Gleanings II 481 Compliments of Nick Rost van Tonningen Posted by John on October 12, 2012

Gleanings II 481 Compliments of Nick Rost van Tonningen on October 5, 2012

Quote of the week : An expanding government balance sheet only makes sense if you can persuade tax payers to pay more … More importantly, given the limit to how much money can be extracted from the wealthy, it only makes sense if you can persuade middle class tax payers to pay more.” – Ross Douhat (italics his) – a blazingly simple concept that all First World countries forty years ago ditched as being quaintly old-fashioned but now are being forced to run return to, albeit with the beneficiaries fighting it tooth & nail all the way.

Henry Kissinger observed last week “China’s rise is now the fundamental problem of American foreign policy.” Meanwhile both China & the US are now in the final throes of a leadership race & using each other  to distract public attention from their countries’ domestic problems, Beijing by blustering about the Senkaku Islands & Romney & Obama by seeking to outdo each other in China bashing (Romney’s vow to “crack down on China, if and when they cheat”, may sound great on the hustings but may be hard to implement when you are broke & the other guy has your IOUs, and has military budget implications that may be hard to fund.

The Dallas Fed’s Richard Fisher sought to make the case for more deregulation when on October 10^th he told a Cato Institute audience that the main threat to the US economy was government intervention & paper work, seeking to support his view by pointing out that California leads the country in bureaucracy & welfare payments recipients while his home state of Texas does so in job creation & economic growth – if only it were that simple!

Largely due increased production from the Bakken & Texas shales, in September US domestic crude oil production averaged 6.059MM bbld, the highest in almost 15 years & 70% higher that 2005 (but still only about one-third of US crude oil consumption).

US soybean prices got a fillip from StatsCan’s report that Canada’s canola crop this year will be in the 13.2MM tonne range, 1+MM tonnes below what the trade had been expecting & 2+MM tonnes below its own August forecast. To make matters worse, its oil content is down YOY, & below its 10-year average  – this is a pretty ‘hard’  number since Western Canada’s harvest is all but completed. The blame for the lower oil content is laid at the feet of less-than-favourable conditions during the critical July-August period & that for the smaller crop at those of unusually strong winds in early September that blew canola swaths all over Hell’s Half Acre from where it could not be harvested efficiently, resulting in significant crop losses (canola swaths tend to be high, fluffy & light; so high winds raise havoc with them, one reason why many farmers swath them ‘on the bias’, i.e. so that the swaths lie on a Northwest-Southeast axis, parallel with the prevailing winds).

On October 4^th Bank of Canada’s Senior Deputy Governor Tim Macklem addressed the Winnipeg Chamber of Commerce. Most of its media coverage focused on him, like his boss from time to time, decrying Canada’s dismal productivity growth track record (despite which the Canadian economy in recent years, in sharp contrast to the state of affairs South of the Border, has not only recovered all 450,0000 or so jobs lost during the Recession but created close to 350,000 new ones). But few reported his comment that “soon some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2% inflation target”, central banker ‘speak’ for ‘don’t take it for granted that Canadian interest rates will remain ‘unusually low’ for three more years, or that inflation will remain ‘tame’ (as Bernanke has been trying to make his fellow Americans believe).

 In another seemingly penny-wise-pound-foolish, ideology-driven, purportedly ‘taxpayer money-saving’ move the Harper government plans to save $1.3MM by terminating 50 part-time minority faith prison chaplains, one-third of them non-Christian, saying inmates will continue to have “reasonable access” to religious counseling (from religious leaders not of their own faith, of whom there are 80, all of them Catholic or Protestant, except for one imam in Ontario, for the record 15,097 inmates in Canada’s federal prison system). While one may not have much sympathy for those incarcerated for things they did, it’s hard to disagree with the NDP foreign affairs critic in the Commons calling Harper c.s. “hypocritical” for doing this while launching a $5MM Office of Religious Freedom in the Foreign Affairs Department to promote freedom of religion abroad.

