Category: ForeignPolicy

The US Jobs Market and The EU vs. Russia

The Daily Escape:

Sunset, Lake Sammamish, Issaquah, WA – June 2022 photo by Gary Hamburgh

Two pieces of news to think about today.

First, you can always tell when an economic boom is nearing its end, because the jobs market begins to get shaky. That seems to be starting. The WSJ reports that:

“Businesses in several different industries are rescinding job offers they made just a few months ago, in a sign the tightest labor market in decades may be showing cracks.”

No need to panic just yet, the labor market remains strong, with an unemployment rate at 3.6%, near a half-century low. But signs of retrenchment in hiring shows that executives are having trouble predicting the economy over the next 12 months.

And when companies revoke job offers, it indicates their view of the future business outlook has changed so quickly that it’s undoing hiring plans made only a few weeks before.

Many hiring managers say signing up new recruits remains highly competitive. The WSJ reports on a Gartner survey of more than 350 HR executives conducted in May that found around 50% thought the competition for talent would increase over the next six months. Nearly two-thirds said they hadn’t made any changes to their hiring practices or HR budgets in response to economic volatility.

But it seems there are changes afoot. Country wisdom says that a storm rarely hits us without warning. The skies turn dark, the wind picks up, the birds go quiet. It’s possible to see the signs before the storm hits if you know what to look for. We’re seeing signs now of what’s to come.

Second, there’s an adage, attributed to Trotsky, but difficult to verify, that says: “You may not be interested in war, but war is interested in you.” Those words are apt in today’s situation between Europe and Russia. CNN is reporting about an emerging flashpoint between Russia and the EU:

“Tensions are mounting around…the Russian exclave of Kaliningrad, an isolated but strategically significant territory on the Baltic coast…Russia has reacted furiously after Lithuania banned the passage of sanctioned goods…into Kaliningrad. But Lithuania says it is merely upholding European Union sanctions, and the European bloc has backed it.”

Kaliningrad is Russia’s westernmost territory and it has no land connection to Russia. It’s the only part of Russia that is completely surrounded by EU states. Here’s a map:

Estonia, Latvia, Lithuania, and Poland are all members of NATO, surrounding Kaliningrad militarily. Since Russia invaded Ukraine, experts have feared that Kaliningrad might become the next flashpoint in tensions between Moscow and Europe.

Russia says that Lithuania’s sanctions on goods transit is a blockade in violation of a 2002 agreement to allow goods to flow between Kaliningrad and Russia. Sanctions apply to about 50% of Russian shipments. The sanctioned products include construction machinery, machine tools and other industrial equipment. But food and personal travel are not sanctioned.

Since the Baltic freezes during the winter, resupplying Kaliningrad will become particularly difficult in about six months. Lithuania has also closed its airspace to Russia. A Berlin-style airlift could prove problematic as well.

Lithuania has spent years building a liquid natural gas (LNG) port and the infrastructure necessary to connect to Nordic and EU grids. She was therefore able to shut off Russian oil, gas, and coal quickly and is in a better position to do without Russia’s gas than the rest of the EU.

Lithuania imports 70% of its electricity from Sweden through a dedicated underwater cable. Sweden’s power is nuclear and hydroelectric, thus independent of Russia as well. Lithuania is also in a position to supply gas to Latvia, Estonia, and Poland through their LNG terminal.

So is Europe at a flashpoint? There’s little Moscow can do to Lithuania beyond threaten.

Is it just a matter of time before NATO and Russia are in a shooting war? Doubtful. Russia could try cutting off all oil, gas, and coal exports to the other NATO countries. Russia could then say they would sell to any countries that left NATO. That might not pop NATO’s balloon, but it might take some of the air out of it.

If Russia decided to do that, it would have to find a way to transport it’s oil, gas, and coal to alternate customers. That can’t happen quickly. Given that the adversarial relationship between Europe and Russia may last a decade or more, Russia will probably have to find alternative customers regardless.

Neither side wants to undertake drastic changes in energy supply too precipitously.

Wrongo doubts the Kaliningrad situation will lead to war, but each provocation and escalation increases the odds. We’re playing in a very high stakes game, given the nuclear weapons on all sides. But Europe and NATO can’t automatically bow to Russia’s threats.

