Sunday, November 27, 2011

Quick Hits - November 27, 2011

International news dominates this mornings review of the Sunday newspapers and blogosphere....

Kicking off with today's World View, the major stories are focused around a furious Pakistan taking action against the US and NATO for the airstrikes which killed 24 Pakistani soldiers, the Arab League vs Syria, and the European Union financial crisis which is deepening.

Earlier today, the Arab League voted to impose new sanctions on Syria and the dictatorship of Assad as turmoil continues in that nation. 

In response to the airstrike on their troops in the NW territories of Pakistan, the government of Pakistan has closed the land-based logistical lines from Pakistan into Afghanistan that are used by the US and NATO military as well as demanding that the US close and evacuate a drone base they operate within Pakistan in 15 days.  Pakistanis are demonstrating in major cities against the US and NATO as the relations drop to their lowest levels since the Bin Laden raid earlier this year. 

A full investigation is underway by the US and NATO to determine what specifically happened which led to the airstrikes on the two Pakistani checkpoints.  Anonymous officials are reporting that Afghan troops operating in Afghanistan opposite these checkpoints were taking heavy fire from the direction of the checkpoints.  These troops called in the airstrike in self-defense and to suppress the fire that they were taking.

If true, then the investigation and truth will do little to mend ties between the US / NATO and Pakistan.  Pakistan will deny, yet again, their double dealing when it comes to some of the Islamist terrorist / fighter groups.  The Government will be ill-placed to antagonize the anti-Western sentiment that is growing in the Pakistani population regardless of the results of the investigation.  I suspect that the government will have it's hand out - seeking 'reparations' - but from the US / NATO perspective, we also are tiring over the government of Pakistan either being unable to control large elements of their bureaucracy or seeing advantages in playing both sides.  Violence in this region is not going to be ending when the US abandons Afghanistan - but increasing.

Unfortunately, this is not the most dire future outcome that we are facing at the moment as the European Union financial crisis dwarfs the Pakistan / US-NATO challenges. 

Pessimism is the rule in European and US papers and news reports.  The Economist asks of the Eurozone - Is This Really the End?
A euro break-up would cause a global bust worse even than the one in 2008-09. The world’s most financially integrated region would be ripped apart by defaults, bank failures and the imposition of capital controls (see article). The euro zone could shatter into different pieces, or a large block in the north and a fragmented south. Amid the recriminations and broken treaties after the failure of the European Union’s biggest economic project, wild currency swings between those in the core and those in the periphery would almost certainly bring the single market to a shuddering halt. The survival of the EU itself would be in doubt.

Yet the threat of a disaster does not always stop it from happening. The chances of the euro zone being smashed apart have risen alarmingly, thanks to financial panic, a rapidly weakening economic outlook and pigheaded brinkmanship. The odds of a safe landing are dwindling fast.
The odds of a safe landing are dwindling fast as The Economist predicts.  The Sunday Telegraph is reporting that the British Government is warning it's embassies to prepare for the collapse of the Euro with riots and British nationals in need of assistance.  Eurozone banks are also both fearing and preparing for the breakup of the Eurozone and the collapse of the Euro as the crisis deepens...
On Friday, Standard & Poor’s downgraded Belgium’s credit standing to AA from AA+, saying it might not be able to cut its towering debt load any time soon. Ratings agencies this week cautioned that France could lose its AAA rating if the crisis grew. On Thursday, agencies lowered the ratings of Portugal and Hungary to junk.

While European leaders still say there is no need to draw up a Plan B, some of the world’s biggest banks, and their supervisors, are doing just that.

“We cannot be, and are not, complacent on this front,” Andrew Bailey, a regulator at Britain’s Financial Services Authority, said this week. “We must not ignore the prospect of a disorderly departure of some countries from the euro zone,” he said.
France and Germany are said to be developing, and will release later this week, new measures that they hope will stabilize the fiscal crisis.  This New Stability Pact will empower the EU bureaucracy to spell out and enforce strict deficit rules and controls for the national budgets of member nations.  In effect, this is calling for centralized control of the budgets of the member nations by a bureaucracy that doesn't represent the will and interests of the countries they are controlling - but the will and interests of the EU's wealthiest members.  It's as if the US Federal Government takes control of the state budgets of California, Texas, New York, and Illinois...

Former US Ambassador to the United Nations, John Bolton looks at the prospects of this type of solution and remarks that in addition to the EU's fiscal deficits, they are now embracing a democratic deficit as the EU bureaucracy takes more control over those nations seen to be at the root of the challenges - but forgetting that more centralized control rarely solves the core problems.  Central planning rarely can predict the marketplace and add to this the end of true representative government and we have more pressures on the EU not less.

Mark Steyn looks at these challenges in the Eurozone and sees many parallels with the challenges we are now facing in the US.  Like the spendthrift EU members who promised unsustainable and unviable entitlements while spending like there was no tomorrow, the US is also racing down this path spending roughly $4 trillion per year while only taking in $2 trillion per year.  The Democrats see the problem as the $2 trillion while the Republicans see the problem as the $4 trillion....and we continue to borrow enough money each day to purchase a Nimitz class aircraft carrier...
The advantage the United States enjoys is that, unlike Greece, it can print the currency in which its debt is denominated. But, even so, it still needs someone to buy it. The failure of Germany’s bond auction on Wednesday suggests that the world is running out of buyers for western sovereign debt at historically low interest rates. And, were interest rates to return to their 1990-2010 average (5.7 percent), debt service alone would consume about 40 percent of federal revenues by mid-decade. That’s not paying down the debt, but just staying current on the interest payments.

And yet, when it comes to spending and stimulus and entitlements and agencies and regulations and bureaucrats, “more, more, more/how do you like it?” remains the way to bet. Will a Republican president make a difference to this grim trajectory? I would doubt it. Unless the public conversation shifts significantly, neither President Romney nor President Insert-Name-Of-This-Week’s-UnRomney-Here will have a mandate for the measures necessary to save the republic.
The race for global supremacy is no longer a race based on one nation or interest group becoming superior and hence a's a race between nations and interest groups where the winner will be the one that collapses last....

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