Updates on the economic war…

• 13-May-22
• admin

Image by JL G from Pixabay 

 

Many weeks ago, when the economic war was launched by the West on Russia in retaliation for attacking Ukraine, I wrote then that the sanctions would not work.   The sanctions were for the purpose of crippling Russia financially, and hence stop the “special military action” in the Ukraine.  

 

Now we are eight weeks into the sanctions.   The war has not stopped.  It is being fuelled by additional military equipment sent by the same countries who imposed the sanctions, as well as of a Russia relatively unscathed by both the stubborn Ukrainian resistance, credible though this has been, and more importantly, by their improved finances that came about as a result of the sanctions.  The sanctions have not only failed miserably, but have even made things worse.   Amazing, isn’t it?  

 

If there is a bunch of idiots creating policies that hurt themselves, it ain’t on the Russian side…everything the West is doing on the economic front not only does not end the war, it is so futile that they are now forced to launch a sixth, yes, sixth, round of sanctions… 

 

Look, if rounds 1 to 5 did not work, would new ones, minor compared to earlier one, do any better?   I should think not.

 

If they are just futile, it wouldn’t be quite so bad.   Worse still, these ineffective sanctions have turned around and bit the people who launched them on the rear end.   Not good at all.

 

I mean, where do these European “leaders” come from???   No common sense, just a strident ability to stir up the emotions of their constituents to condemn Russians for something they started in the first place.

 

And then there are the Americans…   The narratives they are spinning are all too familiar.   We have heard them all before - in Vietnam, Iraq, Afghanistan and everywhere else.   Don’t these guys ever learn how to tell the truth?   

 

For example, in Vietnam, the story was that they were beating the NVA and the Vietcong on the battlefield, by morbidly showing off that the US army had a higher “body count” than the other side.   It took a Tet offensive in 1968 for American politicians to understand that they cannot win.   Vietnamization and the much-vaunted ability of the S Vietnamese to defend themselves became the new propaganda.   The war ended badly for America.   The same happened again in the even longer Afghan war.    In Iraq, a brilliant victory in Desert Storm still led to 20 years of a quagmire and a million Iraqi casualties plus a few more American deaths.  All for a small bottle of washing powder. 

 

In today’s Ukraine, the propaganda is the same.   The Russians are losing.   

 

But is that the truth?  

 

There is increasing evidence that this is not the case.  The clamorous Ukrainian propaganda has been undermined by their own confession that the Ghost of Kviv story (heroic fighter pilot downing 6 planes on Day 1 of the war and then 22 more later) is a complete fabrication.  

Or that 12 Russian generals have been killed; that’s been denied by the Pentagon while the

Russians themselves admitted to two.  Or that the Russian Head of Armed Forces, Valery Gerasimov, has been wounded by an Ukrainian missile attack while touring the front, only to be disproved by the man appearing at a press conference in Moscow a day later.   Even the story of the pregnant woman said to be killed by Russian artillery in Kyiv was denied by the woman herself.    And contrary to Ukrainian claims of 15,000 Russians KIA, the BBC in an exhaustive study found only 2000, close to what the Russian Ministry of Defence reported. 

 

If high profile stories like those above have been faked, we can imagine that whatever else has been said about Ukrainian successes on the battlefield may not be real.   Considered a successful media campaign in the early days of the conflict, the propaganda is beginning to look like pure BS.

 

The more the Ukrainians, including Zellensky, are shrieking at the top of their voices that they are winning, the lack of such evidence indicates that they are losing badly.   

 

If we then look at what the Russians are saying, which is rather subdued, and compare that against the Ukrainian and Western narratives, the overall situation seems somewhat clearer.  

 

Even if one takes only a fraction of the Russian statistics of damage to the Ukrainians as coldly accurate (given that there is also propaganda there), it would appear that the demilitarization of Ukraine has been largely achieved.   And the cavalry from the west that Zellensky is counting on to revive his fortunes, consisting of large weapons (mostly obsolete) and small arms (not enough of them), would have a huge problem making the 1000 km journey across open ground to the eastern front in Donbas, when they have no railways (key junctions and bridges blown to pieces), and no control of the air.  

