Tuesday, August 26, 2014

EU Moving Towards A Deal On Ukraine?

With winter moving ever closer several countries are not excited about problems with Russia and higher prices for natural gas, I see signs that much of Europe is ready to deal on Ukraine. Recently Germany's Vice-Chancellor and economy minister Sigmar Gabriel came out and spoke of support for a "federalization" of Ukraine once fighting between Ukrainian and Russian separatist forces in the eastern part of the country ended. "The territorial integrity of Ukraine can only be maintained if an offer is made to the areas with a Russian majority," Gabriel was quoted as saying "A clever concept of federalization seem to be the only practicable way," he added that a ceasefire was the first step and that still appeared to be a long way off.

While Merkel immediately distanced herself from Gabriel these comments raised eyebrows because of his use of the word federalization is a sensitive term in Ukraine. During a news conference with Ukrainian President Petro Poroshenko, Merkel said what Germans understood by federalism was seen very differently in Ukraine where it was linked to a greater degree of independence "that we don't want at all". Pro-Russian media have in the past called pro-Moscow separatists supporters of federalization. "What we call federalism is decentralization," said Merkel, when asked about Gabriel's remarks. She said she supported Poroshenko's plans to give more responsibility to local authorities as part of a diplomatic solution to the conflict.

This appears the best hope for bringing breakaway provinces such as Donetsk and Luhansk back into the fold of democratic politics and accommodating those who may feel themselves somehow both Ukrainian and Russian, or somewhere in between. It’s the best hope for removing disputes from the hands of masked men with guns and moving this back into the realm of politics. Back in March, Ms. Merkel’s spokesman, Steffen Seibert, spoke of “federalizing solutions.” Accomplishing this, he said, would be a major part of “the political redirection of Ukraine.”  In truth Ukraine is both dysfunctional and bankrupt, this means without outside funding disguised as "aid" from America and the IMF a resolution would sooner by reached.

Under the present system, the central government appoints provincial governors. As expected a governor sent by the new Kiev authorities who are distrusted by many in the east has has little hope of establishing his authority without force.  It would be best if those opposing the government in Kiev were encouraged to take the argument off the streets and into elected bodies. Those favoring greater regional autonomy, and even closer ties with Russia might win some local elections, but that would be far better than Western Ukraine waging a full out war against their brothers in the East and promising death to those who don't want to be under their control.

It seems both Russia and many of the separatist in Eastern Ukraine would support federalization. Surely, no reason exist for Kiev to be opposed other than a loss of power. Federalism does not mean debilitating decentralization it means the possibility of stopping violence and restarting politics. It also is the most plausible way of keeping Ukraine intact. Support for sanctions is mixed in Europe as some countries fear Russia and have an ax to grind with Putin while others wish to move forward. Saber rattling has only lead to death and destruction.  As I see it little good will come from further bloodshed and it is time for the West to stop sending money to Kiev so they can ramp up the violence and continue the civil war.

   Footnote; This post dovetails with many of my recent writings, as always other related articles may be found in my blog archive. Below is another post concerning the situation in Ukraine. Thanks for reading, your comments are encouraged.

Sunday, August 24, 2014

Pakistan Is Approaching A Crisis

Read more here: http://www.sacbee.com/2014/08/22/6646935/ap-photos-pakistani-protesters.html#storylink=cpy
Pakistan is approaching a crisis and America is more or less powerless to influence the outcome.  It also appears that few Americans care. The Islamic Republic of Pakistan is a sovereign country with a population of over 180 million people. What makes Pakistan so important is the fact that it has nuclear weapons and is politically unstable. Trouble has been brewing in our relationship with Pakistan for years even though America has poured billions of dollars in aid into the country, it could be argued that we were buying their cooperation rather than we had a strong interest in being their friend. When the Pakistan government failed to control extremist elements in the country, America began to use drones to attack inside the country's border, this has stirred outrage and protest against America.
Protest Are Growing In The Unstable Nuclear Power

What should alarm Americans after all the other recent problems in the region is that tens of thousands of protesters armed with sticks and wire cutters have swarmed into the fortified red zone in the center of Islamabad calling for Prime Minister Nawaz Sharif's resignation and the dissolution of parliament. The week-long protests in the capital are around the parliament building, the prime minister’s official residence and many Western embassies. The government said that security forces had been deployed to protect the area which includes the United States Embassy. The protesters, who have camped in the capital since Friday, are led by Imran Khan, the former cricketer, and a charismatic cleric named Muhammad Tahir-ul Qadri, who run separate campaigns but are united in their opposition to Prime Minister Nawaz Sharif.

