Tag Archives: Energy

The Grim Prospects of US Proxies: Ukraine, Israel, and Taiwan

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By Brian Berletic

Source: New Eastern Outlook

As Russia’s special military operation (SMO) approaches two years of intense fighting, having parried Ukraine’s “spring counteroffensive” and with the initiative shifting to Russian forces, Western capitals are now admitting they are reaching the limits to remaining support for Kiev.

During the Ukrainian offensive alone, the Western media has admitted Ukrainian forces have suffered catastrophic losses in both manpower and material. The Ukrainian economy has all but been replaced by heavy subsidies from the United States, Europe, and the International Monetary Fund (IMF). Ukrainian infrastructure including its power grid and ports have suffered severe damage the collective West is unable to repair in a timely manner.

Ukraine’s territory has shrunk. Four oblasts, Lugansk, Donetsk, Zaporozhye, and Kherson are now considered by Moscow as part of the Russian Federation. Crimea had already joined the Russian Federation following a referendum conducted in 2014 after the US-backed overthrow of the elected Ukrainian government.

In fact, from 2014 onward, Ukraine’s sovereignty had been stripped away, with the resulting client regime installed into power by the US answering to Washington at the expense of Ukraine’s best interests. To say Ukraine’s status as a viable nation state hangs in the balance because of this arrangement would not be an understatement.

Ukraine, as a US proxy, has suffered irreversible losses economically, politically, socially, and militarily. In a wider sense, Europe is also politically captured, led by the European Union bureaucracy who, like the Ukrainian government, serves Washington’s interests entirely at the expense of Europe’s collective interests.

Germany stands out as a particularly poignant example, having ignored the destruction of the Nord Stream pipelines, imposing sanctions on Russia to restrict any remaining hydrocarbons required by Germany’s industry and public, beginning a process of recession and deindustrialization.

Europe’s wider economy is suffering from similar setbacks, setbacks that cannot be offset by alternatives such as US liquefied petroleum gas (LPG) moved by ship across the Atlantic Ocean which will always be more expensive than Russian hydrocarbons piped in directly to Europe.

The price of subordination to the United States is in reality the existential threat the US claims Russia poses to Europe in fiction.

It should be noted that the US had long-planned to use Ukraine as a proxy to overextend Russia. Laid out in a 2019 policy paper published by the US government and arms industry-funded think tank, RAND Corporation, titled, “Extending Russia: Competing from Advantageous Ground,” US policymakers would recommend providing lethal aid to Ukraine to draw Russia into the ongoing conflict between Kiev and militants in eastern Ukraine. The idea was to “increase the costs to Russia, in both blood and treasure,” as it dealt with the conflict between Kiev and eastern Ukraine along its borders.

The paper also noted, however, the strategy posed a high risk to Ukraine. Such a move, the paper warned, might:

…come at a significant cost to Ukraine and to U.S. prestige and credibility. This could produce disproportionately large Ukrainian casualties, territorial losses, and refugee flows. It might even lead Ukraine into a disadvantageous peace. 

Despite these acknowledged risks, the United States pressed ahead with the plan anyway. Today, we see that fears expressed by US policymakers proposing this strategy have been fully realized, if not entirely surpassed.

Taiwan is Next… 

As Ukraine is destroyed by a US-engineered proxy war against Russia, with members of the US Congress vowing to fight Russia to the “last Ukrainian,” a similar arrangement is being used to organize the Chinese island province of Taiwan as a heavily US-armed proxy against the rest of China.

Just as was the case with Ukraine, US policymakers acknowledge the existential threat Taiwan faces in its role as a US proxy.

The Center for Strategic and International Studies (CSIS), likewise funded by the US government and arms manufacturers, published a 2023 paper titled, “The First Battle of the Next War: Wargaming a Chinese Invasion of Taiwan.” In it, policymakers acknowledge that during any fighting between a US-backed Taiwan administration and the rest of China, heavy damage would be inflicted on the island.

The paper notes that any infrastructure the People’s Liberation Army (PLA) does not destroy in the fighting, because of its possible use to the PLA, the US itself would target and destroy it:

Ports and airfields enable the use of more varied ships and aircraft to accelerate the transport of troops ashore. The United States may attack these facilities to deny their use after Chinese capture. 

Beyond infrastructure useful to Chinese military forces, US policymakers have also explored the possibility of destroying economically useful infrastructure on Taiwan. An October 2022 Bloomberg article titled, “Taiwan Tensions Spark New Round of US War-Gaming on Risk to TSMC,” would report:

Contingency planning for a potential assault on Taiwan has been stepped up after Russia’s invasion of Ukraine, according to people familiar with the Biden administration’s deliberations. The scenarios attach heightened strategic significance to the island’s cutting-edge chip industry, led by Taiwan Semiconductor Manufacturing Co. In the worst case, they say, the US would consider evacuating Taiwan’s highly skilled chip engineers.

The article also stated:

At the extreme end of the spectrum, some advocate the US make clear to China that it would destroy TSMC facilities if the island was occupied, in an attempt to deter military action or, ultimately, deprive Beijing of the production plants. Such a “scorched-earth strategy” scenario was raised in a paper by two academics that appeared in the November 2021 issue of the US Army War College Quarterly.

CSIS’ paper would analyze the possible outcome of a conflict between China and the US-backed administration on Taiwan, surmising:

In most scenarios, the United States/Taiwan/Japan defeated a conventional amphibious invasion by China and maintained an autonomous Taiwan. However, this defense came at high cost. The United States and its allies lost dozens of ships, hundreds of aircraft, and tens of thousands of servicemembers. Taiwan saw its economy devastated. Further, the high losses damaged the U.S. global position for many years. 

In other words, even under the best-case scenario, following a US-backed defeat of any Chinese military operation aimed at reunification, the US would nonetheless have suffered heavy losses in terms of its military while Taiwan would have suffered catastrophic losses both militarily and economically.

Like Ukraine, Taiwan, in its capacity as a US proxy, would be destroyed.

