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China Services PMI Crumbles To 2nd Worst Level On Record | Zero Hedge

China Services PMI Crumbles To 2nd Worst Level On Record | Zero Hedge.

Following the missed expectations of the Manufacturing PMIs in China, it appears ‘reform’ is having the exact slow-growth-inducing credit-creation-dampening effects many had worried about (but dismissed because – well the Fed has out back right?). HSBC’s China Services PMI slumped by its most in 8 months to its lowest level since August 2011 (the 2nd worst level since the data began). New business expansion in particular dropped to its lowest level in 6 months and while labor market conditions improved marginally, HSBC – desperate to cling to some silver lining – noted the Composite PMI remains above 50 (phew) – adding “we expect the steady expansion of manufacturing sectors to lend support to service sector growth…” or not. Markets are disappointed…

 

This is also the slowest ‘expansion’ of Services relative to Manufacturing since April 2011

 

 

It seems JPY and US equities need Bernanke to start talking again very soon!!!

Violence mars controversial Bangladesh polls – Central & South Asia – Al Jazeera English

Violence mars controversial Bangladesh polls – Central & South Asia – Al Jazeera English.

Violence has marred controversial general elections in Bangladesh, leaving at least 18 people dead in clashes between opposition supporters and police.

Thousands of protesters firebombed polling stations and stole ballot papers as deadly violence flared across the South Asian nation during Sunday’s elections, which was boycotted by the BNP, the main opposition party, and its allies.

Polls closed at 4pm (1000 GMT) after eight hours of voting and final results were expected in the early hours of Monday morning.

Police said more than 200 polling stations were set on fire or trashed by mobs in a bid by the opposition activists to wreck the contest.

AFP correspondents said there were no queues to vote, while local television reported that only a single person voted in the first three hours at one station.

The BNP is protesting against the decision by Sheikh Hasina Wajed’s government to scrap the practice of having a neutral caretaker government oversee elections.

Al Jazeera’s Jonah Hull, reporting from Dhaka, said: “The government did everything it could to bring the opposition on board, and blames the opposition entirely for the violence. The opposition, on the other hand, says it will accept nothing less than a neutral caretaker body and this government to step aside.”

Low turnout

With the opposition trying to enforce a general strike as part of a strategy to wreck the polls, government officials acknowledged the turnout was significantly lower than usual.

“The turnout was low, partly due to the boycott by many parties,” Kazi Rakibuddin Ahmad, the election commission head, said without immediately giving a figure.

Two of those killed on Sunday were beaten to death while guarding polling stations in northern districts which bore the brunt of the violence.

“We’ve seen thousands of protesters attack polling booths and our personnel at a number of locations with Molotov cocktails and petrol bombs,” Syed Abu Sayem, police chief of the northern Bogra district, told AFP news agency.

“The situation is extremely volatile.”
He described how thousands of ballot papers had been ceremoniously set on fire.

Most of the other victims were opposition activists who were shot by police, while a driver died of his injuries from a Molotov cocktail attack on his lorry.

“We were forced to open fire after thousands of them attacked us with guns and small bombs,” Mokbul Hossain, police chief in the northern Parbatipur town, said

“It was a coordinated attack. They managed to seize some ballot papers and they tried to steal our weapons.”

In Dhaka, police confirmed at least two petrol bomb attacks on polling stations.

Tens of thousands of troops were deployed across the country after around 150 people had been killed in the build-up, but they failed to halt the bloodshed.

The Awami League-led government has accused the BNP of orchestrating the violence and kept its leader, Khaleda Zia, confined to her home for a week.

Outcome not in doubt

The outcome of the contest is not in doubt as voting is taking place in only 147 of the 300 parliamentary constituencies.

Awami League candidates or allies have a clear run in the remaining 153.

The government said it had to hold the vote after parliament’s five-year term expired, but the BNP said it was a joke.

“Yes, the festive mood is missing but this election is essential to ensure constitutional continuity,” Quamrul Islam, deputy law minister, said.

Hasina’s government amended the constitution in 2010 and decided to hold elections under an all-party government.

However, Zia argued that such a government would in effect be headed by the governing party which would undermine the fairness of the process.

More violence feared

Many fear that the election is likely to stoke violence after the bloodiest year of unrest since Bangladesh broke free from Pakistan in 1971.

The former East Pakistan is the world’s eighth most populous nation but also one of the poorest in Asia, and more turmoil will undermine efforts to improve the lot of its population of 154 million – a third of whom live below the poverty line.

