Rich Dad, Poor Dad, Prepper Dad? Even Robert Kiyosaki Is Warning That An Economic Collapse Is Coming
Are you familiar with Robert Kiyosaki? He is best known for the "Rich Dad, Poor Dad" series of books. Over 26 million books authored by Kiyosaki have been sold and he is recognized as a financial expert by millions of people across the globe. Well, guess what? Even Robert Kiyosaki is warning that an economic collapse is coming. In fact, Kiyosaki and his team of financial experts are encouraging Americans to stock up on food, guns and precious metals. This is yet another sign of just how close we are to the total collapse of the U.S. Economy. Kiyosaki, who once co-authored a book with Donald Trump entitled "Why We Want You To Be Rich" is now a full-fledged prepper. As even more prominent Americans start warning that an "economic collapse" is coming do you think that the American people will finally wake up and start paying attention?
The statements that Robert Kiyosaki makes in the video posted below are absolutely jaw-dropping. Once upon a time he was all about teaching people how they could get rich, but now he is talking about storing food, buying guns, investing in precious metals and preparing for the coming crash.
The following are 11 of the best Kiyosaki "sound bites" from the video below....
#1 "when the economy crashes as we predict"
#2 "the crowds come rushing in to buy gold and silver"
#3 "we could either go into a depression or we go to hyperinflation"
#4 "or we could also go to war"
#5 "buy a gun"
#6 "I'm preparing"
#7 "I'm prepared for the worst"
#8 "so come to my house and I'm armed and dangerous and I'll welcome you"
#9 "we have food, we have water, we have guns, gold and silver, and cash"
#10 "the credit card system shuts down, the world shuts down"
#11 "the supermarkets have less than 3 days supply"
If you have not seen this video yet, it is definitely worth the 8 minutes that it takes to watch it. Robert Kiyosaki seems to be extremely alarmed about the future of the U.S. economy....
It certainly seems as though the entire financial culture in America is changing.
Once upon a time everyone wanted to know how to get rich.
Now everyone wants to know how to survive the collapse that is coming.
Economic pessimism is seemingly everywhere and almost every recent survey indicates that the American people are losing faith in the U.S. economy.
For example, in a recent article I noted that 48 percent of Americans believe that it is likely that another great Depression will begin within the next 12 months.
According to Gallup, the percentage of Americans that lack confidence in U.S. banks is now at an all-time high of 36%. Back in 2007, just 14% of Americans lacked confidence in U.S. banks.
In order for society to function correctly, people need to be able to trust each other and they need to be able to trust the major institutions that hold society together.
Once confidence in our major societal institutions is gone, it is going to be incredibly difficult to get it back.
Sadly, the reality is that many of our major financial institutions have been untrustworthy for a very long time. It is just that the American people are only just now starting to wake up to that fact.
For example, the Federal Reserve has been at the heart of our economic problems for decades but most Americans have not realized it.
But now that is starting to change. According to one recent poll, only 30% of Americans currently view Federal Reserve Chairman Ben Bernanke favorably.
The American people are becoming increasingly dissatisfied with an economic system where the vast majority of the rewards flow to Wall Street, the big banks, the biggest corporations and the ultra-wealthy.
According to the Washington Post, the top 0.1% of all income earners in the United States took home 2.6% of the nation's earnings in 1975. By 2008, the top 0.1% were taking home 10.4% of the nation's earnings.
The Washington Post also says that after adjusting for inflation, the average income of the top 0.1% of all Americans jumped by 385 percent between 1970 and 2008 while the average income for the bottom 90 percent of all Americans actually fell by one percent.
The sad truth is that income inequality in the United States has become a major problem. A very small sliver of the population is reaping almost all of the rewards and the middle class is being ripped to shreds. Conservatives, liberals, Democrats, Republicans and libertarians should all be alarmed by this.
Every single minute we steal another 2 million dollars away from our children and our grandchildren.
But if we stop this theft it would throw the U.S. economy into a horrible economic crisis that would be far worse than what we are experiencing right now.
That is why the vast majority of our politicians do not have the guts to do it.
We truly are caught between a rock and a hard place.
But people like Robert Kiyosaki can see what is coming, and they are getting prepared.
Are you prepared?
Many of our young people have come up with their own versions of an "economic stimulus plan". In past articles I have documented many of the signs that society is collapsing, including the disturbing rise of the "mob robbery" phenomenon.
Well, just the other day there was another very shocking mob robbery in the city of Philadelphia.
On Thursday, a mob of 40 teens and young adults invaded a Sears department store on 69th Street, grabbed all of the merchandise that they could carry, and stormed right back out again.
We are starting to see these kinds of large scale crimes happen from coast to coast.
So what is going to happen to America if the economy experiences the kind of full out collapse that Robert Kiyosaki is talking about?
We live in very interesting times.
I hope that you are getting prepared.
Why Are Food Prices Rising So Fast?
If you do much grocery shopping, you have probably noticed that the cost of food has been rising at a very brisk pace over the past year. So why are food prices rising so fast? According to Federal Reserve Chairman Ben Bernanke, inflation is still very low and the economy is improving. So what is going on here? When I go to the grocery store these days, there are very few things that I will buy unless they are on sale. In fact, I have noticed that many of the new "sale prices" are the old regular prices. Other items have had their packages reduced in size in order to hide the price increases. But with millions of American families just barely scraping by as it is, what is going to happen if food prices keep rising this rapidly?
The food prices are especially painful if you are trying to eat healthy. Most of the low price stuff in the grocery stores is garbage. Eating the "typical American diet" is a highway to cancer, heart disease and diabetes.
But if you try to stick to food that is "healthy" or "organic" you can blow through hundreds of dollars in a heartbeat. In fact, the reality is that tens of millions of American families have now essentially been priced out of a healthy diet.
Soon there will be millions more American families that will not even be able to afford an unhealthy diet.
Some recent statistics compiled by the Bureau of Labor Statistics are absolutely staggering. According to a recent CNBC article, over the past year many of the most popular foods in America have absolutely soared in price....
Coffee, for instance, is up 40 percent. Celery is 28 percent higher while butter prices rose 26.4 percent. Rounding out the top five are bacon, at 23.5 percent, and cabbage, at 23.3 percent.
Unfortunately, it looks like the trend of rising food prices is accelerating. Just look at what the CNBC article says happened in the month of April alone....
Just in April—the most recent month for which data is available—grapes went up nearly 30 percent, cabbage jumped about 17 percent and orange juice surged more than 5 percent.
Meat is becoming more expensive as well. Since March 2009, livestock prices have risen by 138%.
So when Ben Bernanke tells us that inflation is very low, that really is a lie. On the stuff that people spend money on every day (like food and gas), prices have gone up dramatically.
Sadly, this is not just a phenomenon that is happening in the United States. The truth is that the entire planet is rapidly approaching a horrific global food crisis.
Over the past year, the global price of food has risen by 37 percent and this has pushed approximately 44 million more people around the world into poverty.
When food prices rise in the U.S. it may be painful for millions of American families, but around the world a rise in food prices can mean the difference between surviving and not surviving.
That is why it has been so alarming that the global price of wheat has approximately doubled over the past year.
But it is not just wheat that has been soaring. Check out what a recent Bloomberg article had to say about what has been happening to many key agricultural commodities over the past year....