Israel Will Not Be Spared Either 

US policy papers are also abounding with strategies employing Israel as an eager military proxy in the Middle East. Israel is elected to strike at nations across the region with impunity, freeing Washington of the political, military, economic, and diplomatic baggage of carrying out such military operations itself.

Of course, such military operations expose Israel to the same dangers that have threatened Ukraine’s self-preservation and threaten to undermine Taiwan’s.

With the US having demonstrated a fundamental inability to sponsor and win proxy wars against peer and near-peer adversaries in both Ukraine and Taiwan, there is little reason to believe that an already overstretched US military industrial base could somehow give Israel the ability to wage and win protracted proxy war in the Middle East.

Such a proxy war has already unfolded from 2011 onward both in Syria and Yemen with little success. Israel has already played a role in Syria, carrying out missile strikes across the country in an attempt to provoke Syria into a wider conflict.

Syria and its allies Iran and Russia have only strengthened their positions in the region and are driving a fundamental transformation across the Middle East. Even long-time US allies like Saudi Arabia and Turkey find themselves gradually divesting from a US-led regional order to one that better fits with the wider trend toward global multipolarism.

This has left the US and its remaining proxies in the region more isolated and vulnerable than ever. The US itself finds its own troops illegally occupying eastern Syria in an increasingly precarious position.

Israel, in many ways, finds itself likewise isolated. Should it lend itself to a major US proxy war more directly, it may find itself in a similar position as Ukraine – locked in intense, protracted combat with its US allies unable to provide the arms and ammunition necessary to win.

Unlike either Ukraine or Taiwan, Israel is believed to be in possession of between scores to hundreds of nuclear weapons. While Israel will thus never face the same sort of defeat Ukraine faces, a protracted military conflict will leave Israel exhausted economically and isolated diplomatically. Its Arab neighbors will move on with the multipolar world while Israel exhausts itself fighting to reassert US-led unipolarism.

Because of the deliberate, premeditated manner in which the US uses and then disposes of its proxies around the globe, there is little reason to believe it will spare Israel. While Israel has several advantages over other US proxies in terms of its economy, military capabilities, and diplomatic connections, these advantages will only prevent Israel’s use and disposal by US foreign policy if there is a conscious decision to pivot with the rest of the region away from US subordination and toward regional and global multipolarism.

We’re Living in a Neofeudal Bubble

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By Charles Hugh Smith

Source: Of Two Minds

If you listen to conventional economists, everything’s rosy: thanks to the expansion of alt-energy like wind and solar, energy is getting cheaper, batteries will power the new global economy, we’re getting smarter — just look at the rising number of advanced college degrees, wages are finally growing, inflation is trending down, household balance sheets and corporate profits are strong, debt loads are not an issue yet and GDP is rising.

All this happy news is backed by statistics, of course, but there’s one little problem: all the conventional cheerleaders are living in a bubble of like-minded elites who are insulated from the neofeudal realities of life in the real world.

Outside the bubble of wealthy, protected elites that generate the statistics and the “news,” the global economy is completely, totally neofeudal–and so is the American economy. What does neofeudal mean? It refers to a two-tiered socio-economic system in which an aristocracy owns the vast majority of the wealth and collects the lion’s share of the income, and uses this financial dominance to buy political and narrative dominance.

In a neofeudal arrangement, the machinery of governance protects and enforces elite dominance. Cartels and monopolies have free rein to price-fix and exploit, tax revenues flow freely to cartels, elite organizations such as family trusts get tax breaks, and so on.

In other words, “the market” is rigged and the government maintains the status quo.

Toiling away to enrich the aristocratic owners of capital are the serfs and peasants, who own a tiny shred of income-producing capital. Their primary assets–the family home and vehicles–are actually income streams for the wealthy who collect the mortgage and auto-loan interest paid by the serfs.

The core dynamic in neofeudalism is the already-wealthy increase their share of the wealth, and everyone else sees their meager share diminish. As the charts below show, the vast majority of financial gains generated by the US economy flow to the top 0.1% of households. The top 1%’s share has risen by 40% while the bottom 50%’s share of the wealth has slipped to 3%–essentially signal noise.

Social mobility is limited to the occasional serf clawing their way into the technocrat class, the top 5% who slavishly serve the interests of the financial aristocracy. This class lives in a self-contained, protected bubble: an echo chamber of privilege, residential enclaves, jetting around the world, and so on: everything’s great because we’re doing great.

Life is good in the bubble because there’s no homeless encampment a block away, there’s plenty of money coming in and our wealth–401Ks, inherited bonds and rental property, university pensions, corporate stock options, and so on–increases smartly, year after year and decade after decade.

The Wealthy Are Not Like You and Me–Our Terminally Stratified Society (8/3/23)

That all this wealth expansion is the result of unprecedented central bank intervention is left unsaid. As noted above, the role of the state and central bank is to maintain the status quo of the already-wealthy increasing their share of the national wealth and income, and loading more (very profitable) debt on the serfs. (See student loan debt chart below.)

Outside the technocrats’ privileged bubble, wages’ share of the economy have been stripmined by the aristocracy for 45 years. Oh dear; could this be why I’m having such trouble finding low-wage reliable “help”?

While wages inch up, costs of shelter, utilities, debt, vehicles, public transport, childcare and other essentials soar. Please glance at the chart of wages and rents below. This is neofeudalism in a nutshell. Wages have flatlined (or fallen when measured in purchasing power) while rent has steadily increased, eating away at the serfs’ disposable income.

Inside the technocrat class bubble, everything’s wunnerful. AI will boost profits (all of which flow to the aristocracy, so that’s wunnerful), energy’s getting cheaper and more abundant, and so on.

Oh, wait. Alt-energy only looks cheap because all the full lifetime costs have been ignored (i.e. externalized), and these modest additions to our vast hydrocarbon consumption aren’t actually replacing hydrocarbons, they’re simply adding more energy for us to consume.

