Tillerson In Moscow: Is World War III Back On Track?

Authored by James George Jatras via The Strategic Culture Foundation,

If anyone is worried whether the prospect of a major war, which many of us considered almost inevitable if Hillary Clinton had attained the White House, is back on track, Secretary of State Rex Tillerson’s visit to Moscow was cold comfort. From his remarks together with his counterpart Sergey Lavrov, there is now little reason to expect any improvement in US-Russia ties anytime soon, if ever, and much reason to expect them to get worse – a lot worse.

There has been a great deal of speculation as to why President Donald Trump, who promised a break with the warmongering policies Hillary would have implemented, and which characterized the administrations of Barack Obama, George W. Bush, and Bill Clinton, would have bombed Syria’s Shayrat airbase in retaliation for a supposed chemical weapons (CW) strike without evidence or authorization from either Congress or the UN Security Council.

(I won’t bore anyone familiar with Balkan affairs with the almost certain origin of the gas attack in Idlib. The odds that it was a false flag by the jihadists far, far outweigh any chance of a CW attack by Syrian government forces. To cite the «Markale market massacres» is enough. Ghouta September 2013 wasn’t the first such deception in Syria, and Idlib April 2017 won’t be the last. American media condemning Assad for the CW attack and demanding justice for the victims never mention that the site is held by al-Qaeda and that they themselves have a CW capability. Nor that the jihadists likely knew when and where Syrian planes would be operating, since the Russians would have notified the US under the deconfliction agreement. This is not to rule out the Russian explanation that the release was due to Syrian bombing of the jihadists’ CW cache but I consider the planned provocation more likely based on the timing. Predictably, an amateurish four-page paper issued by the US intelligence community to justify accusations against Assad contained zero evidence.)  

Among the reasons speculated for President Trump’s abrupt reversal of his campaign positions:

  • Trump actually believes Assad was responsible, based on false intelligence fed to him by National Security Adviser H.R. McMaster and others, or on an emotional appeal from his daughter, Ivanka, based on sensational media coverage.
  • Trump doesn’t believe it but someone gave him The Talk: «Do what you’re told, Mr. President, or you and Barron will end up like Jack Kennedy.»
  • Whether or not he believes Assad is to blame for the CW attack, Trump wants to improve ties with the Russians and work together with them to defeat the jihadists in Syria and end the war, and perhaps cut a «grand bargain» that includes Ukraine, but he can’t because of the domestic pressure from the media, the Deep State, almost all of the Democrats, and a lot of Republicans on the evidence-free charge that Moscow tried to skew the 2016 election. (That seems to be partly working, with many formerly harsh critics now praising him. On the other hand, his own base is now split between those cheer any jingoistic use of force and those who see that another optional war will doom his domestic priority to «Make America Great Again!») The one piece of evidence that supports this conjecture is the extremely limited pinprick nature of the US strike on Shayrat.
  • Related to the previous point, given the power of the domestic forces conspiring against him, Trump needed to project strength. (My guess is that Moscow, Beijing, and others will conclude just the opposite: he is weak and not even master in his own house.)
  • Trump is impulsive and lacking in substance, so he goes for the quickest and easiest path to what he perceives to be current advantage. The praise of his former detractors – mainly those who have denigrated and derided him – will prove short-lived. At the earliest opportunity those hailing him now as «presidential» will be the first to call for his head.
  • Trump’s real priority was to impress the Chinese on Korea, with a show of force during President Xi Jinping’s summit in the US. Sending an aircraft carrier group to the waters near Korea with a barrage of bellicose rhetoric that the US will resolve the North Korea issue if China doesn’t reinforces this theory, at least in part. Whether Xi was impressed the way Trump might have intended it is another conjecture. 

Whatever the motives, the real question is what comes next. Aside from when another false flag may occur – which Washington in effect invited with threats of a further, more devastating military action against Syria – it matters whether behind closed doors Tillerson’s proposals differed from his public comments.

