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On the Path To War

Putin plays chess, the "markets" play Tic-Tac-Toe
Monday, August 11, 2014, 7:25 PM

The US is clearly now pushing Russia towards war. But if you read the signs correctly, Russia has been preparing for exactly this outcome for many years.

Out of several reasons that US power brokers specifically -- but western power brokers more generally -- are deeply unhappy with Russia right now is that Russia is committing a cardinal sin: it is openly, brazenly calling for an end to dollar dominance and has moved aggressively with China to achieve that aim.

No oil-rich country that has tried to move away from the dollar in the past twenty years has managed to do so without being attacked by the US, suffering a regime change, or being ruined by sanctions. In some cases, all three.

Not only has Russia managed to secure a string of heavy-duty bilateral trade and currency swap agreements over the past year, but they've done so despite ever-increasing threats and responses from the US and its allies. And frighteningly, the equity markets in the West are completely ignoring the nested set of risks that accompany these moves and countermoves by two geopolitical heavyweights, which range from punishing trade wars (already underway), to electronic warfare, to an actual shooting war.  

Today's "Markets"Are Untethered From Reality

I put the word "markets" in quotes above because whatever it is that passes for an equity market these days, it bears little resemblance to that of times past.

The "markets" today are using the skimpiest of evidence to support their tendency to feast on fresh central bank liquidity by either levitating higher or failing to go down much on even the most horrendous of geopolitical, economic or environmental news.

As a prime example, in the pre-market on Friday, 8/7/14, beginning in the wee hours of the morning, the S&P futures ramped up 20 points off the lows by market open, and then poured on another 20 points in the cash market.

The reason given?  The possibility of calm in Ukraine:

Pre-market Dow reversal illustrates Ukraine sway over markets

Aug 8, 2014

In a sign of just how much stock market moves are being driven by geopolitical headlines from abroad, pre-market futures for the Dow flipped from sizable losses to modest gains after reports that Russia is moving to de-escalate the Ukraine crisis.

Increasingly, every tick of the tape on Wall Street is being driven by news flashes related to bad things happening overseas, including the Russian role in the 5-month-old crisis in Ukraine.

“We are in one of those moments where markets sway on war or no-war rumors,” says Gary Kaltbaum, president of Kaltbaum Capital Management.

The Dow, which is coming off a 75-point drop Thursday, knocking it down 4.5% from its July 16 record close, did an about face this morning, going from down 100 points in pre-market trading to up 42 points.

Wall Street is citing the following news reports for the rebound:

According to Bloomberg: “U.S. equity-index futures rebounded after RIA reported Russia is making efforts to de-escalate the Ukraine conflict. RIA cited Russian Security Council head Nikolai Patrushev.”

(“Russia will continue to make all efforts for a very fast de-escalation of tensions,” Nikolai Patrushev told RIA, a state-run Russian news agency.)

That is about as poor of an excuse for a major market reversal as any I have run across lately. They might as well have said that Cher is considering expanding her next tour by four cities as being the "reason". 

For starters, consider the source.  Was it Putin himself?  No. Instead, it was the very same guy that the EU had just added to their sanctions blacklist a few weeks ago:   

EU Blacklists Russia’s Federal Security Chief, Security Council Secretary

Jul 26, 2014

MOSCOW, July 26 (RIA Novosti) – The European Union has added key Russian officials to the blacklist, including Russian Federal Security Service chief Aleksander Bortnikov and Russian Security Council Secretary Nikolai Patrushev.

Did he say anything concrete, such as that meetings were going to be held and that constructive solutions were on the table that Russia might find agreeable?

No. All he parroted was the standard Russian talking point, which Putin himself has used many times, that Russia hopes for a rapid return of peace to Ukraine.

That's it...and so I have to ask: That's worth forty S&P points?

On the other side of the ledger, the one pointing to escalating tensions, we have a lot of very credible items that any sane person would easily think vastly outweigh a single talking-point sentence by a Security Council member.

