Andrei Martyanov’s warning of U.S. weakness

DISINTEGRATION: Indications of the Coming American Collapse by Andrei Martyanov (2021)

Andrei Martyanov, an immigrant from Russia, is a writer and blogger on military affairs who for years has been warning the citizens of his adopted country of American military weakness.

In Disintegration, his latest book, he connects U.S. military failures to an an overall decline in American society – economically, politically and morally – which he fears may be irreversible.  

Born in 1963 in Baku,  he  is a graduate of the  Kirov Naval Red Banner Academy and served as an officer in Soviet Coast Guard through 1990.  He moved to the United States in the mid-1990s and worked for a time as laboratory director for a military aerospace group.  He lives in Washington state.

He said that as he traveled in the early 1990s, he always felt relief at landing in the USA, a safe haven from crime-ridden Russia.  He would stop at an airport bar and enjoy a plate of chicken wings, a beer and a cigarette.  The sitcom Cheers was usually on TV, and, to him, it symbolized the values of a peaceful, welcoming nation.

Since then, he says, his new country has been in decline, and his old country has risen from the ashes.  The United States is attempting to project power worldwide that it no longer has.  

I won’t attempt to summarize the book, but I’ll hit a few high points.

He presents evidence that, even though the United States has the world’s most expensive military, its military technology is qualitatively inferior to Russia’s and China’s.

Russia’s hypersonic missiles have changed warfare forever, he said.  They are not interruptible by existing U.S. anti-missile systems.  He said the U.S. lag behind Russias in air-defense systems is massive.  None of this can be changed anytime soon.

Although U.S. power projection defends on its Navy and Air Force, American shipbuilding and aircraft industries lag behind Chinese competitors and are being overtaken by Russians.

In 2018, 90 percent of the world’s ships were built in China, Japan and South Korea.  Russia also surpasses the USA in commercial shipbuilding.  Many tankers and other commercial ships built by these four countries are bigger than U.S. aircraft carriers.

Boeing aircraft have had disastrous crashes in the past few years, due to failures in the manufacturing process.  Martyanov says Russia’s new MC-21 plane is competitive with Boeing or any other of the world’s aircraft.  

The U.S. responded to the MC-21 by blocking exports of carbon fiber, a necessary component.  Russia proceeded to develop its own carbon fiber industry.

Crises everywhere, all at once

I firmly believe the world is at a historical turning point, equivalent to the French Revolution or the outbreak of World War One.

I expect more changes in the next few years than there have been in many decades.  

This is not good news.  Times of revolutionary change are not times any normal person would want to live through, even those whose results we now think are good, like the era of the French Revolution.

The world faces multiple crises, which feed upon each other, and which are not being dealt with.

Humanity is failing to deal with the growing civilization-threatening threat of global warming.  We are neither about to stop the ongoing increase of global warming nor deal with the increasing number of catastrophic storms, droughts and floods.  

Neither are we able to deal with the growing threat of pandemic disease.  Nor has the world has really recovered from the 2008 financial crash.   And now the world faces the spillover from the proxy war in Ukraine.

Adam Tooze, a famous financial historian, calls what we’re facing a “polycrisis.”  All the different crises affect each other and make the others worse.  

Tooze is an intelligent establishmentarian.  He wants the world’s leaders to change some things in order that the essential things will stay the same.  I think the things are past the point where this is possible, although I would be happy to be proved wrong.

If I made my own polycrisis chart, I would put some additional boxes on it—the continuing “war on terror,” for one; peak oil, for another.  But his basic point is right.  The world’s leaders face multiple crises, and, with few exceptions, they are not dealing with them. 

Instead of joining forces to face the existential threats to civilization, the world’s great powers—China, Russia, the USA and the European Union—are lining up for a struggle for power that will test their strength to the breaking point and damage the world as a whole, not just themselves.

Ukraine already is devastated.  The UK and EU are in economic recession and face dangerous fuel shortages.  Many nations of the Global South are unable to import food and fuel.  

I have written about why I think my own country is likely to crack before Russia does, but Russia and even China have serious problems, and if they go down first, our future still looks grim.

It is not just the great power conflict’s cost in resources and human lives.  It is the opportunity cost of neglect of turning away from the real threats that face us.

LINKS

Apocalypse Nowish: The sense of an ending by Michael Robbins for Harper’s magazine.

Defining polycrisis – from crisis pictures to the crisis matrix by Adam Tooze for Chartbook #130.

Covid, Climate and the New Denialism by Edward Snowden for Continuing Ed.

Fighting a War on the Wrong Planet by Rajan Menon for TomDispatch.

Why Is China So Obsessed With Food Security? by N.S. Lyons for The Upheaval.

U.S. is losing high-stakes sanctions war w/Russia

When Russia invaded Ukraine, President Biden threatened “sanctions from hell.”  His goal was to destroy Russia’s ability to carry on a war effort by wrecking its economy.

This didn’t seem far-fetched.  Russia ranked only 11th among industrial nations in terms of output.  It alternated with Ukraine in ranking as the poorest and most corrupt nation in Europe.  Its government and its companies were considered bureaucratic and inefficient.

If the United States had been able to rally the world behind its effort, it might have succeeded.  But it failed.  The sanctions effort was limited to the USA and its core allies.

The sanctions damaged the Russian economy, maybe permanently, but for now Russia still has both the means and the will to continue the war.

Far from wrecking Russia, the sanctions war is wrecking the economies of Europe.  U.S. demands are pushing allies and bystander nations into the arms of China and Russia.  Sanctions are hurting the American people as well as the Russian people.

Two sayings come to mind:

• If you strike at a king, you must kill him.
• That which does not kill me makes me stronger.

Al Jazeera reported that the sanctions included freezing nearly half of Russia’s financial reserves, expelling several of the country’s largest banks from the SWIFT payments system, prohibiting Russian ships and planes from entering their ports and airspace, introducing export restrictions for certain advanced technologies, and placing an embargo on Russian oil and coal.

The BBC reported that the US barred Russia from making debt payments using foreign currency held in US banks.  The UK has excluded key Russian banks from the UK financial system, frozen the assets of all Russian banks, barred Russian firms from borrowing money and placed limits on deposits Russians can make at UK banks.