Corn futures advanced 77 percent in the past 12 months in Chicago trading, a global benchmark, rice gained 39 percent and sugar jumped 64 percent. There will be shortages in corn, wheat, soybeans, coffee and cocoa this year or next, according to Utrecht, Netherlands-based Rabobank Groep. Prices also rose after droughts and floods from Australia to Canada ruined crops last year. European farmers are now contending with their driest growing season in more than three decades.
Even before this recent spike in food prices the world was struggling to get enough food to everybody. It has been estimated that somewhere in the world someone starves to death every 3.6 seconds, and 75 percent of those are children under the age of five.
So what is going to happen if food prices keep on rising at the current pace?
That is a very good question.
We really are starting to move into unprecedented territory. Nobody is quite sure what is going to happen next.
So why is all of this happening?
Well, a lot of people are blaming the Federal Reserve. All of the "quantitative easing" that the Fed has done has flooded the financial markets with money. All of that money had to go somewhere. Much of it has pumped up the prices of hard assets such as oil, gold and agricultural commodities.
But it is not just the Fed that is to blame. The truth is that central banks all over the world have been recklessly printing money.
When the amount of money in an economy goes up, the purchasing value of all existing money goes down. In the United States, that means that your dollars will not go as far as they did before.
But it is not just monetary policy that is affecting food prices. In 2010 and 2011 we have seen an unprecedented wave of natural disasters and crazy weather. This has caused problems with crops all over the globe.
In addition, U.S. economic policies are also playing a role. At this point, almost a third of all corn grown in the United States is used for fuel. This is putting a lot of stress on the price of corn.
Also, there are some long-term trends that are not in our favor. For example, the systematic depletion of the Ogallala Aquifer could eventually turn "America's Breadbasket" back into the "Dust Bowl". If you have not heard of this problem I would encourage you to do some research on it.
Things are going to get a lot worse, but already America is having a really hard time feeding itself. According to Feeding America's 2010 hunger study, more than 37 million Americans are now being served by food pantries and soup kitchens.
So is that number unusual?
Yes, it sure is.
The number of Americans that are going to food pantries and soup kitchens has increased by 46% since 2006.
That is not a good trend.
Another stat that I talk a lot about in this column is the number of Americans on food stamps.
Right now, there are 44 million Americans on food stamps. Nearly half of them are children.
How did we ever get to the point as a nation where more than 20 million children end up on food stamps?
It is estimated that one out of every four American children is currently on food stamps, and it is being projected that approximately 50 percent of all U.S. children will be on food stamps at some point in their lives before they reach the age of 18.
So what is going to happen if the economy gets even worse?
What is going to happen if there really is a major food crisis in this country someday?
Food prices have been going up for decades and they are going to continue to go up. But the frightening thing is how fast they are increasing now.
As the U.S. middle class continues to be destroyed, the number of Americans that can't afford to buy enough food is going to continue to rise. Food prices are rising much faster than wages are, and that is not likely to change any time soon.
Food is rapidly becoming one of the most important global economic issues of this decade. The farther one looks down the road, the bleaker things look for the global food situation.
I hope you are prepared for that.
Is The Economy Improving?
Is the U.S. economy improving? That is what Federal Reserve Chairman Ben Bernanke would have us believe. Bernanke declared today that the "recovery appears to be proceeding at a moderate pace" and that everything is going pretty much as planned. Sadly, the mainstream media and most of the American people still seem to have faith in the economic pronouncements of Helicopter Ben. They seem to have forgotten all of the Bernanke quotes from before the financial crisis. Bernanke pledged that there would not be a housing crash and that there would not be a recession. It is amazing that anyone still believes that Bernanke has any credibility left.
Of course "economic recovery" is one of Barack Obama's favorite new terms. He loves to talk about all of the signs that the economy is improving. To Obama, all of the recent bad economic news is no big deal. He says that what we are experiencing right now are simply "bumps on the road to recovery".
Well, whether you want to call them "bumps" or "potholes" or "massive gaping wounds that are gushing blood all over the place", the truth is that the U.S. economy is not improving at all. In fact, it is rapidly getting worse.
Let's take a look at just a few areas of the economy....
Federal Government Finances
Keep in mind that from George Washington to Ronald Reagan, the U.S. government accumulated only 1 trillion dollars in debt.
Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period.
Now the Democrats and the Republicans are busy negotiating over some modest reductions in spending.
But unprecedented federal spending is one of the only things propping the economy up right now.
If the U.S. economy is performing so poorly after being flooded with "stimulus money" from the federal government, what is going to happen once the federal government cuts back?
State And Local Government Finances
All over the United States, there are large numbers of state and local governments that are on the verge of bankruptcy.
For the moment, let's just focus on the state of Illinois.
Did you know that things have gotten so bad in Illinois at this point that the Illinois state government is letting bills go unpaid for long periods of time on a regular basis?
Right now they have billions in unpaid bills and they are facing a financial future that is so bleak that it is almost indescribable.
In one recent article, author Stephen Lendman described the horrific financial crisis that Illinois is facing right now....
With spending exceeding revenues, and obligations not postponed, unpaid bills are growing "at a frightening rate. For instance, IGPA's Fiscal Futures Model indicates (they) could reach $40 billion by July 1, 2013, with an associated delay in paying those bills of more than five years."
Besides its $13 billion deficit and $6 billion in unpaid bills, its pension fund is about $130 billion in the red - a red flag that state workers may lose out altogether, wiping out their promised retirement savings.
But it isn't just the state government that is having problems. According to Cook County Treasurer Maria Pappas, the average household in Chicago would owe a whopping $63,525 if all local government debt was divided up equally among all of the households.
The truth is that even if the finances of the federal government could somehow be fixed, there would still be dozens and dozens of very significant "government debt problems" all across America.
With so many state and local governments drowning in debt, jobs are being slashed at an alarming rate. UBS Investment Research is projecting that state and local governments in the U.S. will combine to slash a whopping 450,000 jobs by the end of next year.
So would the U.S. government step in and start bailing out state and local governments?
U.S. Representative Paul Ryan has said the following about the prospect of bailing out the states....
"If we bail out one state, then all of the debt of all of the states are almost explicitly on the books of the federal government."
So for now, state and local governments are on their own.
Commercial Real Estate
Commercial real estate continues to decline all across America.
Moody’s/REAL All Property Type Aggregate Index fell 3.7% in April and is now the lowest it has been in over 10 years.
Overall, commercial real estate is down by over 40 percent since the peak back in 2007.
Residential Real Estate
The United States is dealing with a housing crash that never seems to end.
According to the National Association of Realtors, existing home sales in the United States fell another 3.8% in May.
During this housing crash home values have declined more than they did during the Great Depression and there does not appear to be any hope in sight.
New home sales are in even worse shape. During the first three months of this year, less new homes were sold in the U.S. than in any three month period ever recorded.
As 2009 began, the official U.S. unemployment rate was 7.6 percent. Today it is 9.1 percent.
The American people keep waiting for a "jobs recovery", but it has not shown up.
Sadly, all of this is part of a long-term trend.
Over the past decade, U.S. multinational corporations have been laying off millions of workers in the U.S. and hiring millions of workers overseas to take their place.
The labor of American workers is rapidly losing value in a globalized economy. Big corporations have a tough time justifying paying ten times more to a worker in the United States when they are allowed to hire people for slave labor wages overseas.
