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Paul Brodsky On The State of Play: Statists At Play

Tyler Durden's picture





 

On April 16, Argentine president Cristina Fernandez de Kirchner announced that her Argentine government would expropriate and re-nationalize YPF, an energy company operating mostly in Argentina founded by its government in the 1920s and de-nationalized in the 1990s. Repsol, a Spanish company that owns (owned) 57% of YPF called the act “illegal and unjustified” and vowed to sue. Repsol’s president implied he had higher bids for its share of YPF, notably from China (Sinopac), and further asserted that prior to the announcement the Argentine government had deliberately depressed the stock price ahead of expropriation. Spain and its allies in the EU immediately renounced YPF’s re-nationalization and threatened retaliation. Too late: the deal is done and Argentina’s political calculus seems to pass economic scrutiny in a commercial age dictated by political economics. By the time this matter is likely resolved in an international tribunal YPF’s existing energy reserves should be mostly depleted.

 

Fernandez de Kirchner’s timing was brilliant, reminiscent of Robert Rubin currency interventions when he was running the US Treasury who would strike when FX positions were vulnerable. To re-nationalize the Spanish-controlled energy company when Spain’s economy and funding are teetering means the Spanish government and businesses domiciled there lack the clout to make demands of Euro confederates. FdeK’s declaration that the action is a “recovery of sovereignty and control” should further remind observers and investors that those in power ultimately rely on maintaining and obtaining access to natural resources.

 

In times past such expropriation would surely be an act of war. Recall Argentine scrap metal merchants raising an Argentine flag over the Falkland Islands in 1982 was enough to prompt Margaret Thatcher to launch the Royal Navy. (Five British firms are currently looking for oil around the Falklands.) The Spanish armada is unlikely to set sail this time. This particular act of state piracy performed by an independent sovereign nation is notable in that its victims are not members of another society but shareholders neither sovereign serves directly. The Spanish government is busy trying to appease foreign creditors and Repsol’s energy production served shareholders first, not necessarily Spanish energy demands.

 

The Bigger Implication

 

The political calculus among leaders of sovereign governments reduces to short-term domestic political benefits vs. threats of economic or military retaliation. When it comes to natural resources the points of tension are not sovereign governments vs. private domestic interests but sovereign government vs. sovereign government. It would seem China joined global trade in 1978 because its mandarins realized domestic production could not satisfy the Chinese people’s insatiable appetite for basic resources. Perhaps Russian Glasnost and Perestroika sprung in the latter half of the eighties so that Russia could profit by feeding emerging markets like China its bountiful natural resources? And it would seem reasonable that the formation of US free trade agreements and the EU, (in spite of political partisans who would otherwise killed such measures because they threatened domestic employment), were forced by Western mandarins looking to aggregate global natural resources and control its channel of distribution? And the really difficult question: could the unprovoked invasions of Iraq and Libya (and Iran?) have something to do with increasing control over global energy?

 

The paper bets representing global production and resources that we call “capital markets” is in jeopardy of becoming a sideshow. Baseless paper money, fractional banking, revenue shuffling, financial returns, ever-increasing debts, unwarranted confidence building, nominal output growth and politicians posing as policy makers cannot sustain the most basic needs of societies. The G7 remains strong economically not only because we have established infrastructures and markets, we are law-abiding and because Apple is innovative. We remain powerful because ultimately our militaries ensure access to resources. Thankfully, our soldiers remain willing to take fiat with unknown future purchasing power in exchange for their labor and the shareholders of defense contractors remain willing to have their investments denominated in such paper. (Of course, the same was true of shareholders in Repsol YPF.)

