Tuesday, March 31, 2009

An Eerie Quiet

Ian Bremmer (via Andrew S):

Fewer market players are keeping an eye on Iran, but the Iran risk hasn’t gone away. If anything, the risk of confrontation will be greater over the next 12 to 18 months as Iran moves closer to a technological point-of-no-return and increasingly anxious Israeli leaders weigh their options.

I agree this is a sleeper issue that bears watching, and not only for the Israeli angle. The past few years have exposed a basic truth: Wall Street and the U.S. economy cannot function without artificially low interest rates and copious liquidity. But there are problems with that. The dollar, while relatively strong since last summer, got hit hard when the Fed announced it would buy Treasury debt. Gold is still over $900. And most important: the price of oil has surged off its low earlier this year, at least partially in response to the Fed and Treasury's extraordinary actions.

I usually cringe at the word "establishment" because it's often used in a conspiratorial sense. But to the extent there is an establishment in this country with interests that transcend partisan politics, it is under enormous and arguably existential pressure right now. Entrenched interests hate pressure, especially when it is both public and populist. If something came along to divert that spotlight, give some cover to the effect of the printing presses on the price of oil, and provide a harsh lesson for other nations about where all that suddenly fashionable anti-dollar chatter leads, I don't think it's a stretch to say that some would welcome it.

Note that this isn't about "controlling the oil" though of course that would be nice. It's about defanging an aspiring power that, by virtue of what lies beneath the land it happens to inhabit, benefits disproportionately and unacceptably from measures we now need for the financial system and the broader economy simply to function normally.

As the printing presses go into warp drive, this dynamic becomes even more important.

17 Comments:

Anonymous KAIMU said...

ALOHA!!

While Bin Laden is still working "PLAN A", the same "PLAN A" that brought down the USSR, our bevy of Harvard and Princeton and West Point PHDs are now working PLANS A ... B ... C ... D ... E ... F and GM!!

I still go back to my original thesis that perhaps a CHIMP with a "dart board of decisions" could have done as good a job of governing this country as all the IVY LEAGUE "experts" combined!! At least a CHIMP is impervious to monetary bribes! And the way in which this country has gone from bad to more bad is not so awe inspiring for Harvard's image!

While many compare OBAMA'S rule as something akin to FDR, and I have even heard the term FDR JR, there is much debate about what cured the Great Depression? Was it FDR's policies? Was it the commencement of WW2? Or was it that FDR's life finally ended? Being human, the top of the food chain, guarantees what? Just what does a PHD guarantee?

Lao Tzu in the 6th Century BC observed ... "Governing a great nation is like cooking a small fish - too much handling will spoil it."

3/31/2009 5:23 AM  
Anonymous Thomas Daulton said...

Perhaps what we need is to pick a new word instead of "establishment" or "conspiracy" which doesn't evoke these 1960s connotations with you (and others). Conspiracies have evolved far beyond that, but the vocabulary hasn't kept up.

The 2001 California Power Crisis was a good example. There was never any time when even so much as two of the half-dozen power companies actually met in any smoke-filled room and said "This is how we're going to screw the living sh#t out of California." All that happened was, that everybody watched the same data and price signals, and responded to them in such a manner as to maximize their own cheating. "Hey, SDG&E took half their plants down for 'maintenance' yesterday, that drove the price of electricity up by several hundred percent. Today their plants are up and everybody seems to be profit-taking at the lower price, so maybe I'll just drop a banana peel into the gears of a few of my own plants today, lay off the profit-taking briefly, and see where the price goes!"

It was sort-of like, ohhhh, what's the phrase, everybody separately pursued their own gain, and "was led by an invisible hand" into a very sophisticated, complex, decentralized plan of action to rape the hell out of Grandma Millie.

I think in a year or two, we will find out that the Financial Crisis worked pretty much the exact same way. That is, if the "establishment" hasn't distracted us with its next war for oil... OOOPS, I mean, Liberation of Iran, by that time.