The share of the national income taken in by U.S. workers continues to decline. Just consider what Mortimer Zuckerman had to say in a recent article for usnews.com....
Labor's share of national income has fallen to the lowest level in modern history, down to 57.5 percent in the first quarter as compared to 59.8 percent when the so-called recovery began. This reflects not only the 7 million fewer workers but the fact that wages for part-time workers now average $19,000—less than half the median income.
In the United States today, there are not nearly enough jobs for everyone. The number of "middle class jobs" has fallen by about 10 percent over the last decade.
Only 66.8% of American men had a job last year. That was the lowest level that has ever been recorded in all of U.S. history.
We are seeing the rise of a whole class of people that are chronically unemployed. At the beginning of 2009, the number of "long-term unemployed" in the United States was approximately 2.6 million. Today, that number is up to 6.2 million.
So in light of these employment statistics, can anyone really say that the economy is improving?
The economy is the number one issue on the minds of the American people. There is an extraordinary about of economic pain out there today, and Americans are becoming impatient.
According to CNBC, the Money Anxiety Index is at its highest level in 30 years....
The latest indicator to ring up trouble is the Money Anxiety Index, which uses traditional economic metrics as well as other factors to gauge the level of consumers' worry regarding their personal financial conditions.
According to the May figures, the MAI is not only at its highest level in 30 years at 91.9 but also two months away from indicating another dip into recession. In the past, five straight months of increases in the index often signaled recession.
Most recent polls show that the American people are rapidly becoming more pessimistic about the direction the U.S. economy is headed.
When you really stop and think about that number, it is really frightening.
Ben Bernanke may not admit it, but the truth is that the price of just about everything is soaring.
For example, when Barack Obama took office, the average price of a gallon of gasoline in the United States was $1.83. Today it is about $3.74.
So what are our politicians doing about it?
They just want to pretend that it isn't happening.
In fact, members of Congress are actually tinkering with the idea of changing the way that inflation is calculated once again.
By making inflation appear lower, it would be easier for Congress to deny cost of living increases to those on Social Security and other social programs.
How sad is that?
As American families find it increasingly difficult to pay the mortgage and put food on the table, many of them find themselves forced to put off other expenses. According to one recent survey, 26 percent of Americans have put off doctor visits because of the economy.
Other Americans can't make it at all without government assistance. As 2007 began, there were only 26 million Americans on food stamps. Today, there are more than 44 million Americans on food stamps, which is an all-time record.
It is not good to have so many Americans on food stamps, but it is probably better than the alternative.
If there were tens of millions of Americans that could not feed themselves we would probably already have economic riots in the streets.
So do our politicians have any solutions?
Of course not. Everything that they have tried has failed.
Several top Democrats in Washington D.C. are now calling for a new economic stimulus package. When in doubt, our politicians usually revert to spending more money.
Sadly, this is about the best that our economy is going to get.
What we are experiencing right now is "the recovery". As we move forward things are going to get progressively worse.
A lot of people don't like to hear that we are in the middle of a long-term economic decline, but that is the truth.
The era of tremendous economic prosperity for America is coming to an end.
An economic nightmare is coming.
You better get ready.
Many have expressed shock at the recent U.S. employment data. But 9.1% unemployment shouldn't be a surprise. To address the jobs challenge, we must stop pretending that this is only a difficult cyclical recovery. The root of the problem is structural.
During the two decades before the crisis of 2008-09, the U.S. economy added 27 million jobs, primarily in government, health care, construction, retail and hospitality. This employment growth was almost all in the "nontradable" side of the economy—sectors generating goods and services that must be consumed where they are produced. But several factors will depress these sectors. Government budget woes, a likely leveling-out of the dramatic growth in health-care consumption, and a permanent reduction in domestic consumption as asset prices reset downward and debt-financed purchases are reduced, will all have effects in the short-to-medium term.
The "tradable" side of the economy (which includes exportable goods and services) has its own set of issues. While finance, consulting, computer design and managing complex international businesses all fueled job growth for 20 years, these gains were matched by declines in the manufacturing jobs held by the middle class. The very things that propped up our tradable sectors through the export market—high growth rates in emerging economies and a more educated consumer class in those countries—have challenged middle-class U.S. employees on the job front. Emerging markets are now increasingly moving up the value chain with improved skills, and it's likely that higher-paying jobs—including design and even product development—will move abroad in ever greater numbers.
Multinational companies have benefited from these global supply-chain opportunities and from growing emerging-economy markets, but the effects for the U.S. have been mixed. Growth may be coming back slowly, but it is not bringing jobs with it.
A stimulus package that temporarily restores elements of precrisis demand is unlikely to generate the escape velocity needed to get out of the jobs hole. Nontradable job growth can't mask the declines in the tradable sector any more. The structural problem demands a structural answer.
Rebuilding the employment engine requires shifts in policy and process. On the policy side, we must expand the scope of the tradable sector. A short list of steps would include investments in infrastructure and education reform that emphasizes teaching productive skills, for example in advanced manufacturing sectors. Tax reform should aim for simplification and the elimination of biases against domestic investment for our multinational firms. It should also aim to help raise savings rates so we can finance our own investment. A value-added tax with an exemption for exports would enhance competitiveness. An energy policy focused on efficiency and security would create opportunities for investment and growth.
In terms of process, business, government and labor must identify what each has to offer and needs to help expand the tradable sector. What will it take to keep more jobs in the U.S.? We might have to accept a period of lower income growth in order to restore competitiveness.
A useful model is Germany, which limited wage and salary growth as part of a restructuring in the period 2000-05, allowing it to compete more effectively in exports and the tradable sector than other advanced countries.
In addition, a broad public-private investment in advanced manufacturing and in energy- efficiency technologies can advance relatively high-income, capital-intensive job creation. Government co-investment can lower the private sector's cost and expand the employability of domestic citizens in the tradable sector.
These structural solutions won't work, of course, without a plan to restore fiscal balance. A sovereign-debt crisis will abort any recovery. Right now, however, the policy discussion oscillates between balancing the budget and supporting a fragile economic recovery—mixed with puzzlement that employment figures are disobeying the rules of a normal cyclical recovery. Having a credible five-year fiscal plan would help avoid an excessively rapid withdrawal of government expenditure and investment from the demand side of the economy.
Can business, government, educators and labor come together to tackle the structural employment challenge head-on? Some will say that in the present political and fiscal climate, this is highly unlikely. They may be right. But it is a choice, a collective choice. We can invest in future growth and employment of an inclusive kind, or not. If we do, it will take significant shared sacrifice.
Mr. Spence, a 2001 Nobel laureate in economics, is the author of "The Next Convergence: The Future of Economic Growth in a Multispeed World," out last month from Farrar, Straus and Giroux.
The U.S. and E.U.: Have They Ever Been in Such Terrible Shape?
This is no time for gloating, neither for Americans nor for Europeans. For both sides are in deep economic trouble, only in different ways. The U.S. runs the worst deficit (as share of GDP) since World War II, and yet Keynesianism to the max won’t budge the unemployment rate—pace Professors Krugman and Stiglitz. What does fall is the dollar and the price of real estate, a double-whammy if ever there was one.