 

Price Management

 

The governments of G7 economies have been able to control global resource pricing because they have been able to control the perception of global currencies in which resources are priced. Few in the private sector have seemed to mind government control over pricing because resources in developed economies have remained affordable. Policy management over the general price level (GPL) has been generally considered to be successful and in the public good. GPL management starts with the manner in which we arrive at prices. Central bank-issued paper currencies and electronic credits used to exchange global value among goods, services, labor and assets is, for lack of a better way to phrase it, generally agreed upon. This has been possible because the spigot through which the exchange of value and wealth flow and may be quantified is fairly narrow, coordinated among global treasury ministries and central banks. Legal tender laws and compulsory government tax obligations in specific currencies further ensure that only acceptable currencies are used as media of exchange in the private sector.

 

From time to time, official currency boards of major exporting nations intervene or threaten to intervene into foreign exchange markets so they may devalue their currency vis-à-vis another, with the economic impact of helping their nations’ exporting businesses. They do this by notionally selling their currencies and buying the other, driving the exchange rate to a level that makes it cheaper for importers to buy their nations goods and services. Currency boards that abuse this privilege or do not play ball at all are labeled “currency manipulators”. (A “currency manipulator” is ironically a currency board that does not manipulate its currency in line with the currency manipulations of the broader group.) Nevertheless, laborers and businesses have not minded official currency management because it has tended to be pro-cyclical -- supported by the best overall interests of domestic commercial trade, employment and consumer affordability.

 

As President Fernandez de Kirchner just demonstrated, currency is not property and intervening to confiscate privately-held property does not require “acceptable currency”. Intellectual property may also be easily copied without exchanging “acceptable currencies”, same for factories, goods and manufacturing processes. At the end of the day, if China and India need food, energy and materials, and if Russia, South America and Africa have too much to consume domestically, then nothing is prohibiting them from agreeing to barter or to use a currency that developed countries might deem “unacceptable”. Very few economies have all the natural resources needed to support their populations. Access to abundant resources can only be accomplished by exchanging them for other resources or for credible markers/money/stores of purchasing power. Do the $3 trillion-plus in US dollar reserves that China holds qualify as a credible marker for future purchasing power when everyone knows dollars and all other currencies priced relative to them are being diluted?

Tick, tock.

 


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Fri, 04/20/2012 - 14:36 | Link to Comment Seize Mars
Seize Mars's picture

Brodsky is right on, as usual.

Fri, 04/20/2012 - 15:02 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Brodsky writes:

« The G7 remains strong economically not only because we have established infrastructures and markets, we are law-abiding and because Apple is innovative. We remain powerful because ultimately our militaries ensure access to resources. »

So the US and friends are 'strong' in large part because of Apple ? Fracking APPLE? Ha!

And what is this claim the US is 'law-abiding' ... the MF Global clients seeing billions get stolen and nothing being done .... 2.3 million US prisoners, hundreds of thousands of them innocent, maybe half of them doing slave labour for 1 or 2 US dollars an hour in order to trade for toilet paper and toothpaste ... the illegal foreclosures, the asset confiscations, the lawyers in America robbing everyone and anyone in divorce cases et cetera

What may be true is the ugly statement in the last sentence, where Brodsky basically admits the US military machine is there to steal energy and supplies from the rest of the world.

The US regime seems really to run on the same principle as North Korea, 'songun' or 'military first' policy ... as Brodsky hints, the US is just going to use its global military to steal everything once the financial Ponzi collapses

Fri, 04/20/2012 - 15:57 | Link to Comment NotApplicable
NotApplicable's picture

ALL regimes run on this principle. (something has to support the plunder once there's no further productivity to leech off of)

This is why I consider buying mining equites to be a sucker's bet. They simply will not be allowed to overtake the banksters in monetary power. The herd will see looming disaster, scream "Save us!" and poof go the producers.

Fri, 04/20/2012 - 17:12 | Link to Comment davood
davood's picture

"Rule of Law" is a FARCE.  Watching too much Fox News, CNN et al.

There is NO rule of law except when it suits the hegemonic interests of the Anglo-American empire (basically the G7 nations).  The rape and pillage of Libya and the murder of over 40,000 Libyans, under the guise of "protecting the Libyan people" should serve as the most recent example of the blatant and atrocious disregard for any semblance of adherence to the "rule of law.," U.S. or international.

