Hiding in Plain Sight

November 10th, 2014
in aa syndication, eurozone and euro

Age of Wisdom, Age of Foolishness (50)

Written by , KeySignals.com

“School’s Out.”

The battle for the heart and soul of Eurozone economic policy making (and so much more) began in earnest last week, as the annual IMF meeting in Washington drew to its close. The meeting set a grim tone, with the maximum pressure being exerted upon Germany to abandon its faith in the “Austerian School” of economics. The consensus going into the meeting was that only QE from the ECB would save the day. Coming out of the meeting the consensus, amongst the delegates from the IIF, is that the ECB QE will be insufficient in scope and scale to achieve the required outcome[i].

Follow up:

The consensus, amongst this cabal of bankers, therefore suggests that the ground has been prepared for something of a more substantial global response; possibly involving Helicopter money from the Anglo-Saxon economies. The battle between the “Austerian School”(which is confluent with the Freshwater School of Chicago) and the Saltwater School of MIT was very much in evidence during the meeting. The Eurozone is the battleground, with Mario Draghi acting for the Saltwater School; and Jens Weidmann and Wolfgang Schaeuble acting for the “Austerians”. Relations between Mario Draghi and Weidmann have hit a new low; with the former refusing to divulge policy initiatives in advance, for fear of having them declared dead on arrival by the latter[ii].

Finland became the latest casualty in the dialectic between the two schools of economic theory; when it was downgraded by S&P, because its growth profile is eroding rapidly. Apparently, it will take Finland four more years to get back to AAA status[iii]. Finland must now decide if austerity has been worth it, or whether it should embrace the Keynesian lifeboat rising on the incoming Saltwater tide from MIT.

The Eurozone crisis is running from the Baltic to the Mediterranean. Italian business owners are selling out to the Chinese. What this means is that in the long-run, technology and jobs are being transferred to China; where they can be applied at cheaper cost and then re-exported. Italian industry is therefore undergoing a similar hollowing-out process, to that which was endured by British industry with similar disastrous consequences for its industrial base[iv]. It would seem that, despite what Matteo Renzi says about making the Italian economy more competitive through supply side reform, Italian businessmen still won’t be able to make profits.

As the Italian economy descends into the Inferno, the pastiche figure of divine comedy and realpolitik aka Beppe Grillo has emerged with his version of Paradiso[v]. Grillo always seems to make an appearance at the significant points in recent Italian history, when the political and economic model is about to collapse. His timing on this occasion is no less impeccable.

“A Broken Axis.”
Age of Wisdom, Age of Foolishness (41) “Axes of Evil”[vi]

Forced to respond by Grillo, Prime Minister Renzi effectively broke from the “Axis”[vii] he has made with Germany on the subject of economic reform; and announced a fiscal stimulus package[viii] which would break the sacrosanct Stability Pact limits. Observing the fiscal slippage occurring in the Eurozone, the Northern Europeans swiftly deployed the EU to analyse each countries draft budget plans[ix].

The EU is now also challenged by the national governments of the countries within the Eurozone; who are threatening to go around Brussels and exercise their own democratic rights empowered by their peoples. The EU therefore needs to assert undemocratic control, via consensus before the Eurozone fractures along democratic lines. The outcome of this review will no doubt be consensual, in the EU’s time honoured tradition; however achieving this consensus will involve a volatile dialectic. The first casualty is Greece. Having announced its intentions and capabilities to exit the bailout process early, the recent market action has effectively ended all hopes for early exit[x].

“Fools have a habit of believing that everything written by a famous author is admirable. For my part I read only to please myself and like only what suits my taste.”― Voltaire, Candide

The shadow of Greece was cast further, across the current debate, by the former chief of the Institute of International Finance (IIF) Charles Dallara. Dallara was at the heart of the process during the first Greek crisis. This time around he has shrewdly moved to the world of private equity, in order to play his next hand. He opined that the debt rules should be suspend for two years[xi]; in order to allow countries to have time and space to grow and reform their economies. Such a suspension would no doubt create the boom in asset prices, required to to engineer a profitable exit of currently illiquid private equity investments, for a nice pay-out for his partners. The issue of suspension is now on the table; as an option to be modified and adopted. The fact that it has been suggested by an alleged objective third party, with no specific national agenda, gives it the veneer of credibility that is required to allow it to influence the debate. To underline the importance of alleged objectivity, consensus was swiftly formed, by the financial community, that Renzi’s heretical plans for fiscal stimulus and reform will work in practice.

