A Bumpy Ride
We are facing a potentially rough time ahead. The European financial crisis goes from bad to worse. We now learn that JPMorgan has losses of $2 billion. But heavier losses are bound to hit Europe as the French have elected a socialist president who proposes to raise the top marginal tax rate to 75 percent. There are many ways to commit suicide, of course. If the financial news is bad, the prospects for overall international stability look even worse. Military conflict is being threatened in several places; and this necessarily adds a further element of uncertainty.
Strange as it may seem, there is war hysteria in China as a conflict with the Philippines over disputed islands heats up. Presently, the Chinese media depicts the Philippines as an obnoxious “puppet” of the United States, which is supposedly hampering China’s rise to greatness. Beijing feels that East Asia belongs to China, and they want the Americans to back out. Beijing says that any “escalation” by the Philippines will guarantee a Chinese response. The United States, of course, does not want war with China. And yet, a challenge is being issued.
Trouble has also been brewing in another Asian hotspot. America and its allies in Northeast Asia are worried because a military provocation is expected from North Korea. Apparently the North Korean leadership has ordered “special actions.” It is unclear what these actions might be. Already North Korea has begun electronic jamming operations against allied aircraft and ships near the DMZ. The North Koreans have also deployed coastal anti-ship missiles as if some action were pending. It is also being reported that several North Korean submarines have “disappeared” from South Korean radar. While this is not a unique event, we are told that its timing is cause for concern.
Meanwhile, in the Middle East, Syria is threatening to hit Israel with a barrage of missiles should anyone intervene to prevent President Assad from suppressing a popular uprising. A special operations room has been set up in Damascus manned 24/7 by Syrian and Iranian officers. Add to this, another operations room set up in Lebanon by Hizbullah. From this it may be assumed that Hizbullah, Iran and Syria will launch together if the Middle East powder keg ignites. There can be little doubt the situation is extremely volatile. Assad has previously said he would “set fire to the Middle East” if his position is threatened. The number of Syrian, Iranian and Hizbullah missiles aimed at Israel is staggering. According to the head of Israeli military intelligence, Aviv Kochavi, there are approximately 200,000 missiles aimed at Israel. That is quite a barrage.
And on another front, the Chief of the Russian General Staff is threatening NATO with a preemptive strike should the alliance follow through on its plans for missile defense. The Russian generals do not trust the West and do not like the idea of a missile shield – even if that shield is intended to stop Iranian missiles. Relations between Russia and NATO have gone from bad to worse over the past decade. Five years ago the Conventional Forces in Europe Treaty was suspended by Moscow. Four years ago Russia invaded Georgia, sending a chill through Ukraine, Poland and the Baltic States.
Yet Europe is preoccupied with other troubles. The European Union may be on the brink of failure. The edifice is crumbling, in point of fact. The French have pulled the pin on a financial grenade by electing Francois Hollande of the French Socialist Party. Hollande intends to create 60,000 teaching jobs while hitting big corporations and banks with new taxes. This is bound to be catastrophic. As for Germany, on Sunday Chancellor Angela Merkel’s party lost to the Social Democrats in the North Rhine-Westphalia elections. It would seem that financial austerity is not even popular in Germany. In this we see the writing on the wall. The Europeans want to go bankrupt clinging to entitlements. And now, there is the question of Spain. Will Spain default?
One shock from the outbreak of war in the Middle East or the Far East, or another invasion of Georgia by Russia, and Europe may be undone. At present the global economy is fragile. The price of oil is too high and the price of capital has been too low. Welfare politics has drained off too much money. It is going to be a bumpy ride indeed.
About JR Nyquist
JR Nyquist Archive
|12/30/2013||A Financial Poem for the New Year||story|
|12/23/2013||The Free Market's Path to Peace||story|
|12/16/2013||Learning the Wrong Lessons From the Financial Crisis||story|
|12/09/2013||The Economy of the Future||story|
|12/02/2013||China Troubles and the Incapable Nitwits of 2014||story|
|11/25/2013||The Lost Context of the Economic Crisis||story|
|11/18/2013||Economic Science and the Underworld||story|
|11/12/2013||The Market Knows Best||story|
|11/04/2013||America, Saudi Arabia, and the Dollar||story|
|10/28/2013||The Economics of Disagreement||story|