Good Fellas

July 9th, 2014
in aa syndication, history

Age of Wisdom, Age of Foolishness (33)

Written by ,

“Friends of Ours”

In Age of Wisdom, Age of Foolishness (32) “School of Hard Knocks” the object of the market’s obsession, aka the “Islamic Caliphate of ISIS”, was observed as

a nominally Sunni Caliphate that provides the platform to execute the kind of policy initiatives against Iran, which can be plausibly denied whilst nuclear negotiations are ongoing”.

Follow up:

President Obama was availed of this flexible policy option last week, when his dispatching of a carrier to provide air domination was met with Iranian offers to provide reciprocating support on the ground[1]. Prime Minister Netanyahu was also observed in “the naughty corner” of the “School of Hard Knocks”, plotting his next act of class disruption. In Age of Wisdom, Age of Foolishness (31) “The Longest Day” it was suggested that:

“Having watched F-16’s being sold to Iraq and now having seen Hamas indirectly recognised by America, Israeli consternation is no doubt turning swiftly into military operational planning.”

The recent alignment, of Iranian and American interest in Iraq, can have done nothing other than stimulate his resolve to accelerate the military operational planning. Sources leaked that the Iraqi resistance to ISIS is now commanded by the head of the elite Iranian Al Quds unit of the Republican Guards[2]. It will be augmented by 300 of what America classifies as “military advisers”[3]. If Netanyahu lacked his own casus belli, to justify military operations, it was provided with alacrity by the kidnapping of three Israeli hitchhikers in the West Bank last week[4]. Netanyahu placed the smoking gun directly in the hands of the leader of the Palestinian Unity Government. Significantly and perhaps more ominously, one of the three kidnapped is an American citizen[5]. The analysis of President Obama’s West Point speech, in Age of Wisdom, Age of Foolishness (30) “Adullamites[6], suggested that he

has just painted a large target on the backs of all Americans living and working outside the United States”.

It would seem that one such “target” has just been abducted. The latest dispatch of 550 Marines to the Gulf[7] is, not only the creation of another 550 “targets” but, also an acceptance that those Americans in the region who the Marines will be protecting are  “targets”. This number becomes 850, once the American “military advisers” are included.

“Kosher Nostra meets Iran-Contra.”

The unfolding situation invokes memories of Iran-Contra and Carter’s Hostage Crisis, except this time all the “Good Fellas” are hiding in plain sight, in order to avoid a politically damaging scandal. The picture presented deliberately obscures the friend of my friend, enemy of my enemy and friend of my enemy etc; so that there are multiple permutations. Each character can therefore pursue their own agenda with impunity and also with the support of the other players. This strategy bears the hallmark of a game that is also being played in Ukraine; so one must assume that it is all one and the same.

The “Vulcans” have increased their rhetoric[8], but fickle American public opinion remains inert. Memories of the Credit Crunch, associated with the Bush years, colour the judgement of the need for current greater military involvement in Iraq. Americans loved the War on Terror, when the liquidity it created boosted the value of their homes and portfolios. When it all came crashing down, they became pacifists. A more clear and present danger to America, is required to overcome this inertia. If the solution can be linked to the economic conditions which drive employment and asset prices, so much the better. This new danger will require a magnitude of horror which will trigger the emotional responses, first observed by Edward Bernays, which are needed to “sell” military involvement. The liquidity is then unleashed as a response to the threat of recession; and then latterly becomes a welcome economic stimulus in its own right.

