Wednesday, May 27, 2015

U.S. vs China, 'Graccident' Fallout, Israel Warns Hamas

An extremely dangerous conflict is brewing between the US and China in a tiny archipelago in the South China Sea - Editorials - Voices - The Independent

Where lies the greatest potential for disaster in this ever more disordered world? In Russia's efforts to rebuild its former empire? In the chaos of the Middle East, or the chronic instability of a nuclear-armed Pakistan? Conceivably, none of the above. A case can be made that the biggest danger is represented by a semi-submerged archipelago in the South China Sea called the Spratly Islands, object of a confrontation between China and the US and America's regional allies that without wisdom and restraint could escalate beyond control.

The stakes, even by a purely material reckoning are exceptionally high. The tiny islands shut astride a shipping route carrying $5trn of trade a year. The waters that surround them contain rich fishing grounds and, almost certainly, major reserves of oil and other resources. The dispute over the Spratlys, where China, the Philippines, Vietnam, Malaysia, Taiwan and Brunei have overlapping claims of maritime sovereignty, goes back decades. But only recently, with the increasingly assertive and nationalistic policies of Beijing, has it gone critical.

A glance at the map suggest that China's case is tenuous. But that is not how Beijing sees it, Instead it is carrying out a massive land reclamation project, enlarging some of the islands and building runways, harbors and other facilities. In effect, Beijing is constructing a giant unsinkable aircraft carrier 800 miles south the Chinese mainland. 

...the Pentagon sent a surveillance aircraft over the disputed area last week, ignoring eight warnings from the Chinese military to leave. Now Washington has announced it is considering sending warships and warplanes into the 12-mile strip of "territorial waters" around the emerging Chinese base. 

But this response has merely prompted more saber rattling from Beijing. In a new strategic document, China's State Council has set out plans for the country's military to shift from a defensive to a more offensive posture, with a focus on the South China Sea. Meanwhile a newspaper close to the ruling Communist Party has described the island-building as the country's "most important bottom line". If the bottom line of the US is that China must halt these activities, it added, "then a US_China war is inevitable in the South China Sea".

All of which makes a diplomatic solution more urgent than ever.

But the Spratlys crisis is not merely over resources It is part of a wider global pattern. The assertiveness of China and Russia, the growing influence of Iran in the Middle East - each testifies to regional powers filling a void left by the perceived retreat of the US, the established power, under a President seen by his adversaries as weak. In these circumstances confrontations are inevitable. The most perilous of them may yet be with China.

China has upped its military posturing, issuing a strategy paper saying Beijing would “surely counterattack if attacked” by an enemy amid concerns from the US and neighbouring countries over its developments in the South China Sea.

The release of the document came shortly after Beijing lodged a complaint against the US for flying a surveillance jet over disputed territory in the South China Sea, where China is building artificial islands.

Chinese state media reported that the white paper, issued by the state council, the country’s cabinet, underscored that Beijing was committed to world peace and believed that a world war was unlikely. But it added that “small-scale wars, conflicts and crises are recurrent in some regions”. The state-owned news agency Xinhua highlighted one particular phrase, which appeared in the “Strategic Guideline of Active Defence” section: “We will not attack unless attacked, but we will surely counterattack if attacked.”

In one area, the Spratly islands, the US says China has created 2,000 acres of land, with satellite images showing what appears to be an airstrip.  

The paper said that China’s armed forces would work to “resolutely safeguard China’s sovereignty [and] security and development interests” and work towards “realising the Chinese dream of achieving the great rejuvenation of the Chinese nation”

Announcing its release, the People’s Liberation Army spokesman Yang Yujun appeared to be referring to the US when he said that “outside powers” were attempting to “tarnish the Chinese military’s reputation and create an atmosphere of exaggerated tension.” He added: “We cannot eliminate the possibility that this is to create excuses for the actions that certain countries may be planning to take.”

