Treaty of Versailles

"You offer terms. I ask none."
--Balian of Ibelin (Kingdom of Heaven)

Yesterday marked the 100th anniversary of the Treaty of Versailles. Although conventional wisdom is that the treaty marked the end of war and the institution of peace, the reality is that it motivated a period of unprecedented statism and war.

The Treaty of Versailles was actually a collection of treaties signed by individual countries in a series of settlements. In January, 1919, delegates from Britain, France, Italy, and the US convened in Paris for a preliminary conference to decide amongst themselves the terms to offer Germany. Germany was not summoned to Paris until May, and it was not permitted to negotiate terms. Because this violated precedent for resolving post-war differences, the fact that treaty terms were dictated was bound to breed contempt in Germany.

Germany signed the treaty forced on them on June 28, 1919.

The several clauses of the treaty, heavily influenced btw by British economist John Maynard Keynes, intensified the bad taste in German mouths. The military clause disarmed Germany. However, German disarmament was supposed to be part of a general European disarmament sponsored by the League of Nations. But the Allies did not fulfill their promise to disarm, and this broken promise infuriated German public opinion.

The reparations clause, upon Keynes's recommendation, did not fix the amount of reparations that Germany was to pay for wartime damages. Instead, Germany was forced to sign a blank check, which permitted the country to complain that its citizens had been condemned to indefinite slave labor. Moreover, the reparation sums demanded by Britain and France subsequently indebted Germany to the point of the Weimar hyperinflation and country's economic collapse in the early 1920s.

The reparations clause also included Article 231. Article 231 required that Germany accept sole responsibility for starting the war. This was folly, of course, because all major European powers shared responsibility for starting the war. Sadly the charade of Article 231 has been perpetuated in most history books.

The territories clause caused Germany to lose 13% of its land and 10% of its population. Alsace-Loraine went to France, territory in the east (along with Russian and Austro-Hungarian land) went to recreate Poland, the Polish Corridor to the sea cut off East Prussia from the Germany, the Austro Hungarian empire was shattered to create the new nation of Czechoslovakia, and the unification of Germany and Austria was prohibited. Not only did these moves deny the people in these territories the right to self determination--a self-determination that was promised by the Allies prior to the treaty conference--but it festered ill feelings inside Germany about surrounding locales that had been created by force rather than by freedom.

The German people thought the treaty unfair, and they wanted someone to oppose it. The platform for Hitler's rise to power was built on the Treaty of Versailles.

The scope of the treaty also facilitated land deals in Italy, Asia, and the Middle East--all motivated by imperialistic impulses of the Allies. These deals were forced, and violated principles of self-determination for the peoples involved. Negative outcomes subsequently followed, including Italy's fascism and proclivity to side with the Axis in WWII, extremism in the Middle East, communism in Russian, China, Korea, and Vietnam, and militarism in Japan.

It is difficult for the reasoned mind not to conclude that many if not most of the major social and economic problems faced by the world today were set in motion one hundred years ago from yesterday.

Just vs Unjust War

"War is a continuation of politics by other means...Von Clausewitz."
--Captain Frank Ramsey (Crimson Tide)

A just war is fought purely in self defense. No provocation. No preemption.

Few wars fought by the United States satisfy this criterion. Instead they have mostly been fought to satisfy political objectives such as advancing democracy, generating economic stimulus, preserving the union, maintaining flow of critical economic resources, stopping communism.

The US has often engaged in war after provoking opponents. It has also engaged in preemptive strikes. Preemption defines aggressors, not defenders.

Today, pray for the millions of casualties of unjust war.

You Like 'em, I Hate 'em.

He's got a brand new car
Looks like a Jaguar
It's got leather seats
It's got a CD player, player, player
--Feeder

'The enemy of my enemy is my friend' is a well known strategic posture. In politics, the antithesis--'the friend of my enemy is my enemy--is also popular. If you like 'em, then I must hate 'em.

Had a long and very good conversation with President Putin of Russia. As I have always said, long before the Witch Hunt started, getting along with Russia, China, and everyone is a good thing, not a bad thing....

— Donald J. Trump (@realDonaldTrump) May 3, 2019

During the previous administration, President Obama's friendly overtures toward Cuba and Irann increased opposition animosity toward those countries. During the current administration, President Trump's friendly overtures to (insert foreign country name) has drawn similar ire from political opponents.

Once again, social identity theory in motion.

Does make one wonder how world peace can come about when in two party, winner take all democratic systems. It is politically expedience to detest the friends of your enemies.

Our Largest Threat

Wasted
Sacrificed for the new nirvana
Night time sends the sun away
--Icicle Works

What is the largest threat facing the United States? It isn't external. Not China, North Korea, Russia, Iran, nor ISIS.

It is internal, grounded in our proclivity to live beyond our means. As this congressman observes, the largest threat facing the US is our national debt.

