Monetary Velocity and Growth in China

I want to amend my earlier China article by expanding on the monetary side of Chinese economics. Yes, China is becoming a closed economic system. However, even a slight uptick in urban spending, and hence monetary velocity, can go a long way in the monetary system. Any little bit of trickle-down to the rural areas will be significant from the rural perspective. So China still has plenty of space to grow before reaching the glass ceiling of a closed economic system.

However, it is difficult for China to manipulate the monetary velocity through the central bank, due to the shadow financing system in China. With interest rates being a limited tool, Chinese leaders depend on moral-suasion to boost the monetary system. To boost velocity, they have to encourage consumers to spend more and save less. An ill-timed bubble bursting will derail their campaign for a higher velocity, with consumers scrambling for cash to pay down informal obligations.

With the excess of industrial capacity, China does have room to print more currency. That is part of how they're financing the current infrastructure stimulus. This debasing of currency also helps the Yuan to keep up with the sliding Dollar.

It will be interesting to see if China reverses its currency policy and allows the export of the Yuan to other countries.

The Classical Tragedy of the Iranian Revolution

The Ashura protests in Iran has brought forth a torrent of videos and images, many documented by Andrew Sullivan. It is sad to watch the protesters descending upon the police officers and beat them up. Obama has called them "courageous", but it is hardly courageous when you enjoy an overwhelming numerical advantage, as it was in most of these cop-beating videos. The protesters have crossed an ethical line here. While it is fleetingly satisfying to attack a helpless fellow human being, something humane is lost in the process. I guess it is sad but inevitable in a protest movement, powered by and given over to emotion, that it will turn violent.

http://andrewsullivan.theatlantic.com/the_daily_dish/
http://www.youtube.com/user/jonbesherahesabz#p/u/28/EoSKLiKAHOE

[It is courageous to face the supposed omnipotence of the secret police, which is what Obama also means.]

Everything I said earlier, on the topic of the Iranian protest and re-revolution, remains valid.

Looking back, the Iranian Revolution, and the clergy and students who effected it, constitutes a tragedy in the classic sense. They started out well, striking for an Islamic way toward redeeming their country. However, their hubris pushed them toward political expediencies and compromises, until in the end, what remains makes a mockery of Islamic theocracy. The Iranian politburo pursues power for its own sake, even as it believes it is doing god's work. [Thanks to anonymous for pointing out the lack of a Revolutionary Council today.]

Even as they deserve our pity for having fallen, we should strive for their overthrow, for the good of the Iranian people. Proper checks and balances remains the only way to protect the people. We are learning, again, that even the clergy are vulnerable to the corruptions of power.

USMC TTP AAR

Tom Ricks is running a series on TTP after-action reviews from a Marine CWO2. At the small unit level, tactical competency is vital, no matter COIN or Fulda Gap. I said earlier that you need to treat those "presence patrols" as recon patrols. The CWO2 reinforces that lesson with his litany of patrolling basics here.

CWO2 also reminds us that, if you slow down, you will find that IED before it finds you. It's a lesson we've known for a long time, yet still have trouble applying. It's true that if you slow down, it takes you more time to cover the area of operations. However, most of the time you can afford to slow down. Hey, you've got all year to patrol your area of ops. What's another two hours gonna cost you?

Russia: Climbing the Export Tree?

Galrahn at Information Dissemination analyzes more news on the Russian Mistral LHD purchase and talk about the Russian shipbuilding industry and why it is importing French shipbuilding technology. He also talks about the US Senate reaction to this pending purchase.

I have earlier talked about the Mistral purchase as reviving the historic Franco-Russian relationship. Galrahn's discussions reminds me that France may be actively pursuing this geo-political realignment as well. France is betting on Russia becoming the next China.

For all the abuses of the Soviet era, it has left Russia with a relatively well-educated work force familiar with modern manufacturing technology. Although Russian quality control was deplorable, its heavy industries sustained the mighty Red Army for decades. Even today Russian metallurgy is still state of the art. Compared to India and Brazil, Russia is probably best prepared to take on China in mass manufacturing. Moreover, China itself is trying to climb the export tree and leaving the export manufacturing business behind. If France injects capital and technology into Russia, it stands to profit from Russia's re-industrialization and China's de-exportation.

At the same time, France is trying to balance a multipolar world. From France's perspective, an economically ascendant Russia is a nice counter against China. Russia is a potential ally who shares France's distrust of both the US and China. With the communist party still popular in both countries, they share a social affinity as well.