A local rights group says more than 500 people have been killed since January 2013, including victims of clashes that erupted after the conviction of Islamists for crimes dating back to the 1971 liberation war.

The main Islamist party was banned by judges from taking part in the election, and its leaders are either in detention or in hiding.

Alarmed by the violence, the US, EU and Commonwealth all declined to send observers.

Speaking to Al Jazeera on Sunday, Amena Mohsin, a professor of international relations at Dhaka University, said: “The election has not been democratic. It was an in-house election. The government could have held a more inclusive election and the election commission could have delayed the vote further.”

Japan Population Falls by Record in Challenge for Abe’s Campaign – Bloomberg

Japan Population Falls by Record in Challenge for Abe’s Campaign – Bloomberg.

Japan’s population declined by the most on record in 2013, highlighting the demographic challenges faced by Prime Minister Shinzo Abe in his campaign to revive the world’s third-biggest economy.

The population fell by 244,000, according to Health Ministry estimates released yesterday, a seventh straight year of decline. Births fell about 6,000 from a year earlier to 1,031,000 and deaths increased about 19,000 to 1,275,000.

Rising welfare costs for an ageing nation threaten to worsen a debt burden that is already twice the size of the Japanese economy. At the same time, a shrinking population caps consumer demand, making it harder for Abe to drive an exit from 15 years of deflation.

The government’s decision to raise a sales tax to 8 percent from 5 percent in April is aimed at helping to secure funds for social welfare payments. That move threatens to undermine the momentum building in the economy from unprecedented monetary stimulus.

 

Cambodian troops in riot gear break up strike – Asia-Pacific – Al Jazeera English

Cambodian troops in riot gear break up strike – Asia-Pacific – Al Jazeera English.

Two witnesses said they saw troops striking a Buddhist monk [Reuters]
Cambodian troops armed with batons and rifles have broken up a protest by textile workers demanding a doubling of wages as part of a nationwide strike by unions allied with the main opposition party.Witnesses said around 100 soldiers wearing riot gear and carrying assault rifles on Thursday used force to clear hundreds of workers protesting outside their factory about 20km west of the capital, Phnom Penh.

“Soldiers beat up everyone,” said labour rights activist Chhorn Sokha of the Community Legal Education Center. “They had sticks, electric batons, slingshots and stones.”

Soldiers beat up everyone. They had sticks, electric batons, slingshots and stones,Chhorn Sokha, Labour rights activist, Community Legal Education Center

At least 10 protesters were detained and it was not known yet how many were hurt, she added.

Photographers, including one from Reuters news agency, were hit by batons while covering the protest. Two witnesses said they also saw troops striking a Buddhist monk.

The clashes mark a violent turn after two weeks of relatively peaceful strikes, marches and demonstrations of unprecedented scale in Cambodia. Security forces, which have a reputation for zero-tolerance, have so far exercised restraint.

The garment workers, whose industry is a major employer worth $5bn a year to the economy, have joined protests led by the opposition Cambodia National Rescue Party (CNRP), which says it was cheated out of more than two million votes in an election last July.

The CNRP has courted some 350,000 garment factory workers with the promise of a minimum monthly wage equivalent to $160, a proposal dismissed by the government as unsustainable.

Their support for the CNRP represents one of the biggest challenges to the 28-year rule of authoritarian Prime Minister Hun Sen.

He has been credited with steering Cambodia away from being a war-scarred failed state to a promising frontier market, but opponents say his power comes not from the people, but from the sway he has over independent institutions and allege he rigged the election, which he denies.

The strike has blocked roads briefly in Phnom Penh and threatened to cripple an industry that is the biggest foreign currency earner for Cambodia, one of Asia’s poorest states. The government offered on December 24 to raise the minimum wage from $80 to $95, but the unions have rejected that.

Gap Adidas, Nike and Puma are among big brands that outsource manufacturing of footwear and apparel to Cambodian factories, in part due to the cheaper labour costs than China.

 

It’s not yet the end of the world as we know it, but watch Japan’s debt grow – Telegraph

t’s not yet the end of the world as we know it, but watch Japan’s debt grow – Telegraph.

Tokyo 2020: travel guide

“Japan has managed to muddle through, but it now looks as though it is close to a tipping point.” Photo: AP

 

We can all breathe a sigh of relief that the world is not going to come to an end as a result of a default by the US government. Well, for now, anyway. But this does not mean that debt problems have gone away. Indeed, across the Pacific a serious debt problem is still building in Japan.

Whereas the US debt crisis has been triggered by a disagreement between Democrats and Republicans over the role of the state in the economy and society, and specifically over “Obamacare”, Japan’s debt problem is a slow burner.