Broadly speaking, there are two possibilities:

1.      Tillerson may have said, in effect, that Trump has laid down a marker, neutralized domestic critics, and shown he’s a big dog – now let’s get down to business. All the accusatory language is just for show, so Trump will have greater flexibility of action. In the weeks prior to the Idlib CW attack, Washington and Moscow had seemed to be coordinating on plans for an offensive against Daesh in Raqqa and airstrikes against al-Qaeda in Idlib. The US and Russia together need to find a way to wrap up this war that defeats the enemy Trump campaigned against: radical Islamic terrorism. It’s up to the Syrian people to work out who their leaders should be. If there are security concerns America’s Israeli, Turkish, and Sunni friends have, let’s find a way to address them within that larger context –

or

2.      Tillerson’s private comments were consistent with his public statements, amounting to imposing the US Deep State’s agenda on Moscow. That diktat gives priority to blocking some mythical «Shia Crescent» to keep our Sunni «allies» and Israel happy. Assad must go on some specified timetable, though we may grandly allow him so preside over a rump Alawite state in western Syria on a temporary basis; if Assad goes along, we’ll let him retire to Moscow, but if he waits until the next chemical provocation it’s off to The Hague or we’ll kill him ourselves. Syria must be partitioned: we will allow Moscow to participate in a marginal role on the «defeat» of Daesh with a blitzkrieg on Raqqa but then create a «Sunnistan» (or maybe more than one) in eastern Syria, run by some hand-picked jihadi group friendly to the Saudis – basically Daesh with new hats and flag: Islamic State «lite.» To limit Kurdish aspirations Turkey might be awarded a «Turkmen» zone in the new Syria, as well as primacy over a neighboring al-Qaeda-administered area. Also we can anticipate a demand that Russia be prepared to step aside and not oppose an operation for regime change in Tehran.

Even the first message might have been a hard sell given how poisoned the well is and the depth of the abyss of Russian mistrust of the United States. No matter how positive anything Tillerson might have said privately, can anyone in Moscow now believe anything from Washington?

But if the message was the second one, as I believe it was, the Russians would have little choice but to conclude that a major war may be unavoidable and they will plan accordingly. (China would reach the same conclusion.) Plans being made when it was assumed Hillary Clinton was going to win but tentatively mothballed with Trump’s election will be pulled out and updated. Paradoxically, Moscow might still acquiesce to Tillerson’s demands on Syria but only in the spirit of August 1939 – a temporary expedient to buy time and space for what must come.

I of course hope the message was the first but fear it was the second. The white-hot rhetoric coming out of Washington is far in excess of that needed to position US opinion for a reasonable deal with Moscow. Quite to the contrary, it seems calculated to burn any bridges back from anything but regime change and more war. Once again, as has been the case since the Cold War ended in 1991 – but only on the Russian side – US goals look to be geopolitical and ideological, not based on American national interest. The agendas of the Deep State and our regional «allies» will continue to set US policy. Russia must be destroyed as an independent power, right after Syria, Iran, and North Korea but before China. (In a Balkan sideshow, Trump this week signed the NATO accession of Montenegro, effectively completing encirclement of Serbia. At a White House meeting with Jens Stoltenberg, Trump praised NATO.) As was the case in Bosnia, Kosovo, and Libya, and today in Syria, the US is happy to use jihadists as proxies while coldly watching them eliminate centuries-old Christian communities.

In short, the usual. If such a path has been chose by Trump, as appears likely, it may well doom his presidency to failure. But in context, that would be the least of our worries.

I would be very, very glad to be proved wrong.

U.S. Insurers Sue Saudis For $4.2 Billion Over 9/11

Authored by Jason Ditz via TheAntiMedia.org,

Last year’s Justice Against Sponsors of Terrorism Act (JASTA), a bill which allowed Americans to sue Saudi Arabia in US court over their involvement in 9/11, has yielded another major lawsuit yesterday, a $4.2 billion suit filed by over two dozen US insurers related to losses sustained because of the 2001 attack.

The lawsuit is targeting a pair of Saudi banks, and a number of Saudi companies with ties to the bin Laden family, accusing them of various activities in support of al-Qaeda in the years ahead of 9/11, and subsequently having “aided and abetted” the attack.

"But for the assistance provided by defendants," the lawsuit said, "al Qaeda could not have successfully planned, coordinated, and carried out the September 11th attacks, which were a foreseeable and intended result of their material support and sponsorship of al Qaeda."

The 10 defendants in the lawsuit include Al Rajhi Bank, aviation contractor Dallah Avco, the Mohamed Binladin Co, the Muslim World League, and other charities, but the biggest target is the Saudi National Commercial Bank, which is majority state-owned. The Saudi government heavily pressured the Obama Administration to block the JASTA last year, threatening to crash the US treasury market if it led to lawsuits, but overwhelming Congressional support still got it passed into law.

While there were more than a few lawsuits already filed in the past several weeks related to JASTA, this is by far the biggest, and most previous lawsuits are still in limbo as the court and lawyers try to combine them into various class action groups.