Mr. Khan’s crusade received a major lift on Tuesday when his supporters merged with Mr. Qadri’s, forming a crowd that the police estimated at more than 40,000. In a speech, Mr. Khan repeatedly attacked Mr. Sharif, whom he accuses of stealing the 2013 election through vote rigging. He has even challenged him to a duel. He described the prime minister as a thief and a corrupt politician and vowed to turn the space outside the Parliament building into “a Tahrir Square,” a reference to the site of the 2011 uprising in Egypt. While instructing his supporters to remain peaceful, he warned of the possibility of violence. This is widely seen as a final effort by Mr. Khan to rally his supporters after days of threats and political speech. Despite the festive atmosphere, the demonstrations are causing problems such as an increased demand for food, water, and toilets to accommodate the thousands of people many who are sleeping in the streets.

Mr. Sharif’s government, which came to power in June 2013, has struggled to quell the escalating political crisis, partly as a result of Mr. Sharif’s tense relationship with the Pakistani Army leadership. In recent days. Mr. Sharif’s administration failed to engage Mr. Khan and Mr. Qadri in negotiations to end the standoff and appeared to be hoping that the protests would simply fade. Yet, there was little sign of that Tuesday evening, as Mr. Khan and Mr. Qadri both gave impassioned speeches before sending their followers toward the city’s protected area, which was ringed by shipping containers and thousands of police and paramilitary officers.

Many reasons exist to be concerned about Pakistan going forward, for years the country has experienced internal violence and attacks from extremist groups within the country. With the government sometimes struggling to maintain order, and a military that sometimes threatens to take control over the country the political stability of Pakistan is often questioned. The fact that Pakistan, and India it's neighbor to the south both possess nuclear weapons and a long history of problems and tensions is a huge worry and concern for the region. It would not be good to see more instability in this region that is already being rocked by ISIS.

Pakistan's motive for pursuing a nuclear weapons program was to counter the threat posed by its principal rival, India, which has superior conventional forces. This is what makes Pakistan so important, at any time an unstable Pakistan could be sucked into, or be the one to start a nuclear war. Adding to this concern is that Pakistan is an obvious place for a jihadi organization to seek a nuclear weapon or fissile material, both the military and security services have been infiltrated by a number of jihadi sympathizers. Three key threats exist, a terrorist theft of a nuclear weapon, transfer of a nuclear weapon to another state like Iran and a takeover of nuclear weapons by a militant group during a period of instability. 

Pakistan is home to some of the harshest variants of Muslim fundamentalism, and headquarters of organizations that espouse extremist ideologies, these include Al Qaeda, the Haqqani network, and Lashkar-e-Tayiba. Nuclear bombs capable of destroying entire cities are transported in delivery vans on congested and dangerous roads. And sources say that since the American raid to kill Osama bin Laden, the Pakistanis have provoked anxiety inside the Pentagon by increasing the pace of these movements. Ironically the Pakistani government makes its nuclear weapons more vulnerable to theft by jihadis in an attempt to hide them from the United States, the country that funds much of its military budget. 

Adding to the current woes within Pakistan on Saturday they traded gunfire with India in the disputed Kashmir region. Officials said the exchange killed two villagers on each side and wounding several others. A top official with India's paramilitary force said Indian forces retaliated after Pakistani troops fired guns and mortar rounds on more than a dozen Indian border posts and several villages. Kashmir is divided between India and Pakistan, and the rival neighbors claim the disputed Himalayan region in its entirety. Pakistan and India have fought three wars since gaining independence from Britain in 1947, two of them over Kashmir. 