The small arms will probably make it, but these will face devastating Russian artillery and will be rendered ineffective in combat.  Worse of all, the experienced manpower in the Ukrainian military, now largely wiped out, cannot be replaced if there are no western boots on the ground (some of those mercenary boots ran back home after a few days of Russian artillery onslaught).  

 

There is also a massive problem with the staggering corruption in Ukraine.   It is anybody’s guess how many Western weapons will make it to the Eastern front, instead of being sold to gun-runners for exorbitant amounts of money.    It is interesting to note the following:

 

“Rep. Mike Gallagher, a Republican from Wisconsin, has claimed that the US’ rush to arm Ukraine has “burned through” years worth of weapons stockpiles, hampering Washington’s ability to simultaneously arm Taiwan against potential conflict with China. Meanwhile, the US’ vast military industry is lobbying the White House for more contracts.

 

“We are running low in terms of our stockpiles,” Gallagher, who sits on the House Armed Services

Committee, told Fox News on Friday. “We just burned through seven years of Javelins and that’s not only important as we continue to try and help the Ukrainians win in Ukraine, that's important as we try to simultaneously defend Taiwan from aggression from the Chinese Communist Party.”

“They are going to need access to some of these same weapons systems, and we simply don’t have the stockpiles at present in order to backfill what we’ve spent in Ukraine,” he continued.

 

The Biden administration has thus far given Kiev almost $4 billion in military aid, and President Joe Biden is currently pressing Congress to pass his $33 billion Ukraine aid package, $20 billion of which would fund weapons and other military support for Kiev. Additionally, he is expected to sign the Lend-Lease Act of 2022 on Monday, reviving a piece of World War II-era legislation to allow the US to export unlimited quantities of weapons to Ukraine.

The Javelins referenced by Gallagher are shoulder-fired anti-tank missiles, and the US has already sent more than 5,000 of these to Ukraine. While the Pentagon does not publish exactly how many of which weapons it has in stock, an analyst at the weapons industry-funded Center for Strategic and

International Studies told PBS last month that this represents about a third of the US’ stockpile. The analyst added that around a quarter of the US’ stockpile of Stinger anti-air missiles have also been gifted to Ukraine.

Prior to Gallagher’s warning, Reps. Adam Smith (D-Washington) and Mike Rogers (R-Alabama), also of the House Armed Services Committee, wrote to Joint Chiefs of Staff Chairman Mark Milley to order the replenishment of these short-range missile stocks and invest in modernized replacements.

 

Weapons manufacturers are also awaiting contracts from the Pentagon to step up production. These firms - who have already seen their stock prices rise by up to 60% since Russia launched its offensive in Ukraine in February - told the Wall Street Journal last month that they need more money to guarantee against shortages.

 

“All of this points to the need to think of the defense industrial base as a capability in and of itself in which we need to invest,” Eric Fanning, president of the Aerospace Industries Association, told the newspaper. “We need to be investing in it in a sustained way so it’s there when we need it to surge.” In a congressional hearing in late April, David Berteau of the Professional Services Council, a trade association representing government contractors, called on lawmakers to “push” the Pentagon into increasing production, the paper noted.

 

Amid the Biden administration’s unprecedented effort to arm Ukraine, it remains unclear how many American weapons shipments actually end up in Ukrainian hands. Russia has declared supply convoys “legitimate targets” and has destroyed several warehouses of western weapons. However, a US intelligence source recently told CNN that Washington has “almost zero” idea where its weapons end up, describing the shipments as dropping “into a big black hole.”

 

Seventy days of war, and they have used up seven years of Javelins, and there has been no visible effect in stopping the Russian army dead in its tracks…like I said in a previous blog, some of those must have missed targets, some destroyed in transit and some will appear in future terrorist activity.   This is pathetic policy making.

 

Even some Western media are coming to recognize that the reports of a weakening Russian military is a fairy tale.  We are beginning to see interviews of Western mercenaries or reporters about their experience in the Donbas, and the narrative that Russians are losing badly is becoming known to be fiction.   Or politicking…

 

It is certainly foolhardy to rate the Russian army as having failed.  Its tardiness on the battlefield is probably just a matter of that army taking its time to complete the task at hand, now already coming close to the end of its stated mission of Ukrainian demilitarization.

   

But there is no need for this Weekly Commentary to become a military blog.   We expect some kind of negotiated ceasefire to come into force in due course, with flareups after long periods of inaction, much like what happened during the Arab Israeli wars from 1967 – 1973 and with the Israeli-Hizbollah conflict to this day.     Russia would keep its captured territory in East and South Ukraine, with occasional outbreak of hostilities.   

 

As a matter of fact, this on-off fighting is already the case – Crimea was annexed in 2014; now Donbas, Kherson, Mariupol have been added to the Russian spoils of war as well.   I don’t see how Zellensky can reverse it, or how that can be considered a defeat for Russia.   NATO eastward expansion has literally resulted in the opposite outcome – a permanent Russian westward incursion into Ukraine.  

 

Forget about the massive tank battles depicted by General Mark Milley, head honcho in the US military.   The Ukrainians do not have much of an army left.   It is being decimated by a punishing Russian artillery offensive, which keeps Russian casualties down to a low number while it destroys the Ukrainian forces ordered to hold territory under an infamously asinine Hitlerian strategy of “No surrender, fight to the last man”.   It will be a grinding, long drawnout conflict that is making mince-meat of the flower of Ukrainian youth.  That is a horrific tragedy.

 

And in case you think I am speculating on the above outcomes, here is article from an American publication, Politico: 

“Heavy weaponry pours into Ukraine as commanders become more desperate

Russian forces are attempting a pincer movement on Ukrainian forces in the Donbas. Will Western artillery, tanks and drones get there in time?  

 

By CHRISTOPHER MILLER and PAUL MCLEARY

04/25/2022 

 

Western countries are rushing heavy weaponry to Ukraine as the war enters what promises to be a deadly, and potentially protracted, new phase.

Those deliveries are coming amid increasingly desperate pleas from Ukrainian battlefield commanders as they endure withering Russian artillery and rocket fire that could last weeks or months.

Over the past two weeks, the Biden administration began shipping out $1.2 billion worth of howitzers, around 200,000 artillery rounds, armored vehicles, counter-battery radars and experimental new armed drones capable of flying into targets. The deliveries are a significant advance from the small arms and Javelin anti-tank armor shipments that dominated the first eight weeks of fighting, and which helped stave off Russian thrusts toward the capital of Kyiv in the early days of the invasion.

On Friday, France and Canada unveiled new plans to send long-range artillery systems for the first time, and the U.K. is looking to backfill heavy armor to Poland as Warsaw contemplates sending Polish tanks to Ukraine.

On Sunday, during a surprise trip to Kyiv by Secretary of State Antony Blinken and Defense Secretary

Lloyd Austin, the U.S. announced more than $300 million in foreign military financing to allow Ukraine to purchase more sophisticated weapons, along with an additional $165 million for ammunition.

The rapid shift in aid reflects the recognition that the new fight will likely be dominated by artillery barrages and tank battles as infantry units square off over the flat fields of eastern Ukraine. But getting these new weapons to the front quickly will prove critical in the coming days.

As the war changes its character, a wave of Russian steel has been taking aim at Ukrainian units holding the line north of the besieged city of Mariupol, where a few hundred troops continue to make a last desperate stand on the grounds of the Azovstal steel plant.

Eighty miles north of the city, First Lt. Ivan Skuratovsky, serving in the 25th Airborne Brigade, told POLITICO that help needs to come immediately.

“The situation is very bad, [Russian forces] are using scorched- earth tactics,” the 31-year-old married father of two said via text. “They simply destroy everything with artillery, shelling day and night,” he said via text.

