Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Tag: Ukraine War Page 5 of 6

Germany Is Being Crushed By “Anti-Russia” Sanctions

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On July 6, 2022

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One does have to wonder who anti-Russian sanctions are actually designed to hurt.

German producer price inflation in May.

German trade balance:

Hey, the first negative trade balance in 30 years. Of course, it’s not very negative yet, but wow, that’s a decline.

Meanwhile:

Top German industries could face collapse because of cuts in the supplies of Russian natural gas, the country’s top union official warned before crisis talks with Chancellor Olaf Scholz starting Monday.

“Because of the gas bottlenecks, entire industries are in danger of permanently collapsing: aluminum, glass, the chemical industry,” said Yasmin Fahimi, the head of the German Federation of Trade Unions (DGB), in an interview with the newspaper Bild am Sonntag. “Such a collapse would have massive consequences for the entire economy and jobs in Germany.”

The German economy is essentially mercantalist. The Euro, because it includes countries which are net importers, has been  undervalued. The Germans bought cheap materials, made them into high value goods and got pretty rich.

Now the Euro collapsing (it’s almost down to even with the dollar), but it’s not collapsing enough and in any case there’s a problem, one which has been forgotten in the global order.

Physical objects, like natural gas and aluminum and oil and so on are dug up in certain places, refined in other places and shipped thru specific pipelines or on specific trucks over specific roads, or specific trains over specific railroads. They cannot be magically replaced if you cut off a large supplier, and even when they can be replaced they may cost a lot more money and the replacement isn’t instant, as with buying US natural gas.

The PPI increase is “if you can even get it.”

Germany is a manufacturing state which does not have a lot of natural resources in its own borders. It must be a trading state, and Russia was the cheapest place to get a lot of what it needed, plus there isn’t enough excess on the global market to make every good and even when there is it requires logistical solutions (ports, ships, rail lines, refineries, etc…) which are not in place.

Meanwhile the EU has sanctioned goods coming from the Chinese province of Xinjiang. It turns out that Xinjiang produces about half of the world’s supply of polysilicon, which is the primary ingredient in solar panels.

It is to laugh.

Germany is committing economic suicide over Ukraine, and Germany is the industrial heartland of the EU.

Some bottlenecks just aren’t going to be broken without some sort of deal or cut-out, the supply isn’t there.

Others can be dealt with by paying more, some will require money and time measured in years. Europe is going to wind up going nuclear, there’s no other way to make the numbers work. (So will Japan and many other nations.)

But overall the people saying that the EU was hurt more by Russian sanctions are correct.

Now don’t think this is anti-democratic: polls show that most Europeans want to cut off trade ties with Russia.

But we’ll see how they feel as they take the hits required to do so.

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Ukraine KIA 500-1,000 a Day

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On June 16, 2022

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And that’s what Ukraine is willing to admit to.

Up to 1,000 Ukrainian soldiers are being killed or wounded each day in the Donbas region of eastern Ukraine, with 200 to 500 killed on average and many more wounded, a top Ukrainian official said on Wednesday.

In the initial attack, Russia took heavy casualties. They didn’t expect the Ukrainians to really fight, don’t seem to have taken into account the amount of fortifications built in the East since 2014 and were very sparing with artillery and air power. Since then, however, they have engaged in grinding attrition warfare. They have air superiority, more missiles, and far more artillery. They also have far more reserves, and their supply lines aren’t interdicted by hostile air forces, so they easily rotate units in and out of the front.

The result of this is that Ukraine is now taking much higher casualties than Russia and will have a higher killed/injured ratio as well. If they’re willing to admit up to 1K a day, I’m betting it’s at least double that.

Russia is advancing slowly, but they are taking ground, and they seem in no rush. Once they conquer Donbas and Luhansk, the question is whether their primary pivot is to Odessa or to Kharkiv. (I’d say taking Odessa does more harm to Ukraine, as Russia could then easily close off Ukraine’s entire coast, but Russia may want Kharkiv more.)