As a share of GDP, government debt has been growing since the early 1990s. This is the result of the long-running weakness of economic growth, repeated fiscal stimulus packages and a long period in which the overall price level has stagnated or fallen. Japan has managed to muddle through, but it now looks as though it is close to a tipping point.

The scale of the problem is staggering. Japan’s net government debt is about 140pc of GDP. This is way ahead of the US, which is on 87pc, and not that far below Greece. What’s more, it is easy to see the ratio increasing further. The IMF expects net debt to rise to 148pc of GDP over the next five years. In fact, if the economy performs badly, inflation remains low or borrowing costs rise, debt could easily follow an explosive path, with the ratio quickly rising towards 300pc of GDP.

So what to do? If Japan followed anything like this path, then some form of default would eventually become inevitable. Accordingly, why not cut the whole process short and get the thing over and done with by defaulting now?

Quite apart from all the usual objections to default, Japan suffers from another major obstacle, namely that its debt is overwhelmingly held by Japanese financial institutions, including banks. A default would land the financial sector with massive losses and could cause a catastrophic financial crisis.

The orthodox way to tackle debt is to impose austerity via cuts to government spending or increases in taxes. In fact, Japan will increase its consumption tax in April and quite considerable deficit reduction is promised for the next few years.

But this runs into two problems that are familiar from a European perspective. First, such austerity is not popular and the politicians in Japan may yet baulk at the scale of the tightening to be imposed.

Second, austerity tends to reduce GDP – even though George Osborne may believe that it hasn’t done so in the UK. If it does reduce GDP, then the debt to GDP ratio would probably rise.

Faster economic growth would help but is in practice difficult to achieve. The government is pursuing some supposedly radical structural reforms but it is unlikely that, even if these are pushed through, they will have much of an impact soon enough. And in trying to grow its way out of the debt problem, unlike America, Japan faces a huge demographic hurdle. It simply isn’t making enough Japanese. The size of the workforce is already falling and will continue to do so for decades.

The way out for Japan is to try to engineer a higher rate of inflation, perhaps much higher than the current 2pc target. For any given rate of increase of real GDP this would give a higher rate of growth of nominal GDP, that is to say, expressed in money terms. With debt fixed in money terms this would, other things being equal, bring down the debt to GDP ratio.

Admittedly, other things may not be equal. The danger is that markets would force up the rate of interest on Japanese debt and thereby increase the amounts that the government had to pay out in debt interest. That could easily offset the effect of higher inflation.

In fact, it could lead to the debt ratio ending up higher. Yet in the Japanese case, this is unlikely.

The Bank of Japan would continue to hold short-term interest rates at close to zero for several years. That would ensure that the rates on short-term debt remained subdued. Moreover, it would continue to buy huge quantities of Japanese government debt. It might also consider obliging financial institutions to hold extra amounts of government debt.

How would Japan achieve higher inflation? Quantitative easing (QE), or printing money, as it is colloquially known, will eventually give you higher inflation – provided that you do it on sufficient scale. This is what the Japanese central bank now seems prepared to do.

A fall of the yen would be a crucial part of the mechanism by which inflation moved higher.

This is what has happened recently. Japanese inflation has risen to 0.9pc, but almost wholly as a result of the fall of the yen from the high 70s to the dollar to about 100. There has been hardly any domestically generated inflation. But if the yen continued to weaken, that would surely follow.

Throughout the past 30 years, Japan has been a testing ground both for problems and their possible solutions that have appeared later in the West. It experienced a bubble economy in the late 1980s and then experienced the pain of a long drawn-out balance sheet recession, brought on by the collapse of asset prices and the drying up of credit.

It also went through a slow dragging deflation of consumer prices before anyone in the West thought that this was an issue. And for some time now it has faced the problems caused by an ageing and falling population.

Could it also show the way on the inflation solution to the debt problem which continues to bedevil so many countries in the West? For the UK, a deliberate embrace of higher inflation remains only a risk rather than a probability. For we are in a very different position from Japan. Our debt ratio is nowhere near as high and our potential to grow our way out of the problem is much greater, not least due to our more favourable demographic prospects. The same is true for the US.

But there are several members of the eurozone for whom this is not true. Greece and Italy spring to mind. Unless their debt is “forgiven”, some form of default appears inevitable.

While they remain in the euro, of course, they cannot default through inflation because they do not control their own monetary policy.

But if they were to leave the euro, the Japanese experience might be highly influential.