The Middle East conflict is mushrooming. Last  week’s Syrian shelling of a Turkish border town that killed five Turkish civilians has given rise to a week-long, seemingly tit-for-tat artillery duel across their shared border. The US has admitted sending troops to Jordan ‘to bolster its military capabilities’ in case of an event across that country’s border with Syria. Over the weekend the Israeli Air Force shot down a unmanned (reconnaissance) aircraft that had invaded Israeli airspace. NATO’s Secretary-General has publicly pledged support for Turkey (that it hadn’t asked for). On October 9^th Putin & Iraqi President al-Maliki during the latter’s three-day visit to Moscow signed a US$4.2BN arms deal for Iraq to buy 30 MI-28NE attack helicopters & 42 Pantsir-S1 short-to-medium range surface- to-air missile systems, with further large orders for APCs (Armoured Personnel Carriers) & MIG jets being mooted (Russia is the world’s second largest arms exporter & YTD has made US$13.5BN in arms’ export sales -19% of the global total. This must rot the socks of the US military-industrial complex, & annoyed Washington for the lack of ingratitude showed towards those who had ‘liberated’ it from Saddam Hussein’s yoke). And the next day, on October 10^th,Turkey forced a Syrian jetliner that was enroute from Moscow to Damascus through Turkish air space to land in Ankara because it had intelligence it was carrying “non-civilian” (i.e. military) cargo not entered on its manifest – in the event they found what Turkey’s Prime Minister Tayyip Erdogan described as “Russian-made munitions” & others called (military) “communications equipment”, with the Russian news agency ITAR-Tass quoting a Russian Embassy official in Ankara declaring it “not to be of Russian origin) – nobody should really be surprised at this; not only is a ruble a ruble, no matter what its source, but it would fit Putin’s megalomaniac dreams.

Netanyahu has made it official : there will be  an early election. While the CW that he will win is likely correct, the real issue is who other than his Likud Party will win significant blocks of seats; for under Israel’s PR voting system a coalition government can be the only outcome. Kadima, that in the last election actually had one more seat than the Likud, is on the ropes because Shaul Mofaz, lost credibility when, shortly after becoming its leader, he let himself be enticed into joining the Netanyahu coalition government, only to leave it again three months later (when Netanyahu failed to live up to his commitments). Demographics, i.e. the high birth rate-driven rapid growth of the Orthodox community, means that the hard line right wing parties will do well, the only question being how the various parties vying for its support will get to divvy up the spoils. Ehud Barak, the former leader of the Labor Party, won’t be a factor since he has allowed himself to be reduced to ‘Netanyahu Light’. The Labor Party, under its new leader, Shelly Yasimovich, has taken a new lease on life, but her long suit is domestic policy, Netanyahu’s Achilles Heel (even though inflation has eased, housing costs remain a real issue); so he will seek to run his campaign on anything but that, full well knowing that deep down the only issue that really matters to Israeli voters is security. There are some who believe that former Kadima Leader & Prime Minister Ehud Olmert could become a king maker, but, while he has more political experience that most other Israeli politicians, his reputation has been tainted by a corruption scandal   

The now 86 year-old Jiang Zemin was General Secretary of China’s Communist Party for over 12 years ended in 2002. He has since been living quietly in Shanghai until  suddenly & very publicly he & his wife, Wang Yeping, recently attended a performance at Beijing’s National Centre for the Performing Arts. China watchers took this to mean that he intends to influence the selection of the next (fifth) generation of his country’s leaders. For he is the ‘eminence grise’ of the “conservative” wing of the Party whereas the outgoing President, Hu Jintao, belongs the more reform-minded one (in Chinese Communist Party terms). But when he, a decade ago, handed over control to Hu, in China’s first peaceful transfer of power since 1949, this was not because Hu was his choice, he had been anointed to head the ‘fourth generation of leaders’ by Deng Xiaoping (who by then had been dead for five years). So he paid Hu back in kind when, five years ago, he prevented Hu from designating Li Keqiang as his successor, foisting Xi Jinping on him, who will become President next month, with Li relegated to the lesser post of Premier. While those in Jiang’s camp are often ‘princelings’ (sons of prominent Communist parents), incl. the now thoroughly disgraced & ex-Communist Party member, Bo Xilai, Mr. Hu’s allies, incl. the about-to-become Premier Li,  often have a background in the Communist Youth League (which Hu headed in the mid-80’s). The struggle still ongoing behind the scenes is about the composition of the nine-member Standing Committee of the Politburo that is China’s ultimate decision-making body (for which until early this year Bo Xilai had been deemed to be all but a shoo-in), with likely candidates from the Jiang wing to include Vice Premiers Wanh Qishan & Wang  Dejiang, and Shanghai Party boss Yu Zhen-sheng, and from the Hu camp Li Yuan-chao, Head the Organization Department & Wang Yang, the Party boss in Guangdong Province, China’s industrial heartland.