Therefore France hopes to re-industrialize Russia, starting with its ship-building sector. They may be working on a Korean model, where the heavy industries spin off into the light manufacturing industries. There are certainly many challenges, not the least of which is Russia's demographic collapse. But the time is right for a geo-economic/political partnership between France and Russia.

Alienation, Culture, and the Welfare State

This is a sad story from Londonstani of the Abu Muqawama blog. Basically, the concentration of immigrants in the low-income housing projects alienated many of them from England as a state and a nation. The norms in the projects appeared to be the most hedonistic of Western cultural stereotypes.

If the immigrants could live in a less hedonistic environment, perhaps they would be less alienated from England, France, and the other European countries. This is the sad consequence of the welfare housing system we have in the West. Fortunately for the US, we have less of it now after the general welfare reform of the '90s, when new urban planning theories dictated the dispersal of low-income housing in the urban area. Not sure the situation in Europe nor their urban planning theories. It is certainly sad because the urban planners in the 50s and 60s pinned such high hopes on these high-rise low-income housing projects, yet they have caught their residents in a feedback loop of poverty and self-destructive behaviors.

That the immigrants had little choice in British housing appear to be the result of their welfare system. Hopefully Londonstani's video will spark a British version of the welfare reform.

One issue I want to touch on is the cultural alienation in the immigrant community. Many people smarter than I have written on the subject of alienation, and perhaps have already said what I'm saying.

As Londonstani hinted in his article, Western Culture(tm) is the combination of two seemingly antagonistic ideas: "People Obey Rules", and "You Can Do Anything". People in the less developed countries have a universal vision of the West, and that is a place where things work. People obey laws. Trains run on time (mostly). Drivers don't run red lights (mostly). Bureaucracies work like they're supposed to. You don't need to pay bribes.

Yet it is also a place you can do anything, as Hollywood relentlessly reinforces with an endless stream of movies and music videos.

It is a jarring combination. Even native Westerners sometime cannot handle this combination. Communism is but one ideology exploiting and trying to solve this alienation problem. You can see it in the proliferation of ethnic and religious groups on college campuses, and in the teenage angst literature. For many, it marks a retreat into more fundamentalist communities, where (at least) you can meet like-minded individuals who are against the mindless hedonism marketed by Hollywood.

This is a problem faced by many parents in the West: How to raise children who can lead a meaningful, productive existence? Children who have a chance to reproduce and enjoy parenthood themselves? [Hedonism is not conducive toward species propagation, mostly.]

In the age of the super-empowered individual, though, this issue is also a national security threat. For all the calls for Islamic enlightenment, the West should own up to its own role in the alienation process, and work on this cultural contradiction. I know that sex sells, but shouldn't horny teenager-hood be a transitional stage, rather than the human aspiration?

[I guess you can trace the age of empowerment to gunpowder and the printing press, but only now is it upon us, the age of free, online Anarchist Cookbooks.]

This is a recent article that also talks about alienation and the gangster culture, in the Latin American context

China: A Real Real Estate Bubble?

The Atlantic has some analysis on the Chinese housing market on Friday. It contains a bad piece of news: That the Chinese banks are now financing consumer home purchase mortgages, in adddition to the more traditional financing of housing developments.

This means that, after the Chinese bubble pops, the visible credit market (aka banks) will lose a lot of money, constraining the money supply. This is in addition to the shadow credit market I talked of last week. So there is going to be a full recession, as opposed to a stagnation.

The Chinese Not-Recession-To-Be

I want to clarify my earlier article by saying that, if you were a pessimistic investor like me, you will need to start hedging against the possibilities that the economy will really take off soon, given that employment may pick up soon. For example, you should start getting back into the stock market, if you recently moved your 401k and IRA into money market in anticipation of that W-shaped stock market.

One issue from the employment article is on world trade. Specifically, the deficit spending in China and India to stimulate domestic spending, and to make up for the deglobalization. I can't speak for India, since its economy is not much in the American news. However, China is continuing its real estate boom. So I want to visualize its end state, to help with policy responses.

The Chinese real estate boom will end in a couple of years. The mega-cities of Shanghai and Beijing cannot expand forever. The primary input into the Chinese economy, export, is declining. So they're becoming a closed economic system, and real estate value cannot rise forever in that. They can grow the money supply by issuing more currency or increase monetary velocity. Due to the excess production capacity, inflation is not a big issue. However, real estate is a sinkhole and will limit the velocity growth. So the point is that the real estate will either flatline or dip a bit. Until the world re-globalize and China export again.

