Saturday, November 22, 2014

Deficit Poised To Top $18 Trillion

As the National Debt stands poised to hit 18 trillion dollars in the next two weeks we continue to hear from the media how robust economic growth has helped push the U.S. budget deficit down to the lowest level since 2008. Claims of the sharpest turnaround in the government’s fiscal position in at least 46 years are targeted at reassuring American that Washington has got our back. As I write this the deficit, national debt, and spending is far from the minds of many Americans. Currently, we are consumed by such things as the economy, war, strange weather patterns, and deadly disease. The the last few years the Obama administration has touted how the deficit is dropping and the economy is on the mend. This has led some Americans into thinking the worst of our problems are in the rear view mirror. 

Charts are often very misleading
Charts can be very deceiving, little things like the scale or how they are colored often blur how we interpret their message. The chart on the right sends a clear signal that Bush was the problem even as it confirms the Obama deficits have been larger. Only upon looking back decades do we see just how large this problem has grown. To the American people the crossing of several red-lines in the sand without dire consequences has given us a false sense of security. One thing is crystal clear, running up debt is far easier than paying it off.

According to figures released by the U.S. Treasury, the federal government has officially run a deficit of 589 billion dollars for the first 11 months of fiscal year 2014.  We should remember this number is for public consumption and it relies on accounting tricks which massively understate how much debt is really being accumulated.  If you want to know what the real budget deficit is, all you have to do is go to a U.S. Treasury website which calculates the U.S. national debt. On November 1, 2013 the U.S. national debt was sitting at  $17,108,598955,343 just a year later on October 31, 2014 the number has risen to $17,937,160,394,872 . That means that the U.S. national debt has actually grown by 829 billion in less than 12 months.  

The powers that be promote the myth of a falling deficit and the general overall rosy scenario that we can outgrow many of the problems we face. This brings with it optimism and hope. I have ran into more than one person who touts the fact that the deficit is coming down as proof everything will be alright.  A trick or game being used to confuse the issue and muddy the waters is which administration or President to dump the massive 2009 deficit on. Bush left office with the economy in the sewer but the resulting deficit occurred on the watch of Obama. Only when we use the massive 2009 deficit as a baseline are we given the impression the budget is back under control. We must all concede that 2009 was an unplanned budget disaster and the 2009 deficit budget should never ever be used as a baseline

Total Debt Has Leaped Off Chart Soon To Hit $18 Trillion
Negotiating the financial cliff and muddling through what was described as a draconian sequestration has emboldened many people and left them feeling immune to economic reality. Those who claim our current budget deficit is harmless live in peril and are creating the next disaster. Sadly, the reality is we continue to run up massive record deficits and are merely kicking the day of reckoning down the road. Projections made by the government or any group predicting budgets based on events that may or may not happen at some future date are simply that, projections or predictions and not fact. This means that such numbers are totally unreliable. A major concern for this writer is that in 2017 entitlements are poised to balloon and cause a massive hike in government spending. 

Data compiled by Bloomberg using Commerce Department figures would lead a person to think all is well or at least getting better. They tout a shortfall of only $483.4 billion in the 12 months ended Sept. 30th, 2013 noting it was only 2.8 percent of the nation’s gross domestic product of $17.2 trillion. The ratio peaked at 10.1 percent of GDP in December 2009. Data shows the fourth quarter of 2008 was the last time the deficit-to-GDP share reached 2.8 percent was in April 2005. “That’s what happens when the government is holding itself back on spending and the economy is improving,” said George Goncalves, head of  interest-rate strategy at Nomura Holdings Inc. in New York. “The question is, is that as good as it gets or will the deficit continue to shrink?”

Some people forget that the way the GDP is compiled was recently changed to add luster to this ratio. The narrowing budget deficit has bought time for lawmakers to solve some of the long-term threats to the economy such as the cost of retirement benefits, but even the "false fiscal relief" before us may be short lived as austerity-weary lawmakers may boost spending on defense and other programs. Some people are concerned that even as the Republicans take over congress we might see the beginnings of a pendulum shift away from fiscal restraint. The Congressional Budget Office in August predicted the deficit will shrink further this fiscal year, to 2.6 percent of GDP, before rising to 2.9 percent in the presidential election year of 2016. After that entitlements have the potential to wreck havoc with future numbers.