Next year, 2013, will be a watershed year for China : it’s  the year its labour force starts shrinking (by an expected 16% over the next 20 years) – so, with its population aging & living longer, its ‘aged dependency ratio’ will increasingly become a ‘boat anchor’ on its GDP growth potential. No one as yet knows for sure how that will affect its drive for global power status; this will largely depend on how the incoming leadership will play its cards over the next decade. The only thing that can be safely said this will lead to slower trend growth, a fact seemingly lost on the likes of Prime Minister Harper, even though demography-driven trends have a high degree of follow-through.

On October 10^th S&P downgraded Spain two notches to BBB-, the last stopping-off point before junk status, joining Moody’s that already had it at Baa while Fitch still has it at BBB, although all three have a “negative outlook” (i.e. it is all but a matter of time before its bonds will be dumped into the junk bond pool) – this is expected to further turn the November 25^th election in Catalonia into a referendum on independence, even though  the Province too has serious fiscal & budgetary problems (which it, of course, blames on Madrid).

Hugo Chavez was re-elected for another six years to the Venezuelan Presidency, which he hailed as a great victory. But his margin this time was only 10% (55-45) while in 2006 it was 25%. The turnout was huge (81%), but Chavez got only one of every five incremental votes, in part because on this occasion Venezuelans didn’t just have a choice between voting for or against Chavez, but had a real option, Henrique Capriles, a Catholic of mixed Sephardic/Ashkenazi Jewish extraction, who at age of 40 had a track record as Governor of Miranda State, Venezuela’s second-most populous. The question now is how Chavez will proceed. His cancer is supposedly in remission but he knows as well as anybody that this is not a cure. He has gone on record as saying “I promise to be a better president” which could either mean that he will seek to speed up his ‘bolivarization’ of the economy in whatever time he may have left, thereby increasing the likelihood it will be tossed by a successor, or concentrate on consolidating his achievements to date, thereby increasing the probability it will survive after he is gone. Marcela Meirelles, a strategist at the Los Angeles-based TCW Group Inc. whose US$128BN AUM include Venezuelan bonds, seemed to be the latter camp when she observed, before the election, “Even if Chavez wins these elections, people are still focusing on a political transition within two years.”  – the initial signs are not encouraging; for his first press conference after the election, he was as bombastic-, and as anti-imperialistic & anti-US-, as ever, and accused the US of fomenting trouble in the Middle East, particularly Syria.

GLEANINGS II – 481

Thursday October 11^th, 2012

EURO SURVIVAL IN AN AUSTERIAN EU (New School of Athens, Ioannis Filopoulos)

• We are witnessing a war in Europe. On one side are the German banks who seek to head off a proper banking union, backed by a Bundesbank determined to derail Draghi’s efforts to mutualize part of Spain’s & Italy’s debt, and compress the interest rate spreads between the core & the periphery. And on the other are Mrs. Merkel and Messrs Hollande & Barroso who, in a marriage of convenience, are backing Draghi. While so far the latter have had the upper hand, their greatest enemy is the current Eurozone’s recessionary macro-dynamics.

While Merkel has taken some tiny steps away from her rigidly hardline, domestically mandatory  stand on austerity, with an election in her future she has little wiggle room; for the vast majority of German voters oppose any ‘downloading’ onto them of even the tiniest part of the cost of subsidizing other countries’ lifestyles. Der Spiegel calls Draghi’s justification of his souvereign bond buying plans far from convincing; while no one questions the ECB’s right to buy souvereign bonds to help maintain price stability, many doubt that its mandate can be stretched enough to let it buy them to cut governments’ cost of funds (deeming this part of fiscal-, not monetary-, policy) – the New School of Athens seeks to explore “new and better ways of managing our world”, à la Plato’s Academy 25 centuries ago. It was co-founded & is headed by Kimon Valaskakis whose fulsome biographies note he has at various times been a university professor, think tank director, consultant, Canadian Ambassador to the OECD, & author of 8 books & over 100 scientific papers.

THE TICKING EURO BOMB (Der Spiegel)

Its three-part feature over the October 5^th weekend can be summarized as follows : 

• the Greek crisis merely brought out into the open that the Euro is the ‘world’s most dangerous currency”, built on a foundation of debt & trickery, with economic principles sacrificed to ‘romantic political notions’;
• while the issue was brought to a head by the Eurozone’s Southern European members abusing their new-found ability to borrow money at German-style rates, the real culprits were France & Germany that earlier had blithely chosen, when it suited them, to break the deficit ceiling rules they had imposed on the others; and
• the politicians already know what most voters don’t even suspect, namely that in the end there will only two options, a “transfer union” of its present membership that will have a few (Northern) members subsidize the lifestyle of the rest, or a smaller pure  monetary union. Both will be costly.

A ‘transfer union’ is not on, & not just in Germany. For the vast majority of Europeans still think of themselves first & foremost as nationals of their country because the Europeanazation idea was purely top-driven, with the Eurocrats never deigning themselves to make any effort to promote & nurture ‘green shoots’ of communal feeling in the various countries, relying instead solely on the power of the elite to drive the idea  down the hoi polloi’s throat (all the recent ‘pro-Eurozone’ election results in Holland show is that many Dutchmen still give the good tooth fairy some credibility) 

IN EUROPE, DEMOCRACY WILL BE AUSTERITY’S UNDOING (G&M, Eric Reguly)

• Draghi’s most recent plea for governments to do something since “As I have said many, many times, the ECB cannot replace te actions of governments” will fall on deaf ears. For austerity is going head-to-head with democracy & the latter is winning. This is good news; for recently it seemed to be losing ground with Italy having a technocrat government (at least until next spring) & Greece having had one until last June, and the ECB & its souvereignty-robbing partner, the IMF, not elected by Europe’s voters.
• His problem is that democracy involves politicians who must listen to voters, and who are starting to say “Enough”, & that those political leaders who did the ECB’s, IMF’s & austerity-mad Germany’s bidding have been sent packing. While the Eurozone may survive the waxing anti-austerity backlash, it cannot if economic reform isn’t moved forward, if the now closed professions aren’t opened up, if it isn’t made easier to shed employees & if competitiveness isn’t improved; for it is no accident that the most dysfunctional economies are also the least competitive. And unless markets are liberalized, millions of young people won’t be able to find work & will riot.
• The sad truth is that the economic reform movement is losing steam as vested interests reassert themselves; so the chances of the Eurozone project failing are very high.

The language is a bit extreme but his conclusions likely not far off the mark.

THE NEXT PANIC (The Atlantic, Peter Boone & Simon Johnson)

