Summer potpourri 2022, Part 2
“The ferocity and wide participation in the Ukraine confrontation show that much more is in question than just the fate of some regime in Kiev. The architecture of the entire world order is at stake.”
Military situation in Ukraine war
The real state of the war in Ukraine, which I have studied in my recent articles, has now reached the main stream media. The Zelensky administration is using it to beg the West for more guns and ammunition.
- Ukraine’s At Risk of Losing War With Russia: Military Official – Newsweek
- Shortage of Artillery Ammunition Saps Ukrainian Frontline Morale – New York Times
- We’re almost out of ammunition and relying on western arms, says Ukraine – Guardian
- Ukraine is running out of ammunition as prospects dim on the battlefield – Washington Post
To sum up: No Ammo, More Casualties, Thin Lines, Propaganda and Passing the Buck
On May 31 the US Council of Foreign Relations, with its head Richard Haass, had a public discussion about the state of the war in Ukraine. One of the participants was the former Deputy Commander of the United States European Command Stephen M. Twitty. He knows and makes absolutely clear where the war stands: “I think the war in the Donbas is starting to turn to the Russians’ favor… there’s no way that the Ukrainians will ever destroy or defeat the Russians … there’s no way that the Ukrainians will ever have enough combat power to kick the Russians out of Ukraine.”
There it is. The professional US military and intelligence people know exactly what is up. The Armed Forces of Ukraine (AFU) is already in a very critical situation and from here on it can only get worse. They expect that the Ukrainian frontline will break down, obviously within next 2-3 weeks. They are urging, like Twitty did already in March, for immediate negotiations.
The British paper, The Independent, referring to US Intelligence Report, June 9, said that AFU has found themselves in a catastrophic situation: the Ukrainian military suffer heavy losses, Ukrainian fighters abandon their positions and surrender, desertion is a growing problem. In last few days, even Ukrainian officials have begun to admit that they are running out of ammo, heavy weapons and troops (kill rate + 200 per day), describing the military situation as “critical”.
Washington starts “Blame Game” over defeat In Ukraine
In June 9, there was a weird piece of news over alleged lack of intelligence on Ukrainian warfare: “US Lacks a Clear Picture of Ukraine’s War Strategy, Officials Say”. Despite the daily massive flow of all kind of information, the US intelligence agencies have less information than they would like about Ukraine’s operations and possess a far better picture of Russia’s military, its planned operations and its successes and failures, according to current and former officials like Avril D. Haines, the director of national intelligence, who testified at a Senate hearing last month.
It is hard to believe that there are not solid analysts at the Defense Intelligence Agency. The real problem may not be a lack of intelligence but the fear of telling the politicians hard truths they do not want to hear. The US intelligence services are well-aware, what is going on in Ukraine and in Kiev. They know that the Ukraine has lost the war and will have to sue for peace as soon as possible. The question now is who will take the blame for the outcome. Who can the buck be passed to?
It is the White House for which such an outcome is not what it had hoped to achieve. It has so far blocked any negotiations, because admitting to a loss in Ukraine would give the Republicans more ammunition to damage Biden politically.
What the NYT piece does, is passing the buck from the intelligence community to President Zelensky of Ukraine: “He did not inform us about the bad position his country was in”. This makes it possible to blame him personally for the outcome of the war. On the other hand, what happens, when and if Ukraine and the United States differ on what constitutes an acceptable outcome to the war?
As ex-US secretary of state Henry Kissinger warned in Davos that the war could widen, if negotiations between Ukraine and Russia do not begin “in the next two months,” based, he said, “ideally” on a return to an undefined “status quo ante.” Kissinger’s warning triggered an angry rebuttal from Ukrainian President Volodymyr Zelensky. A Ukrainian parliamentarian added it was “truly shameful” that Kissinger could recommend “giving up on part of the sovereign territory” of Ukraine as a “way to peace.”
Now that the blame game for the loss of the Ukrainian war has begun in Washington, Zelensky will be the one to whom the buck will be passed to. President Biden has now joined in this. He said that “Ukrainian President Volodymyr Zelensky didn’t want to hear it, when US intelligence gathered information that Russia was preparing to invade.” Biden’s statement “Zelensky did not listen to us and he didn’t inform us how bad the war was going,” will become the standard line as soon as the Ukrainian army is on the run. As some analysts said, Biden threw Zelensky under the bus by this saying.
