Likud Changes Stance on 2-State Solution Ahead of Peace Talks

We have had many Israeli-Palestinian peace talks in the past and they are a subject of derision much akin to the UN among more realpolitik thinkers.

We're about to have another one. SecState Kerry seems to have performed some very interesting black magic and it's worth mentioning.

When the last Israeli elections occurred, I was very excited about the possibility of Tzipi Livni winning and immediately pushing for a potentially viable two-state solution. Netanyahu managed to cobble together a coalition government, instead, by pulling in ultra-right-wing zionists, making peace talks seem more-or-less defunct as long as he was in power, particularly as his official policy was that a two-state solution wasn't happening.

Somehow not only the tone, but the official policy, has changed, going into the next talks. Israel released some dozens of Palestinian prisoners and it seems that Likud's (this being Netanyahu's party) new policy is that not only is a two-state solution the answer, but Israel will be willing to make "significant" and "painful" territorial concessions. This is a huge shift and may, again, be part of some John Kerry magic, but good sense is also going to be part of this.

There are obviously major hangups, even in the rhetoric. Likud is also making it clear that Palestine will need to also give significant and painful territorial concessions, which means that Israel will demand that many of the settlements in the West Bank remain--they're a bargaining chip in Israel's favor based on status quo, rather than on any legal or moral argument.

Likud is also saying that Jerusalem will need to keep status quo--meaning Israel gets most of it, but Palestine gets "old town" and some other parts. This on its own is already a concession but may have been necessary for talks to begin.

For a look at settlements, see this link: http://news.bbc.co.uk/2/shared/spl/hi/middle_east/03/v3_israel_palestinians/maps/html/settlements_checkpoints.stm

The settlements are pretty much everywhere throughout the West Bank--it's been akin to a very slow invasion. The blocks near Jerusalem are likely the areas that are going to be the sticking points, as Israel will likely be clear about hanging on to them. Morally I am not fond of these at all but Israel's bargaining power here after the past 30 years or so is so high that at this point it's a geopolitical reality.

Overall the chances of this working are slim, but it may be an example of a "hurting stalemate" that can cause two groups to come to peace even when neither has achieved its political outcome.

Source:
http://www.telegraph.co.uk/news/worldnews/middleeast/israel/10202854/Israel-willing-to-make-serious-territorial-concessions-to-secure-Middle-East-peace.html

Is he serious and if so, why now?

I think Netanyahu is a smart guy. He knows that the conflict has only one long-term possible ending, the two-state solution. Even the slow takeover of the West Bank via settlements would create a long-term painful apartheid, with settlements getting attacked... and he knows that apartheids don't last forever. If Israel totally absorbed the West Bank, it would eventually have to give the Palestinians there citizenship and then the Jews would be outnumbered, and this is obviously unacceptable.

I think the settlements--especially the farther-out ones--are bargaining chips. I think the ones close to Jerusalem are meant to stay and become part of Israel, and I assume that any Palestinians left are going to want to leave to the West Bank when the two-state solution happens (like when India/Pakistan broke up). If Palestine signs the peace deal, it will give Israel legitimacy to whatever territory it keeps.

So I think this has been the long-term plan: to have a two-state solution with added territory for Israel, particularly near Jerusalem. Perhaps now enough of these chips have been accumulated for him to go forward. He knows it will take a long time (maybe years), and probably wants to guarantee that if it does happen, it happens with the best possible terms for Israel, and Netanyahu's "tough guy" reputation means that the Palestinians won't try to over-stretch what they can get out of him for a state.

I think as far as timing, Netanyahu may be taking advantage of Kerry's visit to pretend it changed his mind. I do think that by dumping Shas and picking up both Yesh Atid and Hatnuah (in the 2013 legislative elections) he has to have a coalition that is looking for a two-state solution in earnest... these moderate parties (one led by Tzipi Livni herself) just wouldn't have joined otherwise. It makes him not only free to pursue a two-state solution but I think without it his coalition would fall apart and new elections might be required.


I think ultimately it's up to Netanyahu, rather than Obama/Kerry, as to whether the peace process is going to power forward. If Obama "fails" it will be because Netanyahu--who has all the power and Kerry none--wasn't willing to go forward with the terms that the Palestinians are laying out.

