Pakistan, Russia and the Threat to the Afghan War

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PAKISTAN, RUSSIA AND THE THREAT TO THE AFGHAN WAR
November 29, 2011
By George Friedman

Days after the Pakistanis closed their borders to the passage of fuel and supplies for the NATO-led war effort in Afghanistan, for very different reasons the Russians threatened to close the alternative Russia-controlled Northern Distribution Network (NDN). The dual threats are significant even if they don't materialize. If both routes are cut, supplying Western forces operating in Afghanistan becomes impossible. Simply raising the possibility of cutting supply lines forces NATO and the United States to recalculate their position in Afghanistan.

The possibility of insufficient lines of supply puts NATO's current course in Afghanistan in even more jeopardy. It also could make Western troops more vulnerable by possibly requiring significant alterations to operations in a supply-constrained scenario. While the supply lines in Pakistan most likely will reopen eventually and the NDN likely will remain open, the gap between likely and certain is vast.

This satellite imagery depicts trucks laden with fuel and supplies for the NATO-led campaign in Afghanistan stacked up at the Torkham border crossing in Pakistan near the Khyber Pass during a similar incident in October 2010.

(click image for larger version)

The Pakistani Outpost Attack

The Pakistani decision to close the border crossings at Torkham near the Khyber Pass and Chaman followed a U.S. attack on a Pakistani position inside Pakistan's tribal areas near the Afghan border that killed some two-dozen Pakistani soldiers. The Pakistanis have been increasingly opposed to U.S. operations inside Pakistani territory. This most recent incident took an unprecedented toll, and triggered an extreme response. The precise circumstances of the attack are unclear, with details few, contradictory and disputed. The Pakistanis have insisted it was an unprovoked attack and a violation of their sovereign territory. In response, Islamabad closed the border to NATO; ordered the United States out of Shamsi air base in Balochistan, used by the CIA; and is reviewing military and intelligence cooperation with the United States and NATO.

 (click image for larger version)

The proximate reason for the reaction is obvious; the ultimate reason for the suspension also is relatively simple. The Pakistani government believes NATO, and the United States in particular, will fail to bring the war in Afghanistan to a successful conclusion. It follows that the United States and other NATO countries at some point will withdraw.

Some in Afghanistan have claimed that the United States has been defeated, but that is not the case. The United States may have failed to win the war, but it has not been defeated in the sense of being compelled to leave by superior force. It could remain there indefinitely, particular as the American public is not overly hostile to the war and is not generating substantial pressure to end operations. Nevertheless, if the war cannot be brought to some sort of conclusion, at some point Washington's calculations or public pressure, or both, will shift and the United States and its allies will leave Afghanistan.

Given that eventual outcome, Pakistan must prepare to deal with the consequences. It has no qualms about the Taliban running Afghanistan and it certainly does not intend to continue to prosecute the United States' war against the Taliban once its forces depart. To do so would intensify Taliban attacks on the Pakistani state, and could trigger an even more intense civil war in Pakistan. The Pakistanis have no interest in such an outcome even were the United States to remain in Afghanistan forever. Instead, given that a U.S. victory is implausible and its withdrawal inevitable and that Pakistan's western border is with Afghanistan, Islamabad will have to live with -- and possibly manage -- the consequences of the re-emergence of a Taliban-dominated government.

Under these circumstances, it makes little sense for Pakistan to collaborate excessively with the United States, as this increases Pakistan's domestic dangers and imperils its relationship with the Taliban. Pakistan was prepared to cooperate with the United States and NATO while the United States was in an aggressive and unpredictable phase. The Pakistanis could not risk more aggressive U.S. attacks on Pakistani territory at that point, and feared a U.S.-Indian entente. But the United States, while not leaving Afghanistan, has lost its appetite for a wider war and lacks the resources for one. It is therefore in Pakistan's interest to reduce its collaboration with the United States in preparation for what it sees as the inevitable outcome. This will strengthen Pakistan's relations with the Afghan Taliban and minimize the threat of internal Pakistani conflict.

Despite apologies by U.S. and NATO commanders, the Nov. 26 incident provided the Pakistanis the opportunity -- and in their mind the necessity -- of an exceptional response. The suspension of the supply line without any commitment to reopening it and the closure of the U.S. air base from which unmanned aerial vehicle operations were carried out (though Pakistani airspace reportedly remains open to operations) was useful to Pakistan. It allowed Islamabad to reposition itself as hostile to the United States because of American actions. It also allowed Islamabad to appear less pro-American, a powerful domestic political issue.

Pakistan has closed supply lines as a punitive measure before. Torkham was closed for 10 straight days in October 2010 in response to a U.S. airstrike that killed several Pakistani soldiers, and trucks at the southern Chaman crossing were "administratively delayed," according to the Pakistanis. This time, however, Pakistan is signaling that matters are more serious. Uncertainty over these supply lines is what drove the United States to expend considerable political capital to arrange the alternative NDN.

(click image for larger version)

The NDN Alternative and BMD

This alternative depends on Russia. It transits Russian territory and airspace and much of the former Soviet sphere, stretching as far as the Baltic Sea -- at great additional expense compared to the Pakistani supply route. This alternative is viable, as it would allow sufficient supplies to flow to support NATO operations. Indeed, over recent months it has become the primary line of supply, and reliance upon it is set to expand. At present, 48 percent of NATO supplies still go through Pakistan; 52 percent of NATO supplies come through NDN (non-lethal); 60 percent of all fuel comes through the NDN; and by the end of the year, the objective is for 75 percent of all non-lethal supplies to transit the NDN.