“If you build it, they will come.”
Americans Continue to Oppose Closing Guantanamo Bay

Despite the assumption that Americans are war-weary and hence averse to more military adventure in the Middle East, there is continued overwhelming support for keeping Guantanamo Bay open. Guantanamo Bay is one legacy of the Bush years which is viewed positively. The Obama Administration’s attempts to link closure in relation to Middle East adventure, with Guantanamo Bay closure, therefore stands in direct opposition to underlying political sentiment. This suggests that it will take little effort from the “Warmongers” to embark on another adventure. All that is required is a consistent message, which resonates with the majority who feel secure in the knowledge that Guantanamo Bay is open for business as usual. The resonance has begun with the capture of the alleged ringleader of the Benghazi embassy attack[9]. So far, the prisoner has not been transferred to Guantanamo. Isolated cases do not provide much momentum for extending the tenure of Guantanamo. If however, a general conflict starts to produce prisoners in large volumes, then the need for Guantanamo suddenly becomes imperative. The alternative of course is to take no prisoners, which some find more horrific than civilised “rehabilitation” at Guantanamo. There are signs that this pipeline of prisoners is now under construction.

“The Wildcard.”

The appearance of the “Islamic Caliphate of ISIS” is tailor made for such resonance. The warriors of ISIS are allegedly too bad, even for Al Qaeda, which suggests that Guantanamo will need to be expanded rather than closed down. In Age of Wisdom, Age of Foolishness (32) “School of Hard Knocks” the connection between the “Caliphate” and American national security was seen to be established through the wildcard of “Al Amriki”. William Hague played Britain’s latest wildcard, last week in spades, when he announced that there are potentially 400 “Al Britani’s” now operating in Iraq[10]. At home, David Cameron followed suit by opining that British Muslims should learn to be more “British”[11]. Just to prove that “British” values aren’t exclusive, he used the absurd parable of how Britain is now exporting “British” curry to India[12] as a benign precedent. Presumably, “export curry not Jihad” is the new mantra, which has replaced “make love not war”.

Putting the ‘F’ Back in Federal Reserve

Britain therefore remains one step ahead of America, in the prisoners’ queue for Guantanamo, having established the link between domestic and foreign Islamic terrorist threats as far back as Age of Wisdom, Age of Foolishness (15) “Putting the ‘F’ Back in Federal Reserve”[13], when it played its first wildcard. Britain moved even further ahead, by re-opening its embassy in Tehran in anticipation of greater cooperation with Iran[14]. Britain then trumped its Atlantic cousin, when David Cameron made the direct link between the “Caliphate” and terrorist attacks on Britain, in the forum of Parliament[15].

“A Full House!”

France is rapidly catching up on Britain and America, with its own home-grown terrorists who are now active in the “Caliphate”[16].

“And Now Gentlemen, the Eastern Question.”
Putting the ‘F’ Back in Federal Reserve

What seems to be occurring is a new outbreak, of what was once known as the “Eastern Question”, which vexed the Great Powers leading up to World War One; and was resolved along colonial lines at Versailles. This is perhaps not surprising, because America and Europe are currently going through a similar Versailles moment, in relation to the future model for the EU; which was discussed in Age of Wisdom, Age of Foolishness (14) “Hedgehogs and Foxes”[17] and Age of Wisdom, Age of Foolishness (15) “Putting the F Back in Federal Reserve”[18].

The architects of the Sykes-Picot Agreement, which effectively redrew the boundaries of the Near East and Middle East, are watching their original cartography being redrafted, allegedly by the grandsons of the colonials whom they once administered. Logic suggests that, having avenged the Sykes-Picot humiliation, the “Caliphate” will move on to avenge the humiliation of the Balfour Declaration. This latter move will then provide Prime Minister Netanyahu with the catalyst he requires to finally enter the field of battle. The pundits are already predicting that the next target for ISIS is Jordan[19] and its monarchy. Given its proximity to Israel, this would be a “red line” for Netanyahu, which would swiftly elicit a military response when crossed.