Historically, US sovereign immunity laws have prevented suits against the Saudi government related to overseas terrorism. With the release of the Saudi-related portions of the 9/11 Report last year, however, such suits were inevitable, and the federal government could no longer protect the Saudis from litigation.

Heavily-Armed Swamp Critters – Did Trump Ever Stand A Chance?

Authored by Bill Bonner via InternationalMan.com,

By our calculation, it took just 76 days for President Trump to get on board with the Clinton-Bush-Obama agenda.

Now there can be no doubt where he’s headed. He’s gone Full Empire.

Not that it was unexpected. But the speed with which the president abandoned his supporters and went over to the Deep State is breathtaking.

Worst Mistake

Among the noise and hubbub of the election campaign, there was one message coming from the Trump team that was music to our ears.

Middle East wars?

He was against them, he said.

He claimed to have opposed the 2003 attack on Iraq. He said it was one of the “worst mistakes” the country ever made.

As for further involvement, why waste American lives and American wealth on wars you can’t win?

“America First,” he said.

This was a refreshing position. It put the Republican neocons and Establishment Republicans against him; many went over to Hillary rather than risk giving up their think tank grants and consulting fees.

A 2013 poll showed 52% of Americans thought the U.S. should “mind its own business internationally.”

But the elite gained power and money from foreign wars; they weren’t going to give them up. Non-entitlement spending in the swamp goes largely to cronies in the military-security industry.

Pudgy Pentagon

But Donald Trump promised a “new foreign policy.”

No more trying to be the world’s policeman. No more fighting other people’s battles… and making things worse. No more wasting American money and American lives on foolish, unwinnable wars.

Ending America’s pointless and unsettling romp in the desert would be a good first move.

The bill for these misadventures is now said to be $7 trillion. As to Syria, Trump was typically direct. Don’t attack the country, he warned Barack Obama in a 2013 tweet, or “MANY VERY BAD THINGS WILL HAPPEN…”

But then, last week… the last great hope for the Trump administration blew up in Syria. Now the neocons are delighted. And the cronies. And the zombies, too.

Here’s the outlook: no real change to O’care. No cutbacks in entitlements. No attempt to balance the budget. No belt-tightening at the pudgy Pentagon. (Instead, it will get more money.)

And now this: The wars in the Middle East will not only go on… they will accelerate.

For now, the U.S. is not only fighting terrorists. It is also fighting the people who are fighting the terrorists.

It’s a perfect Deep State war: It is guaranteed neither to win nor to lose, but simply to go on indefinitely. This gives the insiders more and more of the nation’s wealth to piddle away in absurd wars in preposterous places.

Meanwhile, Congress adjourned. When it returns in two weeks, it will confront another crisis of its own making.

Bloomberg reports:

Government funding expires on April 28, which will give Congress five days to unveil, debate, and pass an enormous spending bill… or trigger a government shutdown.

 

“What a mess,” said Paul Brace, a congressional expert at Rice University in Houston, offering his own pessimistic view of the unified Republican control of the House and Senate so far under President Donald Trump. “It was so much easier when all you had to do was oppose Obama.” […]

 

House Republicans “have differences of opinion. And they aren’t just political differences. They are policy differences,” said Republican Senator Rob Portman of Ohio.

Old Wounds

It will be tough for Congress to come to terms with its budget. The debate will open old wounds and gouge new ones.

Already, the federal budget deficit is expected to average $1 trillion a year over the next 10 years.

Mr. Trump will want to spend more. We need to spend more on infrastructure, on the military… and to revive the economy… he’ll argue.

Many House Republicans, especially the idealists in the Freedom Caucus, will find it difficult to go along.

Some will notice, cynically, that the whole program – including the attack on Syria – is little different from what Hillary had offered.

Consumer prices are already rising, others will note. Besides, who wants to go back to his home district after having signed on to $30 trillion of U.S. debt?

Others, the activists, will want to back Trump. The Obama years have been disastrous, they will say. The typical household is little better off than it was at the bottom of the last recession.

Half of Americans are living paycheck to paycheck. And there are 66 million working-age adults without jobs, they’ll report.

The feds must do something! Increase spending to stimulate the economy (and not coincidentally steer a few bucks to major campaign contributors and other important hacks).

Runaway Locomotive

The more financially alert among members of Congress will recognize that eight years of stimulus has done little to help the real economy.

These realists will see a runaway locomotive headed to a dangerous curve.

They’ll want to know how the feds will finance huge new deficits just as the Fed tightens interest rates.