Separating the United States yields a different breakdown: Only 30 percent of U.S. supplies traverse Pakistan; 30 percent of U.S. supplies come in by air (some of it linked to the Karakoram-Torkham route, probably including the bulk of lethal weapons); and 40 percent of U.S. supplies come in from the NDN land route.

Therefore, Dmitri Rogozin's threat that Russia might suspend these supply lines threatens the viability of all Western operations in Afghanistan. Rogozin, the Russian envoy to NATO, has been known to make extreme statements. But when he makes those statements, he makes them with the full knowledge and authorization of the Russian leadership. Though he is used to making statements that the leadership might want to back away from, it is not unusual for him to signal new directions in Russian policy. This means the U.S. and NATO militaries responsible for sustaining operations in Afghanistan cannot afford to dismiss the threat. No matter how small the probability, it places more than 100,000 U.S. and allied troops in a vulnerable position.

For the Russians, the issue is the development and deployment of U.S. ballistic missile defenses in Europe. The Russians oppose the deployment, arguing it represents a threat to the Russian nuclear deterrent and therefore threatens the nuclear balance. This was certainly the reason the Soviets opposed the initial Strategic Defense Initiative in the 1980s. Carrying it forward to the 2010s, however, and the reasoning appears faulty. First, there is no nuclear balance at the moment, as there is no political foundation for nuclear war. Second, the U.S.-European BMD scheme is not designed to stop a massive launch of nuclear missiles such as the Russians could execute, but only the threat posed by a very small number of missiles such as might be launched from Iran. Finally, it is not clear that the system would work very well, though it has certainly proven far more capable than the turn-of-the-century predecessor systems.

Nevertheless, the Russians vehemently opposed the system, threatening to deploy Iskander short-range ballistic missiles and even tactical nuclear weapons in Kaliningrad and other locations in response. The Russian concern is obviously real, but it is difficult to believe it is the nuclear balance they are concerned about. Rather, it is the geopolitical implications of placing BMD infrastructure in Central Europe.


Opposition to a Second Containment

Elements of the weapons, particularly radars and interceptors, are being deployed around the periphery of Russia -- in Poland, Romania, Turkey and Israel. From the Russian point of view, the deployment of radars and other systems is a precursor to the deployment of other military capabilities. They are extremely valuable installations that must be protected. Troops therefore will be deployed along with air defenses, and so on. In other words, the deployment of the BMD infrastructure itself may have no practical impact on the Russians, but the indirect consequences would be to set the stage for more expansive military deployments. The Russians must assume this could entail a return to containment, the principle employed by the United States during the Cold War to limit Soviet power.

The Russians see the inclusion of other military forces at the locations of the interceptor and radar deployment as creating a belt of nations designed to contain Russia. Given the uncertain future of Europe and the increasing relative power of Russia in the region, the United States has an interest in making certain any disruption in Europe doesn't give the Russians opportunities to extend their political influence. While the extent to which American planners chose the sites with the containment of Russia in mind isn't clear, from the Russian point of view the motive doesn't matter. Planning is done based on capability, not intent. Whatever the U.S. intent, the move opens the door for containment if and when U.S. policy planners notice the opportunity.

The Russians have threatened actions for years, and in the past few weeks they have become increasingly vocal on the subject of BMD and on threats. Rogozin obviously was ordered to seize on the vulnerability created by the Pakistani move and introduced the now-indispensible NDN as a point where the Russians could bring pressure, knowing it is the one move the United States cannot tolerate at the moment. Whether they intend to shut down the supply line is questionable. Doing so would cause a huge breach with the United States, and to this point the Russians have been relatively cautious in challenging fundamental U.S. interests. Moreover, the Russians are worried about any instability in Afghanistan that might threaten their sphere of influence in Central Asia. However, the Russians are serious about not permitting a new containment line to be created, and therefore may be shifting their own calculations.

It is a rule of war that secure strategic supply lines are the basis of warfare. If you cannot be certain of supplying your troops, it is necessary to redeploy to more favorable positions. The loss of supply lines at some point creates a vulnerability that in military history leads to the annihilation of forces. It is something that can be risked when major strategic interests require it, but it is a dangerous maneuver. The Russians are raising the possibility that U.S. forces could be isolated in Afghanistan. Supply lines into the landlocked country never have been under U.S. or NATO control. All supplies must come in through third countries (less than a third of American supplies come by air, and those mostly through Russian airspace), and their willingness to permit transit is the foundation of U.S. strategy.

The United States and NATO have been exposed as waging a war that depended on the willingness of first Pakistan and now increasingly Russia to permit the movement of supplies through their respective territories. Were they both to suspend that privilege, the United States would face the choice of going to war to seize supply lines -- something well beyond U.S. conventional capacity at this time -- or to concede the war. Anytime a force depends on the cooperation of parties not under its control to sustain its force, it is in danger.

The issue is not whether the threats are carried out. The issue is whether the strategic interest the United States has in Afghanistan justifies the risk that the Russians may not be bluffing and the Pakistanis will become even less reliable in allowing passage. In the event of strategic necessity, such risks can be taken. But the lower the strategic necessity, the less risk is tolerable. This does not change the strategic reality in Afghanistan. It simply makes that reality much clearer and the threats to that reality more serious. Washington, of course, hopes the Pakistanis will reconsider and that the Russians are simply blowing off steam. Hope, however, is not a strategy.

