With US leaks about Israeli air strike on Syria, John Kerry stirring the civil war pot in Egypt, and the closure of US embassies across the Muslim world (Iraq, Afghanistan, Qatar, Bahrain, Oman, Kuwait, Bangladesh, Saudi Arabia, Libya, Yemen, UAE, Algeria, Mauritania, Sudan, Israel (Tel Aviv) and Jordan), it appears something is afoot. To add to the intrigue, the US State Department just issued a worldwide travel alert for US citizens.
- *STATE DEPARTMENT WORLDWIDE TRAVEL ALERT EXPIRES AUGUST 31, 2013
- *STATE DEPT ISSUES WORLDWIDE TRAVEL ALERT FOR U.S. CITIZENS
An Al-Qaeda threat has been posited but with no follow-up but we can't help but fear what we wondered about previously [9] - the need for deficits to re-awaken (via some external event that no-one can 'un-patriotically' demur) providing more room for Bernanke to avoid his need for Taper.
Via The State Department, [10]
The Department of State has instructed certain U.S. Embassies and Consulates to remain closed or to suspend operations on Sunday, August 4. The Department has been apprised of information that, out of an abundance of caution and care for our employees and others who may be visiting our installations, indicates we should institute these precautionary steps.
On Egypt,
Demonstrators calling for the reinstatement of ousted former president Mohammed Morsi (2012-13) remained defiant on 1 August, a day after the interim cabinet authorised the police to dismantle their protest camps. The authorities in recent days have filed additional charges for incitement to violence against senior members of Morsi's Muslim Brotherhood and other Islamist parties.
...
Accordingly, Embassy Cairo will be closed on Sunday, August 4. U.S. citizens requiring emergency assistance should contact the Embassy switchboard which is manned 24/7 at 02-2797-3300.
Various media sources are reporting possible marches or demonstrations for Friday, August 2 and possibly throughout the weekend. In addition, several media sources are reporting that the police have been given the authority to clear protestors from permanent gathering locations. Should police move to clear these various locations, it may escalate into violent confrontations. U.S. citizens should maintain a low profile and limit movements within their immediate residential neighborhoods.
On Saudi Arabia,
Department of State urges U.S. citizens to carefully consider the risks of traveling to Saudi Arabia. As the August 26, 2012, arrest of two terrorist cells by Saudi security authorities indicates, there remains an ongoing security threat due to the continued presence of terrorist groups, some affiliated with al-Qaida, who may target Western interests...
And as we noted, our concern before [9]:
Why is Ben unhappy? Simple - as a reminder, the only reason Ben is even contemplating tapering has nothing to do with the economy. After all the Fed chairman (and/or his successor) is willing to send the stock market into stratospheric overdrive and would be very happy to add not subtract from the monthly QE $85 billion notional since it means more "wealth effect" and thus brings the US closer to the "Keynesian successful endgame" (that the logic here is completely inverted is well known to all but the most die-hard Keynesian fanboys and is not in the scope of this article).
However, the fact that the gross US debt issuance is declining (if only until the demographic and healthcare crunch hits in 2015 and deficits explode once more) means Bernanke has less primary issuance to monetize. Were Bernanke to maintain his monetization run rate into a lower deficit regime, the Chairman would destabilize the liquidity in the already increasingly illiquid Treasury market in which the Fed now holds over 30% [11]of all 10 Year equivalents and its holdings increase by 0.3% every week. This illiquidity is manifesting itself most directly in the "special" repo rates that have become a norm in the past few months especially in the 10 Year, and which indicate an ongoing shortage of TSY collateral.
Of course, there is a very simple and elegant solution to declining defense spending, one which has been used time and again in US history when the US government needed to provide the Fed with more securities (i.e. deficit) to monetize: war.
Because, if in dire need to boost deficit spending, the chart below shows the most usual suspect:
