"We Have To Literally Avoid War". 2 Trends.

In all honesty, voter concern for the economy drastically eclipses serious media time spent on stimulus, homeowner-targeted and "bailout" proposals, where it ranks about even with flag pins.  

Also, national security is a very broad problem only tentatively put into context by the likes of Brian Williams and Charles Gibson.   That said, the most probably scenario in which we face another immediate Middle Eastern war is if Israel or the United States initiate, not Iran.  While Bush may well try that, what we really should be highly concerned about is the fall out of the economy working together with a destabilizing East.  Specifically, there's the prospect of war breaking out in the Caucuses--hello? oil?--this very month, and we've heard minimal from the candidates

You see, Southern Russia, tucked between the Caspian and the Black Sea, is a very strange, unstable area.  Not only the position of Chechnya, but other Federal Republics, mountainous and ethnically-drawn, that fit just as poorly into the European quilt.  Kalmykia is an interesting exampe: the only Buddhist republic within Europe (populated by the descendants of Mongols and their marraiges).  But most of the relationships are far more nerve-wracking... Muslim peoples adjacent to Azerbaijan and down-the-street Iran, Oriental Christians adjacent to Armenia and Georgia, meaning that these populations are not pockets within Russia the way the Poles of Siberia were.

Similarly in Georgia, Abkhazia is such a land with an ancient history, ethnic cohesion and long-broken relations with the federal government in Tblisi:

RUSSELS (Reuters) - Russia's deployment of extra troops in the breakaway Georgian region of Abkhazia has brought the prospect of war "very close," a minister of ex-Soviet Georgia said on Tuesday.

Separately, in comments certain to fan rising tension between Moscow and Tbilisi, the "foreign minister" of the breakaway Black Sea region was quoted as saying it was ready to hand over military control to Russia.

"We literally have to avert war," Temur Iakobashvili, a Georgian State Minister, told reporters in Brussels.

Asked how close to such a war the situation was, he replied: "Very close, because we know Russians very well."

"We know what the signals are when you see propaganda waged against Georgia. We see Russian troops entering our territories on the basis of false information," he said.

Georgia, a vital energy transit route in the Caucasus region, has angered Russia, its former Soviet master with which it shares a land border, by seeking NATO membership.

More here.

So you see, there are a number of inter-related points.  Abkhazia is in Georgia, which cannot control Abkhazia.  Moscow sends in troops to stabilize the area, because when you scale back the picture to include one of the world's largest nations, Russia's comparatively great military has the numbers and the strategic need to pacify Abkhazia: their side of the fence is full of similar, micro-countries that could breakaway, and because Europe's energy depends on the Caspian-Black Sea pipelines.

Unfortunately, Tblisi is starting to see this as a Russian balance of power struggle, with a nation it cannot refuse marching over its national sovereignty for its own national security purposes, or possibly out of alliance with Abkhazia.  Russia is continually trying to balance a number of problems: declining population and dangerously eroding weapons infrastructure, including the software and hardware controlling their missiles, the eventual agricultural bust of 70 years of chemical fertilizers and extreme water loss, including in bread-basket neighbors formerly part of the USSR, tensions with Europe as a primary energy provider, political destabilization and economic stagnation while next-door China grows so fast it could help derail the world economy even more.

So while this may not be our oil specifically, a hegemonic United States which wishes to control the entire world would want to be involved.  Or, it can abdicate political and military responsibility to Russia and the E.U., yet again, and then find itself in the weird position of wanting to complain that it has no influence in Europe and Russia after it thumbed its nose at them for 8 years.

Trend number two is a little bit distinct, but very much inseperable nonetheless.

There was talk this last week of the economy "rebounding", from those who want to bury their heads in the sand.  Sort of like the way people will try to distract the global picture whenever someone gets--omg! a dusting of snow fantastically negating global warming.

The economic bad news will continue to trickle in.