The Danger of China's Debt and Finance Crisis

The Chinese government is a net creditor, by a large proportion. It holds reserves in Treasury Bonds (or equivalents) of many countries, including $1.3T of the United States (less than you probably thought--China doesn't "own the US" yet and probably never will).

I have, for a long time, been advocating that the Chinese economic rise is highly unsustainable. Not because it had staggeringly high growth, as any relatively laissez-faire developing economy should be able to do this consistently. The unsustainability came from the policies used to drive this growth: both their fundamental flaws (one) and the changing economic conditions (two) that led to them being no longer effective.

Data about the Chinese fiscal  is being exposed that was previously opaque

Why we even care
Surely many Americans, in reading this news, will celebrate. The Chinese aren't going to conquer the world after all! Sadly, that is because most folks have a badly skewed understanding of the international economy and tend to be what the US President calls "economic patriots," the most dangerous kind of economist.

Railing my opponents aside, this is bad. Chinese growth is, to a large extent, fueling the recovery of the Western Hemisphere, and is lifting up the previously-impoverished countries of Southeast Asia. Growth in China means a middle class, an ability to spend money. It also means a more skilled labor workforce.

Together, these mean importing consumer goods (from Levi's jeans to Coke to Hollywood films, etc) and importing precision manufacturing equipment (made almost exclusively in the US and Germany). Side-note: China wants our precision manufacturing equipment and it would mean a lot to American manufacturing, but we don't allow the export because it's considered "dual-use" technology and could be used to build weapons. So, instead, China may develop its own industry for this. Again, I digress.

So in short, growth for China means growth in particular for the United States, among anyone else that China might want to buy from, and growth for the Southeast Asian and African countries that will take over the more low-skill manufacturing roles from China (labor-heavy mass production, dirty stuff like smelting, "cheap" plastic stuff you might think of, etc). It's good.

If it falls apart? Bad for American growth and jobs, bad for Southeast Asia and Africa.

This has happened before in Japan:
If you watch Sci-Fi movies from the 1980's (think Bladerunner) or follow any "Cyberpunk" themed stuff from that time period, you'll notice that Japanese culture is everywhere. At this time, the "Japanese Miracle" seemed unstoppable and we believed Japan would take over the world, as we believe for China now.

But Japan has been in a 2-decade period of essentially zero growth. There are many reasons for this--some of them demographic--but much of it was due to fundamentally self-destructive economic policy that was heavy on tariffs (driving "import substitution"), cheap government loans, currency devaluation, and low domestic consumption.

These policies couldn't last and set the Japanese up to fail. The Japanese were completely export-dependent, which meant the Yen had to stay cheap. To do this meant inflation of prices, and Japan got to the point that further currency devaluation would mean too much erosion of personal savings and wages in Japan--it was fundamentally unsustainable. So the currency had to stabilize, and in the meantime, other currencies dropped in value, making exports harder, and stopping the growth dead. This was combined with a high percentage of non-performing loans, unprofitable businesses being kept afloat (due in part to a somewhat nepotistic practice of business that in the United States would be considered corrupt), and spiraling government debt (currently Japan's external debt is a mind-boggling 230% of its GDP, compared to Greece's "crisis" 175%).

The two decades of non-growth were essentially the necessary economic "hangover" of relatively artificial growth. Eventually, a liberal market would adjust to reality and then move on, but Japan is resistant to the pain of this change (companies would fall and new industries would have to pop up to respond to the reality of economic conditions) Abe is currently trying to re-spur Japan's growth through government spending and currency devaluation again. I strongly believe that this growth will be equally artificial, but the siren song of seeing the GDP numbers go up is hard to resist.

(Just to note: much of Japan's growth was indeed driven by an incredibly industrious people, open to rapid modernization, spurred by a Bushido style work ethic, and able to come up with extremely efficient manufacturing processes [they invented what we now know as Lean manufacturing] that would have competed well in a free market.)

In China, it's much, much worse (the fundamentals):
China has only one advantage over Japan: its official central government debt is only 30% and it is, of course, a net creditor.

But besides that, things are looking quite bad.

