Monthly Archives: August 2012

Report: Russian Military Amasses at Georgian Border in Dagestan – Kanal PIK TV

Posted by on August 31, 2012 Comments Off

Russian military forces have been gathering in Dagestan’s mountainous districts at the Georgian and Azerbaijani borders, Contact.az reported Aug. 29, citing a number of Dagestani internet sources.

Both the troops and the military equipment have been amassed in the Botlikh district, according to Vdagestan.com.

Local residents reported that the military forces intend to hit the Dagestani insurgents’ bases in the mountains before the winter. According to other reports, they are preparing a military operation against Georgia.

Russian military expert Pavel Felgenhauer said several months ago that Russia was preparing to bring in its troops into Georgia in order to de-block its military base in Armenia, which may be isolated due to possible military actions against Iran.

Report: Russian Military Amasses at Georgian Border in Dagestan – Kanal PIK TV


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The China Bubble – By Richard D’Aveni | Foreign Policy

Posted by on August 31, 2012 Comments Off

But the most unappreciated problem with investing in China is the unexpected risks that arise. “The government can close us down suddenly, or it can help native Chinese firms to steal our technology and gradually replace us in the market,” says one U.S. CEO of his firm’s China operation who asked to remain anonymous. Foreign assets also face the threat of liquidation. Although they’re safe from Latin American-style government takeovers, China can de facto nationalize assets by exercising such strict control over taxes, regulations, and costs that it effectively controls and drains foreign firms’ profits. Nearly 40 foreign electricity producers rushed into China in the 1990s, lured by long-term contracts with guaranteed returns. Today, nearly all these firms have since exited, often selling their plants to the Chinese after being unable to make money as rising coal prices outstripped electricity-rate increases set by the state and as Chinese firms benefited from access to state credit and subsidized coal. And though unlikely, China could descend into political instability or an armed conflict with Japan, the Philippines, Taiwan, or Vietnam — a scenario in which foreign businesses would find it very difficult to operate. Such risks don’t receive enough attention from analysts and investment managers. In its biannual country risk survey, Euromoney magazine optimistically gives China a risk rating of 61.5 points (100 being least risky), compared to 75.7 for the United States and a 53.7 for India.

The China Bubble – By Richard D’Aveni | Foreign Policy

China’s Growing Economic Crisis – Bloomberg

Posted by on August 31, 2012 Comments Off

It’s not that Wen Jiabao doesn’t get the extent to which the supposedly unstoppable China has hit a wall. Just as in 2009, the premier is visiting key industrial cities such as Guangdong and Zhejiang. Wen is facing dour looks from manufacturers surrounded by mounting piles of unsold goods, a rare experience for the main engine of China’s economic rise.

Factory warehouses are cluttered with excess stock, store shelves are filled beyond capacity, and dealerships are choked with cars that used to speed from showroom to road. And yet Wen’s team in Beijing has been eerily silent about how it plans to revive things. That may be because the short answer is, it doesn’t.

Obvious Ways

One problem is that China has run out of obvious ways to kick-start its $7.3 trillion economy. …

China’s Growing Economic Crisis – Bloomberg

China’s Self-Absorbed Nationalism | The Diplomat

Posted by on August 31, 2012 Comments Off

Foreign commentators are correct that a good deal of the impetus for popular and elite pressure for a tougher Chinese approach on territorial issues rests with the type of nationalism that has been fostered with increased vigor by the Chinese authorities since the end of the Cold War and the collapse of international communism. The nationalistic discourse emphasizes that since the 19th century China has been treated unjustly and its territory and related sovereign rights have been exploited by other powers; China remains in a protracted process of building power sufficient to protect what China controls and regain disputed territory and rights. On the whole, the nationalistic discourse leads to a sense of ‘victimization’ by Chinese people and elites, who are seen having greater influence on China’s foreign affairs decision making now that the strong-man politics of Mao Zedong and Deng Xiaoping have given way to a collective leadership that is more sensitive to nongovernment elites and popular views.

China’s Self-Absorbed Nationalism | The Diplomat

Imagine that you are growing up in Chinese schools constantly being told that China has been victimized by the West. That’s bad enough, but look at what comes next. You, along with all other Chinese students, are taught a little parable: The Parable of Goujian. It is a story of humiliation and payback – war and death. How is that going to affect your thinking?

The West should start worrying.

The Parable of Goujian

The story of the king [Goujian] who slept on sticks and tasted gall is as known to the Chinese as George Washington and the cherry tree are to Americans. He has become a symbol of resistance against the treaty ports, foreign concessions and the years of colonial humiliation.

King Goujian was defeated by King Fuchai and taken prisoner. He worked in the royal stables and gradually won the respect of Fuchai. Later he was allowed to govern his old kingdom under Fuchai. Goujian quietly bided his time over eight years until he was strong enough to finally attack and defeat Fuchai.

