General Smedley Butler in War is a racket :
“The bankers control the security marts. It was easy for them to depress the price of these bonds. Then all of us -- the people -- got frightened and sold the bonds at $84 or $86. The bankers bought them. Then these same bankers stimulated a boom and government bonds went to par -- and above. Then the bankers collected their profits. But the soldier pays the biggest part of the bill.”
------
The India-China stand off at India’s northern border near Sikkim, Doklam officially ended on August 27. At least that is what we are told by both parties. It may bring relief to many, but was it really a serious situation or a sham created to divert attention from other issues? There were enough reasons that point to the latter. But first, the prelude to the 'conflict'.
Media manipulation
The media build-up was considerable. During the last three months the Indian public, and maybe the Chinese public as well, were bombarded with videos, news reports and photographs circulating on social media and WhatsApp of soldiers glaring at each other, liberally spiced with fear and warmongering.
The crisis also overnight gave birth to international defence analysts putting out posts on blogs and media sites each day on respective military capabilities of China and India, about whose geographies they have little awareness. Some even went on to emphasise that China would come out on top in the event of a conflict. Others responded that the military capabilities were evenly matched. The discourse descended to obscene levels of warmongering. But at the end of 73 days, analysts were disappointed and maybe TV anchors were dismayed at being denied TRPs. Still newsmedia got their headlines, as both sides had backed off from the brink of a 'conflict'!
Was there ever a crisis in the first place? Soldiers glaring at each other are not uncommon. Perhaps soldiers pelting stones at each other were a little out of place, incorrect from the real politik perspective, when they should have been exchanging missiles! Yet what seems to have emerged is that both sides were actually exchanging Rum bottles (The Old Monk Rum made by Mohan Meakins brewery is a favourite among Chinese Military).
What really tells us that Doklam was pretty much nothing at all was the astonishing response of the financial markets to the stand off. There was no capital flight from the country either India or China. Normally one critical event that precedes a conflict is capital flight particularly into the U S dollar that is globally presently accepted as a safe haven. The elite money bags are the first to flee at the first hint of trouble. They move their wealth out into safe havens. Such Capital flights reflect in the official and unofficial currency exchange rates.
Rupee response
First, the foreign exchange markets. The Indian Rupee actually gained strength against the US dollar at the peak of the so called crisis. This was despite repeated threats of conflict from Chinese government media. It was Rs 63.75 to the US dollar on August 2. A year and half ago, precisely in January 2016, when President Xi and Prime Minister were still shaking hands and exchanging pleasantries, the exchange rates had plunged Rs 69.
Many would argue that the official exchange rates could have been managed by the Reserve Bank of India. But unofficial rates too were at on a par with the official rates last month. Non-deliverable forward rates ( NDF - off shore markets for non-convertible currencies like India’s rupee) were priced at Rs 63.75, almost on par with the official rate. In January 2016, the NDF rate for the rupee ranged between Rs 69 and Rs 70.
Would the currency markets have been so cool in the event of a genuine conflict with a superpower? Rupee exchange rates would normally have plunged all the way down in unofficial market, or the NDF.
Derivatives trade
Second, we come to the derivatives markets. Most institutional investors cover their loan delinquency and default risks, especially after burning their credit portfolios in South America, Asia and Russia during the 90s.
Institutional investors use derivative products, especially credit default swaps (CDS) to hedge thier risks and is a form of insurance against delinquency or default by borrowers. These are financial products over which neither North block’s mavens nor the gnomes of the Reserve bank of India have any control.
The numbers are actually thought-provoking! In April 2012 the premium for covering a risk of $10 million ranged between $300,000 and $330,000. In August 2017 the CDS spreads were between $ 80,000 and $140,000. Since India has no direct international sovereign bond issues, issues by the State bank of India and the EXIM Bank reflect sovereign risk. The outer range is for the private sector and non-sovereign backed entities, especially ICICI Bank.
