Tag Archives: Eurozone

The Yuan: Stealing from Piers to pay 保罗

So, indeed the Yuan was made into a reserve currency and the link-by-failure is already being established. It is interesting, though, that the bulk of the value transfer involved is coming from the Euro, not the Dollar or Yen. Linked by the IMF formally or not, though, if either the Euro or the Yuan fail over the mid-term the other will as well. The Chinese and Eurozone economies are intimately linked already, but were linked more by success than failure until now. That the failure of either is a very real possibility is too terrifying for the financial press to discuss, I think, and it is a political landmine public figures are trying very hard to avoid mentioning. It even seems that the made-up nature of Chinese government economic estimates isn’t even in the news much these days. You would think that little detail might enter into the discussion about adding a new currency to the IMF’s reserve currency group.

There is no longer a strong relationship among basic aspects of value assignment, legal ownership, practical control (that is, “real ownership”), vested business interest in terms of the performance value of concerns, and available goods and services in either the Eurozone or Chinese markets. While there are no recipes for economic success, there are several recipes for disaster (ask an economist about this — their responses tend to be as enlightening and humorous as they are depressing on reflection). A lack of correlation between various forms of utility values and assigned values is one of the disaster recipes. There is no easy way to fix this other than a kinetic re-establishment of property rights, and that means there is nothing left to do in the current situation than hope that when they do fail, they fail cleanly. But historically there is no such thing as a clean failure (in theory, of course, all sorts of lovely solutions exist).

Dropping an anvil on the overloaded camel’s back in the Eurozone or China would be rather easy at the moment, as both economies are in precarious situations. In fact, inducing a major market collapse would be so easy right now that failure is almost certain to come as the result of a deliberate action from an external player than by mere circumstance. The more players who realize this is true the more likely such an action becomes: why let a failure happen to you when you can be the one making it happen if the event is inevitable?

In describing the European and Chinese economic situations a financial analyst friend of mine used the phrase “poised to fail” (along with a lot of depressed-looking facepalming). When someone says that to a geopolitical analyst, though, ears perk up. There is always opportunity to be found in crisis, and sometimes when crisis is inevitable the best play is to be the cause of it yourself, because then you are the only one truly prepared. Consider the economic fallout of Russia’s invasion of Georgia in August 2008. A similar performance is absolutely not out of the question, nor is having some “terrorists” conveniently demonstrate the peaceful nature of some religion all over a ship in the Strait of Malacca at a perfectly horrible moment.

2007-2010 SPY chart

Rhetoric forces us to pretend that the August invasion of Georgia did not trigger a reassessment of risk in Eastern European carry trade loans, and instead believe that the already liquidated American subprime loans acted as a magical “contagion” that unfairly crushed the Eurozone. As if the European economies were not profoundly overleveraged and primed to implode.

There really isn’t anything to do about what is going on with the Yuan, really. This course was set about 20 years ago (yes, all the way back in 1995 — after the Cold War, after the first post-Tienanmen Square Five Year Plan was in action; as China started on its “Money is Good” -> “Expansion Above All” -> “Don’t Stop the Train” -> “WTO Rules? Screw the rules, I have money!” chain of policies). The general trend will continue, as none of the players seems to have any inkling of how to change the rules of the game — and the trend is of the end of a decades-long political and financial cycle. The way these stories end is never happy.

1984-2015 Money Base chart

Anyone who thinks that events since 2008 have been business as usual and that geopolitics plays no part in this because “its just a market hiccup” is deluded.


Every end is a new beginning, and that’s what is really worth focusing on. That may sound like small comfort (and it is), but if you already know things are going to get worse before they get better, then at least you won’t find yourself sleeping in a bed of broken dreams. It is too soon to tell which way this Jenga tower is going to topple, but we are nearing the end of this round of the game.

France in Syria: Still Not Here to Save the World

Folks have been really excited about France getting into war-mode on Syria after the Paris attacks. People were even momentarily excited about Turkey’s decision to shoot down a Russian plane the other day. Now Paris and Moscow are maybe working together on hitting ISIS? While the Washington is doing the same thing?!?

Man, its like a giant peace party!

Wait… um… what? No. War is not the same thing as peace. Let’s be careful to remember that. Let’s also be careful to remember that “peace”, taken without any qualifications, is a meaningless, impossible, and downright harmful goal.

Some folks are very hopeful that France’s involvement in the Syrian conflict signals a Great Change in The Way Things Work. They hope that Paris will somehow “bring Moscow into the fold” because “now Paris understands terrorism”. Other even hope that now Paris will bring NATO together under a single purpose (other than simply being an anti-Russian alliance). Lovely hopes, but not really the way things are going to work out.

I don’t mean that Paris doesn’t understand terrorism, they totally understand it — to the point that Paris is expert at both resisting it and employing it where it makes sense. They understand it so well that they know that uniting NATO “against terrorism” would make about as much sense as uniting NATO against Middle Eastern kidnapping.

I’m not saying the French are evil, mind you, I am saying they are savvy. They get the way the game works. They have been on the ball, racking up a string of strategic victories in Africa over the last decade. They’ve re-established their “middle empire” (the “middle” being between Washington and Moscow) while Washington has been too preoccupied with chasing brown guys to notice. This indicates that while they know how to play terrorism for votes in domestic politics (they are too smart to care much about what outsiders think of them) they also know that making “terrorism” the target of a major military operation is totally ridiculous.

