School of Hard Knocks

July 4th, 2014
in aa syndication, eurozone and euro

Age of Wisdom, Age of Foolishness (32)

Written by ,

“Who’s in the frame?”

The global leadership alumni have returned, from the sunny beaches of Normandy, to the shady geopolitical “School of Hard Knocks” in their home countries.

Follow up:

“Risky Referendums”

In Age of Wisdom, Age of Foolishness (31) “The Longest Day” David Cameron was observed throwing caution to the wind, in a dangerous power-play to lead a Scandinavian challenge to the European Union status quo. Last week, he followed up with an equally audacious bluff to quit the EU if his reforms are not accepted. As we noted, all it takes are “a few words and a few hedge funds” to get him ejected from the EU in economic terms, so that Britain becomes a pariah in global political terms. The UK economy may be strong enough now to bluff, however once speculators sense that the EU halo effect is gone and drill down to what lies beneath the current economic strength, the bluff gets called.

“Today’s Fish and Chip Wrapper”
Wise Men warn on dangerous delusions of Brexit

A few words” were legible in the Telegraph, opined by alleged “Wise Men”, which suggested that the British economy would suffer catastrophically from the “Brexit”[i]; so Cameron can now assume that he is in play and his bluff is being called at home. Angela Merkel then literally called his bluff abroad; and made it clear that she is personally taking him on, when she said:

Threats aren’t a part of that. That’s not how we operate.” [Our emphasis]

The use of the words “threats” and “we”, suggests that Cameron (and Britain) is no longer viewed as a member of the EU. Observers of European history will remember that this is the way Margaret Thatcher went down, when she used her handbag to threaten the EU. Opinion polls suggest that the majority of Germans support Merkel’s attack on Cameron[ii]. Merkel is now spending her political capital; and the Bundesbank is spending economic capital by allowing Mario Draghi the room to manoeuvre. German economic capital, in the form of fiscal transfers, will ultimately be needed to maintain the status quo however. Now that the ECB has embarked on its next phase of QE, the cost to Germany in hard financial terms will be mitigated substantially by the ECB’s balance sheet.

Cameron’s problems, on the other hand, are immense. His credibility is already threatened by the irony of a Scottish referendum on membership of the Union; which perfectly mirrors Cameron’s own posturing with the EU and frames him as a hypocrite.


Observers are currently looking only at the European finger pointing towards the “Brexit”; they have totally missed the American finger on the other hand. America may be just about to give the Cameron “the finger”. President Obama made it clear, some time ago, that America wishes to see Britain as its proxy within the EU. A “Brexit” clearly undermines this strategy; and hence American support for Britain. A Scottish exit from the Union then calls into question the bases, from which American “Boomers” and British Trident nuclear submarines operate within NATO against an invigorated Russian threat. The two fundamental reasons for America to support Britain now hang in the balance.  Alex Salmond will no doubt craftily put the bases on the table, if the EU politely asks him to re-apply for EU membership should the Scots walk away from the Union. It was very interesting to watch President Obama articulating the case for Scotland to remain in the Union. Observers thought that this was purely a case of support for Cameron[iii]. In actual fact, it was an issue of American national security. America must be rapidly losing faith in Cameron’s ability to deliver for them. Without the halo effect of the EU and the USA, what remains of Britain is a very dark place indeed. Age of Wisdom, Age of Foolishness (31) “The Longest Day” observed George Osborne’s cunning plan taking shape with the Bilderbergers in Denmark[iv]. Clearly, Osborne will be the go-to guy if Cameron fails to deliver for America.

