Rising Star Writings

Korean change … stable for now.

The change of power balance in the Korean peninsula is going to be something of a flashpoint in the coming months.

Always ready for a fight or flight moment, North Korea now is in the throes of a change of power not seen since the city state years of the Italian peninsula in the 14th and 15th centuries.

Nominally a communist regime, North Korea could better be described as a feudal Kingdom, now with a powerful experienced Duke overseeing the development of a new young King.  One that is untested and untried with the most important elements in statesmanship to a military dictatorship, combat command and immediate control of senior military commanders.

I suspect that the leaders of South Korea are rightly concerned about the sound of sabre rattling changing to actually drawing the sword.

More from Reuters.

Obama and the Arab Spring

By George Friedman

U.S. President Barack Obama gave a speech last week on the Middle East. Presidents make many speeches. Some are meant to be taken casually, others are made to address an immediate crisis, and still others are intended to be a statement of broad American policy. As in any country, U.S. presidents follow rituals indicating which category their speeches fall into. Obama clearly intended his recent Middle East speech to fall into the last category, as reflecting a shift in strategy if not the declaration of a new doctrine.

While events in the region drove Obama’s speech, politics also played a strong part, as with any presidential speech. Devising and implementing policy are the president’s job. To do so, presidents must be able to lead — and leading requires having public support. After the 2010 election, I said that presidents who lose control of one house of Congress in midterm elections turn to foreign policy because it is a place in which they retain the power to act. The U.S. presidential campaign season has begun, and the United States is engaged in wars that are not going well. Within this framework, Obama thus sought to make both a strategic and a political speech.

Obama’s War Dilemma

The United States is engaged in a broad struggle against jihadists. Specifically, it is engaged in a war in Afghanistan and is in the terminal phase of the Iraq war.

The Afghan war is stalemated. Following the death of Osama bin Laden, Obama said the Taliban’s forward momentum has been stopped. He did not, however, say that the Taliban are being defeated. Given the state of affairs between the United States and Pakistan following bin Laden’s death, whether the United States can defeat the Taliban remains unclear. It might be able to, but the president must remain open to the possibility that the war will become an extended stalemate.

Meanwhile, U.S. troops are being withdrawn from Iraq, but that does not mean the conflict is over. Instead, the withdrawal has opened the door to Iranian power in Iraq. The Iraqis lack a capable military and security force. Their government is divided and feeble. Meanwhile, the Iranians have had years to infiltrate Iraq. Iranian domination of Iraq would open the door to Iranian power projection throughout the region. Therefore, the United States has proposed keeping U.S. forces in Iraq but has yet to receive Iraq’s approval. If that approval is given (which looks unlikely), Iraqi factions with clout in parliament have threatened to renew the anti-U.S. insurgency.

The United States must therefore consider its actions should the situation in Afghanistan remain indecisive or deteriorate and should Iraq evolve into an Iranian strategic victory. The simple answer — extending the mission in Iraq and increasing forces in Afghanistan — is not viable. The United States could not pacify Iraq with 170,000 troops facing determined opposition, while the 300,000 troops that Chief of Staff of the Army Eric Shinseki argued for in 2003 are not available. Meanwhile, it is difficult to imagine how many troops would be needed to guarantee a military victory in Afghanistan. Such surges are not politically viable, either. After nearly 10 years of indecisive war, the American public has little appetite for increasing troop commitments to either war and has no appetite for conscription.

Obama thus has limited military options on the ground in a situation where conditions in both war zones could deteriorate badly. And his political option — blaming former U.S. President George W. Bush — in due course would wear thin, as Nixon found in blaming Johnson.

The Coalition of the Willing Meets the Arab Spring

For his part, Bush followed a strategy of a coalition of the willing. He understood that the United States could not conduct a war in the region without regional allies, and he therefore recruited a coalition of countries that calculated that radical Islamism represented a profound threat to regime survival. This included Egypt, Saudi Arabia and the rest of the Gulf Cooperation Council, Jordan, and Pakistan. These countries shared a desire to see al Qaeda defeated and a willingness to pool resources and intelligence with the United States to enable Washington to carry the main burden of the war.

This coalition appears to be fraying. Apart from the tensions between the United States and Pakistan, the unrest in the Middle East of the last few months apparently has undermined the legitimacy and survivability of many Arab regimes, including key partners in the so-called coalition of the willing. If these pro-American regimes collapse and are replaced by anti-American regimes, the American position in the region might also collapse.