Many China watchers and Chinese economists downplay the effects of a real-estate recession in China, because, they say, that Chinese banks do not give out home mortgages, that most Chinese pay cash for the condos, and that they hold the condos to rent out, instead of speculating on a rising value.

The above assertions are true, and these characteristics have constrained the velocity of the real-estate market. However, real estate investment is still tying up a big chunk of the Chinese savings. House purchase is a clan affair in China. The banks may not be lending money, but a shadow-financing system is operating in China to make up for it. A clan (or extended family) will pool its savings to buy a house. People can borrow money from relatives and good friends to put up the cash for the houses. They use the rent payments to pay back the informal mortgages they've incurred.

If the Chinese housing market deflates, all that savings is tied up in these informal mortgages. There may not be a precipitous crash, but there will be a sudden slow-down of the monetary velocity. Economic activity will slow down. And China will have few tools to start it up again, short of an economic-stimulating event (Like World War II) or increased global trade.

Because the lending is informal, the central bank cannot just lower the interest rate to stimulate lending (or mortgage re-financing). Because the saving is not liquid, China will have to borrow money from abroad if it wants to deficit spend its way out. Which does not seem favorable, and which may prompt China to start unloading its T-bills.

I supposed that the banks can start doing home equity loans to increase the liquidity of the real estate market, but that would require a culture change, and start China down a difficult path we've just tread.

Therefore, China may soon hit that real estate asymptote. And it will have to start aggressively export or face economic ennui.

Economic Forecast Contrarianism

Daniel Gross has an interesting article on Slate, arguing that we are about to turn a corner on American unemployment. It is interesting because it is so optimistic, and against my personal feelings on this matter. It is at times like this that we need to stop and check our own assumptions, when our feelings ask us to ignore the opposing point of view.

The strongest reason I do not believe we are turning a corner, is because the US economy has not fixed its structural problems. The recent report on the mortgage rescue program showed that, of the subprime applicants so far, only about 12(?)% are capable of paying the re-negotiated fixed-rate mortgage. Many more houses will go onto the foreclosure block in the near future. Maybe the banks have already wrote down all these mortgages, but I doubt it.

A related problem is with the velocity of money and savings. In America, the savings rate is going up, which reduces the velocity of money. The Fed rate is already near zero, and Obama is going up against the limit on deficit spending, so they are almost out of tools to re-inflate the US money supply. The contracted money supply means the US domestic economy has contracted.

Although the personal savings rate is up, the foreclosure market is sucking up a lot of the savings. Being an "asset-rich, cash-poor" enterprise, real estate investment is a sinkhole on the money supply. This is money that might otherwise be available for business investment.

Therefore, going forward, businesses may want to expand, but the credit market will be expensive. They will have to rely on their own funds, and some foreign investment, to fund the expansion. With the rise in savings, we cannot rely on the consumer spending to grow the economy. The business spending side of the house does not look too hot, either.

One growth mechanism Gross identified is the export route. With the decline in the dollar, export is definitely paying for the recent gains in the American economy. However, Gross himself just wrote about the decline in global trade over this past year. With the worldwide loss in savings this past year, and the decline in global demand, I'm not sure if export will be enough.

One semi-bright spot from the Black Friday shopping report is that the rich are spending again. I wonder if it's enough.

Business Lending Update

Washington Post reports that the Treasury is considering a scheme similar to what I discussed. The Treasury wants to give TARP money to the banks, who promises to lend the money to businesses.

The difference between Treasury's plan and my proposal is an accounting one, I guess. Treasury wants to transfer the money into banks' own accounts, like a deposit or investment. Whereas I was proposing to have the banks act as government agents in administering the funds. Kinda like selling IRAs or T-bills.

Because Treasury's plan involves changes in ownership, the pay-caps and other limitations apply, making the plan unsavory to banks and possibly requiring congressional action.

Edited: updated links and added tag.

Honduras Follow-Up

The New York Times has a note on the continuing Honduras drama. It's nice to see that Zelaya is negotiating an exit to Mexico. That indicates Zelaya is giving up on his claim to the presidency. Hopefully when he leaves, that will be the end of the drama. Perhaps he'll continue calling himself, the "Rightful President of Honduras", and be accorded diplomatic respect during his travels. That'll fulfill his dreams of an unending presidency without subjecting the Honduras people to a constitutional crisis.

