Does The Russian Indictment Exonerate Bitcoin?

The indictment of 12 Russian cyber operatives goes to great detail in outlining the tools, techniques and tactics used to derail the Democratic Party and Hillary Clinton’s presidential ambitions. The indictment also shows how the traceability of the bitcoin blockchain aided law enforcement.

The Deadly Math Of America’s Faux Prosperity

Authored by Tom Luongo,

Record Deficits, Stronger Dollar Equals Record China Trade Deficit

Sometimes math is a real bitch.   Donald Trump is a smart guy.  I know he knows math.

Too bad he’s ignoring it.

Here’s the gig.  The title says it all.  Government spending is rising rapidly.  More actual money is flowing into the US economy.  Where is that spending going?  To buy cell phones, computers, cars, office supplies and all the rest.

It doesn’t matter if the purchase is made at Best Buy through a Purchase Order, the money still goes to stuff built and imported from China.  The second order effect is that even if it goes to subsidize a farmer in Iowa or a defense contractor in California, that money winds up in the hands of a consumer who does what?

Goes to Best Buy and buys a new TV.  This isn’t rocket science folks, it is simple cause and effect.

More money chases those goods.  Despite the naysayers, Apple is selling a crap-ton of $1200 phones…. built where?  China.

So, the budget deficit thanks to record spending is fueling the very trade deficit with China that Trump is complaining about daily.

Here’s the math.

Big Badda Boom

First up is the budget deficit numbers through nine months of fiscal year 2018, courtesy of Zerohedge.

This resulted in a June budget deficit of $75 billion, better than the consensus estimate of $98BN, and an improvement from the $147 billion deficit in May and as well as slightly less than the deficit of $90.2 billion recorded in June of 2017.This was the second biggest June budget deficit since the financial crisis…

…The June deficit brought the cumulative 2018F budget deficit to over $607BN during the first nine month of the fiscal year, up 16% over the past year; as a reminder the deficit is expect to increase further amid the tax and spending measures, and rise above $1 trillion.

The post has a ton of charts to illustrate the point, but it’s mostly unnecessary.  The US Treasury is issuing debt at an astounding rate to cover this budget.  Spending goes up as tax receipts do thanks to lower tax rates and increasing growth.

More Ticky, More Washy

The second part of the title is the latest figures released on the trade deficit with China.

Trump and Navarro Will Hate This Chart

Taking this one step further we have the exploding interest payments on the $21 trillion pile of debt the US Treasury has racked up.  $1.18 trillion of which is owed to….?

China.

As anyone who runs a house knows, when you get a raise what happens to your debt load if you increase your spending to match the raise in earnings?

Nothing.  It stays the same.

If you are smart, your debt is all fixed-rate, so your monthly outlays stay the same.  But, guess what?  A lot of the US’s debt is inflation-linked TIPS (Treasury Inflation Protected Securities).

TIPS are basically a variable-rate mortgage against your labor folks.

So, debt-servicing costs are rising quickly with the slightest rise in interest rates.

Because when you paying 1% on $100 a rise to 2% doesn’t hurt much.  But, when that 1% marginal rise in interest rate is on $20,000, now its real money.  In your household you cut back on spending.

Does the government do that?  Nope.

Keynesian thinking dominates economic thought.  Even Chicago School guys like Chief Economic Advisor Larry Kudlow are effectively Keynesian when it comes to money issuance.

So, inherent in this equation is the increasing interest payments on a portion of the US’s debt held by China.  That’s not something tariffs can fix.

Yuan Moar?

The third part of the math is the Yuan.  China, to combat a slowing credit growth as the Fed pulls back on dollar liquidity is devaluing the Yuan to keep its banking system liquid.

Cheap yuan means cheaper Chinese goods.

Hybrid war tactics like tariffs and monetary policy adjustments are double-edged swords.

For countries that don’t prepare themselves they are left vulnerable to shifts in central bank credit creation.  The severity of that vulnerability, however, can be managed by the opposing central bank.

Remember last month when the TIC report told us that Russia dumped half of its US Treasury holdings?   It caused the yield on the 10-year note to rise above 3.00%, threatening a major technical breakdown which momentum traders could have piled onto and caused a whole lot more pain for the Treasury Department.

And that was only just under $50 billion worth.

China doesn’t have to start with such a drastic measure.  In fact, Russia held off on this course of action for the past four years.  In fact, after the Ruble crisis of 2014/15, Russia reloaded its stock of US Treasury ammunition.

