Economic Turmoil and Military Crises

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Events are moving very fast now, suggesting that substantive changes are approaching. With tanks on the streets of Venezuela, Turkish artillery shelling Syrian positions, unrest in Tehran and rising Sino-Japanese tensions, the danger of further shocks to the world economy cannot be ruled out. At the same time, the unfavorable impression made by President Barack Obama in his first debate with challenger Mitt Romney has now created the impression that Romney may win the election, leading to economic policy changes in Washington.

Is there going to be any good economic news between now and November?

Not likely. But as bad as the economic news may be, something worse may be in the offing. Recently North Korea’s vice-foreign minister, Pak Kil-yon, warned a meeting of the UN General Assembly in New York that Korea was the world’s most dangerous hotspot “where a spark of fire could set off a thermonuclear war.” North Korea’s state-controlled media says that South Korea is attempting to provoke a “war of aggression” against the North. In reality, of course, the North Korean regime is a barracks state where the people are starved to maintain a rigid socialist dictatorship. Since the country’s economy is near a state of collapse, since everything in North Korea goes into military preparedness – a constant war hysteria must be maintained, and a constant scapegoating of America. The fact that North Korea possesses nuclear weapons doesn’t make this an easy situation for anyone.

At the same time, military tensions between China and Japan continue – with negative economic results. Businessweek.com is reporting JPMorgan’s claim that the Japan-China row “may cause the Japanese economy to contract this quarter….” Contrary to received wisdom, conflict is not good for business and war would cause an even worse setback.

Is war between Japan and China possible today?

The answer must be yes, because politicians on both sides cannot back down without losing face. Unable to back down, there is nothing to do but escalate the conflict. One side or the other must concede the disputed territory, and neither can realistically do so. If there is a way out, nobody as yet realizes what it looks like. As it stands, some observers suggest that a Falkland’s-style military conflict may now occur between China and Japan.

War also threatens in the Middle East as Turkey’s Prime Minister Recep Tayyip Erdogan warned Syria on Friday, “We are not war-lovers, but we are not far from war either. As the saying goes: Prepare for war if you wish for peace.” Angered by cross border attacks and the shoot-down of a Turkish warplane, the Turkish government is taking a more belligerent stand, deploying troops to the border and attacking Syrian positions with artillery. It is said that Turkey and Syria are in a de facto state of war.

Meanwhile, regarding a potential Israeli strike on Iran’s nuclear facilities, FT.com’s Tobias Buck says that Netanyahu has opted for tactical “climbdown.” He quotes Israeli research fellow Yoel Guzansky as saying that “Netanyahu postponed the war” until next spring or even summer. The fact is, with Iran’s currency in free-fall and the possibility of a Romney victory in November, the Israeli prime minister has good reasons to expect a better result if he waits. What propelled him forward previously, it seems, was the belief that sanctions weren’t working and Obama could best be prodded into supporting Israel on the eve of an American election. These beliefs no longer holding, the Israeli PM steps back in hopes of a change in the U.S. position.

Could there be a change of leadership in the U.S.?

Recent Rasmussen polls now show a collapse of President Obama’s lead (see Presidential Polls 2012: Romney Now Leaders in Rasmussen Polls). Anything is yet possible, of course, but several factors suggest that the president is in trouble.  The enthusiasm that carried him to victory four years ago is not in evidence. The man on the white horse is now caricatured as a man beating a dead horse. According to the Pew Research Center, half as many young voters are following the 2012 election as followed the 2008 election. Even more damaging for the president’s cause, a large percentage of young adults are unable to find work.

In the last analysis, the economy is probably going to decide the election; and the economy is getting worse. Consider a recent piece on Money Morning that says the trend lines, “rather than showing gradual improvement, are moving in the opposite direction.” With Europe in financial disarray and the Far East in turmoil, there is no reason for optimism. The Wall Street Journal online offered the following Oct. 1 headline: “Europe’s Economic Outlook Worsens.” The news is full of such items.

The next few weeks will see us clear; one way or the other, a completely new horizon may come into view.

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About JR Nyquist

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