Some analysts believe that, behind the curtains, some direct negotiations between Ukraine and Russia are actually taking place, which indicates that Zelensky is losing power. Recall that there has already been some chatter about a possible military coup. Zelensky may not have altered his stance but that instead he is no longer a key driver of the train. Passing the buck to Zelensky, may indeed be the best outcome for the White House … and for Ukraine.
In June 11-13, Kiev publicly announces to lose hope and the West acknowledges reality
In an attempt to arouse more sympathy from its Western partners, the Kiev regime is changing its rhetoric and even beginning to recognize the real situation of the Ukrainian army on the battlefield. On June 12, Vladimir Zelensky signed a law allowing the Ukrainian command to use territorial defense fighters to perform tasks in areas of military operations.
The Territorial Defense is a paramilitary structure created in the wake of Euromaidan. The so-called Teroborona units consist of Maidan activists, nationalists and veterans of the war in Donbass. Basically, these are not professional military but rather civilians, who have not received the necessary training.
Dozens of Ukrainian units complained about the huge losses and lack of weapons and training, pointing out that they were sent to the front lines illegally. As a result, Zelensky’s decree legalized sending untrained members of Teroborona to the front as cannon fodder for the professional Russian army. Zelensky’s current decision confirms the huge losses of the Armed Forces of Ukraine.
The President of Ukraine has already admitted that Ukraine is losing to Russia in technology and is not capable of conducting offensive actions. He confirmed that the Ukrainian offensive is impossible.
On June 12, one of the main propagandists of the Kiev regime Alexey Arestovich claimed that a significant part of the Ukrainian military could join the Russian army. Arestovich confirmed the pro-Russian sentiment among a large part of the population of Ukraine, including among the military. Zelensky’s complains and threats from Arestovich had no result and the West does not believe in the victory of Ukraine any longer.
Thus, the hysteria among the leaders of the Ukrainian regime and the recognition of Kiev’s inevitable defeat in the war confirm that the changes in the military tactics of the Russian command are bearing fruit. The orderly grinding down of Ukrainian forces in the small boilers in the Donbas continues, until the frontline of AFU in Donbass will collapse within next couple of weeks.
It seems that someone has told Biden that there is zero chance for the Democrats to win in the midterm elections, if gas prices stay beyond 5 dollar per gallon. Therefore, it seems now quite obvious that the US (Biden’s administration!) has told NATO to end the proxy war in Ukraine as soon as possible.
NATO Secretary General Jens Stoltenberg claimed yesterday that peace in Ukraine is possible only, if Kiev makes territorial concessions. In its turn, NATO is helping the Kiev regime to pay the lowest price. This is the same Stoltenberg, who in early April said that NATO must prepare for a ‘long haul’ in Ukraine. Jens Stoltenberg, who told in May that we must put values over profits, is now talking about peace for territorial and sovereignty concessions.
Biden’s foreign policy looks like a “Big Mess”
Last month Biden traveled to Asia, where he had meetings with the QUAD (Australia, Japan, India and the US) as well as with South Asian leaders. The QUAD meeting was a failure as India showed no sign of joining the other three in their condemnation of Russia. India is buying more oil from Russia, instead of sanctioning. Such disunity does not look good for a US designed anti-China coalition.
Some months ago, President Joe Biden first indicated that his administration would launch a new Indo-Pacific Economic Framework (IPEF) that would signal strengthened US engagement with Asian economies. Biden, together with the leaders of a dozen countries from across Asia, announced the launch of the IPEF in Tokyo on May 23. As a result of the ambivalence of IPEF, the joint statement launching the framework referred to “collective discussions toward future negotiations,” indicating that there is more work to do to flesh out the initiative. Asian governments have mixed feelings about the IPEF. The whole American idea is likely to fail.
Another area where current US foreign policy is failing is in the Americas. Biden was recently hosting the summit of the Organization of American States. The head of states of at least 7 of the 34 OAS member states were not invited or declined to come. Biden’s insistence that the leaders of Cuba, Nicaragua and Venezuela not attend the summit was seen in many capitals as a sign of US imperialism and an unwillingness to address in an honest way the complex issues in the region. Biden again came with empty hands.
U.S. policy in the Middle East is stuck. The nuclear agreement with Iran is unlikely to be revived under Biden as he has rejected to lift Trump’s terror designation of the Islamic Revolutionary Guard Corps. His planned visit to Saudi Arabia, to beg for more and cheaper oil, has been moved to some uncertain future date. Relations between the US and Israel are cooling due to Biden’s more friendly behavior towards Palestine’s administration.