The first problem is this: the Chinese government is quite certain that its powerful economic growth is the main reason that the Chinese people remain fairly content with the government. They're consistently worried that a major slowdown in growth would mean increased unrest. So China must keep powering ahead with this growth until, hopefully, it reaches the level of wealth that Japan had when its economy pleateaued.

So government debt is on the rise. Much of this is funding infrastructure development (as stimulus) of which even local Chinese papers are questioning the efficacy and payoff. China's banks are (illegally) funding these projects through loans to local governments (their debt seems to be in the 27% of GDP range) and these off-book loans are probably non-performing.

China's corporate debt has swelled massively. At 220% of GDP, these corporations are over-leveraged due to artificially cheap money from the central bank and huge shadow-banking loans. At that level of leverage, the best hope of crawling out without major bailouts is continued astronomical growth... but that growth would have to happen without more corporate debt being taken out, and it seems that this debt has been fueling the monetary activity that translates into "GDP." In short, you need GDP growth to pay off this debt, but since growth has been driven by expansion of this debt, it may be a bit of a death-spiral. (A bailout is possible but it would either increase Beijing's debt significantly or deplete reserves, which would increase the value of the Yuan, drive down exports, and again squish economic growth).

Because of these non-performing projects and high debt, corporations and local governments are taking out short-term loans to pay off maturing loans at staggering annual rates like 17-20%. This is going to drain liquid assets and unless growth picks up to levels where they can pay off their debts with profits, this will signal a death-spin of interest payments similar to what is causing the Eurozone crisis.

With numbers like that, the reported non-performing loan rate of 1% (it's probably higher, due to a huge deal of off-book loans and China's notorious reputation for flat-out lying about bad numbers) is set to rise. If it does, the banks that hold the credit will start to crumble. To keep them from crumbling, China would have to expand credit further and essentially bail out these banks with printed money or reserves. As we discussed above, this will hurt growth in its own way.

Changing economic conditions:
Much less responsible than dangerous economic policy, but China's middle class is growing. This means that public savings are going to decrease among this group (meaning there is less liquidity for banks to use to support high leverage) as consumer spending starts to increase, but there may be enough upward mobility left in China that the very-poor will become the new high-savings generation these bank reserves will not deplete entirely.

Second, this consumption means that China's imports will (or at least should) rise. This means its domestic cash reserves will grow at a slower rate--again, less investment.

Generally, higher consumption  means less investment, period (if you produce $100 and spend $80, you only have $20 to invest or save). With excessive corporate and government debt, higher domestic consumption might put the final nail on the coffin of high Chinese infrastructure and economic development.

The bottom line: No matter how you look at it, it's bad
I will admit that I am an Austrian in the realm of economic policy, meaning I think (among other things) that significant stimulus by government through spending and currency devaluation generally leads to mal-investment, perverted prices of labor and goods, and generally creates an artificial recovery that will at some point bite the economy in the rear end.

But even my Keynsian friends will agree that such stimuli are a recipe for disaster if they're used as the primary mechanism for growth. Keyenes said that such spending should be counter-cyclical and if you're expanding debt (at corporate or public levels) and devaluing currencies during periods of growth (rather than recession), you're setting yourself up for disaster.

In order for China to not crash and burn completely, it must find some path towards real growth, rather than artificial growth driven by excessive corporate debt, currency devaluation, and government spending. This is going to be a very long, hard path--China is very far from it. Japan still has not made it, more than 20 years after its plateau began.

But China may ultimately be doomed by politics. As we stated before, significantly slowing growth risks major unrest in China, which still has hundreds of millions living in poverty that might be "behaving" purely on the hope that life will get better. For the Communist party, this means they are juggling between continuing growth and trying desperately to reduce debt... but in a debt- and government spending-driven economy, I don't know how it's possible.

The lesson here is that the party has to end at some point when you're fueling it with debt and artificially cheap money.

Either China will find some sort of "soft" landing of low growth or the house of cards may start to fall apart. If it does, it will have huge consequences.

The foreign policy consequences:
First, unrest in China would totally change its foreign outlook. Rather than being aggressive in the South China sea, China would turn its focus inwards until it could get a lid on its own population. This could take a very, very long time.

The US and other economies would reel if China's economy started to shrink. Those exporting to China (a significant number) would face massive shortfalls in orders, where importers from China (in particular of building materials like steel) might go bankrupt before domestic industries could pop up to replace them.