“Mi Casa Su Casa.”

A sign, of the emerging choreographed consensus forming process, was evinced by the widely publicised attendance of French Foreign Minister Fabius at a German cabinet session last week[xii]. This act of Franco-German solidarity was then followed up by a joint analysis, of the various growth plans submitted for approval, by a team spearheaded by the French and German economy ministers[xiii].

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

Further consensus was evinced by the capitulation of several Peripheral nations on fiscal issues. Spain agreed to follow an EU directive to recoup tax incentives to past M&A deals, within its jurisdiction, from the fiscal beneficiaries[xv]. The net result is that capital will fly from Spain; once it is understood that there is no fiscal incentive to do deals there. Spain will weaken, therefore the EU will have to compensate it for this weakness. Ireland’s new budget also announced the scrapping of what was known as the “Double Irish”[xvi]; which allowed global companies to extract lower tax liabilities by incorporating dummy entities within the jurisdiction. Capital flight will therefore occur in Ireland, which will need to be compensated from the EU central kitty. As readers will now understand, the strategy[xvii] of slaughtering the PIIGS is to make them totally dependent upon the EU. Any attempt to stand on their own is undermined by the EU, in order to make them subservient.

“Welcome to Purgatorio Francois.”

If Italy is “chez les enfers”, then France is in Purgatorio. There is evidence of infighting in Hollande’s government; as the true Socialists put up a brave defence of their ideals[xviii] and the unemployment benefit stamp.

“A Marked Man.”

At some point a challenge to Hollande is to be expected, once the would be challenger has revealed him/herself; at which point the President will move from Purgatory to whichever destination awaits him.

“Blowing His Own Trumpet.”

Last Week, one of the favourites to replace Hollande, Emmanuel Macron had his FDR moment; calling for a “New Deal” in Europe[xix]. Age of Wisdom, Age of Foolishness (49) “Wondrous Stories” explained how the puppeteers, who pull the strings of global policy, pulled an obscure French writer from obscurity to Nobel fame; in order to allow the French to blow their trumpet in the discord that is the Eurozone ensemble.

“A French Monopoly of Nobel Prizes.”

A second Nobel string was pulled in order to give the prize for economics to an equally obscure Frenchman, who made his name by publishing volumes of research on monopolies and market failures[xx]. No doubt his magnum opus will be read as the market failures in the Eurozone occur when German companies have achieved a total monopoly position; after all the local competition has been liquidated.

“Economic Headwinds Blowing Their Own Tunes.”

Looking at the French PMI and GDP data, it is easy to see why Macron made his call[xxi]. The Northern European version of this deal will not however allow France to cheat on its Stability Pact commitments, according to the Dutch finance minister.

“It is what it is!”
Age of Wisdom, Age of Foolishness (45) “Worlds in Motion”[xxii]

Wolfgang Schaeuble has in any case anticipated the “New Deal”; by asking for all “New Deal” business plans to be submitted to the European Investment Bank for due diligence and funding, rather than the ECB’s balance sheet or the European Stability Fund[xxiii].

“Le Plan Pour Le Pen.”

Hollande then effectively put his neck on the block of the guillotine last week, when he took the bait and presented his economic plan to square the circle of creating economic growth in France whilst meeting the Stability Pact criteria. This work of fiction clearly includes some very generous assumptions about growth and the success of said plan in achieving it. Hollande snubbed his own parliament by presenting it to his EU critics first; before it is scheduled to be presented and then voted upon by French lawmakers[xxiv]. At first this seems like suicide; but on closer inspection there is method in the madness. The EU know that Hollande is their last and only chance achieving any progress with France inside the Eurozone tent, before the likes of Le Pen march on Paris. It therefore seems likely that the EU, despite its intense reservations will feel obliged to support Hollande and his plans. The Eurozone therefore now has to go through the motions of heading for breakup and then resurrection by consensus all over again; in what serves as the very peculiar form of democracy that it is not.

“It’s Not a Helicopter.”