The other thing to bear in mind is that once Donbas and Luhansk are conquered, most of the rest of Ukraine is not nearly as heavily fortified, except in the sense that all cities are natural fortifications, and that Ukraine is essentially a flat open plain. Advances may speed up a fair bit, though the post Cold-war Russian army (as with most armies) isn’t really suited to breakthroughs and blitzkrieg warfare, as like other modern armies it is organized around brigades which don’t really have the mass and men necessary.

As I have long noted, barring an economic/logistical collapse which seems extremely unlikely, there was never any way that Russia was going to lose the conventional stage of any war with Ukraine. They have a far larger military, and it’s not, actually, crap.

The decision of when to stop the Ukraine war is Putin’s. If he is seen to lose the war, he will lose power and almost certainly wind up dead along with his family, so he won’t end the war until he has a victory, and, as he controls the more powerful military force, he can choose to win.

The longer Ukraine puts off making peace, the worse the terms are likely to be.

As for a guerilla war, my guess is that Russia will take parts that are primarily Russian, and anyone who is pro-Ukraine will be encouraged or forced to leave. Nasty ethnic cleansing, but it is one of the ways you break insurgencies. (They may not even have to do very much, though, considering how many have fled the war. Just don’t let them come back if they aren’t pro-Russian.)

The longer-term consequences are harder to forsee beyond the obvious stuff like Russia now being a junior Chinese ally and Europe now being a much firmer US satrapy. There’ll be a famine, there’s going to be a recession (caused as much by the political and central bank response as the war and sanctions), and so on. Europe won’t recognize whatever Russia takes, and there’ll be a festering sore, probably for decades.

But, bottom line, Russia is winning and will keep winning. The only thing that could change that would be direct entry by NATO, and that would probably lead to nuclear war.

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Who Wins and Loses Because of the Ukraine War?

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On May 16, 2022

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I’m basing this on current trends and what I see as the most likely outcome.

Russia will take about 30% to 40% of Ukraine: the East and the coast along the Black Sea, areas that are generally Russian ethnic or speaking. While they were pushed back from Kharkiv, I think they’ll take the Oblast by the end of the war. Basically, see where Russians are the majority and that’s the land that Russia will feel it can keep and not fight an endless guerilla war.

They make have to take more land than that to force a peace on terms they can stand, but they won’t want to keep it because everyone knows the West is trying to draw them into a long term guerilla war. (Such a war could be won in Ukraine because of the terrain, but doing so would require a lot of killing, deportatons and camps and many years. It’s not worth it for Russia.)

The Russians original goals will not be met, and Finland and Sweden will joint NATO (although they were already quite integrated), so in one sense it can be said that Russia has “lost”. In certain other senses it can be said to win.

But let’s look at the major players, one by one.

Ukraine: the big loser. Unless this war goes far different than I expect (possible and I’ll admit it if it does) they’re going to come out of it a smaller country with no coast, who has lost their industrial heartland and even if the gas is turned back on, they will lose most of the transit fees in a couple years max as the EU transitions away. They will find that the “rebuilding” they were promised is IMF style neoliberalism and the average person will wind up worse off.

Verdict: Disastrous Loss.

The EU: In the win column, the EU should have built up a larger military long ago and will now do so. They will be more unified, at least initially, feeling they have all supported a war and with fear of Russia acting as unifying glue.

In the lost column they have firmly moved into the US satrapy column. In order to move out they would have to create their own army that is not dependent on US built military equipment and that’s the opposite of what they’re doing. (Foolish, because the US is losing its ability to build either ships or combat planes. The F-35 was a boondogle, Boeing has lost its engineering chops, and they recently decided to decommission built ships because they are so bad.)

The increase in price of fuel (US gas is about 50% more expensive than Russian), commodities and food as well as the general inflation shock from the Ukraine war will lead to a poorer Europe. Spending more money on the military will make ordinary people feel worse off and so will inflation. Industry will be badly damaged by increased fuel and mineral prices. All of this will lead to increased political instability and is likely to help the fascist right and possible the more radical left (if the left ever gets its act together.)

Joining the US in such huge sanctions and seizing Russia’s reserves (“frozen”) means that they are choosing to join the US side of the new cold war world rather than being a third pole, and this will eventually limit their trade options, as they, like the US, cannot be trusted with money.