In the long-term, countries like the US would drop their imports and become dependent instead on more expensive domestic production. There are arguments that this might be good but I generally always believe that a country's labor is best spent on its comparative advantage industries, not those which could be supplied cheaper elsewhere. Whether good or bad, it would mean a huge long-term change to the American economic landscape.

Oil prices would fall dramatically on reduced Chinese demand, with all the consequences: CPI deflation, potentially even-higher Middle East unrest, decreasing competitiveness of green alternative energies and at the same time a potential dent in exploration of shale LPG/oil.

Japan's more militaristic tendencies would likely subside as China became less of a risk in the medium-term.

Southeast Asian and African economies would falter and frustrate in the short-term. I can say little about their long-term growth prospects at this point.

And a whole lot else that is very hard to predict.

Quick Guest Article from Fair Observer -- the Failure of the American Drone War

A really fascinating (if slightly depressing) article on drone strikes in Pakistan and Yemen, the nature of the Obama policy, and the growing anti-Americanism / extremism that it's causing. Very much worth a read.

http://www.fairobserver.com/article/obamas-war-the-failure-of-drone-strikes


Image: Copyright © The Bureau of Investigative Journalism.

Criticisms of the Obama Administration's "Halfway" Strategy on Afghanistan, From the Inside

Vali Nasr, a former State Department official under the Obama Administration, is writing a book (titled "The Dispensable Nation") that is a pretty wide-ranged critique of the Obama administration's handling of foreign policy as a whole. I'll focus on the Afghanistan portion that I know so far as I think it resonates well. An excerpt from the NYT review of the book:

[But when Mr. Obama gave a speech during the American election campaign in June 2011 and announced that he was beginning to remove the reinforcements, Mr. Nasr asserts, the president undercut the leverage the United States would have needed to effectively pursue negotiations with the Taliban.

“As we went from ‘fight and talk’ to ‘talk while leaving,’ the prospect of a good outcome began to grow dimmer,” he writes.

Instead of taking risks in war or to pursue a peace settlement, he writes, the White House “was happy with the narrative of modest success in Afghanistan and gradual withdrawal.”]

Though not personally vested in a victory in Afghanistan, the approach the Obama administration has taken to Afghanistan drives neither effective negotiations with the Taliban (and thus the end of the war) or real protection for US troops--and certainly not cost-savings for the US government.

The surge could only be used for some sort of negotiating leverage, as it was clear to most diplomatic & military leaders that military defeat of the Taliban (due to its haven in Pakistan) was not possible. The fact that the surge was quickly reversed and a gradual withdrawal was publicly announced, the Taliban now actually have an incentive to wait rather than negotiate, as they know they will have a future advantage after US withdrawal. The very purpose of the surge was quite undermined.

To be fair, the announcement of the withdrawal has some advantages, including putting some urgency into the wider Kabul administration to get its act together, and acts as a reassurance to foreigner-weary Afghanis that NATO will be gone soon and Karzai won't become a complete puppet.

Aleppo Primed to Fall

It may take a few months, but it looks like Aleppo is primed to fall to the rebels. After months of painfully incremental progress, the rebels have made a major push in the south and appear to be circling around towards the artillery base and military academy at lightning speed, while seemingly halting regime advances in the center of the city. The airport is cut off and encircled--it will fall, freeing up forces there to push west.

The good news: Ending the fighting in Aleppo will bring relief to citizens there and likely grind down the administrative capacity/legitimacy of the regime (it would be like the US losing New York). 

The meh news: The regime won't walk away; it will simply retreat to protecting the western parts of the country where it is stronger.

The bad news: extremist Islamists make up an increasingly large and influential portion of the northern rebel movement (where the south is more controlled by the moderate/secular FSA)--if the regime does fall, there is likely to be an ongoing war between the FSA and these Islamist extremists (as well as an ongoing sectarian conflict).

Afghanistan's Future in the Face of NATO Withdrawal

The excitement around the Arab Spring, including relative madness in Libya, Syria, and Egypt over the past few years has pluged America's forgotten war (need I mention that it's Afghanistan?) into even deeper obscurity.