Pakistan and India have largely followed a 2003 cease-fire accord, but sporadic violations have occurred. Tensions escalated in Kashmir since earlier in the week India called off diplomatic talks with Pakistan because the Pakistani ambassador in New Delhi met with separatist leaders from the disputed region. India said the meeting undermined efforts to thaw relations between the nuclear-armed neighbors. India has tolerated such meetings in the past, this suggests the new government may be taking a harder line. While this all seems distant and irrelevant to most Americans it is important we remember Pakistan is in a position to start World War III. As of now Prime Minister Nawaz Sharif has been assured by the country's military there will be no coup, but in return, he must "share space with the army", according to a government source.

Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged. Below is an article that was written a while back giving more background on Pakistan and detailing why the country is so important.

Saturday, August 16, 2014

Obama To Meet With Ferguson Hero!

Missouri State Highway Patrol Captain Ron Johnson is America's newest media hero. He was quickly elevated to this position when called upon to clean up the mess created in Ferguson by an over zealous and heavy handed  police force.  Governor Jay Nixon on Thursday appointed Johnson to take over security after concerns were raised about how local police had used tear gas and rubber bullets on protesters earlier in the week. The media has been generous on its coverage of Johnson showing him as a man of strength and courage walking the streets of the troubled area where he had been raised. His program of reaching out and creating a dialogue with those angry over the death of a black teenager at the hands of white police officer has garnered national attention.

Anger boiled over again early Saturday morning when protesters stormed into a convenience store that Michael Brown was accused of robbing. Police and about 200 protesters began clashing late Friday after another tense day in the St. Louis suburb, a day that included authorities identifying the officer who fatally shot Brown on Aug. 9. At the same news conference in which officer Darren Wilson was named, Ferguson Police Chief Thomas Jackson released documents alleging that Brown stole a $48.99 box of cigars from the convenience store, then strong-armed a man on his way out. Police said they found evidence of the stolen merchandise on Brown's body.

According to a Fox News article Johnson said one tear gas canister was deployed after a group of rioters became unruly. Before midnight, some in what had been a large and rowdy but mostly well-behaved crowd broke into that same small store and began looting it. Some in the crowd began throwing rocks and other objects at police, Johnson said. One officer was hurt but details on the injury were not immediately available. Johnson said police backed off to try and ease the tension. Looting spread to a couple of nearby stores with some of the looters carrying guns. No arrests were made."We had to evaluate the security of the officers there and also the rioters," Johnson said. "We just felt it was better to move back." About a dozen people eventually blocked off the front of the convenience store to help protect it.

Allegations that Brown committed a robbery and the release of surveillance video that shows a man wearing a ball cap, shorts and white T-shirt grabbing a much smaller man who had come from behind the store counter and "forcefully pushed him back" into a display rack. This portrayal of Brown as a thug and a bully angered attorneys for Brown's family and others, including U.S. Rep. William Lacy Clay. Earlier Friday night, the Democratic congressman took a bullhorn and told protesters, "They have attempted to taint the investigation. They are trying to influence a jury pool by the stunt they pulled today." Family attorney Daryl Parks said Brown's family was blindsided by the allegations and release of the footage.

An all out effort to raise this event to the highest level of racial injustice is being made as people are coming out of the woodwork to make a statement and claim a moment of fame. For example another family attorney, Benjamin Crump, said police "are choosing to disseminate information that is very strategic to try to help them justify the execution-style" killing. Crump, who also represented the family of Trayvon Martin, the teenager fatally shot by a Florida neighborhood watch organizer who was later acquitted of murder. In reality it boggles the mind to compute the odds of these two families sharing the same attorney.

Brown's family and supporters now have name of the officer responsible for the shooting. Wilson is a six-year police veteran, two in neighboring Jennings and four in Ferguson. He has no previous complaints filed against him and the Ferguson police chief described Wilson as "a gentle, quiet man" who had been "an excellent officer." St. Louis County prosecutor Bob McCulloch said it could be weeks before the investigation of the shooting wraps up. The Justice Department confirmed in a statement that FBI agents had conducted several interviews as part of a civil-rights investigation into Brown's death. In the days ahead, the agents planned to canvass the neighborhood where the shooting happened. I suspect Officer Wilson is not overjoyed at the split-second decision he made, the road before him is very ugly. In time the violence and circus will settle down and morph into finger-pointing.

