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Thread: Economic Warfare

  1. #41
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    Quote Originally Posted by Fabius Maximus View Post
    Hedge funds are not criminal under our system of laws, no matter how much harm they cause. When they collapse companies or even nations, they are considered agents of the "invisible hand" (Adam Smith) spurring "creative destruction" (Joseph Schumpeter) in the interest of greater economic efficiency.

    As we perhaps approach "regime change" (in the economic sense), the rules might change -- as the folks making the rules change. Creditors make the rules, probably over time becoming Asian (in a broad sense) and Middle Eastern elites. They might have different views of speculators, and enforce them.

    On the other hand, history shows many instances of societies at first condemning weapons, then adopting them. Like the crossbow and strategic bombing. Perhaps other nations will adopt our methods of (in their eyes) economic warfare, but now wielded by the State (not investors) for national (not private) ends.
    Whether our laws formally codify the gravely harmful actions of Hedge Funds and the like as criminal or not, they are not the less criminal for lack of it. Slavery was not legally defined as a crime in much of the U.S. until the end of the Civil War, but it was not less any less criminal. Crime is not unlike pornography, you may not be able to define it, but you know it when you see it. The victims of the Asian Currency Crisis would not disagree that they had been the victims of a crime.

    "Crimes Against Humanity" did not exist in any body of law when War Criminals were tried for such crimes at Nuremberg. "Crimes Against Humanity" was a legal term invented for the Trials; but what the War Criminals did were not less crimes by virtue of the absene of any such legal codification of such actions as formal crimes at the time that they were committed.

    The actions of Hedge Funds and their kind, when they result in grave harm without deliberate malice towards societies, are not less crimes for the lack of a legal definition somewhere that they are such.
    Last edited by Norfolk; 11-11-2007 at 02:57 AM.

  2. #42
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    Quote Originally Posted by Fabius Maximus View Post
    There is a minority opinion that this is the end of the post-WWII "debt supercycle" (coined by the people at Bank Credit Analyst).....Each US economic cycle since 1960 has ended with increased household debt. At some point we reach our maximum carrying capacity of debt. That might be now.
    I looked for a citation and thought Minsky had wrote it, but wasn't the GI Bill and VA home buying loan programs at the end of World War 2 what kicked the debt cycle off? Before WW2 most homes were bought on a cash basis or through family help?
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    Hi Shek, I am not advocating that we return to a gold standard as you say there were certainly problems with it. But I think you are missing the point of a gold standard. A paper note for 5$ could be turned in for 5$ gold coin measured by weight!!! that is why it is a universal standard of value and you buy and sell it by the weight!!! the difference in fiat money(called currency) is reflected by the price (an accounting store of value set by policy...which makes it subject to manipulation) but five ounces of gold is five ounces of gold no matter where you are and that cannot be changed (by man) because it is a physical quantity.

    The problem as Keynes pointed out is that is not a very good way to run a modern economy so if you have sound economic policies (tied to physical production of life support) linked with sound monetary policy you can manage large modern economies. But if you have unscrupulous people that manipulate monetary policy mainly divorcing it from physical economic policy you can cause your own country serious problems not to mention use it as a weapon against other countries.
    Last edited by slapout9; 11-11-2007 at 03:03 AM. Reason: fix stuff

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    Default Minsky cycles

    For a description of this see "Are We at The Peak of a Minsky Credit Cycle?" by Roubini (July 30, 2007). He explains the 3 stages:

    First, sound or “hedge borrowers” who can meet both interest and principal payments out of their own cash flows.
    Second, “speculative borrowers” who can only service interest payments out of their cash flows. These speculative borrowers need liquid capital markets that allow them to refinance and roll over their debts as they would not otherwise be able to service the principal of their debts.
    Finally, there are “Ponzi borrowers” cannot service neither interest or principal payments. They are called “Ponzi borrowers” as they need persistently increasing prices of the assets they invested in to keep on refinancing their debt obligations.


    America delevered from 1929 thru (guessing) the late 1940's. Our re-leveraging proceeded slowly until the great expansion which began in 1982. Since 2000 debt by US households has skyrocketed.

    The only ways to delever are inflation, defaults, or economic growth with no new debt (the last is almost impossible in our current economy). The first two work fine, albeit with considerable pain.

    In the 1930's we defaulted away our excess debt. For more on the inflationary option see Is the Government deliberately understanding inflation?.