As usual, Germany sets out its stall at the austere extreme end of the spectrum[xxv]; and the rest of the Eurozone then nudges the Germans away from this baseline through a process of threats alternating with cries for help. Jens Weidmann set the baseline last week, when he opined that Europe’s problems were structural in nature and that QE will not work[xxvi]. Chancellor Merkel then also traditionally set out her stall, at the extreme end of the austere spectrum, in order to appease her own taxpayers. Having been elected on a pledge to balance the fiscal budget and create surpluses, she cannot immediately U-Turn; especially when this runs the risk of sending German tax revenues abroad. Merkel is therefore blocked in by her own electoral promises and election manifesto. She is however under extreme pressure from the Lander[xxvii] to do something stimulating. She then mollified them and reinforced their faith and trust in her, by outlining a domestic stimulus strategy.

“The New Wirtschaftswunder.”

This nebulous strategy will stimulate investment into clean energy and technological efficiency[xxviii]. Thus while creating new high value jobs, it will also reform the economy to make it more efficient. This efficiency will in theory stimulate economic growth and employment. It will also signal to the rest of Europe the way forward. To demonstrate to all observers that this strategy is not all empty rhetoric and tree-hugging, Merkel then offered tangible signs of success by cutting the fees added to consumer energy bills[xxix] that have been used to fund clean energy generation. Germany has achieved scale by stealth in clean energy, so that it can now pass on the benefits to consumers and industry. The Energiewende can be conceptualised as Germany’s version of American Shale Oil and Gas. The Energiewende makes Germany less dependent on Russian and Middle East hydrocarbons. It also therefore keeps German foreign policy out of these regions.

A cynic would also note that the recent huge drop in hydrocarbon prices has reduced Germany’s energy bill to such an extent that it can fund this consumer bribe; but we’ll give Merkel the benefit of the doubt for now. In a serendipitous case of lower energy prices from all sources, Germany has been given a huge consumption and production stimulus. Those of the Austrian School will argue that this consequence, of deflation and cyclical economic collapse, is what forms the basis for economic recovery; not the pork barrel, in the form of fiscal stimulus, that the rest of Europe and the Anglo-Saxons demand.

“Recommended Dose, 1 Trillion QE.”

The ECB had been effectively side-lined in the political debate; after Draghi was forced to stop talking about fiscal policy and to advise countries to adhere to the Stability Pact guidelines, by Germany at his last press conference. Knowing that this enforced benching would heighten the market crisis, the ECB prepared to step back onto the field. Its comprehensive assessment of the banks is now underway[xxx]; and will no doubt reveal a precarious banking system that is on life-support. The ECB’s prognosis will then be that Asset Backed Security purchases will revive the patient; and hence the credit creation process. The ECB then primed its own liquidity pump, with the observation that the political debate and consensus forming was taking too long to come up with an effective solution[xxxi]. Communication of the negotiated consensus, on fiscal stimulus and economic reform, is currently so vague that the ECB feels that it needs to fill the void. The ECB therefore has no choice, other than to press ahead with its ABS buying plans.

“Is This Clear Enough?”

Whilst Hollande walked and talked the talk, in the face of the German aggressor, the Anglo-Saxons refought the battle of the Atlantic to prevent Germany from torpedoing the Helicopter on the deck of the good ship QE Infinity. Coming out of the IMF meeting, four key Fed officials[xxxii] (Evans, Tarullo, Fischer and Williams) signalled that tightening was now on hold in view of the current global headwinds. The equity market bears ignored the “Fed Fab Four” and focused on their bearish chart formations instead.

“Clear the Deck For Landing.”

For those who missed the fundamental signal from the “Fed Fab Four”, the San Francisco Fed’s John Williams then laboured the point[xxxiii] in a solo; opining that current conditions took tightening off the table and if further weakness was detected, that another round of QE would be required. This signal was however still lost in translation, as the markets began to factor in Ebola to their technical signals; so that the capitulation turning point was achieved the day after Williams’ emphatic solo. Yellen tried to appear impartial and disconnected from the chaos in the markets (and Williams), by alleging her faith in the Fed’s projections for the continued recovery[xxxiv], during a private session of the G30; however she succeeded only in signalling that Williams is her mouthpiece. Move over John Hilsenrath! Yellen understands that the market is now moving her way in relation to the Helicopter. All she has to do is wait for one more ugly leg down in the markets, which goes beyond the longs capitulation and convinces the shorts to maintain their conviction, which will give her the opportunity to land the Helicopter. Once again, her critics within the Fed are doing her work for her. Charles Plosser discounted the recession signals from the financial markets; and reiterated his call for early tightening[xxxv]. Richard Fisher is already aware that he is on the wrong side of history; and is preparing for his retirement, to avoid being shamed. As he edges towards retirement, his position on tightening edges towards that of Yellen. In his latest communication, he called QE4 premature[xxxvi]; however he did not rule it out altogether and was even more careful not to call for early tightening or even tightening on schedule in 2015. Charles Plosser remains an uncompromising Hawk however; and looks like he intends to go down fighting. In addition for calling for an adherence to the early tightening timetable[xxxvii], he also wishes the Fed to have an enforced single inflation mandate. Plosser’s demands clearly signal that he sees the inevitability of the Helicopter; and its inflationary payload.

“Market Uncertainty Begets Policy Certainty.”
Age of Wisdom, Age of Foolishness (37) “The Third Man(date)” August 4th 2014

He also sees Stanley Fischer’s “Third Mandate[xxxviii], which will give the Fed the free reign to balloon its balance sheet in order to land the Helicopter, as the great enabler of this inflation. His only remaining option, is to get the lawmakers involved to mandate away this inflationary outcome; by legislating away Fischer’s “Third mandate”. Yellen and Fischer have despatched their deflationary hit man Kocherlakota to deal with Plosser. In his latest speech on Monetary Policy Objectives, Kocherlakota sought to steer the public debate, about how much the Fed should be buying, towards how well the Fed was meeting its dual mandate[xxxix]. The verbal casuistry employed by Kocherlakota neatly anticipates Fischer’s “Third Mandate” and Helicopter, by making the sublime case that the Fed has not yet achieved its Congressionally mandated objectives. Either the Fed must continue with its easy monetary policy, or better still it should have its mandate redefined in more general growth and inflation terms.

“He’s Fingerlickin’ Good.”
Age of Wisdom, Age of Foolishness (43) “The Wild Geese (Chase)” September 21st 2014[xl]

Confirmation of the change in the breeze from Fed headwind to tailwind was provided by the mercurial James Bullard[xli]. Bullard is famous for changing his guidance faster than a high frequency trader changes his/her position. Whilst this does nothing for his credibility, it does however provide a clear signal of the overwhelming sentiment held by the FOMC. It is also very amusing to watch. Having previously driven the market into the hole by opining that the forward curve was not steep enough[xlii], the week before, he then last week said that the FOMC should hold back on early tightening and do more to guide the markets on what the Fed was thinking and doing about deflation risk[xliii].

Age of Wisdom, Age of Foolishness (26) ”Milking It For All It’s Worth”

The almost Jesuitical strategy being deployed by the Fed’s Doves, was put into full context by Chairperson Yellen. In the biggest signal of all, that the Helicopter is coming, she gave a speech last week which emphasized that she was “greatly concerned”[xliv] about wealth inequality. For regular readers, this is direct confirmation that she intends to land the Helicopter; through a permanent increase in the money supply, which is transmitted to the Middle Class through reforms in the tax code.

The consensus, that the Too Big to Fail Banks now have insufficient levels of capital buffers in place, to weather another financial crisis, became a self-fulfilling prophecy as the equity markets collapsed[xlv]. What have been termed “Volckerized” banks are dumping corporate bonds, because they lack the regulatory capital to hold them[xlvi]. Tighter capital rules, have created less market liquidity; which has then exacerbated the falls in bond prices, as banks hit the bid. In practice, this means that the banks will now be unable/reluctant to stimulate the creation of credit. These banks have effectively become disintermediated; so that credit creation will now have to be directly created by the Fed and the Treasury. The collateral markets are also undergoing collateral price discovery issues; as the new Basel III rules come into effect[xlvii]. Haircuts being raised on lower quality collateral; which then tightens liquidity and undermines the capital position of the institutions holding this collateral. Shadow banking is being squeezed out of existence by the new rules; which means that credit is tightening and the cost of credit is rising. The collapse of shadow banking also accelerates the disintermediation process of the banks; which further tightens credit and raises its price. The Fed will therefore have to step into the collateral markets, in order to compensate for the demise of shadow banking. Yield spreads in the corporate bond markets have widened; and there are signs that the big players are getting ready to pull the trigger and start buying again[xlviii]. The lack of liquidity, in the underlying bond markets and the collateral financing markets, has therefore created falls in bond prices which now offer relative value to real cash buyers. Leveraged buyers have been taken out. The signals from the Fed, in particular Yellen, are encouraging these cash buyers to pull the trigger. The equity and credit markets signalled important capitulation points last week; which have aroused the interest of these long-term players.