The euro, meanwhile, may be rising, at least against the greenback, but the common currency, now ten years old, is about as stable as was Confederate script back in the Civil War. “Civil war,” actually, is not a bad way to describe the state of Euroland. On one side, there are the “PIIGS”—Portugal, Ireland, Italy, Greece, and Spain—looking at bankruptcy. In fact, Greece is bankrupt. Its foreign debt exceeds its GDP by about one-half, and, as slices of it come due, it cannot possibly redeem the bonds without yet another infusion of cash from Europe and the International Monetary Fund (IMF). Government outlays keep rising, while tax receipts are falling (year-on-year). So austerity does not work—except in the streets of Athens, where the angry masses revolt against a tottering government.
On the other side are France and Germany, the two heavies of the E.U. economy (Britain is in as much trouble as the U.S., but outside the euro). Their banks groan under a hefty exposure to Greek debt, French banks more than their German counterparts. So neither Berlin nor Paris wants the Greeks to default. But the two of them have their own little civil war. Nicholas Sarkozy wants to put Greece on welfare as long as it takes, counting on Germany—the biggest and richest country in Euroland—to foot the largest part of the bill. Angela Merkel, well aware of this unending drain, wants to impose fiscal discipline and market reforms on Athens. In the latest spat, Merkel, who is not as enamored of state action as her French counterpart, wanted to drag in banks, pension funds, and insurance companies by making them roll over Greek debt by seven years. This would be a default in everything but name, and so the French balked. Merkel, always tougher at the outset than at the end, finally relented. Participation by the private sector now is to be “voluntary.” So far, though, there haven’t been too many volunteers.
This mano-a-mano is typical for Germany and France, who are always vying for the leadership of Europe. But it is patty-cakes compared to the other horrors the monetary union has wrought, and not for lack of warning. As many economists cried out in the run-up to the euro 15 years ago, in monetary policy, one size won’t fit all—certainly not a bunch of diverging economies untrammeled by common governance. And, indeed, the euro, instead of forcing member states into fiscal convergence, has only accentuated the bad habits of the PIIGS. These countries had always lived beyond their means. With the euro, however, they could suddenly spend like Italians, but borrow like Germans, at low rates. Bond spreads converged between the spendthrifts and the tightwads, but not basic policies. Indeed, cheap money encouraged even more profligacy—worst of all in Greece (which also managed to cheat on its financial statistics before and after entering the euro).
This is where we are now: With Greek two-year bonds fetching almost 30 percent, the markets are growling that Hellas is doomed. Both Merkel and Sarkozy dread the looming default as “Lehman squared“—and so, by the way, does Washington. So, too, does the IMF, which wants to withhold a critical $12 billion pay-out to the Greeks unless the E.U. swears a holy oath on bailing out Athens, come what may.
Europe will inevitably buy time by handing over a few more slices of bail-out money to Greece, even though, one day, the country will default. With 50 cents of the euro, it will halve its debt as well as its repayments and thus buy more time. The E.U., meanwhile, still won’t have any idea where it’s going or how to handle the crisis long-term. But what else is new? Twenty-seven governments do not a “more perfect union” make. Certainly not when the natural leader, which is Germany by dint of wealth and weight, sounds such an uncertain trumpet as it has under Chancellor Merkel. Yet what, exactly, is she supposed to do when the chickens of an ill-designed monetary union have finally come home to roost? Neither she nor Sarkozy can undo the mismanagement of the PIIGS in one fell swoop.
Meanwhile, back to the United States—to its still-sinking dollar and rising unemployment. It is hard to think of a time when both the U.S. and the E.U., the two biggest players in the international economy, were in such miserable shape. We are talking about two giants with a total of 50 percent of global GDP. Who will save them?
Josef Joffe is the editor of Die Zeit in Hamburg Germany. He is also a senior fellow at the Freeman-Spogli Institute for International Studies and Abramowitz Fellow at the Hoover Institution, both at Stanford.
U.S. and Pakistan: Afghan Strategies
By George Friedman
U.S. President Barack Obama will give a speech on Afghanistan on June 22. Whatever he says, it is becoming apparent that the United States is exploring ways to accelerate the drawdown of its forces in the country. It is also clear that U.S. relations with Pakistan are deteriorating to a point where cooperation — whatever level there was — is breaking down. These are two intimately related issues. Any withdrawal from Afghanistan, particularly an accelerated one, will leave a power vacuum in Afghanistan that the Kabul government will not be able to fill. Afghanistan is Pakistan’s back door, and its evolution is a matter of fundamental interest to Pakistan. A U.S. withdrawal means an Afghanistan intertwined with and influenced by Pakistan. Therefore, the current dynamic with Pakistan challenges any withdrawal plan.
There may be some in the U.S. military who believe that the United States might prevail in Afghanistan, but they are few in number. The champion of this view, Gen. David Petraeus, has been relieved of his command of forces in Afghanistan and promoted (or kicked upstairs) to become director of the CIA. The conventional definition of victory has been the creation of a strong government in Kabul controlling an army and police force able to protect the regime and ultimately impose its will throughout Afghanistan. With President Hamid Karzai increasingly uncooperative with the United States, the likelihood of this outcome is evaporating. Karzai realizes his American protection will be withdrawn and understands that the Americans will blame him for any negative outcomes of the withdrawal because of his inability or unwillingness to control corruption.
Defining Success in Afghanistan
There is a prior definition of success that shaped the Bush administration’s approach to Afghanistan in its early phases. The goal here was the disruption of al Qaeda’s operations in Afghanistan and the prevention of further attacks on the United States from Afghanistan. This definition did not envisage the emergence of a stable and democratic Afghanistan free of corruption and able to control its territory. It was more modest and, in many ways, it was achieved in 2001-2002. Its defect, of course, was that the disruption of al Qaeda in Afghanistan, while useful, did not address the evolution of al Qaeda in other countries. In particular, it did not deal with the movement of al Qaeda operatives to Pakistan, nor did it address the Taliban, who were not defeated in 2001-2002 but simply declined combat on American terms, re-emerging as a viable insurgency when the United States became bogged down in Iraq.
The mission creep from denying Afghan bases to al Qaeda to the transformation of Afghan society had many roots and was well under way during the Bush administration, but the immediate origin of the current strategy was the attempt to transfer the lessons of Iraq to Afghanistan. The surge in Iraq, and the important political settlement with Sunni insurgents that brought them into the American fold, reduced the insurgency. It remains to be seen whether it will produce a stable Iraq not hostile to American interests. The ultimate Iraq strategy was a political settlement framed by an increase in forces, and its long-term success was never clear. The Obama administration was prepared to repeat the attempt in Afghanistan, at least by using Iraq as a template if not applying exactly the same tactics.
However, the United States found that the Taliban were less inclined to negotiate with the United States, and certainly not on the favorable terms of the Iraqi insurgents, simply because they believed they would win in the long run and did not face the dangers that the Sunni insurgents did. The military operations that framed the search for a political solution turned out to be a frame without a painting. In Iraq, it is not clear that the Petraeus strategy actually achieved a satisfactory political outcome, and its application to Afghanistan does not seem, as yet, to have drawn the Taliban into the political process in the way that incorporating the Sunnis made Iraq appear at least minimally successful.
As we pointed out after the death of Osama bin Laden, his demise, coupled with the transfer of Petraeus out of Afghanistan, offered two opportunities. The first was a return to the prior definition of success in Afghanistan, in which the goal was the disruption of al Qaeda. Second, the departure of Petraeus and his staff also removed the ideology of counterinsurgency, in which social transformation was seen as the means toward a practical and radical transformation of Afghanistan. These two events opened the door to the redefinition of the U.S. goal and the ability to claim mission accomplished for the earlier, more modest end, thereby building the basis for terminating the war.