Unless entitlements are reformed, spending on Medicare, Medicaid, and Social Security will drive deficits to catastrophic levels. We have seen deficits reach unprecedented levels and future deficits will be dramatically worse. The ugly truth many people choose to ignore is that starting in 2017 entitlements will become the driving force and carry the deficit in to nosebleed territory. Any claim that the Obama administration has the budget deficit back under control is a total lie. We are mired in the mist of the greatest government debt bubble in the history of the world. With the artificially low interest rates many people seem to have little desire to do anything about this. We are literally gorging on debt, and most Americans seem to think that it is just fine and dandy as we continue to wildly run up debt as if there is no tomorrow. By our actions or lack of action we are destroying the future of this nation.


 Footnote; If you found this post about how the American government deficit and debt is growing interesting or informative please view my post about an article written by Mort Zuckerman, it is really shocking. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged,
          http://brucewilds.blogspot.com/2013/01/zuckerman-says-debt-avalanche.html

Tuesday, November 18, 2014

Deflation? I think not!

A Look At Our Future!
Deflation? I think not! For a while I was one of the people concerned we would see the world tumble into a massive deflationary cycle as debts went unpaided and credit collapsed. It appears the central banks of the world have made the crux of their existence a balancing act between the forces of inflation and deflation. With the poor results they have had at creating economic growth through QE do not be surprised if any new round of easing to combat future slowdowns is even less successful at getting economies moving forward.

The magic of QE and ever lower interest rates is losing its luster as the money finds its way into the pockets of the bankers and the rich or quickly flows into distorted stock markets and other intangible asserts. The more and more I study derivatives it now appears the main goal of QE may have been to hold up the underlying value of assets that feed into and support the massive derivative market more than help the economy.  In other words, the entire economic policy of the United States has been dedicated to saving four banks that are too big to fail. Yes, the main purpose of QE is to keep the up prices to support the debt on which big banks have loaned money.  The staggering size of the derivative market is beyond science fiction or anything that we can comprehend.

QE has up to now stopped an implosion of derivatives and the resulting contagion and shock that would have spread throughout the financial system. One of the main reasons the stock market has benefited so easily from all this money is that it is highly liquid and both easy to enter and exit. Unlike real estate that has a high bar of entry with many fees and often taking months or even years to sell,  stocks can be exited in a blink of an eye. This is a big advantage in uncertain times when valuations can change rather quickly. The wild card in where our economy will take us is inflation. Currently velocity (the speed at which money flows through the economy) is very low but many people think if it rapidly increases "more money" will be chasing the same amount of  goods resulting in more inflation.

Other factors are also driving today's current short-term investment insanity. Many Americans with savings have taken on a much higher degree of risk in search of yield. People have grown complacent after years of being told it is safe to again invest in the markets. They have loaned their hard earned savings out to corporations by buying bonds and this in turn has allowed companies to lower borrowing cost and shift the savings to their bottom-line. This constitutes a onetime increase in profits that we are unlikely to see ever again. All the cheap money has also created a binge of stock buybacks by companies that choose to please shareholders by raising their share prices rather than investing in an economy where demand remains weak.  

The danger is that once inflation takes root it can take on a life of its own and feed on itself creating a hard to control "positive feedback cycle." How the central banks can get out of the corner they have painted themselves into and if it can be done in a safe manner is yet to be determined. One thing is clear, we cannot remain on this artificial growth path forever. We have seen much of the effect wear off from prior bouts of easing, in the past each wave acted as a tailwind pushing us towards recovery. Now as central banks begin to taper and resume more normal policies many economist fear that efforts to return to normal interest rates and policies will become a major drag on the economy going forward.

I ask you to consider the possibility that what we have been going through the last six years was the "deflationary period" that many of us were looking for and expecting. This would mean the "major deflationary period" is mostly behind us and it has not been disinflation as much as inflation being kept in check because of several factors, including where the money flowed, weak demand, dropping velocity of money, and the onetime benefit of lower interest rates. As we edge towards the edge and total economic collapse expect central bankers to print even more paper money. I think they will print enough to "literally  cushion our fall" and in doing so the reality of hyperinflation will be completely unleashed.