“Job Done.”

By the end of all this rhetorical gymnastics last week, the US Treasury forward curve had backed out expectations of the tightening to late 2015[xlix]; at the height of the market crisis this expectation had been pushed well into 2016. The markets have therefore priced in the Helicopter landing in 2015 and the precautionary inflation fighting interest rate rise which it will occasion; with scary and unwitting “blind” precision.

Treasury Budget

Released On 10/15/2014 11:00:00 AM For Sep, 2014

  Prior Acutal
Treasury Budget - Level $-128.7 B $105.8 B

“Fuel For the Chopper.”

The real fuel for the Helicopter must be supplied by the Treasury, in the form of debt that the markets trust and which the Fed can monetise. Last week the Treasury signalled that the fuel tanker was filling up. The September budget balance data showed a monthly surplus and an almost 30% drop in the full year deficit. Secretary Lew also gave the official signal that America is concerned about the strong US Dollar, in his semi-annual report[l]. This report also lambasted Germany, China and other emerging nations who seek to build surpluses by promoting exports (often unfairly) at the expense of stimulating domestic demand. The Fed has previously hinted about US Dollar concerns in its recent minutes; but now it is official from the agency responsible for the US Dollar’s value. America’s budget deficit is now well below the 3% Deficit/GDP ratio favoured in the Eurozone Stability Pact. Only last year it was at 4.1% of GDP; so America’s fiscal position has had a quantum leap. There is now plenty of fuel, in the form of potential for fiscal stimulus.

Almost simultaneously China reported that its reserve surplus had fallen by $100 billion to about $3.9 Trillion[li]. China still has a huge cushion, but clearly capital flight has started. Following Secretary Lew’s thought train, China needs to stimulate its domestic demand to prevent this capital flight from becoming a destabilising influence. China and Europe, currently show no signs of complying, so Lew will take the gloves off in a currency war. Far from using a stronger US Dollar to undermine trade partners, America will adopt a deliberate weaker Dollar policy. Both Europe and China will be forced to stimulate domestic demand, once weakening their currencies as an option is removed. Since capital is flying away from China and the Eurozone, America has a bid cushion to avoid a US Dollar freefall. A weaker US Dollar will be a positive dynamic for US economic growth; which will in fact accelerate the capiatl flows out of Germany and China. Germany and China thus end up with stronger currencies but falling currency reserves; a situation that will come as an unwelcome complete surprise. America will then recycle these German and Chinese currency reserves, within its own economy, to stimulate growth and monetise increased treasury borrowing. The Fed will not even need to buy new the Treasury debt envisioned; because the foreign bid out of the Eurozone and China will be so strong. If America wishes to increase its budget deficit, through issuing more debt, there will be a strong bid for this debt; which means that future US interest rate increases will be capped. America will therefore do to Germany and China, what they have done to it in the distant and recent past. German and Chinese interest rates will need to rise to prevent the loss of their US Dollar Reserves. The American intention is to force them to use what remains of these reserves, creating more Euros and Yuan, to stimulate their domestic economies. Germany and China will be forced to run current account deficits in order to rebuild their capital surpluses; which America is just about to syphon off under the cover of a weak US Dollar. Germany and China now have the choice of dumping their US Dollars for Gold; or exchanging them for US goods, services and investments.

“He has a cunning plan!”
Age of Wisdom, Age of Foolishness (31) – “The Longest Day”[lii]

The British policy makers announced the need to war game[liii] current global economic conditions in an amazing act of coincidence. In military strategy, as we saw in Ukraine, it is often expedient to hide real war, under the cover of military exercises, until the point when there is no more credibility in pretending that it is only a game.