But the shrewdest among them will call their brokers.

The highest stock prices since the dot-com crash are based on the belief that, somehow, Team Trump will push through a corporate tax cut, leaving businesses with more after-tax money.

“That’s not going to happen,” they will say to themselves.

They will want to get out of the stock market before other investors catch on.

*  *  *

The "Deep State" is more dangerous than ever. It already controls just about every aspect of American life… from health care to education, from the food on our tables to the never-ending war on terror. In his latest warning, Doug Casey’s longtime friend and colleague Bill Bonner exposes how the cronies behind the Deep State have pushed the world to the brink of an irreversible disaster. Click here to learn how that disaster will unfold… and how it could change your life forever.

China Just Flooded Its Economy With A Record Amount Of New Debt

China vowed that this time it was serious about finally deleveraging its economy. Once again, it lied.

First, a quick tangent: as a reminder, when it comes to the global economy, increasingly more analysts are realizing that just one number truly matters: that of the global credit impulse, which as we cautioned for the first time two months ago, had recently turned negative, mostly as a result of the recent deceleration in China’s credit creation.

Then earlier this week, in a follow up report from UBS, the Swiss bank found two material developments: the reflation trade of the past year was entirely the function of Chinese credit dynamics…

… and making matters worse, China’s credit impulse had now turned decidedly negative, suggesting a similar fate for the global credit impulse. 

As a result we were particularly interested in the latest set of Chinese monetary aggregates released overnight. They confirmed that China is clearly not yet ready to surrender its position as the world’s primary drive of credit growth.

On the surface, the Chinese data was bifurcated, as Chinese new bank loan issuance was lower than expected totaling just over 1 trillion yuan, lower than the CNY1.17 trillion in February and below the consensus estimate of CNY1.2 trillion, as the government has tried to contain the risks from an explosive build-up in debt and an overheating housing market, at least when it comes to the traditional banking system. Even with the “slowdown”, banks still extended the third highest loans on record for a single quarter, totaling 4.22 trillion yuan in January-March.

Loans to households surged to 797.7 billion yuan in March, according to Reuters calculations using PBOC data, accounting for 78% of all new loans in the month. That was much higher than either January or February and even the 50% of new loans in 2016. The rise likely was due to individuals increasingly turning to alternative types of loans as banks tighten rules on traditional mortgages, said Wendy Chen, an economist at Nomura in Shanghai.

“We think (the increase in short-term loans) is possibly due to attempts to circumvent strict regulations on mortgages,” said Chen. “The high loans to households reflect that property sales are still very hot, and likely shifting from top tier cities to more third or fourth tier cities.”

As Reuters observes, a surge in household lending in March also added to worries about whether authorities will be able to get the frenzied property market under control, even as cities roll out increasingly stringent curbs on home buying. While the central bank has cautiously raised interest rates on money market instruments and special short- and mid-term loans several times in recent months, most recently just hours after the Fed hiked in mid-March to avoid another spike in capital outflows and to contain debt risks and discourage speculation, it is treading cautiously to avoid hurting economic growth.

Indeed, as China’s housing market continues to overheat, more cities have implemented strict home purchase rules, with some even restricting homeowners from “flipping” or re-selling properties they have held for only a brief time.

Yet while conventional loan issuance showed a modest moderation, it was more than offset by another dramatic surge in aggregate, or Total Social Financial, which includes both bank loans as well as off-balance sheet aka “shadow” lending, which not only rocketed in March to 2.12 trillion yuan from 1.15 trillion yuan in February and a record injection in January…

… but for the first quarter, TSF reached a new record high 6.93 trillion yuan – equivalent to the size of Mexico’s economy – and well above last year’s first quarter total. At today’s Yuan exchange rate, China’s credit creation in Q1 amounted to just over 1 trillion US dollars.

Entrusted loans, trust loans and undiscounted banker’s acceptances – together a good indicator of shadow banking activity – increased sharply in March. Entrusted loans rose CNY203.9 billion, trust loans were up CNY311.2 billion and undiscounted bankers’ acceptances gained CNY238.7 billion, according to MNI. These gains were several times larger than the increases of CNY166 billion, CNY73.2 billion and CNY17.3 billion, respectively, during the same period last year, and boosted Total Social Financing in March to CNY2.12 trillion, nearly double the February figure of CNY1.15 billion and the second highest level since March 2016.

“The increase of entrusted loans, trust loans and undiscounted banker’s acceptances was probably caused by the restrictions on lending to companies in the real-estate sector and overcapacity industries, and many could only turn to shadow banking (for financing) even though it carries a higher interest rate,” said Li Qilin, chief macro analyst at Lianxun Securities in Shenzhen.