Terrorism is a tactic not an identity. You can’t target terrorism any more than you can target long-hand division or yoga. Terrorism is the “civil disruption” phase that a political movement goes through whenever a legitimate political course of action is not available. Consider the evolution of the PLO or Hezbollah. Unless you are over 40, you likely won’t even remember that those are the groups that were arch-terrorists before. Now they are political parties. Yasser Arafat, the PLO’s Dr. Evil himself, received a Nobel Peace Prize (not that the Peace Prize means anything). Hezbollah is a fantastically profitable global franchise operation now, only partially focused (by some measures) on imposing a political outcome in Lebanon (their purpose for existing is the subject of eternally flexible rhetoric — which means the real purpose for Hezbollah’s existence is simply the survival of Hezbollah at this point).

But what about this cooperation thing? France getting into Syria must require some coordination with Russia and the US, right? And NATO? Turkey is in NATO, the US is in NATO, France is (again, that is) in NATO… so what gives?

Coordination will be necessary to prevent more “friendly” (?) fire incidents, but its more the kind of coordination that seeks to prevent midair collisions as polits jockey for superior position against one other while they run their sorties against ground targets. Remember, Turkey just shot down a Russian plane — anyone in the sky above Syria right now is considering everything else in the sky and absolutely everyone on the ground to be a threat. Sounds weird? Well, it is. But that’s reality for you. You couldn’t make up a plot for a book more convoluted than the way the real world works.

France’s goals are still France’s goals. They are not American goals. Sure, a lot of Americans and French and non-French Europeans see things the same way for the moment — but that’s a common view held of mutually held anger at a third party than anything else. The immigration wave and xenophobia that is going to increasingly fuel will continue to drive a common view over the short term (not in the least because the nightmares fueled by fear of rampant Middle Eastern and African immigration are not without foundation, particularly when coupled with domestic population decline).

France’s goal is to maintain its middle empire and use it to force Berlin into a subordinate relationship with Paris. This goal has held steady since the creation of the Euro, and France has demonstrated an amazing amount of fortitude and clarity of direction in the realization of that goal — even more amazing considering the contentious nature of their electoral politics since the Soviet collapse. Germany being in NATO with France, being home to the ECB, being “friends” with France, etc. doesn’t really matter — the reason France and Germany have been enemies so long is still based on geography, and that still forces France and Germany to regard one another in terms of capacity instead of intent. France has the upper hand in military terms, and will the economy likely to crash the only lever Germany has (dependent entirely on imported energy) is likely to disappear, or fall under the indirect control of Paris anyway if France can create an energy alternative for Germany that isn’t Russian gas (which is why France worked to isolate Germany even more from practical alternatives by destroying Libya and demonstrating their practical ability to dominate North Africa (ENI’s gas fields) and the Mediterranean).

Russia’s goals are still Russia’s goals. Well, in Russia’s case it is even more clear that Russia’s goals are actually Moscow’s goals. That is also not going to change, and despite a lot of poorly disguised epicaricacy on behalf of Western powers, Russia’s financial problems based on dropping energy prices are actually more likely to make Russia turn into a deliberately confrontational, economically detached player than a compliant ally of the West. Russia is looking out for what its own survival in what it necessarily views a dark and dangerous world. The West world will soon find itself with even fewer levers to control Russia for the forseeable future.

So France “bringing Russia into the fold”? France “getting NATO on the same page” to lead a charge against dastardly terrorist types? Nope. That’s just as naive as hoping that Russia was either sincere about squashing ISIS or helping Assad (either goal would at least speed a non-ISIS resolution to the Syrian conflict — and life under Assad wasn’t nearly as screwed up as life in a civil war…). Syria is, for the moment, a useful problem for France. That doesn’t mean that French politicians won’t accidentally start believing their own rhetoric (the way the Americans did after the invasion of Iraq was over… whoops!), but unlike 2001, the world today is full of threats that are obviously more important than chasing brown guys. In view of the Cold War II / WWIII type issues at stake right now, if the Europeans get serious about “solving” terrorism they are much more likely to resort to historically typical European solutions such as mass deportation at spear-point, mass military impressment, mass concentration, or mass execution than believing that an air campaign is going to make anything change (well, maybe carpet bombing would have some effect…).

France is a lot more likely to play Syria partly to drive a wedge between Russia and NATO (particularly Germany and Turkey), partly to demonstrate to Russia that France is willing to deal (and has something worth dealing), partly to show Washington where the red lines are (without spoiling the relationship with AFRICOM), and partly for the domestic electoral lulz. Killing ISIS guys is always good press and all it costs (right now) is printing more money and a general disregard for collateral damage (which is, ironically, why the Americans are always going to be utterly ineffective — they are absolutely afraid to hurt anyone, and religious bad guys are very good at hiding in plain sight, right behind rows of school children). Aside from this there is a vast array of geopolitical opportunities open in Syria right now, because of how the Syrian play augments the Russian play in Armenia (to pressure Turkey and keep Georgia as an effective vassal). Syria has become an interesting stage upon which Cold War II politics is playing out — this act of it, anyway.