Bond wars: Chinese advisor calls for Japanese bond dump

From China Daily Mail - http://chinadailymail.com/2012/09/21/bond-wars-chinese-advisor-calls-for-japanese-bond-dump/

"China is actively considering “using its power as Japan’s biggest creditor with $230bn (£141bn) of bonds to “impose sanctions on Japan in the most effective manner” and bring Tokyo’s festering fiscal crisis to a head.” Meaning: dump Japan’s bonds en masse.

Should this stunning recommendation be enacted, not only would it be the first time in world history that insurmountable credit is used as a weapon of retaliation, it would mark a clear phase transition in the evolution of modern warfare: from outright military incursions, to FX wars, to trade wars, culminating with “bond wars” which could in the span of minutes cripple the entire Japanese fiscal house of cards still standing solely due to the myth that unserviceable debt can be pushed off into perpetuity.

Further complicating things is that Japan has no clear means of retaliation: it owns no Chinese bonds of its own it can dump as a containment measure. Instead, Japan is at best left with the threat of damages incurred on the Chinese economy should Japan be lost as a trading partner. It appears, however, that to China such a gambit is no longer a major concern:

Mr Jin said China can afford to sacrifice its “low-value-added” exports to Japan at a small cost. By contrast, Japan relies on Chinese demand to keep its economy afloat and stave off “irreversible” decline.

“It’s clear that China can deal a heavy blow to the Japanese economy without hurting itself too much,” he said. It is unclear whether he was speaking with the full backing of the Politburo or whether sales of Japanese debt would do much damage. The Bank of Japan could counter the move with bond purchases. Any weakening of the yen would be welcome.

Ironically, this terminal bond war escalation would also mean that Japan’s last ditch alternative is to threaten the US with dumping America’s bonds in turn if the US i) does not step up on behalf of Japan and ii) if Japan is forced to promptly convert debt from one denomination into another. The fallout effect would be most dramatic.

It is unclear if China will proceed with this “scorched bond” step: should this happen there is likely no turning back as it would force a market test of the entire developed world."

We hope this is merely 'sabre rattling'. Nobody knows how the Law of Unintended Consequnces will play out if China does carry out its threat: global economic meltdown, a new Sino-Japanese war which then draws in USA and Russia, followed by EU and North Korea; South Korea, Taiwan and then WW3, ???

Beware asking for a king (Aesop's fable)

One of the unintended consequences of asking an outsider for help.  This is illustrated by an Aesop's fable and by three well-documented historical events - in Britain, Southern Italy and Egypt.  There are probably many others.

Aesop’s fable: King of the Frogs: The Frogs were living as happy as could be in a marshy swamp that just suited them; they went splashing about caring for nobody and nobody troubling with them. But some of them thought that this was not right, that they should have a king and a proper constitution, so they determined to send up a petition to Jove to give them what they wanted. "Mighty Jove," they cried, "send unto us a king that will rule over us and keep us in order." Jove laughed at their croaking, and threw down into the swamp a huge Log, which came down splashing into the swamp.

The Frogs were frightened out of their lives by the commotion made in their midst, and all rushed to the bank to look at the horrible monster; but after a time, seeing that it did not move, one or two of the boldest of them ventured out towards the Log, and even dared to touch it; still it did not move. Then the greatest hero of the Frogs jumped upon the Log and commenced dancing up and down upon it, thereupon all the Frogs came and did the same; and for some time the Frogs went about their business every day without taking the slightest notice of their new King Log lying in their midst.

But this did not suit them, so they sent another petition to Jove, and said to him, "We want a real king; one that will really rule over us." Now this made Jove angry, so he sent among them a big Stork that soon set to work gobbling them all up. Then the Frogs repented when too late.

From: http://www.aesops-fables.org.uk/aesop-fable-the-frogs-desiring-a-king.htm

Saxon conquest of Britain: Hengist and Horsa were brother chieftains from Jutland, who led the first Saxon bands which settled in England. They were called in by the British king Vortigern to defend him against the Picts and other enemies.  

The place of their landing is said to have been Ebbsfleet in Kent, probably sometime around 450A.D.. Hengist and Horsa were at first given the island of Thanet as a home, but they soon quarrelled with their British allies, and gradually possessed themselves of what became the kingdom of Kent. 

In 455 theSaxon Chronicle records a battle between Hengist and Horsa and Vortigern at a place called Aegaels threp, in which Horsa was slain. Thenceforward Hengist reigned in Kent, together with his son Aesc. There later followed three subsequent battles, which resulted in the expulsion of the Britons from Kent.