Even I know quite little, but a discussion that exposed how little I know prompted me to become a responsible citizen and learn a bit more. I'll share what I've learned (and some of what I knew already) here.

What I must first state is that this post is, for me, far and away my most researched, and most painfully considered, but it shall be far from a triumphant magnum opus. I say "painfully" with literalism. I have found Afghanistan to be inscrutable, and trying to figure out what is truly going on in the country has proven completely elusive. At this point, I can only provide many contradictory leading indications and try to provide some guidance on which ones are most worth paying attention to. I hope it provides some clarity, but I must insist on managing expectations: one is likely to walk away from this post at least as frustrated as one is enlightened.

I mostly wish to answer the following question that my girlfriend sharply engaged me on for the past week or so: "What's going to happen after NATO withdraws from Afghanistan in 2014? Will it all fall apart; was it all for naught?"

After incredible amounts of frustration, spiraling pessimism, blips of hope, and some near giving up, a consensus is building in my mind. I'll state, tentatively, thus: "It won't be pretty, but the Afghan government will hold and the country will move forward."

Let's start digging into why.

Some Key Supporting Facts About Afghanistan

I first want to start by painting some broad brush strokes and then back these brush strokes up with facts (Asia Foundation is source of all polls unless stated otherwise):

1) The Taliban are surprisingly strong, and many are fighting as "nationalists." Despite being outnumbered 35,000 (or so) to 485,000 (of which 380,000 are Afghan National Security Forces [army and police]), the Taliban maintain extensive influence & administrative control over the southeast of the country (but I have found no reliable estimates of territorial control since 2011) and can be found making trouble of some sort nearly everywhere except the  most central and north-central parts of the country. Of the Taliban interviewed by the Asia Foundation, over half said they were fighting primarily to expel foreign troops from the country.

2) The Taliban manage to keep on recruiting. 75,000 Taliban or allied fighters have been killed since 2001--but their numbers have largely grown over time (from some 400 in 2002 to 10,000 in 2004, etc).

3) The people of Afghanistan are shockingly confident in their government and their future. Between 2008 and 2012, the proportion of Afghan poll respondents that believes the country is going in the "right direction" has actually increased steadily from a low of 38% to a recorded high of 52%. Additionally, 93% have a "confident" or "very confident" view of the country's security forces (though we'll see later that this optimism might be a bit unsubstantiated). Survey-reported access to electricity, security (!), drinking water, and education have improved, fueling this optimism. This satisfaction has led to 75% of respondents giving the central government's performance a "positive" assessment.

4) Many parts of Afghan life have improved, but corruption is a major risk for the Karzai government. On the other hand... about 80% of respondents say that corruption is a "major" problem in Afghanistan and over half experience it in their daily lives. Over 1/3 have had to give bribes for various services, including healthcare, justice, employment, and education.

5) Numbers don't tell the whole story on Afghan national security forces--and the rest of the picture isn't very pretty. The Afghan National Army (ANA) has a highly varied level of readiness. Only 14% of Afghan soldiers are literate to a first grade level (Source: GAO), and desertion sits at 30% or so for the year of 2011. Drug use amongst soldiers may be about 50%. There are multiple anecdotes of ANA soldiers fighting well against the Taliban, and many others attesting to whole units being paralyzed by fear and American advisors being unable to rouse them to fire their weapons. Generally, the Afghan National Army, despite being much larger than its Taliban counterparts, is less disciplined, less experienced, less skilled, less hardened, and far less zealous in many patches, meaning that there is a risk that certain brigades of the ANA could be quickly routed by smaller Taliban forces in a post-withdraw civil war.

6) Afghans want the Taliban and foreign troops out of their lives. 81% of Afghans are in favor of a negotiated settlement with the Taliban. 65% "oppose" the Taliban and 30% are "sympathetic" to or "supportive" of the Taliban. 75% of the same respondents said they felt fear when meeting ISAF troops--this is about the same percentage as those that are afraid of the Taliban. In 2009 (BBC Poll) only 4% of Afghanis wanted the Taliban to rule the country and I don't believe it's changed much since.