On its anti-China policy, the Biden administration had other setbacks. It had banned solar modules from China over alleged human rights abuses in Xinjiang where the raw materials for making these modules is coming from. This led to supply crisis for solar panels and stopped some major green energy projects. Recent meeting of Defense ministers of China and the US in Shangri-La Summit indicated clearly China’s determination to defend its interests, especially in Taiwan. Yet China is already winning throughout much of Asia on both the economic and diplomatic fronts, within a framework of BRI, and nothing the US is doing seems likely to change that. China also practices persistent diplomacy. Foreign Minister Wang Yi’s travels in Southeast Asia and the Pacific have far outstripped the pace of his US counterpart, Antony Blinken.
One might argue that Biden’s plan to lure Russia into a war in Ukraine has worked well. NATO is at least temporarily united and the EU under strict US control. But the monetary assault on Russia via sanctions has turned out to be a total failure with the ruble gaining new heights. The imposed sanctions have backfired very heavily and created other supply shocks in prices of hydrocarbons, fertilizers and wheat going through the roof.
According to number of economists and big investors, the US is just entered the most turbulent period in US economic history, severe crises are brewing on multiple fronts and converging so that the whole system will have a complete reset and soon. There is a stock market bubble, a real estate bubble, a bond super-bubble… It’s really an Everything Bubble.
How did this happen? In a desperate attempt to paper over their problems, the US governments have printed trillions of new currency units, brought interest rates to below zero and bailed out failing institutions. But those gimmicks have now been exhausted and inflation is spiraling out of control. There’s going to be much less stability of any kind—financial, economic, political, social, cultural, or military—in the months to come. So many momentous events are unfolding right now, including:
- Financial instability and a stock market collapse
- Inflation soaring to 40-year highs… and showing no sign of slowing down
- Geopolitical shocks from Eastern Europe and the Middle East
- Supply chains breaking down resulting in shortages
- Unprecedented partisan acrimony and rising political turbulence
- Tensions with China are reaching the boiling point
June 10, Bank of America issued a warning that the inflation shock in the United States isn’t over yet and that the economy is in “technical recession,” even if most people are unaware of it.
US annual inflation rose to 8.6 percent in May, the highest level in 40 years, as key drivers such as food, energy and housing showed no signs of abating. The markets now anticipate a more aggressive response from the Federal Reserve, which may result in a larger economic downturn.
The June 10 inflation report shows that food prices soared by 10.1 percent and energy prices increased by 34.6 percent year-over-year. The persistent jumps in a wide range of commodities, including crude oil, natural gas, gasoline, and diesel, are expected to send the CPI higher in the coming months. Since the beginning of the year, natural gas prices have increased by 141 percent, gasoline by 91 percent, oil by 61 percent, iron ore by 45 percent, wheat by 39 percent, and soybeans by 33 percent.
The economic growth for the first quarter was negative -1.5 percent and the Atlanta Fed GDP Now prediction for the second quarter is only 0.9 percent.
The World Bank has downgraded its global growth predictions and is warning of stagflation. The average gasoline price in the US has hit $5 per gallon and is likely to increase further, while the stock and house markets are more or less in free fall. The Everything Bubble is going to burst with catastrophic consequences. It does not look good at all for the Democrats in the upcoming mid-term election or a reelection of Biden in 2024. In crisis after crisis, the White House has found itself either limited or helpless in its efforts to combat the forces pummeling them.
There are signs of several other crises, which may evolve from local/regional location to international range. Here the potential list of “hotbed of tensions”:
- Taiwan case: China vs. the US and the EU/NATO
- South China Sea and Pacific area: China vs. the US and its allies
- China’s planned new naval bases
- conflict Pakistan / India
- possible hotbeds affiliated with Ukraine crisis:
- Russia’s western borders vs. Poland
- Transnistria & Moldova
- Russia vs. Romania, Bulgaria
- Israel vs. Iran, Israel vs. Palestina, and Israel vs. Syria
- Turkey vs. Syria, Turkey’s interests in Central Asia and in the MENA region
- Libanon, internal tensions
- possible crises regarding lack of food, fertilizers, energy etc.
Latest ominous statements by some prominent Chinese and Russian persons with international dimension:
Chinese Ambassador to Russia, Zhang Hanhui: “We must put an end once and for all to the hegemony of the United States, with its eternal desire to interfere in the affairs of sovereign states”
Chinese Wu Qian, the spokesperson of the Information Bureau of the Ministry of National Defense of the People’s Republic of China, quoted defense minister Wei Fenghe saying “If anyone dares to split Taiwan from China, the Chinese army will definitely not hesitate to start a war no matter the cost” during a meeting with Lloyd Austin.