China, however, has started the Yuan devaluation process along with loosening monetary policy to support its domestic banking sector.  And expect this to continue as communications between the Trump administration and China’s Ministry of Finance is on hold.

For President Trump, the math is clear.  And will continue to be clear.  And it is saying, “Stop blaming others for your problems.  Clean up your own house, first.”  In the short-term Trump will look like he’s winning this trade war.

Capital inflow to the US will support this policy.  China’s stock markets will underperform the US’s. But, that will be a function of safe-haven flows, not because the US’s finances are structurally sound.

The People’s Bank of China will respond with liquidity injections that will look increasingly desperate and will result in a wave of defaults and a slow-down.

The dollar will rise and the trade deficit will persist.  So will the budget deficit.

Because math.

*  *  *

To find out how to build a portfolio based around these big changes in the geopolitical arena, as well as stay one-step ahead of where we are headed, join my more than 120 Patrons at Patreon and subscribe to the Gold Goats ‘n Guns Investment Newsletter.

A Brief History Of US Covert Action In Syria – Part 1

In part 1 of this corrective history of the Syrian proxy war which notable Middle East experts have lately urged is important and essential reading, William Van Wagenen thoroughly dismantles the dominant media myths that have persisted throughout seven years of conflict. 

Part I: The Myth of US ‘Inaction’ in Syria, by William Van Wagenen via The Libertarian Institute

When the Russian military intervened in the Syrian war in October 2015, many in the Western press complained bitterly, demanding that US planners intervene directly in Syria on behalf of the anti-government rebels in response. Reuters alleged that “The Middle East is angry and bewildered by US inaction in Syria,” arguing that “The question on everyone’s mind is: will the United States and its European and regional Sunni allies intervene to stop President Vladimir Putin from reversing the gains made by mainstream Syrian rebels after more than four years of war? Few are holding their breath.” 

The Washington Post similarly argued that Russian president Vladimir Putin was “exploiting America’s inaction,” while the Guardian lamented the “western inability to care enough about the plight of Syrians.” As Russian and Syrian forces battled rebels one year later in Aleppo, more dramatic accusations of US inaction emerged, with Foreign Policy describing US policy in Syria under Obama as “inaction in the face of genocide.”

The idea that the United States has not intervened in Syria and is guilty of “inaction,” is a myth however. The United States and its Western and Gulf Allies have intervened in the Syrian conflict from early on. US planners have been fighting what the New York Times described as a “$1 Billion Secret C.I.A. War in Syria” while providing weapons to rebels through a program considered “one of the costliest covert action programs in the history of the C.I.A.” Starting in the fall of 2012, the US and its Gulf partners, under the direction of then CIA director David Petraeus, were openly sending “a cataract of weaponry” into Syria. It is likely that such shipments began much earlier without public acknowledgment, via the “rat line” from Libya, as reported by journalist Seymour Hersh. 

US Special Envoy to Syria Michael Ratner, in a meeting with members of the Syrian opposition, explained that “The armed groups in Syria get a lot of support, not just from the United States but from other partners,” while Secretary of State John Kerry added in the same meeting, “I think we’ve been putting an extraordinary amount of arms in,” and “Qatar, Turkey, Saudi Arabia, a huge amount of weapons [are] coming in. A huge amount of money.”

Sectarian Mass Murder

Also a myth is the idea that any US intervention in Syria would seek to protect civilians. While allegations that Syrian and Russian forces were committing genocide in Aleppo proved baseless, US planners have themselves supported rebels intent on committing genocide and sectarian mass murder. This was clearly evident in the Syrian city of Latakia, which by the time of the Russian intervention in October 2015 was on the verge of falling to a coalition of Syrian rebel groups including al-Qaeda (known in Syria as the Nusra Front) and the US-armed and funded Free Syrian Army (FSA).

Robert Worth of the New York Times writes that “In Latakia, some people told me that their city might have been destroyed if not for the Russians. The city has long been one of Syria’s safe zones, well defended by the army and its militias; there are tent cities full of people who have fled other parts of the country, including thousands from Aleppo. But in the summer of 2015, the rebels were closing in on the Latakia city limits, and mortars were falling downtown. If the rebels had captured the area — where Alawites are the majority — a result would almost certainly have been sectarian mass murder. Many people in the region would have blamed the United States, which armed some of the rebels operating in the area. . . Andrew Exum, who worked in the Pentagon at the time, told me that the military drew up contingency plans for a rapid collapse of the regime. The planning sessions were talked about as ‘catastrophic success [emphasis mine].’”