I want to be one of the first to go on record  to predict Johnson will soon be on his way to meet with President Obama. This will allow the President to make a forceful statement flanked by Johnson and community leaders as to how tragic this all is and chalk it up to racism pure and simple. Many Americans who have been the target of a swat team raid, myself included, will point to a larger factor and one that the President has been complacent in and even encouraged to develop. The continued militarizing of Americas police forces. This has been going on for years. Police have moved from the mission of "to serve and protect" to waging a war against enemies like terrorism, drugs, alcohol, and crime. Sadly, the American people have been caught in the crossfire. Spinning this event with a message that serves the President does not lessen the role of Obama and the NSA in moving us further down the path to becoming an Orwellian state.

Footnote;  The incident where I was involved in a swat team raid took place when a police officer saw one of my workers carrying a sawsaw with a long blade into a building where we were doing a small repair job. Mistaking the tool for a gun the building was soon surrounded. Even after entering the building and finding us working, inspecting the tool, and confirming that I had not taken my surprised tenant hostage the over aggressive officer continued to insist he was right while his fellow officers snickered. What is important is this speaks volumes to the officers state of mind.

Monday, August 11, 2014

Modern Monetary Theory is wrong, debt does matter

If the economy was healthy and balanced we would not be experiencing slow growth while massive amounts of money are being printed and poured into the system. The crux of our problem remains in the fact that both people and governments have lived beyond their means by taking on debt they cannot repay. Over the last several decades we have created entitlement societies built on the back of the industrial revolution, technological advantages, capital accumulated from the colonial era, and the domination of global finances. Promises were made on the assumption that the advantages we enjoyed would continue in both Europe and the US. Ever greater prosperity and entitlements were to be sustained through debt financed consumption growth. In that eerie fantasy world, debt-fueled consumption was to be the catalyst to bring about evermore growth.

Now reality has begun to come into focus and it is becoming apparent that this is unsustainable. The entitlements and promises that have piled up have become overwhelming. The world has latched onto and embraced Modern Monetary Theory as the answer to its woes. Referred to as MMT to its many believers it removes much of the risk ahead and guarantees that we will always be able to muddle forward. MMT is also known as neochartalism an economic theory that details the procedures and consequences of using government-issued tokens and our current units of fiat money. Newly acquired tools like derivatives and currency swaps are supposed to allow us to print and control growth going forward thus manipulating our problems away.

Debt is often nothing more than the promise of future payment and is affected by interest rates. It appears debt does matter except in the manipulated land of MMT where what you pay in interest can overnight change everything by redefining the obligations outstanding and coming due. For example, In Europe, the ECB had to step in to halt the economic collapse of Spain, Italy and several other countries that were on the brink. The ECB did this by artificiality lowering and altering interest rates paid on risky debt. It is important to understand the nature of debt and that some debt often is diminished or written off over time. This allows "new debt" to form and become the foundation to pay for future obligations, too often this is the building block of growth. If all debt is treated the same and diminished the value of both savings and future payments will be devalued. Altering the rate paid in interest completely changes how budgets play out going forward and where people invest.

Politicians looking for the "easy way out" and knowing little about business and the economy reach for answers that only delay disaster or spin optimistic messages that reflect well on them. Even as I type this article President Obama filled his time at a conference in New York with African leaders and left touting Africa as part of the answer and the new land of opportunity for American business to go forward and prosper. A place where we can grow creating jobs here at home while making the world a better place. While this happens what appears to be playing out is a scenario where society is being worn down through attrition and we are developing an "almost surreal" feeling of indifference towards reality. We should not forget much of the debt the world faces must be rolled over within a very short period such as the next five years and time has a way of passing very fast.