The central battle was in the United States military, divided between conventional warfighters and counter-insurgents. Counterinsurgency draws its roots from theories of social development in emerging countries going back to the 1950s. It argues that victory in these sorts of wars depends on social and political mobilization and that the purpose of the military battle is to create a space to build a state and nation capable of defending itself.
The conventional understanding of war is that its purpose is to defeat the enemy military. It presents a more limited and focused view of military power. This faction, bitterly opposed to Petraeus’ view of what was happening in Afghanistan, saw the war in terms of defeating the Taliban as a military force. In the view of this faction, defeating the Taliban was impossible with the force available and unlikely even with a more substantial force. There were two reasons for this. First, the Taliban comprised a light infantry force with a superior intelligence capability and the ability to withdraw from untenable operations (such as the battle for Helmand province) and re-engage on more favorable terms elsewhere. Second, sanctuaries in Pakistan allowed the Taliban to withdraw to safety and reconstitute themselves, thereby making their defeat in detail impossible. The option of invading Pakistan remained, but the idea of invading a country of 180 million people with some fraction of the nearly 150,000 U.S. and allied troops in Afghanistan was militarily unsupportable. Indeed, no force the United States could field would be in a position to compel Pakistan to conform to American wishes.
The alternative on the American side is a more conventional definition of war in which the primary purpose of the U.S. military in Afghanistan is to create a framework for special operations forces to disrupt al Qaeda in Afghanistan and potentially Pakistan, not to attempt to either defeat the Taliban strategically or transform Afghanistan politically and culturally. With the death of bin Laden, an argument can be made — at least for political purposes — that al Qaeda has been disrupted enough that the conventional military framework in Afghanistan is no longer needed. If al Qaeda revives in Afghanistan, then covert operations can be considered. The problem with al Qaeda is that it does not require any single country to regenerate. It is a global guerrilla force.
Asymmetry in U.S. and Pakistani Interests
The United States can choose to leave Afghanistan without suffering strategic disaster. Pakistan cannot leave Pakistan. It therefore cannot leave its border with Afghanistan nor can it evade the reality that Pakistani ethnic groups — particularly the Pashtun, who straddle the border and form the heart of the Taliban phenomenon — live on the Afghan side of the border as well. Therefore, while Afghanistan is a piece of American global strategy and not its whole, Afghanistan is central to Pakistan’s national strategy. This asymmetry in U.S. and Pakistani interests is now the central issue.
When the Soviets invaded Afghanistan, Pakistan joined with the United States to defeat the Soviets. Saudi Arabia provided money and recruits, the Pakistanis provided training facilities and intelligence and the United States provided trainers and other support. For Pakistan, the Soviet invasion was a matter of fundamental national interest. Facing a hostile India supported by the Soviets and a Soviet presence in Afghanistan, Pakistan was threatened on two fronts. Therefore, deep involvement with the jihadists in Afghanistan was essential to Pakistan because the jihadists tied down the Soviets. This was also beneficial to the United States.
After the Soviet withdrawal from Afghanistan, the United States became indifferent to Afghanistan’s future. Pakistan could not be indifferent. It remained deeply involved with the Islamist forces that had defeated the Soviets and would govern Afghanistan, and it helped facilitate the emergence of the Taliban as the dominant force in the country. The United States was quite content with this in the 1990s and accepted the fact that Pakistani intelligence had become intertwined not only with the forces that fought the Soviets but also with the Taliban, who, with Pakistani support, won the civil war that followed the Soviet defeat.
Intelligence organizations are as influenced by their clients as their clients are controlled by them. Consider anti-Castro Cubans in the 1960s and 1970s and their beginning as CIA assets and their end as major influencers of U.S. policy toward Cuba. The Pakistani Inter-Services Intelligence directorate (ISI) became entwined with its clients. As the influence of the Taliban and Islamist elements increased in Afghanistan, the sentiment spread to Pakistan, where a massive Islamist movement developed with influence in the government and intelligence services.
Sept. 11, 2001, posed a profound threat to Pakistan. On one side, Pakistan faced a United States in a state of crisis, demanding Pakistani support against both al Qaeda and the Taliban. On the other side Pakistan had a massive Islamist movement hostile to the United States and intelligence services that had, for a generation, been intimately linked to Afghan Islamists, first with whole-hearted U.S. support, then with its benign indifference. The American demands involved shredding close relationships in Afghanistan, supporting an American occupation in Afghanistan and therefore facing internal resistance and threats in both Afghanistan and Pakistan.
The Pakistani solution was the only one it could come up with to placate both the United States and the forces in Pakistan that did not want to cooperate with the United States. The Pakistanis lied. To be more precise and fair, they did as much as they could for the United States without completely destabilizing Pakistan while making it appear that they were being far more cooperative with the Americans and far less cooperative with their public. As in any such strategy, the ISI and Islamabad found themselves engaged in a massive balancing act.
U.S. and Pakistani national interests widely diverged. The United States wanted to disrupt al Qaeda regardless of the cost. The Pakistanis wanted to avoid the collapse of their regime at any cost. These were not compatible goals. At the same time, the United States and Pakistan needed each other. The United States could not possibly operate in Afghanistan without some Pakistani support, ranging from the use of Karachi and the Karachi-Khyber and Karachi-Chaman lines of supply to at least some collaboration on intelligence sharing, at least on al Qaeda. The Pakistanis badly needed American support against India. If the United States simply became pro-Indian, the Pakistani position would be in severe jeopardy.
The United States was always aware of the limits of Pakistani assistance. The United States accepted this publicly because it made Pakistan appear to be an ally at a time when the United States was under attack for unilateralism. It accepted it privately as well because it did not want to see Pakistan destabilize. The Pakistanis were aware of the limits of American tolerance, so a game was played out.
The Endgame in Afghanistan
That game is now breaking down, not because the United States raided Pakistan and killed bin Laden but because it is becoming apparent to Pakistan that the United States will, sooner or later, be dramatically drawing down its forces in Afghanistan. This drawdown creates three facts. First, Pakistan will be facing the future on its western border with Afghanistan without an American force to support it. Pakistan does not want to alienate the Taliban, and not just for ideological reasons. It also expects the Taliban to govern Afghanistan in due course. India aside, Pakistan needs to maintain its ties to the Taliban in order to maintain its influence in Afghanistan and guard its western flank. Being cooperative with the United States is less important. Second, Pakistan is aware that as the United States draws down, it will need Pakistan to cover its withdrawal strategically. Afghanistan is not Iraq, and as the U.S. force draws down, it will be in greater danger. The U.S. needs Pakistani influence. Finally, there will be a negotiation with the Taliban, and elements of Pakistan, particularly the ISI, will be the intermediary.
The Pakistanis are preparing for the American drawdown. Publicly, it is important for them to appear as independent and even hostile to the Americans as possible in order to maintain their domestic credibility. Up to now, they have appeared to various factions in Pakistan as American lackeys. If the United States is leaving, the Pakistanis can’t afford to appear that way anymore. There are genuine issues separating the two countries, but in the end, the show is as important as the issues. U.S. accusations that the government has not cooperated with the United States in fighting Islamists are exactly what the Pakistani establishment needs in order to move to the next phase. Publicly arresting CIA sources who aided the United States in capturing bin Laden also enhances this new image.