A country that can't keep its fiscal house in order is destined for the scrap heap of history.

Meeting North Korea

"There is a saying in Korea. Saying something a hundred times is not as good as living it once."
--Kang (Olympus Has Fallen)

The finest achievements of Barack Obama's presidency were the reopening of friendly talks with Iran and Cuba. Naturally, he caught (and still catches) grief from his detractors for doing so.

Now it is Donald Trump's turn. Trump has been working on a historic meeting with the president of North Korea--something that any proponent of peace and prosperity should support. Unfortunately, but all too predictably, many of those who cheered President Obama's diplomatic efforts are condemning Trump's.

As Ron Paul observes, just as trading is always better than sanctioning, so is talking always better than threatening.

Any effort that gets adversaries together at a table for conversation should be encouraged.

Night and Day

Julie Goodyear: You know what else I miss? Pizza.
Greg Goodyear: Toilets that flush.
Daryl Jenkins: Call of Duty: Modern Warfare.
Robert Kitner: Dude, we're living Call of Duty. And it sucks.
--Red Dawn

The commencement of the Winter Olympics in Pyeongchang finds many in the mainstream media waxing poetically about near neighbor North Korea, located on the other side of the 38th parallel about 100 miles away. The country and its rulers are wonderful, so goes a popular narrative, with North Korean representatives displaying charming examples of synchronized uniformity at the Games.

In past generations, the media uttered similar ruminations about the former Soviet Union, about Communist China, and about Cuba.

In reality, North Korea is similar to its socialist predecessors. It is a murderous police state where people live in conditions of squalor that would place poor people in the US near the top of social strata in North Korea.

We can only hope that bits and pieces of the nearby Olympic games that sneak past the propagandist firewall offer a vision of what could be to citizens of North Korea--a vision that inspires a movement to reclaim the liberty that is theirs by natural right.

Korean Trade Sanctions

"You're in deep kimchi, buddy. Better have it all in one sock for this one."
--Captain Spellman (Under Siege)

Yesterday President Trump indicated that the US would consider ceasing trade with any country doing business with North Korea.  Presumably, that would include big trading partners like China.

The United States is considering, in addition to other options, stopping all trade with any country doing business with North Korea.

— Donald J. Trump (@realDonaldTrump) September 3, 2017

My first thought was good luck marshaling enough support for that.

But beyond the political difficulties involved, such a move would set back standard of living for the United States and its trading partners. Sanctions, tariffs, and boycotts prohibit people from engaging in production and trade that advances prosperity for all.

There is also the proposition that 'when goods don't cross borders, armies will.' Sanctions promote conditions of war, not peace.

War Drumming Markets

"'War is a continuation of politics by other means.' Von Clausewitz."
--Captain Frank Ramsey (Crimson Tide)

Markets took a hit on Thurs on back of North Korea situation--although not as much as one might have expected. Muted downside market response marks the time we live in--although that could change quickly, of course. Currently the SPX is not quite down to support defined by the multi-month uptrend line.

Volatility indexes did seem to take an outsized jump compared to the move in stocks. VIX was up nearly 60% in two days.

I happened to look at put schedules mid-week before the jump in vols. Despite historically low index vol levels, out of the money index puts did not look cheap to me--certainly nowhere near 'Simon' levels. This suggests significant option 'skew,' and is consistent with market participants scooping quantities of downside 'insurance.'

Sitting on my hands for now, and will see how things unfold.

no positions

Political Shortsightedness and War

"And the Lord said, 'Gentlemen, he who is without sin, let him cast the first stone.'"
--Professor Groeteschele (Fail Safe)

Saber rattling comments by Donald Trump aimed at North Korea earlier this week once again have his detractors wringing hands. Presidents don't talk like this, they complain.

They do now. Get used to it.

Trump's most recent round of behavior deemed unbecoming of a president presents another opportunity to warn those pointing fingers to take a good look in the mirror. How much of the current problem was created by political shortsightedness of a good many people?

Many didn't complain when the executive branch was assuming more power while their guy was sitting in The Big Chair. How nearsighted the granting of administrative power looks today now that someone less likable is in charge.

As a nation, we've been fine with the President of the United States carrying nuclear launch codes at his side for more than a half century--despite the fact that war-making power constitutionally rests with Congress. For many, that may seem pretty stupid right about now.

There has been also been a multi-decade, bipartisan effort to fund gargantuan war-making capacity. In the last year of the previous administration, military spending was targeted well north of a half trillion dollars.

Finally, let's not forget the role of sanctions. For years, politicians from both major parties have supported the imposition of trade sanctions against countries deemed to be enemies of the United States. Trade, not sanctions, foster interdependence and peace. Indeed, it has long been said that when goods don't cross borders, armies will.

Perhaps armies will cross borders this time as a result of our political shortsightedness.