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oftwominds-Charles Hugh Smith: The Dollar and the Deep State

oftwominds-Charles Hugh Smith: The Dollar and the Deep State.

If we consider the Fed’s policies (tapering, etc.) solely within the narrow confines of the corporatocracy or a strictly financial context, we are in effect touching the foot of the elephant and declaring the creature to be short and roundish.

I have been studying the Deep State for 40 years, before it had gained the nifty name “deep state.” What others describe as the Deep State I term the National Security State which enables the American Empire, a vast structure that incorporates hard and soft power–military, diplomatic, intelligence, finance, commercial, energy, media, higher education–in a system of global domination and influence.

Back in 2007 I drew a simplified chart of the Imperial structure, what I called the Elite Maintaining and Extending Global Dominance (EMEGD):

At a very superficial level, some pundits have sought a Master Control in the Trilateral Commission or similar elite gatherings. Such groups are certainly one cell within the Empire, but each is no more important than other parts, just as killer T-cells are just one of dozens of cell types in the immune system.

One key feature of the Deep State is that it makes decisions behind closed doors and the surface government simply ratifies or approves the decisions. A second key feature is that the Deep State decision-makers have access to an entire world of secret intelligence.

Here is an example from the late 1960s, when the mere existence of the National Security Agency (NSA) was a state secret. Though the Soviet Union made every effort to hide its failures in space, it was an ill-kept secret that a number of their manned flights failed in space and the astronauts died.

The NSA had tapped the main undersea cables, and may have already had other collection capabilities in place, for the U.S. intercepted a tearful phone call from Soviet Leader Brezhnev to the doomed astronauts, a call made once it had become clear there was no hope of their capsule returning to Earth.

Former congressional staff member Mike Lofgren described the Deep State in his recent essay Anatomy of the Deep State:

There is another, more shadowy, more indefinable government that is not explained in Civics 101 or observable to tourists at the White House or the Capitol. The subsurface part of the iceberg I shall call the Deep State, which operates according to its own compass heading regardless of who is formally in power.

The term “Deep State” was coined in Turkey and is said to be a system composed of high-level elements within the intelligence services, military, security, judiciary and organized crime.

I use the term to mean a hybrid association of elements of government and parts of top-level finance and industry that is effectively able to govern the United States without reference to the consent of the governed as expressed through the formal political process.

I would say that only senior military or intelligence officers have any realistic grasp of the true scope, power and complexity of the Deep State and its Empire.Those with no grasp of military matters cannot possibly understand the Deep State. If you don’t have any real sense of the scope of the National Security State, you are in effect touching the foot of the elephant and declaring the creature is perhaps two feet tall.

The Deep State arose in World War II, as the mechanisms of electoral governance had failed to prepare the nation for global war. The goal of winning the war relegated the conventional electoral government to rubber-stamping Deep State decisions and policies.

After the war, the need to stabilize (if not “win”) the Cold War actually extended the Deep State. Now, the global war on terror (GWOT) is the justification.

One way to understand the Deep State is to trace the vectors of dependency. The Deep State needs the nation to survive, but the nation does not need the Deep State to survive (despite the groupthink within the Deep State that “we are the only thing keeping this thing together.”)

The nation would survive without the Federal Reserve, but the Federal Reserve would not survive without the Deep State. The Fed is not the Deep State; it is merely a tool of the Deep State.

This brings us to the U.S. dollar and the Deep State. The Deep State doesn’t really care about the signal noise of the economy–mortgage rates, minimum wages, unemployment, etc., any more that it cares about the political circus (“step right up to the Clinton sideshow, folks”) or the bickering over regulations by various camps.

What the Deep State cares about are the U.S. dollar, water, energy, minerals and access to those commodities (alliances, sea lanes, etc.). As I have mentioned before, consider the trade enabled by the reserve currency (the dollar): we print/create money out of thin air and exchange this for oil, commodities, electronics, etc.

If this isn’t the greatest trade on Earth–exchanging paper for real stuff– what is?While I am sympathetic to the strictly financial arguments that predict hyper-inflation and the destruction of the U.S. dollar, they are in effect touching the toe of the elephant.

The financial argument is this: we can print money but we can’t print more oil, coal, ground water, etc., and so eventually the claims on real wealth (i.e. dollars) will so far exceed the real wealth that the claims on wealth will collapse.