Thousands of Old Wind Turbine Blades Pile Up in West Texas

Avangrid agrees to pay $48 million to terminate offshore wind deal

Models Hide the Shortcomings of Wind and Solar

In other words, conventional economists and the other technocrats maintain their privileged bubble by clinging to a delusionally disconnected-from-the-real-world mindset. There’s always a slew of academic papers or think-tank / corporate reports to bolster the inside-the-bubble confidence that everything’s great, because generating positive narratives that leave the neofeudal structure untouched in the primary industry of the technocrat class.

If you want to understand the neofeudal reality, study these charts. There are no rebuttals, there are only sputtering obfuscations: b-b-but the mission to Mars! Taylor Swift raked in a billion bucks! OnlyFans pulled in $5 billion! Stocks are rallying! Everything’s great!

Sure–if your dose of Delusional is high enough. Then you can go back to complaining about air travel delays, finding someone to repair your pool pump and bragging about how well your investments are doing.

The Two Causes of the Coming Great Depression

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By Charles Hugh Smith

Source: Of Two Minds

There are two approaches to analyzing a situation:

1. Choose the desired outcome–generally the one that doesn’t require any major changes, sacrifices or downward mobility
2. Identify the initial conditions and systemic dynamics and then follow these to a conclusion back-tested by comparisons with historical outcomes.

Our default setting as humans is 1: select the outcome we want and then find whatever bits and pieces supports that conclusion. Cherry-pick data, draw false analogies–the field is wide open.

This is why we get so upset when our “analysis” is challenged: we’re forced to ask what happens to us if our desired outcome doesn’t transpire, and since the answer might be something less than optimal, we violently reject any data or analogies that conflict with our carefully curated “analysis.”

A great deal of what passes for analysis today is cherry-picked bits and pieces that support a happy story of endlessly expanding prosperity–AI, fusion, etc.–with no mention of limits, constraints, costs or worst-case outcomes rather than best-case outcomes.

Let’s start with an historical analogy most reject: the Great Depression of 1929 to 1942. The conventional account claims that the Depression was the result of a “Federal Reserve policy error”: the Fed tightened credit when it should have loosened it.

This is nonsense. What actually happened was credit expanded rapidly in the Roaring 1920s, which is why they were Roaring. Farmers could borrow money to buy prairie land to put under the plow, speculators could borrow $9 on margin to play the stock market with $1 in cash, and so on.

In other words, what happened was a gigantic credit bubble inflated that pushed stocks and other assets to unsustainable heights of over-valuation, valuations based on the Roaring 20s expansion of credit and consumption continuing forever.

But all bubbles pop, and so the weather changed for the worse and newly plowed prairie turned into a Dust Bowl, wiping out heavily leveraged farmers. Since there was no federal bank deposit guarantee (no FDIC), the bankruptcies of overleveraged borrowers wiped out thousands of small banks, wiping out the savings of prudent depositors.

So even prudent savers got wiped out in the crash of the credit bubble.

Stock speculators gambling on margin (i.e. borrowed money) were quickly wiped out, and the selling became self-reinforcing, accelerating the cascading crash.

The real policy error was protecting the wealthy who owned the debt from a debt-clearing write-down. The wealthy own debt, the non-wealthy owe debt. When the debt is defaulted on, the lender / owner of the debt has to absorb the loss. The debtor is freed of the burden. In a debt-clearing event driven by defaults, insolvencies and bankruptcies, the wealthy are the losers and the debtors are freed of the burden of debt.

Various programs were implemented to stave off the consequences of default, as if pushing losses into the future would somehow enable the credit bubble to reinflate. That’s not how it works: the financial system is like a forest, and if the dead wood of bad debt piles up and isn’t allowed to burn, then the forest cannot foster new growth.

Economies that refuse to accept the wealth destruction that results from credit bubbles popping stagnate. This is the story of Japan from 1990 to the present: the status quo in Japan refused to accept the losses, hiding bad debt (i.e. non-performing loans) behind artifices such as new loans that covered the interest due, listing the non-performing loans in “zombie” categories, i.e. as assets that were still on the books at full value even though they were essentially worthless, and so on.

The net result was 33 years of stagnation and social decay as young people gave up on owning homes and having families.

Now the US has inflated another “debt super-cycle” credit bubble that has pushed assets into over-valuation. Once again the goal is to avoid handing the wealthy owners of all this debt the enormous losses that must be accepted to clear the dead wood of bad debt, money lent to borrowers and projects that were not creditworthy except in a bubble.

The lesson the status quo took from the Great Depression is to cover up private-sector over-valuations and bad debts with vast expansions of credit via the Federal Reserve and the federal government. Please look at these four charts below:
1. total credit (TCMDO)
2. the Federal Reserve balance sheet (2 charts)
3. federal debt

All are in visibly unsustainable parabolic ascents.

Predictably, the status quo will refuse to accept the necessity of clearing the dead wood and accepting the trillions of dollars in losses that will accrue to those who own the unpayable debts.

Consider CRE, commercial real estate. Office towers are now worth one-third of their pre-pandemic valuations, the valuations on which their mortgages were based. There is no way these properties can be magically restored to their previous over-valuation. Massive losses must be accepted by the owners of the debt. If those losses make them insolvent, so be it. That is unacceptable in a system geared to protect the wealthy at all costs.

But bubbles pop anyway, regardless of policy tweaks. Consider these stock market charts of the Roaring 20s and the Great Depression and the present (below). The similarity is remarkable–possibly even eerie.

The big difference between the Great Depression of the 1930s and the Depression we’re entering is the world still had enormous reserves of resources to tap and a (by today’s standards) modest population in the resource-consuming developed nations.

Recall that a developed-world consumer uses up to 100 times more energy and resources than a poor person in a rural undeveloped nation. Recycling a few bottles doesn’t change this.

This means the planet’s “savings account” of abundant, cheap-to-access resources has been depleted. Yes, there is still oil and copper, etc., but it’s of far lower quality and much harder to get now. The rich ores have been mined and the shallow super-giant oil fields have all been tapped long ago. Now the Saudis must pump stupendous quantities of seawater into their oil wells to maintain production. All these technologies consume vast quantities of energy.