7) Things have gotten quieter in Afghanistan than they've been since 2007. The late fall/winter of 2012/2013 have been the least deadly to ISAF Coalition troops since 2007. February (as of the 17th) has had zero fatalities on record, which would be only the second month in the history of the war (July 2002 being the other) in which no ISAF members died, if the trend continues. (source: icasualties)

8) Afghans are surprisingly liberal and progressive in their politics. 84% of Afghans believe that democratic elections are the most just way of choosing leadership; 83% believe that all people (regardless of ethnicity, religion, or gender) should have equal rights under the law. Almost 90% believe that women should have equal education opportunities (but only 2/3 believe women should be allowed to work outside the home).

Why the Taliban's Strength is So Puzzling

When we think about an insurgency succeeding or failing, we usually think of 2 primary elements:
1) Military capacity/capability
2) Support among the population

In some ways there's a lot more to it than that, but most things are variables under those (like "understanding the terrain," "cash on hand," "determination," etc, might all be a form of military capacity/capability).

As we see in our facts above, the Taliban don't have the military advantage at all (they are vastly outnumbered, outgunned, and outmatched across the board by NATO troops and consistently fail quite miserably in open battle). No doubt, their sanctuary in the Pashtun parts of Pakistan has been critical to their ability to organize and avoid destruction at the hands of NATO, but they must ultimately be in Afghanistan in order to have as much influence as they do.

We see also that they're just plain not supported. While some are sympathetic to the Taliban (as they're the primary anti-foreigner/nationalist group in the country), Afghanis don't want them back in charge. Thus they should not have the ability to "swim among the populace" as successful insurgencies in the past have done (China's Red Army, Vietnam's Viet Cong, US Revolution, etc). Given such low levels of support, we'd expect the Taliban to have to exert influence through very overt measures, and through force, and thus be unable to "hide" from NATO/ANA troops.

So the Taliban just plain don't have the usual strengths that contribute to success, even though they've been a persistent and partially successful insurgency. This has bothered me to no end and, sadly, I do not have any silver-bullet answer, but there are a number of unconventional factors and strategies that may contribute to the Taliban's strength.

Key Contributors to Strength

The Taliban fight their war these days largely through targeted killings. Despite their seemingly low support rate, their intelligence is quite good, and they are able to intimidate citizens away from overt government support by credibly threatening to painfully murder them and their families. IEDs are going to be threatening to NATO troops but ultimately won't win the war against the Afghan government, but successfully coercing people to act on their behalf can. To beat this, the Afghan government's police force must become credible enough that people feel much safer reporting intimidation than following its lead.

Geography helps the Taliban rack up lots of "territory" if we look at maps of where they act. Rural areas are incredibly sparse and NATO/ANA forces can't track the Taliban through cave networks/etc in rural areas. The Taliban are able to hide here and exert influence in nearby villages while avoiding patrols whenever possible (and using IEDs to disrupt them). It makes elimination a very difficult proposition... but ultimately, it can keep them around and can drive out foreign troops, but this alone won't allow them to take the country back on its own (as urban centers do count for a significant portion of the population).

Obviously the Taliban have sanctuary in Pakistan--without this, they would have been quickly destroyed in late 2001 and simply never been able to mount a comeback. The US drone program is designed to target this but obviously Taliban leadership like the Quetta Shura (the top leadership council), Mullah Omar, Haqqani, etc enjoy sanctuary there. Additionally, Pakistan allows for the funneling of foreign troops to keep Taliban/ally ranks full. 

Pakistan's ISI is probably funding/supporting the Taliban (though this is a bit of an "unholy alliance"). The ISI's actions seem to be highly self-contradictory (sometimes funding and sometimes attacking/arresting), but if we recall that there are many faces of the Taliban and that it is largely a cell-based organization, the ISI will support some cells and be angered by others. The ISI is very interested in maintaining influence in Afghanistan and in the past did this quite directly through the Taliban. Thus the Taliban has intelligence, training, funding, and other organizational advantages from the ISI that allow it to frequently outsmart NATO/ANA troops.

Determination: the Taliban have an edge in determination that the ANA does not, and this has a chance at being the decisive factor in a 2015 civil war. The Taliban will easily fight to the death, where ANA troops lack the fervor or zeal of religious extremism--and the discipline of Western troops--and thus are prone to give up in a fight more easily.

