex problem of what these moves to do bank leverage ratio's. 


We also need to take a look back in history at what might happen when a banking system collapses and the government moves to stem the outflow. In 2001, investors and others began to lose faith in Argentina and began withdrawls from Argentine banks. The richer members of Argentine society saw something bad coming down the road and they also began mass withdrawls from Argentine banks, setting up accounts in Switzerland, the US, and other nations. The Argentine government, rightly fearing a banking collapse, enacted a set of laws designed to stop this. They were called "corralito" laws, and they limited withdrawls from Argentine banks to $250 per week. The people of Argentina, rightly fearing for their money in the bank, began a series of disturbances called "cacerolazos", which were mainly peaceful marches accompanied by wives banging pots and pans out of their balconies. The disturbances grew in size and intensity, with much of the anger being directed at banks and big foreign {mainly US} companies, who responded by erecting metal barriers at their gates after rioters set them alight. Increasingly violent confrontations between rioters and police eventually led Argentina's President, Fernando De La Rua, to declare a state of emergency. This did nothing to stop the mayhem, and on the night of December 21, 2001 De La Rua himself fled the Presidential Palace by helicopter, leaving Argentina without a government. Within a few weeks, the leader of the Senate leader Adolfo Saa officially defaulted on Argentina's external debt. 


Argentina shortly thereafter ended their policy of pegging their currency to the US Dollar and let the Argentine Peso float, which resulted in the Peso being devalued and the price of most goods doubling or tripling overnight. The money in Argentine banks was also switched to the new Peso, resulting in them being worth far, far less. The common people in Argentina paid a fearful price over the next two years as unemployment skyrocketed. Tens of thousands of people were reduced to scavenging, with copper and cardboard being the scavengers' favorite items. In 2003, Argentina elected Nestor Kirchner as President, who wisely kept the previous finance minister Roberto Lavagna in his job. By the end of 2003, Argentina's economy roared back from the precipice, growing some 8% after Kirchner's election. 


The lesson here is that artificially attempting to halt the flow of money in any way, even forced repatriation, usually leads to problems that are far worse than the ones they're attempting to resolve. The EU's pressure on the Swiss is both wrong and will most certainly backfire in places like Spain and Italy, possibly leading to a chain of events nobody wants. 


Update 11/22pm: It seems that last week's post in regards to Syria might've been quite prophetic: it seems that the Arab League, along with Turkey, might be applying a no fly zone over Syria: http://www.zerohedge.com/news/no-fly-zone-over-syria-imminent

Syria & Iran

Underneath all of the news about the European debt crisis and the Penn State mess, there were a couple of events in the Middle East that warrant some attention.

The first was in Syria, where there has been large, mostly peaceful protests for the last six months. The regime of President Bashar Assad has met these protesters with tank and artillery assaults and arresting and torturing thousands of its own citizens. During these attacks, dozens of soldiers have deserted the army and have turned to fighting the Army. These deserters refused to mow down their own people. Lately, the number of deserters has risen to the hundreds. There are also rumors that the Saudis, Turks and Jordanians are beginning to arm some of the deserters and protesters. This is how the Libyan civil war began, with foreign powers arming civilians. A significant event took place this week as the Arab League, a collection of Arab nations, threw Syria out of it's little club. Ominously, they also threatened to "take steps to protect the citizens of Syria". It did'nt outline these steps of course. But this is a dangerous step indeed, one that was under reported here in the west but was widely reported in their region.

Meanwhile in Iran, {Syria's most ardent ally} there was a series of explosions that apparently killed Iran's top missile expert as well as 32 Revolutionary Guards. The blasts shook the capital Tehran, with many wondering if it was an Israeli or American attack. Foreign businessmen were fleeing the country after this. There was also a report from the International Atomic Energy Agency that essentially said Iran would have the ability to build a nuclear weapon by the end of next year. War rumors increased, and the blasts in Iran seem likely to have been caused by foreign powers, further rattling nerves.

About two weeks ago, the US announced that they had foiled an Iranian plot to blow up the Saudi Ambassador to the US, who is also a prince of the royal family. The Saudi's are known to despise the Iranians and would be most happy to see Iran attacked, perhaps even participating in it themselves. The Saudis are very afraid of Iran getting nukes as well as having Iran's brand of Islam {Shia} spread to other nations in the area.

It's my guess that Israel's hard line leader Netanyahu is also looking for a way to attack Iran-- he is very adament about not letting Iran get nukes. But his military is probably not up to the task of attacking a nation some 1500 miles away. He would need US support to pull it off. Problem is, he and President Obama have a testy relationship. Another thing that came out last week in the news was a comment by French President Sarkozy to Obama, in which Sarkozy said that Netanyahu was a liar and a cheat, and Obama responded with something like "you don't have to deal with him every day like I do". At the end of the day, the last thing Obama wants is a war in the middle east; it risks sending oil prices rocketing up in an election year. He is also personally friendly with a number of Arab leaders.

But since 2012 is an election year, Obama needs the Jewish vote solidly behind him. A wholesale turnaround by Jewish voters {and campaign contributors} could mean important swing states like Florida, New Jersey and Pennsylvania might swing to the GOP. A large Jewish voter abandonment would be a serious blow to Obama's re-election chances. If Netanyahu were to launch an attack on Iran on his own, Obama would have to support him. Failure to do so would not only alienate the Jews, but many middle of the road voters would compare him to Jimmy Carter during the hostage crisis. Americans hate a wimp.

These tensions have existed for a while, and no regional war has occured in the last 30 years. There is a good chance that none will occur anytime soon. But recent events are certainly ratcheting up the chances of a war.