For example, consider this:

Moscow’s food ban could cost EU $16bn, spark crisis in Europe

Aug 7, 2014

Russia’s ban on agricultural food imports could cost the European Union about $16 billion (12 billion euro) and drag the continent into the crisis, officials warn.

The Russian government signed a decree on Thursday which bans the import of beef, pork, poultry, meat, fish, fruits and vegetables, cheese, milk, and dairy products [for one year] from the EU, US, Australia, Canada, and Norway.

Now why would a country that's about to announce that it's going to seek a rapid return to peace in Ukraine on Friday, pass this particular and Draconian decree on Thursday? That just doesn't make sense. And of the two, if I get to choose between a year-long food ban and a single sentence by a Security Council member, I'm going to have to go with the idea that the food ban is telling us more about the actual state of things.

Such a ban will cause a lot of hardship in Russia. We can expect food price spikes for sure, and possibly even food shortages, too.  Therefore, it was not done lightly.

This food ban followed the cancelation of a Russian defense deal by Germany two days prior:

Germany Just Canceled a Defense Deal With Russia - Who’s Next?

Aug 6, 2014

As European countries try to balance their economic dependence on Russia with their desire to punish president Vladimir Putin for meddling in Ukraine, Germany has stepped ahead of the pack to poke the bear in the eye, canceling a €123 million ($165 million) defense deal with Moscow earlier this week.

In response, the Kremlin has said it will sue Rheinmetall, the German defense firm that was to supply parts for a military training facility for the Russian military. The deal, signed in 2012, was suspended by Berlin shortly after the annexation of Crimea in March; this week’s move permanently bars the delivery of the equipment. Last week the European Union banned all arms exports to Russia, but that only covers future deals.

The scuttled deal was simply for parts for a training facility, the sort of thing that might just as easily have been covered under normal import and export trade agreements. But since the facility was military in nature, it fell to the sanction sword.

And only a day prior to that, Putin called for an emergency meeting of the UN Security Council:

Russia Calls For Emergency UN Security Council Meeting As Troops Fortify On The Border

Aug 5, 2014

Russia called for an emergency meeting of the United Nations Security Council on Tuesday over what it called an urgent humanitarian situation in Ukraine, according to a report from the Russian news agency ITAR-TASS.

"We are convening an emergency meeting of the United Nations Security Council on the humanitarian situation in Ukraine," Russian Ambassador to the U.N. Vitaly Churkin was quoted as saying.

Earlier on Tuesday, the Russian Foreign Ministry said the U.N. and the International Committee of the Red Cross  expressed "readiness" to discuss its plan to deploy a "humanitarian mission" to Ukraine, which some consider to be a pretext for an invasion by Russian forces.  

The White House has openly worried about what would be, for all intents and purposes, an invasion under the guise of a "peacekeeping" operation.

"We’ve seen a significant re-buildup of Russian forces along the border, potentially positioning Russia for a so-called humanitarian or peacekeeping intervention in Ukraine,"  deputy national security adviser Tony Blinken said last week.

Those quotes by US officials make it sound unreasonable for Russia to be considering a "so-called humanitarian intervention" into Ukraine.  And most in the West might agree with that assessment because the western press is virtually unanimous in its failure to cover the actual humanitarian crisis that is happening over there right now.

But other countries are not ignoring it. For instance, as reported by the Japanese press, we find that entire cities, packed with hundreds of thousands of civilians, are under constant bombardment by Kiev forces:

East Ukraine city dying under siege

Aug 5, 2014

ONETSK, Ukraine —

Residents say the eastern Ukrainian city of Luhansk is dying. The power grid was completely down Monday, the city government said, and fuel is running dry.

Store shelves are emptying fast, and those who haven’t managed to flee must drink untreated tap water. With little medicine left, doctors are sending patients home.

As Ukrainian government forces slowly tighten their ring around the city — one of two major pro-Russian rebel strongholds — traveling in and out has become a perilous undertaking.

In an impassioned statement released over the weekend, mayor Sergei Kravchenko described a situation that is becoming more unsustainable by the day.