Before you discount the possibility that we will move directly from where we are into stagflation then hyperinflation please consider that hyperinflation paves the way for governments and those in power to make a transition to a replacement currency and a reset of the whole system. When things get too difficult to repair people tend to look for the promise of an easy and fast fix. The one thing we can count on is that things seldom progress as expected. Sadly, knowing the quality of those guiding our economy and ship of state we must wonder if this was their intention all along or merely an  accident they failed to see coming from the incestuous ivory towers in which they live.


Sunday, November 16, 2014

Reserve Currency Status Both A Blessing And A Curse

Having the dollar as the world reserve currency is both a blessing and a curse. The world is currently engaged in a massive game of speculation and chance that contains a lot of risk. Political considerations and insider deals between both nations and Central Banks play a big roll in this game. A chart I saw recently touted how the percentage of funds held by foreign governments in dollars has fallen in recent years. Even after many countries have reduced their holdings in dollar reserves the dollar still carries a major wallop and place in the world economy and will effect everyone going forward.


The above chart highlights the size of this issue
Today four major currencies dominate the world stage, they are the pound, the euro, the yen, and of course the dollar. Two of these are in serious trouble, the yen and the euro, and the pound is very vulnerable to contagion. After that, all the remaining currencies of the world still remain small bit players in the over all scheme of things. The status of being deemed the "reserve currency" by which all others are weighed and in someway pegged does not make the dollar infallible or guarantee it will remain strong but the liquidity of such a large market does add a resilience to the American dollar.

For most concerned a stable world currency yields the most benefits. When the dollar is weak consumers pay more for imports but are able to sell and export more goods and services as they become more competitive. When the dollar gains strength the cost of foreign imports drop and the American consumer is the winner, but it has cost to both job creation and hurts the earnings of  large American companies playing on the world stage. All in all this is more or less a self balancing system that does best when fairly stable. Currently a great deal of effort by countries affected most negatively by the dollars wallop have banded together seeking more options and a work around to break the dollars hold.

The way things are structured the dollar is the linchpin of global fiance and has guaranteed itself a place at the table until dethroned. This means that a countries like Japan and China which hold a lot of American bonds and thus dollars will be able to offset some of the pain of a weakening national currency. Unfortunately, many countries they are not in such a position, and to make matters worse countries that are mired in debt often have tied or pegged that debt to the dollar. This means a lot of economic pain if the dollar grows stronger for these countries will find themselves under a great deal of pressure just to survive.  

Unstable currency markets can be a precursor to massive shifts in value and a sudden drop in confidence. It is logical to think that in such a situation insiders would be the big winners. The main reason the world has chosen a "reserve currency" is to have some benchmark to peg currency values to and lessen the impulse of countries that have accumulated massive debts to attempt to address their problems by just printing more money, This results in devaluing their currencies but often fails to face the root cause of their problem. Just printing more money is not sustainable and little comfort should be garnered from assets or pensions being pegged to future inflation because promises can be broken and rules rewritten for what is called the greater good.

The collapse of any currency causes wealth to flee both from the country and that currency and temporary to any safe haven in reach. The bottom-line is that while many people go about their daily lives giving little thought to currency valuations they leave themselves open to the whims of those that control, manipulate and play in this important area of the global economy. Ten percentage points higher or lower against a foreign currency can have a great deal of impact on how your net worth stacks up against someone across the world. This rapidly becomes apparent to anyone doing a great deal of travel or buying foreign goods. It also highlights why all of us should be very concerned where we stand when the smoke clears from the currency wars before us. Do not underestimate the forces in play.


  Footnote; Your comments are welcome and encouraged. If you have time please check out the archives for other post that may be of interest. Below is another of several post I have written concerning currencies.
  http://brucewilds.blogspot.com/2014/10/fed-concerned-that-stong-dollar.h...




Sunday, November 9, 2014

Politicians To Hail Infrastructure Spending As Silver Bullet

Get ready for a barrage of talk from Washington about how new infrastructure spending is going to boost the economy and drive growth. As usual the politicians in search of easy answers often dust off an old idea polish it up and act as is they have a new magic formula. While most people and economist agree infrastructure is important I contend that the old 80-20 rule applies to this vital part of our lives more than they might want to admit. As a rule of thumb it that states that 80% of outcomes can be attributed to 20% of the causes for a given event. In this case I'm highlighting the fact that the first 20% of infrastructure spending goes to the root of our problems giving us the greatest return on our investment and after that more of each and every dollar tends to get squandered.