The entry of Israel would compromise the position of so many other allied regional players, that America would have no choice but to intervene to keep the peace. President Obama however, still holds out hope for his “Pivot” away from this unfolding regional disaster. For America, the real “Eastern Question” is the “Pivot”. He will therefore do anything, including dancing with the Devil of Iran, to achieve the “Pivot”.  This line of reasoning suggests the real motive behind the offer of the bribe, to the ousters of Netanyahu by the EU, observed in Age of Wisdom, Age of Foolishness (32) “School of Hard Knocks”. Regime change in Israel would make the solution to the “Eastern Question” and hence the “Pivot” a lot easier. Back in March this year, Prime Minister Netanyahu displayed captured Iranian missiles destined for Hamas in Gaza[20]. Since then, America has recognised a Palestinian Unity Government involving Hamas and is now in partnership with Iran on what to do about Iraq. All that is required, in Prime Minister Netanyahu’s hand, is a card that links ISIS to Hamas. With all these cards on the table, America is effectively compromised.

“Turkey Holds the Ace.”

The “Eastern Question” was ostensibly a question about the Ottoman Empire and hence Turkey. Logic therefore suggests that Turkey, which provided the currently contested territories from the ravaged Ottoman Empire, may also wish to regain its lost empire.  The playing of the “Water Card”, by holding back the Euphrates River[21], signals that Turkey is holding the ace. As a NATO member however, Turkish imperial ambition (and the creation of a humanitarian disaster downstream) is embarrassing to say the least. NATO however, seems to have plans of its own for Turkey, which will mitigate this potential embarrassment.

“Defender of All Faiths.”

Fully cognisant of the “Eastern Question”, NATO appears to be promoting its own Sultan of a new Ottoman Empire. The ascendancy of Ekmeleddin Ihsanoglu[22], as a presidential challenger and the change in his CHP party’s position to accommodate Islam and also to embrace other ethnic minorities, evinces imperial pretensions along the traditional lines of Ottoman inclusiveness. His credentials are impeccable and also signal his intentions and capabilities. He is a student of “Ottoman Science”, in addition to being a former chairman of the Organization of Islamic Cooperation (OIC). In his time at the OIC he reformed its doctrine, so that it became the interface of Islam and the global economy. His noted achievement was to get the OIC to formerly embrace the UN Charter on Civil Rights. He would therefore seem to be well qualified to deal with the sectarian strife, which afflicts the greater Islamic nation, through the agency of an Ottoman Empire which neatly interfaces with the existing global geopolitical institutions. Having observed Russian imperial pretensions in the Crimea and Black Sea, NATO presumably wishes to cover the base in the Balkans.

“Start the Levant Basin Bidding.”
Start the Levant Basin Bidding January 3rd 2013

Readers with long memories should jog them back to January 2013, when it was observed that the Levant Basin was in play[23]. The new “Eastern Question” can therefore be understood as an energy security issue. It was said at the time that:

“The risk premium should suit low bids; and cheap energy for Europe.”

Readers may now understand that the presence of ISIS and ISIL increases this energy risk premium.  The cynics may also be thinking that by design ISIS and ISIL create this risk premium. This risk premium is however mostly enjoyed by the oil companies, who negotiate cheap concessions in times of crisis which are hedged with higher retail petroleum prices downstream at the consumer level. The situation is neatly illustrated by the current situation involving a cargo of heavily discounted Kurdish crude which sits in the Mediterranean[24]. Once this cargo is officially accepted and unloaded, it will signal the formal appearance of a new oil producing nation called Kurdistan. This putative oil producer has recently availed itself of further reserves, by liberating territory formerly in Iraq which has been broken off by the activities of ISIS.

“A Stan is Born.”

Kurdistan however represents a threat to Turkey, so it must be culturally assimilated into a newly reformed Ottoman Empire, by political means rather than by conquest. Since it also interfaces with Iran, Persian imperial interest is now thrown into the mix of the “Eastern Question”. Readers, who have even longer memories and haven’t deleted their copies of “A Stan is Born”, will remember that Kurdistan was identified as a policy outcome back in 2012.

“Geological Underlay.”

In addition, the Zagros Basin was identified as a substitute for Russian hydrocarbons for energy poor Europe.