So the CDS spreads dropped, when they should have actually widened past 2012 levels, especially since conflicts escalate sovereign credit risks. Obviously few foreign portfolio investors expected any sovereign risks in the India-China staring or media slanging match. And it was not just credit risk insurance premiums that remained soft.
Shipping premiums
A third indicator, shipping insurance premiums, also stayed soft. A conflict would have resulted in a jump in premiums, as insurers/reinsurers cover for potential losses from claims.
Since all the leading indicators stayed benign, the implied inference was that global financiers, who normally profit from such conflict situations, expected the situation to fizzle out. The reasons were quite obvious. Neither country was shopping or stocking weapons, fuel or commodities, which is what happens on the eve of a conflict.
Yet the media missed all these indicators and instead preferred to subsist on the spin and disinformation from “informed sources” or “highly placed officials”.
Who gains from this disinformation campaign and contrived crises? Was the Doklam crisis a media diversion for another looming financial or economic catastrophe? There are reasons to believe that the crisis was a contrivance created to divert attention of both countries simultaneously by an outside entity.
Dollar games
Here's the larger context. For the first time since the history of the dollar, US government borrowings have reached a level of 120 per cent of the Gross domestic product (GDP), meaning that the debt stock at $22.5 trillion is more than the national output. Who funds those debts? Close to $1.4 trillion is held by China (including Hong Kong) or about 6 per cent.
For China that asset trove is about 20 per cent of its GDP. The US debt unfortunately does not necessarily go fund capital expenditure in the home country. Instead, goes to fund wars around the world.
Redemption of the debt would mean adding liquidity into the dollar system inundating the world. A roll over of maturing debt, on the other hand essentially means replacing old debt with new debt instead of redemption, would mean that countries holding dollar treasuries are trapped in a domestic liquidity trap, with treasury holdings losing value. That would trap China, India, Russia and a slew of other nations in deep financial and economic chaos to ensure continued bondage to the dollar or in other words, destroy all potential challengers, (the Shanghai Cooperation Council?). The beginnings of a “Managed chaos.”
Amen !
“The bankers control the security marts. It was easy for them to depress the price of these bonds. Then all of us -- the people -- got frightened and sold the bonds at $84 or $86. The bankers bought them. Then these same bankers stimulated a boom and government bonds went to par -- and above. Then the bankers collected their profits. But the soldier pays the biggest part of the bill.”
------
The India-China stand off at India’s northern border near Sikkim, Doklam officially ended on August 27. At least that is what we are told by both parties. It may bring relief to many, but was it really a serious situation or a sham created to divert attention from other issues? There were enough reasons that point to the latter. But first, the prelude to the 'conflict'.
Media manipulation
The media build-up was considerable. During the last three months the Indian public, and maybe the Chinese public as well, were bombarded with videos, news reports and photographs circulating on social media and WhatsApp of soldiers glaring at each other, liberally spiced with fear and warmongering.
The crisis also overnight gave birth to international defence analysts putting out posts on blogs and media sites each day on respective military capabilities of China and India, about whose geographies they have little awareness. Some even went on to emphasise that China would come out on top in the event of a conflict. Others responded that the military capabilities were evenly matched. The discourse descended to obscene levels of warmongering. But at the end of 73 days, analysts were disappointed and maybe TV anchors were dismayed at being denied TRPs. Still newsmedia got their headlines, as both sides had backed off from the brink of a 'conflict'!
 |
| Ha Ha ! We took care of the journalists ! |
Was there ever a crisis in the first place? Soldiers glaring at each other are not uncommon. Perhaps soldiers pelting stones at each other were a little out of place, incorrect from the real politik perspective, when they should have been exchanging missiles! Yet what seems to have emerged is that both sides were actually exchanging Rum bottles (The Old Monk Rum made by Mohan Meakins brewery is a favourite among Chinese Military).
What really tells us that Doklam was pretty much nothing at all was the astonishing response of the financial markets to the stand off. There was no capital flight from the country either India or China. Normally one critical event that precedes a conflict is capital flight particularly into the U S dollar that is globally presently accepted as a safe haven. The elite money bags are the first to flee at the first hint of trouble. They move their wealth out into safe havens. Such Capital flights reflect in the official and unofficial currency exchange rates.