Alawite civilians in Latakia faced the prospect of being massacred if rebels had been able to capture the city, due to the virulently anti-Alawite views of Nusra Front members. Nusra religious clerics draw on the writings of the fringe 14th century Islamic scholar Ibn Taymiyya to argue that Alawites are “infidels” deserving of death. Syria analyst Sam Heller described Nusra clerics as promoting “toxic — even genocidal — sectarianism.” Rebels from the FSA, which have fought alongside and “in the ranks” of the Nusra Front throughout the conflict, also posed a threat to Alawite civilians in Latakia. 

Though typically considered moderate in the Western press, many FSA battalions have been armed and funded by the Syrian Muslim Brotherhood (MB). Thanks to the influence of Brotherhood ideologue Said Hawwa, the Syrian Brotherhood strongly promoted the anti-Alawite sectarian views of Ibn Taymiyya from the 1960’s until the 1980’s. This anti-Alawite sectarianism re-emerged in segments of the Syrian opposition, including in elements of the FSA, when peaceful protests and armed insurrection against the Syrian government simultaneously erupted in Syria in the spring of 2011.

While the Syrian and Russian militaries managed to protect Latakia and prevent a massacre of the city’s Alawite civilians, the broader effort to prevent the fall of the country to al-Qaeda and its FSA allies exacted a huge toll on Syria’s Alawites. The Telegraph noted that already by April 2015, “The scale of the sect’s losses is staggering” and that of some 250,000 Alawite men of fighting age “as many as one third are dead” and that “Alawite villages nestled in the hills of their ancestral Latakia province are all but devoid of young men. The women dress only in mourning black.”

Welcoming ISIS as a Bulwark against Assad

While arming rebels threatening the massacre of Alawite civilians in Latakia, US planners were at the same time welcoming the potential massacre of Syrian civilians in Damascus. The Syrian capital was on the verge of falling to the Islamic State (ISIS) in the summer of 2015 after ISIS, with the help of Nusra, captured all of the Yarmouk Palestinian refugee camp in the southern Damascus suburbs. The New York Times acknowledged the ISIS threat to Damascus at this time, observing that “By seizing much of the camp” ISIS had “made its greatest inroads yet into Damascus,” while the Washington Post noted that “Their new push puts [ISIS] within five miles of the heart of the capital . . . even as they are on the retreat in Iraq.”

In a private meeting with members of the Syrian opposition, Secretary of State John Kerry acknowledged that US planners had actually welcomed the ISIS advance on Damascus, in an effort to use it as leverage to force Assad to give up power. Kerry explained that, “the reason Russia came in is because ISIL [ISIS] was getting stronger. Daesh [ISIS] was threatening the possibility of going to Damascus. And that is why Russia came in. They didn’t want a Daesh [ISIS] government and they supported Assad. And we know this was growing. We were watching. We saw that Daesh [ISIS]was growing in strength. And we thought Assad was threatened. We thought we could manage that Assad might then negotiate. Instead of negotiating, he got Putin to support him [emphasis mine].”

Because the US was bombing ISIS in defense of its Kurdish allies in Northeastern Syria and its Iraqi government allies in Northwestern Iraq, the fact that US planners at the same time welcomed the ISIS push on Damascus against the Syrian government was largely obscured.

Had Damascus fallen to ISIS, it is clear that many civilians in the city, including Christians, Alawites, Shiites, members of the LGBTQ community, and pro-government Sunnis, would have been killed. While commenting on the Russian intervention, Michael Kofman of the Wilson Center acknowledged that “Assad may be irredeemable in the eyes of the United States, but it is equally clear that a high human price would be paid when the Islamic State [ISIS] or al-Nusra seizes the major population centers in Syria that he still controls.”

Suicide Bombers and US Anti-tank Missiles

It is also clear that US planners were deliberately supporting al-Qaeda (Nusra), despite its genocidal intentions towards Syria’s Alawites, by flooding Syria with weapons. Because FSA brigades that received funding and weapons from the US and its Gulf Allies were fighting side by side with militants from Nusra throughout the country, in practice much of the money and weapons sent to the FSA ultimately benefited al-Qaeda.