The EU is, overall, likely to come out of this war poorer, more isolated and with increased political instability, but with a much larger military and feeling more unified at the elite and country to country level (at least until and if political instability changes that.)

Veridict: Slight Loss.

The US: The US has gotten Europe firmly back as a satrapy. NATO expands, the Europeans will spend more more on US military goods and buy expensive US gas and oil. The possibility of Europe becoming independent and forming a third pole in the upcoming cold war between the US and China is now minimal, and essentially zero for at least a decade or two.

On the negative side, Russia is now firmly in the Chinese sphere. Because the US’s strategy in the case of a war with China would be to strangle China with a military enforced trade embargo, this is a big problem. Russia can supply China with massive amounts of food, fuel and commodities, making the “choke them out” strategy against China unlikely to succeed. Likewise a friendly Russia means China has a relatively secure flank to the Northwest. There are even signs of Chinese-Indian rapprochement, and though I’ll believe it when I see it, India not joining against China would be a huge boon to China.

Since China is the “real” threat, not Russia, the one country that can replace the US as the world’s most powerful nation, strengthening China’s position is a loss.

The US also will suffer due to inflation from knock on effects of the Ukraine war, and that will cause increased domestic instability. Elites continue to funnel massive money to the domestic security apparatus (police of various varieties, spies who target US residents), however, and elites feel fairly secure, though I think they’re wrong as they’re funneling resources to police who stand a good chance of joining a right wing uprising.

The final major effect for the US is that freezing Russian reserves and encouraging the massive level of sanctions, is seen by most of the world as evidence it’s not safe to keep money in the US lead banking system, or even to trade with them. This has accelerated de-dollarization and I suspect will be seen as the precipitating event of losing reserve status for the American dollar. The world will split into two financial blocs, one centered around China-Russia, the other around the US-EU. The US receives huge benefits from reserve status and from being at the center of the world financial system, and as with Britain after WWI, it will suffer mightily when it loses this position.

My evaluation is that what the US will likely gain from the Ukraine war is less than it has or will lose: dollar hegemony and being the financial center of the world are a big deal, and confirming Russia as a junior Chinese ally makes their main geopolitical rival far stronger.

Verdict: Loss

Russia: Russia has weathered the initial economic storm well, but most EU countries will move off Russian gas and oil. Some of that gas and oil cannot be brought to market anywhere else for a few years (probably 3) until new pipelines are built and while there are customers, they will pay less than the Europeans did.

Sanctions will not cripple Russia, but there are goods like advanced semiconductors and, more importantly, some tech needed for gas and oil extraction, that they will be cut off from. China cannot immediately replace those oil and gas related goods, and they are at least ten years behind in semiconductors (and themselves cut off from some key capital equipment they can’t yet build). That said the oil and gas tech is probably within quicker reach, and Russia doesn’t need the most advanced semiconductors in large quantities so far as I know.

In most economic terms Russia will be OK: they have a big food surplus; they have more than enough fuel, of course, and they can buy almost everything they don’t make from China, who is not going to cut them off; indeed, rather the reverse. India is also rushing to cut deals with Russian businesses. Sanctions will force more import substitution and help overcome the “resource curse”, making it cost-effective to make more things in Russia (if they aren’t overwhelmed by cheap Chinese goods.)

Sanctions will not cripple Russia the way they have many other countries, though they will be felt. Nor will they cause a revolution and if there is a coup it will be because Putin is old now and may be ill with Parkinsons or something else.

In territorial terms Russia likely to wind up larger. They get the industrial part of Ukraine and the coast, they can send water to Crimea (which has been cut off from years, and whose agriculture was devastated as a result) and while many will say they didn’t win the war, etc… people who want to stand up to them will not be keen on “winning and losing 30% of our country.” If that’s victory, it looks pretty bad.

A unified Europe with more countries in NATO and a bigger military is a loss for Russia, and one can expect that NATO will move more missiles and ABMS close to the Russian border, including hypersonic missiles as soon as they have them. In that sense the war is a clear loss: Russia wanted those weapons removed from near its border, and there will probably be even more of them.