The inevitable result is the energy efficiency–how much energy is required to access, process and transport the energy–has plummeted even as consumption has soared.

The outcome many hope for is some new miraculously cheap and abundant sources of energy such as fusion. But fusion is far more complicated and tricky than pumping oil, and oil is a high-energy-density fuel that can be stored rather easily. All the electricity generated by various technologies can’t be stored easily or cheaply, and so the happy story is that a new miraculous battery technology is just around the corner.

But batteries are also complicated and resource-dense, so they’ll always be as expensive as the materials needed to fabricate them. There will never be “low-cost” batteries if the materials needed to make them are scarce and expensive to dig out of the ground, process and transport.

So the policy choices are simple: either protect the wealthy from write-downs of bad debt and the collapse of asset bubbles and usher in decades of stagnation, or force the wealthy to take the losses and clear away the dead wood.

But either choice will be constrained by the reality that humanity has already drained the easy-to-get “savings account” of global resources.

I get emails from readers who say things like “mining techniques are far more efficient now.” That’s fine, but most of these new mines are often thousands of kilometers away from railways or seaports, and thousands of kilometers away from the processing plants that turn the ore into useful metals.

Recall the enormity of the cost and effort required to build a single two-lane highway thousands of kilometers to a new mine, and the oceans of diesel fuel needed to power the mining equipment and trucks hauling the ore to railways or seaports. Recall the immense amounts of energy required to smelt / process these ores, and the near-zero percentage of lithium-ion batteries that are currently being recycled.

Batteries are difficult to recycle because they’re not manufactured to be recycled, and they’re not manufactured to be recycled because that would raise costs considerably, reducing profits.

So on the present course, the idea is to manufacture billions of batteries, throw them all in the landfill in 10 years, and then mine enough minerals to build another couple billion batteries and then repeat the cycle of throwing them away in 10 years forever.

That isn’t realistic, so the status quo will have to adjust to this unwelcome reality.

This is why I keep writing books about relocalizing, degrowth, using less rather than more to yield a higher level of well-being. The resource “savings account” won’t support fantasies of endlessly expanding consumption of hard-to-get resources.

But the status quo has much to unlearn, and it seems the only pathway to a new understanding is a Great Depression that won’t end with a new expansion of credit because the resources required for that new expansion simply won’t be available or affordable.

Reducing our exposure to avoidable risks is a key strategy of Self-Reliance.

The Fourth Turn, Turn, Turn

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By Charles Hugh Smith

Source: Of Two Minds

The cycles of The Fourth Turning, Fischer and Turchin are all in alignment at this point in history..

The 1997 book The Fourth Turning: An American Prophecy proposed a cyclical pattern of four 20-year generations which culminate in a national crisis every 80 years. The book identifies these dates as Fourth Turnings: 1781 (Revolutionary War), 1861 (Civil War) and 1941 (global war). add 80 years and voila, 2021.

I use the term Fourth Turning generically to describe an existential crisis that decisively changes the course of national identity and history.

In other words, we don’t have to accept the book’s theory of generational dynamics to accept an 80-year cycle. There are other causal dynamics in play that also tend to cycle: the credit (Kondratieff) cycle, for example.

While each of the previous existential crises were resolved positively, positive outcomes are not guaranteed: dissolution and collapse are also potential outcomes.

David Hackett Fischer’s book The Great Wave: Price Revolutions and the Rhythm of History proposes another cycle: humans expand their numbers and consumption until they’ve exploited and depleted all available resources.

As resources become scarce, societies and economies unravel as humans do not respond well to rising prices generated by scarcities.

The unraveling continues until consumption is realigned with the resources available. In the past this meant either a mass die-off that drastically reduced human numbers and consumption (for example, The Black Plague), a decline in fertility that slowly reduced population to fit resources, mass migration to locales with more resources or the discovery and exploitation of a new scalable energy source that enabled a new cycle of rising consumption.

The 14th century Black Death reduce Europe’s population by roughly 40%, enabling depleted forests to regrow and depleted agricultural land to restore fertility.

Once the human population regained its numbers and consumption in the 17th century, wood was once again under pressure as the key source of energy, shipbuilding, housing, etc.

The development of steam power and the technologies of mining enabled the exploitation of coal, which soon replaced wood as the primary energy source.

Oil and natural gas added to the energy humans could tap, followed (at a much more modest level) by nuclear power. Despite gargantuan investments, the recent push to develop solar and wind energy has yielded very modest results, as globally these sources provide about 5% of total energy consumption. (See chart below)

It’s self-evident that despite breezy claims of endless expansion of consumption, the global human population has now exceeded the resources available for practical extraction. Energy, fresh water, wild fisheries and fertile soils have all been exploited and the easy/cheap-to-extract resources have been depleted.

(The chart below of global CO2 emissions is a proxy for energy / resource consumption.)

So once again it’s crunch-time: either we proactively reduce consumption to align with available resources, or Nature will do it for us via scarcities.

Peter Turchin proposed another socio-economic cycle of 50 years in his book Ages of Discord: in the integrative stage, people find reasons to cooperate. In the disintegrative stage at the end of the cycle, people no longer find much common ground or reasons to cooperate. Political, social and financial extremes proliferate, culminating in a rolling crisis.

In Turchin’s analysis, the previous 50-year age of discord began around 1970, and the current era of discord began in 2020. Those who lived through the domestic terrorism, urban decay, stagflation and political/social/legal crises of the 1970s recall how inter-related crises dominated the decade.

In my analysis, the last period of discord in the 1970s was “saved” by the supergiant oil fields discovered in the 60s coming online in the late 1970s and early 1980s. That oil enabled a 40-year boom which is now ending, with no new scalable source of energy available to replace oil, much less enable an expansion of consumption.