Fri, 04/20/2012 - 14:39 | Link to Comment SilverIsKing
SilverIsKing's picture

All Spain needs to do is send some navy vessels off the coast of Argentina and threaten to send some missles into Argentina.  The rest of the world will step in and give Spain and Repsol whatever they want to appease them.

But first, Repsol has to grease the Spanish politicians.

Fri, 04/20/2012 - 14:49 | Link to Comment flight77
flight77's picture

The Armada is stationed at the Coast of England. 150 meters under ground.

Fri, 04/20/2012 - 14:50 | Link to Comment Beam Me Up Scotty
Beam Me Up Scotty's picture

Isn't the Spanish Navy at the bottom of the ocean?

Fri, 04/20/2012 - 15:06 | Link to Comment Dr. Engali
Dr. Engali's picture

Spain has navy vessels?

Fri, 04/20/2012 - 15:11 | Link to Comment SilverIsKing
SilverIsKing's picture

Hey folks, check out those pretty boats.

http://www.armada.mde.es/ArmadaPortal/page/Portal/ArmadaEspannola/_inici...

 

The Spanish apparently bought a new fleet and now find themselves in a boatload of debt.  Didn't ya hear?

Fri, 04/20/2012 - 22:35 | Link to Comment Doña K
Doña K's picture

All jokes aside, Spain must let that pass as it is not a priority. However, events like that may excuse actions like defaulting on the debt and give bond holders (whoever they are) the finger. Just like Obama said shared sacrifice. Spain can tell the bond holders they shoud take a 90% haircut as a shared sacrifice.

To the Spanish politicians: If you are a patriot, if you have ideals, if you do not want to sell your soul to the debt and war merchants, proceed to default and you have done your country good.

Look your people in the eye and tell them that this is the road you want to take and you will be adored for eternity.

Fri, 04/20/2012 - 15:21 | Link to Comment RafterManFMJ
RafterManFMJ's picture

Surprisingly, they even have 2 small aircraft carriers. Spain VS. Argentina. FIGHT!

 

http://en.wikipedia.org/wiki/List_of_active_Spanish_Navy_ships

Fri, 04/20/2012 - 15:37 | Link to Comment Dr. Engali
Dr. Engali's picture

You mean like this one?

 

 

http://tinyurl.com/6nqkfww

Fri, 04/20/2012 - 16:28 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

LET'S GET IT ON!!!!!!!!!!!!

Winner gets to wear the Latin Intercontinental Belt and gets a shot at Great Britain and the Falklands Memorial Cup!!!!!!!!!!!!!!!!!!!!!

Fri, 04/20/2012 - 15:09 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Actually I think China is backing up Argentina in this one and that is the big heavy element here.

There is a lot of oil around the Malvinas - what Anglos call the 'Falklands' - and Repsol was hanging back not investing there in order to keep the Brits happy. It was not good for Argentina, though it was good 'brotherliness' between Spain and Britain.

Argentina can see the writing on the wall, Europe is weak, Argentina needs the oil and the revenues, and they need someone who isn't afraid of drilling for oil right next to the British, while the Spanish were dragging their feet and being condescending - So, hello, China.

'If you won't drill there because you're afraid of upsetting the British, well, we'll find someone who isn't afraid.' Logical.

 

Fri, 04/20/2012 - 16:03 | Link to Comment NotApplicable
NotApplicable's picture

That reads like it came out of Brzezinski's "The Grand Chessboard," aka, Machiavelli 101.

Geopolitical/energy choke-points, FTW!

Fri, 04/20/2012 - 15:11 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Argentina has been claiming sovereignty over the Falklands because they have some dubious claim to the place.  Can't Spain lay claim to Argentina using even more valid claims to the territory?

Fri, 04/20/2012 - 14:41 | Link to Comment mayhem_korner
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currency is not property and intervening to confiscate privately-held property does not require “acceptable currency”.

 

Physical > paper, muppetz...