Maybe we should just replace the word "conspiracy" with "good Capitalism".

3/31/2009 3:30 PM  
Anonymous rapier said...

Iran is making a blunder of monumental proportion. Nukes offer them no strategic or tactical advantage. It will only leave them open to attack.

On some level the analysis which has Iran seeking to reclaim ancient Persian glory I think holds. Everyone forgets they are not Arab or that Arab pertains to a language not to a race or culture. They do share Muslim culture but a unique one in that they are Shite. In a very basic way this puts them at odds with the rest of the Muslim world.

Iran has no friends. Importantly even and especially the Saudi's would not mind seeing a modern and powerful Iran destroyed.

Which is why someday it is likely to happen. Ahmadinejad is following the ancient path to political power by following a muscular nationalistic foreign policy. Not that Iran could ever strike outward in conquest because such things died long ago. The pretense however is going to destroy them eventually in all likelyhood. The biggest reason is that 'we' want blood, and so now does Israel.

3/31/2009 8:02 PM  
Anonymous Naive Realist said...

I still don't understand why Bush never attacked Iran. It was the logical implication of his own national security strategy, it was suggested by his rhetoric, and also if you are willing to go against international law to invade one oil rich country, why not another? There would have been ways for him to try to bring down the Iranian regime without committing ground forces, as we brought down the Serb regime.

The attack might have caused a financial meltdown and hurt Republican chances in the 2008 elections, but by September of last year it was pretty clear that both the markets and the Republicans were going to take a big hit anyway. Why not roll the dice?

I'm not buying that somehow Obama is going to find all sorts of reasons to do something that even Bush rejected. If we are getting out of Iraq, we don't even have the "Iran is supporting the Iraqi insurgents" excuse.

To respond to the other comment, the Iranians most likely concluded they need nukes after seeing what happened to the Iraqis and the Serbs.

3/31/2009 10:19 PM  
Anonymous Hairhead said...

Umm, everybody seems to forget here that in the combined opinion of all sixteen American intelligence agencies, Iran is NOT building a nuclear weapon. Likewise, the enrichment process is being monitored by international observers, and they have not reported weapons-grade enrichment.

This continued blaring of a threat without any credible evidence (beyond hysterical paranoia) was played out on Iraq. And we all know how that worked out.

Finally, Iran and Iranians are not suicidal. There is little benefit to them to have nukes, and even less benefit to threatening America.

And as CR notes, the manufactured hysteria over a "nuclear threat" gives coverage to further economic rape and ruin.

3/31/2009 11:53 PM  
Anonymous Anonymous said...

I still don't understand why Bush never attacked Iran. It was the logical implication of his own national security strategy, it was suggested by his rhetoric, and also if you are willing to go against international law to invade one oil rich country, why not another?

Because he wasn't completely reckless and completely obtuse. The boy could learn. So by the last year or two of his term, he actually figured out that it might not be a good idea to support an Israeli air attack on Iran, and rebuffed our "ally".

It's just too bad for, well, the entire fucking world, that the nitwit spent about half a decade and a trillion or two dollars picking up on the blindingly obvious. He still needs to be hauled in front of a general war crimes & treason court. Ineptitude is no excuse for the wreckage he caused.
-- sglover

4/01/2009 12:33 AM  
Anonymous Goldhorder said...

haha...pretty funny discussion. Obama is sending mixed signals to Iran. Some of his staff acts belligerent but then some announce support for engagement. This means engagement. They don't want to seem too eager to come to the table. They don't want Iran thinking they can get too much from them...their ace in the hole will be that we are barely holding the Israelis back from bombing you so you better start making concessions. Lol. Hillary gets to play good cop holding the likudniks back from administrating a beating. I don't see any chance of this going well but hey...i'm a gun holding, gold hoarding, end of civilization survivalist nut.

4/01/2009 12:51 PM  
Anonymous judyo said...

TCR ... this article fairly screemed your name.
http://www.bloomberg.com/apps/news?pid=20601109&sid=a2QufomIIc.w&refer=news

4/01/2009 2:15 PM  
Anonymous Anonymous said...