David Cameron’s political nightmare scenario was joined by an unfolding nightmare economic scenario last week. Perversely, as is always the case with Britain, it is the strong economic data which produce the nightmare. The first signal came from the UK clearing banks[v]; who have decided to foreclose on defaulting commercial real estate loans; and hit the bid for the underlying property assets whilst there is still some economic strength left to support bids. Clearly, the Clearer’s don’t see much further economic upside; and are reducing their books before the next crisis materializes. The latest industrial output data was the strongest since 2011[vi]. Clearly, the Clearer’s also understand that the Bank of England will be forced to act on interest rates, given this economic strength, sooner rather than later so they are foreclosing and selling into the strength. This strength was evident in the April employment data, which showed continued improvement[vii]; and a National Institute of Economic and Social Research (NIESR) report which suggested that the economy had reached its pre-recession peak[viii]. The good news is bad news for Cameron theme continued late on last week, with the release of the April construction data[ix], which showed the first increase in three months. The boost was driven by the housing sector. In Age of Wisdom, Age of Foolishness (31) “The Longest Day” it was observed that the Bank of England and the Government were deftly passing the responsibility for curbing the housing market to each other; with the effect that neither was addressing the problem satisfactorily.

“George’s ‘cunning plan’ gets lost in translation.”
Mark Carney tells Mansion House: Interest rates could go up sooner

George Osborne, “the Young Pretender”, was also understood to have a “cunning plan” to advance his political momentum whilst the housing market loses momentum. On the eve of the Mansion House Speech, Osborne swiftly passed the buck of deflating the housing bubble directly to the Bank of England[x]; by delegating the authority to apply mortgage caps. Mark Carney responded with alacrity and signalled that interest rates would be rising sooner rather than later this year to cool property prices[xi]. There seems to be a large difference in magnitude, between what Osborne suggested and what Carney delivered. Osborne’s “cunning plan”, clearly sees that he and his appointee Carney come through the coming crisis unscathed with their reputations intact. Having created the housing bubble, that David Cameron thought would be useful in getting re-elected, Osborne wishes to take the credit for delivering, sustaining and containing it. The problem for Osborne is that Carney has gone for the nuclear option of rate increases, rather than the more subtle policy tool of capping mortgages which Osborne intended. Rather than cooling the bubble, Carney has just popped it. Perhaps he has his own “cunning plan” to ingratiate himself with the next inhabitant of Number 10, who may not be Osborne. He is also ingratiating himself with his critics at the IMF and also Britain’s enemies at the EU. As usual, Carney is a master at preserving his own image and survival; as he did in his last job. This must be a skill he learned whilst at Goldman Sachs. Carney is betting that his threat to raise interest rates is enough to cool prices, so that he doesn’t have to do so, or at least not as much as is expected. He is playing with Osborne’s “cunning plan” and David Cameron’s future however.

Prime Minister Netanyahu was put in the naughty corner, at the “School of Hard Knocks” last week. The Israeli road to war was first noted in Age of Wisdom, Age of Foolishness (18) “Beyond the Pale”[xii]. Far from decelerating Israeli momentum, the Obama Administration then accelerated it by recognising the Palestinian Unity Government[xiii]. 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.”

“Don’t Think, F-e-e-e-e-l!”

Israeli Economy Minister Bennett, acting as proxy for Prime Minister Netanyahu, hit the accelerator in the Knesset last week; when he opined that the only “sane plan” is for Israel to annexe some West Bank territory[xiv]. The succession of the hard-line new President Rivlin, from the peacemaker Sharon, pushes the pedal even further to the metal[xv].

In Age of Wisdom, Age of Foolishness (29) “Don’t Think, F-e-e-e-e-l”[xvi] Mrs Merkel was advised not to watch Prime Minister Netanyahu’s finger. She clearly has some moves of her own. The European Union decided to erect speed bumps on Prime Minister Netanyahu’s road to war, with an offer to Israel (and the Palestinians of course) of unspecified amounts of financial support if they make peace, in a speech by Manuel Barroso[xvii]. Netanyahu may be forgiven for saying “show me the money?” He is also well within his rights to ask what he is supposed to do, in terms of peace, to elicit this monetary response. Having tried to make the “Two State Solution” work, why would he be interested in going through the motions again just to get paid? One suspects that he will say that Israeli national security is not for sale. He may also wish to remind Europeans that, throughout history they have been less than reliable when it comes to the security of his fellow countrymen and women. This pecuniary incentive appears to be part of a much larger speed bump, which is supposed to enact regime change in Israel. The ousters of Netanyahu’s hard-line coalition are being offered a bribe to remove him[xviii]. The Pope is providing a “spiritual incentive” by hosting prayers for the parties involved[xix]. The West has now played its hand. If it fails to enact regime change in Israel, it will have infuriated Prime Minister Netanyahu to such a degree that swift retribution can be expected. This traditionally takes the form of an “eye for an eye”, so the speed bump architects should start working on their resumes.