In the end Russia will be able to credibly claim it won the war as a war: it took territory and kept it and it’s hard to say that a country which took its enemy’s territory lost a war. That said, there will be a case that it is a Pyrrhic victory, in that there is an economic hit, NATO has expanded, Europe will have a bigger military and so on.

The counter-case is simple: Ukraine was talking about getting nukes and had started shelling Donetsk in what looked like a prelude to invasion. Russia didn’t get its maximal goals, but it did gut Ukraine as a threat and did secure Ukrainian land in what is likely to be a semi-permanent fashion absent an all out NATO/Russia war.

The maximal goals didn’t happen, but in a bad situation Russia may reasonably claim it got quite a bit. As for sanctions, every year there had been more of them, none had ever been rescinded and all the war did was move them up.

Verdict: Marginal victory.

China: Yes, strictly speaking China isn’t involved in the war, but the war affects China greatly. China needs about 10 years to get to a reasonable parity with the US in semiconductors and aviation, the golden technologies of US hegemonic rule. The Ukraine war has made it clear they probably have less time than that, and that the world economic order is likely to split sooner because China is stuck between US demands to support sanctions and its own strategic needs, which require Russia as an ally, or at least a reliable supplier. Russia being decisively defeated or economically crushed would be catastrophic for China, so they must keep it alive and viable.

Still, all in all having Russia unable to sell to or buy from the West is unbelievably good for China: there is no alternative for Russia. If they can’t go to the West they must go to China. India may be willing to trade, but India’s economy is tiny compared to China’s and its industry scarce. China can make almost everything Russia needs and everything it can’t make it’s working on learning how to make. And, as previously discussed, Russia as an ally makes it impossible for the US to choke China out in a war.

Verdict: Victory

Concluding Remarks: Of course all of this based on a model of how they war will go which may not be the case. Perhaps the maximalists in the West are right, and the Russian military is fundamentally incompetent, can’t do logistics to a disastrous degree, and is on the verge of collapse. If you think Russia can’t even win the conventional war, all of this is is nonsense because a definite loss is likely to lead to regime change and possibly even collapse.

Likewise if you think that sanctions will have much more effect than I do, or that China will not integrate with Russia economically, then this is all wrong.

But overall, this war looks like a case where Russia gets a marginal victory; the US and the EU get some wins but their victories are effectively Pyrrhic, and China is the big winner.

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The Bottom Line On Ukraine As An Example Of Decision Analysis

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On April 26, 2022

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I could write a lot of words on this, but let’s keep it simple.

First: Russia keeps taking land.

Second: Putin has far more reserves he can commit than Ukraine does.

Third: this means that the decision about whether to win or lose is Putin’s.

Which do you think he’ll choose.

Oh, there’s considerations around acceptable costs and a possible guerilla war later, but this it the essence of the invasion.

This is a fairly basic but important style of analysis. Ask yourself:

1) Who makes the decision?

2) Do they have sufficient resources and power to enforce their decision?

3) What do they think the right thing to do is? (This isn’t always about self interest, though it often is.)

4) What decision are they likely to make?

You can add bits to this, like “does anyone have a veto?” but this is the essence of it.

This is why I have said for years that nothing would be done about climate change till too late, because the people who have the power to make the decision don’t think it affects them, and do think that the status quo is good for them, so they aren’t going to do anything.

Most reasonably reliable analysis comes down to simple heuristics like this one. Complicated heuristics for social decision making rarely work.

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Is Putin Conducting a “Stalinist” Purge of Russia’s Intelligence Service?

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On April 12, 2022

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I find this story says more about the West than it does about Russia:

A “Stalinist” mass purge of Russian secret intelligence is under way after more than 100 agents were removed from their jobs and the head of the department responsible for Ukraine was sent to prison.

In a sign of President Putin’s fury over the failures of the invasion, about 150 Federal Security Bureau (FSB) officers have been dismissed, including some who have been arrested.

All of those ousted were employees of the Fifth Service. This a division was created in 1998, when Putin was director of the FSB. It’s purpose was to carry out operations in former Soviet Union countries with the single aim of keeping them within Russia’s orbit.