• People have started realizing the Euro crisis isn’t just a passing phenomenon but a deep-seated problem that will take years to work through. This is not the beginning of the end but the end of the beginning. For other crises will ensue, with Japan a prime candidate. Its post-war boom ended in the late 80’s with the collapse of its real estate- & stock markets. But, while people talk about its ‘lost decades’, low population growth matched low headline economic growth so that its per capita output growth was similar to Europe’s & North America’s. While it remains a country with low unemployment & a healthy private sector, its government is one of the most indebted in the world &, having been able to borrow cheaply at the short end, its debt maturity profile is now so short that this year it must issue bonds equal to 60% of its GDP.
• Once crises that devastated banks & investors were commonplace, prompting investor caution. But in the post-WW II era confidence in the system grew, in part due to public pension programs that were amazingly advantageous for those who paid in little & then saw their benefits enriched even as their life expectancies extended. With borrowing having been so easy, half of Japan’s budget now goes to pay pensions & interest (in the US mandated spending on Social Security, Medicare & military retirement benefits accounts for two-thirds of the Budget & eats up all revenues, leaving 100% of the defense budget & program spending to be funded from borrowed funds – like an individual spending all his income on his mortgage- & alimony payments, & living day-to-day off his credit cards).
• Japanese taxpayers are rebelling against even small tax increases to paper over cracks; so there’s little scope for the large ones needed to put the government on a sounder footing. So far its savers have been willing to fund their government’s ever-increasing debt even though it’s no longer backed by hard assets but supporting an aging population. But at some point they will decide buying government bonds is not smart (which is already starting to happen in Europe, & the US where all net new debt is now being taken down by the Fed &, to a lesser extent, foreigners); at that point interest rates will start rising, with disastrous consequences for a financial sector heavily invested in long-term bonds (since it was short-term profitable to borrow short & lend long) that will fall in value when interest rates rise.
• Since 1970 global debt markets have tripled relative to global GDP but we are now at the cusp of a return to the financial markets of yesteryear in which banks were not too big to fail, but too big to save. In recent years we have been focused on government guarantees causing undue risk taking by Wall Street, but Japan illustrates another, as yet largely ignored aspect of the same phenomenon, namely the extent to which easy access to credit allowed politicians to make popular short-term-, but long-term damaging-, decisions. This may lead to far worse financial crises than we have seen to date. And the US is not immune : its 2012 new debt issuance is 25% of its GDP, half its  government’s debt is now held by foreigners, a tax revolt has been brewing since the 1970’s (& was dragged  into the open by the Tea Party), and the GOP refuses to rebuild revenues back to their pre-Bush 43 levels & wants to cut taxes while the Democrats defend spending programs & middle class perks. Meanwhile health care is spinning out of control as lobbyists veto meaningful reform & the financial sector wants the government to keep on spending because big deficits mean big profits; and politicians happily oblige.
• In summary, elderly Japanese won’t let their pension system be changed, the Euro elite refuses to accept the unsustainability of their currency union, Wall Street runs the US, & all our politicians have promised more than they can deliver, and the current generations of voters are starting to wake up, unhappily so, to the fact that it is not just future generations that will have to foot the bill for past excesses.

 In Europe the first dominoes to fall to fall were Iceland & Ireland, after which investor concerns engulfed Greece & then the others. At a global level there is now a growing risk that it will now spread from Europe to Japan & from Japan to the US (the real message the authors seem to want to convey). And while Europe, in the hope of divine intervention that won’t be forthcoming, has been ‘rolling the problem down the road’ to some inevitably nasty climax, Japanese & American politicians don’t seem to be taking that lesson to heart (Johnson teaches economics at MIT & is a former IMF Chief Economist & London-based Boone helps manage a (soon defunct) hedge fund & is a part-time teacher at LSE. Both are Fellows at the Washington-based Peterson Institute for International Economics.

PROMISES TO KEEP : THE POLICY ACTIONS NEEDED TO SECURE GLOBAL RECOVERY (Peterson Institute for Interanational Economics, Christine Lagarde)

• The recent policy moves by the ECB, the Fed and the BoJ are “big signals in the right direction … (and) an opportunity to make a decisive turn in the crisis.” But among the factors weighing down the global economy are :
  • uncertainty – as to whether policy makers can, & will, deliver : “we need decision makers to be real action takers … we need delivery.” – unfortunately modern day politicians are into building Potemkin villages, not into “real action”;
  • the slowdown in emerging markets – they were “a light in the darkness … able to lead the global economy in its time of need” but now seem to have run out of steam;
  • rising food prices – they are going to hit the emerging & poor countries hardest (& foment social unrest?);
  • growing frustration across the Middle East – “Transition through regime change is never easy – and this is transformation on a historic scale”; while it needs external support, far more has been promised than has been forthcoming;
  • unemployment – it is especially affecting young people, making it a breeding ground for social unrest especially among the better educated ones whose ‘rice bowls’ have been yanked away & dreams smashed, and who at some point will start blaming the older generations who created this mess & now won’t help pay for it); and
  • high public debt – now (in the First World) at levels not seen since WW II.
  • While uncertainty in Europe remains the greatest risk, as we all know, another major risk is threatening in the US (the fiscal cliff).