The BBC reported that Western nations have announced these sanctions:

• The European Union (EU) will ban imports of Russian oil brought in by sea from December.
• The EU will ban all imports of refined oil products from Russia in February 2023
• The US is banning all Russian oil and gas imports
• The UK will phase out Russian oil by the end of 2022.  It no longer imports Russian gas.
• Germany has frozen plans for the opening of the Nordstream 2 gas pipeline from Russia
• The EU has stopped importing Russian coal

From December, the EU and the Group of Seven (US, Canada, UK, France, Germany, Italy, Japan) also want to cap the price countries pay for Russian oil.  They are telling importers of Russian crude oil that western insurers will not cover oil shipments if they pay more than the cap.

The BBC also reported that the US, EU, UK and other countries have sanctioned more than 1,000 Russian individuals and businesses – including so-called oligarchs.  These are wealthy business leaders who are thought to be close to the Kremlin, such as former Chelsea FC owner Roman Abramovich.

Simultaneously, more than 1,200 foreign companies have either suspended or curtailed their operations in Russia since the start of the conflict in Ukraine, according to a database from Yale University’s Chief Executive Leadership Institute.  Among the big names on that list are brands such as Apple, McDonald’s, IKEA, Visa, and MasterCard.

The new supply restrictions have not only caused inflation to climb into the double digits, but also undercut Russian manufacturers by depriving them of imported components that are critical to assembling their final products.  Russia’s car production, for instance, plummeted by a stunning 61.8 percent during the first six months of this year, according to Al Jazeera.

The unreported economic crisis in Europe

Reality is that which, when you stop believing in it, doesn’t go away.  

==Philip K. Dick

Europe appears to be on the verge of economic collapse because of blowback from the sanctions war against Russia.

The European economic boom, it turns out, was based on availability of cheap oil and gas from Russia.

The UK and the European Union has deliberately cut themselves off, thinking it will punish Russia.  But the Russians are doing okay while Europeans face a winter with shortages of electricity and fuel.  Many are stocking up on firewood and coal.

Whole industries have shut down or relocated to Asia or North America.

Alex Christoforou and Alexander Mercouris, in the video above, say the latest word from oil company executives is that the Europeans might just possibly have enough oil and gas in storage to get by this winter, depending on just how cold the winter is and depending on who you believe.

This is because the European countries bought all the cheap Russian oil and gas they could before the supply shut down.  But next spring, the cupboard (or rather the oil tank) will be bare.  So an even worse crisis will occur in the winter of 2023-2014.

Saudi Arabia, Iran and the United Arab Emirates decline to increase their own output to help the Europeans out.  They and the Russians benefit greatly from the sanctions induced increase in oil prices.

The Europeans are willing to buy second-hand Russian oil and gas from China, India, Turkey and other countries, at prices they refuse to pay Russia directly.  The problem with this is that the importers of Russian oil and gas will only sell that which is surplus to their own needs, and at a very high price.

The U.S. plan is supply Europe with liquified natural gas from North America.  But the infrastructure needed to carry out this plan doesn’t exist, and won’t for at least several years.  Liquifying natural gas, and storing and shipping it, is not easy and not cheap.

In a new video this morning, Christoforou and Mercouris talk about how the economic situation in the UK is so bad that Rishi Sunak, the new British prime minister, has no choice but to raise taxes, cut public services and cut aid to Ukraine.

The goal of sanctions policy is to weaken Russia so as to help Ukraine.  But sanctions policy is weakening Europe, not Russia.  How does this make sense?

Saudi Arabia may cease to be a U.S. ally

President Xi Jinping plans to visit Saudi Arabia soon.  In the video above, Alex Christoforou and Alexander Mercouris of  The Duran speculate that Prince Mohammad bin Salman may be planning to join the BRICS alliance.

If so, this could be a big threat to U.S. power—a much bigger threat than the Russian invasion of Ukraine.

The BRICS alliance consists of Brazil, Russia, India, China and South Africa.  Its ultimate purpose is to create a new reserve currency that would be a substitute for the U.S. dollar.

The fact that most world trade is conducted in dollars, which the U.S. government has the power to print, gives the United States enormous leverage over the world economy, including the power to impose economic sanctions.

If this changed, the United States would lose its financial power as well as much of its ability to finance the world’s largest military budget.

Saudi Arabia back in 1973 agreed, in return for U.S. military protection, to price its oil in dollars, to deposit its dollars in U.S. and allied countries’ banks, and to buy U.S. military equipment.  As the leading oil exporter, Saudi Arabia has a lot of power in the Organization of Petroleum Exporting Countries (OPEC), whose purpose is to control the price and production of the world’s oil

The Biden Administration earlier this year supported the Group of Seven’s plan to cap the price of Russian oil imports.  This must have miffed the Saudis and other OPEC members, because, if successful, the plan would have infringed on the Saudis’ and OPEC’s power to set would oil prices. 

Later President Biden asked Prince Mohammad bin Salman to increase oil production to help keep the price down and offset the loss of Russian oil due to economic sanctions.  Bin Salman turned Biden down.

Christoforou and Mercouris think Bin Salman is taking a big risk.  They expect the U.S. to try to destabilize and overthrow the Saudi regime.  The U.S. is already trying to stir up trouble between Saudi Arabia and Iran.  

Even a direct attack or invasion are not impossible, and Mercouris said Bin Salman needs to be sure of his personal security.

Algeria also has applied to join BRICS.  Other countries are expressing interest.  

In 2023, Saudi Arabia may push Ukraine off the front pages.

Or maybe not.  I don’t have the power to read minds or predict the future.  

But I don’t think President Xi would be planning to visit Saudi Arabia unless he had something in mind.  And I notice that Saudi Arabia is not the only country who leaders are losing both respect for. and fear of, the United States.

LINKS

China’s Xi Jinping to Visit Saudi Arabia Amid Global Reshuffling by Stephen Kalin, Keith Zhai and Summer Said for the Wall Street Journal.

Chinese President Xi To Visit Saudi Arabia By Year End by Tsvetana Paraskova for OilPrice.