Although President Barack Obama recently said that China was acting like a “bully” towards its neighbours in the South China Sea, the US refrained from having a physical presence in the disputes until it flew a spy plane over the region. The move sparked a diplomatic row, and the Chinese foreign ministry spokeswoman Hua Chunying called the flyover “provocative behaviour”.
China’s rampant land reclamation efforts in the sea have alarmed its neighbours and the US over Beijing’s potential military ambitions there. But despite satellite images showing runways and helipads, Beijing has never acknowledged that the building work is military in nature.

“Every day all around China, there are all kinds of construction projects being started [such as] building homes, paving roads, building bridges, opening new farmland, etc,” Mr Yang said. “Looking from the angle of sovereignty, China’s development of construction on its islands is no different at all from all the other types of construction going on around the country.”

Taiwan’s President Ma Ying-jeou proposed a peace initiative yesterday for the South China Sea, asking claimants to cast aside disputes and concentrate on sharing resources instead. “We demand that freedom of navigation and overflight be respected in the South China Sea,” he said, urging a resolution before “major conflict breaks out.”
The statement was rebuffed by Ms Hua, who said in response: “We believe Chinese people on both sides of the Strait have a duty to jointly protect China’s territorial sovereignty and maritime rights and interests and safeguard the stability of the South China Sea region.”

The paper, released by China's State Council, said the People's Liberation Army Navy would gradually expand its "offshore waters defence" to include "open seas protection".

It said it would adopt an "active defence" military strategy and speed up the development of a "cyber force" which would enhance its capabilities in the event of being targeted by cyber attack.
The paper also indirectly cites Australia's strengthening military alliance with the US as an issue of concern, in the context of the US continuing to enhance its military presence and alliances in the Asian region as part of its "rebalancing" strategy toward the Asia-Pacific.
Senior Pentagon official David Shear said earlier this month that US B-1 bombers would be moved to Darwin as part of a growing US military response to Chinese land reclamation and infrastructure building in the South China Sea.

Beijing reserved especially pointed criticism for Tokyo's increased military spending, which in turn has been a response to concerns over China's rapid military expansion.

"Japan is sparing no effort to dodge the postwar mechanism, overhauling its military and security policies," the paper said.
China's military white paper repeatedly referred to the "Chinese Dream of great national rejuvenation" – an aspirational slogan popularised by President Xi Jinping – as a motivating factor behind its rapidly modernising and expanding military might.
The white paper reiterated China's "adherence to peaceful development" and said its policy was "we will not attack unless we are attacked, but we will surely counterattack if attacked".

It is not surprising that in a few short months Yanis Varoufakis has proven himself to be a thoroughgoing Keynesian statist. After all, what would you expect from an economics PhD who co-authored books with Jamie Galbraith? The latter never saw an economic malady that could not be cured with bigger deficits, prodigious printing press “stimulus” and ever more intrusive state intervention and redistribution.
In what is apparently a last desperate game theory ploy, however, Varoufakis has done his countrymen, Europe and the world a favor. By informing his Brussels paymasters that they must continue to subsidize his bankrupt Greek state because it is the only way to preserve the European Project and vouchsafe the Euro, the Greek Finance minister blurted out the truth of the matter, albeit perhaps not intentionally:

People who believe in democracy and economic liberty anywhere in the world should pray for a Graccident. During the next several weeks, when $1.8 billion in IMF loans come due that Greece cannot possibly pay, there will occur a glorious moment of irony for Syriza.