Copyright 2011 STRATFOR. Republished on The Big Dustup with permission, www.stratfor.com.

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Afghanistan - touch down in flight

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This is an amazing video by Lukas and Salome Augustin. Hard to describe. You have to see.


Afghanistan – touch down in flight from Augustin Pictures on Vimeo.
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German Chancellor Angela Merkel Creeps Me Out

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Why is it that German Chancellor Angela Merkel looks so much like another well known German Chancellor from about 70 years ago?  In her posture, her gestures, and even sometimes in her facial expressions, the resemblance is a little creepy.

 

 

 

 

 

 

 

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Wind Energy Creates More Jobs - but is that a good thing?

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The Department of Energy says that wind energy creates jobs.  In fact,

"Wind energy projects generate more new jobs than conventional fossil fuel projects. According to a study by the New York State Energy Research and Development Authority, wind energy produces 27% more jobs per kilowatt-hour than coal plants and 66% more jobs than natural gas plants."

But all that means is that wind energy is totally inefficient and costly.

I wonder if anyone has pointed out to the DOE that hiring people to turn hand-crank generators would create even more jobs per kilowatt-hour.  Hand-cranked energy is the route to full employment for all Americans!

How many hand-cranking Americans does it take to run an electric arc furnace to make steel? I'll bet it would take the entire population of the state of Michigan to generate enough electricity to satisfy the need for steel in Detroit.

Oh wait.  I don't think they need steel in Detroit anymore.

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Climate Quote for the Day

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“Many people, relying on their memories alone, insist that our climates are now very different from what they used to be. Their fathers made similar statements about the climates of earlier times, as did also their father’s fathers, as their several writings show, and so on through the ages; and the bulk of this testimony is to the effect that our climates are getting worse–evidence perhaps that flesh has always been heir to ills.”
       --- W. J. Humphreys, 1920

William Jackson Humphreys was a noted meteorologist and atmospheric physicist
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Israel and the Palestinians

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To understand what is going on with Israel and the Palestinians, let's look at a rather peculiar scenario with the US and Mexico.  What would happen if a radical nationalistic religious sect were to take over Mexico? Let's assume that they hate the US for the War of 1846 where we "stole" California and Texas from them.

Their demands initially are that we give them back the entire southwestern US, including California. They call it the occupied Aztlán territory. As time goes on, their demands grow greater. They say that since Cortez claimed all of the mainland, Mexico must extend over all of North America. They call us the hated occupiers and say we are related to Satan -- not even human.

Execution-style killings of Americans begin to occur worldwide "in solidarity with the oppressed Mexicans". Suicide bombs go off in American cities, sometimes killing hundreds. Mexico launches thousands of randomly-directed missiles a year into San Diego, Los Angeles, Tucson, El Paso, and Brownsville.

In order to pacify the Mexicans, and since their economy is so bad they cannot feed their people, we supply them with billions of dollars of food and building materials every year.

This goes on for years, decades even. The world community supports the Mexicans, since they have always hated and envied Americans.

The US cuts the aid sent to the Mexicans, and then stops flotillas of ships claiming to be on humanitarian missions carrying food, but finds vast stores of missiles on board. The world says we are trying to starve the Mexicans. We go back to supplying their food.

The Mexican fighters have their bases in residential areas, so whenever we attack a missile base or a headquarters, the Mexicans show all the dead women and children. We attack their armored vehicles, and other countries complain that we have killed their humanitarian aid workers and peacekeepers. Over time, world opinion comes around more and more to the full radicalism of the Mexican position.

Finally, countries friendly to Mexico begin the development of nuclear missiles, and call for the destruction of the US.

So what would you do if you were the US?  And what would you do if you were Israel?

I love this photo.  Dig the guys with the shades.

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Government Debt and You

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Here is a good explanation of the whole mess:



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Quote for the Day -- On Poverty

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Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

This is known as “bad luck.”

-- Robert Heinlein, 1907-1988


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Global Warming is a Con

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The release of the “ClimateGate” emails almost 2 years ago showed conclusively that the idea of Global Warming is managed and propagated by a group of about 30 climate scientists spread over several countries. They call themselves “The Team”. They have defined an orthodox body of belief that if questioned is defended vigorously, and they control the publication of climate-related scientific papers through the peer review process, using the threat of blacklisting to pressure publications who accept skeptical articles.

The science itself is poor at best, and actually is fraudulent in many areas, being based predominantly on computer models that have been shown to be poor predictors. Actual temperature measurements and the analysis of them has been shown to be exceptionally flawed, from tree-ring studies based on only one tree (used to create Al Gore’s Hockey Stick chart), to fraudulent fiddling with trendless raw thermometer data to artificially produce an apparent severe global warming trend, to the siting of temperature measuring stations near hot asphalt, hot air conditioner exhaust, building roofs etc – and the removal of rural stations in preference to stations in cities and on airport tarmacs.