Everybody wants to hop on the BRICS Express by Pepe Escobar for The Cradle.  [Added Later]

All Eyes on the Gulf: The Present and Future of Europe’s Energy Supply by Der Spiegel.  [Added 11/12/2022]

Xi of Arabia and  the petroyuan drive by Pepe Escobar for The Cradle [Added 12/17/2022] 

On the eve of destruction

I think the world is at the beginning of a major crisis and turning point – something like the eve of the Great Depression or of World War One.  Future generations will look back on our generation and wonder how we could have been so blind as not to have seen the trap we are jumping into.

The destruction of the Nord Stream pipelines means the destruction of European economies.

The European countries are already in crisis.  Whole industries are being devastated by the direct and indirect effects of the cutoff of cheap oil and gas from Russia.

The destruction of the pipelines means this cutoff will be permanent. Cheap energy was the foundation of the European economic miracle. This is gone indefinitely, unless the Russians can be persuaded to repair the pipelines – the pipelines they supposedly destroyed themselves.

From what I read, I understand there is a window of only a few months for this to take place. After that damage from sea water will be irreversible.

The economic crisis is not confined to Europe.  It is spreading throughout the world.  Failures of key energy-intensive businesses in Europe will cascade to businesses that depend on them as suppliers or customers.  It will be a domino effect similar to the economic crash of 1929-1933.

The destruction of The Nord Stream pipelines takes the NATO-Russia conflict to a new level.

Nuclear warfare, chemical warfare, cyber warfare have all been off limits because there is basically no defense against them, and no nation’s leaders want to be the ones to initiate it.

Attacks on pipelines and undersea cables fall into this category.  A taboo has been broken.  There is no reason to believe that Russia is the culprit.  Why would the Russians destroy an asset they spent years and billions of dollars to build and which is their main means of leverage over Europe?  And Vladimir Putin has made it clear that he blames the USA. 

What happens if there is retaliation?  What, for example, would happen to the world’s financial markets if fiber optics communications between North America and Europe were broken?  We can only hope Putin does not choose to follow that path.

Russia and the USA are committed to a fight to the finish in Ukraine.

Back in late March and early April, Russia and Ukraine were conducting secret peace talks.  British Prime Minister Boris Johnson and U.S. General Mark Milley reportedly flew to Kiev to tell Volodomor Zelensky that NATO’s goal is to fight on until Russia is defeated.

Zelensky had no choice.  Ukraine is not a sovereign nation.  It couldn’t survive without not only military support from the USA and NATO allies, but also economic support from the International Monetary Fund and other international agencies controlled by the USA.

Vladimir Putin defines the war as a clash of civilizations – a clash between Russia, representing Eastern Christianity, and the secular, imperialistic West.  In his speech of annexation of Russian-occupied Ukraine to the Russian Federation, Putin denounced the USA for its history of slavery and conquest, and also its support of the new gender ideology.

Forget Trump! It’s the economy, stupid!

If the November election were held on the issues, there’s a good chance the Republicans would win.  But as it is, there’s a good chance the Democrats will win.

Click to enlarge

That’s what I conclude after reading a recent NPR/PBS NewsHour/Marist National Poll.

• 30 percent of polled voters think inflation is the most important issue.
• 40 percent of Republicans and 37 percent of independents agree, but only 13 percent of Democrats.
• 62 percent of polled voters think the United States is in a recession.
• 57 percent say President Biden’s decisions have hurt the economy, and 41 percent strongly disapprove of his job performance overall.
• 39 percent think Republicans would do a better job of managing the economy, while 26 percent think Democrats would do better.

Concern about inflation is slowly declining.  I think that is because President Biden is helping to drive down gasoline prices by releasing oil from the Strategic Petroleum Reserve.

I don’t think most Americans realize how much of the price increases are due to blowback from the economic sanctions war against Russia.  Supplies of Russian oil and gas are being cut off from Europe, and this drives up the market price not only in Europe, but worldwide.

I don’t think the Republicans have a good plan, or any plan at all, for dealing with inflation.  The Federal Reserve Board’s plan is to slow down the economy, but that only works to slow down an overheated economy, not to bring down price increases due to scarcity.

The Democrats are the incumbents and the Republicans are the opposition, so the issue favors the Republicans.  Also, the Republicans talk more about deindustrialization, tariffs and other key economic questions, so they at least indicate concern, while Democrats are inclined to downplay these issues.

Click to enlarge.

The next most important issue is abortion.

• 22 percent of the public think abortion is the most important issue.
• 35 percent of Democrats think so, too, and so do 22 percent of independents, but only 10 percent of Republicans.

The repeal of Roe v. Wade has energized abortion rights advocates, but most voters take a middle position.  Only a minority support the extreme restrictions on abortions proposed by Republican state legislatures, but a majority are opposed to allowing abortions without any restrictions at all.

The poll also indicates that a lot of Democrats choose the Jan. 6 hearings as their top issue, but few Republicans or independents do.  A lot of Republicans choose immigration as their top issue, but few Democrats or independents do.  The other important issue is health care, but it’s a lesser issue than inflation or abortion.

All that would lead me to think that Republicans have the advantage, but the poll results indicate that the Democrats have an edge of 4 percentage points.  I think the Republicans are hurt by their internal conflicts and by the focus of news coverage on Donald Trump and his many battles.

Michael Hudson on the clash of capitalisms

THE DESTINY OF CIVILIZATION: Finance Capitalism, Industrial Capitalism or Socialism by Michael Hudson (2022)

When I studied economics as a college undergraduate, I was taught there are three factors of production – land, labor and capital. And three sources of income – the rent of land, the wages of labor and the profit or interest from capital.

Land includes not just the soil itself, but all natural resources.  Labor includes all productive effort, whether of brain or brawn.

Capital, as I was taught, is the force multiplier. It includes everything that increases the productivity of land or labor – farm tractors, railroads, computers, steam engines, electric power plants, research laboratories, anything that increases or improves production.

So the landlord is a parasite, the worker is a contributor to society, but the capitalist supposedly is the driving force for progress.

Here’s the rub.  Financial capital is productive only when it is used to create physical or human capital.

But there’s no law that says financial capital has to be used productively.  In fact, most so-called “investment” consists of buying assets and collecting the income, with no value added. 