From the American point of view, the war in Afghanistan — and elsewhere — has not been a failure. There have been no more attacks on the United States on the order of 9/11, and that has not been for al Qaeda’s lack of trying. U.S. intelligence and security services, fumbling in the early days, achieved a remarkable success, and that was aided by the massive disruption of al Qaeda by U.S. military operations. The measure of military success is simple. If the enemy was unable to strike, the military effort was a success. Obviously, there is no guarantee that al Qaeda will not regenerate or that another group will not emerge, but a continued presence in Afghanistan at this point doesn’t affect that. This is particularly true as franchise operations like the Yemen-based al Qaeda in the Arabian Peninsula begin to overtake the old apex leadership in terms of both operational innovation in transnational efforts and the ideological underpinnings of those attacks.
In the end, the United States will leave Afghanistan (with the possible exception of some residual special operations forces). Pakistan will draw Afghanistan back into its sphere of influence. Pakistan will need American support against India (since China does not have the force needed to support Pakistan over the Himalayas nor the navy to protect Pakistan’s coast). The United States will need Pakistan to do the basic work of preventing an intercontinental al Qaeda from forming again. Reflecting on the past 10 years, Pakistan will see that as being in its national interest. The United States will use Pakistan to balance India while retaining close ties to India.
A play will be acted out like the New Zealand Haka, with both sides making terrible sounds and frightening gestures at each other. But now that the counterinsurgency concept is being discarded, from all indications, and a fresh military analysis is under way, the script is being rewritten and we can begin to see the end shaping up. The United States is furious at Pakistan for its willingness to protect American enemies. Pakistan is furious at the United States for conducting attacks on its sovereign territory. In the end it doesn’t matter. They need each other. In the affairs of nations, like and dislike are not meaningful categories, and bullying and treachery are not blocks to cooperation. The two countries need each other more than they need to punish each other. Great friendships among nations are built on less.
Obama's Afghanistan Plan and the Realities of Withdrawal
By Nathan Hughes
U.S. President Barack Obama announced June 22 that the long process of drawing down forces in Afghanistan would begin on schedule in July. Though the initial phase of the drawdown appears limited, minimizing the tactical and operational impact on the ground in the immediate future, the United States and its allies are now beginning the inevitable process of removing their forces from Afghanistan. This will entail the risk of greater Taliban battlefield successes.
The Logistical Challenge
Afghanistan, a landlocked country in the heart of Central Asia, is one of the most isolated places on Earth. This isolation has posed huge logistical challenges for the United States. Hundreds of shipping containers and fuel trucks must enter the country every day from Pakistan and from the north to sustain the nearly 150,000 U.S. and allied forces stationed in Afghanistan, about half the total number of Afghan security forces. Supplying a single gallon of gasoline in Afghanistan reportedly costs the U.S. military an average of $400, while sustaining a single U.S. soldier runs around $1 million a year (by contrast, sustaining an Afghan soldier costs about $12,000 a year).
These forces appear considerably lighter than those in Iraq because Afghanistan’s rough terrain often demands dismounted foot patrols. Heavy main battle tanks and self-propelled howitzers are thus few and far between, though not entirely absent. Afghanistan even required a new, lighter and more agile version of the hulking mine-resistant, ambush-protected vehicle known as the M-ATV (for “all-terrain vehicle”).
Based solely on the activity on the ground in Afghanistan today, one would think the United States and its allies were preparing for a permanent presence, not the imminent beginning of a long-scheduled drawdown (a perception the United States and its allies have in some cases used to their advantage to reach political arrangements with locals). A 3,500-meter (11,500-foot) all-weather concrete and asphalt runway and an air traffic control tower were completed this February at Camp Leatherneck and Camp Bastion in Helmand province. Another more than 2,700-meter runway was finished at Shindand Air Field in Herat province last December.
Meanwhile, a so-called iron mountain of spare parts needed to maintain vehicles and aircraft, construction and engineering equipment, generators, ammunition and other supplies — even innumerable pallets of bottled water — has slowly been built up to sustain day-to-day military operations. There are fewer troops in Afghanistan than the nearly 170,000 in Iraq at the peak of operations and considerably lighter tonnage in terms of armored vehicles. But short of a hasty and rapid withdrawal reminiscent of the chaotic American exit from Saigon in 1975 (which no one currently foresees in Afghanistan), the logistical challenge of withdrawing from Afghanistan — at whatever pace — is perhaps even more daunting than the drawdown in Iraq. The complexity of having nearly 50 allies with troops in country will complicate this process.
Moreover, coalition forces in Iraq had ready access to well-established bases and modern port facilities in nearby Kuwait and in Turkey, a long-standing NATO ally. Though U.S. and allied equipment comes ashore on a routine basis in the Pakistani port city of Karachi, the facilities there are nothing like what exists in Kuwait. Routes to bases in Afghanistan are anything but short and established, with locally contracted fuel tankers and other supplies not only traveling far greater distances but also regularly subject to harassing attacks. They are inherently vulnerable to aggressive interdiction by militants fighting on terrain far more favorable to them, and to politically motivated interruptions by Islamabad. The American logistical dependence on Pakistani acquiescence cannot be understated. Most supplies transit the isolated Khyber Pass in the restive Pakistani Federally Administered Tribal Areas west of Islamabad. As in Iraq, the United States does have an alternative to the north. But instead of Turkey it is the Northern Distribution Network (NDN), which runs through Central Asia and Russia (Moscow has agreed to continue to expand it) and entails a 5,150-kilometer (3,200-mile) rail route to the Baltic Sea and ports in Latvia, Lithuania and Estonia.
Given the extraordinary distances involved, the metrics for defining whether something is worth the expense of shipping back from Afghanistan are unforgiving. Some equipment will be deemed too heavily damaged or cheap and will be sanitized if necessary and discarded. Much construction and fortification has been done with engineering and construction equipment like Hesco barriers (which are filled with sand and dirt) that will not be reclaimed, and will continue to characterize the landscape in Afghanistan for decades to come, much as the Soviet influence was perceivable long after their 1989 withdrawal. Much equipment will be handed over to Afghan security forces, which already have begun to receive up-armored U.S. HMMWVs, aka “humvees.” Similarly, some 800,000 items valued at nearly $100 million have already been handed over to more than a dozen Iraqi military, security and government entities.
Other gear will have to be stripped of sensitive equipment (radios and other cryptographic gear, navigation equipment, jammers for improvised explosive devices, etc.), which is usually flown out of the country due to security concerns before being shipped overland. And while some Iraqi stocks were designated for redeployment to Afghanistan or prepared for long-term storage in pre-positioned equipment depots and aboard maritime pre-positioning ships at facilities in Kuwait, most vehicles and supplies slated to be moved out of Afghanistan increasingly will have to be shipped far afield. This could be from Karachi by ship or to Europe by rail even if they are never intended for return to the United States.
More important than the fate of armored trucks and equipment will be the process of rebalancing forces across the country. This will involve handing over outposts and facilities to Afghan security forces, who continue to struggle to reach full capability, and scaling back the extent of the U.S. and allied presence in the country. In Iraq, and likely in Afghanistan, the beginning of this process will be slow and measured. But its pace in the years ahead remains to be seen, and may accelerate considerably.
