Japan and China to take a break; Xi to visit Trump; China FDI still weak; Japan hikes & moves to protect the yen; US factories slow down; RBA signals more rate hikes; UST 10yr at 5.00%; gold holds, oil holds; NZ$1 = 57.2 USc; TWI-5 = 60.7

Surprising that got two upticks. 

Can't blame Stanford, either. 

Because if the Republican lose control of one or both houses President Trump’s power is not only weakened but the administration made even more chaotic and distracted, as the Democrats mount challenge after challenge and not just concerning the war with Iran. Over the weekend I mentioned how the North Vietnamese Tet offensive in 1968 was sufficient to turn American public opinion entirely negative about the war culminating in President Johnson not seeking re-election. Ok that’s pontificating through a long straw, but an interesting one nonetheless, Trump can’t stand again but in the interim, he still can be embarrassed and weakened.

Exactly, Redcows.

In fact, the more interesting question might be - why on Earth would Iran want Trump removed?

If Tehran had been permitted to hand-pick a team to accelerate the erosion of American power, I'm not entirely sure it could have assembled a more obliging wrecking crew.

Forget sabotage. Give them another microphone.

In a remarkably short period, Washington has managed to burn through enormous quantities of expensive munitions, expose serious weaknesses in its regional military infrastructure, drive up the economic cost of another Middle Eastern war, antagonise large chunks of the planet and simultaneously place still more strain on an already grotesquely indebted US government.

The Pentagon IG estimate is considerably worse than the $3.7B figure you mention. That was lost equipment. The estimate through June 29 was $33.4 billion, including $22.3 billion in expended munitions, and it didn't even include repairing the US bases damaged by Iranian counterattacks. The report also warned about strategic inventory shortfalls and munitions-production bottlenecks.

Brilliant.

Nothing says "indispensable global hegemon" quite like discovering that the people you're bombing can destroy billions of dollars of your equipment while you discover that replacing the missiles you're firing at them isn't quite as easy as ordering another box from Amazon.

And that's only the military balance sheet.

The much bigger asset being squandered is the one America spent the best part of 80 years accumulating - diplomatic capital, institutional credibility and confidence in the financial architecture sitting underneath US power.

And this is where the historical irony becomes literally breathtaking.

America's extraordinary post-war privilege was that its geopolitical power and its financial imbalances could, for an extraordinarily long time, grow together rather than constrain one another.

Earlier empires eventually encountered the rather inconvenient requirement that somebody had to pay for the empire - America acquired something approaching the geopolitical equivalent of an unlimited bar tab.

Because the dollar became the principal reserve, settlement and funding currency, the United States could run persistent external deficits while foreigners recycled a substantial portion of the resulting dollars back into American financial assets. 

Washington could import more than it exported, project military power across the planet, run increasingly large fiscal deficits and issue Treasury securities into the deepest capital market on Earth.

In other words, the scoreboard that would normally have begun constraining a country — debt, fiscal deficits and persistent external deficits — became intertwined with the machinery sustaining American power.

That is an extraordinary historical arrangement.

But it contains an equally extraordinary paradox - the US has spent decades building its mountain of liabilities while simultaneously building the global power that depended upon foreigners continuing to accept those liabilities.

Hence the importance of the twin deficits.

A conventional empire eventually runs short of somebody else's money.

The American system discovered how to persuade much of the world to help finance the very hegemonic structure sitting above it.

And now comes the really 'clever' (sic) bit - having accumulated enormous federal debt and persistent external deficits under the protection of this unique monetary privilege, the USA (AKA United Sanctions of America) increasingly uses access to the dollar system, sanctions, asset freezes, tariffs and financial restrictions as instruments of geopolitical coercion - thereby giving other countries an increasingly obvious strategic reason to reduce their dependence upon that very system.

You couldn't make this shite up.

The privilege ultimately depends upon confidence, yet Washington increasingly behaves as though that confidence were an American natural resource with an infinite reserve life - it isn't.

And this is why Russia, China and Iran don't need to create some perfect formal anti-American alliance. Their strategic interests increasingly overlap in precisely the area that matters - reducing their vulnerability to American military and financial coercion and developing alternative mechanisms for trade, settlement, finance and reserves.

So Washington is simultaneously running up the bill and encouraging its creditors and trading partners to find another restaurant - quite an achievement.

The supreme irony may therefore be that America accumulated a historically extraordinary degree of power partly because the rest of the world was prepared to finance its deficits - and it is now behaving in ways that encourage the rest of the world to construct alternatives to the system that made those deficits sustainable.

As I have mentioned many times on this platform - the dawning of the fact that as long as the RoW was purchasing or holding the hegemony's debt, then in effect, they were financing their own victimhood.

That isn't somebody attacking American hegemony - it is Washington taking a chainsaw to one of its own supporting columns, which brings us back to Iran - why would Tehran desperately want to interfere with the midterms to remove the very people currently doing so much of a bang-up job and strategic heavy lifting for them?

Every additional dollar Washington burns through, every unnecessary enemy it creates, every sanction that encourages alternative settlement architecture, every Treasury security that has to find another buyer, and every diplomatic relationship it damages, pushes the international system further away from the extraordinary arrangement that financed American primacy in the first place.

Iran's cheapest strategic weapon may therefore turn out not to be a missile at all - it may simply be a television set tuned permanently to Washington.

So why not just let the Orange wrecking-ball rip, sit back, and take stock of what must surely rank among history's most extraordinary examples of geopolitical tragic black comedy - a hegemon dismantling the very architecture of power that made it a hegemon in the first place.

Foxy. Not quite so sure on that given the US has 11 carrier strike groups which its able to rotate as needed. Heavy US attacks on Iranian civil infrastructure already degraded by years of neglect would generate much human misery and thus risk forcing an earlier endpoint than the US would prefer. US planners will also be mindful of the possible need to intervene in Yemen as Saudi Arabia proves itself militarily hopeless. I suspect they'd prefer to wait this out a bit longer.