Michael Hudson, in his brilliant new book, The Destiny of Civilization, says that’s what’s happening in the U.S. specifically and also the broader world today.  Industrial capitalism, which, for all its faults, is productive, is being replaced by finance capitalism, which is parasitic.   

So much of the world’s resources go to paying off debts—government debt, business debt, mortgage debt, student debt—that too little is left over to provide for the wants and needs of ordinary people.  

So much of the world’s income goes to holders of debt that too little is left for those who do the actual work of society.

According to Hudson, the classical economists, from Adam Smith to John Maynard Keynes and including Karl Marx, thought that the chief economic problem was the rentier – the person who draws income from ownership of assets, without producing anything of value themselves.

The French economist Thomas Piketty has written massive tomes that show how the income from ownership of assets – whether land, government bonds, corporate stocks or something else – over time exceeds the rate of economic growth.

This leads to an ever-growing concentration of wealth, which ends only when some event – usually revolution, war or an economic crash – wipes out the value of the assets. This is the process that the Austrian economist Joseph Schumpeter called “creative destruction.”

In the United States and countries that follow its lead, classical economics has been replaced by the so-called neoliberal economics.  Its guiding principle is that financial capital must be preserved at all costs.

This is why, just as one example, the Obama administration bailed out the banks following the 2008 financial crisis, but did not use authority granted by Congress to help the struggling mortgage-holders.

Karl Marx was fascinated by industrial capitalism’s power to increase productivity and increase wealth.  This form of capitalism, as he saw it, laid the foundation for a future utopian worker-ruled socialist state.  Finance capitalism, in Hudson’s view, leads nowhere.

Hudson says that today civilization is today at a fork in the road: 

• one path leading to a neoliberal neo-feudalism dominated by a rentier oligarchy ruling over the indebted many.
• the alternative path is broadly mixed-economy industrial capitalism leading to socialism.

The passing scene: Links & comments 9/13/2022

Asia’s Future takes shape in Vladivostok, the Russian Pacific by Pepe Escobar for The Cradle.  (Hat tip to Bill Harvey)

Putin in Vladivostok

Pepe Escobar, reporting last week on the Russia-hosted Eastern Economic Forum in Vladivostok, says the world’s center of economic gravity is shifting to Asia, with China as leader and Russia and India as its main partners.

 I have my doubts that the Chinese-led new order will be as utopian as Escobar predicts, but the Chinese magnetic pole is a more powerful attractor than the U.S. pole.

The Shanghai Cooperation Organization, led by China, now includes China, Russia, the Central Asian republics, India, Pakistan and Iran, while 11 more nations, including Turkey, seeking to join.  

The reason is not hard to see.  China promises benefits to its economic partners; the NATO alliance demands sacrifices.  As the old saying goes, you can catch more flies with honey than you can with vinegar.

The Specter of Germany Is Rising by Diana Johnstone for Consortium News.  (Hat tip to Bill Harvey)

Scholz meets Zelensky

German Chancellor Olaf Scholz advocates an expanded, militarized European Union with Germany as the dominant force.  

It would include all of Eastern Europe and the Balkans, plus Ukraine, Moldova and Georgia.  It would have a common foreign policy, consisting of a permanent Cold War against Russia, and make decisions by majority vote, not by consensus as now.

Germany dominates the smaller Eastern European countries economically.  The further east the European Union goes, the greater the influence of Germany, the less the influence of France and the stronger the possibility of a war policy being adopted over French objections.

Watch out for the coming oil shock in the USA

This just in from Ian Welsh.

Recently read a smart lad who noted a few simple things:

1. Biden’s been releasing oil from the Strategic Petroleum Reserve (SPR).

2. The SPR has basically two types of oil: sour and sweet.

3. Biden has been releasing almost all sour since that’s what most US refineries need.

4. At the current rate of release, the SPR runs out of sour crude to release around March.

[snip]

Of course, when Biden stops releasing oil, either because he’s out or because he chooses to stop after the election or the holidays are over, then prices are going to spike if sanctions are still in place against Russia and/or Russia is unwilling to sell to the West.  As a bonus, the government will need to buy oil itself to stock the reserve back up.

[snip]

What this means for Americans is that there’s a very good chance of a big inflation spike after the election.  It might hold off for as long as spring, it might start a few weeks after the election.  It won’t just hit gas prices, oil is important for much more than driving cars, so it’ll rip through the entire economy.  Stock up on what you need before the election if you can.

And let this be a lesson that GDP means very little when the chips are down.  Who cares if you have Hollywood and lots of fast food stores and Google and FaceBook?  What matters is what you grow, dig up, refine and make.

Javier Blas of Bloomberg News suggested President Biden could make up the different by getting Saudi Arabia to pump more oil, but Biden’s attempts to get Middle Eastern “allies” to help out by increasing oil production have ended in failure.

LINKS

When Is the Next Oil-Driven Inflation Spike in the US?  December to March by Ian Welsh.

“We’re going to have to talk about oil again” on Quiz Chad Had a Rack Twitter thread.

The US Is Depleting Its Strategic Petroleum Petroleum Reserve Faster Than It Looks by Javier Blas for Bloomberg News.

Viktor Orban’s message to Europe

Viktor Orban

Viktor Orban, the prime minister of Hungary, refuses to join in the proxy war and economic war against Russia.  He gave his reasons why in a speech last summer, which I’ve excerpted, because it sums up the situation so well.  

He is a contentious character, for reasons explained in the linked articles.  But I don’t see anything in this speech excerpt that isn’t true.

Western strategy in this war is based on four pillars.  It is a sensible strategy on paper, and perhaps even has numbers to back it up.  

The first was that Ukraine cannot win a war against Russia on its own, but it can do so with training from the Anglo-Saxons and with NATO weapons.  That was the first claim.

The second strategic claim was that sanctions would weaken Russia and destabilise the leadership in Moscow.

The third strategic element was that – although they would also affect us – we would be able to deal with the economic consequences of the sanctions, so that they would be hurt more and we would be hurt less.

And the fourth strategic consideration was that the world would line up behind us, because we were in the right.

As a result of this excellent strategy, however, today the situation is that we are sitting in a car with four flat tires.  