To the many who see government spending on infrastructure as a silver bullet for the economy and as a job creator I would like to raise a word of caution, It may be time for a "truth off'. More "bridges to nowhere" and wasted spending exist then the taxpayer could ever imagine. Both Democrats and Republicans will be on board this train, but the reality is often this kind of spending falls short of creating real wealth for our country. In my book Advancing Time I talk about a bridge that was recently replaced in Fort Wayne, Indiana that even the city's leading newspaper said we did not need. The newspaper had gone on to state the bridge did not "need" to be replaced, but only needed minor repairs. Here is a paragraph from the book:

Another pork-barrel project that drains federal coffers? 
                                                         --------------------------------
If we think local media is helping guide government to do the right thing, we should be troubled. In the city where I live a recent Sunday newspaper editorial commented about the cost of a bridge project, that will be covered by a earmark from Senator Even Bayh. The article states "Does the four million dollars represent yet another pork-barrel project that drains federal coffers? Most likely. But once the money is designated, it would be foolish to give it back."
                                                        ----------------------------------

Bottom line, nothing has changed over the last several years that indicates the media, government, or planners have become better and far more responsible in how infrastructure money is spent. More telling is a look at the bridge recently completed. In the end the bridge final cost was closer to ten million dollars, and it now sports the name "The Martin Luther King Jr. Memorial Bridge". After the bridge was structurally complete the plans called for the builder to come back and top it off with a million dollar plus metal structure that gloriously lights up at night, this was all to present a show of changing colors.

This bridge now has a new role, to act as a gateway into downtown. A huge ugly sign over the bridge,  large monuments on each side of the approaching end, plus large plaques along the spacious sidewalks are few of its features. The so far unmentioned and most wasteful use of taxpayer money would be the benches that line both sides of the bridge, why do you need twelve foot wide sidewalks sporting benches on a bridge? Considering the bridge had to be widened to accommodate the benches it means they sit on some very expensive real estate. Taking this into consideration I estimate a shocking finished cost of a around one hundred thousand dollars for each bench.

When decisions are placed in the hands of politicians, most who have never run a business and have little understanding as to the value of a dollar cost soar through the roof. This means the taxpayer often pays a huge amount for a "pigs ear" when promised a silk purse. Politicians will hail infrastructure spending as a silver bullet, but when they do cover your pockets. Over the years I have published two similar articles to make this same point, the latest in February 2014, but as we get ramped up for a new wave of this "salvation spending" a repeat of this warning is in order. People love new and shiny things and this is especially true when they are reassured that someone else will pay the bill or they are free.

As a owner of buildings over the many years I have had as tenants more than one firm that lived off designing projects often for the government and those quasi government institutions such as schools and hospitals. As a contractor and tax payer I have found much of their work not only over engineered but designed in ways that future maintenance was destined to be very intense and costly. Much of their work was in issuing detailed specifications to meet some government mandate or as a way to justify their fees. The shear amount of paper work and studies they were paid to crank out was mind boggling. Sometimes these designs even failed to address and accomplish the most reasonable and basic goals of the initial project.

If you think this kind of mindless infrastructure spending will help America, it might be because the media, many politicians, and the businesses that benefit from it are constantly telling you of its virtues. A "Truth Off" would show that infrastructure is not even close to being a silver bullet, and America is not a uncompetitive third world country. Sure this kind of spending creates jobs, but at a horrible cost that must be paid at a future date or eventually bankrupt the country. The grandiose planners and politicians love free money, unfortunately there is no such thing. And truth be told, the jobs created are often short lived. This is not a fix for the structural and employment problems plaguing America.




Footnote;  As always comments are welcome and encouraged. This article goes hand in hand with another article that focuses on government debt and just how big the problem has become you can find that article below.
        http://brucewilds.blogspot.com/2014/10/an-ugly-math-primer-on-american-debt.html
  


   



Quasi Government Ventures Used To Expand Government

Nearly two years ago I wrote about how the role of the government in America is changing on federal, state and local levels. I see this when I sit and have coffee near the front window of the building where my office is located. This window looks out on what might be called the crossroads of America.  Across the street is a Target store that was recently expanded in to a super-target, behind it a toxic waste site cleaned up to where it may be used in a limited way.  A bank on the corner, built ten years ago after demolishing the preexisting buildings, has changed its name five times through acquisitions. Miscellaneous stores and offices line the street, coming and going, many with "for lease signs" that have become far too common in recent years. 