Fri, 04/20/2012 - 14:45 | Link to Comment buzzsaw99
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Let he who wishes to start a trade war toss the first BRICA.

Fri, 04/20/2012 - 14:58 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

Very few economies have all the natural resources needed to support their populations.

And the trend is toward greater populations and fewer resources. 

What can one person do?

Disintermediate.

Your self can be sufficient.

Do you now rely on intermediaries for access to all that you require for each of these?

  • Work
  • Capital
  • Shelter
  • Water
  • Food
  • Security
  • Transportation
  • Energy
  • Education
  • Health
  • God

Is your very existence entirely dependent on counter-parties?

Do you want to change this?

Start by picking one of these areas and cut out the middle man.  Now is the time. 

What is that?  You say you have no time?  Throw out your television.

Fri, 04/20/2012 - 15:03 | Link to Comment Gully Foyle
Gully Foyle's picture

hedgeless_horseman

"You say you have no time?  Throw out your television."

I'm so fucking sick of everyone trying to simplify complex issues. If you lack " time", learn to manage it better.

Stop blaming television for the ills of the world.

Maybe it is the individual who chooses to watch shitty tv that complains about the negative aspects of television.

In the end, you can't blame television because people don't know how to prioritize their lives.

"And the trend is toward greater populations and fewer resources."

The trend in industrial nations is NOT toward greater populations but AGING populations.

I'm not even certain there are fewer rescources. I look around and see a lot of junk that can be salvaged and reclaimed.

The trend is to take complex issues and simplify them because it is easier to make a single thing the scapegoat then fully understand and explain the solutions to a complicated world.

Reductionism doesn't make anything better, just postpones the inevitable.

 

 

Fri, 04/20/2012 - 15:22 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

I'm so fucking sick of everyone trying to simplify complex issues.

 

Reductionism doesn't make anything better, just postpones the inevitable.

 

Complex issues with inevitable outcomes?  So, all we are is dust in the wind?  That is not my sense or experience.  What are some of your complex solutions?

 

you can't blame television because people don't know how to prioritize their lives.

It is a great place to start!  Especially so when I add to the equation our education system, most careers, and many religions.  Where else do we learn priorities in this day and age?

We are being domesticated.

Be a farmer, or be farmed.

Fri, 04/20/2012 - 15:24 | Link to Comment Gully Foyle
Gully Foyle's picture

hedgeless_horseman

"I can, partially, and especially so when I add to the equation our education system, most careers, and many religions."

Oh please, that's like blaming books for an individuals poor decision making.

"Complex issues with inevitable outcomes?  So, all we are is dust in the wind?  That is not my sense or experience."

Really? Everything is black and white? Right or wrong?

No nuance anywhere, no combination of circumstances creating any given situation.

What a narrow world you inhabit.

Fri, 04/20/2012 - 15:49 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

Really? Everything is black and white? Right or wrong?

 

No nuance anywhere, no combination of circumstances creating any given situation.

I am not the strawman you are looking for. 

Do you see any value in at least making one's self aware of exactly who all the counter-parties are that one relies on to exist?  Any risk management benefit?  Any entertainment value?

Gully, is your very existence entirely dependent on counter-parties? 

Sometimes counter-parties, like Argentina, decide that their own needs are more important than the needs of their counter-parties.  Ever heard of Jon Corzine?

Fri, 04/20/2012 - 15:55 | Link to Comment Dr. Engali
Dr. Engali's picture

 

 

Do not argue with an idiot. He will drag you down to his level and beat you with experience. -Mark Twain-
Fri, 04/20/2012 - 20:08 | Link to Comment GoinFawr
GoinFawr's picture

"...and don't we have half the fools on our side? And ain't that a big enough majority in any town?" -Mark Twain

Fri, 04/20/2012 - 21:03 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

Remove the middleman and know your counter-party.