Taken like that, the parable of Goujian sums up what some people find alarming about China’s rise as a superpower today. Ever since Deng Xiaoping set about reforming the economy in 1978, China has talked peace. Still militarily and economically too weak to challenge America, it has concentrated on getting richer. Even as China has grown in power and rebuilt its armed forces, the West and Japan have run up debts and sold it their technology. China has been patient, but the day when it can once again start to impose its will is drawing near.

Economist Magazine: Sticks and Gall

War Between Wu and Yue

The war between Wu and Yue comprised several separate phases. It was started when a Yue princess, who was married to one of the princes of the neighbouring State of Wu, left her husband and fled back to the country of Yue. This became the spark for the war to come.

Upon the death of Yunchang and the accession of Goujian, King Helü of Wu seized the opportunity and launched an attack on Yue. At the Battle of Zuì L? (????), however, Yue defeated Wu, and King Helü was mortally wounded; before his death he instructed his son, King Fuchai of Wu, “Never forget Yue!” Yue would be defeated three years later by a resurgent Wu, and Goujian captured, to serve as Fuchai’s servant for three years until he was eventually allowed to return to his native state.

Upon resuming his rule King Goujian quickly appointed skilled politicians as advisors, such as Wen Zhong and Fan Li, to help build up the kingdom. During this time, his ministers also worked to weaken the State of Wu internally through bribes and diplomatic intrigue.

All the time, whilst ruling his kingdom, Goujian never relished in riches as a king, but instead ate food suited for peasants, as well as forcing himself to taste bile. This way, he could remember his humiliations while serving under the State of Wu. There is a Chinese idiom, ???? (Pinyin: wò x?n cháng d?n, literally “sleeping on sticks and tasting gall”), the second half of which refers to Goujian’s perseverance.

After ten years of economic and political reforms the last phase of the war began, by which time the State of Yue had come a long way from its previous defeat; as described in the Shiji, Ten years of reforms; the state is rich, the warriors well-rewarded. The soldiers charge in the face of arrows like thirsty men heading for drink… making use of Fuchai’s expedition to struggle with Jin for hegemony Goujian led his army and successfully attacked the Wu capital, killing the crown prince. In the 24th year of his reign (473 BC), Goujian led another expedition, laying siege to the capital for three years before it fell; when a surrender from Fuchai was refused he committed suicide, and Wu was annexed by Yue. After his victory, he ruthlessly killed Fuchai’s scholars and his own scholars who helped him, not allowing himself to make the same mistake Fuchai did by letting his enemies live.

King Goujian’s army was known for forcing their front line, composed of criminals sentenced to death, to commit suicide by decapitation to scare their enemy before battle.

King Goujian of Yue – Wikipedia, the free encyclopedia

Report on Iran Nuclear Work Puts Israel in a Box – NYTimes.com

Posted by on August 31, 2012 Comments Off

But the agency’s report has also put Israel in a corner, documenting that Iran is close to crossing what Israel has long said is its red line: the capability to produce nuclear weapons in a location invulnerable to Israeli attack.

With the report that the country has already installed more than 2,100 centrifuges inside a virtually impenetrable underground laboratory, and that it has ramped up production of nuclear fuel, officials and experts here say the conclusions may force Israel to strike Iran or concede it is not prepared to act on its own.

Report on Iran Nuclear Work Puts Israel in a Box – NYTimes.com

The Fed Takes a Crash Course in Finance – Businessweek

Posted by on August 31, 2012 Comments Off

Much of that research attempted to understand why banks failed in unison, sapping the credit markets and crashing the economy. It was a chain of events that the Ph.D.s at the Fed had failed to foresee. Their subsequent research has given them a better grasp of why they missed the collapse, but it’s also revealed how poorly traditional macroeconomic methods predict systemic bank failure and the domino effect it can unleash on the economy. A survey published last fall by an economist with the Federal Reserve Bank of Richmond showed that macroeconomic models typically assume that there will always be enough credit in the financial system. “In the post-crisis environment, the single most important macro event of our lifetime, our models are totally unable to comprehend it,” says Lehnert. The Fed’s economists realized that in order to do their jobs, they needed to have a better understanding of finance, something most macroeconomists are trained to ignore in graduate school, says Lehnert. They needed to start thinking like bankers, and using bankers’ risk-management tools for their own purposes.

The Fed Takes a Crash Course in Finance – Businessweek

This is really an indictment of modern economics. Most of the modern economics profession is an embarrassment, and continues to be an embarrassment. Economics experts love to stand up and tell us with great authority what will be. But then they miss so much over time that their predictions end up being worthless. For all of that they end up getting promoted instead of being fired for incompetence.

