Mish's Global Economic Trend Analysis

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Paris – City of Dimmed Lights? Posted: 20 Apr 2012 04:51 PM PDT Steen Jakobsen, chief economist for Saxo Bank in Denmark pinged me with an email this morning called "Paris – City of Dimmed Lights?" I asked for my taxi driver's political opinions on my trip to Paris, and he practically shouts back: "Promissez, promissezz – eet's all just promissez". He clearly doesn't trust anyone - Sarkozy? "Everybody hates him." Hollande? "He want to take everything away from everybody" Le Pen? Then he smiles "Well, she could do OK on Sunday." Indeed she could – if France decides to use the "free option" of the first round, which is an opportunity to demonstrate their general distrust of French politicians. Then he makes another important point: if there is one thing the French deserve a world championship for, it's for going on strike - the French are world class at that! That's right, it's presidential election time in France, with voters going to the polls this Sunday the 22nd and then having a second run-off round on May 6th - and it feels like French voters are ready to go on strike en masse. Maybe this could be another 2002 moment where someone comes from behind and disturbs the assumed two-horse race of Sarkozy and the Socialist Hollande? I'm not sure about that, but clearly the Parisians are feeling something in the air, and trust me it's not just the spring weather. But despite the French disgust with their politicians and the spirit of protest in the air, the menu of voting options is not compelling. So whoever "wins" the presidential election will almost certainly be a loser in the fight to get France and the European Union moving in the right direction. None of the candidates is about reform, none of them runs a platform for change similar to the one Thatcher promoted in the late 1970's and early 1980's. No, Hollande wants to be a new Mitterand, Sarkozy wants to be the President he promised but failed to be since 2007 and Le Pen is simply against everything. Change? Pas du tout! [Not at all! - Mish] Hollande leads Sarkozy by 10-12 percent in the expected head to head duel on May 6th - but two weeks in politics can be like a decade in real time. There is plenty of ground yet to be covered and mistakes to be made. The consensus among the French economists I have talked is that things will get worse in the aftermath of the election - whoever wins needs to do the "Greece/Spain thing": Own up to the real size of the problem. France has sinned on deficits and spending like no other EU nation in the last three years and now it is France's turn to make real sacrifices. The ideal platform for any new President would be to use the first 100 days to create a credible ten-year plan that is created with all the relevant parties at the bargaining table: the unions, the private and public sectors and the banks. France, like most of Europe, has become uncompetitive and needs to do a long-term 'internal devaluation' - this plan does not need to provide miracles and short-term massive gains, but it needs to be simple, broadly backed by all stakeholders and credible. The financial market is willing to accept any slight hint of reform and willingness to discuss the real issues as a positive sign of integrity and good intentions, but as we have gotten used to in the elections around Europe, the French election will be an exercise in protest rather than a mandate for change. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Reflections on "Small Wars" and Military Waste; Four Reasons Congress Wastes Money on Useless Defense Programs Posted: 20 Apr 2012 09:59 AM PDT A close friend of mine since high school frequently writes for Foreign Affairs Magazine, the Small Wars Journal, and places like Janes's Defence Weekly. His latest article in the Small Wars Journal highlights compelling reasons that bigger, more expensive, weapons systems "borrowed from the end of World War II or the Cold War" are far too costly and are not even what is needed in today's world. Please consider a few snips from Disruptive Thinkers: More Thoughts on Disruption and National Security by David Wise. "The Military Needs More Disruptive Thinkers," by Benjamin Kohlmann reminded me of what is surely fast becoming the quote for our times when Sir Ernest Rutherford, the father of nuclear physics, once said to his staff: "Gentleman, we have run out of money. It is time to start thinking." The futility of large, inflexible military bureaucracies, procuring large, complex, over-engineered systems from the few large, inflexible remaining general contractors in a rapidly changing world seems evident. Something that I wrote critiquing one branch of the military, the Navy, and its fixation on large ships, seems relevant to this discussion. In that article appearing in the May 18, 2011 issue of Jane's Defence Weekly I said: What is the most effective way to achieve the missions of the US Navy: sea control, sea denial, power projection or protection of open commerce? In an age of networks, small wars, unmanned systems and diffusion of military technology, the best solutions are unlikely to be found in highly expensive, complex, centralised systems requiring massive manpower. Answers are likely to be found in ways that distribute firepower to lower-cost platforms for more widespread and rapid deployments on more numerous, but less visible, lower-signature vehicles. Solutions are likely to stress reliability over theoretical elegance, quality achieved through quantity and simplicity over complexity while utilizing the emerging capabilities of robotics and unmanned systems. One real world example that illustrates this point can be found in a small New Hampshire company, Juliet Marine. Interestingly, Juliet describes itself , not as a defense contractor but as "a maritime technology think tank that is developing innovative solutions for naval