Rupee response
First, the foreign exchange markets. The Indian Rupee actually gained strength against the US dollar at the peak of the so called crisis. This was despite repeated threats of conflict from Chinese government media. It was Rs 63.75 to the US dollar on August 2. A year and half ago, precisely in January 2016, when President Xi and Prime Minister were still shaking hands and exchanging pleasantries, the exchange rates had plunged Rs 69.
Many would argue that the official exchange rates could have been managed by the Reserve Bank of India. But unofficial rates too were at on a par with the official rates last month. Non-deliverable forward rates ( NDF - off shore markets for non-convertible currencies like India’s rupee) were priced at Rs 63.75, almost on par with the official rate. In January 2016, the NDF rate for the rupee ranged between Rs 69 and Rs 70.
Would the currency markets have been so cool in the event of a genuine conflict with a superpower? Rupee exchange rates would normally have plunged all the way down in unofficial market, or the NDF.
Derivatives trade
Second, we come to the derivatives markets. Most institutional investors cover their loan delinquency and default risks, especially after burning their credit portfolios in South America, Asia and Russia during the 90s.
Institutional investors use derivative products, especially credit default swaps (CDS) to hedge thier risks and is a form of insurance against delinquency or default by borrowers. These are financial products over which neither North block’s mavens nor the gnomes of the Reserve bank of India have any control.
The numbers are actually thought-provoking! In April 2012 the premium for covering a risk of $10 million ranged between $300,000 and $330,000. In August 2017 the CDS spreads were between $ 80,000 and $140,000. Since India has no direct international sovereign bond issues, issues by the State bank of India and the EXIM Bank reflect sovereign risk. The outer range is for the private sector and non-sovereign backed entities, especially ICICI Bank.
So the CDS spreads dropped, when they should have actually widened past 2012 levels, especially since conflicts escalate sovereign credit risks. Obviously few foreign portfolio investors expected any sovereign risks in the India-China staring or media slanging match. And it was not just credit risk insurance premiums that remained soft.
Shipping premiums
A third indicator, shipping insurance premiums, also stayed soft. A conflict would have resulted in a jump in premiums, as insurers/reinsurers cover for potential losses from claims.
Since all the leading indicators stayed benign, the implied inference was that global financiers, who normally profit from such conflict situations, expected the situation to fizzle out. The reasons were quite obvious. Neither country was shopping or stocking weapons, fuel or commodities, which is what happens on the eve of a conflict.
Yet the media missed all these indicators and instead preferred to subsist on the spin and disinformation from “informed sources” or “highly placed officials”.
Who gains from this disinformation campaign and contrived crises? Was the Doklam crisis a media diversion for another looming financial or economic catastrophe? There are reasons to believe that the crisis was a contrivance created to divert attention of both countries simultaneously by an outside entity.
Dollar games
Here's the larger context. For the first time since the history of the dollar, US government borrowings have reached a level of 120 per cent of the Gross domestic product (GDP), meaning that the debt stock at $22.5 trillion is more than the national output. Who funds those debts? Close to $1.4 trillion is held by China (including Hong Kong) or about 6 per cent.
For China that asset trove is about 20 per cent of its GDP. The US debt unfortunately does not necessarily go fund capital expenditure in the home country. Instead, goes to fund wars around the world.
Redemption of the debt would mean adding liquidity into the dollar system inundating the world. A roll over of maturing debt, on the other hand essentially means replacing old debt with new debt instead of redemption, would mean that countries holding dollar treasuries are trapped in a domestic liquidity trap, with treasury holdings losing value. That would trap China, India, Russia and a slew of other nations in deep financial and economic chaos to ensure continued bondage to the dollar or in other words, destroy all potential challengers, (the Shanghai Cooperation Council?). The beginnings of a “Managed chaos.”
Amen !