“Geopolitical Overlay.”
Extent of ISIS-controlled territory in Iraq and Syria. (Institute for the Study of War map via BBC)

For those readers who believe in coincidence, the overlay of the “Islamic Caliphate of ISIS”[25] with the Zagros Basin probably has no significance. The “L for Levant” in ISIL, presumably is yet another coincidence. By now, some readers may have noted the significant correlation between the hydrocarbons and the Islamic militants; and may be starting to think about the kind of causality that this overlay pattern implies.

“Same Old Danger!”

The epiphany of Britain’s patron saint of conflicts Tony Bliar, was observed in Age of Wisdom, Age of Foolishness (24) “Pride and Extreme Prejudice”[26] telling anyone who would listen that “he told you so”. Never one to avoid using a crisis, to vindicate himself and rebuild his reputation as a statesman, Bliar used the epiphany of ISIS to call for military intervention[27]. Allegedly, the current situation in Iraq has nothing at all to do with his roll of the dice in 2003; and has everything to do with the global failure to be more pro-active in addressing rogue states. Bliar seems to have forgotten that there was no Al Qaeda, or any of its offshoots, in Iraq before it was invaded and Saddam Hussein was removed.

“The Queen of Hearts.”

Hillary Clinton continues to play her cards close to her chest. Conscious of her verbal commitments to the AJC[28], she was very circumspect about the current re-alignment of America with Iran in her latest speeches[29].

“The Jury is Not Interested.”

Conscious also of Americans’ general lack of interest in the move to impeach her, over the Benghazi affair, Clinton’s public appearances and pronouncements are becoming increasingly more presidential in optics and tone.


After Mario Draghi gambled, at the last ECB meeting, some opponents of the European Project are starting to fold.


Italy’s Five Star party, which had been the official opposition to austerity, has decided to compromise rather than to resist[30]. Five Star has been folded into a hand that includes the Joker known as Nigel Farage.


Having stormed into the European Parliament on a platform to get Britain out of it, Farage has subtly changed his agenda whilst maintaining his Eurosceptic rhetoric[31]. UKIP like all parties requires funding. Ultimately, mature parties make policies which secure their funding; so that they take on a self-serving life of their own rather than the public serving promise that they initially made. The EU is the doyen of this self-serving elitist class; and more importantly holds the purse strings. Farage therefore now needs to preserve his longevity and hence funding; and it is this fact that the established EU autocracy is using to disarm him. In order to appear to have critical political mass, he has made alliances with Fascists and also with smaller protest parties. As other Eurosceptic parties follow the money, friends of their friends and enemies of their enemies become friends of their enemies; so that they are diluting their message by forming alliances of pecuniary convenience rather than political conviction. All this pecuniary convenience is funded by the EU itself; so it can be seen that the threat of the Eurosceptics has been defeated by the financial power of the authority that they are supposed to overthrow. The undemocratic EU trough, which they originally railed against, becomes their sustenance; as it has been for all EU politicians since it was created. The EU is perhaps the greatest “Cosa Nostra” hiding in plain sight on the eastern side of the Atlantic.


In order to see this “Cosa Nostra”, known as the European Project through to its triumphal conclusion, Angela Merkel is being encouraged to run for an unprecedented fourth term[32]. Only this vagary of the German voting system and her abundant political capital, allied with abundant German financial capital and ECB liquidity, can out-bluff the Euroskeptics. She is the only political figure in Europe who commands the trust of her own people and the grudging respect of her foes. She is therefore the only European politician capable of carrying it off. If she folds, all bets for a united Europe are off. After all, she is known as “Muti” in Germany which is “Madonna” in Italian, the feminine of “Don”; so who better to become the “Godmother” of Europe’s “Cosa Nostra”.

“The Godmothers!”

Perhaps the “GoodFellas” allegory needs reappraising as “Godmothers”, in light of its emerging feminine global leadership. With all these major geopolitical issues currently being negotiated with words and violence, it is highly unlikely that any central bank worth its salt would seriously entertain notions of adding interest rate risk to the geopolitical risk. In fact, central bankers are supposed to mitigate the impacts of geopolitical risk, as was seen immediately after “9/11”. Given that central bankers also measure inflation in absolute terms, rather than relative to peoples’ salaries, it is also unlikely that they will see the inflation component of the stagflation which currently afflicts the global economy. If anything, they will be more encouraged to see deflation. Combining deflation risk with political risk, therefore suggests that the current conditions of easy money will be prolonged; and may actually become even easier in due course.