In addition to Qilin, for most analysts, the spike in TSF financing confirms the ongoing surge in off-balance sheet lending, primarily in the largely unregulated shadow banking system, despite repeated attempts by authorities to target riskier lending in past years. Furthermore, this shadow lending surge has raised substantial doubts about the effectiveness of official efforts so far to clamp down on risks in the financial system – especially those emanating from various shadow banking intermediaries and SPVs, profiled recently in a Deutsche Bank report which cautioned that China’s entire financial system is on the edge of an “uncontrollable liquidity event”, and has prompted the central bank to inject record amounts of liquidity to keep the system stable.

But wait, there’s more. 

Loans to companies totaled 368.6 billion yuan in March, less than half the amount of household lending, PBOC data showed. That is yet another ominous signal for the economy, unless firms are finding other sources of funding (which they very likely are in the shadow banking space, suggesting the money creation process is increasingly slipping away from traditional PBOC oversight.

Nomura’s Chen said that the spike in non-bank credit growth in March may have been due to corporate borrowers turning to alternative funding channels as high demand for household loans crowded them out from traditional bank loans. She was also optimistic that the recent record surge in shadow lending will moderate:

“We don’t think the strength in shadow banking activity will continue,” Chen said, adding that regulators are expected to continue slowly clamping down on the sector.

We are not so confident, as the following charts from Deutsche Bank, and associated description suggest: “There has been a sharp rise in net claims to NBFIs from banks (Figure 33). We believe this is due to rising shadow banking transactions and also arbitrage activities with funds self-circulating within the financial sector. Clearly as shown in Figure 34, small banks are key lenders to NBFIs”

Perhaps our skepticism is unwarranted: in March for the first time, the PBOC’s quarterly inspection of banks’ books included off-balance sheet wealth management products to give authorities a better sense of potential risks to the financial system. It remains to be seen if the central bank will do anything to intervene and slowdown this unprecedented surge in reliance upon shadow funding sources.

Finally, in an ominous confirmation that this glut of new credit creation is not reaching the broader economy but is getting trapped by various asset bubbles (most notably housing) M2 money supply growth hit a more than 6-month low, growing at only 10.6% y/y in March, lower than the expected 11.1% rise and down from 11.1% in February.  The government has said it expects M2 to growth about about
12% this year.

On one hand, the slowdown reflects the moderately tighter policy stance by the People’s Bank of China (PBOC), but more importantly suggesting that overall economic growth is poised for a further slowdown.

Adding to worries that the PBOC could cause a sharp imbalance in Chinese liquidity as it attempts to trek a fine line between injecting record amounts of loans on one hand, while gently tightening on the other, is that alone with bumping up some interest rates, the PBOC withdrew 705 billion yuan from the financial system through its open market operations in the first 12 weeks of this year, a 1.1 trillion yuan negative swing from a year ago, ING estimates. That said, analysts do not expect a full-blown policy rate increase this year, which could risk a knock to economic growth ahead of a key party meeting in the autumn when a new generation of leaders will be picked.

The central government has made containing financial risks a top priority this year, calling for vigilance against asset bubbles and urging companies to reduce leverage. But it has still targeted economic growth of around 6.5% this year, which will require the copious amounts of new credit that is continues to inject month after month, increasingly so via the unregulated shadow banking system.

The one silver lining: most of China’s “Big Five” banks reported last month that bad loan ratios were stabilizing, likely giving policymakers more confidence that risks from bank lending are under control, although Chinese banks, which are mostly state-owned, are notorious for misrepresenting the true state of their balance sheet. Indeed, many analysts believe Chinese NPLs are far higher than banks admit, and some China watchers warn a debt crisis may be inevitable if loan and money supply growth continues to sharply outpace the rate of economic expansion for the foreseeable future (as shown in the chart below) and that a Minsky Moment may be the inevitable outcome, with the only question being “when?

North Korea TV Livestream Of “Day Of The Sun” Celebrations

With the world’s attention falling squarely on North Korea, which celebrates its “Day of the sun” on Saturday – the country’s most important holiday – during which many speculate it may conduct a nuclear test having previously said it is “up for war” following a warning from the US that such a test would most likely like to military strikes, below find a live video feed from the state-run Korean Central Television (KCTV) which is live streaming today’s event.

While few details about today’s schedule have been disclosed, a military parade is expected to take place later in the day.