He fears that if reinforcements in the form of manpower and heavy weaponry — particularly air support — don’t arrive in the next few days, his troops could find themselves in the same position as those in Mariupol.

Skuratovsky described his soldiers’ situation as “very desperate.”

“I don’t know how much strength we will have,” he said, adding that the troops under his command around the city of Avdiivka, near Donetsk, have gone without rest since the start of the war. At least 13 of them have been wounded in recent weeks, he said, and they are running dangerously low on ammunition, reduced to rationing bullets.

The day before, he told POLITICO his soldiers were being bombarded with Russian howitzers, mortars and multiple-launch rocket systems “at the same time.” Just hours earlier, he said, they had been attacked by two Su-25 warplanes, “and our day became hell.” 

Skuratovsky had a message for the United States and other NATO countries: “I would like to tell them that grenade launchers are good, but against airstrikes and heavy artillery we will not be able to hold out for long. People can no longer endure daily bombardments. We need air support now. We need drones.”

Caught in a pincer

The lieutenant’s pleas match those of President Volodymyr Zelenskyy, who has for weeks demanded that Western countries step up their support as this new phase of the Russian war gets underway. The calls come as the Kremlin struggles to switch tactics from small unit attacks in the north in favor of devastating artillery barrages aimed at flattening towns and Ukrainian positions, unconcerned with — or perhaps purposefully looking for — civilian casualties.

The message is getting through to Western leaders, albeit slowly.

Ukrainian officials have been calling for heavy weapons and jet fighters since the Feb. 24 Russian invasion, but the Kremlin’s decision to pull its troops from around the capital of Kyiv and make one concerted push in the east and south has clearly caught the attention of Western powers.

Artillery has been a critical piece in the Ukrainian resistance thus far in the war, and volunteer units have effectively used commercial and homemade drones to spot Russian positions and walk in accurate artillery strikes on armored columns.

Along with the howitzers and armored vehicles, the U.S. is also sending a new capability. The new package includes 121 Phoenix Ghost drones that can fly for six hours, including at night, spotting Russian positions before being flown into a target where an embedded warhead will detonate. The drones have only been developed and built over the past several months, and the Ukrainian troops about to fly them will be the first ever to put them to use on the battlefield.

“Loitering munitions can be a significant advantage though, and the Ukrainians have proven themselves to be pretty adaptable and creative. They could make a real difference,” Rob Lee, a military analyst and a senior fellow in the Foreign Policy Research Institute’s Eurasia Program, told POLITICO.

Skuratovsky said his soldiers, who have just one quadcopter drone at their position that can be rigged to drop a small grenade, would benefit greatly from receiving the Ghost drones, which would allow them to strike Russian artillery targeting them.

On Friday, France announced it was supplying several Caesar self-propelled howitzers to Ukraine and is now training 40 Ukrainian soldiers in France on how to use the powerful guns mounted on the back of a six-wheeled truck.

The Caesar, which the French have used in Afghanistan and have sold to NATO allies, has a range of

24 to 34 miles, giving Ukrainian forces the ability to lob accurate fire at significant distances. “We stand with the Ukrainian people,” the French defense ministry said in a statement on Friday.

British Prime Minister Boris Johnson also suggested Friday that his government is considering a deal that would send British tanks to Poland, if Warsaw decides to send some of its Soviet-era T-72 tanks to Ukraine. Poland would be following the lead of the Czech Republic, which recently supplied some of its own T-72s, which the Ukrainians know how to operate.

The Kremlin has repeatedly threatened to hit the convoys of trucks coming across the Polish border full of weapons, which now include — or are about to include — much larger cargo loads, including cannons, large armored vehicles, and spare parts for Ukrainian MiG fighter planes. Western officials have long been cagey about these shipments, but so far the deliveries have arrived intact, allowing Kyiv to resupply troops along the line of contact.

A senior U.S. Defense Department official estimated this week that “the Ukrainians have more tanks in Ukraine than the Russians do,” given the huge losses Russian armor have taken as a result of Ukrainian artillery and shoulder-fired anti-armor attacks.

The Mariupol resistance

That aid will be welcome, but it may be too late for the Ukrainian troops who have fought for weeks in brutal house-to-house combat in Mariupol, where 11 Russian battalion tactical groups — units of several hundred soldiers backed by tanks, rocket artillery and armed infantry vehicles — have been tied down cornering a fierce resistance.

Maj. Serhiy Volyna, commander of the Ukrainian forces in Mariupol, huddled inside the besieged steel plant, delivered a blunt video message last week about the prospects for his men. Speaking directly into the camera, he delivered a desperate plea for heavy weapons from the West to keep the strategic city from falling to Russia.

“Enemy forces are 10 times bigger than ours,” Volyna said in a video he shared with POLITICO and other media and later posted to his Facebook page. “We are probably facing our last days, if not hours.”

 

Volyna and his troops of the 36th Separate Marine Brigade have endured two months of fighting and are now stuck inside the underground tunnels and bunkers of the sprawling plant with hundreds of wounded fighters and more than 1,000 desperate civilians. He said if weapons don’t come, then an emergency airlift will be necessary to keep those people from being killed.

“Take us to the territory of a third country,” he pleaded to Western nations. On Thursday, Ukrainian efforts to get Russia to open a “green corridor” and allow the encircled troops and civilians to escape safely fell apart. And Russian President Vladimir Putin told his defense minister, Sergei

Shoigu, to blockade the Azovstal plant “so that even a fly can’t get out.”

Keeping that much infantry and armor locked in place inside the city has slowed Russian Gen. Aleksandr Dvornikov’s planned advance in the east. But with the Kremlin now declaring the Mariupol fight a victory, those troops will likely be redirected to push on Ukrainian positions holding the line west and north of the city.

 

If you believe Zellensky that the Mariupol defence is still ongoing, it’s time to understand what the word “entrapped” means.  Biden too has to be informed that the 2000 survivors there are no longer in the fight, something he was foolhardy to claim when the Azovstal factory was first surrounded many days ago.  There is no difference with a situation in which these Azov extreme-right fanatics are captured and imprisoned in a dungeon.

 

As it turns out, the citizens have been rescued from that dungeon.   How it ends is obvious.

 

Let’s go back to what is more interesting – the Economic War.

 

Firstly, this Economic WW3 has become a war of attrition.  What does that mean?   Well, it is not going to be over in a short time, and as these economic offensive measures from both sides take hold, the populations of Russia and NATO/EU will suffer terribly.  But more likely the EU citizens will have it worse. 

 

Let’s analyse where the economic sanctions went wrong.

 

1.   We have said many times in this blog that the Western sanctions on Russia would not work.   We based that assessment on simple economic logic.   That logic was that Russia is a very large country, self sufficient in critical resources like energy, food, fertilizers and metals.  It does not need international trade to survive or prosper.   And its resources enjoy an inelastic demand from the rest of the world.   In the context of the sanctions war, Europe needs Russia far more than the other way round.  The actual events have proven logical assessment to be entirely correct.

 

2.   Sanctions would of course not be effective, if the European Union leaders, for reasons relating to the impossibility of ending Russian energy imports, are talking far more than then they are doing.  Right up to today, with the military conflict coming to a close soon, nobody has actually stopped buying Russian oil and gas, including the US, which is loudly leading the effort.   And perhaps this outcome was even intended – the leaders of the countries have to talk like they are serious about sanctioning Russia, just to look good, but were actually hoping that the war would end before they need to carry out their very painful promises to end Russian imports.  Boris Johnson is one such fellow.

 

3.   The financial sanctions were also half-hearted.   We also said in this blog that since the “de-Swifting” of Russian banks was restricted to just 30 percent of them, how can that possibly be effective?  “De-Swifting” is nothing more than a soundbite for TV.

 

4.   The economic sanctions that were said to have united “the world” against Russia is yet another soundbite.   It was actually just about 50 countries out of 200 in the UN, all West-leaning and nobody else, which represents only 17 percent of the world’s population.  In other words, it is only the minority of the planet, rather than the boastful claim that it was the entire world.   This leaves the majority of the world to whom the Russians can sell their commodities.   Can that possibly hurt Russia?

 

5.   That America can provide an alternative to Russia energy is just an empty boast.   Physically, it cannot happen in a short time due to the non-existence of such infrastructure, including tanker ships and terminals.   Even if and when such infrastructure is built, it will be years down the road, and will deliver product at ten times the cost of Russian energy.   No European country can survive the interim or the eventual industrial collapse.

 

6.   The sanctions are happening in an ever-changing geopolitical situation outside of Europe.   China and Russia have a limitless relationship; India is admirably faithful to a friendship that has lasted since the 1950s; and importantly, the Middle East have no interest in helping America when in better times, the latter have undermined Arab interests by promoting green energy everywhere, as well as competing directly with OPEC using their new found shale oil.   As far as OPEC is concerned, why do they care about hyperinflation in the West?   They would prefer to make hay while the sun shines, creaming as much money from higher energy prices as quickly as they can.   The American thought that OPEC is beholden to them for defence has been found to be hopelessly outdated. 

 

Without this central bloc (Russia-China-India-ME) on the Eurasia mainland, there is no way the EU, on the western end of this huge geographical landmass can hope to find energy independence or disrupt Russia’s exports to the rest of the world.

 

 

1. The lesson in the economic war is that what politicians say is not the same as what politicians do.  What else is new?

 

Unlike on the military side, where there is a huge fog of war, clouding who is actually winning or losing, the financial war has a referee which offers transparency on the outcomes.   This referee is the global financial markets.   

 

The ruble has appreciated – yes, appreciated - against all currencies, including the USD which has itself appreciated strongly against all major currencies in the world, from levels before the war.  Against the European currencies (Euro, Sterling, and Swiss franc), the ruble is now sharply higher, and this has upset all the plans of Russia’s antagonists.   If the ruble had collapsed as intended and as boasted by Biden in early March, the sanctions might have worked and the imperilled Russian economy might have been forced to limit its war in Ukraine.   

 

Instead, the following happened… The high-flying ruble has become the strongest currency in the world.   It has been “sanctioned” into becoming a solid commodity currency, backed by grain and energy.  NATO inadvertently gave that status to Russia.   And I would wager the Putin, the old fox, will deploy that into a winning situation in no time at all.

 

Now that the ruble has gone the other way, are we to conclude that the opposite effect of the intended economic sanctions would happen?   That Russia now has more resources to pursue its war aims?

 

The economic war is also occurring at a bad time for the West, in the midst of a dismal economic environment.   

 

Inflation was already raging due to the recovery of the global economy from the Covid crisis with supply chains disrupted by the lockdowns.   Energy was on its way up, with crude prices surging to just about US$90 per barrel in early Feb 2022.   With the outbreak of war on 24 Feb, crude jumped to US$120 on initial panic buying in the markets.  Even today, after the repeated attempts of the US government to ease supply problems, the price is stabilising at about US$110.    

 

The winter is over.  That’s the good news for the time being.   Gas demand is less than when the war started, but when the winter returns in a few months, and the sanctions are still in place, or when Russia retaliates like it has with Poland and Bulgaria – cut off their gas supplies - there will be riots on European streets.    Empty talk by European politicians must yield to actual action, and that has to be in the direction of continued trade with the hated Russians.  Do they have any choice? 

 

The problem for the EU is that when winter returns, and when a much-vaunted Ukrainian summer campaign cannot drive out the Russians (as promised by Zellensky) or when the Ukrainian army is completely destroyed, then the economic war will flip from a European offensive on Russia to becoming a Russian counterattack.   If everybody still talks big and refuses to pay for gas with roubles, the EU will likely break up.   Those who are willing to abide by Russian terms for continued gas supply will tend to do things which go against those who wish to stick to their guns and show a middle finger to Russia.   