It is also nice to see that cooler heads prevailed in the US, and that we're recognizing the Honduras government. Depressingly, only Colombia, Panama, Peru, and Costa Rica, of Latin America, have followed suit in recognizing the election. Perhaps this is the rise of opposing camps in Latin America.

I want to go back to my earlier observation on the Brazilian embassy preparations. It appeared that Brazil evacuated most personnel out of its embassy during the siege, so that allowed Zelaya to hold out for a longer period of time. Micheletti may also have allowed humanitarian supplies to go in, therefore rendering the indicator invalid.

Responsibly Using TARP for Jobs

Washington DC is abuzz over the $200 billion surplus from TARP. Many want to use that money to create jobs. However, the policy proposals are jumbled and incoherent. The democrats and Obama said something about green jobs, but no way on how to get there without massively re-writing the TARP authorization.

One impediment to job creation these days, according to business writers, is the absence of business credit. The business credit market is hardly moving at all. Most small businesses get their credit lines from local and regional banks, who have largely weathered through the financial crisis intact, but who are also scared of lending money. Despite the whole TARP bailout, and the Fed's rescuing of the commercial paper market, the business credit market remains choked off.

Therefore, one quick way for the Federal Reserve and the Treasury Department to jump start business lending, is to use the TARP money to finance business lending. We can build on the CDO-bailout model: We make the banks agents of the government. If a bank is going to lend out some money ($1 million, say) to a business, the bank can use TARP money to double the loan (plus $1 million TARP money). This way, we preserve some accountability, because the banks still have skin in the game. At the same time, we instantly double the size of the business loan market. The Fed and Treasury are not equipped to administer the small amounts in business loans, so using the banks as government agents minimize the administrative requirement.

I hope this idea gets some traction.

Bottom-Up Innovation: China

Alexandra Harney wrote an article on Foreign Policy.com today, bemoaning the lack of central direction from Beijing, in the area of industrial policy. She ended up arguing for more centralization, less local regulations, and voila, currency de-regulation. She compared China against Japan, where the Ministry of International Trade and Industry pretty much ran the country, economically speaking.

However, Harney fails to establish clearly why Bottom-Up innovation, seems the case in China, is worse than Top-Down Innovation, the case in Japan.

The general problem with an opaque policy-making process is that it imposes too many regulations and encourages corruption. Is that the case with China? Harney does not say.

Harney bemoans the saving nature of the Chinese consumers. What's wrong with that? A lower velocity of money helps to head off a bubble in China, which is good news for everyone (except perhaps India.)

Lastly, Harney talks about currency deregulation, but fails to establish why that's good. It seems to be conventional wisdom that currency pegging is bad, but conventional wisdom is frequently wrong. If the prices reflect the inputs, ie not artificially distorted, a pegged currency is not market-distorting. Now China may be giving up control of its monetary policy, but a currency peg is not automatically bad.

She also ignored the case of the United States, where we had 50 states running their own industrial policies. Which is the better model for China?

Iranian Revolution: Visualizing the Aftermath

Iran's less-than-lethal Insurgency is in the news again, when the college students mounted another protest and clash on Monday. At this point, it is clear that the Revolutionary Council does not have the political power to suppress the student insurgency. If this status quo holds, we will soon see the fall of the current Revolutionary Council, probably within 2 to 5 years. Whether it takes the form of a coup, a constitutional convention, or a violent revolution, however, is an open question. I will briefly explore the policy options to the US, then describe the possible end states.

At this time, there is little for the US to do, that it is not already doing. The current nuclear confrontation with the US is holding back the Revolutionary Council in manpower terms. The need to guard the various nuclear refinery sites, and to mitigate an air strike on the sites, prevents the Revolutionary Guards from moving these guards to Tehran to help with the crackdown. The manpower shortage of the IRGC allows the students to continue protests. The on-going economic embargo and maritime interdictions similarly limit the ability of the IRGC to operate against the students. Therefore, it is vital that we continue our peacetime confrontations and containment against Iran.

I will re-iterate my call for an American Embassy in Tehran, though. Such a move will head off the Hardliners' characterizing the protests as an American conspiracy.

Similarly, the US should refrain from material support of the student protests, other than refugee protection. There is plenty of light weapons in Iraq, should the protesters take up arms. And the Israeli Mossad is likely already aiding the insurgency.