“As a result of the blockade and ceaseless rocket attacks, the city is on the verge of a humanitarian catastrophe,” Kravchenko said. “Citizens are dying on the streets, in their courtyard and in their homes. Every new day brings only death and destruction.”

Luhansk, a city of more than 400,000 people at peacetime, now has seen its population dwindle as citizens flee violence and deprivation. Located about an hour’s drive from Russia, which Ukraine insists is supplying rebels with weapons and manpower, Luhansk is being fiercely fought over by all sides of the conflict.

What would the US, the UK, Germany or Japan do if several million of their native-tongued people living right along their border were under siege by a possibly illegitimate government force that had openly expressed its desire to kill as many of those people as it could?

I think we all know the answer to that: they'd already be in there with humanitarian and possibly also military support.  Heck, the US invaded an entire country 7,000 miles away under the pretext that Iraq might have WMD's that could someday, possibly, be used against American interests. And Iraq never once openly threatened the US.

But to top it all off, there was a second recent news item which was the most frightful bit of news that anybody in Europe could ever hope to hear. And if it happens, it will be an open act of war against Russia by Ukraine:

Ukraine Open to Halting Gas Flows in Russia Sanctions

Aug 8, 2014

Ukraine said it’s open to halting Russian gas supplies to Europe through the country as it plans sanctions on President Vladimir Putin’s government as part of its battle against pro-Russian separatists.

The list of possible sanctions includes a “complete or partial ban on the transit of all resources,” Prime Minister Arseniy Yatsenyuk told reporters in Kiev today in response to a question about halting gas flows.

Measures may also include a ban on Russian planes overflying Ukraine, he said, while defense-industry cooperation will be reduced. A draft law, which requires parliamentary approval, also proposes restrictions on ships entering Ukrainian waters.

Good grief!  If Ukraine halts the gas flows, Europe will be in big trouble and very quickly. I have to assume that EU ministers are reading the Ukraine leadership the riot act.

But this news is also a very strong sign of escalation, not de-escalation. And so the 'market' response to the statement by Russian Security Council Sec​retary Nikolai Patrushev is really grasping at straws. For my money the gap between the news events and the 'market' reaction is so huge that I have to wonder if there isn't a different explanation that makes more sense, such as a Plunge Protection Team intervention at a critical moment as US stock futures were headed over a cliff (which they seemed to be before the miracle reversal).

However, even if such interventions are occurring, they cannot change the tide. Something has been put in motion that cannot be easily undone, And Russia is furiously signing deals that are a far greater risk to the US than anything happening in some remote corner of eastern Europe.

In Part 2: The End of Dollar Dominance? we look at the reason that suddenly makes the US' reckless aggression towards Russia much more understandable: Russia is pivoting from West to East, and in the process, seeking to diminish the dollar's supreme regime as the world's reserve currency. When viewed through this lens, Russia's prodigious string of recent trade and energy deals with eastern nations suddenly looks very calculated, and the US' itchy nervousness in response makes more sense.

What are the implications if we are entering the Peak Dollar era? One we know for sure is: today's "markets" are vastly under-pricing, if not ignoring altogether, that risk.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access) 

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23 Comments

HowardBeale's picture
HowardBeale
Status: Member (Offline)
Joined: Mar 4 2010
Posts: 10
Putin and the "Markets"

"Putin plays chess, and the 'markets' play" tick, tick, tick...

pat the rat's picture
pat the rat
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Posts: 116
USsR/Russia

This is not a two bit penny dictator 

treebeard's picture
treebeard
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Posts: 605
Dollar system

Just about anything is tolerated except messing with the global banking petro dollar system, as a lot community members have already noted.  World wars have been fought for that reason (unknowingly).  The response is bound to lack rationality from our point of view, but from the view point of the PTB, this is their life blood, they will not go quietly into the night.

This global rebalancing of power is perhaps one of the greatest threats that we face, maybe more serious than peak resources or global climate change.  Hopefully challenges that we face collectively as humanity will refocus enough of our collective spirit and energy that it will mute the drums of war.  Los Vegas running out of water, or grocery store shelves running empty may for a few days here and there across the country may be the strangest and most terrifying blessing in disguise that we are every likely to see.