“Hard Choices”

Hillary Clinton was playing Annie Hall last week. With one eye on 2016 and the other eye on AIPAC, she has chosen to dissociate herself from “Team Obama”. Her latest gala performance was timed, alongside the release of her campaign launching book, to coincide with the current political failures of “Team Obama”[xx]. The carefully selected for release excerpts from the book, are critical of “Team Obama’s” handling of the Israeli-Palestinian issue. She also refers to Netanyahu’s previous offers to freeze settlements as “unprecedented”. It is therefore clear that Hillary Clinton is not a believer in the success of the latest speed bumps, or in regime change in Israel before 2016. Her position seems to be that “Team Obama” missed a great opportunity to engage Israel in the “Two State Solution”; and that this opportunity has been lost forever. The book is entitled “Hard Choices” and easily resonates with the hard choices that Israel has been forced to make because of “Team Obama”.

Having established her Presidential bona fides, Clinton then proceeded to deal with the move to impeach her over the Benghazi affair. In a disarming interview, she attempted to disarm the “Impeachment Mob”, by eliciting the empathy of her audience, with the revelation that the impeachment of her husband caused them to leave the Oval Office in destitution. Combining this persecution, with the image of her new role as a grandmother, she skilfully elicited the understanding (and presumably votes) of her audience. The Mob will however scream that this media stunt was an attempt to justify the riches that she and her husband have since made from public speaking[xxi]. Her popularity is falling[xxii]; and seems to be suffering as a consequence of her latest literary initiative. Fortunately for her, the opposition is sinking at an even faster rate.

“The top of the Greasy Poll”
Hillary Clinton Is Going To Love This Chart

Clinton also selected her GOP opponent as Jeb Bush; and opined that the dynastic contest between the two families was part of American tradition[xxiii]. As the polls have shown, Jeb Bush is the weakest GOP opponent; so Clinton has mendaciously tried to make the contest look like a real battle, rather than the short odds on her that the bookmakers are quoting. The only way to make Jeb Bush appear credible, at this point in time, is to emphasize the dynastic rivalry between the families so that the voters ignore the odds.

“If the hat fits….”

The Bush family are framed as the “evildoers” who bankrupted the Clintons; so that Americans have the soap opera allegory, with which they are familiar, in order for them to make a political decision. There is however a subtle twist in the plot. Clinton or Bush will create political certainty. The political certainty, is that there is no political uncertainty in 2016 with either Bush or Clinton. The Republican Party has become very risky of late. Having believed that the Albatross of the Tea Party had been removed, it resurfaced spectacularly with the defeat of House Majority leader Eric Cantor in the Virginia Primary[xxiv]. The Republican Party has become too unpredictable, so Hillary Clinton looks by far the most interesting Presidential candidate at this point in time. The Tea Party victory also reinvigorates the dying Jeb Bush candidacy, by driving away potential Hispanic voters from the GOP with their anti-immigration rhetoric.

In Age of Wisdom, Age of Foolishness (30) “Adullamites” Janet Yellen signalled that she was redefining unemployment to include the underprivileged. Her policy response is therefore to create a boom; which forces the well-educated into commensurate jobs and higher salaries, thereby vacating the low-skilled jobs for her underprivileged cohort. It has also been explained in detail that, in these current times of Stagflation, CEO’s aren’t hiring. In fact CEO’s are firing, increasing their pricing and merging. The June Employment Situation report provided further signals that so far Yellen’s strategy is not working.

“Nails for Yellen’s Coffin”
Jobs In Low-Wage Industries Are Still Rising Faster Than Jobs In High-Wage Ones

Employment is actually growing fastest in the low-paying and thus by definition underprivileged sector of the workforce. It may be that there is poor job creation across the board; so that these low-paying jobs are being taken by the overqualified, which would tend to support Yellen’s thesis. Conversely, it may also be that there are no skilled jobs being created; so that the underprivileged are getting these low-paying jobs because they will work for less than the better educated. What unequivocally confounds Yellen’s thesis, is that the data supports the assertion that wages are lagging prices aka our Stagflation. A man or a woman with a hammer, only sees nails; so it may well be that Yellen only sees the over-educated crowding out the underprivileged. We must watch her speeches, about the Employment Situation report going forward, to see if her cognitive bias is about to unleash more positioning to roll back the “Taper” and turn it into a stimulus.