The IMF since downgraded its global growth forecast for 2012 from 3.5% to 3.3% & for 2013 to 3.6% (down from 4.1% in April & 3.9% in July). This presumably was her clarion call to action at the IMF/World Bank Semi-Annual Meetings in Tokyo from October 12^th to 14^th (which were off to a bad start when Beijing, in a snit over its dispute with Japan over the Senkaku Islands & in unusual turmoil this late in its decennial ‘changing of the guard’ due to revelations emanating from the Bo Xilai affair, announced its delegation will not be headed by the Minister of Finance & the Governor of the People’s Bank of China  – which is the norm – but by their Deputies (& that the heads of China’s biggest four banks will also be MIA). Just before departing for Tokyo Mme. Lagarde told the press “We expect courageous actions and cooperative action on the part of our members.” (unfortunately “courageous action” is not in politicians’ playbook). Be that as it may, if anything meaningful is to be achieved, it won’t be at these meetings but at a series of G-20 meetings in Mexico City later this month : their ‘Sherpas” (senior advisors) will meet October 29^th & 30^th, their Deputy Finance Ministers & Deputy Central Bank Governors on November 3^rd & 4^th and their ‘chief poohbahs, the Ministers & Governors themselves, on November 5^th & 6^th (at which meetings the BRIC countries & their allies are becoming more vocal & influential).  

GAS PRICES SOAR TO CALIFORNIA RECORD (NBCNews, Jason Kandel)

• On October 6^th the average price hit US$4.61/gallon (3.79 litres), up 47¢ WoW, 36¢ MoM & 72¢ YoY. The cited reasons were a power outage at Exxon’s Torrance, Cal. 155,000 bbld refinery on October 1^st  that reduced, but not halted, output for four days & a ‘pipeline event’ (when Chevron shut down, for cleaning, its 85,000 bbld pipeline carrying crude from Kern County to Shell, Tesoro & Valero refineries in the Bay Area).

Last August already an explosion & fire at Chevron’s 111 year-old refinery at Richmond, Cal., with its 245,000 bbld capacity the second largest in the state, had strained the local gasoline supply (even though only 25% of its output is gasoline) & going forward the situation is not going to be helped Chevron recently having announced that the refinery’s main refining unit will stay ‘off-line’ for the rest of the year. The problem is partly of California’s own making; for in the summer months it mandates the use of a special gasoline with a lower evaporation rate that hardly any one else produces, thereby limiting the scope for importing it from elsewhere at times like this, the cost of production of which has caused four refineries to close in California in the past two decades (reducing spare capacity in its gasoline supply system to a minimum). So Gov. Jerry Brown authorized the start of the sale of ‘winter-blend’ gasoline now, rather than at monthend. Gasoline prices in California are typically higher than elsewhere, because of its record 50.3¢/gallon gasoline tax (which, however, may have helped it to become the state with the lowest per capita gasoline consumption; thus in Los Angeles County it is 147 gallons per annum, vs.  737 in St. Louis County, Mo. & 368 in Dallas County, Texas). And things may get still worse; for next month a ‘cap & trade” program will come into force, the cost of which companies say they will pass on to consumers, & in 2015 a law is supposed to come into force requiring  refiners to use ‘cellulistic’ (made from waste such as straw, wood chips & quack grass rater than corn) ethanol additives that are currently produced by only a few manufacturers, & costly. But this also is illustrative of a more pervasive problem in the North American economy generally, namely the tendency to skimp, for ‘profit’ & efficiency reasons, on spare capacity in production & infrastructure, with the result that if something untoward happens, the risk of serious consequences is high (in finance this is called “leverage”, which can be great when things work out as expected but fatal when they don’t).

AMERICAN STUDENT KILLS CHEF IN ISRAEL (AP, Daniel Estrin)

• William Hershkovitz, age 23, of Poughkeepsie, NY, arrived in Israel two months ago to participate in the Oranim program that combines Hebrew study, travel & work on a university course in hotel management (in his case) at the Leonardo Club Hotel in the Red Sea resort of Eilat. Following complaints by the hotel staff, instructors in the program met with him on October 4^th, leading to a decision he would quit the program & return to the US. But the next day he returned to the hotel, grabbed a security guard’s gun & killed the hotel’s Israeli Arab chef, only then to be killed himself in a shoot-out with Israeli commandos.