In recent years the concept of austerity has been given a bum rap The argument by contemporary Keynesian economists that budget deficits are appropriate when an economy is in recession bolster this movement. They claim it reduces unemployment and helps spur GDP growth, and that in an economy one person's spending is another person's income. If everyone is trying to reduce their spending, the economy can be trapped in what economists call the paradox of thrift, worsening the recession as GDP falls. If the private sector is unable or unwilling to consume at a level that increases GDP and employment sufficiently, thus the argument often heard that the government should spend more, and not less.

In truth, an argument can be made that austerity measures do not necessarily increase or decrease economic growth.  All attempts by central governments to prop up asset prices, bail out insolvent banks, or "stimulate" the economy and deficit spending make stable growth less likely.  Often the typical goal of austerity is to reduce the annual budget deficit without sacrificing growth.  Over time, this should reduce the overall debt burden, as the economy grows.  Blaming austerity for the blow-back from governments living beyond its means is more than unfair, we should at all times conduct business and run our government with responsible reigns on spending. If a government spends and runs its business in an austere way the issue of when to start cutting or tightening should never surface.

MMT as a cure to past woes adds a whole new exciting dimension to economics that eliminates any potential of failure and concern that the sun will not come up tomorrow. However, there is a major flaw in the concept of MMT that not only wounds the theory but it is its Achilles heel. What do you do when it becomes apparent the economic efficiency of credit is beginning to collapse? This means that as more money is poured into the system and lower rates are no longer effective in driving the economy forward options evaporate. As the extra GDP growth generated by each batch of loans drops and momentum ends this become the equivalent of pushing on a string and is a sign of exhaustion.

Companies have already ushered savings from interest paid on debt into the earning column and a major reason inflation remains low is they are sitting on a hoard of cash this has lowered the velocity of money. We must remember the artificially low FED controlled interest rates are a massive one-off or onetime tailwind that is mainly behind us.  When rates stop going lower or reverse the positive effect will ebb and become a major headwind. With massive government debt in many countries and the economy still weak this headwind has the potential to become devastating. The collision of MMT, social unrest over inequality, and other destabilizing factors have the potential to create the perfect storm.

The situation that is developing may require a massive shift in future lifestyles over a very short and painful time-frame. The failure for countries to address their long-term debt problems coupled with the number of growing people nearing retirement with little in the way of saving bodes poorly for the economy going forward. Big changes in Medicare that are occurring under the radar also should raise concern. If and when a deep hit to the system takes place we could suffer the triple threat, and as confidence falls the credibility, and the competence of those in charge will be called into question. If this happens the fabric of society may be severely challenged.

Monday, August 4, 2014

Where Wealth Is Held

A recent article presented to me delved into the subject of high-earning Americans, where their wealth came from, and just as importantly where it was stored. This got me thinking about the so-called wealth effect as well as how all that wealth was held. The really big earners in recent years have benefited greatly from the surging stock prices as much of their income has come from financial markets and gains in equities. Many people seem to think this is the hope of our future. When you have more than you need or want to put money away for a rainy day where do you store it? If you rated people on a "wealth chart" by how many tangible assets they owned you might be shocked to find much of the wealth people own is in paper and this is full of risk.

It could be said that "paper wealth" is merely a promise of future value. Unfortunately, this leaves much of society and many rich individuals vulnerable to rapid financial loss if the tides of fortune shift or if values rapidly change. Currently not only are we faced with banks paying little in the way of interest we must also fear they or the government might reach in and seize part of our money. By forcing people to pull their money out of banks and other safe investments in search of higher yields we have driven up stock prices. Some of these stocks have reached unbelievable multiples.

People often do not understand money and wealth. Myths about both run rampant and become intertwined with deeply rooted personal feelings passed down from parents or acquired, these feeling often muddy and skew how people deal with wealth. An example would be anyone who felt deep down that money was the root of all evil would react to winning the lottery far differently than someone with the belief that you can buy happiness. I have even heard poor people say they didn't see much point in winning a lottery of  several hundred thousand dollars because "that's not much money." When the B word "billions" is so prevalent in society today it is understandable many people exist with distorted values.