    If the US is ending a long Minsky cycle, its resulting economic weakness will probably have large effects on the world geopolitical order. For more on this, read Paul Kennedy's Rise and Fall of the Great Powers (1987).

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    Default Effect of US dollar devaluation

    Shek: "Given that, however, it is still not a big fundamental issue."

    It's a subject on which I'm not competent to have an opinion, but "a potential regime changing event" is in my opinion the current expert consensus.

    Whether it will actually be regime changing is something the big guns in economics and global finance have debated over the last decade, with strong opinions on both sides. Since the result will determined as much by political as economic factors, it is imho unknowable in advance.

    As for the post-WWII order, I suspect that few non-experts can explain how the system changed functionally (not conceptually) after the end of BWI. To future generations the shift will be considered trivial imho, perhaps like the differences between the component wars of the Hundred Years War, between Marlborough's various wars, or between WWI and WWII.

    On the other hand, I'll bet the end of the US dollar based order (1945 - ????) will be in the history books.

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    Hi FM, just started reading Unrestricted Warfare. I am on page 50 and I see why you are recommending it so highly.

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    Default 4GW, Economic Warfare, Non-state actors

    4GW non-state actors are already committing economic warfare against us and other states. They have been for over a decade. Most of their attacks are formulated on "strategic convergence" that centers around meeting several strategic concerns. Three basic "convergences" include economic, highly public and casualty saturated. Whether that is two attacks on the WTC (1993 and 9/11/2001), the Madrid trains (full of commuters on their way to work), the London Bombings (full of commuters on their way to work), Bali night clubs (tourism), Sharm El Sheikh (tourism), Moroccan Synagogue (tourism), Saudi Arabian oil refinery, Oil pipelines in Iraq, blowing up markets in Iraq, kidnapping people from businesses, taking over the western Anbar smuggling crime rings (one of the reasons the Anbar tribes were getting ticked off; they were interfering with their hereditary business that had sustained them even through Saddam's reign), Piracy of the coast of Somali (interdicting shipping through the suez) and on and on and on.

    One of my previous posts from two years ago was about Al Qaida's War for Oil and other things:

    This is a map of the Ottoman Empire (caliphate)[see link for maps] at the height of its power from the 15th to early 18th century. It's power was not derived simply by military might. As you can see by the map to the left of the legendary "silk road", it controlled major maritime and land routes, vast amounts of raw resources including base metals, precious metals, precious and semi-precious gems, grain, rice, cotton or muslin, ink, silk, precious woods, papyrus (for making paper), tea and even part of the opium trade (just to name a few). The wealth of the empire helped to produce some of the major changes in medicine, engineering, literature, basic science and philosophy. All this long before the discovery of petroleum.[snip]

    Today, Islamist organizations are attempting to regain power in many of these states. And, just like centuries past, these states sit on top of some of the world's largest natural resources and straddles the world's busiest maritime routes. The map on the right shows modern maritime routes that follow the same path as the "silk road" routes with the exception that the Suez Canal has greatly reduced the number of days that it takes to bring products and energy resources to Europe, Russia, Australia, Japan, China and the United States to name a few.

    The long term goals of this movement is known. They seek to create an Islamic Caliphate or state that would encompass the original area of the caliphate at the height of its power. They seek to accomplish this goal by supporting Islamist movements through out these areas with the intent of creating slow (or quick) erosion and take over of the most vulnerable states. Even if all of the states within the area do not "flip" to Islamism, the creation of Islamic states in key areas would drastically change the control of key materials, production and maritime routes. If these Islamic states make economic and security compacts with one another, it would formulate the seeds of a wider "caliphate" and potentially dominate neighboring states, not to mention create whole new paradigms for inter-state and international conflict. Any and all movements in this direction could and would be used to damage or control world economics, specifically western economics.[snip]

    In the short term, reviewing the contested areas, maritime routes, materials and production, the strategy to "vex and exhaust" the United States, its allies and other target states, does not require the actual take over of any one state and does include a wider economic strategy beyond "military" or "political" cost. Generally, these movements only require that the area or country stays in turmoil, thus increasing the cost of production, exporting, importing and transporting goods as well as securing ports. For instance, 18 of 20 highest volume container ports are in South East Asia. Basically, the strategy of "a thousand cuts".
    Check the link for much more including a list of over ten basic resources like steel, cotton, rubber, grains, rice and a multitude of technology that is transported through these routes or come from nations within the scope of the hoped for "caliphate". I address the Suez Canal later in the piece. Sharm El Sheikh in the Sinai could have equally been a destabilizing attack to try to provide room for operations or just cause enough insecurity to have nations shipping things through a much longer (additional ten days) around South Africa. In a JIT (just in time inventory) world, 10 days is a life time. The costs of shipping would be increased by higher insurance rates and much higher diesel fuel utilization, thus higher costs. Along with rising oil prices, this could be extremely detrimental to the world economy.