It is absolutely clear that the war cannot be won like this.  The Ukrainians will never win a war against Russia with American training and weapons.  This is simply because the Russian army has asymmetric superiority.

The second fact that we must face up to is that the sanctions are not destabilising Moscow.

The third is that Europe is in trouble: economic trouble, but also political trouble, with governments falling like dominoes.  Just since the outbreak of the war, the British, the Italian, the Bulgarian and the Estonian governments have fallen.  And autumn is still ahead of us.  The big price rise came in June, when energy prices doubled.  The effects of this on people’s lives, which are creating discontent, are only just beginning to arrive, and we have already lost four governments.

And finally, the world is not only not with us, it is demonstrably not with us.  Historically the Americans have had the ability to pick out what they identify as an evil empire and to call on the world to stand on the right side of history – a phrase which bothers us a little, as this is what the Communists always said.  This ability that the Americans used to have of getting everyone on the right side of the world and of history, and then the world obeying them, is something which has now disappeared.

Europe faces self-imposed economic crash

Thousands in Prague protest energy crisis and NATO alliance

I’ve written about why I think Russia is likely to win its ground war in Ukraine and its sanctions war worldwide, and what I think the results of Russian victory might be.  This post is about one aspect of that war—how the sanctions war has brought about an economic crisis in Europe.

Six months ago, Europe’s leaders boasted they’d bring Russia to its knees through economic sanctions. Today their countries fact economic disaster because of blowback from those sanctions.

Many Germans are hunting through forests for firewood for the winter, because of the looming scarcity of oil and natural gas.  One report says there is a one-year waiting list for purchasers of wood stoves. Coal also is in great demand and short supply.

In Spain, the government is imposed rules forbidding air conditioning to be set below 80 degrees Fahrenheit. In the Netherlands, a campaign called Flip the Switch asks Dutch people to limit showers to five minutes and do without air conditioning and clothes dryers.

One expert says six in 10 British factories are in danger of closing as a result of higher energy bills. The average British household is expected to see its annual average energy bill rise to $4,180, a rise of $1,765, according to CNN Business.

Forward contracts for electricity in France and Germany are 10 times what they were this time last year.

It’s hard to see how Europe can escape a energy crisis and an economic recession this winter.  The initial reaction of Europe’s leaders has been to double down.  Germany’s foreign minister said Germany will never desert Ukraine, no matter what.

The European Union is reportedly planning to seek sweeping powers over businesses in member states that would basically allow Brussels to tell these companies what to produce, how much of it, and whom to sell it to in times of a crisis.

A public opinion poll indicates a majority of Germans would like to negotiate a peace.  Unfortunately a compromise peace is no longer being offered.  The Russians now say their terms are unconditional surrender.

Tens of thousands joined to protest against the sanctions war in Prague.  I think it is the first of many such protests.  They may lead to sweeping changes across Europe; they may lead to existing governments and the. EU itself invoking emergency powers to stay in power.

I sympathize with the European peoples who’ve been caught up in the global struggle of the USA vs. the Russian-Chinese alliance.  Europeans have a lot to lose and little to gain by joining in.

The Inflation Reduction Act won’t

The supporters of the Inflation Reduction Act claim it will raise $739 billion to fight inflation, reduce the deficit and pay for new investments in energy, but Benjamin Studebaker writes that it will do nothing of the kind.  First, it is spending over a 10 year period, so the true amount is $73.9 billion annually.

He said this is less than 10 percent of the Department of Defense budget, 1 percent of the overall federal budget and 0.3 of a percentage point of the U.S. annual gross domestic product.  

The American Society of Civil Engineers estimates that it would cost $2.59 trillion to raise U.S. infrastructure—roads and bridges, dams and levees, water and sewerage systems and the electric power grid—to adequacy.

Daniel Hemel says the bill will do next to nothing to reduce inflation, and its provisions for fighting climate change are offset by giveaways to fossil fuel companies, but it does provide for price cuts for a handful of prescription drugs.  

“It’s a devil’s bargain, but it had to be,” he writes.

He could be right.  This could be the best that Congress is capable of, given current political reality.  If that’s true, Heaven help us.

LINKS

The Inflation Reduction Act Is Not Designed to Reduce Inflation by Benjamin Studebaker.

Inflation Reduction Act: A complete breakdown of what the bill will and won’t do by Daniel Hemel for Slate.

1971 – the year the USA started going downhill

I’ve posted versions of the chart above several times before.  It shows how American wages once grew along with growth in productivity, and how, around 1971 or so, wage-earners stopped benefitting from being more productive.  This fact about the U.S. economy explains a lot.

I saw an Internet post yesterday consisting of charts showing how many more kinds of things changed for the worse in 1971.  Economic inequality, the cost of living, inflation-adjusted wages—all got worse.

There are too many for me to copy and re-post, but here is a sample.

What happened in 1971?  The only major event I can think of is the Nixon administration’s decision to go off the gold standard.  From then, the U.S. dollar was redeemable not for gold or some other precious metal, but for U.S. Treasury bonds – in other words, IOUs.

Economist Michael Hudson has written books about how this decision allowed financiers and bankers to flourish and the U.S. military to finance its wars while the U.S. manufacturing economy faded away and living standards declined.

As much as I respect Hudson, it’s hard for me to believe that this one thing could have caused changes in so many different things so quickly.  Maybe it’s a tipping point caused by a lot of different things coming together at once.

Michael Hudson explains what’s really going on

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Michael Hudson is an economist whose books make clear how the United States exercises financial power over the whole world, and escapes the consequences of government budget deficits and balance of trade deficits.  In his most recent book, The Destiny of Civilization, he explains how the U.S. free ride may be coming to an end.

He laid all this out in the podcasts above.  He said the Biden administration is speeding up the inevitable U.S. decline.   Here’s an excerpt from the transcript: 

My job at Chase was to analyse basically the balance of payments of Third World countries and then of the oil industry.  I had to develop an accounting format to find how much does the oil industry actually makes in the rest of the world.  I had to calculate natural-resource rent, and how large it was.  I did that from 1964 till October 1967.  