Medvedev: “Russia’s achievement of the goals of the special operation in Ukraine should lead to the creation of a new non-US centric system of international security.”
Lavrov: “The more long-range weapons supplied by the West to Ukraine, the further Moscow will move the line of threat from Neo-Nazis to the Russian Federation.”
Putin: “We live in an era of change. Geopolitical, scientific and technological transformations are happening. The world is changing and it is doing so rapidly. In order to claim some kind of leadership, any country should ensure their sovereignty. Because there is no in-between, no intermediate state: either a country is sovereign, or it is a colony, no matter what the colonies are called.”
Europe and the EU
I have analyzed and commented European situation several times in my articles of this year, for example June 8, May 2 and April 21.
ECB and increasing interest rates
The European Central Bank ended a long-running stimulus scheme on Thursday, June 9, and said it would deliver next month its first interest rate hike (25 bps) since 2011, followed by a potentially larger move in September. European economists now expect the following profile of hikes: 25 in July, 50 in both September and October, then 25 in December, February, March and June … taking you to a 1.75% terminal rate a year from now.
With inflation at a record-high 8.1% and still rising, the ECB now fears that price growth is broadening out and could morph into a hard-to-break wage-price spiral, heralding a new era of stubbornly higher prices. Now the sanctions, imposed by the EU administration, show their awkward force and are backfiring heavily.
As I said in my article of June 8:
The EU Commission made the decision to quit Russian oil, crude oil and others, and seek other alternative sources of fossil fuels (sanctions package No. 6). EU Commission seems to have no slightest idea of certain chemical and physical facts of different crude oil grades. By banning Russian oil within next few months and assuming to replace it by supplies from Nigeria, Iran, Saudi Arabia, Qatar or any other locations, is a massive mistake. Europe is walking headlong into the biggest energy crisis in its history and it can only blame itself. Different oil from different providers would throw a massive re-calibration wrench in the whole refinery process. According to the recent expert report, the required restructuring and modification process is so massive that it will take six (6) years to accomplish the whole re-orientation project and will cost tens of billion euros.
This sanction package will destroy the whole industrial backbone of the EU. Great Reset will take place in Europe at fully voluntary base, by the absurd decisions of the EU Commission.
Besides the effects said above, recent sanctions finalized by the EU will shake them up a lot more, not only for the tanker industry but also for American diesel and gasoline consumers. Over 90% of the world’s ships are insured in Europe and the UK The insurance ban could have “a dramatic impact on seaborne trade of oil and oil products”. Once again, the EU Commission seems to be totally unaware of those dramatic disturbing effects on global oil business.
Another, current example of “tragic-comic” decision-making of the EU Commission is here below, regarding major German lithium producer Albemarle.
The European Commission is currently reviewing and assessing a proposal fromthe European Chemicals Agency (ECHA) to classify lithium carbonate, lithium chloride and lithium hydroxide as substances hazardous to human health. An EU committee is meeting early next month to discuss the proposal, while a final decision on the issue is expected toward the end of this year or early next year.
If the EU decides to include the lithium chemicals in the hazardous category, it would deal a blow to its own goals of becoming self-sufficient in batteries this decade and significantly raise the share of electric vehicles on the roads. The EU is set to meet 89 percent of its growing demand for batteries by 2030, the European Commission said earlier this year.
Lithium producer Albemarle would be forced to close its plant in Germany if the European Union classifies the key mineral lithium as a hazardous substance that would change the way lithium is processed and stored, the company’s chief financial officer has told. Albemarle processes lithium products at its Langelsheim factory in Germany, which employs around 550 people. “With sales of approximately $500 million annually, the economic impact to Albemarle from the potential closure would be significant,” the company’s CEO told.
Please, notify this “Every US dollar is a check written on an account that is overdrawn by + 30 trillion dollars”. In fact, the USD is not worth the paper it is printed on.
Ukraine crisis and Russian ruble
In the wake of Russia’s invasion of Ukraine, the currency market seems to be turning in a way that should concern American policymakers. After Western countries united to sanction Russia following its war on Ukraine, one of Putin’s first responses was to force European countries dependent on Russian energy imports to pay in rubles or gold. Many energy companies have accepted his mandate, forcing their euro payments to be converted to rubles before being stored in a separate account under their ownership. This entails a number of consequences.
Since the ruble’s price level has historically been strongly correlated with energy prices due to the importance of exports in Russia’s economy, the scarcity of oil and gas in global markets has led the ruble’s value to swell in a self-reinforcing cycle. The ruble, to the surprise of many Western analysts, has become one of the most successful currencies in the world as the Russian central bank does everything it can to stymie the flow of dollars and euros. Through capital controls and regulations requiring Russian investors to convert their surplus revenues into rubles, the value of the currency has rebounded and even exceeded its pre-war levels.