Dispute settlement, US-style.

IRAN’S DRONE THREAT GROWS (AP, Ali Akbar Dareini)

• On September 25^th, as President Ahmadinejad prepared to address the UN General Assembly, Iran test-fired four anti-ship missiles ahead of naval war games responding to US naval drills in the Persian Gulf. And Gen. Amir Ali Hajizadeh, Head of the Revolutionary Guards’ aerospace division, warned his Shahed-129 drone has a range of 2,000 kilometres, twice that of earlier versions & enough to reach most of the Middle East incl. Israel, that his new anti-ship missiles can sink a “big target” in 50 seconds & that an attack on its nuclear sites could prompt retaliatory strikes against US bases in the region.

By coincidence (?) Israeli jets on October 6^th, the Sabbath, shot down an unmanned aircraft that had invaded its air space from the direction of, although the IDF said it had not been launched from, Gaza (which prompted Tehran to mock Israel for its “feeble” air defense) – Hezbollah in Lebanon has since admitted responsibility, contending it is our “natural right to conduct reconnaissance flights inside occupied Palestine … (and) it won’t be the last … We can reach any place we want inside Israel.” (apparently there have been other such incidents, the last one during the Israel-Lebanon War in 2006) – and in essence this is no different than Israeli F-16 jets routinely flying through souvereign Lebanon’s airspace, sometimes intentionally breaking through the sound barrier, & creating sonic booms, to intimidate the locals).  

UNREST ALTERS ISRAELI VIEW OF IRAN (WSJ, Joshua Mitnick)

• The growing anti-regime sentiments  in Iran caused by its weakening currency (but more directly  by the galloping inflation Iranians now experience daily?) is raising hopes in Israel the sanctions will reduce the need for an Israeli strike against Iran in the coming months. While Prime Minister Netanyahu has always denigrated the effectiveness of the sanctions, the events in Iran on October 3^rd & 4^th caused one Israeli official to note “You can’t say now that the sanctions are having no impact at all. It is self-evident”. Meir Javedanfar, an Iranian expert at the Herzliya Interdisciplinary Center, Israel’s first private college established in Herzliya almost 20 years ago, opined “I don’t know if there will be a Persian Spring, but the fact that the Iranian government is under pressure … is a sign that the sanctions are having an impact … The legitimacy of the calls for immediate action will be reduced by the recent events.” And Israeli Foreign Minister Avigdor Lieberman, a hardliner, who had earlier predicted a spread of Arab Spring-like unrest in Iran, said on October 4^th on Israel Army Radio that Iran was seeing “the first buds of a Persian Spring … The big question is what will come first : … a nuclear weapon, or the Persian Spring … We have to be ready for both options.” This is expected to prompt Netanyahu to move next year’s elections from October  to February, to enable him to promote his candidacy on the basis that it was his tough stand that pushed the international community into imposing ever-tougher sanctions.

Like, among others, Venezuela & Saudi Arabia the regime in Tehran has bought popular support with an huge & costly social program. But this is a road to nowhere. For to fund it, it has had to syphon off so much of the country’s oil & gas revenues that the oil sector has lacked the money to fund the lifeblood of the oil business everywhere, exploration & development. So production has been declining as fields & infrastructure ages, while domestic consumption hasn’t, thereby leaving less & less available for export. But the regime, & its many hangers-on, incl. the Revolutionary Guards, has too much to lose to let a ‘Persian Spring’ gain a toehold. So any end play is likely to be more like Syria than like Tunisia & Egypt (Shiites – and Alawites are Shiites too, albeit an apostate branch – have always been more prone to violence than Sunnis). But the chances of an outcome to Netanyahu’s liking are small; for Iran’s nuclear program is now so deeply rooted in the Iranian people’s psyche & national pride that, in any regime change the West will bend over backward to ensure the successor regime will have strong popular support &, as part thereof, give its nuclear program the benefit of the doubt.