Multiple motivations exist:

• The billions and billions of dollars in government funding for climate research, regulation, and green energy
• The prestige among peers and the world in general
• The desire to bring down the mighty and have power over the powerful
• The desire to create a new order ruled not by businessmen or politicians, but by "enlightened scientists"
• The satisfaction that comes from believing you are fighting evil and saving the world
• The belief that the modern technological world is unnatural, and therefore bad.
• The belief that the problem of Global Warming can only be solved by a World Government, and is thus the perfect vehicle for creating one.
• The hatred of capitalism because it creates rich people
• The hatred of consumerism because it uses resources
• The hatred of individual freedom because individuals make bad choices for the planet
• The desire to control people and make them believe as you believe – by force of law
• The hatred of Americans for consuming resources while the world goes hungry

The idea that the whole planet is being destroyed by capitalist businessmen, and that the world can only be saved by creating a world government with wide-reaching powers to make everyone equal, while going back to an Eden-like existence, is an exceptionally strong meme with certain scientists, NGO’s, politicians, and grass-roots activists. They have long wanted to create the New Environmental Man, who curiously enough is just about identical to the old New Communist Man.

Money plays a role with the NGOs too. Most people don’t realize that Greenpeace has invested its donations heavily in European green energy companies. Greenpeace lobbies for green energy, and then profits when the governments subsidize it. Their profits are tens of millions of dollars now, but the Greenpeace coffers will fill with billions of dollars in the next 10 years as nuclear and coal plants are torn down, and green energy costing ten to twenty times more than fossil fuel is mandated.

Follow the money. Literally 100’s of billions worldwide are being spent on "climate research" and green energy. The skeptics are pretty much all self-funded. No wonder there is a “consensus” for global warming.

Big Green is set to make Big Oil look like pikers. While Big Oil had influence in government, Big Green will essentially run the government. In the future, all politicians will have to be climate believers.
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Gold and Stocks

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I sold most of my position in UGL late Thursday. (UGL is a 2x leveraged long gold ETF.) The price of gold had climbed too high not to take profit (1823 when I sold, see chart on right from Kitco). But since that time, gold has gone up even more (to 1881) – but then back down some (to just above 1840).

I also sold a position in FAZ (an ETF that tracks 3x the inverse of financial industry stocks) that I had entered on Tuesday, with a profit of 14 percent in two days. I had made 36 percent on a previous stake in FAZ entered during the first week of August and sold the next week. I may go in and out of FAZ with small portions of my accounts over the next few weeks depending on conditions. It has provided me with some rather extreme profits recently.

 The performance of FAZ over the last two weeks (click for larger).

I bought at 57.20 the previous week (not shown), sold at 78.00 on the 9th,  then bought again 57.93 on 16th, and sold at 66.31 on 18th.  I got a little lucky with the S&P downgrade on the first one, but hey, it was pretty obvious things were getting bad, true?
BigCharts

There is definitely a concern that gold could go down significantly, along with other commodities if Europe and China continue to decline, leaving the dollar stronger than other currencies. Probably a good play would be to short the Euro, and go long gold, but I am leery of Forex since it is all too politically controlled – and therefore unpredictable.

I do believe that the entire world economic situation is trending toward the inevitable outcome of extreme Keynesian intervention: stagflation. Based on that, a long term hard metal position could help maintain some value over the next few years. A 2x gold instrument position could actually build value in that situation. Probably not a bad idea to keep 20% of your investment in gold, but you may want to wait for a pull-back to buy.

 

Dow Jones Industrial Average (Five Years)

BigCharts

There are hints today that European banks are facing some liquidity “abnormalities”. The Swiss National Bank received $200M from the Federal Reserve special “swap line” for foreign central banks late this week, which they had not done since the swap lines were reopened in May2010. Earlier this week an unidentified bank in Europe borrowed $500M short term (one week) from the European Central Bank. See: Some European Banks Face Short-Term Funding Stress.

Remember that cascading liquidity issues were what caused the large number of bank and investment firm failures in the 2008 crisis. This was stopped (or slowed down at least) back then by the unprecedented action of the Federal Reserve to reduce rates and inject hundreds of billions of created dollars into the banking system. But now, rates are already zero, and any further quantitative easing would drive even more inflation – or stagflation actually.  Bernanke is stuck between a rock and a hard place, with few tools left in his bag.

I am mostly in cash and am willing to sit there for awhile. I may miss a big rally, but the risk is too high to be in stocks AT ALL right now. I like the following quotes from an article today on CNBC What Traders Are Saying: Uncertainty Stalks London:

A trader who identified himself only as Graham said between sips of beer in a Canary Wharf pub that the prevailing attitude in his workplace is this:

“The best bet right now is to do nothing. Every time you put risk on, you lose money. Every time you take risk off you lose money. You’re better off going away on a nice long holiday and hoping the fuss has died down by the time you come back. You’re also serving your clients better by doing nothing—although they won’t see it like that, and neither will the bank, and it’s not exactly what you get out of bed and go to work for.”

Those sentiments were echoed by other traders who shared their feelings with CNBC.com, including one who suggested he might not re-enter the market this year at all.

“I am biding my time," he said. "I won’t re-enter the market before January or February—maybe March. I don’t have the heart for it, with markets rising and falling 500 basis points at a time. I am superstitious, and after a loss, I need a gain to be double the size of that loss, to maintain mental equilibrium.

“I don’t think there’s any more bad news coming—like the S&P downgrade for example—but I think the bad news we have already had needs time to crystalize. I think things will start to settle down in September or October ... At the moment, I’m sitting with my hands under my thighs [to prevent himself from making trades].

“July and August are always quiet months, with European countries like Italy on holiday for a whole month," he said. "I think markets would be going down anyway, but the lack of liquidity available is exaggerating the downward impact of bad news.”

