Geopolitics

by JR Nyquist on Fri, 3 Sep 2010

Once upon a time there was a nation, free and proud. It was armed and ready for war. Its warriors were battle-ready and disciplined. But the leaders of this nation were socialists, and they were opposed to their own country's armed forces. In secret collaboration with a foreign power, they ordered their country's disarmament. They eliminated military units, they slashed military spending, and promoted commanders who were willing to disband their own armed forces.

Just like out of a Tom Clancy novel, it looks like the head of China's Central Bank, Gov. Zhou Xiaochuan has fled the country?  The reason?  A $430 billion dollar loss on treasuries.  Could this be the first leak in the dam?  We think it just might.  Why would such a high profile guy be on the run?  Consider that Madoff is spending the rest of his life in jail for a ponzi scheme.  We don't think the Chinese justice system will be sofriendly to Mr. Xiaochuan.  Consider a few things:

China's U.S. debt holdings is at about $843.7 billion, and according to the latest reports by the Treasury department, they have lightened up in June (by 24 billion) and then May (by 32.5 billion).

That is over a 50% haircut.

What happens when (not if) the Chinese start to dump?  As famed investor Jim Rogers recently stated, "Head for the hills!"  What exactly would it look like?  Hard to say.  But we will take a stab. 

Watch interest rates hit double digits, really, really fast.  As interest rates climb, whatever borrowing is left will cease.  Business will crumble, unemployment will explode.  Not a pretty picture.

“…US Treasury data show that China has cut its holdings of Treasury debt by roughly $100 billion (L65 billion) over the past year to $844 billion…

Two epochal forces are colliding in the global bond market: core deflation is gathering force but the West is losing sovereign credibility just as fast.

Arch-bear Albert Edwards at Societe Generale advises clients to prepare for a violent policy swing from one extreme to the other. First we deflate into the abyss: Then we inflate hard rates to get out again. At some point the "euthanasia of the rentier" will wear off. Misjudge the sequence at your peril.”

Ambrose Evans-Pritchard, The Telegraph, London, 8/23/10

Danny Danon

In an interview with WorldNetDaily.com, Danny Damon, the deputy Speaker for Israel's parliment states, "We are prepared for all risks, and I think our enemies should know that even though we are speaking of peace, we are getting ready for a time of war, as well."

Damon goes on, "We are ready for all scenarios, and we are able to defend our civilian population. I cannot tell you how long we can wait more. But we prefer to wait and see if the international bodies are acting, or [whether] it will be only the burden of Israel, like it was in the early '80s, when the great leader, Menachem Begin, [made] the great decision to bomb the nuclear reactor in Iraq.  I think we have to take action.  It's about time to take action. It should be the international world and not only Israel. And I expect the administration in the White House to wake up as soon as possible."

Please click on this link to read and listen to the full radio interview.

Such a story comes right after the New York Times reports that the White House has assured Isreale that a nuclear threat from Iran is not imminent.