Britain will clearly be using live inputs to its gaming, based on current geopolitical and economic events. It is therefore hard to see where the game ends and real economic warfare is being prosecuted. Plausible deniability in this case provides a very thin veneer for those hiding in plain sight. Game player Andy Haldane, at the Bank of England, immediately responded[liv]; by signalling that early rate hikes were off the table under the current conditions, thus following the Fed’s lead. One wonders how long the game will last; and if it will also game the General Election of 2015 in real time. Nigel Farage provided a live round, when he announced that his condition for supporting the Conservatives will be a 2015 in/out referendum of EU membership[lv].

“The Prestige is Wearing a Bit Thin.”
Age of Wisdom, Age of Foolishness (48) – “Alpha and Omega”

The Office of Budget Responsibility (OBR) also provided a live input in its latest, report which showed that Britain’s public finances are still deteriorating[lvi]; even whilst the economy is growing. Osborne and Carney must now have to factor in a fiscal crisis, based on the fact that Osborne’s strategy aka “the Prestige” is not working. In Age of Wisdom, Age of Foolishness (48) “Alpha and Omega”, the mechanism of “the Prestige” was explained. The Government arbitrages a higher Retail Price Index number (RPIx) against a lower index number (RPIj); in order to maximize the tax receivables versus the outgoings. This was intended to create a slush fund, to be deployed on pre-election giveaways to shore up the Government for 2015. This has not worked in practice, because the economic recovery has been sub-trend; therefore tax receipts have lagged legacy outgoings. The next Government will therefore have to inflate its way out of Debt; the previous one having failed to cut its way out of debt.

“Let’s Twist Again.”

The catalytic process to create “regional boots on the ground in Syria has been bogged down even further, since Senator Biden gave it the kiss of death; with his mild case of diplomatic tourettes[lvii] in relation to regional hidden agendas. Last week, President Obama once again tried to create a coherent alliance, out of the regional chaos of conflicting national agendas[lviii]. Turkey was embarrassed into some form of token action last week; and responded by allowing NATO allies the use of its airbases[lix]. Turkey’s old Central Power ally Germany, similarly tried to remain as aloof as possible. German foreign policy is currently taking a tangential direction to that of its NATO allies[lx]. The Energiewende initiative is hoped to shield the German economy from the threats of hydrocarbon prices; so that Germany can remain objective and disengaged from the crisis in the Middle East. German strategists however have a problem, in the fact that the German chemicals industry is heavily dependent upon hydrocarbons; so that it will be impossible to be totally disengaged.

“First Regional Boots on the Ground.”

Age of Wisdom, Age of Foolishness (45) “Worlds in Motion[lxi] observed that Iran was emerging as a key player; in what Ayatollah Khamenei labelled a “New World Order”. Last week Iran was formally recognised as the first “regional proxy” in America’s fight against IS; when its until now clandestine operative Major General Qassem Suleimani took a photo-op with Kurdish fighters[lxii] in Iraq. Iran has seized the initiative, therefore it is clear why Turkey is reticent about being pro-actively involved in supporting Kurdish fighters in Syria.

If you lay a hand on him, you will remember the struggle and never do it again!
Any hope of subduing him is false; the mere sight of him is overpowering.
No-one is fierce enough to rouse him. Who then is able to stand against me?
Who has a claim against me that I must pay? Everything under heaven belongs to me.
[Leviathan, Job 41:]
Age of Wisdom, Age of Foolishness (42) “Level 3”[lxiii]

Iran’s support for the Kurds in Iraq, effectively neutralizes Israel’s support of the Kurds in Syria. Iran also supports the Assad regime and Hamas in Palestine. Israel’s strategy of using the “Hamas is ISIS” mantra, opined by Netanyahu, has therefore become conflicted and obscured. Israel’s frustration was compounded even further last week, when the British parliament overwhelmingly adopted a resolution in favour of the Two State Solution last [lxiv]. Israel has therefore been forced to alter its strategy; and rely more heavily on gas to advance its foreign policy objectives. Israel hopes to use its newly found Mediterranean gas reserves; as a consideration in negotiations with the main regional players of Turkey and Egypt, in addition to the EU[lxv].