NATO can’t be unwilling to fight, but there’s a difference between that and provoking a war. Right now, it’s difficult to see a peaceful end game between the US, NATO, and Russia

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Monday Wake Up Call – May 9, 2022

The Daily Escape:

Sunset, Lynden, WA – May 2022 photo by Randy Small Photography

A final thought about our radical Supreme Court: They should give up their black robes. White robes would be much more appropriate.

But for today, let’s talk about the Victory Day celebrations in Russia. This year marks the 77th anniversary of the end of World War II, and Russia observes it every year with military parades and patriotic messages.

Wrongo is publishing this before we learn exactly how Putin will mark the celebration. Certain pundits think that Putin will use the occasion to escalate his war in Ukraine.

UPI reported that in remarks Putin made to commemorate Victory Day, he blasted what he described as “Nazi filth” in Ukraine. He also sent congratulatory messages to the Russian-appointed figureheads of the Donetsk and Luhansk regions of eastern Ukraine, which together make up the Donbas region, for “fighting shoulder to shoulder for the liberation of their native land.”

That certainly doesn’t sound like he’s backing down on his currently stalemated war.

Others think that Putin is more likely to make the political choice to declare victory, or partial victory in the “special military operation”. They think that Putin will postpone any decision regarding mobilizing more troops, which could be politically difficult. Pat Lang, a former US intelligence officer, worries about Russia using a tactical nuclear weapon against the steel plant in Mariupol, a frightening possibility for the world.

Despite the speculation, let’s spend a few moments thinking about how the Ukraine war might end.

“Tell me how this ends” is what General Petraeus famously asked in 2003 at the outset of the Iraq War. It lasted until 2011, and then morphed into the war on ISIS, that lasted until 2017.

Since the Russian war hasn’t resulted in a clear victory, certain US and British officials are talking more openly about a “victory” in Ukraine, meaning that the West decisively degrades the Russian military’s capability. Also, there’s some talk about regime change in Moscow.

A more likely scenario is that we’ll see an extended standoff between Ukraine and Russia, without an agreed end to the war, but where neither side wishes to continue active combat. In this case, Western sanctions would continue. Russian forces would occupy all or most of the Donbass region and control a land corridor linking Crimea with the Donbass and Russia.

This outcome would have few rules of engagement, since most of the guardrails that would be part of a negotiated settlement wouldn’t exist. The US and Europe would face years of instability and the constant threat of a military miscalculation causing a spillover in Europe. A forever war in Ukraine also runs the risk of eroding support for Kyiv in the US. America isn’t emotionally able to endure another grinding military conflict, even with no troops on the ground.

Finally, there may be a negotiated settlement. But what is the compromise that all parties can live with?

Zelensky has indicated that Ukraine might agree to be a neutral country; but only on condition of stringent security guarantees, the terms of which both the US and Russia might find objectionable.

Ukraine has understandably ruled out territorial concessions, but Putin would almost certainly not agree to any settlement in which Russia were forced to leave the Donbass and Mariupol. And separatist groups there would be unhappy living under Kyiv’s rule after years of war. Also, it’s hard to see Putin compromising unless the US and Europe ease economic sanctions as part of a settlement. Removing sanctions without a Ukraine “victory” might be a difficult political pill for Biden in particular, to swallow.

We like to think that all wars end, and eventually, they do. Remember that may not happen quickly or completely. The surrender of the Confederate Army at Appomattox didn’t settle hostilities, or political and cultural tensions in the US. It didn’t resolve the related racial prejudices and political differences, which still linger today.

It shouldn’t surprise anyone that in the Ukraine war, there may not be a discrete moment marking the war’s end for many years. A protracted war would be a favorable outcome for Moscow. It would certainly be a terrible outcome for Ukraine, which is already devastated as a country.

Time to wake up, America! What’s our strategy in Ukraine? Are we even following a strategy in the Ukraine war? To help you wake up, listen to Jon Batiste perform McCartney’s “Blackbird” on The Late Show in 2016:

Note Batiste’s overture on piano which McCartney originally wrote for guitar, was inspired by Johann Sebastian Bach’s BourrĂ©e in E minor, a well-known lute piece.

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Ukraine War Escalates

The Daily Escape:

Lupine, Rocky Mountain Front, MT – April 2022 photo by Jack Bell Photography

After just a few months, the Ukraine war is escalating dangerously. Russia decided to shut off gas exports to two EU nations, Poland and Bulgaria because they won’t pay Russia in Rubles. This escalation came one day after the US and other Western allies met to coordinate speeding up deliveries of more and better weapons to Ukraine.