From: http://www.heritage-history.com/www/heritage.php?Dir=characters&FileName=hengist.php

Norman conquest of Southern Italy: Immigrant Norman brigands acclimatised themselves to the Mezzogiorno as mercenaries in the service of various Lombard and Byzantine factions, communicating news swiftly back home about the opportunities that lay in the Mediterranean. These aggressive groups aggregated in various places, eventually establishing fiefdoms and states of their own; they succeeded in unifying themselves and raising their status to one of de factoindependence within fifty years of their arrival.

Unlike the Norman conquest of England (1066), which took place over the course of a few years after one decisive battle, the conquest of Southern Italy was the product of decades and many battles, few decisive. Many territories were conquered independently, and only later were all unified into one state. Compared to the conquest of England, it was unplanned and unorganised, but just as permanent.

From: http://en.wikipedia.org/wiki/Norman_conquest_of_southern_Italy

Mameluke takes over as rulers of Egypt:  Mameluke (or Mamluk or Mameluk or mamaluke or mamluq or marmeluke or marmluk) (Arabic: مملوك (singular), مماليك (plural), literally means "owned by the king" or "slave." It refers to white slave soldiers, primarily Christians, like the Janissaries but also Mongols, who converted to Islam and were employed by various rulers including the Abbasidand Ayyubid dynasties and the Ottoman Empire.   

Like Janissaries, Mamelukes converted to Islam and served the Muslim rulers until modern times. And like the Janissaries, the Mameluke caste was governed by rules that supposedly prevented children of Mamelukes from inheriting their position and similar restrictions designed to ensure they would never be a threat. As in the case of the Janissary soldiers, the rules were often eroded or disregarded. 

The Mamelukes seized power for a time in Egypt, Damascus and India and set up their own dynasties. They did two signal services to the Muslim and Arab world: They stopped the advance of the Mongols at Ayn Jalut, and they finally drove the Crusaders from Palestine.

From: http://www.mideastweb.org/Middle-East-Encyclopedia/mameluke.htm

Great 'natural' imports ... ?

TOBACCO: When Sir Walter Raleigh brought tobacco from America to England, it was deemed to be a wonder drug.  But several centuries later tobacco is the cause of lung cancer and multi-million $ in health care.  


"In 1585, Sir Walter Raleigh helped found the infamous settlement on Roanoke Island in Virginia. Although this colony was short-lived and no one quite knows for sure what happened to its residents, Roanoke did leave at least one lasting legacy that continues to influence our lives to day. It was at Roanoke that Europeans first had experience with tobacco. Thus, our multi-billion dollar cigarette industry (and its effect on the general health) is the direct product of the efforts of those early settlers on Roanoke Island to popularize the drug in Europe. http://socyberty.com/history/how-sir-walter-raleigh-helped-introduce-tobacco-to-europeans/#ixzz20ynzQ1AV

POTATO: And Sir Walter Raleigh is credited with importing the potato. Another wonder produce that helped to improve people's diets, until in 1845 there was a potato blight that changed teh face of Ireland forever.

"During the summer of 1845, a "blight of unusual character" devastated Ireland's potato crop, the basic staple in the Irish diet. A few days after potatoes were dug from the ground, they began to turn into a slimy, decaying, blackish "mass of rottenness." Expert panels convened to investigate the blight's cause suggested that it was the result of "static electricity" or the smoke that billowed from railroad locomotives or the "mortiferous vapours" rising from underground volcanoes. In fact, the cause was a fungus that had traveled from Mexico to Ireland.

"Famine fever"--cholera, dysentery, scurvy, typhus, and infestations of lice--soon spread through the Irish countryside. Observers reported seeing children crying with pain and looking "like skeletons, their features sharpened with hunger and their limbs wasted, so that there was little left but bones." Masses of bodies were buried without coffins, a few inches below the soil.

Over the next ten years, more than 750,000 Irish died and another 2 million left their homeland for Great Britain, Canada, and the United States. Within five years, the Irish population was reduced by a quarter.

http://www.digitalhistory.uh.edu/historyonline/irish_potato_famine.cfm/

MORPHINE & OPIUM: Although used for millennia, Opium and morphine did not become problems until the 19th century in England and in China. Initially it was used as medication, but abuse soon caught on. Today, of course along with cocaine, these drugs are the root cause of a lot of crime in most Western countries.
http://wiredintorecovery.org/articles/entry/8932/historical-perspectives-opium-morphine-and-heroin/

TEA: When English merchants brought tea from China to England in the latter part of the 17th Century, it slowly grew to be such a great drink that housewives did not trust their maids to look after the cupboard where it was stored but rather kept the key themselves. Sadly, along with silk and porcelain, England found that the trade balance was impossible to sustain as the Chinese apparently desired nothing in return apart from silver.  This led to the infamous Opium Wars and the quasi-colonialisation of China and the 'century of humiliation'.
http://chindia-alert.org/why-is-chindia-a-big-deal/ and http://chindia-alert.org/historical-perspectives/china-20c-timeline/

Once again we see the Law of Unintended Consequences at play.