Then I had to quit to finish my dissertation to get the PhD.  And then I developed the system of balance-of-payments analysis that actually was the way it had been calculated before GDP analysis.  I went to work for Arthur Andersen and spent a year calculating the whole U.S. balance of payments.  

That’s where I found that it was all military in character.  And I began to write in popular magazines like Ramparts, warning that America’s foreign wars were forcing it to run out of gold. That was the price that America was paying for its military spending abroad.

I realised as soon as it went off gold in 1971 that America now had a cost-free means of military spending.  Suppose you were to go to the grocery store and just pay in IOUs.  You could just keep spending if you could convince the owner, the grocer to use the IOU to pay the farmers and the dairy people for their products.  What if everybody else used these IOUs as money?  You would continue to get your groceries for free.

That’s how the United States economy works under the dollar standard, at least until the present.  This is what led China, Russia, Iran and other countries to say that they don’t want to keep giving America a free ride.  

These dollarized IOUs are being used to surround them with military bases, to overthrow them and to threaten to bomb them if they don’t do what American diplomats tell them to do.

Ukraine war collateral damage and food prices

I’m stocking up on nonperishable food and other supplies in order to be prepared for scarcity this fall.

Both the fighting war and the sanctions war over Ukraine are disrupting world food supplies, and I think it can only get worse. Ukraine and Russia are important exporters of food, and also of diesel fuel, which is important in making fertilizer.

Food prices are already going up. Reasons for this include drought and floods in food-producing regions, disruption of supply chains due to the coronavirus pandemic and the power of monopoly agribusiness.

What this means is that there is no buffer to escape the disruption caused by war.

Maybe I’m wrong, but I have little to lose by being prepared. It is better to do too much than to learn the hard way I’ve done too little.

I also expect the war’s collateral damage to affect food prices, but there’s little I can do personally about that.

Russians will be affected by rising food and fuel prices, but both the USA and Russia have enough reserves and resources to avoid actual starvation.  The worst impact will be on poor small nations that depend in food imports. 

The price of wheat on world markets

Ukraine is part of a broader three-way Cold War

The war in Ukraine is not just between Ukraine and Russia.  It is part of a larger three-way struggle between three rival imperialisms—the established imperialism of the USA and the rising imperialisms of China and Russia..

The struggle is not exclusively or even mainly a military struggle.  It is also a diplomatic and propaganda struggle.  But it is mainly an economic struggle.

The United States is the world’s most extensive military power and the world’s leading financial power.  Its aim is to keep on being the world’s only superpower—militarily, politically and financially.  Its means is threats of military intervention and financial sanctions.

Source: The Diplomat. Click to enlarge.

The People’s Republic of China is the world’s leading manufacturer and exporter.  Its aim is to dominate its immediate region politically and militarily and to become the world’s leading power economically.  The means is investing in physical infrastructure and human capital, and winning friends by offering economic benefits.  Its master plan is the Belts and Roads initiative, a system of infrastructure construction projects intended to weave together the economies of interior Eurasia.

Russia is less powerful than the USA or China, but it is an important producer of food, fuel and vital raw materials. Its aim is to be recognized as a great power and to dominate its immediate region politically and militarily

The United States has a worldwide network of military bases and alliances, which gives it the power to engage in military and covert actions on every continent.  It dominates the World Bank, the International Monetary Fund and other international institutions and its banks have a chokehold on the world financial economy.

The basis of that power is the supremacy of the U.S. dollar as the world’s medium for doing business, and the replacement of gold by U.S. Treasury bonds as a store of value.

This enables the U.S. to finance its endless wars, to shrug off trade deficits and to impose crippling sanctions on nations that defy it.  But American leaders have foolishly allowed the source of its financial power, its strength as a manufacturing and exporting country, to fade away.

Russia’s invasion of Ukraine was an attack on the U.S.-dominated NATO alliance. Its aim is to keep Ukraine out of NATO, to bar nuclear missile systems from Poland and Rumania and to roll back western NATO troops to their 1997 positions.

The U.S. aim is to get Russia bogged down in a long quagmire war, while meanwhile trying to wreck the Russian economy through economic sanctions—that is, seizing Russian financial assets held in the U.S. allied countries, cutting Russia off from the dollar-based world financial system and blocking Russian imports and exports as much as possible.

With the aid of China, Russia is finding ways to engage in world trade using the ruble and other non-dollar currencies, thus helping to undermine U.S. financial power.  

Then again, with sanctions, the U.S. is already undermining itself.  It is teaching nations they need to figure out how to survive economically without ties to the United States or the dollar-based system.

This economic war is a real war.  People will suffer as a result of it.  Some die.  Some European nations depend on Russian gas.  Many nations depend on Russia for food and fertilizer exports.  Food and fuel prices are already rising as a result of the war and are expected to rise further.  

The most likely result of the conflict is a worldwide economic depression.  The worst possible result is nuclear war.  I don’t see any possible outcome that is of net benefit to the people of any of the three countries.

The search for truth in the Ukraine war

I think the world is at a major historical turning point.  China and Russia, with their allies and vassals, have begun an attack on a system of economic and military power dominated by the United States, which probably will succeed.  The Russian attack on Ukraine is a ramping up to that larger conflict.

That is why I am so obsessively focused on the war in Ukraine.  Trying to understand the conflict allows me to overcome my feeling of helplessness in the face of the coming catastrophe.

This video interview of Scott Ritter from last Wednesday is a good summary of the situation in Ukraine, which is different from the propaganda version in most U.S. newspapers and broadcast networks.  The meat of the interview begins at the seven-minute mark.  You don’t have to watch the whole thing to get something out of it.  

I think that Scott Ritter, Michael Hudson and the Naked Capitalism bloggers have the best handle on what’s going on.  Both Ritter and Hudson are giving video interviews to virtually anybody who will talk to them, and these interviews should be easy to find.  

Of course what they (and I) say is based on uncertain and incomplete knowledge.  The verdict of history may be different from what I (or you) think now.  But time spent trying to learn and understand is not time wasted.

LINKS

Russia’s invasion of Ukraine in Perspective by Scott Ritter for Energy Intelligence.

The American Empire Self-Destructs by Michael Hudson.

How the U.S. turned being in debt into power

SUPER IMPERIALISM: The Economic Strategy of American Empire by Michael Hudson (1972, 2003, 2021)

You’ve shown how the United States has run rings around Britain and every other empire-building nation in history.  We’ve pulled off the greatest rip-off ever achieved.  [==Herman Kahn to the author, in 1972]

The USA as a nation  consumes more than it produces, borrows more than it saves and imports more than it exports.

All the supposed laws of economics say that we should be bankrupt.  But instead we are the world’s dominant economic power.

Michael Hudson’s Super-Imperialism, written 50 years ago, explained how this came to be.  Almost everything he described is still in place today.

U.S. Treasury bonds have replaced gold as the world’s store of value.  The bonds don’t have to be repaid because they are treated as valuable in themselves.

Americans buy oil from Saudi Arabia or electronics from China, and pay for them with dollars.  The only thing of value these dollars represent is Treasury bonds.  So the dollars come back to the United States in the form of Treasury bond purchases, which makes it possible to sustain the twin deficits—the U.S. government budget deficit, and the trade deficit.

It is as if I could go to the grocery store or hardware store, pay for my purchases with IOUs and get the world to use the IOUs as if they were money without ever paying the IOUs off.

So as long as the world is willing to use the U.S. dollar as its basic currency, there is no upper limit on the United States ability to issue money to pay for its wars or bail out its failed businesses.

This has gone on for 50 years, and counting.  It stands to reason that it can’t go on forever.

∞∞∞ 

Hudson’s book is in three parts.

The first part, covering 1917 to 1946, shows how the United States used its position as the world’s leading creditor nation to undermine its economic rivals, especially the British Empire.

The middle part shows how the United States set up the World Bank, the International Monetary Fund and other international economic institutions so as to lock in its dominance of the world financial structure..

The last part shows how the United States went from world’s leading creditor to world’s leading debtor, but in a kind of economic jiu-jitsu, leveraged its debtor status to maintain its economic supremacy.

There are brief epilogues bringing the story up to date, and an introduction that summarizes the main points of the book.  If you just read the introduction, you’ll understand the gist of the book.

Oligarchs, sanctions and money laundering

As part of the undeclared war with Russia, Prime Minister Boris Johnson has frozen the assets of Roman Abramovich, owner of the famous Chelsea Football Club, and six other wealthy Russians who thought their wealth would be secure in the United Kingdom.

Britain has long been a safe haven for dirty money, and not just Russian dirty money.  That’s because, on the one hand, the origin of money can be concealed through shell companies and offshore tax havens, and, on the other, they feel their money is safe.    

Real estate prices in London, and also in New York, Miami and other cities, are being bid up by foreign oligarchs.  This is of great benefit to bankers and real estate investors, but not necessarily to the general public.  So Johnson’s action is a good thing—right?

Economic sanctions have almost never achieved their goals.

The League of Nations, created after World War One, hoped to stop military aggression by sanctioning aggressors.  This failed in its first test, the invasion of Ethiopia by Italy in 1935.  The United States, more than any other country, has used economic sanctions as a weapon.  But decades of economic sanctions did not bring about regime change in Iran or Cuba and probably will not change Venezuela.

The result of Johnson’s actions will likely drive other Russian oligarchs to take their wealth back to Russia, which would be to the benefit of Putin’s government.

Arbitrary economic sanctions against individuals are contrary to the rule of law.

Tax havens are a serious problem.  But if a chief of state, based on his own personal judgment, confiscates the wealth of a few individuals or blocks their access to their wealth, he does not solve the problem of tax havens.  He merely makes his own country a more risky place to invest.

The Bill of Rights to the U.S. Constitution says nobody should be deprived of “life, liberty or property” without due process of law.  Nobody should have their wealth seized unless it can be proven in a court of law that they have violated some pre-existing law or regulation.

Impartial laws and regulations are needed.

We need laws that prevent oligarchs, dictators and crime lords from hiding their wealth and the sources of their wealth.  We need for these laws to be enforced without fear or favor.  Nobody should be above the law and nobody should be below the law’s protection.

Fun fact: Among those who have hidden their wealth in offshore tax havens are Vladimir Putin (through cronies) and Volodymyr Zelensky.

LINKS

Revealed: the $2bn offshore trail that leads to Vladimir Putin by Luke Harding for The Guardian.  [4/3/2016]

Pandora Papers: Russia dismisses leaks implicating Putin by Al Jazeera. [10/4/2021]

Pandora Papers: Ukraine leader seeks to justify offshore accounts by Al Jazeera. [10/4/2021]

Boris Johnson claims the UK is rooting out dirty Russian money | That’s ridiculous by Oliver Bullough for The Guardian.  [2/25/2022]

The oligarch’s guide to getting around the UK’s economic crime bill by Oliver Bullough for The Guardian. [3/9/2022]

Roman Abramovich Sanctioned by U.K. Govt., Assets Frozen by Alex Ritman for The Hollywood Reporter. [3/10/2022]

UK freezes assets of Abramovich, six other Russian oligarchs by Al Jazeera. [3/10/2022]

The American sanctions on Russia’s economy, explained by Ben Walsh for Vox. [3/9/2022]  What sanctions supposedly will do.

How the West undermines its own sanctions by Casey Michel for The Atlantic.  [3/9/2022]. It’s complicated.

Business monopolies push prices upward

Matt Stoller reports that 60 percent of recent U.S. price increases are caused by businesses exercising monopoly power.  He says the recent surge in inflation cost $2,126 per American.

What can be done about it?  Stoller says:

1. Strengthen laws against price-fixing.
2. Impose an excess profits tax.
3. Strengthen anti-trust laws against business concentration in general.
4. Revive laws against price discrimination against small businesses.

LINK

Corporate Profits Drive 60% of Inflation Increases by Matt Stoller for BIG.

The economic consequences of the pandemic

SHUTDOWN: How Covid Shook the World’s Economy by Adam Tooze (2021)

Adam Tooze is possibly the world’s foremost economic historian.  He wrote thick, comprehensive books on the Nazi economy (Wages of Destruction), the war debts crisis of the 1920s (The Deluge) and the 2008 financial crisis (Crashed!).  

