Collapsonomics (Part 3): The Impact of Sequestration, by Al Martin

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by Al Martin

Collapsonomics (Part 3): The Impact of Sequestration

(3-5-13) The sequester is simply the automatic across the board spending cuts that Congress agreed to abide by two years ago. It was supposed to be a scare tactic for Congress agreed upon prior to the 2012 bi-elections since both military and domestic spending would be cut 50-50. Sequestration was supposed to be a government “poison pill” (like a corporate “poison pill) for incoming members who came in after 2012. The only reason it passed was because of the votes it received by retiring members. They thought it was a way of forcing discipline on the next Congress. It was a poison pill in that it was meant to force some agreement between the Obama Regime and Congress on spending cuts, something that obviously hasn’t worked out.

The reason why both sides, the White House and Congress, let it happen in Washington was because the impacts of the $85 billion so-called imminent cuts aren’t particularly onerous. Simply put it wasn’t a big enough “stick” to threaten anyone and that’s why everyone let it go. Nobody could gain any leverage out of it.

What’s going to happen is that defense procurement gets a hit and there will be a trickle-down effect with government employees, particularly at the state and county level. In other words, the cuts to federal spending are actually going to be felt harder at the state and county level than they would be at the federal level because these cuts represent a bigger percentage of state and county budgets than they do federal budgets.

There has also been some noise in the media how civilian employees will be cut. However the PMC (Private Military Contractor) business has already been cut in half in the last two years. That’s a dying business. Companies like Blackwater-Academi have lost half of the business they had with the US federal government and they’ve lost more than half of the business they have with foreign allied governments, who are also cutting the use of PMCs. With increasing troop withdrawals from Afghanistan and our involvement with it, which is now winding down (even though of course the conflict will never wind down), the PMC business is going to get hurt even more.

The PMCs are going to have to do what they’ve done before and that is to increasingly rely on third world strongmen for contracts. That’s always the reserve well that they dip into. As you may have heard, Blackwater-Academi is now protecting the politicians in Greece. They’ve done a good job in diversifying because they knew they had to. They’re not just PMCs anymore since they provide a much greater range of services now. They provide executive and political protection services because they had to in order to stay in business.

And speaking of PMCs, people have asked me whatever happened to Halliburton and KBR. It’s true that these companies have become a bit of a has been business because so many of their oil assets are foreign and with foreign oil imports into the United States now dropping precipitously, those who have benefited are those with domestic oil and gas refining and transportation assets at the expense of those with foreign assets. This would include the oil and natural gas fracking industry, which already is the golden goose and it’s going to get bigger. Why? Because there is enough political pressure that the Obama Regime is finding that it’s going to have to compromise less and less with the “greenies,” the environmentalist faction.

There is increasing public sentiment for “energy independence” which has always been a Republican mantra and which also sells well with Working Class Democrats because of the psychological benefit that the Working Class gets from this concept of not sending so much of their minimum wage paychecks overseas.

You might think that it’s because of the jobs they think they’ll be getting, but it’s not so. This does nothing to bring down the price of crude oil or gasoline. Of course, there will be more jobs, but there’s only so many jobs that this business is going to create domestically. It could create many more jobs if the greenies get out of the way. Obama is using that to diminish the greenies or environmentalists who are against fracking. They are becoming a diminishing force because they don’t have any real voice in Washington, this especially in slow economic times when the idea of energy “self-sufficiency” sells well.

When that happens then the expansion of fracking and domestic offshore oil drilling would generate many more jobs because it would generate jobs beyond the “immediate” oil business. It would generate oil infrastructure jobs, where the real jobs are in terms of numbers, namely more pipelines, transmission facilities, refineries, rail transport, storage, etc. This is where the real job creation is in domestic oil. The immediate job sphere means actually exploring and drilling for the stuff, but that’s not where the jobs are. The real jobs are in building the infrastructure that transports, refines and stores the stuff.

The Republicans have always used “energy independence” as a shill, despite the fact that they have done everything possible to prevent it because oil imports under Republican regimes since the enacting of the Kissinger Doctrine have done nothing. The Republicans just use that as an argument because it sells well to the Unwashed.

Yet in reality they’ve done everything to reduce domestic oil production by not providing tax incentives they once provided for expansion of domestic energy production which is essential. This is higher cost and not as competitive as the ability to import oil from some third world nation-state. It can’t compete without tax subsidies or tax incentives in other words because the cost of production of per barrel or per cubic meter in the case of gas is so much higher than it is in some beat-out third world nation-state where most of the oil is located.

As a trader or investor you always look at the big picture. So what has changed? The entire Republican power structure globally is crumbling. Republican regimes always did everything they could to minimize domestic oil production and increase foreign production because that’s where the wealth transfer mechanism benefited the WBRs (Wealthy Bushonian Republicans) the most – that petro-dollar recycling. That was the very heart of the Kissinger oil doctrine. But that’s all falling apart now.

The next trend is that Republican power globally is diminishing because what financed it is diminishing. The economic mechanism is being dismantled. This isn’t political. It’s all about money and control the Republicans had in the free world at one time because the mechanisms to finance it have changed.

The Obama Regime and the next Democratic regime after it (because there’s going to be another Democratic Regime after it) aren’t prepared to fight large scale conventional wars any more which were part of the Republican wealth consolidation mechanism.

Democratic regimes are going to want to increase energy self sufficiency which sells well even to the Republican Working Class. The WBRs always tried to do that but were never able to do it successfully and now they find themselves hoisted on their own petard. Why? Because they find it difficult to object or to put up roadblocks in front of energy self-sufficiency, something which they themselves had always tried to sell.

Why is the power structure changing? Because it can no longer be supported. The mechanisms necessary like the petro-dollar recirculation, countries buying US weapons systems, the United States getting engaged in large scale foreign wars, which were profitable for WBRs, since they were the largest beneficiaries of it because of the spending. That is all falling apart because it can no longer be financed.

It is also a transfer of power because they are increasingly a spent force and they know it and there’s nothing they can do to change it.

There is only one last wealth consolidation mechanism that’s available and that will happen, and that will be global economic collapse. That will be the final wealth consolidation and that will be the only thing that can “finish the job” as it were and complete the cycle.

WBRs tend to be long when speculative bubbles are being built and then they get short.

The global central banks are accommodating it by attempting to build a final speculative bubble by maintaining negative interest rates.

It’s not that hard to understand…

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.

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