War on drugs - a failure after 40 years

From The Observer - http://www.guardian.co.uk/world/2012/jun/23/mexico-elections-drugs-war:


"On 1 July, Mexicans will vote in vital presidential elections. But the issue no candidate dares to address is the cartel violence tearing the nation apart. Diplomats say the time has come to challenge drug policy – but can they get the US to agree? 

Two policemen pass an anti-violence sculpture based on one made by Yoko Ono in memory of John Lennon, in Mexico City. Photograph: Ronaldo Schemidt/AFP/Getty Images

One after another, Mexico's presidential candidates sat in silence amid the grand setting of Chapúltepec Castle while, across the room, the leader of the country's movement of victims of drug war violence – a poet – chastised them.

"The 60,000 dead, the more than 20,000 who've disappeared, the hundreds of thousands of people displaced, wounded and hunted, the tens of thousands of widows and orphans that this stupid war against drugs is costing us, do not exist for you and your parties," Javier Sicilia accused. "For you, the national emergency does not exist." One after the other, the candidates promised action and showed concern, then they left. It was time to get back to the real business of running for president.

The meeting with Sicilia last month was unavoidable, given the moral weight of the movement he represents, but it was also the only time in the entire three-month campaign when the undisputed issue of the day was the drug war ravaging Mexico.

Polls show that most Mexicans consider security, along with the economy, to be the two biggest issues facing their country, but neither has featured particularly heavily. "Everybody asks me where the security issue is. Why the candidates don't talk about the economy. The elephant in the room is President Felipe Calderón's record, and that is hardly talked about," says pollster Jorge Buendía. In Ciudad Juárez, which has just lost its title as the world's most dangerous city, now ranked second, the chronicler of the violence, journalist Julián Cardona, says: "To look at the candidates speak, you would think they were talking about another country."

But whatever the politicians' speeches, Mexicans know that the country must take urgent measures now to try to put an end to the appalling violence if it is to claim the place in the world its economy justifies. And although Mexico is umbilically tied to the US war on drugs, and fights on the frontline of that war, senior Mexican diplomatic officials suggest to theObserver in private that, whoever wins the election, this must change; that there must be a major rethink and a shift towards initiatives in Latin America that challenge the "war on drugs" to which the US remains committed."

Since President Nixon declared war on drugs in 1971, Mexico and other Latin American countries have pitched in together with the US Drugs Enforcement Agency.  But drug consumption in the West is higher than ever and drug-related crime in these countries is one of the highest categories of crime.

This is another example of the Law of Unintended Consequences.

If the Euro € is the answer, what was the question?

When the Euro € was created and introduced in January 1999, the belief was that those European countries who adopted the Euro to replace their national currency would find currency and economic stability; a case of shared strength, where the strong would bolster the weak.

Little did these countries know then that shared strength in the wrong circumstances turns into shared weakness, where the weak spread their weakness to the strong - a clear case of unstable equilibrium my old physics teacher would have said.

First Ireland, then Portugal, followed by Greece, maybe Spain and today, Germany warned Italy that if it did not follow the austerity measures of its government, it too would succumb.  http://www.reuters.com/article/2012/06/13/us-eurozone-idUSBRE85B0FT20120613?feedType=RSS&feedName=topNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FtopNews+%28News+%2F+US+%2F+Top+News%29&utm_

Or, in terms of this blog, a clear case of the Law of Unintended Consequences.

UK social welfare

Soon after the Second World War when, surprisingly, the British electorate rejected Churchill and voted overwhelmingly for Labour, the social welfare state was born. The idea was that society should not ignore those who were too poor or ill to look after themselves and that the state (namely the rest of the population) should support them. That was indeed a laudable idea.

Of course following the Law of Unintended Consequences, today some 60 plus years later, Britain is experiencing a very high proportion of welfare recipients who do not work, have not worked, and are unfit for work. And in a large proportion of cases, they are sons and daughters of people who have not earned a living; and in a few cases their grandparents did not earn a living. In other words, Britain has institutionalised a dependency culture amongst some of the have not's who, in other words, are condemned to continue to be have not's generation after generation.

There is an old English saying: "Hell is paved with good intentions." Perhaps the British welfare system is one such.