In other words, the cycles of The Fourth Turning, Fischer and Turchin are all in alignment at this point in history. We have proliferating political, social and financial extremes and a forced transition to lower consumption to align with declining energy.

Turn, turn, turn. Right when we need to cooperate on transforming a high-consumption, bubble-dependent “waste is growth” Landfill Economy to declining consumption / Degrowth, we’re beset by discord and demographic pressures, as the promises made to the elderly back when it was expected that there would always be 5 workers per retiree cannot possibly be kept now that the worker-retiree ratio is 2-to-1 and there are no limits on healthcare spending for the elderly.

Humans are happy to expand their numbers and consumption and much less happy to consume less. They tend to start revolutions and wars in vain attempts to secure enough resources to maintain their profligate consumption and expansion.

Today’s extremes of wealth and income inequality are optimized to spark political discord and revolts. The wealthiest 20% will be able to pay higher prices, but the bottom 40% will not. The middle 40% will find their disposable income, i.e. their income left over after paying for essentials, will drop to near-zero.

When 80% of the populace are crunched financially, revolutions and the overthrow of governments follow.

As I’ve outlined in previous posts, global inequalities are widening as the Core exploits its built-in advantages at the expense of the vulnerable Periphery.

Core nations will be much better able to maintain their consumption at the expense of the Periphery nations, which will experience sharp declines in purchasing power and consumption.

Previous Fourth Turnings have been resolved one way or another within 5 to 7 years. If this Turning began in 2020, we can expect resolution by 2025 – 2027.

As I explained in my book Global Crisis, National Renewal, those nations that embrace Degrowth will manage the transition, while those that cling to the endless-expansion, bubble-dependent Waste Is Growth model will fail.

This is why I keep talking about making Plans A, B and C to preserve optionality and reduce financial commitments and consumption now rather than passively await crises over which we will have little direct control.

As I’ve endeavored to explain, those anticipating decades of time to adjust are overlooking the systemic fragilities of the current global financial/supply systems. Tightly bound systems of interconnected dependency chains have been optimized to work perfectly in an era of expansion. They’re not optimized to gradually adjust to contraction; they’re optimized to break and trigger domino-like breakdowns in interconnected chains.

We don’t control these macro-trends, we only control our response.

The American Empire self-destructs.

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By Michael Hudson

Source: Michael-Hudson.com

But nobody thought that it would happen this fast.

Empires often follow the course of a Greek tragedy, bringing about precisely the fate that they sought to avoid. That certainly is the case with the American Empire as it dismantles itself in not-so-slow motion.

The basic assumption of economic and diplomatic forecasting is that every country will act in its own self-interest. Such reasoning is of no help in today’s world. Observers across the political spectrum are using phrases like “shooting themselves in their own foot” to describe U.S. diplomatic confrontation with Russia and allies alike.

For more than a generation the most prominent U.S. diplomats have warned about what they thought would represent the ultimate external threat: an alliance of Russia and China dominating Eurasia. America’s economic sanctions and military confrontation has driven them together, and is driving other countries into their emerging Eurasian orbit.

American economic and financial power was expected to avert this fate. During the half-century since the United States went off gold in 1971, the world’s central banks have operated on the Dollar Standard, holding their international monetary reserves in the form of U.S. Treasury securities, U.S. bank deposits and U.S. stocks and bonds. The resulting Treasury-bill Standard has enabled America to finance its foreign military spending and investment takeover of other countries simply by creating dollar IOUs. U.S. balance-of-payments deficits end up in the central banks of payments-surplus countries as their reserves, while Global South debtors need dollars to pay their bondholders and conduct their foreign trade.

This monetary privilege – dollar seignorage – has enabled U.S. diplomacy to impose neoliberal policies on the rest of the world, without having to use much military force of its own except to grab Near Eastern oil.

The recent escalation U.S. sanctions blocking Europe, Asia and other countries from trade and investment with Russia, Iran and China has imposed enormous opportunity costs – the cost of lost opportunities – on U.S. allies. And the recent confiscation of the gold and foreign reserves of Venezuela, Afghanistan and now Russia, along the targeted grabbing of bank accounts of wealthy foreigners (hoping to win their hearts and minds, along with recovery of their sequestered accounts), has ended the idea that dollar holdings or those in its sterling and euro NATO satellites are a safe investment haven when world economic conditions become shaky.

So I am somewhat chagrined as I watch the speed at which this U.S.-centered financialized system has de-dollarized over the span of just a year or two. The basic theme of my Super Imperialism has been how, for the past fifty years, the U.S. Treasury-bill standard has channeled foreign savings to U.S. financial markets and banks, giving Dollar Diplomacy a free ride. I thought that de-dollarization would be led by China and Russia moving to take control of their economies to avoid the kind of financial polarization that is imposing austerity on the United States. But U.S. officials are forcing them to overcome whatever hesitancy they had to de-dollarize.

I had expected that the end of the dollarized imperial economy would come about by other countries breaking away. But that is not what has happened. U.S. diplomats have chosen to end international dollarization themselves, while helping Russia build up its own means of self-reliant agricultural and industrial production. This global fracture process actually has been going on for some years now, starting with the sanctions blocking America’s NATO allies and other economic satellites from trading with Russia.For Russia, these sanctions had the same effect that protective tariffs would have had.

Russia had remained too enthralled by free-market ideology to take steps to protect its own agriculture or industry. The United States provided the help that was needed by imposing domestic self-reliance on Russia (via sanctions). When the Baltic states lost the Russian market for cheese and other farm products, Russia quickly created its own cheese and dairy sector – while becoming the world’s leading grain exporter.

Russia is discovering (or is on the verge of discovering) that it does not need U.S. dollars as backing for the ruble’s exchange rate. Its central bank can create the rubles needed to pay domestic wages and finance capital formation. The U.S. confiscations thus may finally lead Russia to end neoliberal monetary philosophy, as Sergei Glaziev has long been advocating in favor of MMT.