I would be praying for something if I knew what the heck to pray for!

pgp's picture
pgp
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Posts: 208
Stand up commedian

The behavior of the S&P and the Ukraine/anti-Russian crisis dogma should be gold to a stand-up-comedian and maybe it will be in a few years, people will actually laugh at how stupid the situation had become in the markets and with geo-politics.

At some point there might be a market for Yellin, Kim-Jong-Un, Rumpsfeld, Obama, Boehner and Putin dolls in caricature but looking serious. Get a free political or central-banker idiot-figurine with every Big-Mac. Collect all 100 to win a free tip to Disney World to meet them in person

nickbert's picture
nickbert
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Posts: 1208
Setting the stage for a 'Strongman' president

I remember Jack Spirko of The Survival Podcast saying in one of his more recent podcasts that he expects that the next president will be a 'strongman' (or perhaps 'strongwoman'?). I think he's right, and that this Russia situation is setting the stage for such a president in a major way. Despite all of Obama's over-the-top belligerent and aggressive tone towards Russia, we're still seeing shouts from both sides that he's too weak or ineffectual to handle the new threats to the US. In other words, we need a bigger warmonger. Hillary already seems to be busy working that angle:

http://www.zerohedge.com/news/2014-08-11/hillary-clinton-blasts-obamas-dont-do-stupid-stuff-foreign-policy

I suspect that most of the primary candidates are going to be trying to out-do one another on their "strong, decisive leadership" qualities, competing over who is the biggest hard-ass on America's enemies. And the one that wins will probably be the most aggressive, authoritarian, and militant of the bunch (sorry Rand Paul, you're probably too close to non-interventionist to get the thumbs-up from TPTB). The escalation with Russia is merely helping set up the narrative of "America's enemies are everywhere and so we have to be stronger and more ruthless than ever". It'll be an ironic twist that the new US president in 2016 will probably mimic many of Putin's own repressive domestic and economic policies.

Some might say this is all part of some master plan to seize more power, and others might say this is just a result of arrogance and overconfidence on the part of a declining empire. It probably doesn't matter which one it is since the outcome will likely be the same..... a strongman/strongwoman president eclipsing the power of the Legislative and Judicial branches, more government controls & restrictions (especially of an economic nature), more moves to crush or silence dissenters (as with the Sedition Act of 1918), more US military involvement throughout the world (some being proxy wars with Russia and perhaps later with China), and more calls for the American people to make 'necessary sacrifices'. As to what 'necessary sacrifices' will entail go ahead and use your imagination, but I'm pretty sure they won't be the ones that actually need to be made.

davefairtex's picture
davefairtex
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Posts: 5423
the reason given for the rally

My sense of last Friday's bounce was that the market had dropped 100 points, pretty steadily downhill for more than a week, and it was oversold.  It was a 5.2% drop from the peak, and that's certainly nothing to sneeze at.  And seeing this was the first real drop in months, after 5 years of bull market, the shorts were likely a bit nervous.  I know I was.  I was actually expecting a bounce a few days earlier - the fact the market took a few extra days to rally was actually a good sign for the shorts.

When markets are oversold, they tend to bounce for odd reasons.  A rumor is good enough.  Shorts decide to take profits right then, they cover, buy-the-dip algorithms kick in, and you get a crazy-mad 40 point bounce.  A plunge-protection-team isn't required.  The market can do this all by itself.

As for this happening in the wee hours of the morning, that's a US-centric view.  Most trading houses have 24/7 trading floors, because all markets tend to influence each other.  If London markets move higher, that will affect US equities, so that will tend to move US e-mini futures during the London trading hours.  So if you are just focused on US trading, it looks like some sneaky "wee hours of the morning" play, but its just 24/7 trading.

Here's an illustration of Thursday/Friday e-mini contracts (S&P 500 index futures) with timezone translations.  There was a sell-off at 2100 EDT/0900 JST (US traders tucking in their kids at nite, but traders in Japan just starting their day), and the rally started at 0400 EDT/0900 GMT (US traders sound asleep, but London just starting their trading day).