    This is 4GW Economic Warfare at its base. Additional thoughts on North Africa and the "levant" here

    Attacks on stock markets can occur by non-state actors with ease. A number of huge trades on the stock market just prior to the 9/11 attacks were traced back to front companies with ties to Islamic terrorist organizations. Whether these trades were simply meant to remove money from a possible crashing market post attacks and preserve funds for operations or the trades were meant to destabilize the market is a good question. Either way, it's non-state actors practicing economic war at the individual or micro-level.

    It can be devastating if we let it.
    Kat-Missouri

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    Default kehenry1, that's brilliant!

    Also, thanks for the link to your other work. This is one of the clearest explanations of the threat that I've seen.

    Question: do you have any references or links about pre-9/11 trading by probably terrorists? I've heard the rumors. There were investigations, but I recall (just from memory) that their official reports denied this theory.

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    Quote Originally Posted by Fabius Maximus View Post
    Question: do you have any references or links about pre-9/11 trading by probably terrorists? I've heard the rumors. There were investigations, but I recall (just from memory) that their official reports denied this theory.
    Poteshman, Allen M., 2006, Unusual Option Market Activity and the Terrorist Attacks of September 11, 2001, Journal of Business 79, 1703-1726. (PDF)

    Abstract:
    After the terrorist attacks of September 11, 2001 there was a great deal of speculation that the terrorists or their associates had traded in the option market on advanced knowledge of the impending events. It is nearly impossible, however, to assess the option market trading leading up to this or any other event in the absence of systematic information about the characteristics of option market activity. This paper provides this information by computing the distributions of option market volume statistics both unconditionally and when conditioning on the overall level of option activity, the return and trading volume on the underlying stocks, and the return on the overall market. When the option market activity in the days leading up to the terrorist attacks is compared to the benchmark distributions, volume ratio statistics are seen to be at typical levels. An indicator of long put volume, however, appears to be unusually high which is consistent with informed investors having traded in the option market in advance of the attacks.
    The insider trading case of Amr "Tony" Elgindy is also interesting.

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    Default bourbon, thanks for the link to this valuable article!

    Speaking as an amateur in all aspects of this (esp forensic security trading analysis), I find Poteshman's article more compelling than the official government verdict. For unknown reason I cannot copy from the pdf of 9-11 Commissions report, but you can see it on page 499, note 130 to Chapter Five: "The SEC and the FBI, aided by other agencies and the securities industry, devoted enormous resources to investigating this issue ... These investigators have found the apparently suspicious consistently proved innocuous."

    You can see their full explanation (one paragraph!) here: Report of the National Commission on Terrorist Attacks upon the United States (you can scroll down to download just the notes section, as the full report is 7.4 meg).

  11. #51
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    Default oil market

    Oystein Noreng is a professor and petroleum economist at the Norwegian School of Management. After the '91 the Norwegian government tasked Professor Noreng to study to the relationship between Islamist movements and the oil industry in the Middle East and North Africa. This resulted in the publication of his book Oil and Islam: Social and Economic Issues in 1997. While I have not read the book, I have read a speech of his on some of the findings, and consider this an appropriate thread to share it.

    Noreng also recently gave a speech at Flynt Leverett's Geopolitics of Energy Initiative at the New America Foundation titled: Restructuring World Economic Power Relations through High Oil Prices. I think it is particularly relevant to this thread.

    Finally, I have come across two particularly good newpaper items:
    Oil's Recent Rise Not as Familiar as It Looks: Traders, Not Political or Supply Concerns, May Be Pushing Fuel Toward $100, By Steven Mufson. Washington Post, November 5, 2007

    Transcript: Interview with IEA chief economist, Financial Times, Published: November 7 2007.
    Fatih Birol, chief economist of the International Energy Agency, interviewed by Ed Crooks and Javier Blas of the FT


    Perhaps oil/gas deserves it's own thread? I some connections to small wars in the past, and in the foreseeable future. Albeit a particularly sensitive topic imho.

