View From The Couch - 14/Oct/2015

Syria Without An Endgame

Syria worries me. The Assad regime in Syria is a brutal dictatorship, of which there is no doubt or disputing. In our contemporary western sensibilities, we would like for Bashar Assad to leave the stage of politics and give up his reign as President. Yet, if there is anything that is just as clear about these Arab states is that when you remove the patriarchal secular dictator, the power vacuum left by their death invites all manners of sectarian crazies with even more violent mentation. Removing Gaddafi, Mubarak and even Saddam Hussein has not brought the light of democracy to these countries as hoped by democratic nations of this world.

What has emerged is the uncomfortable truth that democracy is possibly unworkable in the middle east, and that nobody counted on this likelihood at all. In one sense it is arguable whether we in the west are doing democracy all that well anyway; but it is also arguable as to whether democracy really does deliver the kinds of results its stated goals indicate. We think democracy is a pretty good thing - warts and all - because it fits into our cultural context and historic inheritance and reinforces our social values through its operation. It ignores the possibility that fundamental pillars of a working democracy like separation of church and state (or any religion for that matter) or separation of powers - especially the independence of courts from the executive, and for that matter women getting a vote; these things might all be an anathema in the middle east where there is simply no equivalent cultural or historic reason that would lead them to such positions.

Naturally the phenomenon of voting in extremists into government has taken place in Palestine, Iraq, and Egypt tells you quite a bit about the people doing the voting. In a kind of circular logic, the desire for extremism brings about the military junta to clamp down for peace, and that's what you had in Iraq and Egypt. It also doesn't say a lot for Yasser Arafat's tenure as PLO leader that the voters, once they were given a vote, wanted even more extreme action than a former terrorist.

All of this is a long-winded way of saying, removing Bashar Assad is no promise for better times or more peace and prosperity in Syria. If the cultural context has anything to tell us, it tells us that the alternatives to Assad are likely much worse than the secular, suit-wearing, beardless, Oxford educated Assad. Any discussion about Peace in Syria can't skirt this problem, although the rhetoric the west puts it on fairly decisive grounds that they want Assad gone.

As it turns out, Putin is dead set on keeping Assad exactly in place, in power and has somehow recruited the Iranians and the Chinese to this cause, while the USA and NATO forces attempt to supply the rebels who are not ISIS. Putin is hammering anybody and everybody who is opposed to Assad inside Syria, which means the mostly group of rebels funded by the USA are getting hit as well as ISIS positions. They're arguing about it but it's not going to present a solution for what happens after Assad is removed.

However this thing is meant to turn out, it's looking like it will be a long time before we get a picture of the endgame to this civil war in Syria - and that assumes it's not going to spread.

Putin In The Boot

One imagines Vladimir Putin must be laughing. Xi Jing-Ping probably is laughing too, but we'll go with Vlad first. Putin, in his second incarnation as Russian President has been rather like a 19th century colonialist. The incursion in to Ukraine to regain Crimea is nothing short of an imperialist land grab; his response to the mistaken shooting of MH17 has been nothing short of brazen; and Syria is offering him another opportunity to press his advantage through power projection and confrontational diplomacy against the west. In short, he's a ratbag, and he's not even our ratbag. He's just this ratbag out there behaving like the political clock stopped in 1914.

Like some parody of the boorish Russian peasant, Putin seems impervious to the opprobrium and contempt heaped upon him for his actions. He simply doesn't give a shit what we think of him - and rightly so, he is the strong and we are the weak. Behold his mighty bold moves to restore military prestige to Russia. No, it's truly impressive if it weren't like some timewarp joke.

Sarcasm aside, Putin has managed to get a port and base in Syria out of all this chaos and he even managed to wrangle an airbase out of Iraq to stage his version of anti-ISIS action. It is as if the world is playing 'Stratego' while he is playing 'Steel Fury Kharkov 1942'. One imagines the Russian forces do not have rules of engagement or any respect for human rights or international law. The only reason they're not rogue is because they sit on the UN Security Council. It's nuts, but there we have it.

In stark contrast, what have we got? Our unwillingness to jump into World War III, boots and all. Really, can you blame us for that? It's remarkable how we've ended up in this situation.

Air China Delivery

Somewhere in the media is a report that tells us China has sent war planes to operate in Syria, helping the Russians. They're trying out their new Aircraft carrier and J-15 fighter bombers. I don't know about you but this is all strangely reminiscent of Hitler sending his Stuka squadrons to the Spanish Civil war in 1935. When you're blatantly dress-rehearsing your fledgling carrier and war planes on a nation in civil war, (a country with which you have had very little historic contact, to boot), there's really no moral or ethical defence is there?

I am reminded the 'Guernica' by Picasso. I'm also reminded of the apocryphal story about the Nazis who visited him in Paris and on seeing the 'Guernica', asked him " did you do this?"; to which Picasso replied, "no, you did".

The thing that scares me is that these wildcat proxy wars and testing out troops and equipment is somehow going to turn into a full-blown World War III. It's highly likely if everybody sticks to their best senses but you just don't know with the Vladimir Putins and Xi Jing-Pings of this world.