Finally: the gap between 4% (want the Taliban in charge) and 30% (sympathetic) is large, and is due to some other appeal the Taliban have besides their monstrous form of rule. But statistics above give us the numbers: 75% of Afghanis are afraid of Western troops and over half the Taliban see themselves as primarily fighting against foreign troops. This nationalist appeal gives them some tentative support where they might otherwise have none.

What's Going to Happen in 2015

The Taliban have made clear that they'll negotiate after Western forces withdraw. There are ultimately two scenarios: one in which they fight-and-talk, and one in which they try to take over the country. Let's look at the latter scenario first:

Taliban attempt full takeover: Outnumbered some 11:1, the Taliban would have to fight their way through huge ANA forces entrenched in towns/cities throughout the country in order to make serious headway. The ANA is equipped with some elite offensive capability that should be able to counter-strike against any towns that might fall to a larger Taliban force, so the Taliban would have to move with relative speed. The Taliban would have some major successes, and likely establish a working influence over significant swaths of the country in the south and east. But ultimatley, if they can't suppress the ANA's ability to launch offensives, they may be in trouble. They don't enjoy much support outside of their homelands, and much of the support (and manpower) they have is dedicated to booting foreign troops, who will be gone after 2014. ANA troops will likely be more welcome in a village than Taliban for most of the country, giving them a real leg up. The ANA might even be able to hold on to the vast majority of the country, and relegate the Taliban to the southern 10-20% (like the FATA in Pakistan).

Taliban negotiate: Fighting will continue, along with the fiercest spring offensive yet, but it will be due to the Taliban "going all in" rather than suddenly becoming a lot stronger. They will go all-in in order to maximize bargaining power at the negotiating table. They will likely demand constituational changes in addition to some guaranteed representation. They want Karzai out, but there will have been a new election in 2014, and if that president enjoys lots of Pashtun support (as Karzai did at least in 2004), the Taliban will have trouble convcincing him that he needs to step down. Ultimately, the ANA won't be able to clean up the Taliban (if they can't with NATO support, they certainly won't be able to on their own), so a negotiated settlement is really the only way to end the war. The Taliban know this and also know that they have more tolerance for continued war and death than the citizens of Afghanistan, so they'll have suprisingly strong bargaining power and will likely walk away with a frustrating amount of concessions.

Why The Taliban Ultimately Won't Be Able to Take Over the Country

I decided that, despite many contradictory indicators (on one hand, Taliban strength/wide influence vs ANA lack of discipline; on the other hand, low Taliban support and high optimism for the future), I would give the final say on the likelihood of the future to the people of Afghanistan. At the end of the day, if people feel more secure, it's because the police and military forces are becoming more effective and trusted, which in turn means that they'll be sufficiently integrated with the Afghani population to be able to cooperate in security matters.

Security has improved for Afghanis, and they are becoming increasingly attached to their government, thanks in part to better education, infrastructure, and health, and increasing security (and thus real protection of some basic freedoms and rights). If the Afghani people really buy into their government and work with their police force, the Taliban simply won't be able to take serious root--they don't have the manpower to overwhelm the ANA, even if it is very shaky in many patches. They'll lose recruiting power as foreign troops leave, as many of their fighters just aren't as interested in extremist Wahhabism as they are an Afghanistan free of foreign occupation. The government is actually making progress in "building the state" and creating a "critical mass" of security and support to weather the Taliban storm. 

Afghanistan isn't Vietnam. In Vietnam, the NVA enjoyed overwhelming popular support, the population was fully part of the war (against the South), and the Saigon government was seen for what it was--a  weak puppet. The Saigon government could not have administered the country even if it could have fought off the NVA. In Afghanistan, the picture is different. The insurgents are unpopular, the people of Afghanistan are fairly liberal, and they approve of their legislatures at over 70% (compare that to the 11% of the United States' approval of its own congress). The government risks being a long way from being able to administer large parts of the country, but it doesn't mean the Taliban have a heck of a lot better chance outside of their traditional homelands.

When NATO leaves in 2014, more blood will shed, but the long-term picture for Afghanistan looks... not so bleak. By 2020, there will be many worse places to live in the world (sadly), and I think the territorial control line between the ANA and Taliban will have stabilized enough that the fighting will be minimized, and the Taliban won't be able to run the country.