Oil just hit $120, we know.  But that's not the type of bad news for the markets that I'm talking about:

"WASHINGTON - Fannie Mae reported losses of $2.2 billion in the first quarter and the nation's largest buyer of home loans said Tuesday it would cut its dividend and raise $6 billion in new capital, with expectations that the housing slump will persist into next year.

Home prices fell faster in the first quarter than Fannie Mae had expected, the government-sponsored company said, and it will open a $4 billion share offering immediately, with the remainder being offered in the "very near future."

Following the stock sale, Fannie Mae's federal regulator, the Office of Federal Housing Enterprise Oversight, will cut the capital surplus cushion the company has to maintain by 5 percentage points to 15 percent, with another five-point cut in September, provided there is "no material adverse change" in the company's regulatory compliance.

The company's estimated fair value of net assets as of March 31 was $12.2 billion, down 66 percent from $35.8 billion at the end of December.

Fannie Mae's first-quarter loss contrasts with a profit of $961 million in the January-March period last year. Fannie Mae reported on Tuesday that the early 2008 loss was equivalent to $2.57 a share. It earned 85 cents a share a year earlier."

First of all, 2.2 billion is not among the more hellish write-downs we've seen from private banks like Citi, Bear Stearns, et al.  But it does show the timing... every time the US pundits cry that the worst is over, more bad news comes in.  Secondly, even after the housing market made its great fall last year, losses still exceeded expectations through March.

When it comes to investment, it's a great time to see which companies are tightening their belts, that is, cutting overhead and becoming extremely efficient machines.  These are the companies that often will be the stars of the next expansion, whether they are giant companies or essentially unknown.  But we have no idea how long this stagflationary abyssal will last, let alone whether we're even on the fastest trajectory towards the bottom yet.   It is not such a great time to be an actual stakeholder in the economy, whether you own a house or use the markets directly (or rather, let them use you) for your career as well.

Secondly, this underlines a credibility problem for the US government's finances.  It's one thing to be negligent as the bankers and Wall Street run away with economic astrology--that's usually forgiven.  It's another when a public player (viewed in the industrial world as the regulator) is involved in reckless borrowing and shoddy foresight on lending.  The US housing market is effecting countries and foreign real estate which weren't even actively involved in the present crisis.

Expect this to go on for the coming months, less noise than last year's cries of "isn't the economy fabulous!" and then pundits dialing in the panic button, and more malaise and  speedbumps of bad news.  Unfortunately, the economy will be travelling at 25 mph and losing parts along the way.

A global economic collapse has entirely different prospects for poor countries with low tax receipts and high unemployment.  You can even tie in the environment.  Countries from Azerbaijan and Nigeria, with their unsustainable, polluted ecosystems, are exporting their wealth (oil) and losing their national trust--their clean water and good land which is important in an expanding food shortage.  All in the name of growth which is collapsing.  And countries like Georgia and Russia where this pundit chatter has little to do with reality.     Such a collapse creates hardships that inevitably lead to new conflict... the Pentagon is probably going to be a lot more concerned with countries that weren't on the radar than the bombed out, devastated "terrorist" havens in the Arab states and Afghanistan that usually spring to mind.  Those places are already in stagnation.  

Instead expect to see rising tension in Egypt, the Maghreb (Algeria, Morocco and its colonial project of Western Sahara), the northern side of Iran--states like Georgia and Southern Russia, and Western, Central and Eastern Africa. Talking about Iran without talking about Russia, the way any European political discussion would entail, is like talking about shooting your neighbor on his lawn and getting away with it when there's bystanders all down the street.  It's bonkers.

Individual suffering in the recession is bad, yes, but the next President is going to have to worry about more than even just home equity and joblessness... the entire system is crashing, and there are far worse things in store for everyone if we don't get the focus off symptoms, whether for the consumer or the investor.  As far as national security goes, well, we long ago realized the discussion doesn't reflect the reality of the world.