The first areas slated for handover to Afghan control, the provinces of Panjshir, Bamiyan and Kabul — aside the restive Surobi district, though the rest of Kabul’s security effectively has been in Afghan hands for years — and the cities of Mazar-e-Sharif, Herat, Lashkar Gah and Mehtar Lam have been relatively quiet places for some time. Afghan security forces increasingly have taken over in these areas. As in Iraq, the first places to be turned over to indigenous security forces already were fairly secure. Handing over more restive areas later in the year will prove trickier.
This process of pulling back and handing over responsibility for security (in Iraq often termed having Iraqi security forces “in the lead” in specific areas) is a slow and deliberate one, not a sudden and jarring maneuver. Well before the formal announcement, Afghan forces began to transition to a more independent role, conducting more small-unit operations on their own. International Security Assistance Force (ISAF) troops slowly have transitioned from joint patrols and tactical overwatch to a more operational overwatch, but have remained nearby even after transitions formally have taken place.
Under the current training regime, Afghan units continue to require advice and assistance, particularly with matters like intelligence, planning, logistics and maintenance. The ISAF will be cautious in its reductions for fear of pulling back too quickly and seeing the situation deteriorate — unless, of course, Obama directs it to conduct a hastier pullback.
As in Afghanistan, in Iraq the process of drawing down and handing over responsibility in each area was done very cautiously. There was a critical distinction, however. A political accommodation with the Sunnis facilitated the apparent success of the Iraqi surge — something that has not been (and cannot be) replicated in Afghanistan. Even with that advantage, Iraq remains in an unsettled and contentious state. The lack of any political framework to facilitate a military pullback leaves the prospect of a viable transition in restive areas where the U.S. counterinsurgency-focused strategy has been focused tenuous at best — particularly if timetables are accelerated.
In June 2009, U.S. forces in Iraq occupied 357 bases. A year later, U.S. forces occupied only 92 bases, 58 of which were partnered with the Iraqis. The pace of the transition in Afghanistan remains to be seen, but handing over the majority of positions to Afghan forces will fundamentally alter the situational awareness, visibility and influence of ISAF forces.
Casualties and Force Protection
The security of the remaining outposts and ensuring the security of U.S. and allied forces and critical lines of supply (particularly key sections of the Ring Road) that sustain remaining forces will be key to crafting the withdrawal and pulling back to fewer, stronger and more secure positions. As that drawdown progresses — and particularly if a more substantive shift in strategy is implemented — the increased pace begins to bring new incentives into play. Of particular note will be both a military and political incentive to reduce casualties as the endgame draws closer.
The desire to accelerate the consolidation to more secure positions will clash with the need to pull back slowly and continue to provide Afghan forces with advice and assistance. The reorientation may expose potential vulnerabilities to Taliban attack in the process of transitioning to a new posture. Major reversals and defeats for Afghan security forces at the hands of the Taliban after they have been left to their own devices can be expected in at least some areas and will have wide repercussions, perhaps even shifting the psychology and perception of the war.
When ISAF units are paired closely with Afghan forces, those units have a stronger day-to-day tactical presence in the field, and other units are generally operating nearby. So while they are more vulnerable and exposed to threats like IEDs while out on patrol, they also — indeed, in part because of that exposure — have a more alert and robust posture. As the transition accelerates and particularly if Washington accelerates it, the posture and therefore the vulnerabilities of forces change.
Force protection remains a key consideration throughout. The United States gained considerable experience with that during the Iraq transition — though again, a political accommodation underlay much of that transition, which will not be the case in Afghanistan.
As the drawdown continues, ISAF will have to balance having advisers in the field alongside Afghan units for as long as possible against pulling more back to key strongholds and pulling them out of the country completely. In the former case, the close presence of advisers can improve the effectiveness of Afghan security forces and provide better situational awareness. But it also exposes smaller units to operations more distant from strongholds as the number of outposts and major positions begins to be reduced. And as the process of pulling back accelerates and particularly as allied forces increasingly hunker down on larger and more secure outposts, their already limited situational awareness will decline even further, which opens up its own vulnerabilities.
One of these will be the impact on not just situational awareness on the ground but intelligence collection and particularly exploitable relationships with local political factions. As the withdrawal becomes more and more undeniable and ISAF pulls back from key areas, the human relationships that underlie intelligence sharing will be affected and reduced. This is particularly the case in places where the Taliban are strongest, as villagers there return to a strategy of hedging their bets out of necessity and focus on the more enduring power structure, which in many areas will clearly be the Taliban.
Ultimately, the Taliban’s incentive vis-a-vis the United States and its allies — especially as their exit becomes increasingly undeniable — is to conserve and maximize their strength for a potential fight in the vacuum sure to ensue after the majority of foreign troops have left the country. At the same time, any “revolutionary” movement must be able to consolidate internal control and maintain discipline while continuing to make itself relevant to domestic constituencies. The Taliban also may seek to take advantage of the shifting tactical realities to demonstrate their strength and the extent of their reach across the country, not only by targeting newly independent and newly isolated Afghan units but by attempting to kill or even kidnap now-more isolated foreign troops.
Though this year the Taliban have demonstrated their ability to strike almost anywhere in the country, they so far have failed to demonstrate the ability to penetrate the perimeter of large, secured facilities with a sizable assault force or to bring crew-served weapons to bear in an effective supporting manner. Given the intensity and tempo of special operations forces raids on Taliban leadership and weapons caches, it is unclear whether the Taliban have managed to retain a significant cache of heavier arms and the capability to wield them.
The inherent danger of compromise and penetration of indigenous security forces also continues to loom large. The vulnerabilities of ISAF forces will grow and change while they begin to shift as mission and posture evolve — and those vulnerabilities will be particularly pronounced in places where the posture and presence remains residual and a legacy of a previous strategy instead of more fundamental rebalancing. The shift from a dispersed, counterinsurgency-focused orientation to a more limited and more secure presence will ultimately provide the space to reduce casualties, but it will necessarily entail more limited visibility and influence. And the transition will create space for potentially more significant Taliban successes on the battlefield.
Around 5 a.m. on June 17, simultaneous firefights reportedly broke out between elements of the Gulf and Los Zetas cartels in several locations in Matamoros, Tamaulipas state, a Gulf stronghold. The Mexican military has confirmed that a gunbattle did indeed take place in the Colonia Pedro Moreno area but has not confirmed media reports of additional firefights in the Mariano Matamoros, Valle Alto, Puerto Rico and Seccion 16 neighborhoods. The military also has not confirmed a reported gunbattle in the rural area of Cabras Pintas, where six Mexican soldiers are said to have been killed.
View an interactive map of hot spots this week in Mexico
Details of the confirmed firefight remain unclear, but from all indications, a large movement of Zeta forces into a Gulf stronghold did occur, and it suggests a heightened operational tempo in the war between these two cartels. In the coming months, this increasing violence is likely to continue in Gulf-held Reynosa and Zeta-held Monterrey as well as Matamoros.
The Mexican military said the June 17 gunbattle in Matamoros’ Colonia Pedro Moreno neighborhood resulted in three deaths and nine arrests, while an unnamed U.S. law enforcement official said four Gulf cartel gunmen died in the exchange of fire. According to a Mexican army officer quoted in border media, a Mexican army “mechanized regiment” was patrolling in trucks in downtown Matamoros when the fighting erupted but did not participate. The media also quoted a U.S. law enforcement official confirming the presence of another mechanized regiment and claiming that this other regiment of soldiers traveling in trucks supported Los Zetas in an attempt to rescue 11 Zeta operatives, both male and female, who had been captured by the Gulf cartel June 16.