Other traders told CNBC.com of their fears over what the future would bring, including the threat of a US recession, slowing demand from China or another sovereign debt crisis in Europe.

“The second half of the year is going to be awful. I’m actually very positive in general, and never really thought about confidence, but I don’t want to go out and buy anything, because I’m worried about my job,” Siamek, a trader at a large investment bank, explained.

“The way you act is based on how clear the future is to you," he continued. "At the moment, there are too many uncertainties that you don’t really have the confidence to do anything about it.

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S&P May Downgrade US Debt Again in November or December

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CNBC is reporting that Bank of America Merrill Lynch held an emergency Sunday night conference call for clients.  Ethan Harris, North American economist for the firm stated, "We doubt the newly appointed bipartisan commission will come up with a credible long-term deficit reduction plan. Hence by November or December we would not be surprised to see S&P downgrade the debt again from AA-plus to AA."

Some other snippets from the article:

Harris said that the U.S. should have avoided the downgrade in the first place by meeting S&P's demands of a $4 trillion deficit cut and a "demonstrating a sensible budget process." What they got instead was a "deficit cut of $2.1 trillion and a budget process that's been extremely chaotic," said Harris.

The 45-minute call was moderated by Michael Hartnett, chief equity strategist for the firm. Along with Hartnett and Harris, six other top strategists from various fields were on the call. Hartnett made references a couple times to how many clients from Asia were listening in on the call. That's probably with good reason as China owns $1.2 trillion in U.S. debt.

"If a disorderly Treasury market leads to the Fed embarking on QE3, repercussions for the dollar will be catastrophic," said David Woo, head of global rates and currencies research, on the call. "Investors will be quick to conclude that U.S. monetary policy has been subjugated by fiscal policy and the Fed's independence would be placed seriously into question."

More at CNBC

I find it interesting that if Obama would have just caved to the Tea Party Republicans, S&P would not have issued a downgrade.

Note that the Federal Reserve will meet on Tuesday 9 August 2011.
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Jim Rogers Doesn't See How the United States Can Ever Pay Off Its Debts

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From CNBC, Sunday night:

The U.S. doesn't deserve an AA-plus credit rating, much less triple-A, commodity bull and noted investor Jim Rogers told CNBC on Monday.

Rogers said the country was unlikely to be able to pay off its debt and Standard and Poor's rating cut had come too late and should have happened long ago.

"It seems to me it's physically, humanly impossible for the U.S. to ever pay off its debt," Rogers said. "They can roll it over and continue to play the charade, but the U.S. is bankrupt."

Rogers’ comments came during a CNBC interview with the head of sovereign ratings at Standard and Poor's, David Beers.

More

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ECB "Signals" It Will Buy Italian and Spanish Debt

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Since the CNN and Fox and CNBC and all the major network are ignoring this, I will tell you.  This is from Reuters.  Note that the ECB doesn't actually com right out and say they will buy Italian and Spanish debt.

ECB says will "actively implement" bond-buying

By Paul Carrel

FRANKFURT | Sun Aug 7, 2011 5:53pm EDT

http://www.reuters.com/article/2011/08/07/us-crisis-ecb-idUSTRE7762PE20110807

“FRANKFURT (Reuters) - The European Central Bank said on Sunday it would "actively implement" its controversial bond-buying programme to fight the euro zone's debt crisis, signaling it will buy Spanish and Italian government bonds to halt financial market contagion.

After a rare Sunday night conference call, the ECB welcomed announcements by Italy and Spain of new deficit cutting measures and economic reforms as well as a Franco-German pledge that the euro zone's rescue fund will take responsibility for bond-buying once it is operational, probably in October.

"It is on the basis of the above assessments that the ECB will actively implement its Securities Markets Programme," an ECB statement said.

The statement marked a watershed in the ECB's fire-fighting efforts after modest bond-buying last week failed to stem contagion to the currency bloc's larger economies.

It did not explicitly say that effort would now include buying Spanish and Italian paper, but the fact that last week's purchases were confined to Irish and Portuguese paper drove Italian and Spanish 10-year paper to a 14-year high.”

I am really starting to like Reuters.  They actually have a network of foreign correspondents.

And by the way, the ECB will need to create some money to do this.  The price of gold will go up as the money supply inflates, particularly with respect to the Euro.  Short the Euro and buy gold instruments.

As I write this 18 minutes after the world gold market (Globex) opened at 1800 EDT on Sunday,  the price of gold has jumped to a new record high of $1691.40 USD.  More to come.

It will be interesting to see what the stock market does tomorrow.  I am particularly interested in my investment in FAZ.  I may just stay home from work, buy some popcorn, and watch the show.

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We could have avoided the debt downgrade

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Two items seem to be missed in media reporting of the S&P long-term US debt downgrade:

The first is that S&P wanted to see at least a $4 trillion cut over 10 years as a good faith "down payment" on getting the debt explosion under control.

The second is that S&P wanted to see cuts in entitlements.  They specifically state:

"...the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability."

And they don't see the government as being capable of cutting entitlements.  The whole aim of politics these days is to promise everyone free money.  One in five dollars of income that people in the US receive comes from entitlements.  To cut any of that is political suicide.  In fact, Obama was elected by promising more money to be given away -- basically buying his way into power.  Obamacare is a prime example.