It only takes a minute or two to see how government mandates that are often unfunded and fostered upon both businesses and private citizens have changed America. If uunchecked it is the nature of bureaucracy to expand, the use of sun-set legislation is often underused or the bar set too low when it comes to extending and renewing government bodies. Politicians and bureaucrats deterred from expanding or funding programs by a few vigilant citizens, wait and find creative ways to reach their objective at a later date.  They do this by creating special bonds, attaching fees to needed services or narrow taxes that go on to fund new authorities, commissions, and districts. Often these groups are allowed to regulate or set rules that affect us all.

Government need not be efficient, we see this in issues small and large. One example is our currency, not only is the penny still being used, four new versions of it were released in 2009.  The penny is totally antiquated and  illogical if an employee is paid only $12.00 per hour it cost twenty cents per minute.  How can you afford to pay that employee to count and handle pennies, the labor exceeds its value.  According to the “citizens to retire the penny” it cost the Country more than $15 Billion Dollars annually, but to the government that matters naught. To make things worse incestuous government relationships have trickled  down to local governments. In my area the Airport Authority that taps into local tax dollars supports and gives money to PBS television and the Downtown Improvement District as a way to spread around our wealth. 

The Government hurls money at inefficient programs to assist the poor.  Government has spent a fortune in housing for low income people offering low prices to the applicants. Government housing competes with private enterprise but government supported housing is able to “cherry pick” those that will be good residents because the subsidizes substantially lower their rents. This rejects to the streets the more troubled people needing housing thus ignoring their mission of helping the most needy. Public transportation systems often run empty. Food stamps do not limit the user to economical healthy basic foods, but even allows a recipient to pick up steak and lobster that they can give to friends and family at Christmas, a blind eye is turned towards these glaring flaws.

Amazing is the high percentage of  vehicles on our roads that are government owned or busy going about government related business. These include the empty city buses, police cars, fire trucks, post office, housing authority, city parks, and code enforcement department, all day long these vehicles drive back and forth. To this we must add the quasi government units like utilities, which are regulated monopolies, this would extend to and cover the groups trimming trees and running new lines and all those vehicles providing services to help meet the many government mandated and required regulations that are paid for with taxes and fees. Yes, government has wormed its was into every nook and cranny of the economy this is clear in our hospitals and universities.

Unneeded quasi government organizations by nature reach out to expand the influence and power of their directors. Instead of focusing on the business of government and simplicity, this new proactive movement, one of "cuteness", disguised in the shawl of flexible and diversity is being expanded, and we are paying the tab.  Government is proud of pet projects and under terms like "Public Private Partnership" they continue to grow. This allows bureaucrats to experiment and try new things without the personal financial risk of a businessman. Bureaucrats and politicians are creative on our dime and this is a problem for concern. The best time to kill a monster is while its still small, that time has passed, now we can only hope to slow its growth through starvation, and that is unlikely.




Footnote; this dovetails with a post on February 6th, 2012 titled "The Assault of Growing Government," it can be accessed at
                    http://brucewilds.blogspot.com/2012/02/assualt-of-growing-government.html

Thursday, November 6, 2014

Why American Equities Are Rising

In addition to manipulation by the government-financial complex other forces are converging to further distort and disconnect Wall Street from the American economy. Why American equities continue to rise is very important, more is at force here than the usual causes which might include a pre-election and post-election rally. The market has been all a twitter as we continue in a "greed and stupidity loop" that can best be explained as follows, stocks are rising so why get out, not getting out is causing the stocks to rise. We are experiencing a double down and let it ride mentality that has been ratcheted higher by media hype, but more is behind the stock market move.