and commercial applications." Juliet claims that it can develop systems in one third the time and at one third the cost than achieved through usual military procurement procedures. Juliet has developed "Ghost" which they claim to be the world's first supercavitating ship. Reportedly Ghost achieves very high speed through hull friction that is 1/900th of conventional surface ships. The vessel was designed to control the littorals and would be applicable to missions from patrolling for pirates, keeping bodies such as the Straits of Hormuz open from swarm attacks to also supplying offshore oil rigs. As yet untested, the Ghost and the organizational system that produced it merit a lot of attention and, if verified, emulation. Most interesting of all, Juliet developed the Ghost on its own nickel, without any government funding. As promising as all of this may be, disruptive thinking at operational and doctrinal levels has to be preceded by disruptive thinking at the level of grand strategy. Warmed over or updated versions of worldviews borrowed from the end of World War II or the Cold War will not suffice. The last attempt, "the Long War," was a tepid stew not worthy of being served. We face a period of human history that will be unprecedented. How do we intend to use all of our strengths – economic, technological, social as well as military – to lead the world? The brayings from Washington are not promising. The supposed deficit hawks who are keen on revolutionizing the safety net and social contract want to give a free pass to the military complex not merely wanting more of the same, but rather increased amounts of the same. Wasting money on outmoded concepts in the name of defense actually saps the national strength on which our power ultimately rests. "The Ghost" More Images of "The Ghost" on Gizmag. On March 9, 2011Juliet Marine Systems, Inc. Announces Anti-piracy Sea-based Security Platform, GHOST. International piracy has been consistently growing. In Somalia alone, pirates today hold 33 hijacked ships and 711 hostages, according to ICC IMB figures. Piracy is growing at about 10% per year and the heaviest activity is centered in Somalia. Juliet Marine Systems is discussing with the shipping industry the use of GHOST boats to provide private security patrols for their ships and insurance customers. Smaller boat owners wishing to navigate close to areas of concern would also be able to contract for security for their transit. Sancoff says, "This service, made possible by GHOST technology, could prevent tragedies such as the recent Quest hijacking, that resulted in the killing of four Americans, and the hijacking of the Maersk Alabama, which also could have ended with American fatalities." Free Market Solution Please note that "The Ghost" was not designed with taxpayer dollars. Also note that the free market itself may provide a solution to Somalia pirates. Contrast the design approach by Juliet Marine with the military procurement process we have today, complete with costs overruns at taxpayer expense for grandiose ideas that cannot possibly work in the first place. Recall that the 911 attack was made by a group of "air pirates" using not much more than razor blades and surprise. Yet, Romney wants to build a strategic missile defense system. Why? Apparently Romney is still reliving World War II and the Cold War, both of which were won decades ago. Is there any risk of a nuclear missile attack on the US. The answer is no. Moreover, even if there was risk, such an attack might be impossible to stop anyway, especially if launched from a submarine or small boat just offshore. Note there is a far greater risk of a suitcase nuke attack for which there is no defense other than stopping it via intelligence gathering. We could easily slash our defense budget in half if we stopped fighting stupid wars, pulled our troops back home from the 140 countries they are stationed, and focused on smaller, lighter tactical weapons and weapons with general defense capability rather than bigger war-mongering machines. We have indeed run out of money, and it's long overdue that we start thinking about real strategic "defense" needs as opposed to preparing to do simultaneous battle with Iran, China and the rest of the world. We do not need battleships to defeat Somalian pirates. Indeed the above press release suggests we do not even need US military at all for that purpose. So what do we need battleships for? What do we need more nuclear weapons for? Don't we have enough nukes to blow up the entire world already? Why do we need troops in 140 countries? If troops are needed to defend other countries, shouldn't those other countries pay us to have us there? These are the kinds of adult questions we should be asking. So why isn't Congress tackling those questions? Four Reasons Defense contractors bribe Senators and Representatives with campaign contributions. Those who are "soft on defense" do not get bribe money and have a hard time getting elected. Congress likes jobs in their districts and absurd levels of completely useless defense contracts provides high-paying jobs. Neanderthals like Mitt Romney are still fighting the Cold War. The Supreme Court absurdly ruled that corporations are people, thereby enabling the warmongers and defense contractors to outspend any candidate who is not committed to more wars. Unfortunately, both president Obama and Mitt Romney are committed to the industrial military complex hell-bent on starting more wars. Thus, even if we solved entitlement issues (that both parties refuse to touch and/or cannot compromise on), constant wars and ever-increasing military budgets will eventually bankrupt the nation. History shows reckless military spending has been the downfall of every great nation. Sadly, the US is on a collision course with exactly that reality. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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