So far as this goes, it makes perfect sense. But let’s approach this from the geopolitical-strategic perspective of the Deep State: why would the Deep State allow policies that would bring about the destruction of its key global asset, the U.S. dollar?

There is simply no way the Deep State is going to support policies that would fatally weaken the dollar, or passively watch a subsidiary of the Deep State (the Fed) damage the Deep State itself.

The strictly financial arguments for hyper-inflation and the destruction of the U.S. dollar implicitly assume a system that operates like a line of dominoes: if the Fed prints money, that will inevitably start the dominoes falling, with the final domino being the reserve currency.

Setting aside the complexity of Triffin’s Paradox and other key dynamics within the reserve currency, we can safely predict that the Deep State will do whatever is necessary to maintain the dollar’s reserve status and purchasing power.

Understanding the “Exorbitant Privilege” of the U.S. Dollar (November 19, 2012)

What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012)

Recall Triffin’s primary point: countries like China that run trade surpluses cannot host reserve currencies, as that requires running large structural trade deficits.

In my view, the euro currency is a regional experiment in the “bancor” model,where a supra-national currency supposedly eliminates Triffin’s Paradox. It has failed, partly because supra-national currencies don’t resolve Triffin’s dilemma, they simply obfuscate it with sovereign credit imbalances that eventually moot the currency’s ability to function as intended.

Many people assume the corporatocracy rules the nation, but the corporatocracy is simply another tool of the Deep State. Many pundits declare that the Powers That Be want a weaker dollar to boost exports, but this sort of strictly financial concern is only of passing interest to the Deep State.
The corporatocracy (banking/financialization, etc.) has captured the machinery of regulation and governance, but these are surface effects of the electoral government that rubber-stamps policies set by the Deep State.

The corporatocracy is a useful global tool of the Deep State, but its lobbying of the visible government is mostly signal noise to the Deep State. The only sectors that matter are the defense, energy, agriculture and international financial sectors that supply the Imperial Project and project power.

What would best serve the Deep State is a dollar that increases in purchasing power and extends the Deep State’s power. It is widely assumed that the Fed creating a few trillion dollars has created a massive surplus of dollars that will guarantee a slide in the dollar’s purchasing power and its demise as the reserve currency.

Those who believe the Fed’s expansion of its balance sheet will weaken the dollar are forgetting that from the point of view of the outside world, the Fed’s actions are not so much expanding the supply of dollars as offsetting the contraction caused by deleveraging.

I would argue that the dollar will soon be scarce, and the simple but profound laws of supply and demand will push the dollar’s value not just higher but much higher. The problem going forward for exporting nations will be the scarcity of dollars.

If we consider the Fed’s policies (tapering, etc.) solely within the narrow confines of the corporatocracy or a strictly financial context, we are in effect touching the foot of the elephant and declaring the creature to be short and roundish. The elephant is the Deep State and its Imperial Project.

Commentary: Asia’s 1937 Syndrome | The National Interest

Commentary: Asia’s 1937 Syndrome | The National Interest.

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February 4, 2014

In first days of July 1937, Chinese and Japanese soldiers skirmished in Wanping, a few miles southwest of what is now the Chinese capital. China’s Chiang Kai-shek then knew his army was no match for Japan’s, and he had many opportunities to avoid battle with a vastly superior foe. Yet he ultimately chose war.

So why did Chiang decide to fight? And how did a minor—and probably accidental—clash turn into years of disastrous conflict? Now, analysts think today’s Asia feels like 1914 Europe, and last month in Davos Japanese Prime Minister Shinzo Abe likened today’s situation involving his country and China to that of England and Germany a hundred years ago. The better comparison, however, is 1937. The parallels between then and now, unfortunately, are striking.

The “China Incident,” as the Japanese then called the war, began on the banks of the Yongding River in Wanping during the night of July 7, 1937. Imperial troops, shooting blanks in an evening exercise, found themselves under fire, presumably from elements of the Chinese 29th Army. After the minor exchange near Lugouqiao, commonly known as the Marco Polo Bridge, Japanese officers were alarmed when one of their soldiers failed to turn up for a roll call. They then demanded that Chinese guards let them search nearby Wanping, where the Japanese had no general permission to enter.

A refusal triggered days of skirmishes. Once the fighting started, it did not matter that the stray Japanese private, who is thought to have wandered off to urinate, eventually turned up unhurt. Soon, Chiang Kai-shek’s Republic of China was at war. The Japanese in short order would take the Marco Polo Bridge, cut off Beijing from the rest of the country, and seize that city. They would then drive Chiang’s forces from the metropolis of Shanghai, the capital of Nanjing, and most of the rest of eastern China.

Chiang could have avoided the descent into a war in July 1937. In fact, both sides had agreed to a truce after the initial fighting around the Marco Polo Bridge. Yet the agreement did not hold. Oxford professor Rana Mitter compares the events then to those surrounding the assassination of Archduke Franz Ferdinand at Sarajevo in 1914. War, in both cases, was coming.

It is not hard to see why conflict between China and Japan was inevitable in the late 1930s. Japan was obviously determined to control portions of continental Asia. Its troops were stationed near Wanping pursuant to a 1901 treaty signed after foreign powers, including Japan, had put down the Boxer Rebellion. Japan had previously humiliated the Qing dynasty in a quick war ending in 1895, wresting control of Korea and Taiwan. Japan had also grabbed a portion of northeastern China from the Russians in the first decade of the twentieth century and invaded Manchuria in 1931, establishing puppet state of Manchukuo there. The Japanese massacred Chinese under their control.

In the late 1930s there were many incidents involving China’s troops and those of Japan. Most of these were settled quickly because Chinese commanders on the ground would give into Japanese demands or make concessions of some sort. In July 1937, officers guarding Wanping refused Japanese demands and Chiang realized he would have to make a stand. “The dwarf bandits have attacked at Lugouqiao,” he wrote in his diary, using one of his favorite terms for his enemy. “This is the time for the determination to fight.”

Philippines seeks US ships to counter China – Asia-Pacific – Al Jazeera English

Philippines seeks US ships to counter China – Asia-Pacific – Al Jazeera English.

The Philippine armed forces says it needs at least six more frigates to effectively patrol its waters [AP]
The Philippines has said it wants to acquire two more navy ships from the US to boost its maritime protection amid military threats from China, according to the country’s military chief.

“Within the last year, we realised that there is a real threat out there in terms of securing, defending our territory,” armed forces chief of staff General Emmanuel Bautista told the Philippines’ ANC television on Wednesday.

There are Chinese fishing vessels in the West Philippine Sea as we speak.

General Emmanuel Bautista,armed forces chief of staff

The new acquisitions fall under the $40m in military assistance pledged by US Secretary of State John Kerry during his visit to the country in December 2013.

But Bautista said the country needs about six more frigates to effectively guard its coastline.

“In fact, we are bidding now for two frigates, hopefully we will be able to acquire them in (a) couple of years,” he said.

The Philippines is a long-time US military ally and has already received two refurbished ships in the past two years.

These boats now patrol the South China Sea where, in 2012, the flagship BRP Gregorio del Pilar, the first US acquisition, confronted Chinese ships on Scarborough Shoal, a small outcrop just off the coast of the country’s main island of Luzon.

The Chinese eventually gained control of the outcrop after Manila backed down. And the Filipino government sought UN arbitration to settle the dispute, a move which China rejected.

Ongoing dispute

The Philippines has been locked in an increasingly tense standoff with China involving disputed reefs and islands in an area Manila calls the West Philippine Sea.

Bautista said the Gregorio del Pilar, as well as another frigate that arrived last year, have been deployed to protect the country’s waters.

“There are Chinese fishing vessels in the West Philippine Sea as we speak,” he said, but declined to say where they were in the disputed waters.

China has claimed almost all of the South China Sea, including waters near the cost of its neighbours.

And it recently declared an “air defence identification zone” over the East China Sea, where it is engaged in a dispute with Japan.

Kerry has warned China against imposing a similar air defence identification zone over the South China Sea.

Last week China also announced a new fisheries law requiring foreign vessels to obtain permits for activities in most of the South China Sea, triggering outrage in Manila.

A Military Strike on Syria: Possible Scenarios – Geopolitical Monitor

A Military Strike on Syria: Possible Scenarios – Geopolitical Monitor.

 

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