Moral Hazard Spectacular

Stop(ped) Making Sense

Pleiades wanted me to write a bit about this today. He's sent me a couple of interesting links behind the AFR paywall. I can't link to them a a result but I can offer my opinion on a few things.

You have to hand it to Central Banks. They'll jawbone anything and everything to get the economy to roughly go in a direction. Usually, what the Central Banks want is for asset prices to be stable and go up, while an inflation of about 2-3% eats away at cash so people have to do something with their money apart from shove it under the mattress. You can put them in equities, bonds, commodities, property, but the 2-3% is there to eat away at your pile of cash if you keep it stationary.

Of course, that's why interest rates move the way they do, which is to say whenever the equity markets sag, the Central Banks cut interest rates and every time they hit new highs, they take some points off. We've been watching this game for something like 30years since the RBA went independent of the Federal government, and since the days when Paul Volcker as the head of the US Fed set about taming inflation.

...but what if all this was a crock?

Share markets in the USA are at an all time high, but interest rates are close to zero, and Quantitative Easing is, while being tapered back, still pumping liquidity into the market in exchange of bad debts. You'd have to look at all this and say that the narrative we've been led to believe is broken. It's also been 7years since the GFC broke, 6 since liquidity got pumped into he market, and QE is still continuing. The American markets are talking about a 'Recovery', but the mere fact that interest rates are at zero and QE is still going on should tell you we're nowhere near any kind of recovery.

If there were a 'Recovery', how could there be stories like this?:

Driven by economic necessity — Rohr has been chronically unemployed and her husband lost his job last year — she moved her family back home with her 77-year-old mother.

At a time when the still sluggish economy has sent a flood of jobless young adults back home, older people are quietly moving in with their parents at twice the rate of their younger counterparts.

For seven years through 2012, the number of Californians aged 50 to 64 who live in their parents' homes swelled 67.6% to about 194,000, according to the UCLA Center for Health Policy Research and the Insight Center for Community Economic Development.

The jump is almost exclusively the result of financial hardship caused by the recession rather than for other reasons, such as the need to care for aging parents, said Steven P. Wallace, a UCLA professor of public health who crunched the data.

"The numbers are pretty amazing," Wallace said. "It's an age group that you normally think of as pretty financially stable. They're mid-career. They may be thinking ahead toward retirement. They've got a nest egg going. And then all of a sudden you see this huge push back into their parents' homes."

I'm sort of lost for words when I read that because that's a surefire sign that the economy has not made any kind of credible recovery - but for some miraculous reason US equity prices have punched through the previous highs from prior to the GFC meltdown. What QE has accomplished is to reinflate all the asset bubbles, up to and including the housing bubble in America. If you think this is somehow not true then hey presto, subprime mortgages are back. Maybe these people in California living in their parents' houses can score one of those loans that only need 3% upfront.

The point is, Ben Bernanke said the whole QE thing and TARP thing was to shore up banks so they would keep lending and that liquidity would not dry up and businesses would stay open. What's happened instead is that the money got sent out of America on financial markets to places with high risk and high yields - affectionately known as emerging markets - and has subsequently inflated commodity prices and real estate prices around the globe. More to the point it didn't exactly save jobs.

We're Really Going To Fight For The Grey Zone On The Eastern Front?

This is nuts. The US is sending 600 troops for an exercise in eastern Europe. Airborne troops are allegedly going to Poland, Lithuania, Latvia and Estonia. All of it in response to the crisis in Crimea. There are a few things I am not convinced about America's willingness to follow through and fight a war in Ukraine.

First of all is how willing the NATO allies are, in supporting America. Germany in particular makes me doubt NATO's resolve. Are the Dutch and Spaniards and Belgians and Italians willing to send troops out to Ukraine and shed blood for Ukrainians, even though they're not even a member of NATO or the Euro zone? It seems incredibly unlikely the commitment is there. Germany in particular might still be culturally traumatised by the World War II campaign in Ukraine and the political fall out ever since. Do they want to send troops there? I'd hazard a guess and say no.

Secondly, Europe still relies on Russian gas supplies from the pipeline that runs through Ukraine. They're not in a position to bite the hand that feeds it. And contrary to opinions flying around that America's shale gas boom is big enough to fill in the gap it has two giant hurdles to getting to Europe: the gas has to be liquefied and then shipped across the sea. It's not economically viable to be doing so.

Which brings me to the third conceptual bump in seeing the West fight in the Ukraine against the dark forces of Mordor Putin's Russia is that there's no money in the coffers to sustain this war effort. A lot of the Eurozone and the USA are simply carrying too much debt to finance yet another war (after the squandered expenses of the Iraq misadventure and the mismanaged Afghan misadventure). The Central Banks are tapped out printing money to buy back the crappy subprime debt that needs to get written off. Who are the idiots who are going to line up and buy war bonds to fund this misadventure into the grey zone of history where mighty empires go to die as they dash themselves upon the borders of Russia?

Putin must know all this. So this has to be a bluff. Right? Of course one imagines this is exactly how people felt in the 1930s in the aftermath of the 1929 bust as the world marched to World War II. I can't believe I'm even writing of this on an ANZAC Day weekend. You'd be worried if you're the Baltic states and Poland.