Is Iran any worse than China military growth and Pakistan nuclear ownership, or the hold Saudi Arabia has on the US? Talk about a National Security issue. Granted, nobody holds more than China.

"Wall Street and the U.S. economy cannot function without artificially low interest rates and copious liquidity."

I think the problem is Wall Street. The economy can work, just not the way Wall Street wants it to, with them making all the profits, not reinvesting it into the real economy and infrastructure, and taking little of the risk. Remove Wall Street and it'll be like removing the mob. It'll be out of the way, out of politics, and we can make real progress.

People berate fat people for not having control. You don't have to eat it just because it's there, even though food engineers manufacture food with loads of sugar, salt and chemicals to hook us. Same with drug users and alcoholics, it's ALL their fault. So how come, we don't hold those that abuse money with the same disdain? And Wall Street did abuse the money.

"printing presses go into warp drive" - That's depressing.

There are many talented folks in the world, don't you think a form of modern war is not just box cutters, but economics. In an ironic twist, China gave us a good hit.

4/01/2009 2:38 PM  
Blogger Ron said...

"Note that this isn't about "controlling the oil" though of course that would be nice. It's about defanging an aspiring power that, by virtue of what lies beneath the land it happens to inhabit, benefits disproportionately and unacceptably from measures we now need for the financial system and the broader economy simply to function normally. "

This is the most obtuse logic I have seen in some time. Or am I missing something? It is "unacceptable" that a country benefit from the natural resources in it's own territory? We will go to a horrible war (far worse than Iraq from which we cannot extricate ourselves), against an 'aspiring power' that is years away from any 'technological point of no return' (if they are even headed there), an 'apriring power' that has not aggressed against another country in 150 years? All just because we "need" those resources so that a sick economic system, sickened by an irresponsible and greedy elite, can function "normally". ?? Maybe my coffee wasn't strong enough this morning, but I find this utterly bizarre.

4/02/2009 12:08 PM  
Blogger The Cunning Realist said...

Ron, come here often?

4/02/2009 4:45 PM  
Blogger Ron said...

I started reading more or less regularly about three months ago I guess. I usually find the comments on finances to quite insightful, though I don't always agree. But this particular post jumped out at me like something from another planet.

4/02/2009 6:37 PM  
Anonymous Anonymous said...

Like he said - Ron do you come here often?

TCR wasn't espousing an attack on Iran. He was... Oh god. Go read the article again, but this time slowly with your tin hat off.

4/03/2009 2:22 PM  
Blogger Ron said...

"TCR wasn't espousing an attack on Iran."
You go back and read it slowly and you will see that that is not so clear, especially if you throw in some of the comments. But what I react to is the apparent justification, or at least explanation, of such a line of action because of the 'needs' of the US financial system. A strange logic implying an odd set of values. No tin hats, just different priorities.

4/03/2009 6:04 PM  
Anonymous Anonymous said...

We have no idea what is going on behind the scenes, so i try to stay away from debate on this.

I don't think Obama will bomb Iran. It is a pretty modern country with lots of young people are not happy living under tyranny. There are ways to deal with Iran, to rally the people to change things.

But if we poke them, they go back to Nationalism like when they elected the current guy after Bush pissed them off.

I trust Barak.

4/04/2009 10:58 PM  
Anonymous Anonymous said...

Pentagon preps for economic warfare

"In the end, there was sobering news for the United States – the savviest economic warrior proved to be China, a growing economic power that strengthened its position the most over the course of the war-game."

PBS had a program on, Independent Lens, where a couple returned to Iran for their wedding. This is one of many programs I've seen. And just like the US, there are the people of Iran, and then the government. Even when Rick Steves travels to Iran, it's a different perspective. I wonder often, whose story are we really getting.

4/09/2009 2:17 PM  
Blogger marry said...

Blogs are so informative where we get lots of information on any topic. Nice job keep it up!!
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