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    Default more about oil

    Here is a note giving links to valuable presentations about Peak Oil, and how to prepare for it.

    As a followup to the link bourbon gave to the FT interview with the IEA Chief Economist, I recommend close attention to the comments of the International Energy Agency's officials (I posted a link to their 2007 Outlook below). They are being increasingly alarmed by developments in the world's oil supply.

    In the next chapter or so in my series of blognotes about Peak Oil, I'll discuss the theory that oil prices are rising as the Saudi's keep the tap tight. For the past two years they have said that world commercial oil stockpiles are too large. Perhaps they have taken action to "fix" this problem. OECD stockpiles (as of, I believe, July) are just now down aprox to their five year average.

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    Quote Originally Posted by goesh View Post
    Well, I bought gold some time ago, that's all I know. The housing slump I think took everyone by surprise and the whole world has known about us running in the red for a long time but Iran has huge energy contracts with China. Israel is the wild card from China's point of view and with the falling DOW, they have to be extremely worried on both counts. The world's economy can tolerate an attack on Iran better than it can a nuclear armed Iran IMO. I think even Boscoe (FM) would agree with that.


    The housing slump and the inbalanced trade due to easy access to credit by US consumers (in which money was created to stimulate consumption and the housing industry rather than creating and/or stimulating industry) was predicted by many respected financial players years ago (Warren Buffet warned about the housing bubble, dollar decline and trade deficit as early as 2005 link.



    As far as Iran, neither China, Russia ... or Europe for that matter wants the US to have hegenomy over the top 3 oil producing states: Saudi Arabia, Iraq and Iran if they are to go along with US position on Iran. Strategically, China and Russia want the US to guarantee that they have a stake in the production of oil in both Iraq and Iran. China would seem to automatically get action in all these countries as leverage to US influence (and China has to be perceived by these states to be able to stand up against any US interests that runs counter to Iran, Iraq or Suadi interests) so China doesn't really feel the need to submit to US pressure.


    But neither China, Russia, the EU or the US would want any of these major oil producing states to have too much power .... and it's not in the interest of any of these countries to have a nuclear armed oil producing state (Russia's only source of power now is oil and it's nuclear arsenal and countries are already nervous about that.)
    Last edited by Firestaller; 11-11-2007 at 11:06 PM.

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    Political crack opens at rare OPEC meeting, By Jad Mouawad. International Herald Tribune, November 18, 2007.

    While the Saudis wanted to reassure the world that OPEC is a reliable oil supplier, the leaders of Venezuela and Iran, who have traditionally been more hawkish members of the oil cartel, sought to score political points, saying prices were not too high and criticizing the decline of the dollar.

    The polished meeting was a study in contrast that underscored OPEC's schizophrenic nature. It is too early to say whether it signaled a rift in the exceptional consensus that has sustained OPEC's success in recent years, or whether it was merely an example of conference theatrics by countries at odds with the American government.

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    Seven Questions: The Price of Fear, Foreign Policy Online, November 2007

    Something funny has happened to the price of oil: It no longer reflects reality. The reason, according to Fadel Gheit, one of Wall Street's top energy analysts, is that “financial players have seized control of the oil markets”. Find out how they did it in this week’s Seven Questions.
    Imho, what he is saying is pretty shocking and important.
    Bold emphasis is mine.
    FP: So what about derivatives trading—

    FG: That’s exactly what I’m focusing on. I truly believe that major investment banks and a large number of very high-risk-taking financial players have seized control of the oil markets, especially in the last six months. During that time, oil prices moved in one direction and market fundamentals really moved sideways or even lowered. Demand has slowed down significantly. We have seen all kinds of indications that we are reaching a breaking point here. We’ve seen what happened to gasoline margins on the West Coast; they’ve dropped to an almost 18-year low. All this is an indication that something is wrong with the system, that supply and demand fundamentals do not justify the current price. But if the current price is based on speculation, there is no limit to how high oil prices can go. Basically, as long as there is somebody willing to bid higher, the price of the commodity will move higher.
    FP: So, in other words, our own fear is driving up the price of oil?

    FG: Well, if you are a commodity trader, you want to do your best to push the commodity price in the direction that you forecast. And obviously, when you have a lot of financial players making bets on much higher oil prices, they would like to see a self-fulfilling prophecy. They want to see oil prices reach the level that they put the bet on. So, they can spread rumors. And if the glass is half empty or half full, they will say it’s empty.