“Donna Merkel” had already recommended that Christine Lagarde should be “made” the next European Commission President[33], at the beginning of June. Early last week, Lagarde swore the oath of “Omerta”, about the real geopolitical situation, when she suggested that an oil shock would threaten the US Economy[34]. Janet Yellen became a “Made Woman”, at the latest FOMC meeting. Having skilfully got the three new like-minded “Capo’s” named Fischer, Brainard and Powell “upped[35] to become Fed Governors, Yellen is now in a position to behave like an autocrat. The latest FOMC minutes evinced this autocratic style. The projections of her team were totally ignored by the markets; and instead her own words were discounted. Yellen opined clearly[36], that growth is not strong enough; and left the market in the mind that easy money will be prolonged for longer than the FOMC forecasts suggest. Hillary Clinton, as readers know, is now in the process of being “made”.

Real Earnings News Release

“Donna Yellen” and “Donna Lagarde” have conveniently obscured the fact that US Real Wages are in decline; a fact which supports the thesis that stagflation is the real problem. The latest data, released by the Bureau of Labour Statistics[37], showed that the growth in wages is falling behind the growth in CPI. Lagarde explains this away as a headwind created by an oil shock. Yellen, in her autocratic style, doesn’t even try and rationalize it. For Yellen, “it is what it is”; and “what it is”, is a reason to try and boost wages with more easy money. A woman with a hammer only sees nails.

“Two Blind!”

Central bankers’ mendacious groupthink is contagious. In Britain, two central bankers with hammers also only see nails. It was noted in Age of Wisdom, Age of Foolishness (31) “The Longest Day” that Britain was playing with fire; and an overvalued exchange rate which was not discounting the changing economic and political fundamentals. The latest appointments to the Bank of England’s MPC seem to have fully embraced this dangerous groupthink. It is no surprise that Kristin Forbes got the job. As an alumnus of MIT, she comes from the same school of thought which created Mervyn King, Stanley Fischer, Mario Draghi and of course Ben Bernanke. Forbes (and her colleague Andy Haldane) is of the opinion that the fact that Spanish interest rates are lower than British ones, is a problem for the former not the latter[38]. Haldane opined

the risk of this cognitive dissonance is once again rising”.

Both Forbes and Haldane have failed to consider the recent actions of Mario Draghi; and what these actions imply about the context of these interest rate differentials. They have also failed consider what happens to interest rate risk premia in Britain if it loses the ECB halo effect through the “Brexit”. The “cognitive dissonance” may be a Bank of England problem, rather than an ECB problem.  Haldane’s cognitive dissonance is all the more surprising, since he claims to be a disciple of the school of Behavioural Economics. Clearly, perception and behaviour become circumscribed by the institutional framework in which economists operate, to such an extent that objectivity is lost in practice.


The fear of cognitive dissonance emanating from Germany is however justified. Mario Draghi’s move into the realm of negative interest rates poses bubble risk to German assets. Finance Minister Schaeuble[39] and Bundesbank member Dombret[40] have clearly opined these risks. German fear over loss of European control is understandable.

“Bulls Make Money, Bears Make Money and ‘PIIGS’ Get Slaughtered”

Back in December 2013 the intentions and capabilities of the PIIGS to drive a hard bargain, over the new Eurozone budget and fiscal austerity, by generating primary budget surpluses was flagged. It was also explained that the creation of these primary surpluses came at the expense of growth; and was supported by the ECB’s easy money policy. Eurosclerosis was viewed as the child of austerity and easy money[41]; a combination which takes away the incentives to invest in growth. There are signals that the PIIGS are now playing their hand to get a more pro-growth budget for 2015; which by definition will have less commitment to austerity. Clearly the march of the Eurosceptics, in the recent European elections, will have been a further driver of the demands for pro-growth fiscal policies. The combination of Draghi’s recent policy initiatives, with a pro-growth 2015 budget, will create the huge pro-cyclical tailwind that the Germans now fear.