Since the markets have become transfixed, with the spectre of the “Islamic Caliphate of ISIS”[xxv], as Montaigne observed believing most in that which they do not understand; it is interesting to revisit what was written in Age of Wisdom, Age of Foolishness (31) “The Longest Day” in relation to this issue. It was written as:

“Age of Wisdom, Age of Foolishness (30) “Adullamites” suggested that President Obama’s West Point[xxvi] speech had painted targets on Americans living abroad. It also suggested that, if history is rhyming again, a process ending in an event similar to “9/11” is now underway; at which point the threshold of the Obama “principle” on unilateral military action will be crossed.”

Logically therefore, events in the “Caliphate” must be observed through Obama’s prism on what is casus belli. At first blush, this is nothing more than yet another “Team Obama” foreign policy “SNAFU”; which simply supports the case for the “Warmongers” in 2016. The President has hastily put air-strikes on the table, but so far there is no intention or capability of putting boots on the ground immediately. It is an opportunity for the US defence industry to sell more weapons in the region and to therefore stimulate the US economy. Rising oil prices, from the threats to regional oil producers, provide these arms buyers with revenues for the purchases of more weapons from America.

“The Wildcard”

Perhaps more importantly however, the link is now being made between Jihadis of US origin, like the martyred “Al Amriki”, with American national security at home and abroad. Should the “Warmongers” need to sell another military adventure, to a war-weary public and circumspect Congress, the national security box has just been ticked. It should also be observed that the “Caliphate” has its uses beyond stimulating defence sales. As a nominally “Sunni Caliphate”, it provides the platform to execute the kind of policy initiatives against Iran, which can be plausibly denied whilst nuclear negotiations are ongoing. The “Caliphate” is therefore good for politics and good for business. It is also good for equities, once those who believe most in what they least understand are reprogrammed to understand that rising oil prices are an economic headwind. Fed policy makers of the Dovish persuasion thus have a new wild card to play in order to arrest and revers the “Taper”.


  1. Wise Men warn on dangerous delusions of Brexit
  2. German Majority Favors Merkel Support for Juncker at EU
  3. Scottish independence: Obama ‘asked to intervene’
  4. Bilderberg 2014: George Osborne and the man at the centre of everything
  5. Property-Loan Defaults Rise as Banks Pull the Plug: U.K. Credit
  6. U.K. Economy Regains Pre-Recession Peak, Niesr Says
  7. U.K. Unemployment Falls; Payrolls Surge to Record High
  8. U.K. Economy Regains Pre-Recession Peak, Niesr Says
  9. U.K. April Construction Increases 1.2% on Housing, Repairs
  10. Mortgage loans to be capped by Bank of England – but why?
  11. Mark Carney tells Mansion House: Interest rates could go up sooner
  12. Beyond the Pale
  13. Netanyahu ‘deeply troubled’ by Obama’s decision
  14. Israel Minister Says Annexing West Bank ‘Only Sane Plan’
  15. Israel Elects Palestinian State Opponent Rivlin President
  16. Don't Think, F-e-e-e-el
  17. Press releases database
  18. Israel Minister Says Annexing West Bank ‘Only Sane Plan’
  19. Pope Francis peace plea at Israel-Palestinian prayer meeting
  20. Clinton: Obama erred by demanding settlement freeze
  21. Hillary Clinton Just Made The First Gaffe Of 2016
  22. Clinton’s Popularity Drops to 52% as 2016 Edge Shrinks
  23. Hillary Clinton Defends Comments on Her Struggle With Money
  24. Cantor Loss Upends Republicans, Dims Immigration Bill
  25. Militants Seize Towns as Al-Maliki Fails to Stop Advance
  26. Obama West Point speech in full with analysis

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