Cutting off gas was called blackmail by the EU. But it isn’t blackmail, it’s war by other means. And it was totally foreseeable years ago when Europe happily set up its bulk gas buying relationships with Russia’s Gazprom.

There also were explosions in both Russia and in Transnistria (a separatist part of Moldova) that knocked out two powerful radio antennas and hit the state security ministry. Transnistria houses Europe’s largest ammo dump, filled with old Soviet armaments. It’s just 1km from the Ukraine border. Russia has blamed Ukraine. Ukraine blamed Russia.

Inside Russia’s Belgorod province, near the border with Ukraine, Newsweek reported that an ammunition depot was on fire. It’s unclear whether this was caused by poor local management, Ukraine, or sabotage.

And Germany decided to send anti-aircraft self-propelled guns to Ukraine. The Gepard, a tank with two 35-millimeter anti-air cannons, was phased out from the German army more than 10 years ago. But Germany still has many available. One problem is Switzerland, a key supplier of ammunition for the Gepard, has banned the export of that ammo to Ukraine.

It’s clear that the US and NATO are dipping their toes deeper into this conflict, and that Russia is expanding its efforts as well. The question is: whose toes get nipped first?

The Express is reporting that on Wednesday, Putin told Russian lawmakers in St. Petersburg:

“If anyone decides to meddle in ongoing events and create unacceptable strategic threats for Russia, they must know our response will be lightning-quick….We have all the instruments for this, ones nobody else can boast of. And we will use them, if we have to….We have already taken all the decisions on this.”

The big question today is whether the EU and NATO will say cutting off gas to one of us is cutting off gas to all of us. That would be a substantial escalation from where both stood on Russian gas in February.

By cutting off gas supplies, Russia may be making the same strategic mistake that the Confederacy made with its Cotton Embargo at the beginning of the US Civil War. That initially caused considerable economic pain, but both the French and British started importing Egyptian and Indian cotton. The South lost a long term market by its action. By the time the Confederacy realized it, they’d lost their key cotton export ports because of the US Naval blockade.

This is really Russia’s attempt to bully its biggest Western customer, Germany. As the Confederacy discovered, cutting off your big customers creates an aspect of Mutually Assured Destruction (MAD). It will be interesting to see how the rest of the EU deals with Russia’s demand for Ruble payments.

A few weeks ago it seemed Germany would blink first, but after its announcement to send armored vehicles, that seems less certain. The Russians are simply driving Europe to reduce their reliance on Russian gas and oil, with imports from other sources and renewables.

This is certainly an existential war for Ukraine and, given the current round of escalations and the bellicose talk out of Moscow, it’s becoming an existential war for all of Europe as well.

There’s an emerging feeling in the EU that Ukraine must win for Europe to feel secure. Winning is everything for both Ukraine and Russia. While Russia seems to be winning on the ground in Ukraine, they’ve been mostly stagnant for nearly a month while steadily getting chewed up by Ukraine’s defensive tactics. Ukraine on the other hand, is being bombed and shelled back to the 19th Century.

In the short term, things look bleak for Ukraine. In the longer term, if the West’s weapons resupply works, things look bleaker for Russia. And in the sanctions war, it also looks bleak for Russia in the longer term.

Europe probably can replace most of its Russian oil and gas imports within 12-18 months. OTOH, the Russian war machine is dependent on the West’s chips, optics, and other high tech, all of which are embargoed. It will take Russia years to replace them.

A final thought. Corruption in Russia’s military has been a serious problem since at least the 1970s. That time frame is important, because it means that no current Russian military officer has ever lived in an un-corrupt military culture. That doesn’t mean their military isn’t dangerous, but maybe we’ve exaggerated their prowess.

Wrongo asked Ms. Right if she could name a city in Moldova. She came up with bupkis. Wrongo understands that Bupkis has lovely churches and museums.

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Will Sanctions Hurt the Dollar’s Role in Trade?

The Daily Escape:

Cherry Blossoms, Univ of Washington, Seattle, WA – March 2022 photo by Erwin Buske Photography

One of the most important elements in the undeclared war between the West and Russia is how sanctions are changing both international trade and the international payments system.