This is consistent with the Cloward-Piven strategy that Obama was taught by his various Communist mentors since he was 12 years old:  Raise expectations that the government will do more and more.  When crises arise, solve them by promising even more so that each crisis sets the stage for a new crisis later on.  When the economy fails, blame the rich.  When the whole capitalist system finally fails due to these engineered series of crises, it can then be replaced with socialism.

See my previous post The Economic Recovery is Engineered Wrongly April 15, 2010  where I talked about the next Cloward-Piven crisis being caused by sovereign debt.

I find it very interesting that if the original Tea Party Republican debt plan had been passed and signed into law, it would have met all of S&P's criteria:  Four trillion dollars in cuts with reductions in entitlement programs.  But "progressive" Democrats could not bear to "go backward in time" with programs that were "part of the decades-long struggle to take care of all the people".

If the Tea Party would have won, US long-term debt would not have been downgraded.

So this is all Obama's fault.  And again, it is setting the stage for more severe crises later on, just as the stimulus "solved" the economic crisis three years ago, setting the stage for the present crisis.

If Obama wanted to destroy the US, what would he be doing differently?

Nothing.

My solution?  Take a look at the US federal budget for, say, 1950.  Adjust it for inflation, and compare it to this year's budget.  Fund every line item for next year the same as in 1950. Delete anything that was not funded in 1950 (i.e. delete the Great Society stuff, and all the entitlements that have been added since 1950).  This is the initial baseline.

Then adjust however you want, but make sure the budget adds up to the same total.  Fix the income tax at 10% with no deductions or incentives for anything.  Adjust the budget if the 10% tax doesn't cover it.  Do not increase the budget if the 10% tax provides additional revenue above the budget requirement.  (Even the Roman Emperors only required 10%.)  Pass a balanced budget amendment.  And prohibit the government from providing entitlements of any kind.  (In other words, the government has to work within the highly limited powers it was given by the Constitution).

Within a few years this policy will bring vast national wealth, with an unprecedented economic expansion.  There won't be enough people to fill all the jobs that will be created.  Even the poorest among us will be rich.  There will be no disenfranchised for the Democrats to exploit.

But politicians would never pass it, because it gets rid of their power to buy votes with entitlements.  They like people to be poor.  And they despise true freedom.

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Today's Fake Jobs Report

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The government reported today that the economy added 117,000 jobs in July, and that unemployment had dropped to 9.1 percent.

But how can that be?  Fewer people were working in July than in June.  According to the Bureau of Labor Statistics, there were 139,296,000 people working in July, and 139,334,000 in June.  This represents a drop in employment of 38,000.  So how in the heck can the government claim that jobs were added and that unemployment dropped?

Let’s look at what the government calls “discouraged workers”, who are not included in the unemployment number.  This represents people who are unemployed and not even looking for work anymore.  In July, the number of discouraged workers went from 982,000 to 1,119,000 -- an increase of 137,000.

The remaining discrepancy is seasonal employees, like teachers and such, which I agree should probably not be counted.  But even throwing those out, the unemployment rate still got worse by around 20,000 jobs from June to July.

You can’t trust the government’s fake unemployment number.  It says things are getting better, when the truth is that more and more people are out of work.

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Stocks

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Might I suggest that everyone should be mostly in cash/gold for the weekend (6Aug2011-7Aug2011).

The US market could certainly recover (and it is appearing to now, 1330 EDT 5August2011), so you may miss a really big rally, but it is a crap shoot.  Sell into the strength, if it is still there when you read this. 

And gold could certainly go down, since some of its gain is speculation.  But the small drop yesterday in gold I believe was mostly driven by institutions selling to raise cash to cover other losses.

I began unwinding my stock positions last week (mostly out of LVS), moving more to cash, gold, and slowly into a small amount of leveraged financial institution bear (FAZ).  I actually took profits on 2x gold (UGL) today, just because I had a very large amount and was getting a little concerned about “unknown unknowns” over the weekend.  Currently I am at about 40 percent cash (unusually high for me), 20 percent gold (GLD), 20 percent 2x gold derivatives/futures (UGL), and a speculative 20 percent in the leveraged financial institution bear (FAZ), which is still positive today even with the recovery of the last hour.

I am positive on the week.

This is not advice, you may lose your shirt, nothing is guaranteed in investing or life.

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How to Fake a Heat Wave

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I am totally disgusted at the way the media is exaggerating the heat wave that is currently hitting the US. It is politically motivated lying.

And most people seem to be totally deceived by it.

In reality, this heat wave is nothing unusual. People I have mentioned this to recently are surprised to learn that very few areas are having high temperatures over 100 degrees F. Most towns in the heat wave area are running in the low to mid 90's. But you would never learn that from the media.

For example, take a look at this prediction chart for tomorrow 22 July 2011 from The Weather Channel, that was displayed on the Drudge Report today:

It certainly looks horrible, doesn't it?  113 in Baltimore, 115 in Washington DC, 109 in Boston.  Must be the end of the world.  Global Warming!  Time to panic and pass some serious taxes on oil and coal!  We need to call on the Community Organizer to organize the community!

But wait a second.  This is not a temperature map.  It says "Heat Index" in the title.  What is that?  Well, it is a mathematical calculation that uses the temperature and the humidity to define an "apparent" temperature -- a "what it feels like" temperature.

In other words, it is fake.  If you think that the word "fake" is too strong, please note that the heat index in Dhahran, Saudi Arabia on July 8, 2003 was 172 degrees F, which makes any of the heat indexes on the map above look very small indeed.