His strengths are his international perspective (he is a British subject, educated in Germany who now teaches at Columbia University) and his deep understanding of high finance and how it affects society, politics and the overall economy.

Shutdown is not like his other books. It’s slim, and it is being published while the pandemic is still going on, not from the perspective of history.  This is because he thinks his message is too urgent to wait.

What is his message?

It is that we the public are on the brink of a new era, an era when our worst crises will not be the result of tyranny, corruption and human folly, but blowbacks from our natural environment.

And we are woefully unprepared for this. The coronavirus pandemic had taken 3.2 million lives, including half a million American dead, as of April, when Tooze completed his book.  The number is up to 4.5 million now.

The pandemic resulted in tens of trillions of dollars in economic loss. Yet only tens of billions has been spent on vaccine development, and much less than that on getting the vaccine to the public.

COVID-19 was not a black swan, a completely unpredictable event. It was a grey rhino, an event that many predicted, but were ignored. The climate crisis has bred other grey rhinos—devastating fires, floods, droughts and superstorms.

Tooze wrote that the reason we are unprepared is that the neoliberal policies of the past 50 years have stripped the governments of the USA, UK and much of the Western world of the capacity to respond to emergencies.

The neoliberal philosophy is that, in order to maximize efficiency, institutions should spend no more than they absolutely need in order to function. This means that there is no reserve capacity in case of emergencies, and hospital emergency rooms in the USA are overflowing with Covid patients.

What’s needed, he wrote, is something like the Green New Deal supported by Bernie Sanders, Alexandria Ocasio-Cortez and others.  Governments must spend whatever is necessary to be prepared for the predictable crises that lie ahead, and do it in a way that creates full employment and puts money in the pockets of working people.

The International Monetary Fund has estimated that a successful global vaccination program would add $7 trillion annually to the world economy by 2014.  Tooze said others estimate that such a vaccination program would cost $50 billion to $100 billion. Yet governments of rich countries, which have spent trillions of dollars on economic stimulus programs, say this is unaffordable.

Tooze quoted the great economist John Maynard Keynes: “Anything we can actually do, we can afford.”  

That is, if the human and physical resources to accomplish a goal exist, and the political will to accomplish the goal exists, the problem of finance can be solved.  People generally understand this in wartime.  Why not in peacetime?

Matt Taibbi warns of the next financial crash

In this interview, Matt Taibbi pointed out that all the signals that warned of the 2008 financial crash are flashing red today.

A financialized economy based on borrowing.  Check.  Financial manipulation out of control.  Check.  “Too big to fail” institutions.  Check.

The response of the federal government to the 2008 financial crash was to bail out the Wall Street companies whose recklessness and fraud created the problem in the first place.

The excuse was that these financial institutions were so vital to the U.S. economy that their failure would bring down the rest of the U.S. economy.  But the bailout gave the speculators assurance that they need not fear either bankruptcy or prison.

Any company that is too big to fail or too complicated to regulate is too big and complicated to be allowed to exist.  The big Wall Street companies should be broken up so that the failure of any one of them will not jeopardize the economy. 

Instead they have been allowed to grow even bigger by mergers. The huge profits they make draws capital away from manufacturing and the rest of the real economy.  Taibbi summed up the situation very well.

He pointed out that the Federal Reserve System is conducting a more-or-less continuing bailout, pumping money into the economy by buying up assets every time the financial markets falter.

This means that, when the day of reckoning comes, it will be so big that bailouts will be impossible.

China pioneers digital currency

The case for economic nationalism

Political scientist Thomas Ferguson often points out that the United States, unlike other rich nations, has never had a labor party—a political party dedicated to the cause of organized labor.

Instead, Ferguson says, the conflict of political parties in the USA is a conflict of business interests—protectionism vs. free trade, tight money vs. low interest rates, public works vs. low taxes and so on.

That’s not to say that wage earners have no stake in the outcome of elections. Some business interests are more favorable, or less unfavorable, to working people than others.

It is just that no political party or political faction gets far without the backing of some business interest. Labor unions reached the height of their political power during the New Deal, but even in that era, they were only one seat at the table along with others, such as the oil industry (then aligned with Democrats), the real estate industry and so on.

Bernie Sanders tried and failed to make the Democratic Party into a labor party. Now Republicans such as Tom Cotton, Josh Hawley and Marco Rubio hope to win the allegiance of working people through a political program called “national conservatism.”

It is basically the program of Alexander Hamilton, Henry Clay and William McKinley.  If you squint your eyes, it also includes much that Donald Trump talked about doing.

The idea is to concentrate on rebuilding American industry, which of course would be good for manufacturers and investors but also for working people, and not just factory workers.

The elements of such a program would include:

1. Public-private partnerships to improve technology and productivity.
2. Use of tariffs to protect key American industries, but also maintain access to key raw materials.
3. Rejection of trade treaties or international institutions that limit national economic sovereignty
4. A strong focus on competing with China.
5. A massive public infrastructure program to rebuild and maintain roads, bridges, harbors, airports, railroads, dams and levees, the electrical grid and water and sewerage systems
6. Investment in scientific research.
7. An end to regime change wars and reduction in military spending.
8. An end to weaponized economic sanctions
9. Control of unauthorized immigration.
10. Support for public education, with an emphasis on vocational training and STEM – science, technology, engineering and mathematics.
11. Tax credits as an alternative to welfare programs.

What is left out?  Stronger labor unions.  A inflation-adjusted minimum living wage.  Reductions in energy use and consumption to fight climate change.

Politically, this is a more feasible program than the Green New Deal.  It probably would be better than what we have now.

In particular, I think anyone who believes in democratic governance has to be a nationalist to some extent, because, at the present moment in history, national governments are the highest level of institutions over which voters have any influence.

I think the world needs more, rather than less, international cooperation, but that’s different from having the world run by the World Trade Organization, International Monetary Fund and global corporations.

Would economic nationalism solve our problems?  No, not by a long shot.  But it could be a step in the right direction. 

LINKS

Rebooting the American System on American Compass, a symposium including essays by Marco Rubio and Tom Cotton.

The Bully Platform , a review of Josh Hawley’s biography of Theodore Roosevelt for American Compass.