The West has basically frozen Russia out of both. First, by taking Russia out of the SWIFT payments messaging system, and second, by sanctioning Russian banks and the Russian Central Bank. Third, by seizing Russia’s currency reserves that were held in the West.

All of this means that Russia can’t easily accept dollar/euro payments for exports and then convert them into rubles for use at home. By losing access to the international currency markets, it’s become impossible for Russian businesses exporting their energy, goods, or commodities to get paid. This may be a historic moment in economic history.

By freezing hundreds of billions of dollars of Russian reserves, the Russians no longer can access those dollars or euros. Sanctions mean that even the dollars and euros they could create through trade cannot buy much in the countries that support the sanctions.

Naturally Russia is looking for work-arounds for this dilemma. Selling the West anything in dollars or euros no longer makes sense: They can’t use them at home without exchanging them for rubles. And sanctions make that very difficult, since they’re closed out of our banking system.

There are two ways around this. Either use Russian banks that are not banned from SWIFT or go through an informal third-country currency exchange. Russia’s first effort is to only accept payment in rubles for its exports to “hostile nations”. That is, those nations who have imposed sanctions because of Ukraine.

In order to buy Russian oil and gas which they desperately need, Europeans will have to pay in rubles. That means either selling dollars/euros for rubles or selling them for yuan (China) or rupees (India), two countries that are not part of the sanctions regime.

The West’s move has the potential to upend the world’s trading system which today relies on payments in dollars. The dollar has been the world’s principal reserve currency since the end of World War II and is the most widely used currency for settling international trade. The dollar represents about 62% of global trade, down from much higher levels before the euro was established. The other important currencies are the euro at 20.1% and the Japanese yen at 5.7%. China’s yuan is at just 2.0% of trade settlements.

It is increasingly likely that Russia’s move will result in a further “de-dollarization” of trade. Recently, there have been new attempts to abandon the dollar. Saudi Arabia and China are planning to use the yuan in a new oil deal. Russia and India are negotiating to pay for trade in rupees.

China’s energy trade with Russia uses the dollar. Chinese energy imports from Russia soared 47.4%, an increase of more than $52.9 billion from 2021. This accounts for more than 65% of China’s total imports from Russia. Since the sanctions, both countries have stated their intention to move more of this trade to yuan.

A new multilateral financial system is emerging before our eyes. Who the participants will be, and what rules they will follow, are up in the air. The dollar will remain primary between the US and its allies, but alongside it, there could develop Russia-yuan, Saudi-yuan and India-yuan arrangements for trade in oil, minerals, and industrial products. Shifting just part of the global oil trade into the yuan is potentially huge. Oil is the world’s most traded commodity, with an annual trade value of around $14 trillion, roughly equivalent to China’s GDP last year.

We’re likely to see more trade occurring in more currencies, probably on a number of exchanges. We will see the world realign into different trading and monetary blocs, like there were in the past.

However the Ukraine war is settled, the Russian claims that the US has shot itself in the foot about the dollar’s dominating role in trade has a ring of truth. In the past, the US took Iran’s reserves after the Shah was overthrown. We froze Afghanistan’s foreign reserves earlier this year and now the West has done the same to Russia. A few years ago, the UK froze Venezuela’s gold in the Bank of England.

These systems are built on trust, and for the next few decades, trust may be lacking. So we’re looking at the possibility that there will be two quite different geo-political philosophies operating as trading partners as the non-US world develops its alternatives to the dollar as the world’s dominant trading currency.

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China’s Reaction to Putin’s War

The Daily Escape:

Snow on the Fields of Wrong, March 10, 2022                 Sand on the beaches of Florida, March 2022

(This is the last column for the week. New content next week will be light and variable as Wrongo and Ms. Right make our annual pilgrimage to Florida to visit Wrongo’s sisters.)

Subsequent to the meeting between Putin and Xi Jinping in Beijing at the start of the Winter Olympics, the Chinese government’s statements and actions about Putin’s War in Ukraine have been a kind of doublespeak.

With its public statements, China’s been supportive. The foreign minister has referred to Russia as its “most important strategic partner.” China hasn’t endorsed Russian sanctions and its state media seems to repeat a lot of Russian disinformation about Ukraine.

On the actions side, the Chinese government has called for an end to violence and has promised to send humanitarian aid to Ukraine.