Obama appears to have reached three conclusions about the Arab Spring:

1. It represented a genuine and liberal democratic rising that might replace regimes.
2. American opposition to these risings might result in the emergence of anti-American regimes in these countries.
3. The United States must embrace the general idea of the Arab risings but be selective in specific cases; thus, it should support the rising in Egypt, but not necessarily in Bahrain.

Though these distinctions may be difficult to justify in intellectual terms, geopolitics is not an abstract exercise. In the real world, supporting regime change in Libya costs the United States relatively little. Supporting an uprising in Egypt could have carried some cost, but not if the military was the midwife to change and is able to maintain control. (Egypt was more an exercise of regime preservation than true regime change.) Supporting regime change in Bahrain, however, would have proved quite costly. Doing so could have seen the United States lose a major naval base in the Persian Gulf and incited spillover Shiite protests in Saudi Arabia’s oil-rich Eastern Province.

Moral consistency and geopolitics rarely work neatly together. Moral absolutism is not an option in the Middle East, something Obama recognized. Instead, Obama sought a new basis for tying together the fraying coalition of the willing.

Obama’s Challenge and the Illusory Arab Spring

Obama’s conundrum is that there is still much uncertainty as to whether that coalition would be stronger with current, albeit embattled, regimes or with new regimes that could arise from the so-called Arab Spring. He began to address the problem with an empirical assumption critical to his strategy that in my view is questionable, namely, that there is such a thing as an Arab Spring.

Let me repeat something I have said before: All demonstrations are not revolutions. All revolutions are not democratic revolutions. All democratic revolutions do not lead to constitutional democracy.

The Middle East has seen many demonstrations of late, but that does not make them revolutions. The 300,000 or so demonstrators concentrated mainly in Tahrir Square in Cairo represented a tiny fraction of Egyptian society. However committed and democratic those 300,000 were, the masses of Egyptians did not join them along the lines of what happened in Eastern Europe in 1989 and in Iran in 1979. For all the media attention paid to Egypt’s demonstrators, the most interesting thing in Egypt is not who demonstrated, but the vast majority who did not. Instead, a series of demonstrations gave the Egyptian army cover to carry out what was tantamount to a military coup. The president was removed, but his removal would be difficult to call a revolution.

And where revolutions could be said to have occurred, as in Libya, it is not clear they were democratic revolutions. The forces in eastern Libya remain opaque, and it cannot be assumed their desires represent the will of the majority of Libyans — or that the eastern rebels intend to create, or are capable of creating, a democratic society. They want to get rid of a tyrant, but that doesn’t mean they won’t just create another tyranny.

Then, there are revolutions that genuinely represent the will of the majority, as in Bahrain. Bahrain’s Shiite majority rose up against the Sunni royal family, clearly seeking a regime that truly represents the majority. But it is not at all clear that they want to create a constitutional democracy, or at least not one the United States would recognize as such. Obama said each country can take its own path, but he also made clear that the path could not diverge from basic principles of human rights — in other words, their paths can be different, but they cannot be too different. Assume for the moment that the Bahraini revolution resulted in a democratic Bahrain tightly aligned with Iran and hostile to the United States. Would the United States recognize Bahrain as a satisfactory democratic model?

The central problem from my point of view is that the Arab Spring has consisted of demonstrations of limited influence, in non-democratic revolutions and in revolutions whose supporters would create regimes quite alien from what Washington would see as democratic. There is no single vision to the Arab Spring, and the places where the risings have the most support are the places that will be least democratic, while the places where there is the most democratic focus have the weakest risings.

As important, even if we assume that democratic regimes would emerge, there is no reason to believe they would form a coalition with the United States. In this, Obama seems to side with the neoconservatives, his ideological enemies. Neoconservatives argued that democratic republics have common interests, so not only would they not fight each other, they would band together — hence their rhetoric about creating democracies in the Middle East. Obama seems to have bought into this idea that a truly democratic Egypt would be friendly to the United States and its interests. That may be so, but it is hardly self-evident — and this assumes democracy is a real option in Egypt, which is questionable.

Obama addressed this by saying we must take risks in the short run to be on the right side of history in the long run. The problem embedded in this strategy is that if the United States miscalculates about the long run of history, it might wind up with short-term risks and no long-term payoff. Even if by some extraordinary evolution the Middle East became a genuine democracy, it is the ultimate arrogance to assume that a Muslim country would choose to be allied with the United States. Maybe it would, but Obama and the neoconservatives can’t know that.