Fri, 04/20/2012 - 16:07 | Link to Comment icanhasbailout
icanhasbailout's picture

the problem with television is that it literally causes mental disability in those who watch it

Fri, 04/20/2012 - 14:51 | Link to Comment Everybodys All ...
Everybodys All American's picture

I'm wondering when the first sovereign confiscates a gold miner. That can't be far off if oil company's are in the line of acquisition.

Fri, 04/20/2012 - 14:57 | Link to Comment Stoploss
Stoploss's picture

BINGO.

 

This is the sign.

Fri, 04/20/2012 - 15:33 | Link to Comment Buzzworthy
Buzzworthy's picture

Confiscation is so messy.  China has more Bernanke Bux than God.  They are simply buying everything they can lay their hands on around the globe.  Stupid, short-sighted western governments will fight over the scraps.

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2012/4/20_Dr._S...

 

Fri, 04/20/2012 - 16:14 | Link to Comment Imminent Collapse
Imminent Collapse's picture

Hey!  Buzzworthy, you stole my avitar.  Get yer own.

Fri, 04/20/2012 - 16:31 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

China can buy resources fair and square, but that won't stop someone from then seizing them.

Fri, 04/20/2012 - 14:50 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

'Thankfully, our soldiers remain willing to take fiat with unknown future purchasing power in exchange for their labor and the shareholders of defense contractors remain willing to have their investments denominated in such paper'

Well, that is a little sad isn't it? Goes to show that all this micro analysis is nothing but a sad attempt to mask the true state of affairs -- wishful thinking, if you want to be generous.

Fri, 04/20/2012 - 14:55 | Link to Comment wee-weed up
wee-weed up's picture

The Argies have been rattling their sabres about The Falkland Islands again too. Wonder why? They got their asses thoroughly whipped last time.

Fri, 04/20/2012 - 15:03 | Link to Comment Gully Foyle
Gully Foyle's picture

wee-weed up

Google up Obama's Falklands/Maldives faux pas just before the nationalization.

Interesting timing.

Reminds me of the whole Glaspie Saddam green light just before Gulf war 1.

Fri, 04/20/2012 - 15:04 | Link to Comment Dr. Engali
Dr. Engali's picture

Looks like AAPL is experiencing a controlled collapse.

Fri, 04/20/2012 - 16:42 | Link to Comment GoinFawr
GoinFawr's picture

I know that correlation doesn't necessarily indicate causation, but I heard their last Ipaid offering has been showing signs of overheating.

Reggie Middleton ought to be pleased.

Sun, 04/22/2012 - 04:25 | Link to Comment John_Coltrane
John_Coltrane's picture

You call an increase in share price from ~$400 to ~$570/share in 4 month a "collapse"?  It hasn't even retraced 1/3 of this gain yet!

Fri, 04/20/2012 - 15:21 | Link to Comment LowProfiIe
LowProfiIe's picture

And I thought $3t was the estimated total of China's reserves expressed in USD of which maybe a little more than half are denominated in USD.

 

http://www.reuters.com/article/2010/09/03/china-economy-reserves-idUSTOE...

http://online.wsj.com/article/BT-CO-20120301-703630.html

 

Of course the argument still holds that in whatever fiat those reserves are denominated in,  dilution is still taking place.

Fri, 04/20/2012 - 15:43 | Link to Comment brooklynlou
brooklynlou's picture

What it really shows is that if you are off the global financial grid (like Argentina) you can do whatever you want as long as no one is willing to do anything about it. Kudos to FdeK, didn't know she had balls that big.

The only navy Spain could ever get its hands on is if they confiscated some Carnival Cruise lines ships and weaponized them 

Fri, 04/20/2012 - 22:27 | Link to Comment AurorusBorealus
AurorusBorealus's picture

I agree.  The "repatriation" or "nationalization" of Argentine oil was a bold, and quite correct, geostrategic play by Argentina and makes much less of a mess than American oil grabs in the Middle East.

Now... what happens when China decides it needs to nationalize some American companies operating in Hong Kong or out of the mainland?  Seems correct if the U.S. pushes the issue with Iran, cutting off Chinese oil.