One thing that hasn’t been public is Chinese financial institution’s hesitancy about new deals with Russia. Chief Investment Officer magazine (CIO) quotes Yuan Jiang, a Chinese PhD candidate at Queensland University who specializes in Russia-China relations:

“Currently, the risk is simply too huge…”

Jiang said that traditionally, only state-funded institutions or large corporations would transact or directly invest in Russia, but even these institutions were wary of Russia:

“Russian markets are full of political corruption and other dangers…”

China’s financial sector has been leery of being caught up in the Western sanctions. Two major Chinese state-owned banks are now restricted from financing Russian commodities, according to Bloomberg. Reuters reports that the Bank of China in Singapore stopped financing Russian oil trades.

CIO also reports that some banks with partial Chinese state ownership have also been backing out of Russian deals. The Asian Infrastructure Investment Bank, which has many Asian governments as shareholders, suspended its business in both Russia and Belarus after the invasion. Similarly, the Shanghai-based New Development Bank, which has China as one of its founding members, also has terminated its business with Russia.

Now Russia is barred from participating in SWIFT, the global financial messaging system. In the past, China’s large banks have complied with American sanctions against Iran and North Korea because of the importance of clearing via SWIFT. The Chinese distancing from Russian transactions makes it clear that Beijing intends to continue complying with this Western sanction.

The Russians are looking to China as a lifeline in the midst of the sanctions. And the Chinese government is providing some help. China’s UnionPay card service will serve as an alternative for credit and debit card holders now that MasterCard and Visa have ended the ability of Russian citizens to use their cards abroad. UnionPay is accepted in 180 countries.

But China is shying away from a full rescue. Former US Treasury official Peter Piatetsky said in an interview with RadioFreeEurope:

“China can essentially do one thing here, which is to buy more Russian goods, but they don’t seem to be willing to do that….Russia doesn’t have that many different goods that China is willing to buy….The relationship between Russia and China is very transactional….They both dislike the US and dislike the US-led world order, but aside from that, I don’t think there’s much there.”

China could buy up Russia’s oil that’s no longer going to Europe if it wanted, but it doesn’t appear to be doing so, at least not yet. According to Jiang, ultimately the US has much more to offer China economically:

“Investing in the West is much simpler and more secure. No more unnecessary economic risk, not many political factors, and more transparent…”

And importantly, the US is China’s largest trading partner. The US buys 16.75% of all Chinese exports, creating a relationship that the Chinese government can’t afford to lose. Although ideological differences might dominate headlines, the US-China relationship is strategic for both.

It’s likely China will continue to keep Russia close and expand the relationship should relations with the West shift. And since the stated US strategy is to use Ukraine to destabilize Putin’s hold on power, China worries that it’s next.

Jiang says that Beijing is particularly afraid of “color revolutions,” a phenomenon in which popular uprisings result in regime change:

“Moscow and Beijing share almost indistinguishable views on the potential domestic and international security threats posed by color revolutions, and both nations view these revolutionary movements as being orchestrated by the US and its Western democratic partners to advance geopolitical ambitions.”

Despite the havoc that Western sanctions have brought on the financial system, China’s strong economic relationship with the West will help it keep Russia at arm’s length. If anything, the Ukraine war has shown just how much China relies on the West for its economic prosperity.

China and the US are particularly intertwined financially, and despite ideological differences, China will continue to prioritize its economic relationship with the US.

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Monday Wake Up Call – NATO edition, January 24, 2022

The Daily Escape:

Landscape Arch, Arches NP, UT – January 2022 photo by Peter Ferenz

Let’s talk about the elephant in the room in the standoff between Russia and Ukraine: NATO. Back in the early 1990s, Clinton wanted to have it both ways with his Russian counterpart, Boris Yeltsin. He wanted to expand NATO while at the same time, partnering with Russia.

Yeltsin wasn’t having any of that. He accused Clinton at a summit of the Conference on Security and Cooperation in Europe, (CSCE) that the US was “trying to split [the] continent again” through NATO expansion. Putin believes that today.

NATO’s expansion, either in the form of full members (or in increased military activities), has now been the policy of five US presidents: Clinton, GW Bush, Obama, Trump, and now, Biden. So, a couple of questions:

  • Did NATO’s expansion to the east of a reunified Germany increase the security in Europe and reduce the risk of a major war in Europe?
  • Did NATO’s expansion in membership increase the safety and security of the American people?

