Zero Hedge
August 24, 2013
Earlier today, in “US Refines “Military Options” Ahead Of Syrian Strikes“, we reported on what we thought was now inevitable especially since it was in agreemenet with what we predicted with absolute certainty over a month ago in “US Prepares For “Kinetic Strikes” Against Syria.” There we said: “The pre-story here is well-known to most: in a repeat fabulation of the Iraq “WMD” lie, the US and the entire developed world “found” Syria to have crossed a red-line when it used chemical weapons, despite subsequent reports that it was the Syrian rebels, aka Qatari mercenaries, who were the party responsible for chemical weapon use. No matter though: the public media campaign was hatched, and merely waited for the catalyst. That catalyst may be imminent…”
Sure enough, a month later the convenient catalyst emerged when this Wedensday, despite the entire world watching Assad (and as Iraq WMD inspector Rolf Ekeus stating the obvious in “It would be very peculiar if it was the government to do this at the exact moment the international inspectors come into the country“), we are meant to believe that the Syrian leader launched the biggest nerve gas attack in the history of the Qatari, Al-Qaeda and CIA-funded and organized Syrian rebellion. Two days later, without any actual investigation, the west determined somehow, on its own, that the attack was launched by Assad, not a false flag attack by the rebels even though it was their chemical weapons depot that had been previously uncovered. Visions of Colin Powell lying to the world (with his former aide admitting years later the WMD speech was the “lowest point in my life“) should now be emerging right before your eyes.
Moments ago the inevitable denouement arrived when as CBS’ David Martin reports, the US is preparing for a cruise missile launch against Syria, and is further ordering warships closer to Syria to be prepared and ready for when the trigger is pulled.
More from CBS:
CBS News has learned that the Pentagon is making the initial preparations for a cruise missile attack on Syrian government forces. We say “initial preparations” because such an attack won’t happen until the president gives the green light. And it was clear during an interview on CNN Friday that he is not there yet.
None of this should come as a surprise to our readers. We explained in detail why not the US state department, not the Pentagon, not even the president or the US MIC is seeking this war. No: the culprit is none other than the Federal Reserve and it banking industry superiors. To wit:
The chart below will likely come as a surprise to most. It shows total nominal US defense spending, more importantly it shows that such spending has been rapidly declining since 2010. And while on the surface it is great news the US is becoming more “pacifist” (apparently mass killings using drones are relatively cost-effective) and the result for the US is even better as it means lower deficits, there is one person who is very unhappy with this outcome - Ben Bernanke.
Why is Ben unhappy? Simple – as a reminder, the only reason Ben is even contemplating tapering has nothing to do with the economy. After all the Fed chairman (and/or his successor) is willing to send the stock market into stratospheric overdrive and would be very happy to add not subtract from the monthly QE $ 85 billion notional since it means more “wealth effect” and thus brings the US closer to the “Keynesian successful endgame” (that the logic here is completely inverted is well known to all but the most die-hard Keynesian fanboys and is not in the scope of this article).
However, the fact that the gross US debt issuance is declining (if only until the demographic and healthcare crunch hits in 2015 and deficits explode once more) means Bernanke has less primary issuance to monetize. Were Bernanke to maintain his monetization run rate into a lower deficit regime, the Chairman would destabilize the liquidity in the already increasingly illiquid Treasury market in which the Fed now holds over 30% of all 10 Year equivalents and its holdings increase by 0.3% every week.
This illiquidity is manifesting itself most directly in the “special” repo rates that have become a norm in the past few months especially in the 10 Year, and which indicate an ongoing shortage of TSY collateral.
Of course, there is a very simple and elegant solution to declining defense spending, one which has been used time and again in US history when the US government needed to provide the Fed with more securities (i.e. deficit) to monetize: war.
And speaking of war:
The ultimate decision will come not from Congress but from the Fed.
So what may have spooked Bernanke and the sudden reappearance of the Syrian war as a real and credible possibility?
Why, the economy of course. Only not its “improvement” but its recent (and ongoing) deterioration.
And since the taper is largely priced in, Bernanke is already contemplating how to reengage in the subsequent untapering should all hell break loose following a September tapering announcement prompting the Fed to reengage once more. However, for that to happen, US deficits would need to flow as before, as only then will there be the much needed copious primary issuance of debt that the Fed will need in order to resume monetizing at a fervent pace without impairing the liquidity characteristics of the bond market.
As for the downside? What are some irrelevant Syrian lives in the grand scheme of things, when the status quo’s wealth must be preserved at all costs. Costs including the death of thousands of innocent civilian Syrians and/or other nationalities should the conflict just happen to spill outside the Syrian borders.
So there you have it: in order to make way for the inevitable Untaper, Bernanke has launched in motion a chain of events that will ultimately culminate with a surge in US deficit spending, which will require a surge in Treasury issuance, and thus, a surge in Fed monetization, which also means reserve creation, and as has been made all too clear over the past 5 years, yet another surge in the stock market.
Of course, the use of war as a culmination point to end a depression is nothing new. Just look at thefirst Great Depression.
And just like then, the only cost to perpetuate the myth of the Keynesian and monetarist religion and the pillaged wealth of the 0.01% status quo elite, will be a few hundred thousand innocent men, women and children. Or, as they are known in the Beltway, collateral damage.
That is, unless, Putin decides to retaliate. Then history will truly rhyme, when just as the first great US depression was followed promptly by a world war, so the second great US depression will have an identical outcome.
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Finally, for those curious, this is the current layout of US naval assets around the world courtesy ofStratfor.
This article was posted: Saturday, August 24, 2013 at 6:06 am
Tags: foreign affairs, war
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John Makely