Fri, 04/20/2012 - 16:18 | Link to Comment anonnn
anonnn's picture

You are swallowing a paid infomercial from robber barons who stole YPF in the 1990's.

If you seek to understand, consider the following documentary. It will explain and make sense out of the confusing bullshit.

History teaches:

The YPF oil privatization scam under Menem.

True history explains and simplifies.

http://topdocumentaryfilms.com/argentinas-economic-collapse/

Fri, 04/20/2012 - 17:31 | Link to Comment davood
davood's picture

The "privatization" of YPF was a textbook play right out of the WB/IMF preybook.

Read John Perkin's book, "The Confessions of an Economic Hitman."

The idiots on ZH who have no clue as to the real history of this YPF/Repsol saga will soon get to experience these exact same tried-and-true tactics enacted in the U.S. to its resources, as they are currently being played out in Greece and very soon in Spain, Italy, Ireland, and Portugal.

Fri, 04/20/2012 - 20:06 | Link to Comment GoinFawr
GoinFawr's picture

I'll second that reco'. It's a short read, but sweet.

"preybook", nice.

Fri, 04/20/2012 - 16:32 | Link to Comment GoinFawr
GoinFawr's picture

"...this is the punishment element perhaps; it can't be helped... The Governor ought to be pleased." -Dr.Brodsky

Fri, 04/20/2012 - 17:22 | Link to Comment The Alarmist
The Alarmist's picture

The Spanish need a white knight ... maybe they should pledge half of YPF to borrow funds to hire what is left of the Royal Navy and Royal Air Force to go all Malvinas on their Argentinian asses.  I'm sure 10 Downing will see the merits of a solution that generates fees for the City and gives them a chance to handle their own looming problem with the Argentinians on someone else's dime.

Sat, 04/21/2012 - 04:54 | Link to Comment wkwillis
wkwillis's picture

If Spain defaults on it's debt, then the Swiss banks go down.

If the Swiss banks go down, they can't pay their depositors.

If the Argentine politicians that sold off YPF and put the money in the Swiss banks don't have that money any more, why shouldn't they nationalise YPF?

You take the money back, they take the oil back.

Sun, 04/22/2012 - 04:30 | Link to Comment John_Coltrane
John_Coltrane's picture

No bank can pay its depositors!  Its the fractional reserve system.  Its just based upon "trust".  When trust is broken you get a nice Minski moment, also known as a critical point in statistical physics.

Sun, 04/22/2012 - 03:59 | Link to Comment Zero Govt
Zero Govt's picture

The biggest question this article raises is how long has Brodsky spent in ivory towers? This academic dreamer is delusional and hasn't even done the most basic of research on trade

It would seem China joined global trade in 1978 because its mandarins realized domestic production could not satisfy the Chinese people’s insatiable appetite for basic resources.

BS. The Chinese Govt wanting to satisfy consumers? You're kidding. The Chinese Govt was BANKRUPT and in the toilet. It had no choice, nowhere to go, but to get out the way of the strangled private sector after vandalising the economy and leaving it a train wreck.

Perhaps Russian Glasnost and Perestroika sprung in the latter half of the eighties so that Russia could profit by feeding emerging markets like China its bountiful natural resources?

Russia was BANKRUPT. Totally steaming broke from Govt (mis)management. Its Govt had nowhere to go.

And it would seem reasonable that the formation of US free trade agreements and the EU... were forced by Western mandarins looking to aggregate global natural resources and control its channel of distribution? 

More academic garbage. Trade between Europe and the US is all private sector, Govt has nothing to trade because it's the most inept institution on Gods earth

Nothing is decided by Govt regards trade except a miniscule amount of subsudised (bankrupt) public-private schemes (scams).

Govt has no idea what to trade or where to sell cars, clothes pegs or iron ore.. they can't even control their own inept budgets let alone stay abreast of agriculture to technology international markets

The Govt has not a clue about trade, and neither has Brodsky

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