Here is the real temperature prediction map for the same date, tomorrow 22 July 2011, from Intellicast:

click image for larger version

Portions of the Mojave and Sonoran Deserts will be over 100 degrees F, as will an area in western Kansas and a good chunk of Virginia.  The remaining areas of this "unprecedented heat wave" will be pretty much in the mid-90s.  Hmmm...  Looks like a normal late July pattern to me.  I have personally experienced temperatures over 100 in all the areas predicted to be over 100.

(An aside: Even this map is biased.  How can they justify using a hot orange color for July high temperatures in the 60's and 70's?)

I am really tired of all the lying being used to propagate the religion of Global Warming.  Even the Global Warming "scientists" say that we have only warmed a degree and a half since 1990.  That means that 95 degree heat waves would average 96.5 (but in reality natural variation would mask it).  And that 1.5 degree increase is based on biased urban measurements (taken near parking lots and air conditioner heat exhausts for example) and "adjusted" data.  Uncontaminated raw measurements from rural areas show no warming at all.

But a normal summer heat wave is a great opportunity to garner political power. The process is as follows: Only mention the heat index, not the temperature.  Talk about rolling blackouts (but don't mention that they are caused by the fact we haven't been allowed to build new power plants for quite some time).  Talk about deaths caused by heat (even though deaths caused by cold always outnumber them two to one).  And harness the media to convert a normal summer scorcher into an "unprecedented deadly heat wave" that is caused by "human climate disruption".  Quote some scientists saying that events like this will soon become the "new normal"  unless we give the government the power to force us to stop using energy.  Follow up with statements that Global Warming is "much worse than we had thought".

Sigh.  People are so gullible.

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The Problem with the US Economy is Obama

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Steve Wynn, the Founder, Chairman, and CEO of Wynn Resorts Ltd. tore into President Obama on Monday 18 July 2011 during the company quarterly conference call. What he said explains why the US economy is languishing and why companies are holding on to so much cash and not doing anything with it.

Note that Wynn owns hotels and casinos in Las Vegas and Macau China. The Macau property is currently responsible for more than 2/3 of its revenues and profits. Wynn's quarterly numbers, announced during the conference call, beat estimates by a wide margin.  I bought a chunk of their stock late last week in anticipation of this, based on my son's research on Macau.   Jim Cramer of CNBC calls Wynn Resorts the "best of breed" in the hospitality and gaming market.

Here is what Steve Wynn had to say:

Well, here's our problem.  There are a host of opportunities for expansion in Las Vegas, a host of opportunities to create tens of thousands of jobs in Las Vegas.  I know that I could do 10,000 more myself, and according to the Chamber of Commerce and the Visitors Convention Bureau, if we hired 10,000 employees, it would create another 20,000 additional jobs for a grand total of 30,000.  I believe in Las Vegas.  I think its best days are ahead of it. But I'm afraid to do anything in the current political environment in the United States....

....And I'm saying it bluntly, that this administration is the greatest wet blanket to business, and progress, and job creation in my lifetime. And I can prove it, and I could spend the next 3 hours giving you examples of all of us in this marketplace that are frightened to death about all the new regulations, our healthcare costs escalation, regulations coming from left and right.

A President that seems--that keeps--using that word "redistribution". Well, my customers and the companies that provide the vitality for the hospitality and restaurant industry, in the United States of America, they are frightened of this administration. And it makes you slow down and not invest your money. Everybody complains about how much money is on the side in America. You bet. And until we change the tempo and the conversation from Washington, it's not going to change. And those of us who have business opportunities and the capital to do it are going to sit in fear of the President.

And a lot of people don't want to say that.  They'll say, "Oh God, don't be attacking Obama." Well, this is Obama's deal, and it's Obama that's responsible for this fear in America.  The guy keeps making speeches about "redistribution", and maybe we oughta do something to businesses that don't invest or are holding too much money. We haven't heard that kind of talk except from pure socialists.

Everybody's afraid of the government, and there's no need to soft peddle it.  It's the truth. It is the truth. And that's true of Democratic businessman and Republican businessman, and I am a Democratic businessman and I support Harry Reid.  I support Democrats and Republicans.

And I'm telling you that the business community in this country is frightened to death of the weird political philosophy of the President of the United States.

And until he's gone, everybody's going to be sitting on their thumbs.

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Satellite Image of Fort Calhoun

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 Credit to Digital Globe - Click image for larger version

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Berm Fails at Nebraska Nuclear Plant

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A berm holding back floodwaters at Nebraska's Fort Calhoun Nuclear Plant failed at 1:30 AM Sunday morning local time. The Missouri River is now up against the containment and auxiliary buildings. According to an AP story, no water has entered the plant, but they did lose power, then switched to emergency diesel generators to run cooling to the reactor and the spent fuel pool. Later in the afternoon, workers restored primary power.

Water at the Cooper nuclear powerplant is 4 feet from the building/spent fuel pool base.  Unlike Fort Calhoun, the Cooper plant is running full bore.  I believe that if I were in charge, I would scram it, just in case.

There are some odd rumors going around about cracking of the Gavins Point dam, and possible plans to blow up a part of the dam to save the rest.  These rumors do not seem to be substantive, but I would certainly not want to be in the potential floodplain regardless.

Update:  Some more details from the New York Times:

Before dawn, a piece of heavy equipment nicked an eight-foot-high, 2,000-foot-long temporary rubber berm, and it deflated. Water also began to approach electrical equipment, which prompted operators to cut themselves off from the grid and start up diesel generators. (It returned to grid power later Sunday.)

