Monday, September 09, 2013 - The Problem Is We Do Get It

The Problem Is We Do Get It

by Sinclair Noe

DOW + 140 = 15,063
SPX + 16 = 1671
NAS + 46 = 3706
10 YR YLD - .04 = 2.90%
OIL – 1.56 = 108.97
GOLD – 2.30 = 1387.50
SILV - .13 = 23.82

The war hasn't started..., yet.

A funny thing happened today; for a few moments the constant drumbeats for war were quieted, and there was talk of a diplomatic solution; fleeting, nothing concrete, hypothetical, could disintegrate in the flicker of a butterfly's wing.

Russia jumped on a remark by Secretary of State John Kerry, who said Syria should save itself by handing over its chemical weapons. Kerry was quick to dismiss as hypothetical his own comment that Syrian President Bashar al-Assad could avert U.S. strikes by surrendering his chemical arsenal to international control. But Assad's ally Russia quickly turned it into a firm proposal that was "welcomed" by Damascus and echoed by the UN chief Ban Ki-moon. The White House said it was "seriously skeptical" but would take a "hard look" at the proposal.

Russia's foreign minister said he would push Assad to place Syria’s stockpile of nerve gases, blister agents and other chemical agents under UN supervision for eventual destruction. He said Russia also would push Syria to sign the Chemical Weapons Convention, the international treaty that prohibits use of poison gas. The Syrian government quickly put out a statement saying it would cooperate.

Can you trust Russia to broker a peace deal? Hell no. Over the last weeks, since the inception of the demonstrations in Egypt for president Morsi's ouster, to the sarin gassing of innocents in Syria these past days, the price of oil has skyrocketed more than 15 percent for WTI crude from near $95/bbl in June to over $110/bbl and Brent crude closing this past week at over $116/bbl.

After Saudi Arabia, the most immediate beneficiary of this spiking of oil prices is Russia -- now, together with the Saudis, the world's largest oil producer, with 7 million barrels/day being shipped into the export market. In no other big economy do oil and gas play such a vital role as in Russia. They account for two-thirds of its exports, half its budget revenue and nearly one-third of economic output. In a real sense, the history of Russia's oil industry since the collapse of communism is the history of the country itself. Clearly the higher the price of oil, the greater the benefit to Russia and the largesse of the Putin government, whose domestic economic policies and well being are principally funded by oil revenues.

To keep the pot boiling in the Middle East, the Russians have been the long-standing and grievously irresponsible defenders of Iran and its nuclear program, while freely arming Syria's Assad government with a full array of weaponry including highly advanced anti-aircraft weapons system. This while forever rendering meaningful UN action moot through threat of a Security Council veto. Clearly the price of oil has become a strategic imperative of Russian foreign policy. But it's also important to know when to ease off the gas and tap the brakes; like maybe right before you go flying off a cliff.

The fast-moving events presented at least the possibility of a diplomatic and political solution, even if everybody seems to have just stumbled on the idea. And the whole idea of a peaceful resolution could fall apart very quickly. We'll find out more over the next two evenings as President Obama hits the airwaves; tonight he'll speak with six major American news networks as part of his sales pitch to build support and he'll go directly to the people Tuesday.

In the background, his aides have been heavily lobbying Congress while seeking support from other nations; so far, some countries , such as Germany, have said they support the idea of military action, but they want no part of it.  Senate Democratic Leader Harry Reid set a test vote for later this week, but it was unclear whether the measure would attract enough backing to clear anticipated procedural roadblocks. Most counts show that the Congress is reluctant to back force, and constituents have been vocal in opposition. In town hall meetings during the congressional recess and in polls, most Americans don’t accept that the humanitarian argument is sufficient to justify a military strike.

According to a CNN poll, nearly 6 in 10 Americans think Congress should not authorize limited military action in Syria, with roughly 7 in 10 saying that airstrikes against Syria would not achieve any significant goals for the United States and that the US does not have any national interest in Syria.

Obama’s upcoming media blitz, to include interviews on six television networks and a primetime Oval Office address, is not going to rally the public to support military action. The president faces strong competition for the public’s attention, and most people are not attentive to him. Barely a tenth of the population watched Obama’s 2013 State of the Union address. Moreover, many people who do pay attention miss the president’s points, and the less people know, the more confidence they have in their pre-existing beliefs and resist factual information.

So, should you bother paying any attention to the media blitz? In decisions of war, bravery is needed in knowing when to be humble, in listening for one’s biases and evaluating new evidence. Or as Winston Churchill once said: “Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen.”

Most people distrust government, especially on issues of war, especially when they are complex and their consequences are uncertain; and this certain qualifies as uncertain. But it's not that this situation is too complex for simple-minded voters to grasp the significance. The population is not stupid. We get it. We understand that the complexity is often just a cloak against honesty. We understand that the path to peace can be more than bombing people. The problem isn't that we don't get it. The problem is that we do get it.

More than four years after the recession officially ended, 11.5 million Americans are unemployed, many of them for years. Nearly 4 million have given up looking for work altogether. If they were actively looking, today's unemployment rate would be 9.5 percentinstead of 7.3 percent. The participation rate is at the lowest level in 35 years. It's now pretty well understood that of the two ways you can reduce unemployment, we got the bad one Friday. That is, the jobless rate can fall because more jobseekers land jobs -- good; or because they give up looking -- bad. Some of that decline is demographic -- our workforce is comprised of a growing share of workers on the cusp of retirement. But most of it -- I'd say about two-thirds based on the analysis I've seen -- is due to weak labor demand. People have given up and dropped out of the labor pool.

The median wage keeps dropping, adjusted for inflation, and incomes for all but the top 1 percent are below where they were at the start of the economic recovery in 2009.

Deficit hawks in both parties don't want you to know this but the federal deficit as a proportion of the total economy is shrinking fast: It's on track to be only 4 percent by the end of September, when the fiscal year ends. The non-partisan Congressional Budget Office predicts it will be only 3.4 percent in the fiscal year starting October 1. To put this into perspective, consider that the average ratio of the deficit to the GDP over the past 30 years has been 3.3 percent. So the deficit is barely a problem at all. Still, it's amazing how politicians can justify spending billions of dollars to drop bombs, but we can't afford to spend money to build a bridge, or make sure a hungry kid, right here in America, has food for the school day. A decent society would put people to work, even if this required more government spending on roads, bridges, ports, pipelines, parks and schools. War, however is not the answer.