Roger Bootle is managing director of Capital Economics roger.bootle@capitaleconomics.com

 

How to Prevent a War Between China and Japan – Bloomberg

How to Prevent a War Between China and Japan – Bloomberg.

Photos: Getty Images; Illustration by A. Babar

China and Japan, Asia’s two most powerful nations, are increasingly jousting in the skies and in the seas near a set of disputed islands. Although their economies remain deeply intertwined, relations between the two governments seem locked in an irreversible, dangerous downward spiral.

Japanese Prime Minister Shinzo Abe further embittered feelings last week by visiting the controversial Yasukuni shrine, which honors the souls of Japan’s war dead, including 14 World War II leaders convicted as Class-A war criminals.

Needless to say, neither side seems terribly interested in a rapprochement. That’s a shame, because the deterioration in ties is fairly recent, stemming from a single incident involving the islands administered by Japan, which calls them the Senkakus, and claimed by China, which refers to them as the Diaoyu. A single, symbolic-but-generous gesture could well halt the slide.

Abe, though unquestionably a hawk on China, had nothing to do with the triggering event. In September 2012, then-Prime Minister Yoshihiko Noda ordered his government to buy several of the disputed islands from a private owner — an action which, in China’s view, effectively nationalized them.

Noda hadn’t intended to provoke the Chinese. On the contrary, he aimed to preempt a more aggressive gesture by hyper-nationalist politician Shintaro Ishihara — then Tokyo’s governor — who wanted to have the Tokyo metropolitan government purchase the islands and build on them to assert Japan’s sovereignty.

Still, barely two days before Noda’s decision, China’s then-President Hu Jintao had specifically warned him not to proceed. Hu’s concerns were legitimate. For years, China had quietly acceptedJapan’s “de facto” occupation of the islands even as it disputed sovereignty. By buying them, Japan appeared to be moving to “de jure” ownership. Given the nationalist mood in China, the Beijing government couldn’t risk appearing weak in its response.

If Abe really wanted to break the chain of escalation that has since played out between China and Japan, he could singlehandedly return to the status quo ante. He would only need to “sell” the islands to a private Japanese foundation or environmental group, ostensibly to preserve their undeveloped natural beauty.

Japanese hard-liners would no doubt regard such a move as a capitulation to China. It wouldn’t be. Even after a sale, Japan would continue its de facto occupation of the islands, as it has for decades. Since the islands’ purchase was made by a previous government, Abe’s Liberal Democrats need not feel bound by the decision. In fact, after pacifying his nationalist supporters by visiting Yasukuni, Abe may be in a stronger position to compromise on the islands.

In an interview with Bloomberg earlier this month, Abe called for a summit with President Xi Jinping of China and said, “Now is the time to go back to that starting point.” Abe was referring to a bilateral agreement he reached with Hu in 2006, during a previous term as Japan’s prime minister. Selling the islands would be a critical first step toward returning to that calmer time.

If Abe wanted to be bolder, he could make the same offer to China that Japan has made to South Korea over a different set of disputed islands: to have the issue resolved by the International Court of Justice. The chances of China agreeing to this are minuscule. But by taking the moral high ground, Japan would both reaffirm its reasonableness, and satisfy the major precondition China has imposed on any Xi-Abe summit — acknowledging that sovereignty of the Senkakus/Diaoyu is in dispute.

Of course, if it’s hard to imagine an Abe administration reaching out to Beijing now, it’s equally hard to see Chinese leaders responding constructively. Yet on a simple cost-benefit analysis, Xi has incentive enough to scale back aggressive naval and air patrols of the waters surrounding the islands. He has just embarked on a set of difficult, potentially far-reaching economic reforms. Although he can’t afford to look weak domestically, he also can’t afford a geopolitical crisis that would disrupt China’s economy and possibly global trade.

A major rebalancing is gradually taking place in Asia as China’s economy becomes larger than Japan’s. But it isn’t in China’s interest to push for this rebalancing too aggressively. When I was in Tokyo in early December, I was struck by the intensity of concern over China’s aggressive posturing. The harder the Beijing government pushes now, the more rapidly Japan will move to upgrade its military capabilities and strengthen its alliances with the U.S. and countries ringing China.

Both sides need to find a way to ratchet down their words and deeds. Japan can and should take a first, small step forward by “going back” and selling the islands. Any Japanese leaders who doubt the wisdom of doing so should ask themselves a question: Are they really better off today than they were two years ago?

(Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, is author of “The Great Convergence: Asia, the West and the Logic of One World.”)