Now, when Stalin purged the secret police, the party, or military, he purged based on perceived loyalty — as well as to get rid of people who were too popular or powerful, and whom he thus regarded as a threat. It’s generally conceded that Stalin’s military leadership purges were part of why the Red Army was, at first, defeated badly by the Wehrmacht.

Does this describe what Putin is doing?

It’s possible, of course, that these officers tried to tell Putin the truth about Ukrainian ability to resist, and Putin wouldn’t listen. But isn’t it also reasonable to think that, if Russia had expected significantly less resistance from Ukraine’s military than what they actually encountered, it is because that’s what the intelligence service told Putin and the military command? So couldn’t this be Putin getting rid of those secret agents who screwed up, and is, therefore, appropriate? And given that thousands of Russian soldiers have died, in large part due to faulty intelligence, and Russia’s position in the world has been damaged, is it not appropriate for the head of the responsible division to go to prison? (Though, he’s been officially accused of corruption, not incompetence.)

Who was fired because of incompetence in Iraq or Afghanistan? What intelligence agents or generals were let go because they made predictions which did not come true? Would the US be better off if those who kept saying that victory in Afghanistan was just around the corner had been fired or even court-martialed?

The West has such a culture of impunity for elite incompetence that elites think that whenever elites are fired or punished for anything it’s “Stalinist.”

Likewise, during the war, we’ve had reports of a number of Russian general dying in combat. Western commenters were aghast, but shouldn’t generals be close enough to the front lines to be in some danger? Isn’t that, actually, good leadership practice?

Russia has serious problems with how it is run; if Russia doesn’t fix its corruption and demographic issues, I think it will fall out of the “Great Power” category in time. But I also posit that Putin holding important people to account for their failures is a positive sign, not a negative one.

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Putin’s Goals, A Map, For Discussion

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On March 30, 2022

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I didn’t make this map and it isn’t based on what I think. I put it up because reader GrimJim sent it to me and I think it’s well done and a good place to start a conversation.

Putin's Goals by GrimJim

Reorienting About How Well Russia Is Doing In Ukraine

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On March 28, 2022

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It’s consensus in the West now that Russia’s military sucks.

Does it?

As Scott Ritter pointed out and as I find it shocking that almost no one else pointed out, Russia invaded with a lot less men than Ukraine has. Regular forces, plus reserves, plus border guards, plus miscellaneous other groups, Ukraine had about 600K. With allies from the Republics, Russia had about 190K.

Russia has air superiority, but not air supremacy over Ukraine, but the bottom line is that they invaded with about a 1/3 ground force disadvantage.

When you look at it that way, the narrative that NATO trained troops are so much better than Russian ones starts looking questionable. Say what you will about the Russians, they have pushed the Ukrainians back and I very much doubt the Western casualty figures are accurate. Perhaps Russian troops are actually superior to NATO ones. It’s certainly at least as viable as a narrative.

There are two important things to note here:

First, the number of troops supports the Russia claim that they never have intended to conquer and occupy the entire country, because even if they thought Ukrainian morale was weak, in no way is a 1/3 outnumbered ground force sufficient to do so.

Second, Ukrainian forces in the east are not getting significant resupply. All roads aren’t held by the Russians, but because of Russian air superiority they are closed to significant supply convoys. As I understand it, Ukrainian forces in the East are down to about 9 days of supply.

If Russia keeps them out of resupply, and keeps them unable to move (fleeing down those roads means Russia’s air force gets a turkey-shoot) then when they run out of supply, they’ll collapse and be captured or killed en-masse.

I don’t know if this the correct picture of the war, I’m not a military analyst and it’s not an area of significant interest to me.

But let’s say this assessment is correct. The entire narrative we’ve been fed about the war will turn out to be false, and will be proven false in a way which cannot be denied.

We’ll know soon enough. It’s hard to be sure. Ukraine is effectively refusing to negotiate, so they think they still stand a chance and they may know something we don’t.

I’ll place one market in the ground, though: if a claim is made that Russia used chemical weapons I will not believe it without incontrovertible evidence. They have no reason to do so. If they want to increase their military force, they can do so easily enough with conventional weapons. Despite rhetoric they haven’t been using strategies like level bombing; they’ve only used a few of their most dangerous missiles and so on. They can ramp up force with causing the sort of backlash chemical weapons will cause. So if there’s a claim, I will suspect it is false flag.