Right now, the IRGC is being pulled in multiple directions. It has to continue supporting Hezbollah and possibly Hamas by sending out weapon shipments. Following the terrorist attack in Eastern Iran, IRGC has to step up security across the Persian empire to confront the ethnic separatists. The ongoing nuclear crisis means that they have to maintain the security posture at the nuclear sites. The possibility of an air strike means that all of the IRGC air defense sites (in addition to the Air Force air defense sites) need full manning. American stealth bombers and Israeli cruise missiles means the listening sites (where people listen for jet and missile sounds) need full manning, too. And they have to deal with the student insurgency. The IRGC is running out of people.

The Revolutionary Council is politically constrained, as well. Most of the college students are the sons and daughters of Iran's middle and upper class, many of whom working in the government bureaucracy. If the Revolutionary Council starts shooting protesters indiscriminately, they are bound to kill the children of senior government workers. Such a move would turn the bureaucracy, the machinery of governance, against them. In addition, the military has not taken a side in this insurgency. The military has to uphold the Iranian regime, but the children of the senior officers are marching in the streets. The council cannot afford to alienate the military.

So the status quo is leading toward a regime change in Iran. If the students keep on protesting, the protests will highlight the political constraints of the council, its limitations. The Revolutionary Council, like all totalitarian regimes, operates on the perception of its omniscience and omnipotence. People report on their neighbors because they are afraid of the reach of the secret police. If the Iranians find out that the IRGC has political limits, they will be less likely to report their neighbors and more likely to keep on testing the behavioral limits. The ethnic separatists will operate more openly. The black marketeers will be more brazen in hawking their wares. The decline of social controls will bring about more social disruptions. The protests will get closer and closer to the government buildings. At some point, the IRGC will have a showdown with the protesters, trying to restore its perception of control. If the students succeeds in embarassing the IRGC, that's when regime change will take place.

The critical question for the US and the West concerns Iran's nuclear program. If a revolution occurs, hopefully the nuclear program stays above the fray, and enters a conservatorship awaiting a legitimate government. A renegade IRGC commander may transfer nuclear material to a terrorist organization, although that possibility is slim due to the bureaucratic nature of a government entity like the IRGC. The military may take over the nuclear program during the revolution because it is a vital strategic bargaining chip for Iran as a state.

The nature of the student revolution remains unclear, because students operate on emotion. The last student revolution in Iran led to the current theocratic regime. The students today coalesced around the opposition to government oppression, but there is likely much disagreement on the endstate, of the revolution. Various politicians are trying to hijack the movement, with Mousavi and Rafsanjani being possible examples. A hijack is possible if a politician can bring a bureaucratic entity or a guild (the merchant or clerical guild, say) into the protest movement. This politician can ride the resulting goodwill all the way to the top. We will hear his name as soon as the IRGC kidnaps him.

Ideally, this revolution would lead to a new constitutional convention to re-write the constitution. This is a likely outcome because of the neutrality of the military and the government bureaucracy in general, so far. These entities serve as moderating influences on both the Revolutionary Council and the students, barring further radicalization and escalation. As neutral actors, they have the authority to strike a bargain, hopefully allowing the clergy to save face and take on a lesser role. Their governmental nature make them invested in the current form of government and resistent to radical changes. Minimizing change would minimize social upheavals and human suffering.

However, if the IRGC escalates by massacring protesters, Marxist-type revolutionaries will have more followers among the students. The radicalization of the movement will lead to a post-revolution purge we've seen in France, Russia, China, and elsewhere. A violent revolution would be inevitable.

Factions of the IRGC may, in self-preservation, stage a coup against the Revolutionary Council. Such a move would allow the IRGC to bargain with the military and the rest of the government in the resulting transitional governance, over its future roles. This action would also preserve the income and fiefdom of much of the IRGC bureaucracy, while sacrificing few offenders to appease the students. For the IRGC, this is the most favorable outcome in a regime change, thus highly likely to occur. The Revolutionary Council may anticipate this and counter-move by purging the IRGC, but that would weaken their protection and force the Council to accept a compromise with the students.

Given that we in the public rarely hear about the bureaucratic machinations in Iran, it is unlikely for us to confirm any of these scenario until the last moment. For everyone's sake, I hope the Revolutionary Council compromises with the students through a constitutional convention, but there are too many entrenched interests in the IRGC to hope otherwise. The IRGC will probably survive in some form in the end, hopefully with more checks on its power. For the US we need to keep up the war rhetoric and nuclear confrontation all the way to the end, but ready to detente at the earliest opportunity.