Short: Illustration of the Rebels' Slow March in Aleppo

A very short illustration with a bit of commentary:
Wikipedia's primary contributor to the Syrian Civil War page, futuretrillionaire (whose identity is unknown to me) has been building neighborhood-by-neighborhood maps of the Battle for Aleppo since September. Below I post four snapshots, each with a bit of commentary about what's happening and what may be next.

A quick legend:
Light green - rebel control
Dark green - under contest
Pink - regime control
Yellow - Kurdish (rebel ally) control
Orange - under contest (only in old maps)

Late Sep 2012: Rebels press on multiple fronts, before Aleppo is resupplied.

Mid-Oct 2012: Resupply and reinforcement of Syrian regime troops has denied rebels access to the international airport and driven them back from the main army base in the west. Counter-attacks occur throughout the front in downtown.

Mid-Nov 2012: Rebels push in from the northwest, attempting to push towards the critical air defense and army bases. The front line in the center of the city is a mess but is largely not moving.

Mid-Dec 2012: Minimal movement of the front lines in the center of the city, which has become a meat-grinder. Painfully slow rebel progress in the northwest, attempting to inch towards the army base. At this point, Rebels have massively limited the regime's ability to reinforce and resupply Aleppo--predictions at this point were that Aleppo might be surrounded and fall within the next few months.

Early February 2013: A long gap between maps because front lines just had not moved much. Rebels, in early February, make a massive push in the south and east (as of Feb 12, they may have broken regime defenses around the international airport, as well as seized another air base near Aleppo (not pictured on the map), but may abandon it if it's going to be bombed). The regime, on the other hand, is pushing rebels back in the center of the city and seems to have a major advantage there.

If the rebels can consolidate gains in the airport region and cut off regime troops there, they may be able to spend the next few months (yes, it'll be slow) encircling from the south and the northwest. It appears to be their strategy--the press into the southeast has been somewhat sudden and may signal a more sophisticated approach to trying to take territory--fighting on these outskirts will be quicker and less deadly than in the center, and these outskirts hold more military bases, including an artillery base (currently under threat of capture by the rebels), military intelligence, an air base, an army base, and the military academy and research center--it's almost certain that each of these serve as strategic strong points for the regime, and would be much higher-payoff targets than city-center blocks (which are largely bombed out shells now) that they seem to be giving some ground on.

Guest Post: Economic Complications of the Senkaku Island Dispute

I get a lot of requests for guest posts and am quite picky in what I put forward--this one I like a lot.

My guest author today is from One Minute MBA, and they break down the economic complications of the Senkaku Islands dispute between Japan and China, going a bit deeper than I have in the past. They illustrate the story below, pointing out some of China's options if the US takes a stronger pro-Japan stance than it has now.

My take:

1) I think China's economic retaliatory responses are all much more painful to China than they are the US. The US does have a few options to move some of its outsourcing (to Malaysia, the Philippines, Vietnam, etc), and cheap selling of US bonds would cost the Chinese hundreds of billions--more than the damage done to Japan so far.

2) A boycott of US goods would hurt some key exporters and would likely prompt some US aid for some of the exporters if they would otherwise go under. If the US similarly boycotted Chinese goods, it would need to be selective. Consumer goods boycotts would hurt US retailers; industrial goods boycotts would hurt US manufacturers. 

3) I must admit my previous post on the Senkaku Islands, framing it as a distraction, was ultimately wrong. Whether it was originally intended as a distraction (for I'm still not sure of another good reason why the Chinese would escalate it after so many decades) or not, it has become a mainstay of Chinese foreign policy that they're not currently willing to put down.

4) The Chinese are unlikely to let the matter go entirely. As Professor M Taylor Fravel points out in "Strong Borders, Secure Nation," (a book I contributed some research to way back in the day), Chinese foreign policy is focused largely on maintaining territorial integrity, which (to Beijing, at least) requires a very consistent stance on territorial claims made at the end of the civil war, based on Ming dynasty maps of Chinese territory. In Beijing's eyes, giving up on any of these (including the Spratlys, the dispute it India, and the Senkakus) opens them up to lower bargaining power on future territorial disputes of greater import to their ultimate security.