Turkey revealed its real intentions and capabilities, when it bombed Kurdish fighters within its own territory[lxvi]. Turkey clearly does not relish the prospect of a new oil producing nation of Kurdistan being created out of what used to be its Ottoman Empire in Syria and Iraq. Turkey could also be seen to be pursuing a strategy of reclaiming the lost parts of the Ottoman Empire, which are currently being contested. In Age of Wisdom, Age of Foolishness (43) “The Wild Geese (chase)”[lxvii] it was said that:

“It would be ironic, but not surprising, to see the Old Ottoman Empire being reconstituted; in order to subsume the freshly dismembered parts of Syria and Iraq. Turkey is after all a NATO member, therefore it is the Uber-Proxy.”

It would seem that Turkey has now emerged as this Uber-Proxy. There is however great fear in western capitals that Turkey’s strategic objectives are somewhat tangential also[lxviii]. Turkey has supported the Muslim Brotherhood during the Arab Spring. The Muslim Brotherhood is antipathetic towards a number of important governments in the region, who America would like to put “regional boots on the ground”. It is apparent therefore that Turkey is following an agenda which ostensibly advances its own regional priorities at the expense of others. Closer observation of the conflict with ISIS in the Kurdish region, reveals that Caucasian fighters from the former Russian Federation are the cadre which poses the greatest threat to the Kurds. These Caucasian fighters have received support from Turkey. The general unease with Turkey’s true objectives became obvious last week; when it was passed over in favour of Spain for a two-year seat on the UN Security Council[lxix].

“Backfield in Motion.”
Age of Wisdom, Age of Foolishness (45) “Worlds in Motion”[lxx]

At the big-picture level, the strategic overview of the global macro scenario is taking an interesting perspective. The rehabilitation of Henry Paulson[lxxi],as a global trouble-shooter and unofficial Secretary of State, has been an interesting signal. The rehab process has involved his evangelical embrace of the global warming issue. Further context to this process was evinced last week by the Pentagon. Having recently labelled IS as its greatest global foe, the Pentagon re-prioritised ; and made climate change its greatest strategic threat[lxxii]. IS can therefore be seen as a tactical bi-product, of the larger environmental threat, which is placing constraints and conflicts over scarce global economic resources. With this new global priority established, it was therefore logical for Mark Carney to opine on the subject[lxxiii].

“Carney’s Peak Carbon.”

In Carney’s view, the vast majority of the world’s finite hydrocarbon resources are un-burnable; because they will push global warming into the red zone which will threaten the very existence of mankind.

“Lines of Conflict”

Given that the BRICS are currently pursuing a growth agenda which is predicated on the burning of hydrocarbons, the real global conflict of the immediate future has therefore been identified. One can imagine that this scenario has already been war gamed out by Carney and Osborne; and probably by Paulson and the Pentagon also. It now remains to be gamed out in real time with real inputs.