On Presence Patrols (& Movements to Contact)

Tonight President Obama will give a policy speech on Afghanistan. Hopefully it will give us some real strategic direction. However, before we get to the strategic level, we need to remember that the US military itself has major tactical deficiencies. One such area is the confusion over presence patrols and movements to contact. Many small unit leaders do not appear to understand how and why they are conducting these missions. Hopefully this article helps our squad and platoon leaders accomplish these missions.
In John T Reed's review of Craig Mullaney's Unforgiving Minute, he pointed out Mullaney's ignorance on presence patrols and movements to contact. This is sad, but unsurprising. I have talked earlier about the Army's tactical deficiencies at the small unit level. The Army officer basic course common core (which all basic courses cover) touches upon tactics, but only as slogans. There is a section on the "Military Decision Making Process", which is a battalion+ level staff planning procedure. The field grade officers have made MDMP the holy grail of tactics in OBC, even though it is just a process and inapplicable at the company level. Mullaney went to Afghanistan in 2003. I hope we're better at it today.
Incidentally, when I looked up Presence Patrol on the Small Wars Journal, I found the discussion "What is Prescence Patrolling?", started five days ago. That is a sad sign for this anti-intellectual Army.
Looking at the Mullaney's description on the Presence Patrol, and on the Small Wars Journal, people seem to think that it is an information operation technique, where you show the flag and remind everybody of your presence. This is an unfortunate legacy from the Cold War, where the US Navy did "Presence Patrols" and coined the phrase. That cultural connotation has carried over into Army operations. However, the Navy Freedom of Navigation and Presence patrols took place in an uncluttered environment, relatively devoid of civilians. The intended target, other navies, were bound by peacetime rules of engagement. The patrols aimed to reinforce existing attitudes, not to change them.
On the other hand, in today's War Amongst the People, ground presence patrols operates on the human terrain. Showing the flag to the population has little effect on hearts and minds. Especially when the Yanks go back to base at the end of the patrol, while the Taliban maintains a permanent presence, as is the current practice in theater. Therefore, these patrols do not accomplish their IO mission, but rather present well-scheduled targets to Taliban IEDs and ambushers.
Therefore, we need to rethink presence patrols and make it militarily useful to the small unit. To the small unit (Company and below), the presence patrol has two purposes: To gather intelligence from the population, and to disrupt enemy Tactical Assembly Area activities.
1. Gather Intelligence
The fact that the Taliban can mount attacks means that we do not know who the enemy is, especially at the small unit level. The presence patrol is the primary intelligence tool available to the small unit leader. You need to keep talking to the locals and finding out what's going on. Just as all operations start with a map reconnaissance, you need to start with a map of the human terrain: Who are the village leaders? Who is related to whom? What blood feuds are in place? Etc.
One of the biggest innovations over the past 8 years, at the small unit level, is the Company Intelligence Cell. As we are doing more distributed operations than ever, and as we fight amongst the people, it is absolutely critical that all "Battlespace-Owning" companies have their own intel cells. These intel cells organize intel and analyzes trends. Regarding War Amongst the People, your intel cell collates the link diagram of your population, telling you who are hostile, who are possible abetters, and whose support you need. If you haven't head of it, read up on it in the Infantry Magazine and the Small War Journal.
To build and maintain your "model"/link diagram of the population, you need to get out there and talk to people, get the latest gossip. If the locals won't talk to you, then you need to build relationships with them. Start with "Hello"s and go on from there. Start a business relationship by hiring a few day laborers to work on your outpost, pick up trash on the surrounding roads, etc. A business relationship is a perfect cover to start talking. Once you know the Who's Whos, then you have a starting point to get to the suspects.
2. Disrupt the Enemy
Of less military utility, but still important, is Disrupting Enemy TAA activities. Just like you, the enemy needs a secure Tactical Assembly Area to plan ops, rehearse actions on the objective, and do pre-combat inspections. If you are patrolling an area, you deny the enemy the availability of that area for TAA activities. He has to go elsewhere, away from the cover of the population.
Therefore, your patrol schedule has to be random, and sometimes you should stay the night.
To sum up, you are not doing presence patrols. You are doing reconnaissance patrols, reconning on the population as opposed to the terrain.
On the subject of "Movements to Contact", you should never just go from one point to another, waiting to get hit. You will always know where the potential ambush sites are, even from a simple map recon. You can then do things like taking detours, clearing enemy Objective Rally Points, etc.