The answer to both is a no. NATO expansion post 1990 hasn’t helped the original European allies and has done nothing to improve the security of the US. Arguably, we’re worse off today than in 1990.

Today there are true splits within NATO. Germany, its most important country, isn’t on the same page about Russia. From Der Spiegel:

“The US wants to impose harsh sanctions on Russia if it invades Ukraine. But the German government is putting on the brakes out of fears over the economic consequences and what punitive measures could mean for energy supplies for a country that gets much of its gas from Moscow.”

Germany’s conflicted about Ukraine. Der Spiegel reports that last week, the US CIA director William Burns held a meeting in Bonn with German Chancellor Olaf Scholz. Burns told him that if Russia attacks Ukraine, Berlin must take a clear stand.

Biden also wanted to meet with Scholz in Washington. It would have been an opportunity for them to closely coordinate steps in dealing with Russia, but Scholz refused to go and meet him. We have a problem when Russia is building up to the biggest European military threat since the end of the Cold War, and the German Chancellor is unable to clear his schedule to meet with the American president.

Having declined the Washington visit, Biden dispatched Secretary of State Blinken to Berlin, and like the CIA director, his message was – Germany must participate in tough financial and economic sanctions if Putin strikes.

Despite the European ambivalence, Russia’s move to surround Ukraine with troops may be a strategic error. Europe has wanted to become a kind of giant economic Switzerland, independent but neutral. Today, it’s trying to come to grips with the fact that Russia wants to push NATO as far back as it can by recovering former Soviet territory.

Russia making NATO into a target seems to have revivified NATO a bit. It was more or less in slumber before Putin’s move against Ukraine and his demands of NATO and the US. Europe, the US, and NATO are walking a tightrope now, since there’s a fine line between diplomacy and “appeasement”.

The US and NATO countries all have entrenched maximalist military hawks who will attack any politician that surrenders an inch to Russia in the current situation. That’s an understandable position. In the last decade, Russia broke up Georgia, it ended the revolution against Assad in Syria, while securing its naval base there. It annexed Crimea albeit with local popular support, sent troops to Libya and Africa, supported Armenia against Azerbaijan, and recently “preserved” the non-elected government of Kazakhstan.

Can/should this be allowed go on forever? Is this the right time to push back hard?

There is no military solution that will keep Russia out of Ukraine. When Wrongo was a member of the NATO forces, the accepted strategy was that US and European troops on the ground were a “tripwire”. It was clear that the Soviet Union had vastly superior military assets amassed on Europe’s border. And Europe’s border was at that time, East Germany. Berlin was just 300 miles from Bonn, a day’s trip.

The counter to the Soviet’s military superiority was NATO’s potential use of tactical nuclear weapons. We could stop their ground forces reasonably effectively before they could get to Germany’s capital. The basic NATO position was to fight long enough with conventional forces to make the possibility of nuclear escalation plausible.

Today the situation is similar. Russia has vastly superior military assets amassed on Europe’s border, but the distances are greater: From Smolensk on Russia’s western border to Warsaw in Poland is about 500 miles, and it’s 1,075 miles from Smolensk to Bonn, Germany.

That breathing room explains Clinton’s flawed reasoning for NATO expansion. But, since the West has said that it will no longer use tactical nuclear weapons, it has limited options if it faces a limited invasion of say, Ukraine, a non-NATO member.

This leaves the US with trying to find a diplomatic solution, one which doesn’t look like appeasement, one that the many NATO members will also find acceptable. Having to compromise will mean finally admitting that we are part of a multipolar world.

Is Washington ready to go there yet? Very doubtful. Our path is fraught with danger as we careen from crisis to crisis. Something has to change or we’ll misplay a hand and be back where we were in 1939.

It’s time for NATO, Europe, and the US to wake up! It’s hard to see a sensible compromise that doesn’t look like appeasement, but it’s their job to find it for the rest of us.

To help them wake up, listen to John Mellencamp and Bruce Springsteen perform “Wasted Days”, from Mellencamp’s “Strictly a One-Eyed Jack” album, released this week, it’s one of the three songs featuring Springsteen:

Sample lyric:

How much sorrow is there left to climb
How many promises are worth a dime
Who on earth is worth our time?

Think about that NATO!