If it holds firm to its leftwing statist agenda and takes Greek democracy back from the clutches of the EU/IMF apparatchiks, Syriza will strike a blow for democracy and capitalism in one great historic volte-face. That is to say, defiance of the Germans and the troika would amount to a modern monetary Marathon; it would trigger a thundering collapse of the ECB and the cancerous superstate regime built upon it in Frankfurt and Brussels—–and, along with it, cast a mortal blow upon the worldwide Keynesian central banking regime, too.
The hour comes none to soon. In a few short years under Draghi and in the context of Europe’s fiscal and economic enfeeblement, the ECB has been transformed into a hideous reverse Robin Hood machine. So doing, it has gifted financial gamblers and front-runners with hundreds of billions of ill-gotten gains in the euro debt markets.
The good thing is that this whole misbegotten euro project cannot survive the impending Greek default. The ECB alone is now on the hook for $138 billion of Greek liabilities—–an amount that is equal to the remaining deposits in its entire banking system. Needless to say, when the impending “Graccident” explodes onto the front pages, there will be pandemonium at the ECB, and in Brussels and capitals throughout the 19-nation Eurozone.

The fact is, the ECB can’t survive the coming Graccident. It will not only be technically insolvent, but, more importantly, it will also be stripped of every vestige of credibility. How in the world, it will be demanded, did Draghi and his clueless posse loan $138 billion to the massively insolvent banking system of a bankrupt economy which is on the verge of economic and civic anarchy?

Moreover, it will also become swiftly evident that there was no Draghi miracle at all—-just a giant, preposterous con job. Accordingly, the front runners parade of the last three years will turn into a panicked selling rout among the fast money gamblers who have made a killing on paper, and the dim-witted bond managers and European bank investors which went along for the ride.
The truth is, Europe is a socialist fiscal time bomb waiting to explode. There is not one honest price left in the European sovereign debt market, including the 10-year German bund trading at 58 bps. Its all been an illusion conjured by the foolish Mario Draghi, who had no clue that all that soaring peripheral debt about which he was taking endless victory laps was actually being rented by the day by heavily leveraged speculators with their fingers on the sell button.

In short, when the taxpayers of Europe wake up to the $350 billion euros they have loaned the bankrupt state of Greece, and when the feckless politicians of Spain, Italy, Portugal, France and much of central Europe discover they can’t fund their bloated state budgets with 1% money after all, the financial furies will be unleashed throughout the continent.

Nor is there any hope for escape. The euro-19 area is now close to having a 100% debt to GDP ratio, and that’s flattered by German surpluses from an export boom that is rapidly cooling, and the fact the for a few quarters Mario’s printing press has conferred huge interest rate subsidies on their depleted fiscal accounts.

The pending Graccident will puncture that illusion, tipping most of Europe into acute fiscal crisis and political upheaval of the type that has already roiled Greece and was starkly evident in Spain’s elections last weekend. The odds that the European superstate and the ECB’s Keynesian monetary regime will survive the resulting upheaval are, thankfully, somewhere between slim and none.
And there is a silver-lining, too.  Someday the historians will point to the image below and say that the end game of Keynesian central banking started here. It could not commence too soon.

Defense Minister Moshe Ya’alon delivered a stern warning to Hamas on Wednesday morning following a rocket attack on the south the night before. Hamas, he said, must rein in any attempts by factions in Gaza to attack Israel, or “pay a heavy price.”
Earlier, Israeli Air Force jets bombed four targets in the Gaza Strip in response to the rocket, which hit near near the town of Gan Yavne, outside Ashdod, causing neither casualties nor damage. The army alleged that it was fired by Islamic Jihad activists due to an internal dispute in the organization.
“Israel has no intention of ignoring attacks on its citizens like the one carried out last night by Islamic Jihad forces,” Ya’alon said in a statement. “We will not abide any threat on the residents of the south. If it isn’t quiet in Israel, the Gaza Strip will pay a heavy price.”

“I would not advise anyone to test us,” he cautioned, directly threatening the Hamas government of Gaza. “We see Hamas as responsible for what happens in the Gaza Strip. It would be better for Hamas to rein in all attempts to fire at Israel and provocations. Otherwise we will have no choice but to respond with even greater force.”

The IDF said in a statement that it targeted four “terror infrastructure” sites in the southern Gaza Strip in response to the rocket fire at southern Israel on Tuesday evening. The military said it confirmed direct hits.

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