To contact the writer of this article: Kishore Mahbubani at kishore.mahbubani@mahbubani.net.

To contact the editor responsible for this article: Nisid Hajari at nhajari@bloomberg.net.

 

Protester killed during clashes in Bangladesh – Central & South Asia – Al Jazeera English

Protester killed during clashes in Bangladesh – Central & South Asia – Al Jazeera English.

Supporters accuse authorities of keeping opposition figure Khaleda Zia under de facto house arrest. [AFP]
Bangladesh police fired water cannon and shotguns at opposition protesters in the capital, killing one person, at the start of a banned mass march aimed at thwarting next month’s general election.Hundreds of demonstrators, some throwing home-made bombs, battled police on Sunday as they tried to gather at the opposition’s headquarters and other places throughout Dhaka for the so-called “March for Democracy”.

The opposition says an election scheduled for January 5 must be held under a neutral caretaker government, as in the past, to prevent ballot-rigging.

BNP leader Khaleda Zia, a two-time former prime minister and Hasina’s arch-rival, has urged supporters to defy the ban on Sunday’s march and converge on the capital.

In Rampura neighbourhood, more than 200 demonstrators threw small bombs at police who responded with shotgun blasts during clashes there that left one person dead, a senior officer said.

Police have banned the so-called “March for Democracy” amid fears that the rally would become a focal point for more unrest after what has already been the deadliest year of political violence in the country’s history.

Police have detained more than 750 opposition supporters as a “preventive measure”, while authorities have suspended Dhaka-bound bus, ferry and train services, virtually cutting off the city from the rest of the country.

The main opposition Bangladesh Nationalist Party (BNP) and its allies have staged weeks of deadly protests, strikes and transport blockades to try to force Prime Minister Sheikh Hasina to resign. Dozens of people have been killed.

Sticks and rocks

Running battles erupted between police and protesters near the BNP headquarters where Zia was scheduled later Sunday to address the rally, TV footage showed.

Ruling party activists, armed with sticks and rocks, also clashed with opposition protesters outside the press club.

Scores of police stopped Khaleda Zia’s car as it tried to drive from her house to the march in the capital, where hundreds of her supporters are clashing with security forces, aide Shamsher Mobin Chowdhury said.

“Khaleda Zia boarded her car and tried to leave her house to lead the march. But police barred her car from leaving,” Chowdhury, who is also a vice-president of Zia’s Bangladesh Nationalist Party, told AFP news agency.

Police and security forces have conducted nationwide raids, searching trains and buses to arrest opposition supporters.

They have also set up check posts for passengers and commuters at the entry points to Dhaka.

Security has been tight in the city with around 11,000 officers and the elite Rapid Action Battalion patrolling the streets and key flashpoints.

 

The New New Great Game: Geography, Energy, The Dollar And Gold | Zero Hedge

The New New Great Game: Geography, Energy, The Dollar And Gold | Zero Hedge.

Submitted by Paul Mylchreest of Monument Securities

The New New Great Game: Geography, Energy, The Dollar and Gold (pdf link)

Sir Halford Mackinder’s 1904 speach in which he outlined his “Heartland Theory” was a founding moment for geo-politics. He argued that control of the Eurasian landmass (Europe, Asia and the Middle East), which contained the bulk of the world’s population and natural resources, was the major geo-political prize.

As time passed, energy (first crude oil then natural gas), became increasingly integral to this concept and its strategic significance cannot be overstated.

Remarkably, Mackinder’s theory has remained equally valid, if not more so, in the modern era – although key “pivot areas” for exercising control have evolved. In addition to Central Asia and Trans-Caucasus in Mackinder’s day, the oil producing nations of the Middle East took on increasing importance in the “New Great Game”.

The geo-political confrontation between the US on one hand and China (in increasingly close cooperation with Russia) on the other, is evolving rapidly. We see a “New New Great Game” (NNGG) emerging and have “tweaked” the Heartland Theory to include.

An additional geographic “pivot”, the South and East China Seas, due to their importance in terms of world trade, oil and gas reserves and numerous territorial claims.

A monetary “pivot”, the dollar-based system of world trade and its reserve status. China is taking the lead role in pushing ahead with its strategy of dismantling the dollar’s supremacy.

Geo-political tension in each of the pivot areas is escalating. For example Central Asia and Trans-Caucasus (Ukraine), Middle East (Iran) and South and East China Seas (Senkaku Islands). The rising powers, China and Russia, are adopting more aggressive geo-political tactics towards US/EU/NATO/Japanese interests. The more “dovish” US policy towards Iran, following the recent nuclear deal, is threatening to destabilise the decades-long status quo in diplomatic relations with Israel and Saudi Arabia.