For its part, the Mexican military said a motorized army unit rescued 17 civilians who had been kidnapped, although it is uncertain how an army unit could have achieved this without being a part of the operation or participating in the firefight. At some point during the gunbattle, the leader of Los Zetas, Heriberto “El Lazca” Lazcano Lazcano, was reportedly killed, although STRATFOR doubts that he was present.
While reports of the Matamoros battle are conflicting, it is very likely that a large firefight did occur in the city between the Gulf cartel and Los Zetas and that it was initiated by the latter. Due to the conflicting information, we have been unable to determine the motive behind the Zeta assault, which reportedly involved a force of armed Zetas in 130 SUVs. However, we have seen several large Zeta raids into Gulf territory in recent months intended to undercut Gulf’s support network, and this raid into Matamoros would have been the largest one yet (at least that we are aware of).
Zetas leader Lazcano, a former member of the army’s Grupo Aeromovil de Fuerzas Especiales (GAFES), an elite special operations unit, is an “old Zeta.” He has good tactical and operational awareness and has proved himself to be a very rational decision-maker. Moving a convoy of 130 SUV’s nearly a half mile long (if they were bumper to bumper) into the heart of Gulf territory could not have achieved any element of surprise, which means Lazcano probably thought his force was large enough to accomplish the mission even if it was detected well in advance.
If the objective of this raid was to recover the 11 Zetas reportedly captured by Gulf forces, those prisoners must have been extremely valuable to the Zetas and possibly to Lazcano personally. Low-ranking members of an organization are typically not worth potential losses incurred in such an operation.
The reports that a motorized Mexican army regiment took part in the firefight alongside Zetas gunmen are likely untrue. While there is a corrupt element within the military, the chance of an entire regiment operating with cartel gunmen is quite remote. It is not uncommon for individual soldiers and smaller military units to be found in the employ of cartels, and perhaps a small element was working with the Zetas, but it could not have been a Mexican army regiment, which would number some 1,000 to 3,000 troops.
Whether the Zetas Matamoros raid was a deliberate strike against the Gulf cartel’s power base or an attempt to rescue a group of Zetas prisoners, we have been expecting to see this type of Zetas offensive for several months now. People and businesses should be aware of the probability of increasing violence in the coming months in Matamoros, Reynosa and Monterrey.
Personal income increased 0.3% in May, while personal consumption was unchanged
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Personal income increased 0.3% in May, slightly less than the consensus expected. Personal consumption was unchanged, also slightly less than the consensus expected. In the past year, personal income is up 4.2% while spending is up 4.7%.
Disposable personal income (income after taxes) was up 0.2% in May. Disposable income is up 3.1% versus a year ago. The gain in May was led by private-sector wages and salaries, which are up 3.6% from a year ago.
The overall PCE deflator (consumer inflation) increased 0.2% in May and is up 2.5% versus a year ago. The “core” PCE deflator, which excludes food and energy, was up 0.3% in May and is up 1.2% since last year.
After adjusting for inflation, “real” consumption dipped 0.1% in May but is up 2.1% versus a year ago.
Implications: Consumer spending got slammed by Japan in May, with purchases of durable goods like autos down 1.5% for the month. As a result, total consumer spending was unchanged for the month. With consumption prices up 0.2% in May – that was before the recent dip in oil prices – “real” (inflation-adjusted) consumer spending fell slightly. As we have said repeatedly, we believe these effects are temporary and will result in a forceful rebound in spending later this summer. Late this Friday (July 1), we expect automakers to report the start of the rebound, with sales bouncing up off the May low despite very skimpy manufacturer and dealer incentives in June. Longer term, consumer spending should strengthen. Consumer balance sheets are healthier and their financial obligations (monthly payments like mortgages, rent, car loans/leases, as well as other debt service), are the smallest share of disposable income since 1994. Meanwhile, the underlying trend in worker income continues in a favorable direction, with private-sector wages and salaries up at a 4.5% annual rate in the past six months. This is more than enough to outpace inflation and that gap should widen in the next few months due to the recent drop in oil prices. The problem for the Federal Reserve is that its favored measure of “core” inflation, which excludes food and energy, is accelerating, up only 1.2% versus a year ago but up at a 2.4% annual rate in the past three months. This is an economic problem that calls out for a tighter monetary policy, not the continuation of an overly loose policy.
Monday Morning Outlook
No, The US Is Not Greece
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Two-hundred and thirty-five July 4th’s ago, the United States became reality. While there have been plenty of stumbles along the way, other than during the Civil War, doubts about its continued existence have been few and far between. Lately, however, government spending and debt levels have created a mainstream fear that the US is possibly on its last legs – destined to become a future version of Greece.
We don’t agree and, no, we are not sticking our heads in the sand. Our problems are clear. The budget deficit will be about 8.5% of GDP in 2011, down slightly from 9% in 2010 and 10% in 2009. These deficits are impossible to sustain over the longer run.
Meanwhile, the total public debt of the US is now $14.3 trillion and future promised, but as yet unfunded, Social Security and Medicare benefits amount to about $60 trillion in present value terms. Combined, this $75 trillion is roughly five times annual GDP. With numbers like these, how could we not think serious, economy-threatening problems are on the way?
Well, for one thing, the very obvious problems in Greece (and other countries and the states) and the fact that politicians can’t hide from the Internet are forcing the issue. Second, the political landscape in the US has changed – perhaps because of point one. Third, the solutions are relatively simple in reality, even though very complicated politically.
Part of the solution is higher revenues, and this will happen even if tax rates are not increased. In the past 12 months, revenues have climbed by about $220 billion over the previous 12 months – or, about 0.5% of GDP. We expect revenues to continue this trend, rising from their current level of 14.5% of GDP back to about 18.5% of GDP (a 4% move).
Meanwhile, current debt-limit negotiations are likely to cut federal discretionary (non-entitlement, non-interest) spending. In the 1990s, discretionary spending fell from about 9% of GDP to 6%. So let’s say, we go from 9% today to 7.5%, which could be a “low hurdle” given the eventual reduction in operations in Iraq and Afghanistan. Combining this 1.5% of GDP cut with the 4% rise in revenues (total of 5.5%), could bring the annual deficit down to 3% of GDP.
Of course, that still leaves the long-term entitlement problem. But even there we can see the outlines of solutions looming in the distance. For Medicare and Medicaid, which are much bigger problems than Social Security, we think ultimately the forces of smaller government win. We do not know whether it will be in 2012, 2016, or 2020. But one of those elections is likely to result in a Republican in the White House with control of both the US Senate and House. And at that point, they can enact major reforms along the lines of some recent proposals to turn Medicare into premium support and turn Medicaid into block grants to the states.
Parliamentary rules will allow the GOP to enact these changes with only a simple majority in the Senate (with no chance for a Democratic filibuster). And to reverse these reforms, because it would make future budget deficits larger, Democrats would need 60 votes in the Senate!
On Social Security, any change requires 60 votes in the Senate. This means tax hikes (to fill the gap) are as much in play as benefit cuts and this is why it will likely be put off for many years into the future. In the meantime, news stories suggest even AARP is now willing to consider some reductions in benefits. In other words, fiscal reality is beginning to bite.