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The world
wasn't exactly placid at the beginning of this year. But lately we seem to
have detoured onto Crazy Street. Let's start with the South China Sea, where
everyone, inexplicably, has become obsessed with some barren islands and is
apparently willing to trade blood for rocks:
Japanese
firms shut plants in China as territorial row escalates
Major
Japanese firms have closed their factories in China and urged expatriate
workers on Monday to stay home ahead of what could be further angry protests
over a territorial dispute that threatens to hurt trade ties between Asia's
two largest economies.
China's worst
outbreak of anti-Japan sentiment in decades led to weekend demonstrations and
violent attacks on well-known Japanese businesses such as car-makers Toyota
and Honda, forcing frightened Japanese citizens living in the country into
hiding and prompting Chinese state media to warn that trade relations could
now be in jeopardy.
"I'm not
going out today and I've asked my Chinese boyfriend to be with me all day
tomorrow," said Sayo Morimoto, a 29-year-old
Japanese graduate student at a university in Shenzhen.
Japanese
housewife and mother Kayo Kubo, who lives in the eastern Chinese city of
Suzhou, said her young family and other Japanese expats were also staying
home, frightened by the scale and mood of this weekend's protests in dozens
of cities.
"There
were so many people and I've never seen anything like it. It was very
scary," she said.
Chinese
Foreign Ministry spokesperson Hong Lei said the government would protect
Japanese firms and citizens and called for protesters to obey the law.
"The
gravely destructive consequences of Japan's illegal purchase of the Diaoyu Islands are steadily emerging, and the
responsibility for this should be born by
Japan," he said at a daily news briefing. The islands are called the Senkaku by Japan and Diaoyu by
China.
"The
course of developments will depend on whether or not Japan faces up to
China's solemn stance and whether or not it faces up to the calls for justice
from the Chinese people and adopts a correct attitude and approach."
China and
Japan, which generated two-way trade of 345 billion dollars last year, are
arguing over a group of uninhabited islets in the East China Sea, a
long-standing dispute that erupted last week when the Japanese government
decided to buy some of them from a private Japanese owner.
The move,
which infuriated Beijing, was intended by Japan's government to fend off what
it feared would be seen as an even more provocative plan by the nationalist
governor of Tokyo to buy and build facilities on the islands.
In response,
China sent six surveillance ships to the area, which contains potentially
large gas reserves. On Monday, a flotilla of around 1,000 Chinese fishing
boats was sailing for the islands and was due to reach them later in the day,
the state-owned People's Daily said on its microblog.
The weekend
protests mainly targeted Japanese diplomatic missions but also shops,
restaurants and car dealerships in at least five cities. Toyota and Honda
said arsonists had badly damaged their stores in the eastern port city of
Qingdao at the weekend.
However,
Toyota said its factories and offices were operating as normal on Monday and
that it had not ordered home its Japanese employees in China.
Fast
Retailing Co, Asia's largest apparel retailer, said it had closed some of its
Uniqlo outlets in China and may close yet more,
while Aeon Co Ltd, Japan's second biggest retailer, is prohibiting its
Japan-based staff from taking business trips to China.
Japanese
electronics group Panasonic said one of its plants had been sabotaged by
Chinese workers and would remain closed through Tuesday--the anniversary of
Japan's 1931 occupation of parts of mainland China, a date that Tokyo fears
could trigger another outbreak of anti-Japan sentiment.
Japan warned
nationals about large-scale protests in China on Tuesday, while many Japanese
schools in cities like Beijing and Shanghai have cancelled classes this week.
Then of
course there's the Middle East eruption over an obscure parody film:
Anti-American
protests continue throughout the Middle East
Hundreds
rallying around an anti-Islamic film continued protests throughout the Middle
East Monday, burning cars and throwing rocks at a U.S. military base in
Afghanistan, torching a press club and a government building in northwest
Pakistan and clashing with police outside the U.S. Embassy in Indonesia.
Police also tried to arrest a hardline Muslim leader -- reportedly wanted for
violence in Tunisia -- who escaped after hiding inside a mosque in Tunis.
The protests
were the latest in a week-long wave of violence sparked by the low-budget
film, which portrays Islam's Prophet Muhammad as a fraud, a womanizer and a
child molester. Many of the incidents have targeted U.S. diplomatic posts
throughout the Muslim world, including one that killed the U.S. ambassador to
Libya, forcing Washington to ramp up security in select countries.
Protesters
have directed their anger at the U.S. government even though the film was
privately produced and American officials have criticized it for
intentionally offending Muslims.
In
Afghanistan, hundreds of people burned cars and threw rocks at a U.S.
military base in the capital, Kabul. Many in the crowd shouted "Death to
America!" and "Death to those people who have made a film and
insulted our prophet."
Police
officers shot into the air to hold back about crowd of about 800 protesters
and to prevent them from pushing toward government buildings downtown, said Azizullah, a police officer at the site who, like many
Afghans, only goes by one name.