Just about every aspect of the escalating geo-political tension has an energy element, either directly or indirectly. Viewed from a “Mackinderian” perspective, the strategic value of the energy sector is immense. It begs the question whether, after five years of underperformance, the equity market is under-pricing energy assets, including those deeply out-of-favour integrated oil and gas stocks? Probably, in our view.

We believe that the significance of the monetary pivot in the NNGG is under-estimated as China accelerates preparations to undermine the dollar’s role in world trade. The other aspect of China’s strategy is its diversification into “hard assets” and, as far as we can tell, China is attempting to “corner” the market for physical gold. Its strategic significance is lost on most Western investors. We present some insights into today’s gold market which might shock Western investors – similarities with the run-up to the major lows in the gold price more than a decade ago – and China’s understanding of modern gold market mechanics.

The threats to the existing US-centric order are substantial and the geo-political sands are shifting. The US will respond and has the largest economy and military (with vast ocean-going naval advantage), most powerful investment banks and deepest financial markets and significant (albeit declining) political/diplomatic influence. In terms of boxing metaphors, we wonder whether the Ali versus Foreman fight in Kinshasa in 1974 (knockout in the eighth) or the Leonard versus Hagler fight at Caesar’s Palace in 1987 (points victory where the argument as to who actually won continues) will be the parallel.

* * *

From an anonymous source prior to the major lows in the gold price more than a decade ago.

“Someone once said, ‘no one wants gold, that’s why the US$ price keeps falling.’ Many thinking ones laugh at such foolish chatter. They know that the price of gold is dropping precisely because ‘too many people are buying it’! Think now, if you are a person of ‘great worth’ is it not better for you to acquire gold over years, at better prices? If you are one of ‘small worth’, can you not follow in the footsteps of giants? The real money is selling ALL FORMS of paper gold and buying physical! Why? Because any form of paper gold is losing value much, much faster than metal. Some paper will disappear all together in a fire of epic proportions! The massive trading continues at LBMA, but something is now missing…We have reached production costs…The great mistake by the BIS was in underestimating the Asians. Some big traders said they would buy it all below $365+/- and they did. That’s what forced LBMA to go on a spree of paper selling! Now, it’s a mess.”

Interesting?

The gold price is approaching production cost again.

We have the physical versus paper demarcation again (most commentators are clueless on this – the paper market is still determining the screen price, but it will probably die once and for all this time around – the question is at what level?).

The Asians are being underestimated again when the price is declining (although not by the BIS – China is buying physical gold in unprecedented volumes – at least 70-75% of world mining production this year).

But accelerating developments in the monetary sphere is only one element of…

The “New New Great Game”

Mackinder’s “Heartland Theory”

The traditional “Great Game” obviously dates back to the geo-political rivalry between Great Britain and Russia for supremacy in the central Asian region during the nineteenth and early part of the last century. In his famous speech, “The Geographical Pivot of History”, to the Royal Geographical Society in 1904, Sir Halford Mackinder outlined his “Heartland Theory. ” According to Wikipedia.

“This is often considered a, if not the, founding moment of geo-politics…”

Briefly, this posited that the major geo-political prize is Eurasia (the “World Island”), i.e. the European, Asian and Middle Eastern land mass, which contained the bulk of the world’s population and its natural resources. Mackinder argued that control of the “pivot area“ of central Asia was the key to controlling Eurasia.

This is taken from his paper published in the April 1904 edition of the “The Geographical Journal.”

He also emphasised the important difference between sea power and land power. From Zurich-based ISN’s 2009 “Geopolitics and US Middle Eastern Policy: Mackinder and Brzezinski.”

“Mackinder’s theory was a counter-argument to notions that maritime supremacy was sufficient for a power such as Great Britain to safeguard its hegemony. He claimed that, with the emergence of new transportation routes [e.g. Trans-Siberian railway] and technology, a power that could control the centre (and the abundant resources) of the Eurasian landmass…would ultimately be able to attack the colonies of a sea power everywhere on the continent. “

The Trans-Siberian Railway.

In the wake of World War One, Mackinder argued the case for preventing a convergence of interests between Russia and new “pivot” states of Eastern Europe (Austria, Hungary, Czechoslovakia and Poland). This led to his famous dictum.

“Who rules East Europe commands the Heartland;
Who rules the Heartland commands the World Island;
Who rules the World Island commands the World.”