For example, US-made TOW anti-tank missiles sent by US planners to FSA groups in Idlib played a crucial role in helping Nusra conquer the entire province in the spring of 2015. Syria analyst Hassan Hassan observed in Foreign Policy during this period that “The Syrian rebels are on a roll” and that “The recent offensives in Idlib have been strikingly swift — thanks in large part to suicide bombers and American anti-tank TOW missiles,” which the FSA and Nusra deployed in tandem. Syria analyst Charles Lister, also writing in Foreign Policydescribed how US planners explicitly encouraged the FSA groups they were arming to fight alongside Nusra in Idlib. Rebel victories in Idlib, in particular the town of Jisr al-Shughour, allowed Nusra and the FSA to then threaten the massacre of Alawites in Latakia.

When Russia intervened militarily in Syria in October 2015, US planners responded by immediately increasing shipments of TOW anti-tank missiles to FSA groups, some of which then helped Nusra capture the strategic town of Murek in central Syria one month later in November 2015.

This prompted Daveed Gartenstein-Ross of the Foundation for Defense of Democracies (FDD) to observe that “it is impossible to argue that U.S. officials involved in the CIA’s program cannot discern that Nusra and other extremists have benefited” from CIA weapons shipments to Syrian rebels, “And despite this, the CIA decided to drastically increase lethal support to vetted rebel factions following the Russian intervention into Syria in late September.”

“Deal with the Devil”

Nusra did not only benefit from fighting alongside FSA rebels armed with US-supplied weapons, but acquired many of these weapons themselves. That Nusra regularly purchased weapons from the Western-backed military councils supplying the FSA was confirmed in October 2014, when the New York Times reported that Shafi al-Ajmi, a Nusra fundraiser, told a Saudi news channel that “When the military councils sell the weapons they receive, guess who buys them? It’s me.”

That al-Qaeda was purchasing US supplied weapons seemed of little concern to US planners. When journalist Sharmine Narwani asked why US-supplied weapons allegedly meant for FSA groups were showing up in Nusra hands, CENTCOM spokesman Lieutenant Commander Kyle Raines responded: “We don’t ‘command and control’ these forces—we only ‘train and enable’ them. Who they say they’re allying with, that’s their business.”

Obama administration officials themselves acknowledged tacit US support for al-Qaedaadmitting in November 2016 to the Washington Post that they had struck “a deal with the devil,” years before, “whereby the United States largely held its fire against al-Nusra because the group was popular with Syrians in rebel-controlled areas and furthered the U.S. goal of putting military pressure on Assad,” thereby confirming long standing Russian accusations that the US had been “sheltering al-Nusra.”

Ben Rhodes’ Bombshell Confirmation

More recently, Ben Rhodes, deputy national security advisor under the Obama administration, acknowledged providing military support to Syrian rebels, even though it was clear that Nusra comprised a good portion of the Syrian opposition as a whole. Rhodes explained that “there was a slight absurdity in the fact that we were debating options to provide military support to the opposition at the same time that we were deciding to designate al-Nusra, a big chunk of that opposition, as a terrorist organization.”

Despite designating Nusra as a terror group already in 2012, US planners nevertheless provided weapons to the Syrian rebels, of which Nusra comprised a “big chunk,” for the next 7 years. As Sharmine Narwani observes, “U.S. arms have been seen in Nusra’s possession for many years now, including highly valued TOW missiles, which were game-changing weapons in the Syrian military theater. When American weapons end up in al-Qaeda hands during the first or second year of a conflict, one assumes simple errors in judgment. When the problem persists after seven years, however, it starts to look like there’s a policy in place to look the other way.”

US planners welcomed rebel gains in Syria, including by rebel groups advocating genocide against Syria’s Alawite population, such as ISIS and Nusra, because these gains bolstered the broader US goal of toppling the Syrian governmentin an effort to weaken its close allies, Iran and Hezbollah. US planners wished to see rebel gains in Syria, in spite of the obviously catastrophic consequences for Syrian civilians, including for Syria’s Sunnis, which rebel success would bring. US support for the rebels belies the myth of US “inaction” in Syria, and the myth that any US intervention would be for the sake of preventing massacres and even genocide, rather than in support of it.

* * *

In parts 2 and 3, we will review US support for rebel advances in the spring and summer of 2015 in Idlib, Latakia, Palmyra, Yarmouk, and Homs, and further describe how these rebel advances nearly led to the massacre of Syrian civilians in two of the country’s main population centers, Latakia and Damascus, if not for the Russian intervention which halted the rebel advance.