In Trump We Trust

"Bin Laden wanted to draw the United States into Afghanistan, which was already being called the graveyard of empires...Bin Laden caught America at a vulnerable and unfortunate moment in its history"

Wright, Lawrence. The Looming Tower (p. 272).

What Bin Laden started, Iran is finishing.

The U.S. and Israel are attacking Iran for the second time in less than a year, which has given the Islamic regime zero incentive to stand down in another fake ceasefire. Trump has painted himself into the corner and he is surrounded by Neocons who are advising him to invade the country and "liberate" the people. A feat that proved totally impossible in Iraq and Afghanistan. His sole good option is to stand down, admit defeat and leave Iran alone. It's TACO time. But Trump can't think clearly about this situation because he is surrounded by draft dodging dilettantes like himself who are still trying to win the Vietnam war. Meanwhile, the U.S. has 3.700 nuclear weapons and Israel has had nuclear weapons for decades. The crazy man in North Korea has nuclear weapons. Iran obtaining nuclear weapons to protect itself from American "excursions" such as Iraq and Afghanistan makes total sense. If Ukraine had retained their nuclear weapons after the fall of the Soviet Union, the Russian invasion may have never happened. The nuclear double standard allows the U.S. and Russia to invade countries with impunity.

This article is what Trump is hearing constantly from Neocons - that ending the war is riskier than continuing the war:

“We are stuck between two outcomes, each of them worse than the other,” said Mahdi Ghuloom, a fellow at the ORF Middle East think tank in Bahrain. “One is that the regime stays intact, and the second is the power vacuum in Iran. The Trump administration’s Middle East policy has not been thought through completely, the decision to conduct this war was taken in haste, and its ramifications miscalculated.”

On the financial side, the U.S. budget deficit was in surplus in the year 2000 just prior to 9/11 and the Iraq/Afghanistan military fiascos. Subsequently, U.S. debt has sky-rocketed due to those two failed wars, an out-of-control defense budget, and multiple tax cuts for the ultra-wealthy: personal tax cuts, corporate tax cuts, dividend tax cuts, capital gains tax cuts, and estate tax cuts. The U.S. will ultimately be forced to drastically downsize its defense budget and its overseas military excursions or face hyperinflation. The alternative is to plunder Social Security and Medicare and force widespread poverty among the aging populace. Republicans call Social Security and Medicare "entitlements" however they are the ONLY part of the U.S. budget that are directly funded by the payroll tax (FICA). These are not entitlements - workers only receive what they paid into the programs from their paychecks with interest - therefore any attempt to further plunder these programs for wars and tax cuts is an act of theft.

The first order effect of this war is to cause inflation to sky-rocket globally. Recall the trade war last year was inflationary, so this is the second round of inflation in less than a year. Central banks globally are now contemplating rate hikes at the WORST point in the cycle:

The International Monetary Fund has already warned about the scale of the danger...a sustained 10 per cent rise in oil prices lasting most of the year would add around 40 basis points to global inflation. That is a meaningful shock for an economy where central banks have spent the past two years fighting to re-anchor inflation expectations"

Next week, seven global central banks meet and I predict we will see a hawkish pivot away from any prospect of further rate cuts. Potentially setting up rate hikes in the months ahead.

Therefore the situation today is identical to August 2008 when a late cycle oil surge caused the Fed to pause rate cuts amid a burgeoning financial crisis. This is policy disaster in real-time, as everyone knows that the jobs market is imploding:

"The spike in oil prices and growing concerns around private credit are causing market activity to resemble the lead-up to the global financial crisis"

Which gets us to the biggest second order risk which is Artificial Intelligence: The biggest Tech bubble in human history.

I am now calling this impending event "AI Depression". The depression will not be caused by AI actually displacing jobs it will be caused by widespread corporate bankruptcy due to over-investment in technology.

In the chart below we see Tech investment going straight up and jobs going down, whereas in every other recession Tech investment rolled over. We are to believe that the link has been broken. And right on time we got this headline just this week.

"For decades, memory stocks were stuck in a trader’s game, a boom-bust-repeat pattern, but executives now say that AI has structurally broken the old cycle, and prices are showing no signs of coming down."

AI is a dog chasing its own tail. Tech companies over-investing in technology and telling themselves there is sustainable demand while they put their companies at existential risk.

In summary, hyperinflation is likely inevitable several years from now as policy-makers attempt to make good on pension programs that have been systematically plundered by wars and tax cuts.

In the meantime however, the AI depression that is looming on the other side of this oil shock, will likely be the most deflationary event in history.