It’s important to emphasise that the pivot area does evolve/fluctuate with changes in geo-political reality. Indeed, Mackinder included the Baltic states in one of his revisions.

As the world industrialised and became increasingly dependent on crude oil (and later, natural gas), energy resources became ever more integral to the Great Game. With such a large proportion of the world’s oil and gas reserves found on the Eurasian land mass, this was easily accommodated within Mackinder’s theory.

The period just before World War One, with the British Navy’s switch from coal to oil and the adoption of the automobile, set the stage for this. Indeed, in 1913, the British government acquired a 51% controlling interest in the Anglo-Persian Oil Company, the forerunner of BP.

Remarkably, the validity of Mackinder’s theory has stood the test of time, even though most people are unfamiliar with it. The following quote is from the Reagan Administration’s “National Security Strategy of the United States” published in January 1988.

“The first historical dimension of our strategy is relatively simple, clear-cut, and immensely sensible. It is the conviction that the United States’ most basic national security interests would be endangered if a hostile state or group of states were to dominate the Eurasian land mass – that area of the globe often referred to as the world’s heartland.”

Right now, it’s obvious that US national security interests are threatened by a combination of China and Russia.

This was the influential globalist (and former National Security Advisor), Zbigniew Brzezinski, writing in his famous 1997 book, “The Grand Chessboard.”

“Ever since the continents started interacting politically some 500 years ago, Eurasia has been the centre of world power… For America, the chief geopolitical prize is Eurasia – and America’s global primacy is directly dependent on how long and how effectively its preponderance on the Eurasian continent is sustained.”

In the “New Great Game”, (NGG) of the modern era, the major rivalry is between US/NATO on one side and China, Russia, other members of the Shanghai Cooperation Organisation and the likes of Iran, on the other.

The “pivot states” in the NGG are.

  • The key nations in Central Asia and the Trans-Caucasus: especially those with substantial energy resources and/or pipelines (e.g. Azerbaijan, Ukraine, Turkmenistan, Uzbekistan etc). Here is a chart showing the major gas pipelines

And the major oil pipelines:

  • The major OPEC nations of the Middle East: here we borrow part of US geo-strategist, Nicholas Spykman’s, “Rimland” theory. Spykman, the “godfather of containment” was both a disciple and critic of Mackinder. He believed that the “Rimland”, European coast, Arabian-Middle Eastern desert and Asiatic Monsoon region was more important for controlling the Heartland.

This was Brzezinksi on the Central Asian Republics, or “Eurasian Balkans” as he terms them in his book. This was in 1997, when China’s economic and military might was still a distant prospect.

“They are of importance from the standpoint of security and historical ambitions to at least three of their most important and more powerful neighbours, namely Russia, Turkey and Iran, with China also signalling an increasing political interest in the region. But the Eurasian Balkans are infinitely more important as a potential economic prize; an enormous concentration of natural gas and oil reserves is located in the region, in addition to important minerals including gold.”

It’s a reminder of the strategic importance of energy and gold and puts the US-supported “Color revolutions” into sharper focus – Ukraine (Orange, 2004), Georgia (Rose, 2003) and Kyrgyzstan (Tulip, 2005).

Tweaking the Heartland Theory

We agree with the modern interpretation of the NGG, but we see TWO additional elements which make the current situation a “New New Great Game.”

… continue reading below (pdf link)

 

1997 Asian Crisis Redux – Thailand Is Imploding | Zero Hedge

1997 Asian Crisis Redux – Thailand Is Imploding | Zero Hedge.

“There’s no near-term resolution in sight,” warns TCW Group’s David Loevinger, as “Thailand has entered an extended period of political instability.” This uncertainty has led to foreigners abandoning the nation’s stock market in record  size – and collapsing the Thai Baht at the same time. Why should US investors be worried? Thailand was the catalyst that started the 1997 Asian crisis, broke LTCM, and instigated the most epic experiments in central bank liquidity provision on record. With the Fed Tapering, both Indonesia and Thailand (and Turkey) are already seeing major currency collapses but of course, as long as US equities rise, no one cares (which is exactly what they said last time)…

Bloomberg’s Chart of the Day shows that the baht has plunged 5.1 percent since the end of October to a three-year low as international investors pulled a net $2.75 billion out of equities, the worst outflow in at least 14 years.

Investors are dumping Thai assets as two-month-old protests against Prime Minister Yingluck Shinawatra intensify, threatening to deepen a slowdown in the second-largest southeast Asian economy. Opposition parties are trying to topple Yingluck after she pushed for a bill that would provide amnesty for her brother, Thaksin, who was ousted as premier in a 2006 coup and has lived in self-imposed exile overseas.