If the ruble continues to appreciate over the next few months, Western countries will have to spend more to convert their currencies to rubles to pay for their indispensable energy imports. Not only does this raise the global demand for rubles but it also demonstrates to other governments that the Russian currency is capable of resisting punishment from major Western countries.
The Sino-Russian alliance is attempting to attract other nations to an alluring alternative, with the ultimate aim of constructing a financial system wholly independent from Washington’s control. With Russia’s help, China is gradually seeking to undermine US financial hegemony.
Russia is working to build an alternative to the SWIFT system. In 2014, the same year Russia annexed Crimea, the Kremlin established the System for Transfer of Financial Messages (SPFS), a ruble-based payment system that would act as an alternative to SWIFT. China followed suit one year later, rolling out the Cross-Border Interbank Payment System (CIPS). Alone, each initiative is unlikely to undermine SWIFT’s global reach.
China is ostensibly the greatest cause for concern, as it has effectively pursued the development of a digital yuan. An electronic currency detached from American financial oversight will facilitate the expansion of China’s BRI, because Washington will be unable to track the transactions made between Beijing and developing countries.
However, the Putin-Xi summit in Beijing preceding the invasion and China’s refusal to explicitly condemn the Kremlin have underscored the degree of cooperation that these two partners are prepared to undertake to challenge the West. For them to have any impact, one of their first targets will be the economic sphere, as it is a prerequisite to geopolitical influence. Indeed, China and Russia have already discussed fusing their respective financial systems, with Moscow assuring Beijing that it is ready to use yuan in its foreign reserves to expedite the process. It has become clear that the partners are aiming to subvert the global hegemony of the US dollar.
The countries of the Global South are establishing their own institutions, alliances of regional integration, and payment systems, with them turning into a crucial force in the transforming global economy. The largest developing markets, primarily the nations of BRICS, are among the leaders here. In March 2022, Deputy Minister for Foreign Affairs Sergey Ryabkov said that BRICS will form the foundation of a new world order.
However, for the BRICS states to become the foundation of a new world order, the bloc has to offer other countries in the world economy new paradigms of development on a global scale. A format that appears most suitable for BRICS+ is an alliance of three pancontinental alliances: the African Union, CELAC (the community of Latin American states), and the SCO/SCO+ in Eurasia.
Global Finance Market
While markets seem becalmed, financial conditions are rapidly deteriorating. Last week Jamie Dimon of JPMorgan Chase gave the clearest of signals that bank credit is beginning to contract.
Russia has consolidated its ruble, which has now become globally the strongest currency by far. Russia appears to be protecting the ruble from these developments in the West. China has yet to formulate a defensive currency policy but is likely to back the renminbi with a commodity basket, at least for foreign trade. If it is taken up more widely by the members if the Shanghai Cooperation Organization (SCO) and the BRICS, the development of a new commodity-based super-currency in Central Asia could end the dollar’s global hegemony.
History tells us that fiat currencies always fail, only to be replaced by Humankind’s sound money — metallic gold and silver and now that fiat currencies have seen a rapid debasement followed by soaring commodity and raw material prices, interest rates should be considerably higher. Yet, in the Eurozone and Japan they are still suppressed in negative territory. The reluctance of the ECB and the Bank of Japan to permit them to rise is palpable.
Commercial banks in the Eurozone and Japan are uncomfortably leveraged and unlikely to survive the mixture of higher interest rates, contracting bank credit and an economic downturn without being bailed out by their respective central banks. But so massive are the central banks’ own bond positions that the losses from rising yields have put them in negative equity. Even the Fed, which is in a far better position than the ECB and BOJ, has admitted unrealized losses on its bond portfolio are $330bn, wiping out its balance sheet equity six times over.
When considering the world from the European perspective through tens of decades, we can see a wide caleidoscopio of life: poverty and shortage after WWII, reconstruction of societies in 1950s, Vietnam War and Hippies in 1960s, collapse of Soviet Union 1990, rise and fall of the first digi-boom in early 2000s, hype of US unipolarity in 2000s and 2010s, rise of China and Russia in late 2010s and 2020s.
So far, this period has been characterized by some hope for the better future. However now, as described above, the future will promise only bad or worse signs, at least in the short and medium term. I am sorry, if I disappoint you but cannot help it.
My motto is now “It is getting worse before really worsening”.