Truth be told most people are not overly endowed with discipline this includes many people that amass a fortune. This often means that many wealthy people tend to "misplace" or lose track of where they have placed their wealth. Sometimes it is simply put into a system that is on autopilot. Years ago I purchased a property from a doctor on contract. The doctor having bought the property on contract had me just send the payments to the man he bought it from so he would not be bothered. After many years I contacted the doctor to discuss a discount for a cash payoff and his accountant discovered the first seller had been paid off years before and continued taking the money he had no right to. The doctor was shocked and getting his money back proved difficult.

Annuities, pensions, stocks and such promises of future payment tend to dominate the list of favorite vessels in which to store wealth and many of these are leveraged to maximize returns and garner higher yields on our investment. Cash is another option but holding it in your possession leaves one open to theft and means the money will earn no interest. What is often missing or overlooked is tangible fully paid for items and things that are likely to hold their value and in the direct possession of the owner. People tend to avoid tangible assets in their control because they are often inconvenient. Valuables can be a pain to have about and they often need to be insured which also calls attention to their existence.

When you subcontract out control of your wealth or turn it over to a money manager you often get promises but no iron clad guarantee. Confidence in a money manager can quickly be dashed, all the people invested with Bernie Madoff discovered just how suddenly things can go south and promises turn hollow. While it has become both fashionable and common in recent years to let someone else who knows and specializes in financial planning and markets to control this segment of our lives I feel it is a big mistake and a dereliction of duty. Wealth should come with a warning notice saying "Holder Beware This Commodity May Vanish Spoil Or Grow Obsolete At Any Time!"

   Footnote; Please feel free to explore the blog archives and as always you comments are encouraged. Below are two articles related to the subject above,

Sunday, August 3, 2014

Islamic State of Iraq and the Levant

ISIS Is A Plan Gone Awry
To Americans eager to forget what is happening in Iraq the crisis has been easy to ignore because of other events throughout the world. Sadly things have deteriorated to the point that Americans are using every opportunity to take their eyes off what has become a train wreck, Iraq is rapidly morphing into a failed State. Consider this proof it is often unwise to take your eyes off a problem for long because when you look back you might find that things have gone horribly wrong as is the case in Iraq and Syria. The lyrics from a song "slip sliding away" come to mind as a way to describe the massive investment made in Iraq by America. Recently a group called ISIS shocked much of the world by swiftly capturing Mosul in an offensive that allowed the group to take control of major parts of northern and western Iraq. On June 29, 2014, the Islamist militants declared an Islamic "caliphate" in an area straddling Iraq and Syria and trumpeted the declaration in videos seen around the world.

A jihadist from the Islamic State went on to warn "We will break other borders," signifying more expansion was planned. Iraq and the Levant alternately translated as the Islamic State of Iraq and Syria (ISIS) has claimed religious authority over all Muslims and aspires to bring much of the Muslim-inhabited regions of the world under its direct political control including the nearby territory in the Levant region, which includes Jordan, Israel, Palestine, Lebanon, Kuwait, Cyprus, and part of southern Turkey. The leader of ISIS is Abu Bakr al-Baghdadi says it is the caliph of Muslims everywhere. It also announced that it was changing and shortening its name to Islamic State. Hundreds of supporters were shown celebrating the announcement by firing guns into the air in the eastern Syrian city of Raqqa. ISIS is known for its harsh Wahhabist interpretation of Islam, and brutal violence directed at Shia Muslims and Christians. In addition to attacks on government and military targets, ISIS is responsible for attacks that have killed thousands of civilians. Success on the battlefield has bolstered their standing and even talk of taking Baghdad has been battered about.

According to a report published by Reuters, the group known as ISIS may have actually been trained over the last two years by the United States government in Jordan. It would be quite ironic if the United States was actually responsible for the training of those now destabilizing the Iraqi nation, but that seems to be the case. It is not known at the time of this report whether those doing the training were direct members of the US government or if they worked for a private firm we funded, but the main focus of the training was on anti-tank weaponry. The report continues that 200 men were trained at the facility and that over 1200 were to be added in a plan to prepare to free Syria from the rule of President Bashar Al-Assad. French and British advisers were present as well to aid in the training and according to Jordanian intelligence sources, the program was designed to create fighters to be a part of the ISIS group. The plan appears to have been to train 10,000 “moderates” of Islam in the hope that they would reinforce American interests in the region.