Premier Li Keqiang also has a problem with cognitive dissonance, in relation to perceptions of the Chinese landing from economic bubble altitude. He used his latest visit to London to correct this misperception, when he opined in the strongest possible tone that

"I can promise everyone honestly and solemnly, there won’t be a hard landing[42].

In the future, with the benefit of hindsight, this will be viewed as China’s “do whatever it takes” Draghi moment.

“All That Glisters.”

The recent behaviour of the Gold Price also seems to resonate with the scenario unfolding at the end of 1990’s, leading to the excesses of terror and central bank liquidity which opened the “Naughty Years”. Auspiciously, Barrick Gold has just struck a new surprise mother lode in Nevada[43]; just as it allegedly did back in the day when the Gold Price rose from a multi decade bear market, on a tide of central bank liquidity and geopolitical tensions. History is certainly rhyming again.


  1. U.S. and Iran, Frenemies in Iraq
  2. Iraq Official Says Iran's Military Mastermind Is In Charge
  3. Obama to send up to 300 'military advisers' to help Iraqi army repel Isis
  4. Israeli Forces Search West Bank for Missing Teenagers
  5. Kidnapped? Three Jewish Teens Disappear near Hebron in West Bank
  6. Adullamites
  7. US Navy ship with 550 Marines on board entering Gulf
  8. Architects of Iraq Invasion Return to Blame Obama
  9. U.S. Captures Suspected Leader in 2012 Benghazi Attack
  10. Brits 'Fighting With Iraq Militant Group ISIS'
  11. Cameron: 'Stop being bashful about Britishness'
  12. David Cameron shipping British version of Indian curry back to India
  13. Putting the ‘F’ Back in Federal Reserve
  14. U.K. Set to Open Tehran Embassy Amid Conflict in Iraq
  15. David Cameron: Isis is planning to attack UK
  16. French Jihadis With ISIL Leave Europe at Risk of Iraq
  17. Hedgehogs and Foxes
  18. Putting the ‘F’ Back in Federal Reserve
  19. Jordan Could Be the Islamic State in Iraq and the Levant's Next Target
  20. Netanyahu shows seized rockets, says Iran is fooling the world
  21. Syria’s Looming Water Calamity
  22. Turkey's Secularists Find Religion
  23. Start the Levant Basin Bidding January 3rd 2013
  24. Oil Odyssey Offers Glimpse of Kurdish Independence in Iraq
  25. ISIS in Iraq: The ‘pause’ IS the assault on Baghdad
  26. Pride and Extreme Prejudice
  27. Tony Blair: west must intervene in Iraq
  28. Hillary Clinton talks tough on Iran at Jewish conference
  29. Hillary Clinton Urges Caution in Negotiating With Iran
  30. Italy Protest Party Seeks Redemption Through Compromise
  31. Nigel Farage joins forces with far-right Swedish and French MEPs
  32. Merkel Running for Fourth Term Seen Possible by Ally De Maiziere
  33. Angela Merkel 'wants Christine Lagarde as EC president'
  34. IMF's Lagarde: Iraq Oil Shock May Threaten U.S. Economy
  35. Fischer sworn in as Fed vice chair, Brainard and Powell as board members
  36. Fed Dots Ignored as Investors Focus on Yellen’s Message
  37. Real Earnings News Release
  38. New BOE Rate Setters Wonder Why Spain Priced Like Gilts
  39. Finance Minister Warns of Dangerous Signs in German Real Estate
  40. Draghi’s Calm Markets Spark Concern of German Risks: Euro Credit
  41. The Numbers Game
  42. Chinese Premier Is Loaded for Bear
  43. Barrick Gold CEO Sees Growth in Nevada Following ‘Reset’

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