Regardless of this latest rally, I still see the current trend as lower.  Sentiment seems to have changed, at least to me.  I'm not sure just how much lower we go, or how quickly, but I'm looking to get back on board short once I see this current rally fail.  In the meantime I'm not worried overmuch about the short covering rallies, or the whys and wherefores of what sets them off.  They just happen.  Anyone who went through 2008 remembers all the crazy things that caused rallies during that time.  Rumors, Paulson talking about bazookas - none of it lasted, but boy were the one day rallies fantastic.

But I have learned since then.  In sum, I expect the crazy rallies.  What I look for are the subsequent failures to set higher highs.  I want to see sell-offs on good news.  That will confirm the bearish sentiment for me.

The whole topping process is just that - its a process.  Five years of bullishness does not all die off in a day, or a week.  This gives traders that are inclined to be short some time to get on board before things start moving downhill more rapidly.

In the meantime, looks like gold is opening up +5 this morning.  What's not to like about that?

Michael_Rudmin's picture
Michael_Rudmin
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Not Putin. Wall Street bankers

I disagree very strongly that we are pushing Putin towards war with the US because of some attack on the dollar by Putin.

On the contrary, the attack on the dollar was accomplished by the 2008 bailout.  In doing that, we doubled the national debt, and gave it in interest free loans with no specified date of repayment, to the bankers that had formed their banks specifically to pay zero taxes. 

In other words, there was a massive theft, and the misery index spiked super-high, and now?  To keep the stolen goods without cost to themselves, our potlical elite are going to have to start a war to kill off the poor they destroyed.

This is NOT treason by the standards of the US constitution.  But it is a very deep betrayal, and of the type that has occurred regularly throughout history.  Add to the fact that wars between superpowers, at this point are likely to go nuclear, and kill a third of humanity...

I have no answer but to say "Come, Lord Jesus.  Cut the time short, lest no living thing survive."

 

 

 

 

Sean_R's picture
Sean_R
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Argentine & Russian Economic Collaboration

The English subtitles are annoyingly quick but I still found this news report from Russia to be interesting:

Meanwhile the Polish ambassador to Washington has to appeal to the American public to buy his surplus "freedom apples";

 

 

auldhickory's picture
auldhickory
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Posts: 3
Sergei Glasiev - A Name to Watch?

Erik Townsend brought up an interesting topic in the August 2nd Financial Sense Newshour's "Big Picture". (He substituted for Jim Puplava that weekend.) He used the analogy of how Kissinger understood the implication of Nixon defaulting on the Bretton Woods system and engineered the "petrodollar" standard as a replacement. Townsend notes that one Sergei Glasiev has Putin's ear and has a specific plan to develop a new or competing reserve currency system.

The relevant part of the interview begins at about 30:00, although the whole segment may be of interest.

pgp's picture
pgp
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Posts: 208
Analysis appreciated

Thanks Davefairtex, all good points. Your input is much appreciated.

JohnH123's picture
JohnH123
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Posts: 46
The Fed can create unlimited amounts of money

Chris,

Thanks for your analysis. Would you talk more about the plunge protection team, and how much power they have? So far, the markets have not tanked, as expected. Since the Fed can create unlimited amounts of money in secret, and give it to the plunge protection team to buy stocks, what will stop the market from going wherever they want it to go, which so far has been up? In addition, if the US driven war with Russia tanks the  European economy, money from Europe will flow into the US dollar and stock market.  

I would love to hear your thoughts on this.

John

RogerA's picture
RogerA
Status: Silver Member (Offline)
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Posts: 106
Currency and currency.

Dirt is the most valuable form of currency.
Newspaper editors, executives, TV producers, police, MI5, lawyers, MPs, ministers and gangsters are constantly trafficking in information about each other in order to get on top.

Information is in my humble opinion more important than paper or gold.

Arthur Robey's picture
Arthur Robey
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Posts: 3936
South America Seizes the Opportunity

Just who is isolating who here?

