Is the administration purposely creating a crisis in Iraq designed to explode in the Democrats' face next year?
"We are essentially supporting a quasi-feudal devolution of authority to armed enclaves, which exist at the expense of central government authority," says Chas Freeman, who served as ambassador to Saudi Arabia under the first President Bush. "Those we are arming and training are arming and training themselves not to facilitate our objectives but to pursue their own objectives vis-a-vis other Iraqis. It means that the sectarian and ethnic conflicts that are now suppressed are likely to burst out with even greater ferocity in the future."
I try to save politics for the weekend but this brilliant article on "The Myth of the Surge" from Rolling Stone is a must read for long-term investors as so much of our country's future is now tied up with what happens in Iraq and it's very hard to read this article and not come to the conclusion that Bush et al are not only lying about the success of "the surge" but are covering up an escalating disaster by sweeping everything under the rug in the hopes they can get out of office before the Shiites hit the fan.
This is not politics, this is money, money, money as the US now has 600,000 Iraqis on the payroll as "security forces," outnumbering our own troops 5 to 1 and we are literally handing guns and ammo to the exact same people who were trying to kill us last year along with paychecks for "playing nice." While it's already clear that we can't afford the war, it seems we can't afford the "peace" either. And while that peace is being peddled as gospel by the right, a quote from an Iraqi boy says it all: "The Americans are donkeys, when they are here we say, 'I love you,' but when they leave we say, 'Fuck you.'" That's right Mr. President, they Love you!
This is not meant to be a political statement, this is an economic warning as this is how the rest of the world is seeing this conflict. The US mainstream media and, of course, our government, is whitewashing this situation for your consumption and, naturally, we don't want to hear these things but this is still a debtor nation and our lenders are those same global citizens that have a very different view of our war and those are the people our Treasury is going to be asking this week for $46Bn in exchange for 3 and 6-month bills and $28Bn of two-year notes tomorrow and another $18Bn in 5-year notes on Thursday in the largest ever sale of US debt.
What if global investors decide to treat us like that Iraqi boy? ``We see a perfect storm brewing that should send Treasury yields higher over this period,'' William O'Donnell, head of U.S. government bond strategy at UBS Securities LLC in Stamford, Connecticut, wrote in a note today. The supply of Treasuries will rise “just as investors begin to question why they want to linger in the Treasury market with such juicy yields elsewhere.''
Less demand for our debt means the government has to pay more interest each month in order to pay our 600,000 man Iraqi security force as well as the rest of our $50Bn a month war bill, not to mention the $200Bn of CDO "toxic" debt the Fed has agreed to take off the banks' hands as well as the $158Bn of our tax dollars that L'il George is taking out of our children's future in order to bribe us (why not, it works on the Iraqis) with $600 this May.
I'm not sure how much "stimulus" we can afford!
When you move the debt needle $400Bn further into the red in 45 days, you HAVE to be concerned that our creditors may become concerned. With $10Tn in outstanding loans a 1% rise in foreign lending rates will cost our economy another $100Bn a year which, of course, we would have to borrow.
We'll see how the auctions go this week but that's my major background concern of the moment so let's keep it in mind before we lose our heads in the market rally. Much like the insurgents in Iraq, our economic problems didn't disappear, the administration merely swept what it could under the rug and threw money at the rest – someone is going to have to pay the piper and it's probably going to be the "winner" of the next election.