But to me, this is an intellectual abstraction. There is no Arab Spring, just some demonstrations accompanied by slaughter and extraordinarily vacuous observers. While the pressures are rising, the demonstrations and risings have so far largely failed, from Egypt, where Hosni Mubarak was replaced by a junta, to Bahrain, where Saudi Arabia by invitation led a contingent of forces to occupy the country, to Syria, where Bashar al Assad continues to slaughter his enemies just like his father did.

A Risky Strategy

Obviously, if Obama is going to call for sweeping change, he must address the Israeli-Palestinian relationship. Obama knows this is the graveyard of foreign policy: Presidents who go into this rarely come out well. But any influence he would have with the Arabs would be diminished if he didn’t try. Undoubtedly understanding the futility of the attempt, he went in, trying to reconcile an Israel that has no intention of returning to the geopolitically vulnerable borders of 1967 with a Hamas with no intention of publicly acknowledging Israel’s right to exist — with Fatah hanging in the middle. By the weekend, the president was doing what he knew he would do and was switching positions.

At no point did Obama address the question of Pakistan and Afghanistan or the key issue: Iran. There can be fantasies about uprisings in Iran, but 2009 was crushed, and no matter what political dissent there is among the elite, a broad-based uprising is unlikely. The question thus becomes how the United States plans to deal with Iran’s emerging power in the region as the United States withdraws from Iraq.

But Obama’s foray into Israeli-Palestinian affairs was not intended to be serious; rather, it was merely a cover for his broader policy to reconstitute a coalition of the willing. While we understand why he wants this broader policy to revive the coalition of the willing, it seems to involve huge risks that could see a diminished or disappeared coalition. He could help bring down pro-American regimes that are repressive and replace them with anti-American regimes that are equally or even more repressive.

If Obama is right that there is a democratic movement in the Muslim world large enough to seize power and create U.S.-friendly regimes, then he has made a wise choice. If he is wrong and the Arab Spring was simply unrest leading nowhere, then he risks the coalition he has by alienating regimes in places like Bahrain or Saudi Arabia without gaining either democracy or friends.

“Obama and the Arab Spring is republished with permission of STRATFOR.”

Welcome to the top of the ride … all downhill from here.

There is an adage in the market that says,

“Sell in May and walk away.”

Well, there are many leading indicators that are now pointing DOWN, way down.

From the Treasury Market Inflation Forecast to the Economic Cycle Research Institute’s (ECRI) Long Leading Index of global industrial growth, these indicators are showing that the “W” of recovery is more likely.

Given that the US housing market has not rebounded as was once hoped, that the QE and QEII have only resulted in a short term bull rally in the stock market and a temporary easing of short term bond rates and not the much touted employment that the bankers and others from Wall Street and DC were promising was ‘on the way’.  Indeed employment numbers are stalled, much like the sense one has in a roller coaster car just as you reach the top of the first ‘hill’ after being released from the lift chains.  We have had a drop and a ‘scare’ now the real ride begins.

Richard Russell, 86-year old author of the Dow Theory Letters commented as follows on the deteriorating market breadth: “This is a bearish picture. The ‘soldiers’ are deserting even while the ‘generals’ continue to march forward. In a war, this would be a prelude to disaster. In the stock market, it may be the same.”

I agree with that sentiment and add in argument that the broader market place is going to go into a panic situation, this summer will be pleasant enough, like the roller coaster car moving gently along the top of the rail in a near flat grade.  By this autumn?  Well Kondratieff Winter will blow in for real with a storm to remember …

CHINA : The Global “double-dip” : Roubini

The talking heads cannot get clear of the fog of material coming out from ‘official’ sources.

The best minds watching the market are seeing clearly, no illusions, Roubini is telling the truth in this video discussion with the CNBC crew. His view is absolutely correct, real-estate is still on life support, no durable goods growth is needed at all meaning the continued constriction all over the place and labor statistics are going to continue to be wiped out in the private sector. Government spending cannot change the situation at all over the short term, de-leveraging must continue.

Fiscal irresponsibility on the part of governments will eventually bring down the whole system and Roubini is seeing clearly when he points out the continued QE will have to be done and once that avenue of relief has run out there are few other options left.