Cui Bono

Finally, as I have stated many times before, the analysis has nothing to do with any preferences of mine about who should win. I want the war over and civilians safe, and I was a critic of Putin back when liberals thought he was their man in Moscow.

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March of De-Dollarization: Russia Selling In Rubles

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On March 24, 2022

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So, as many readers will have heard, Russia has said it will only accept rubles in exchange for its exports to “hostile nations” — which is to say, those nations who have sanctioned it over Ukraine.

The main thing to understand is that the West froze hundreds of billions of dollars of Russian reserves on account in the West. They sold us stuff for Euros and dollars and we will now not let them use those dollars or Euros. Sanctions mean that even the dollars and euros they have cannot buy many, perhaps most things, in most Western countries and Japan.

So selling us anything in dollars and euros doesn’t make much sense: they can’t use them without exchanging them for other currencies, and our sanctions make that difficult, since they’re closed out from our banking system.

Thus, rubles. An additional advantage of this is that it increases the value of the ruble, which had collapsed under sanctions.

In order to buy Russian oil and gas, Europeans will have to get rubles. Russians are unlikely to want a lot of euros or dollars because they’re almost impossible to spend, so Europe will probably have to buy Yuan and Rupees, then trade those currencies for Rubles. Paying with gold isn’t really practical, because it would have to be physically shipped to Russia or on account with a country they trust (China, India, a few others). Obviously gold in Western banks is not safe.

Russia’s main exports are oil, gas, wheat and minerals. There are usually other sources, but without Russia there aren’t enough to satisfy world demand. Sanctions on Russia, because they are such a big wheat exporter, may wind up killing a few million people in the global South, more than will be killed in the war.

From the point of view of the West, this is a continuation of de-dollarization. If Saudi Arabia also sells oil to China in Yuan, it will be a big deal. Prices are still set in dollars, but I expect that may end fairly soon.

Payment systems are being set up, and the world will split into two different trade areas. China wants another five to ten years before the big (inevitable) split with the West, they may or may not get it, but if they have any sense they won’t allow Russia to be choked out. They certainly aren’t going to cooperate with US sanctions, and that means they need to cleanly separate their financial system from ours, so that funds can’t be seized in transit, executives can’t be locked up and so on.

The Russians didn’t expect this, they were taken by surprise. Probably because, in fact, it’s a weapon that can only be used against a country like Russia (as opposed to Venezuela or Iran or Afghanistan), once. No one outside the West can now trust the West’s system, and everyone with sense will want their reserves kept elsewhere.

This is mostly a good thing, the West has terribly abused its currency primary to hurt other nations, even before the abuse of sanctions which largely accelerated under Clinton. Control of dollars was part of the arsenal used to keep the South poor and the US in control. China was able to get around this because of American greed and stupidity, and now that it has, it has a veto. Since Russia being taken out will lead it to be surrounded by enemies, it is going to use that veto. Again, Russia cannot be choked out by financial and economic sanctions if China does not permit.

I have been writing about this for almost 20 years now, it was clear it would happen eventually but exactly when and how were unclear. For a few years I’ve been saying we were moving to a Cold War world, and we are.

The difference is that unlike in 1950 or 2000, the West is not clearly stronger than the coalition against it. The USSR was always weaker economically, and though for much of the 50s and 60s they had higher growth (something forgotten today), in retrospect and for some of the smarter people at the time, the outcome was never in doubt, it just needed to be managed so it didn’t turn into World War 3.

This time the outcome is in doubt, and I think the smart money would bet slightly against the West, maybe 3/2. The wild card is climate change, which will hit China very hard, but could also do great damage to Europe and America.

Putin was foolish to get into this situation, reserves should have been withdrawn, but this is a smart move. It’s also going to hurt Europe a lot and damage German industry, whose costs will skyrocket (I have little sympathy, given that Germany has used the Euro to basically de-industrialize most of the rest of the EU.)

The post-American hegemony world isn’t quite here, but it’s being born. Welcome to the Age of War and Revolution and the Twilight of the Neoliberalism.

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