 

The unwieldly European Union, now a mish-mash of states at different levels of economic development, will likely head towards disintegration with each country pursuing survival on its own terms.   

 

The breakup of the Union will come when different states understand (politicians seem to have no idea what’s going to hit them soon) they face a vicious spiral when energy prices keep going higher, which in turn drives the ruble still higher, and that will send Euro costing to stratospheric levels.  Together, the energy price spiral upwards and the Euro spiral downwards will compel the most energy dependent members into a path of reconciliation with Russia.   There is no other choice.   And then only if the Russians agree.   Ten of the EU states are already agreeing to pay roubles for gas, but only one has the guts to say so.  By winter, all will fall in line.

 

Or else, they will end up like France, having to depend on nuclear power.  How many EU states can do that in a short time?   I wish no harm to come to my European friends, but frankly, if they don’t understand the above situation, the good times will come to an end soon enough.  Industrial implosion and widespread joblessness will be the outcome.   Politicians who are bombastic with “Stand with Ukraine” slogans will fall by the wayside.  

  

All this for what?  Pushing an ill-considered NATO eastward expansion policy against a country they depend on without really understanding basic economics?   How sadly idiotic… 

 

And all that would be unexpected developments in a war over a country nobody could find on a map just three months ago.

 

And for the inane journalists and politicians who make the claim the Russian has lost badly in its action against NATO eastward expansion because NATO has now been enlarged by Sweden and Finland joining, they have completely lost sight of the possibility that the more important organization, the EU, will crack up when energy dependent members break away (by defying Brussels) to ensure their own survival.  

 

Is there any hope for the EU and the Euro?   Not if the current “leaders” remain.  Political turmoil will engulf the European continent.

 

Over on the other side of the Atlantic, the US Fed Reserve has just raised interest rates by ½ percent, the most in 22 years.   The bond market is continuing to collapse.   The bellwether 10 year bond is now about 3 percent, which means that every year, the interest on the US National Debt is at least US$1 trillion dollars.    This is very bad news.   

 

If not for the fact that the USD is the global reserve currency, America would be regarded as a banana republic.   And it is actually moving itself more towards that situation with its financial sanctions on individual Russians as well as the theft of 300 billion Euros of Russian central bank assets.   The American financial authorities, like Yellen and Powell, are not happy with the economic sanctions levied by NATO/EU politicians because they know the consequences as this writer does in advance, and the politicians catastrophically don’t.   

 

But the financiers have not been able to have their views heard by the Biden White House.  The politicians are totally clueless.   Insanely so.   But in time, the recent actions by the Americans will have an impact on central banks, sovereign wealth funds and billionaires everywhere.    They will seek out alternatives and quit holding dollars.   De-dollarization.

 

And inflation is unlikely to be over any time soon since oil prices are still rising.  Over the last six months, this ETF has gone up by 35%.   

 

This will be reflected in the cost of living of ordinary Americans, even if the government has cleverly, surreptitiously removed food and fuel costs from the Consumer Price Index.  Nobody trusts those numbers anymore.   Joe Six-pack can feel that real inflation is not at 8-10 percent per year, but probably at 15-20 percent per year, once essential cost of living expenses are factored in.    The political impact of what’s happening in their neighbourhood grocery store or gas station will be far larger than in distant Ukraine.

 

Perhaps that is why the American media is trying to shift popular opinion to abortion issues, rather than to face the inevitable result Ukrainian military defeat or hyperinflation will have on the mid term elections in November.   

 

But time is running out for the Democrats…

 

Wai Cheong

Investment Committee

The writer has been in financial services for more than forty years. He graduated with First Class Honours in Economics and Statistics, winning a prize in 1976 for being top student for the whole university in his year. He also holds an MBA with Honors from the University of Chicago. He is a Chartered Financial Analyst.