Yingluck dissolved parliament on Dec. 9, a move that triggered new elections set for February, in a bid to ease tensions. The country’s election commission warned yesterday that the vote could wind up stoking more violence after protesters tried to storm a Bangkok arena where candidates were registering.

And as a reminder… what happened in the 1997 crisis…

The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion.

The crisis started in Thailand with the financial collapse of the Thai baht after the Thai government was forced to float the baht due to lack of foreign currency to support its fixed exchange rate, cutting its peg to the US$, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.

Indonesia, South Korea and Thailand were the countries most affected by the crisis.

The causes of the debacle are many and disputed. Thailand’s economy developed into an economic bubble fueled by hot money. More and more was required as the size of the bubble grew. The same type of situation happened in Malaysia, and Indonesia, which had the added complication of what was called “crony capitalism”. The short-term capital flow was expensive and often highly conditioned for quick profit. Development money went in a largely uncontrolled manner to certain people only, not particularly the best suited or most efficient, but those closest to the centers of power.

At the time of the mid-1990s, Thailand, Indonesia and South Korea had large private current account deficits and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors.

In the mid-1990s, a series of external shocks began to change the economic environment – the devaluation of the Chinese renminbi and the Japanese yen, raising of US interest rates which led to a strong U.S. dollar, the sharp decline in semiconductor prices; adversely affected their growth.

Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationshipThe resulting large quantities of credit that became available generated a highly leveraged economic climate, and pushed up asset prices to an unsustainable level

Sound familiar?

 

Thai anti-government protest turns deadly – Asia-Pacific – Al Jazeera English

Thai anti-government protest turns deadly – Asia-Pacific – Al Jazeera English.

The proposed introduction of an amnesty law has sparked the latest round of protests [AFP]
A Thai police officer has been killed and dozens of people wounded in clashes between security forces and opposition protesters in the capital, Bangkok, on a day the election commission urged the government to postpone February polls.More than 60 people were injured during the running battle between anti-government protesters, calling for government to resign and postponment of polls, and the police, according to the emergency services.

“He was shot in his chest and brought to hospital by helicopter,” said Jongjet Aoajenpong, director of the Police General Hospital.

“A team of doctors tried to resuscitate him for more than half an hour.”

Violence broke out as demonstrators tried to force their way into a sports stadium in the Thai capital, where representatives of about 30 political parties were gathered to register for parliamentary elections.

Scores of demonstrators, some armed with sling shots, threw rocks and attempted to break through police lines prompting the police to use rubber bullets, tear gas and water cannon.

Inside the stadium the lot-drawing process was apparently unaffected by the unrest outside the gates.

However, some election officials later left the stadium by helicopter to avoid the unrest and because protesters were blocking the exits.

The election commission said in a statement that it was urging the government to consider “postponing the elections”, citing the security situation.

“We cannot organise free and fair elections under the constitution in the current circumstances,” Election Commission member Prawit Rattanapien said at a news conference.

Government officials did not immediately answer calls seeking a response.

Amnesty law

The clashes are the first violent incident in almost two weeks of daily demonstrations on the streets of Bangkok and the worst civil disturbance since 2010, when more than 90 civilians were killed in a crackdown on anti-government protests.

This latest unrest, which has drawn tens of thousands of protesters onto the streets, has left five people dead and more than 200 wounded.

“Protesters are not peaceful and unarmed as they claimed,” Deputy Prime Minister Surapong Tovichakchaikul said in a televised address on Thursday.

“They are intimidating officials and trespassing in government buildings.”

Protesters want Yingluck to step down and they oppose the elections, due to take place on February 2, because she is seen as sure to win them.

Her brother is the former Prime Minister Thaksin Shinawatra, who was ousted in a military coup in 2006 and lives in self-imposed exile to avoid imprisonment on corruption charges.

He or his allies have won every election for the last 12 years.

In mid-October Yingluck tried to introduce an amnesty law that would have allowed Thaksin to return as a free man, a move that sparked the latest round of protests.

On Wednesday, protesters rejected a compromise from Yingluck, who announced a proposal for a national reform council. They are planning more civil disobedience and street protests to force her to resign as caretaker prime minister.

Police have not tried to arrest the ringleader, Suthep Thaugsuban, who is demanding the country be led by an unelected council until reforms can be implemented.

Protesters were on the way to the Yingluck’s residence to continue their demonstration, where about 500 police officers have been stationed.

 

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