 

climber99's picture
climber99
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Posts: 183
China ?

Where does China stand in all this?  An alliance between the Russian Federation and China would be a formidable foe for the US.  However if Russia falls and its oil resources come under US control, China will be isolated and vulnerable.

So here we have the beginnings of the demarcation of the two sides of the next world war.  Russia and Iran supplying fossil fuels and resources to China on one side, traded in their currencies.  Iraq and Saudi Arabia supplying fossil fuels to the US, traded in dollars, on the other.  This is what happens when oil on the export market starts to dry up. US and China will have to fight for what's left.

Everyone else will have to pick sides.  It will be interesting what sides they pick.  

Ed

Arthur Robey's picture
Arthur Robey
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Posts: 3936
Destabilization

China is going to step into the food importation gap, although I was under the impression that they were importing food themselves.

So I Guess that they will be buying more wheat from Australia and the US and on-selling it to Russia, for a markup of cause. Some free gas perhaps?

Over here in Australia the Russian humanitarian aid convoy to the Ukraine is being spun as a "destabilizing" factor by the MSM.  So I guess that if we send in humanitarian aid, it's credentials are impeccable- but if the Russians want to comfort their Kith and Kin we can only conclude they are up to some nefarious plot.

Do they ever blush while lying through their back teeth? No.

Substantive Comments Please's picture
Substantive Com...
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Posts: 1
Cold War Narrative

The MSM in here in the U.S. ignored the demonstrations in Ukraine last fall. They gave little coverage to the coup last February. But when pro Russian Ukrainians occupied government offices in Crimea, declared independence and then held an referendum to return to being a part of Russia the mass audience in the U.S. is told of Russia's behind the scenes moves to help the annexation happen, even characterizing it as an "invasion." It is presented as the opening salvo in the "new cold war." But to this day the MSM is not asking if the USAID, National Endowment for Democracy or any other government agency was involved in the demonstrations or the coup in Kiev. Little is mentioned about the NATO expansion betrayal Chris outlines in his column.

The narrative was intensified following the July 17th crash of MH17. The MSM finally actually sent reporters to eastern Ukraine. The demonization of the Ukrainian separatists included the exaggeration of their mishandling of the crash site. They reported rumors of looting as fact. There were photos of an unshaven separatist in fatigues carrying an automatic rifle and holding up a small stuffed monkey like a trophy of the crime for which he was supposedly responsible. But RT showed the video of the scene which appeared as if the photographers had asked him to hold it up. Once they had gotten their photos the soldier gently put the stuffed animal back on the ground and then crossed himself in a religious gesture of respect for the dead.

The narrative was that the separatists were delaying the arrival of the crash investigators in order to remove evidence of their "crime." But because of the ongoing civil war, representatives of the Organization for Security and Cooperation in Europe (OSCE) were already present as observers in the area of the crash. They were allowed partial access to the site the day after the crash, and full access, along with the news media, within a couple of days. But the MSM kept blaming the separatists for preventing the investigators from reaching the site. On Sunday July 27th, ten days after the crash, the international investigators made it to Donetsk. But they were turned back from the crash site because, according to the MSM, "fighting had broken out" in the area. The next day the New York Times reported that Dutch police officers had been waiting for the Ukrainian government to give them "the legal authorization" to go to the site and that "The Ukrainian government has been loath to see foreign governments negotiate with separatist leaders..." But within hours after the Malaysian government reached an agreement with the separatists directly the Ukrainian military launched an attack on the area between Donetsk and the crash site, thus preventing the Dutch police officers from reaching the site. Not even the NYT mentioned that the Ukrainian government was violating the UN Security Council Resolution that calls for a halt to fighting in a 40 km zone around the crash site in order to allow the investigators to do their work. In the 16 days since then reporting has been very limited. The investigators' access has been limited. And neither the pundits in the MSM nor politicians of either party have called on the Ukrainian government to halt the fighting around the crash site. Where's the outrage now?
 