Arizona Senator John McCain even paid a visit to the group during training to show his support. McCain was photographed with General Salim Idris, who was later expelled from the group because he was seen as too moderate for them. The new leader of the group is General Ibrahim al-Douri. He was the Vice-President of the Revolutionary Council under former Iraqi dictator Saddam Hussein and was supposed to be the successor to Hussein. Al-Douri has been on the US most wanted list since the second Gulf War began and many inside the United States government thought he was dead. It appears he now has a huge war chest at his disposal, which has come from US allies, including Kuwait, Qatar, and Saudi Arabia. These are all Sunni-based countries which support the ISIS group out of frustration over President Barak Obama’s failure to oust Al-Assad. After Obama failed to take action they have decided to take actions of their own.

Now we have seen the erasure of the Syria-Iraq border by a group that is considered too radical for al-Qaeda, the takeover of Iraq’s second-largest city, the kidnapping of international diplomats, and the declaration their new caliphate each act as a major signal about how grave the situation has become. The problems in the area are not contained by the old border and we must view Iraq and Syria as completely interwoven, they may be two different countries, but one theater in reality. The situation is fluid and creating some rather strange alliances. In a move that muddies the water, even more, the Israeli prime minister, Binyamin Netanyahu voiced support for Kurdish statehood, this position clashes with the US preference to keep sectarian war-torn Iraq united. Pointing to the mayhem in Iraq, Netanyahu called for the establishment of an independent Kurdistan as part of a broader alliance with moderate forces across the region.

Many analysts have dismissed the announcement of a caliphate as hubris, and see it as a gamble for support as the group has surged in size from 3,000 fighters to 20,000 or more, but issues on the ground are clarifying the situation. It seems many soldiers flee rather than fight this cruel hoard that knows no mercy and where surrender means you will be most likely be executed. The group has even beheaded some of its enemies to intimidate those who might resist its advance. Groups like ISIS are unyielding and demand loyalty to their values and cause. The militant message is either convert or be killed. When ISIS moves in the institutions that govern day to day life are destroyed or remade. Reuters reports the group shores up its control over communities with a combination of force and fear. After meeting armed resistance in the town of al-Alam for nearly two weeks they kidnapped 30 local families and sent the town's most influential citizens a simple message about the hostages: Weeks later it appears only a few gunman patrol the town at night so comfortable is the Islamic State in its control through fear." As ISIS sinks its roots into the areas it occupies it will widen its base and dislodging it grows into a far more difficult task.

After ISIS retook control of Raqqa earlier this year, it created the al-Khansaa' Brigade, an all-female unit operating in the city. Its purpose is to apprehend civilian women in Raqqa who do not follow a strict Sharia law that includes a mandate that all women be fully covered in public and that they be accompanied by a male chaperone. Abu Ahmad, an ISIS official says they need a female brigade to "raise awareness among women, and arrest and punish women who do not follow the religion correctly. Jihad is not a man-only duty. Women must do their part as well." The women who join the brigade are either women of Raqqa who wanted to take part in ISIS or often the wives of the men who have come to fight. "ISIS created it to terrorize women," says Abu al-Hamza, a local media activist. The brigade raided the city's Hamida Taher Girls School and arrested 10 students, two teachers, and a secretary on the grounds that some of them were wearing veils that were too thin. Others were accused of wearing hair clips under the veil or showing too much of their faces