Do not believe what economists tell you. Just go with common sense instead. If you don’t understand it or it seems strange, then don’t do it. Don’t believe all the crap about the benefits of this or that – mostly derivatives that nobody understands. All the benefits and a lot more go down the drain when everything blows up in a crisis they that economists did not foresee.

Essentially, economists put us on a model with a slow drip of profits year after year, then one day everything blows up and all is lost. And, to make matters worse, when it is pointed out that they need to change the foundation of their models, they won’t do it. They won’t change their models because then everything would break. The foundation of their models is the “normal distribution.” It is well known that this distribution undercounts tail-risk by a factor of 10 to 20. All financial models need to replace the normal distribution with the power-law distribution or something similar to properly account for tail risk. But they won’t do it because their special formulas wouldn’t work anymore. They have to go back to the drawing board and develop new formulas based on a new distribution – and that could get ugly. So everybody ignores this nasty little problem. No problem until the next big crisis hits and everything starts blowing up again – think AIG and the CDS market.

We are suffering today because of the incompetence of the economics profession.

China’s Greatest Challenge: Not America, But Itself | The Diplomat

Posted by on August 31, 2012 Comments Off

In recent years, however, China’s economic model had become increasingly problematic. As consumers in Europe, Japan, and the United States, saddled with economic challenges at home, reduced their consumption, an export-centered economy has proven to be unsustainable, with unsold goods—everything from toys to automobiles—reportedly piling up on factory floors and showrooms across the country. Chinese wages, once the country’s greatest assets in attracting manufacturing, have been rising for years, leading some, like Boston Consulting Group, to predict that there will be a “manufacturing renaissance” in the United States. Meanwhile, should conditions continue to deteriorate and unemployment rise throughout China, the government will be particularly worried about social unrest, as was the case during the early stages of the global financial crisis that began in 2008.

China’s Greatest Challenge: Not America, But Itself | The Diplomat

Arming for the Navy’s Return to History | The Naval Diplomat

Posted by on August 31, 2012 Comments Off

In 2009, to considerable fanfare, the U.S. Navy, the Defense Advanced Research Projects Agency, and defense firm Lockheed Martin inaugurated the Long-Range Anti-Ship Missile program. Researchers considered two variants, a subsonic LRASM-A and a supersonic LRASM-B, before scrapping the LRASM-B last January. Testing of the LRASM-A’s sensor suite commenced this spring, while DARPA forecasts that the missile will undergo flight testing starting in 2014.

One guesstimate at the bird’s range is 500 nautical miles, about a sevenfold improvement over the Harpoon’s advertised combat reach. It will be largely self-contained from a fire-control standpoint, reducing its dependence on external data for detecting and acquiring targets. That’s essential for hotly contested settings, where defenders will put a premium on blinding or eliminating U.S. assets that track the whereabouts of enemy, friendly, and neutral units.

Arming for the Navy’s Return to History | The Naval Diplomat

Iran’s Zone of Immunity to be Reached Within Weeks

Posted by on August 30, 2012 Comments Off

This article states that the”zone of immunity” as defined by Defense Minister Ehud Barak will be reached in a matter of weeks. This implies that Israel must bomb Iran within weeks or it will be too late.

The Israelis in favor of military action, led by Defense Minister Ehud Barak, the most outspoken proponent of moving quickly against the Iranian program, will point to evidence that Iran has now installed over 2,100 of the roughly 2,800 centrifuges destined for the underground site, called Fordow. More than 1,000 have been installed in the last three months, since the last report by the agency. For Mr. Barak, that is evidence that the “zone of immunity” he has warned about — the point at which Iran will be able to produce nuclear fuel from a site invulnerable to attack — will be reached in a matter of weeks.

Inspectors Confirm New Work by Iran at Secure Nuclear Site – NYTimes.com

Definition of “Zone of Immunity:”

Israel’s defense minister, Ehud Barak, coined the phrase “zone of immunity” to define the circumstances under which Israel would judge it could no longer hold off from an attack because Iran’s effort to produce a bomb would be invulnerable to any strike.

U.S. and Israel Split on Speed of Iran Threat

N. Korea’s “New Look” Nuclear Program | Flashpoints

Posted by on August 30, 2012 Comments Off

North Korea’s “new look” leadership, including speculation about both leadership and potential economic reforms, have drawn the lion’s share of media attention in recent weeks. As a result, the fact that North Korea’s nuclear program continues unchecked has dropped from the headlines following North Korea’s failed rocket launch in April and the subsequent breakdown of the Obama administration’s “leap day” understanding with North Korea. An article this month by Frank V. Pabian and Siegfried Hecker in the Bulletin of Atomic Scientists and an Institute of Science and International Security (ISIS) report by David Albright and Christina Walrond are firm reminders that North Korea’s nuclear program continue regardless of whether or not they are in the headlines.

N. Korea’s “New Look” Nuclear Program | Flashpoints