The same dynamic undercutting ostensible U.S aims has occurred with U.S. sanctions against the leading Russian billionaires. The neoliberal shock therapy and privatizations of the 1990s left Russian kleptocrats with only one way to cash out on the assets they had grabbed from the public domain. That was to incorporate their takings and sell their shares in London and New York. Domestic savings had been wiped out, and U.S. advisors persuaded Russia’s central bank not to create its own ruble money.

The result was that Russia’s national oil, gas and mineral patrimony was not used to finance a rationalization of Russian industry and housing. Instead of the revenue from privatization being invested to create new Russian means of protection, it was burned up on nouveau-riche acquisitions of luxury British real estate, yachts and other global flight-capital assets. But the effect of making the Russian dollar, sterling and euro holdings hostage has been to make the City of London too risky a venue in which to hold their assets. By imposing sanctions on the richest Russians closest to Putin, U.S. officials hoped to induce them to oppose his breakaway from the West, and thus to serve effectively as NATO agents-of-influence. But for Russian billionaires, their own country is starting to look safest.

For many decades now, the Federal Reserve and Treasury have fought against gold recovering its role in international reserves. But how will India and Saudi Arabia view their dollar holdings as Biden and Blinken try to strong-arm them into following the U.S. “rules-based order” instead of their own national self-interest? The recent U.S. dictates have left little alternative but to start protecting their own political autonomy by converting dollar and euro holdings into gold as an asset free of political liability of being held hostage to the increasingly costly and disruptive U.S. demands.

U.S. diplomacy has rubbed Europe’s nose in its abject subservience by telling its governments to have their companies dump the Russian assets for pennies on the dollar after Russia’s foreign reserves were blocked and the ruble’s exchange rate plunged. Blackstone, Goldman Sachs and other U.S. investors moved quickly to buy up what Shell Oil and other foreign companies were unloading.

Nobody thought that the postwar 1945-2020 world order would give way this fast. A truly new international economic order is emerging, although it is not yet clear just what form it will take. But “prodding the Bear” with the U.S./NATO confrontation with Russia has passed critical-mass level. It no longer is just about Ukraine. That is merely the trigger, a catalyst for driving much of the world away from the US/NATO orbit.

The next showdown may come within Europe itself. Nationalist politicians could seek to lead a break-away from the over-reaching U.S. power-grab over its European and other Allies, trying in vain to keep them dependent on U.S.-based trade and investment. The price of their continuing obedience is to impose cost-inflation on their industry while relinquishing their democratic electoral politics in subordination to America’s NATO proconsuls.

These consequences cannot really be deemed “unintended.” Too many observers have pointed out exactly what would happen – headed by President Putin and Foreign Secretary Lavrov explaining just what their response would be if NATO insisted in backing them into a corner while attacking Eastern Ukrainian Russian-speakers and moving heavy weaponry to Russia’s Western border. The consequences were anticipated. The neocons in control of U.S. foreign policy simply didn’t care. Recognizing its concerns was deemed to make one a Putinversteher.

European officials did not feel uncomfortable in telling the world about their worries that Donald Trump was crazy and upsetting the apple cart of international diplomacy. But they seem to have been blindsided at the Biden Administration’s resurgence of visceral Russia-hatred by Secretary of State Blinken and Victoria Nuland-Kagan. Trump’s mode of expression and mannerisms may have been uncouth, but America’s neocon gang has much more globally threatening confrontation obsessions. For them, it was a question of whose reality would emerge victorious: the “reality” that they believed they could make, or economic reality outside of U.S. control.

What foreign countries have not done for themselves – replacing the IMF, World Bank and other arms of U.S. diplomacy – American politicians are forcing them to do. Instead of European, Near Eastern and Global South countries breaking away out of their own calculation of their long-term economic interests, America is driving them away, as it has done with Russia and China. More politicians are seeking voter support by asking whether they would be better served by new monetary arrangements to replace dollarized trade, investment and even foreign debt service.

The energy and food price squeeze is hitting Global South countries especially hard, coinciding with their own Covid-19 problems and the looming dollarized debt service coming due. Something must give. How long will these countries impose austerity to pay foreign bondholders?

How will the U.S. and European economies cope in the face of their sanctions against imports of Russian gas and oil, cobalt, aluminum, palladium and other basic materials? American diplomats have made a list of raw materials that their economy desperately needs and which therefore are exempt from the trade sanctions being imposed. This provides Mr. Putin a handy list of pressure points to use in reshaping world diplomacy, in the process helping European and other countries break away from the Iron Curtain that America has imposed to lock its satellites into dependence on high-priced U.S. supplies.

But the final breakaway from NATO’s adventurism must come from within the United States itself. As this year’s midterm elections approach, politicians will find a fertile ground in showing U.S. voters that the price inflation led by gasoline and energy is a policy byproduct of the Biden administration blocking Russian oil and gas exports. Gas is needed not only for heating and energy production, but to make fertilizer, of which there already is a world shortage. This is exacerbated by blocking Russian and Ukrainian grain exports, sending U.S. and European food prices soaring.

Trying to force Russia to respond militarily and thereby looking bad to the rest of the world is turning out to be a stunt aimed simply at demonstrating Europe’s need to contribute more to NATO, buy more U.S. military hardware and lock itself deeper into trade and monetary dependence on the United States. The instability that this has caused is turning out to have the effect of making the United States look as threatening as Russia.

Europe Is Killing Itself With Its Russian Sanctions

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By Paul Craig Roberts

Source: PaulCraigRoberts.org

The sharp rise in natural gas price in Europe is entirely due to Western hysteria and stupidity. According to the EU’s own data, Europe is dependent on Russia for 46% of its natural gas. In the face of such extraordinary dependency on Russian energy, the moronic European “leaders” are falling all over themselves imposing impotent sanctions on Russia.  The idiotic German Chancellor actually punished the German people for Russia’s recognition of the Donbass republics by “cancelling” the Nord 2 pipeline.  This foolish act was a prime reason for the hysteria that has caused a sharp rise in prices.  The price rise helps Russia–if she continues to supply Europe with energy.  It hurts Europe and whoever financed the Nord 2 pipeline. If the pipeline sits not operating, it cannot produce a revenue stream to service the capital invested in the pipeline.  I do not know who financed the pipeline. If it was Germany, then the chancellor’s sanctions on Russia have twice injured the Germans.