These big sausage-like water-filled berms seem to be rather fragile.

Concerns were raised a long time ago about the possibility of flooding damaging the plant.  The New York Times has a great article here describing the scenario.
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Flooding at the Fort Calhoun Nebraska Nuclear Power Plant

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The images below show the Fort Calhoun nuclear power plant north of Omaha Nebraska, surrounded by Missouri River floodwaters (click each photo for larger versions). The first photo was taken by the Army Corps of Engineers on 16 June 2011. The river is still rising.  The Cooper nuclear power plant farther downstream is also threatened.

 

  Administration Building

 The reactor building is being protected by water-filled berm-bags.

Hopefully the river won’t rise over the berms and cause it to get “all Fukushimaed”.

It is important to note that the Fort Calhoun plant is currently in so-called "cold" shutdown.  It is however still fueled, and both the reactor core and the spent fuel pool require continuous cooling to avoid melting. The Cooper plant is currently operating, but a shutdown is planned if the river continues to rise.

Fort Calhoun had an electrical fire on 7 June that caused the cooling of the spent fuel pool to be interrupted for 90 minutes. The workers were able to restore power before it began to boil. While the official story is that and that the temperature rise was only 2 degrees over the 90 minutes, and it would take “88 hours for the heat produced by the spent fuel to boil away the cooling water”, fuel damage, hydrogen generation, and radiation release would occur long before all the water was gone.

Officials are mum on what caused the fire. Most folks are speculating that it was the flooding that caused it.

Additional diesel generators have been brought on site, the Nuclear Regulatory Commission has a team there, and about 60 extra employees are sleeping on cots, ready for duty in case of any further “anomalies”.

Snow runoff is 140% of normal – caused by a very cold spring in the entire western part of the US (consistent with the continuing global cooling over the last decade). Precipitation that would have normally fallen as rain throughout April and May fell as snow in the Rocky Mountains. Now it is melting and moving downstream. This, on top of normal early summer thunderstorms, is causing unprecedented flooding in the Dakotas, and now in Nebraska.

 Note that the snowfall was higher than the average (red line) into April, but then instead of beginning the melt season in late April, more snow fell for an additional month -- more snow than in living memory.  In an average year, without global cooling, this precipitation would have been rain.  The South Platte basin is shown above, but the pattern was repeated throughout the mountains of the western US.

Oddly, Russian and Pakistani media are reporting that the IAEA told the Russians that the Obama administration has instituted a news blackout about what “really happened” to the spent fuel pool during the fire… But who trusts Russia and Pakistan?  I suspect there may have been a minor radiation release.

How bad could the situation get?  If the peak flood stays below the berms, all will likely be OK, but the real concern is upstream dam integrity in South Dakota and even Montana.  If one of those six upper Missouri dams goes, the domino effect would overtop downstream dams, quickly wash them away, and both nuclear plants would be gone.  The dams are all full to the brim.  They have been described as "six old, huge, faulty dams", some with floodgates that, until now, had not been opened in between 30 and 50 years.

From St. Louis Today:

The Fort Peck Dam is built with a flawed design that has suffered a well-known fate for this type of dam — liquefaction — in which saturated soil loses its stability. Hydraulic-fill dams are prone to almost instant collapse from stress or earthquakes. California required all hydraulic-fill dams be torn out or rebuilt — and no other large dams have been built this way since.

At three miles wide, Fort Peck Dam last opened its floodgates 36 years ago. By the end of the first week in June, the U.S. Army Corps of Engineers will be releasing a record spill of water. The corps recently answered the question of possible failure with a statement the dam is "absolutely safe." It may be the largest at-risk dam in the nation.

Downstream, Garrison Dam never has had to use its floodgates since the dam was constructed 50 years ago. By mid-June, the corps plans to dump water equal to a good-sized river. The same is true for Oahe Dam, the next one downstream. Since the reservoirs are nearly full, the corps has no choice.

Effective flood control from six large dams is no longer an option. As a corps representative said, "It now moves us into uncharted territory."

We must all pose a question of national significance to the corps: What if Fort Peck Dam should fail?

Here is a likely scenario: Garrison, Oahe and three other downstream earthen dams would have to catch and hold a massive amount of water, an area covering nearly 250 square miles 100 feet deep. But earthen dams, when overtopped with floodwater, do not stand. They break and erode away, usually within an hour. All are full.

There is a possibility a failure of Fort Peck Dam could lead to a domino-like collapse of all five downstream dams. It probably would wreck every bridge, highway, pipeline and power line and split the heartland of the nation, leaving a gap 1,500 miles wide. Countless sewage treatment plants, toxic waste sites and even Superfund sites would be flushed downstream. The death toll and blow to our economy would be ghastly.

Dams on the upper Missouri River

The next dam up the river from the Fort Calhoun plant is the Gavins Point dam.  Today they increased their water release from 148,000  to a record 160,000 cubic feet per second.  The Army Corps of Engineers plans to hold the outflow at that  rate well into August.

Here are some more photos of the flooding:

 Omaha Skyline and Interstate 29

Farm house

Interstate 29 north of Omaha

This could be another wild ride.  You may want to check out this prior post of mine on medical protection against radiation:  http://bigdustup.blogspot.com/2011/03/everything-you-ever-need-to-know-about.html

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