It only took the Sunni militant group a little over a month to take over Syria's energy infrastructure and cripple the Assad regime. What's more troubling is that ISIS holdings now include nearly all of Syria’s oil and gas fields. While these are hardly significant on a global scale, they allow ISIS to be self-sustaining and self-funding. A monopoly over fuel in the territory it has captured gives them leverage over other armed Sunni factions who could have threatened its dominance. The militants also seized four small oilfields when they swept through northern Iraq last month and are now selling crude oil and gasoline from them to finance their newly declared caliphate. Near the northern city of Mosul, ISIS has taken over the Najma and Qayara fields, while further south near Tikrit it overran the Himreen and Ajil fields during its two-day sweep through northern Iraq in mid-June. The oilfields in ISIS hands are modest compared to Iraq's giant fields near Kirkuk and Basra, which are under Kurdish and central government control, most of the 80 or so oil wells held by ISIS are sealed and not pumping. More troubling is the news they have just hours ago taken over Iraq's largest dam and now control a great deal of the water in the area.

It seems this Islamic militant group understands the power of the purse and as a revenue earner, it now levies taxes on all vehicles and trucks bringing goods into Mosul. A large truck must pay $400, while small trucks are charged $100 and cars $50. Ahmed Younis, a Baghdad expert on armed groups, said the Islamists were in effect establishing an economic state based on the increasing resources and infrastructure under their command. Considering its grip over oilfields and its growing economic activity, the Islamic State will "transform into an economic giant with assets of billions of dollars," he said. Petrol stations in Mosul are now selling fuel supplied by traders working with ISIS, which charges either $1.0 or $1.5 a liter depending on quality. One petrol station owner in the city said the fuel is brought from Syria and is triple the price before, but drivers have to buy it now that subsidized government fuel is gone. ISIS is now the sole sponsor of the imports from Syria where the group controls oilfields in the Syrian province of Deir al-Zor. They use part of it for their vehicles and sell the rest to their traders in Mosul.

 A spokesman for the Iraqi military claims ISIS is a threat to all countries. Qassim Atta suggested it could change the international community's reluctance to intervene. "I believe all the countries, once they read the declaration will change their attitudes because it orders everybody to be loyal to it," he said. Iraqi state TV broadcast footage of convoys of tanks being driven to Tikrit. Residents in the frontline cities in the fight against Isis, such as Baquba and Samarra, say Shia militias are leading the fight against the militants and wielding inordinate power and that in some cases security forces are deferring to them. This makes for a very ugly picture as things in Iraq continue to escalate with reports that  ISIS has placed IEDs in places such as Mada'in, Yusifiyah, and Mahmudiyah in the southern belts of Baghdad. The deployment of volunteers from southern Iraq to Kirkuk province signifies the spread of their role to protect shrines in areas where ISIS is making advances.

The reallocation of Iraqi security forces from Baghdad signals the fact that the tide of war may be shifting for the worse. Iraq has become increasingly more vocal in demanding U.S. assistance Bloomberg reports the Iraqi Ambassador to U.S. Lukman Faily called for U.S. air strikes warning that Iraqis are skeptical about U.S. intent to support Iraq in its fight against Sunni terrorist groups, saying that "other countries will step in to fill the vacuum if greater American support isn’t forthcoming." Faily calls for U.S. air strikes to stop the influx of terrorists from Syria, to target “terrorist camps,” and precision air strikes even in urban areas. He also said that Iraq has chosen the U.S. as its preferred strategic partner sighting that it has bought huge amounts of  U.S. military equipment and plans "to buy billions more." If Iraqis do not believe meaningful U.S. assistance is forthcoming, they will not have enough incentives to adopt political reforms.

While the U.S. needs to view ISIS as a threat to U.S. and regional interests and this would suggest more military involvement to push back ISIS the crisis is ultimately a political one, not a military one. Changing the politics in the region is key. While the United States continues to debate its next move Syria, Iran, and Russia have been taking action in ways that are often not aligned with US interests. Along with political pressure, more U.S. military assistance to Baghdad and even to the Kurds will give the U.S. political leverage when it comes time to help the Iraqis renegotiate their political compact. Many people feel immediate and urgent action is needed to protect America's interest in the area and say the moment in which the U.S. can make a difference and truly affect the outcome is closing. Sadly, like many Americans, I have no brilliant ideas on how to proceed in what appears to be a war between Sunni and Shia factions.

 Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.