    To my knowledge, there is no oil shortage. Any willing buyers will not have a problem finding oil. Global inventories are over 4 billion barrels. In simple math, that is the equivalent of all the oil produced in the Middle East for six months. So, the fear premium, in my view, is totally exaggerated; it’s not justified by logic or market fundamentals. Again, it’s very difficult to quantify fear. But that is the psychological factor, in my view, that is bringing oil prices to these unprecedented levels. For instance, I don’t believe that Iran is going to cut oil exports, because Iran needs the revenue more than the world needs Iran’s oil. We have to be logical in assessing the risk. And obviously, financial players want to exaggerate the situation so that the risk premium increases and they make more money.
    The concept of "super-empowered" individuals and groups is a little beyond me. But as I am learning more about futures markets and oil speculation, it is becoming increasingly clear to me that there are powerful incentives for instability, that are shared by a myriad of interests.

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    Default Chavez, Iran and Discordant Realities

    I was thinking about the above post when I was reading about these instances:

    Venezuela calls for energy alliance

    Chavez Declares End to the rule of the US Dollar

    Americans to spend less over holidays over fuel price concerns

    My first thoughts were that oil speculators are helping these entities commit economic war on the US. I try not to be paranoid or reactionary, but I also thought that the idea that the oil moguls were behind the wars in Iraq and Afghanistan was too funny by far when, in fact, peace time allowed them to drill and search at a much lower cost. Thus, my somewhat paranoid, speculative self wonders if it isn't more likely that speculating oil costs beyond their reality is a way for "empowered individuals" to have their say on US policy? Seems much more likely and cost effective than someone dropping 100k into a campaign and demanding war that interrupts oil exploration and extraction.

    Just a thought.

    Of course, it could be simply the reaction of the market to continued "economic warfare" from these outside nations coupled with our own internal economic issues. I don't want to get beyond any possible realities here. In which case, oil speculation is simply a symptom and an unwitting assistant to the cause.

    Finally, isn't it interesting that our enemies have learned economic warfare from our Cold War policies? Then again, history shows that our enemies have always coupled economic warfare with actual combat. counterfeit currency, interrupted resources, etc, etc, etc...
    Kat-Missouri

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    Oil specualtion has been a main driver of the price of crude for some time now, but I don't see any maliciousness behind them other than trying to squeeze as many greenbacks out of the market as possible. That leads to the price flucuating higher when there's a storm brewing in the Gulf, or when a small pipeline is severed in Yemen, or the rebels in Nigeria attack a refinery.

    Capitalism at its finest.

    But I do believe the intent could be there if some smart trader wanted to screw with the West.

    Finally, I agree with those who say economic warfare has been around since the beginning of mankind...
    "Speak English! said the Eaglet. "I don't know the meaning of half those long words, and what's more, I don't believe you do either!"

    The Eaglet from Lewis Carroll's Alice in Wonderland

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    Default Reality In Venezuela

    Just to keep up with realities of Venezuela, though authored by an obvious, anti-chavista, Daniel in Venezuela is a great place to track the internal issues.

    He makes an excellent point about what the OPEC members may have thought of Chavez trying to use OPEC as a force for social change when it is imminently an organization bent on economic power.

    And this little gem about the reality of "commodities" in Venezuela where everything is price controls and soviet style economics that results in the same: basic goods are missing from grocery shelves.

    It's not a one time thing. He and others he has linked to have been reporting on the lack of basic staples for some time. Where is all that oil revenue going? In the pockets of thieves and into projects that have no economic return. Like buying soviet..er...Russian arms and other interesting things.

    Cold war revisited.
    Kat-Missouri

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    Rather than dig up some international conspiracy to jack up oil prices, there may be a simpler answer here. Oil is, I believe, traded in US dollars. The US dollar is at an all time low in the international currency market. If I have to buy a lot of my stuff in Euros or Yen, then don't I need to sell my oil for a whole lot more $$ these days? Or am I just being simple minded?

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    Quote Originally Posted by wm View Post
    Rather than dig up some international conspiracy to jack up oil prices, there may be a simpler answer here. Oil is, I believe, traded in US dollars. The US dollar is at an all time low in the international currency market. If I have to buy a lot of my stuff in Euros or Yen, then don't I need to sell my oil for a whole lot more $$ these days? Or am I just being simple minded?
    Oil may not be traded on the US Dollar much longer. LINK
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