Greed is running rampant at a time when low interest rates continue to force savers to move to more risky investments or see their wealth erode through inflation. Just as important it must be noted that as the dollar gains strength cross border money flows have become a massive factor. U.S. assets have already become  the biggest benefactor of the Japanese Government Investment Pension Fund’s (GPIF) decision to more than double its target allocation of foreign stocks to 25%. According to analysts the changes to the $1.1 trillion pension fund coinciding with the Bank of Japan’s shocking decision to ramp up stimulus on Friday is a big reason for why global equity markets are soaring.

“The shift for international equities going to 25% of pension fund holdings is fairly big news,” said Tobias Levkovich, chief equities strategist at Citigroup. “It establishes a new incremental buyer of shares and the U.S. should be a significant beneficiary,” he said. The overall contribution to non-Japanese stocks could approach $60 billion of new purchases, half of which could go to the U.S. by the end of 2015, Levkovich said as he noted that foreign investors typically buy large cap stocks which have greater index impact. While these cross border flows have been good for the market I caution it does not fundamentally change the economy.

Most analysts agree that money from countries with weakening currencies is flowing out of the troubled areas and the U.S. is receiving most of the benefit. The Japanese as well as many Chinese and Europeans know with so much money floating around and few safe harbors America is becoming the most comfortable option for temporary investing their money. Currently, the world is watching Japan closely because it’s such a large economy and its currency appears to be in a free-fall. If the global markets start leaning on Japan, something that may happen any moment now because of its behemoth debt levels, the entire country could start going up in smoke.

Japan's leader Abe took office promising he had a fix for the economy, but as signs appear that the situation is only getting worse. Abe has given signs of seeking to take the blame for his failures out on China and while some nationalist in the population may follow him it doesn’t look like there’s enough trust left for him to move forward. It is hard to predict who will follow as the next leader, but it’s still a highly volatile situation that Japan finds itself in with huge potential downside effects for the whole world. The system is signaling that it is unstable and this means contagion could quickly take root bringing about an abrupt fall in stocks.


    Footnote; Your comments are welcome and encouraged. If you have time please check out the archives for other post that may be of interest. Below are two post I recently wrote, one deals with how the Fed has voiced concern over the impact of a stronger dollar, and the other about not underestimating the importance of preserving your capital because it could get ugly very fast.

 http://brucewilds.blogspot.com/2014/10/fed-concerned-that-stong-dollar.html
 http://brucewilds.blogspot.com/2014/11/capital-preservation-is-job-one.html

Sunday, November 2, 2014

Putin Scores More Points In Ukraine Conflict

As time goes by Putin continues to rack up more points in the Ukraine as the conflict drags on. Things appear to have quieted down to many as the eyes of the world have moved to more pressing issues, but the war continues and Putin is playing the long game by grinding away at the resolve of both bankrupt Kiev and the EU. Putin has sat back as violence festers and currently holds the trophy of a bloodless Russian annexation of Crimea. Obama would give his eye teeth for such a victory. All the self-righteous huffing and puffing in Washington over Ukraine jars on European and especially Russian ears after the multiple U.S. led invasions and interventions into several countries in recent years. The grim reminder of American decisions are still being felt in a crumbling Iraq, the horrific growth and success of ISIS, and by the ever growing numbers of Afghan civilians dying as America wraps up its withdrawal.
The Game Continues As More Innocent People Die


As winter gets ever closer a cold reality is settling in as the Euro-zone furiously scrambles to find alternative sources of energy should Gazprom pull the plug on natural gas exports to Germany and Europe. The surge in Ukraine gas prices is probably the best indication of what Europe faces. A cutoff by Russia would severely disrupt supplies. The EU, Turkey, Norway, Switzerland, and the Balkan Countries received 30% of the natural gas they burned last year from Russia according to the U.S. Energy Department "We have to be very careful not to hurt ourselves more than we hurt the other side," the Polish Foreign Minister has said. This comes after Russia announced what many have called the "Holy Grail" energy deal with China that has geopolitical implications for the whole world as it binds the two nations in a commodity-backed axis.

A recently signed deal for gas supplies to Ukraine only highlights the fact the devil of any agreement is in the details. It was quickly pointed out the EU didn’t give any guarantees to Russia for Ukrainian gas payments by a spokeswoman for the European Commission in Brussels. The Russian Energy Minister Alexander Novak said any resumed supplies could be halted again on Jan. 1 if Ukraine doesn’t pay $3.1 billion in debt prepay for future deliveries. It appears this deal is tenuous and the guarantees of it being fulfilled are weak. In the end the money will come from an IMF loan to Ukraine which means that many of the same countries that are claiming to oppose Putin and not giving any guarantees for payment will be filling Putin's coffers with cash.

