Tuesday, January 02, 2007

Bush's New Iraqi Plan. Two Words or Less?

EUR/USD 1.3267 Hi 1.3290 Low 1.3226
USD/JPY 118.87 Hi 118.95 Low 118.49
AUD/USD 0.7956 Hi 0.7962 Low 0.7913
EUR/JPY 157.75 Hi 157.89 Low 156.88

Well it's New Year and we are all waiting breathlessly for George W.'s new Iraq policy. This is the same extremely talented team which came up with the puerile: "Punish France, Ignore Germany, Forgive Russia". The point of which escapes me but it was the considered response of the Bush Administration to the opposition by France, Germany and Russia to "Operation Iraqi Freedom", the code name for the U.S. war on Iraq. From memory I think China also opposed the war but obviously thinking up a slogan which encompassed more than three nations wouldn't have had the same snappy ring to it. So they went with "Punish, Ignore and Forgive". Marketing in America is everything. Do whatever you want so long as you sell it right. No-one out there in Voter Land is really paying attention anyway.

The Bush Administration's "Punish, Ignore, Forgive" response was built on the premise that: a) they were right b) the U.S.A. is the most heavily armed nation on earth and can do whatever it wants and c) force is not only necessary but sufficient to settle any dispute and divergent views are not appreciated. The upshot being that the U.S.A. can and will and has done whatever it wants where ever it likes and no-one can or will do anything about it. And that's true. At least in military terms.

So the New Iraqi plan will be more of the same: puerile and redundant. Only possibly worse. And the stakes just keep getting higher. On December 23, when the western world was distracted by the Christmas Holidays, under U.S. pressure the U.N. quietly voted for sanctions against Iran. So, despite the complete failure of the Iraqi incursion, the Bush Administration has decided to continue pursuing its Foreign Policy Objectives, sans Rumsfeld, and without any significant modification of its strategy. First we have U.N. sanctions aimed at further weakening a nation damaged by existing economic sanctions. Then, at some point, there will be a military strike. The point of which will be unclear, though the unstated aim seems to be to wrest physical control of Iranian Oil Reserves. The champions of Free Trade only believe in Free Markets when applied to other people. Not for them the mere purchase of Oil on the Open Market.

The question that needs to be asked though is this: if the world's most heavily armed nation hasn't been able to win a war against a nation which was effectively disarmed prior to the U.S. invasion, why would they expect to win against anyone else?

Oh I know that continuing the brutal tradition which so far has not been emulated by any other nation, barbaric or otherwise, the U.S. may decide that an Aerial Atomic Bombardment will silence critics and ensure their global economic and military pre-eminence. And this slightly psychotic aim seems to lie at the very heart of all of the Bush Administration's Foreign Policy Strategy. And the American public has no problem with that. In fact the American Public seem to believe that American pre-eminence is something akin to a divine right, like the Divine Right of Kings. It's a slightly archaic idea but they're hanging on to it.

The greatest risk to the current U.S. policy strategy is not on the military field. First, because the rest of the world does not necessarily buy into the idea that wars are good economics and/or good politics. The U.S. pretty much has the use of force to itself as a game plan. No challenges and no real interest.

No, the real risk for the U.S. is finding the funds to carry out their paranoid plans. And that Achille's heel is somewhat more tricky to deal with. The U.S. needs to keep foreign funds rolling in. They need to inspire confidence in foreign investors. This is somewhat difficult when you are going with a plan of global domination via military means but with a little ducking and weaving and lots of obfuscation you might just get there. Unfortunately having George W. as your Publicist-in-Chief makes the job just that much harder. Still you go to war with the team you have. Or, at least, the likes of Rumsfeld do.

So in the interests of shoring up offshore confidence in the USD and U.S. Financial Markets you produce headlines such as these:

Treasuries Have Best Half-Year Since 2002

What next? U.S. Treasuries have best Trimester? Best 10 days? Best 30 seconds?

U.S. Treasuries, in fact, had a bad year last year and the outlook for Treasuries this year is clouded. But you wouldn't want to spook foreign investors at a time when the Funding Requirement of the Bush Administration just keeps expanding and the U.S. has no domestic savings to speak of. The USD is still in trouble. The U.S. economy is in trouble and U.S. Financial Markets look fragile at best. 2007 could be a very interesting year.

OIL 61.21
GOLD 641.60

GOLD bulls are back in the driving seat, which isn't much of a surprise considering the recent USD performance and the possibility of more violence in the Middle East in the near term. The same forces are holding the price of OIL steady in the face of a potential U.S. economic "cooling".

So I guess the Bush Administration hasn't been a complete disaster, at least for the OIL industry. And in Afghanistan a record poppy crop is predicted. War mongers, arms dealers, drug dealers and the OIL industry have all done well. Conspiracy or bad management? Does it really make any difference?

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