 

Time2help's picture
Time2help
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Meanwhile, on the homefront...

http://new.livestream.com/accounts/9035483/events/3271930/videos/59166942

About 8:30 in things go south.

pgp's picture
pgp
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Posts: 208
Have to laugh.

You have to laugh at the stupidity of European politicians. Even if they lift sanctions, the damage will have been done. Sadly it probably just means we're closer to permanent East West tension and threat of war.

climber99's picture
climber99
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Posts: 183
Q2 growth 0

The Q2 GDP growth rates for the 18 country Euro area was 0%

The European politicians are indeed being laughably weak.  By letting their foreign policy to be dictated by the US, they are driving the Russian Federation away at a time they should be drawing her closer.  The business sector may assert themselves on European foreign policy eventually, although by then the damage may already be irreversible.

In the end, the 10 year moving average of world growth is going negative soon and stay negative for ever as we go beyond the limits to growth.

Ed

Time2help's picture
Time2help
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Time2help's picture
Time2help
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Shooting War

Ukraine Troops Destroy Part Of "Armed" Russian Convoy

Perhaps someone didn't care for the "Petrodollar must die" commentary?

Time2help's picture
Time2help
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Posts: 2833
Odd...

BBC doesn't appear to be reporting this story (Ukraine Troops Destroy Part of "Armed" Russian Convoy). 

http://www.bbc.com/

Just the relief convoy.

http://www.bbc.com/news/world-europe-28802849

?

kaimu's picture
kaimu
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Posts: 160
ON THE PATH TO DEBT!

Aloha! After eight days of no power and no internet I am happy to report that the Cat1 winds of Iselle are not enough to ruin Paradise! Maybe WW3 is ...

Still ... for all the talk of WAR I am wondering how the hell are all these SUPER DEBT countries going to pay for it? It won't be tax revenues and really no major war ever runs on just taxation.

A recent Bloomberg article shows long term debt holders, including China and Japan, moving out of US Treasuries at an all time record rate for the month of June.

The total net outflow of long-term U.S. securities and short-term funds such as bank transfers was $153.5 billion, after an inflow of $33.1 billion the previous month, the Treasury Department said in a report today. The June figure, and $40.8 billion in net selling of Treasury bonds and notes by private investors in June, were the largest on record, the Treasury said.

China and Japan’s combined share of total foreign holdings of Treasuries has declined since 2004. It dropped to 41.4 percent in June from 50.9 percent in August 2004, according to data compiled by Bloomberg.

When there is a WW3 then imagine how much faster China and Japan will move out of US Treasuries to pay for their military ramp up! Now imagine that FFR interest rates will not be at near 0% when that happens.

I took a look back at US Treasury numbers and in the June 30th, 1998 report there was only $31BIL in long term bonds, which is what is needed to fund a WW3. Pretty much all the fiscal years until 2009 saw low commitments to long term US bonds. That is when the Great Depression #2 hit and then during Obama's reign the long term bond sales(issuances) skyrocketed and net debt jumped to $1.5TRIL YTD in June. In June 2010 net debt YTD stayed high at $1.3TRIL. We have been piling on the net debt since then. If you go back to FY 1998 in June the net debt YTD was only $134BIL. In today's US Treasury debt market it only takes days for net debt increases greater than $134BIL, not years!

What I see is that the USA had its WW3 in "debt terms" in 2008-2011, but it was not a guns blazing, bomb dropping war like WW2 it was a derivatives bombing currency war where accountants and lawyers were drafted for the front lines in order to save US banks from their own hubris. The US economy has not fully recovered since then and in fact more resembles a "post war economy" ... In reality we had our WW3 ... WW4 is next!

There you have it ... every Empire eventually impales itself on the Sword of Hubris! In ancient Greek times "hubris" was a crime punishable by death. Now it's an art form refined and exalted by elite politicians and bankers working in unison to make sure maximum suffrage is imposed on the masses by central banking. That's the place that wars are funded and fought and all fiscal reality is suspended.

"It was a bright cold day in April and the clocks were striking thirteen." - George Orwell, 1984, first sentence

 

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