The Russian President has kept tensions high and some people think he may be telegraphing his intentions with his fighter jets. This forced the North Atlantic Treaty Organization to scramble its own warplanes several times this week. Russian military planes were tracked over the Baltics,North Sea, and Atlantic yesterday. “The airspace interceptions around Europe in the past few days show that Russia is willing to challenge NATO and has no interest in de-escalation,” Stefan Meister, an analyst at the German Council of Foreign Relations in Berlin, said by phone. “I don’t see this gas deal as a step forward.”

On the ground in Eastern Ukraine the daily clashes have intensified between rebels and government forces. The Russians have been sending more supplies to the region, according to the Ukrainian army while the Kremlin has denied any "military involvement" in its neighbor’s crisis. The EU on October 30th rebuked Russian Foreign Minister Segei Lavrov, who said that his country would recognize the separatist elections. Reports are Russia continues to supply the militants and conduct surveillance from its side of the border. Russia’s Emergency Ministry said it’s organizing another convoy that will include meat, sugar, construction materials, fuel and medicine.

As parts of an EU-Ukraine Association Agreement will go into effect today, covering such areas as the rule of law as well as the fight against crime and corruption. Nothing has really changed within Ukraine and the next flashpoint may be in the self-proclaimed republics of Donetsk and Luhansk. The separatists are pushing ahead even as daily fighting and violent clashes test a truce signed September 5th.  “The separatist elections planned on November 2nd matter a lot more in terms of the big picture than the gas deal,” Arkady Moshes, the head of the EU’s Eastern Neighborhood and Russia research program at the Finnish Institute of International Affairs, recently said by phone. “The overall conflict is in a state where too many parties simply don’t want to have any solution.”

As this unfolds a self-righteousness President Obama continues to scold Russia for intervening in the affairs of Ukraine and Secretary of State, John Kerry is on record declaring it unacceptable to invade another country on a "completely trumped-up pretext," or just because you don't like its current leadership. The glaring hypocrisy exhibited by the White House and what appears to be a total lack of self-awareness by U.S. officials has shocked the world. While Obama  continues to charge his Russian counterpart, Vladimir Putin, with violating Ukraine's sovereignty and territorial integrity in breach of international law, it is difficult to forget the infamous "Fuck the EU" comment by Assistant Secretary of State, Victoria Nuland in the run-up to Ukraine's revolution. The comment revealed the extent to which Washington was recklessly maneuvering to undermine Ukraine's elected pro-Russian president by backing the Kiev street protesters' demands.

Reality on the ground remains that America has few military options in Russia's backyard unless it has the backing of a full and enthusiastic NATO and that is very unlikely. The political reality is that few Americans support such action and the number is dropping each day. Europe has reason to be unexcited about a possible long and expensive conflict. While still trying to recover from a recession, Europe would face fuel shortages and a massive spike in the price of natural gas. Currently, Russia supplies much of the gas used in Europe, this gives Putin a great deal of leverage. If an actual ground attack were to occur few see the Russians as likely to rollover as other armies have when America approaches.

Many in the West point to a weakening ruble as proof they are winning this "cold war." Russia’s currency has been plunging as Russians pull capital out of the country amid the standoff with the U.S. and its allies over Ukraine. Sanctions imposed by the U.S. and the EU have shut Russian companies out of foreign capital markets and threaten to push Russia into recession. It must be noted the euro is also falling as Euro-zone economies falter and this is pushing Russia into forging stronger bonds with China. This will haunt the Euro-zone in the long-run.  Don't hold your breath for Putin to back-off or back-down, he has put down his marker and is now playing both Obama and Kerry for fools in a contest that may cost Russia little. If Putin doesn't get his way next week he will next month or next year at the latest. This conflict won't be over until Putin says its over.


   Footnote; Your comments are welcome and encouraged. If you have time please check out the archives for other post that may be of interest. Below is another of several post I have written concerning Ukraine.
 http://brucewilds.blogspot.com/2014/04/war-in-ukraine-bad-idea_26.html