More than 20
police officers were slightly injured, most of them
hit by rocks, said Gen. Fahim Qaim,
the commander of a city quick-reaction police force.
Later in the
day, protests broke out in other areas of Kabul, including the main
thoroughfare into the city, where demonstrators burned shipping containers
and tires. The crowd torched at least one police vehicle before finally
dispersing, according Daoud Amin, the deputy police
chief for Kabul province.
At a separate
protest in front of a mosque in southwest Kabul, several dozen people shouted
anti-U.S. slogans and called for President Barack Obama to bring those who
have insulted the prophet to justice.
The rallies
will continue "until the people who made the film go to trial,"
said one of the protesters, Wahidullah Hotak.
And last but
definitely not least, Israel seems to be inching towards the launch button
over Iran's nukes:
Israel-U.S.
relations strained as Netanyahu urges 'red line' for Iran
Israel's
Prime Minister Benjamin Netanyahu criticized the United States Tuesday over
what he views as a reluctance to decisively act against Iran's nuclear
program, worsening already rocky relations between the two nations.
In a message
aimed at the White House, Netanyahu confronted Washington about what factors
would provoke a military strike against Iran's nuclear facilities. Iran
maintains the facilities are for peaceful purposes, but Israel says Iran is
stockpiling enriched uranium to build nuclear weapons.
"The
world tells Israel, 'Wait. There's still time,'" Netanyahu said Tuesday.
"And I say: 'Wait for what? Wait until when?' Those in the international
community who refuse to put red lines before Iran don't have a moral right to
place a red light before Israel."
Later
Tuesday, the White House sought to dismiss reports of a rift between
Netanyahu and U.S. President Barack Obama.
It said in a
statement that the two leaders spoke for an hour and agreed to continue
"close consultations" about the situation in Iran.
Israel has
always maintained that a nuclear-armed Iran poses a threat to the Jewish
state, as Tehran has persistently called for Israel's destruction.
Netanyahu's
words came the same day as a news report that lends credence to allegations
that Iran is running a nuclear weapons program.
The report
quoted unnamed diplomats as saying that the UN atomic agency has intelligence
suggesting that Iran has advanced its nuclear work.
Diplomats
interviewed by the Associated Press alleged that Iran has moved closer to the
ability to build a nuclear weapon, expanding its research on the potential
capabilities of an atomic warhead.
The
intelligence comes from Israel, the United States and at least two other
Western countries and was conducted within the past three years, AP reported.
The United
States has not heeded Netanyahu's calls and has said it wants to dissuade
Iran from its nuclear work through diplomacy.
The
disagreement over how to deal with Iran has boiled over in recent weeks.
Earlier
Tuesday, reports said Obama had rejected a meeting with Netanyahu when the
prime minister attends the UN General Assembly this month in New York. By
Tuesday evening, the White House denied the reports, saying no such plan had
been made or rejected.
Earlier this
week U.S. State Dpeartment spokeswoman Victoria Nuland said "it is not useful" to set deadlines
or outline "red lines." She also stressed that U.S. President
Barack Obama has made it clear that the U.S. will not allow Iran to obtain
nuclear weapons.
Some thoughts
On the South
China Sea, China is a rising power and Japan is declining, which is,
historically, a recipe for trouble. But they do a huge amount of business
together and it's odd that either sees a confrontation as a profitable
venture. It's certainly costing both parties this week in terms of lost
production and street security. But they've decided that this is the time,
and public opinion seems to favor a confrontation, so here we go.
On the Middle
East, Ron Paul is clearly right (if there was ever any doubt). The video set
off an explosion that was waiting for a lit match. If not this, something
else would have set it off. The West simply has no business occupying that
(completely incompatible) part of the world, and when the true price of oil
is calculated to include the cost of Middle Eastern entanglements we'll find
that it's vastly more expensive than any other fuel. The southern half of the
US could be covered in solar panels for less than we'll spend on cleaning up
this mess in the coming decade.
On
Israel/Iran specifically, it's not clear that there's a peaceful solution,
given the demographics. Muslim populations are soaring and electorates are
becoming more resentful and fundamentalist, Israel won't accept nuclear
weapons a few hundred miles away, and the US has absolutely no idea what to
do and no money which with to do it.
Now, it's
completely possible that all of the above are negotiated away in the next few
months, and everyone everywhere should hope that they are. But if not, each
has the potential to change the tenor of today's complacent markets. An
Israeli strike on Iran, for instance, would give us $200 oil and $2,000 gold
in a single trading day. And who knows what a stepped-up Japan/China
confrontation would do, though whatever it is, it would be bad.
There are two
points to all this: First, financial crises produce geopolitical crises. So
what we're seeing is in general terms what we should expect after borrowing
tens of trillions of dollars in the past few decades. A bankrupt world is an
unstable world.
Second,
geopolitical instability just strengthens the investment thesis that derives
from excessive debt. In uncertain times, real assets that aren't someone
else's liability are much better bets than paper promises -- and self sufficiency is safer than dependence on government.
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