The EU’s 46% dependency on Russian natural gas is independent of the Nord 2 pipeline, the opening of which has been on hold due to Washington’s pressure on Germany. Therefore, the rise in gas price is not due to a reduction of supply, but due to speculation that Russia will reduce or cut off supply. Europe is served by other pipelines.  What if Russia responds to the EU’s “sanctions” by closing the pipelines that deliver 46% of Europe’s natural gas?  What would Europe’s fate be?

Russia has accepted sanctions without replying in kind.  Perhaps it is time for Russia to impose sanctions to teach the West a lesson.

In my opinion there is no reason for Russia to deplete its own energy resources by sharing them with its European enemies.  Perhaps the Russian government’s idea was that energy sales would be a source of foreign exchange earnings and that providing Europe with energy was in the interest of good relations with the West.

Now that the West has demonstrated that the West has no interest in good relations with Russia there is no point in the Russian energy sales.  As I pointed out ( https://www.paulcraigroberts.org/2022/02/22/russia-and-china-should-go-their-own-way/ ) Russia has no need for foreign exchange.  The Russian central bank can finance Russian economic development with no need of foreign involvement.  Russia’s holdings of instruments denominated in dollars or euros would just be confiscated by sanctions.

To summarize:  Europe brought the high energy price on itself with its thoughtless sanctions; the high prices benefit Russia and hurt Europe; Russia should consider turning off all natural gas to Europe and conserve its energy source for its own and China’s development.

Europe is nothing but a thorn in Russia’s side, a collection of Washington’s puppets.  Russia owes Europe nothing. 

Sino-Russia Energy Deals to Defeat US/NATO Expansionism

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By Salman Rafi Sheikh

Source: New Eastern Outlook

While the recent meeting between Russia’s Vladimir Putin and China’s Xi in Beijing may not in itself be an extra-ordinary event, its significance against the backdrop of the on-going tussle between Russia and the US/NATO is quite unmistakable – not only for Russia itself, but for the US/NATO as well. Even though Russia does not really need China’s help to defend its sovereignty militarily or otherwise, it remains that China’s open support for Russia’s stance against the US plan to push NATO into Ukraine as a geo-political tool does debunk the US propaganda of Russian “isolation.” More than anything else, China’s growing strategic alliance allows Russia a great opportunity to withstand possible Western sanctions, or European decision to reduce its supply of gas from Russia. But co-operation in one field is often not possible without co-operation in other fields. That’s why the long joint statement issued after the meeting laid a lot of stress on jointly opposing Western plans to destabilise regions adjacent to mainland China and Russia i.e., Ukraine, Taiwan, and Hong Kong. As the sides reiterated:

“The sides oppose further enlargement of NATO and call on the North Atlantic Alliance to abandon its ideologized cold war approaches, to respect the sovereignty, security and interests of other countries, the diversity of their civilizational, cultural and historical backgrounds, and to exercise a fair and objective attitude towards the peaceful development of other States.”

While the fact that both Russia and China oppose Western expansionism both via NATO or anti-China AUKUS (Australia, United Kingdom and United States) treaty has already unsettled Western echelons of power, it is the growing co-operation between Russia and China in the energy sector that is most likely to defeat US designs vis-à-vis forcing Russia to submit. This is particularly significant given that the US is particularly interested in hurting Russia’s gas and oil sales. US President Biden recently said this, while standing next to his German counterpart, without mincing any words only recently on February 7:

“What everybody forgets here is Russia needs to be able to sell that gas and sell that oil.  Russia relies — a significant part of Russia’s budget — it’s the only thing they really have to export.  And if, in fact, it’s cut off, then they’re going to be hurt very badly, as well.  And it’s of consequence to them as well.  This is not just a one-way street.”

Moscow is, obviously, not unaware of this design. When Putin visited Beijing, he did not just attend the Winter Olympics; in fact, Putin signed a billion dollar oil and gas deal with Beijing. “Our oilmen have prepared very good new solutions on hydrocarbon supplies to the People’s Republic of China,” Putin said in Beijing. Besides the new deal, China also promised to ramp up Russia’s Far East exports. A new 30-year contract to supply 10 billion cubic meters (bcm) per year to China from Russia’s Far East was signed. With China supporting Russia’s stance on Ukraine, China’s increasing purchase of Russian oil and gas sent a powerful signal to the world that both superpowers will be taking care of each other’s interests against the combined strength of predatory western alliance, making their claims of punishing Russia hollow.

The announcement also comes against the backdrop of US claims that they – US and its allies – have a wide range of “tools” at their disposal to punish any state, including China, if they try to “backfill US exports controls” imposed on Russia. As Ned Price of the White House recently claimed in his press briefing:

“Putin knows that this would be of massive consequence to his country and to his economy. This – a closer relationship with the PRC, a closer relationship between Russia and the PRC – is not going to make up for that; it is not going to account for that. One final point. We have – and when I say we I mean collectively, the United States and our allies and partners – we have an array of tools that we can deploy if we see foreign companies, including those in China, doing their best to backfill U.S. export control actions, to evade them, to get around them.”

China’s deal, therefore, very clearly defies US threats, showing how the politics of sanctions – which is Washington’s favourite geo-political “tool” – cannot really deter states like China and Russia, who, too, posses enough “tools” to stage a counter-attack. The oil & gas deals are a manifestation of that counter-attack.

Even as many political pundits in the West have highlighted, the US plan against Russia cannot work unless Washington can first wean China away. The fact that Washington’s ties with Beijing are as bad as with Moscow means that Washington does not have enough geo-political capacity to dictate policies and decisions by really isolating Russia. Although it might still impose sanctions, China is unlikely to be bothered by them, thus defeating Washington’s plan to inflict an unacceptable level of damage on Russia, which also already has US$640 billion in foreign exchange reserves to withstand western sanctions.