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  18. http://www.bloomberg.com/news/2014-10-12/french-ministers-tussle-over-urgency-of-benefit-system-revamp.html
  19. http://www.theaustralian.com.au/news/world/french-economy-minister-emmanuel-macron-calls-for-new-deal/story-e6frg6so-1227088159393?nk=fb3c6ea0912b7e15ae681de96b85a336
  20. http://www.bloomberg.com/news/2014-10-13/france-s-second-nobel-suggests-country-isn-t-finished-yet.html
  21. http://www.markit.com/Commentary/Get/10102014-Economics-French-manufacturing-barely-growing-as-exportsslump?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MarkitPMIsAndEconomicData+%28Markit+PMIs+and+Economic+Data%29
  22. http://econintersect.com/a/blogs/blog1.php/worlds-in-motion
  23. http://online.wsj.com/articles/dont-rely-on-bailout-fund-for-eu-projects-says-schauble-1413209977
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  25. http://www.bloomberg.com/news/2014-10-15/merkel-no-deficit-dogma-means-no-stimulus-for-germany.html
  26. http://www.telegraph.co.uk/finance/economics/11169014/Jens-Weidmann-ECBs-QE-will-not-fix-the-eurozones-problems.html
  27. http://www.bloomberg.com/news/2014-10-15/german-states-join-ranks-pressing-merkel-to-spur-spending.html
  28. http://articles.economictimes.indiatimes.com/2014-10-10/news/54868008_1_mario-draghi-eurozone-german-economy
  29. http://www.bloomberg.com/news/2014-10-15/german-clean-energy-costs-drop-for-first-time-in-boon-for-merkel.html
  30. http://www.bloomberg.com/news/2014-10-13/ecb-dark-room-crunches-bank-test-data-amid-d-day-nerves.html
  31. http://www.bloomberg.com/news/2014-10-17/ecb-s-coeure-calls-for-reforms-to-speed-up-euro-area-recovery.html
  32. http://www.bloomberg.com/news/2014-10-13/fed-officials-say-slow-world-growth-could-delay-rate-rise.html
  33. http://www.reuters.com/article/2014/10/14/us-usa-fed-williams-idUSKCN0I31Y720141014
  34. http://www.bloomberg.com/news/2014-10-15/yellen-said-to-voice-confidence-in-u-s-economic-expansion.html
  35. http://www.cnbc.com/id/102092918#.
  36. http://www.valuewalk.com/2014/10/fisher-way-premature-think-another-qe/
  37. http://www.cnbc.com/id/102092918#.
  38. http://econintersect.com/a/blogs/blog1.php/the-third-man-date
  39. http://mam.econoday.com/byshoweventfull.asp?fid=465372&cust=mam&year=2014&lid=0&prev=/byweek.asp#top
  40. http://econintersect.com/a/blogs/blog1.php/the-wild-geese-chase-1
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  42. http://www.reuters.com/article/2014/10/09/us-usa-fed-bullard-idUSKCN0HY1VJ20141009
  43. http://www.bloomberg.com/news/2014-10-16/bullard-challenges-fed-to-respond-to-weakening-inflation.html
  44. http://www.bloomberg.com/news/2014-10-17/yellen-greatly-concerned-by-widening-u-s-inequality.html
  45. http://www.bloomberg.com/news/2014-10-13/too-big-fail-banks-seen-facing-capital-gap-of-up-to-870-billion.html
  46. http://www.bloomberg.com/news/2014-10-16/volckerized-wall-street-dumping-bonds-with-rest-of-herd.html
  47. http://www.bloomberg.com/news/2014-10-13/repo-traders-face-fsb-collateral-rule-in-shadow-bank-push.html
  48. http://www.bloomberg.com/news/2014-10-17/pimco-to-blackstone-preparing-to-feast-after-yield-surge.html
  49. http://www.businessinsider.com/interest-rate-hike-expectations-2014-10?nr_email_referer=1&utm_source=Sailthru&utm_medium=email&utm_term=Markets%20Chart%20Of%20The%20Day&utm_campaign=Post%20Blast%20%28moneygame%29%3A%20We%27ve%20Just%20Witnessed%20A%20Definitive%20Shift%20In%20The%20Market%27s%20Expectation%20For%20The%20First%20Fed%20Rate%20Hike&utm_content=COTD
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  51. http://www.bloomberg.com/news/2014-10-16/china-s-reserves-retreat-from-4-trillion-mark-as-outflows-seen.html
  52. http://econintersect.com/a/blogs/blog1.php/the-longets-day
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  54. http://www.bloomberg.com/news/2014-10-17/haldane-says-economic-data-favor-boe-rates-lower-for-longer.html
  55. http://www.telegraph.co.uk/news/politics/nigel-farage/11157230/Farage-July-2015-referendum-is-my-price-for-propping-up-Tories.html
  56. http://www.theguardian.com/money/2014/oct/13/income-tax-revenue-lower-than-expected-office-budget-responsibility
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  65. http://www.bloomberg.com/news/2014-10-13/israel-sees-gas-as-key-to-transforming-mideast-relations.html
  66. http://www.telegraph.co.uk/news/worldnews/europe/turkey/11160773/Turkey-bombs-Kurdish-rebels-as-tensions-rise-over-Isil-advance.html?utm_source=Sailthru&utm_medium=email&utm_term=%2AMideast%20Brief&utm_campaign=2014_The%20Middle%20East%20Daily_10.14.14
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  71. http://www.bloomberg.com/news/2014-09-05/paulson-starts-climate-change-program-to-fund-research.html
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  73. http://touchstoneblog.org.uk/2014/10/bank-of-england-governor-fossil-fuels-unburnable/

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