More on Iran, China

A couple of brief follow-ups to previous posts:


Rumors of war
Further to my recent post on the possibility of war as the reflationary trade, the Fabius Maximus blog pointed out that VIPS, a group of senior people within the US intelligence community, ihas published an open letter to Obama warning about an Israeli strike on Iran:

We VIPS have found ourselves in this position before. We prepared our first Memorandum for the President on the afternoon of February 5, 2003 after Colin Powell’s speech at the UN.

We had been watching how our profession was being corrupted into serving up faux intelligence that was later criticized (correctly) as “uncorroborated, contradicted, and nonexistent” — adjectives used by former Senate Intelligence Committee chair Jay Rockefeller after a five-year investigation by his committee.

As Powell spoke, we decided collectively that the responsible thing to do was to try to warn the President before he acted on misguided advice to attack Iraq. Unlike Powell, we did not claim that our analysis was “irrefutable and undeniable.” We did conclude with this warning:

“After watching Secretary Powell today, we are convinced that you would be well served if you widened the discussion … beyond the circle of those advisers clearly bent on a war for which we see no compelling reason and from which we believe the unintended consequences are likely to be catastrophic.”
http://www.afterdowningstreet.org/downloads/vipstwelve.pdf

We take no satisfaction at having gotten it right on Iraq. Others with claim to more immediate expertise on Iraq were issuing similar warnings. But we were kept well away from the wagons circled by Bush and Cheney.

Sadly, your own Vice President, who was then chair of the Senate Foreign Affairs Committee, was among the most assiduous in blocking opportunities for dissenting voices to be heard. This is part of what brought on the worst foreign policy disaster in our nation’s history.

We now believe that we may also be right on (and right on the cusp of) another impending catastrophe of even wider scope — Iran — on which another President, you, are not getting good advice from your closed circle of advisers.

They are probably telling you that, since you have privately counseled Prime Minister Netanyahu against attacking Iran, he will not do it. This could simply be the familiar syndrome of telling the President what they believe he wants to hear.

Quiz them; tell them others believe them to be dead wrong on Netanyahu. The only positive here is that you — only you — can prevent an Israeli attack on Iran.

I have had some feedback on my post, some of whom disagree with my assessment that war would be bullish for the markets. Let me re-phrase my beliefs. War would likely be bearish if America was to spend more blood and treasure getting caught in another quagmire. War would be bullish for the US economy if Americans followed the 19th Century imperialist model of "looting" conquered lands - which could happen if Americans controlled the major oil producing regions in the Middle East. I am not passing judgment on whether such a course would be right or wrong, but just stating my assessment of the likely consequences of war.


China moves up the value chain
Further to my last post and essay on the very long view on China, I see that Patrick Chovanec and I are on the same page about rising labor costs in China and China moving up the value chain:

The Chinese economy is changing. There’s no question that companies that continue to rely on cheap labor to produce low-value, commodity goods — like those ones Andrew describes in his article — will increasingly feel the squeeze. As forward-looking companies pay more to deliver greater value-add, the opportunity cost of employing labor rises. That’s good for the economy, and for standards of living, but it means companies that remain stagnant must pay more just to do what they were already doing. With razor-thin margins based purely on eking out lower costs, many will go under.