But, as mentioned above, the real factor bothering the West is not what Russia can or might do in the wake of a conflict around Ukraine; the real factor is the almost absolute convergence between Russia and China on almost all issues of global politics – a fact duly highlighted via the said joint statement. This statement is not about their bi-lateral relations; in fact, it is an elaborate commentary on the challenges they are facing from the West and how these very challenges have transformed and elevated their ties to a level not known in the contemporary era.

Therefore, in the wake of US/European pressure on Russia and Moscow’s massive new deals with China means the Biden administration will now have to come up with a new plan to defeat Russia, or altogether drop its project. With Russia now clearly able to diversify its oil and gas deals away from Europe, the question is: can Europe itself do without Russia and without facing any economic backlash? It was only last week the UK government announced a whooping 54 per cent increase in domestic energy bills, causing a political outcry against the Johnson administration. The unnecessary war in Russia is already starting to bite back the war-wagers themselves.

How Breakdown Cascades Into Collapse

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By Charles Hugh Smith

Source: Of Two Minds

Maintaining the illusion of confidence, permanence and stability serves the interests of those benefiting from the bubbles and those who prefer the safety of the herd, even as the herd thunders toward the precipice.

The misconception that collapse is an all or nothing phenomenon is common: Either the system rights itself with a bit of money-printing and rah-rah or it collapses into post-industrial ruin and gangs are battling over the last stash of canned beans.

Neither scenario considers the fragility and resilience of the socio-economic system as a whole. It is both far more fragile than the believers in the permanence of the waste is growth model grasp and more resilient than the complete collapse prognosticators grasp.

The recent relatively mild logjams in global supply chains of essentials are mere glimpses of precariously fragile delivery-supply systems. These can be understood as bottlenecks that only insiders see, or as unstable nodes through which all the economy’s connections run. Put another way, the economy’s as a network appears decentralized and robust, but this illusion vanishes when we consider how the entire economy rests on a few unstable nodes.

One such node is the delivery of gasoline and fuels. It’s such an efficient and reliable system that 99.9% of us take it for granted: there will always be plenty of gasoline at every station, the tanks of jet fuel will always be topped off, and so on.

The 0.1% know that this system, once disrupted, would knock over dominoes all through the economy.

Hyper-efficiency and hyper-globalization has reduced the number of producers of essentials to the point that disruptions cannot be overcome with redundant sources. We see this everywhere in the global economy: a handful of plants and companies (sometimes a single source of essential components) process or manufacture essential components in much larger systems.

This is how you end up with thousands of newly manufactured vehicles parked in lots awaiting one critical part that is in short supply.

Another key weakness is the entire system’s reliance on debt, leverage and speculation. Few seem to understand that physical production and delivery systems can grind to a halt for financial reasons–for example, lines of credit being pulled, a counterparty to some arcane commodity swap goes under, taking the presumably solvent corporation down with it, and so on.

The more debt that’s been piled up, the greater the instability of the entire system. Risk always appears low until the system destabilizes, and then all the hedges fail and risk breaks out, flooding through the entire financial system.

Leverage is great fun on the way up, as it magnifies gains. Since the Federal Reserve implicitly guarantees that “buy the dip” will generate massive gains, why not ramp up leverage ten-fold to maximize those Fed-guaranteed gains?

Leverage is less fun on the way down. When the underlying collateral has shrunk to 20% of the leveraged bets being made, a 21% decline in the asset wipes out all the collateral holding up the palace of leveraged debt.

The Fed can print money but it can’t create collateral, nor can it make insolvent entities solvent. All the Fed can do is increase the debt and leverage, which is not the solution, it’s the problem.

Speculation is also inherently unstable, as the euphoric herd, once startled, turns in panic and stampeded in fear. Markets which appeared liquid–i.e., sellers could count on someone buying as many millions of shares as they desired to sell–become illiquid, as buyers vanish like mist in Death Valley. With buyers gone, prices plummet to levels the herd reckoned “impossible” just days before.

The Fed’s entire strategy in the 21st century has been to inflate asset bubbles that generate the illusion of wealth–the so-called wealth effect which is presumed to inspire voracious borrowing and spending.

Unfortunately for the Fed, most of the gains flowed to the top 0.1%, and an economy based on a handful of billionaires buying super-yachts and spaceships is a line of dominoes awaiting the inevitable “accident.” So there are two systemic problems with relying on asset bubbles to generate “wealth”: 1) since 90% of the assets are owned by a thin slice of the populace, bubbles increase destabilizing inequality, and 2) bubbles are intrinsically unstable. So the U.S. economy, dependent on the Fed for the “juice” of monetary stimulus, is now dependent on incredibly unstable bubbles in assets, debt and leverage, bubbles which have generated extremes of wealth/income inequality that are destabilizing the social and political orders.

As the three charts below illustrate, the fragility and instability are well hidden until it’s too late: bubbles, debt, leverage, budgets and revenues can only click higher because the system breaks down if there is any sustained decline (the rising wedge model of breakdown). Once the subsystems fail, there’s no putting the eggshell back together.

The second chart depicts how buffers thin beneath the surface, masking the systemic fragility. The loss of redundancy, the decay of maintenance, the loss of experienced workers–all of these are hidden from public view until the system breaks down.

The third chart tracks the S-curve of expansion, confidence, complacency, delusion and collapse followed by human systems, from nations to empires to corporations: as the buffers thin and the rising wedge reaches an apex of vulnerability, the leadership evinces a delusional confidence in the permanence and stability of increasingly fragile, unstable systems.

Maintaining the illusion of confidence, permanence and stability serves the interests of those benefiting from the bubbles and those who prefer the safety of the herd, even as the herd thunders toward the precipice.

This is how breakdowns in apparently stable subsystems triggers the fall of dominoes throughout the larger system, leading to a collapse that was widely viewed as “impossible.” Such is the power of complacency and delusion.