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How to Think About Australia’s Nuclear Subs

The Daily Escape:

Pumpkins, Bear River City, UT –  September 2021 photo by John Dodson

Should average Americans care that the French are pissed off at Biden? Should we care that within days after shutting down our Afghanistan adventure, we’re adding a new nuclear capability, girding for a possible war in Asia?

On the surface (pun intended) it’s all about nuclear submarines. Australia just reneged on a $66 billion deal negotiated in 2016 to buy French diesel-powered subs. Instead, on September 15, they signed a new deal with the US and the UK to purchase American nuclear-powered submarines.

Ironically, in order to win the Australia deal, France had to design a conventional power plant for its Barracuda-class submarine that was originally powered, as all French subs are, by a nuclear reactor.

France’s power conversion for the Australian order ran into difficulties and time delays. Vox reported that the French deal had already been unraveling, saying that it had fallen behind schedule while costs nearly doubled:

”In June, Australian Defense Secretary Greg Moriarty signaled…that the original deal was proving untenable…and that Australia was pursuing other options should the pact fall apart.”

There were other issues. Shortly after Australia and France reached their agreement, the French shipbuilder revealed it had been hacked, and documents related to a separate Indian submarine project were exposed. Meaning plans for another Barracuda-class sub were floating around the internet, not a big confidence builder.

On the strategic side, France’s conventional, diesel-powered attack vessels may have made sense before China began its quest for dominance in the South China Sea. But new geo-political realities along a major Australian trade route made the French submarines obsolete before they could be delivered.

FYI, a sub designated an “attack” submarine has only conventional weapons on board. The US-made attack subs are nuclear powered, so they have a far greater range, don’t require refueling, and can stay underwater for months at a time without being detected.

Australia has already sunk some $3 billion into the French contract, and France will likely demand additional compensation for the cancellation. The new contract with the US/UK not only costs more, but it only includes 8, instead of the 12 submarines France was delivering.

Generally, navies require three boats in order to have one at sea full-time, since the other two are often either in training, or in refit. This means that the actual patrolling capacity for Australia’s nuclear navy will only be 2-3 concurrent submarines at sea.

Losing the sub deal places French President Macron in a tough spot. GZero reminds us that France is just six months away from a general election that’s shaping up to be a close race between Macron and his far-right rival, Marine Le Pen:

“Macron, who has increasingly veered to the right on certain issues…knows that he can’t afford to look toothless, and that taking a hard line on the US could reap political benefits come election day (only 44% of French adults now view the US favorably).”

That helps explain some of the anger. Aside from the financial hit from losing the deal, and the slight by the US, France is also miffed because it shows the world something no country wants to admit – that France is not a superpower. And despite its pretensions, it really isn’t a global power.

Most would agree that a nuclear sub strategy is the right choice for Australia. It is a member of the British Commonwealth. Australia and New Zealand are out in the Pacific, much closer to China than to Europe. They seem to think that planning to work with the US and Britain is a better fit.

But the US shouldn’t have excluded the French or lied to them. France has 2 million inhabitants in the Indo-Pacific, and had by 2018 already defined its strategy for the region. Biden must work to mend these fences, and that seems to be underway.

Amid all the pearl clutching regarding France’s anger, isn’t the real question what’s best for Australia’s defense? This is Australia’s way of showing China that if they choose to block Australian trade routes, the Australian navy will have several untraceable attack subs that could deter the Chinese Navy.

China’s massive military buildup is the primary reason for this new arms race in the Indo-Pacific. Australia, along with Biden, are responding. We shouldn’t take seriously the accusation of “sparking” an arms race that is already underway.

For the US however, this amounts to a relatively cost free and significant de-facto expansion of America’s Asian nuclear attack submarine fleet, our most effective deterrent to Chinese territorial expansion.

With this, Biden has executed a masterstroke in Asia.

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Monday Wake Up Call – September 13, 2021

The Daily Escape:

Cliff Palace, Mesa Verde NP, CO – September 2021 photo by David Milley Johnson

Daniel Byman of Georgetown University has the cover article in the WSJ’s Weekend Review: “Why There Hasn’t Been Another 9/11”. He says that while jihadism remains strong globally, the US has been spared a repeat of 9/11:

“Twenty years ago, the 9/11 attacks killed almost 3,000 Americans. Since then, the US homeland hasn’t suffered any comparable terrorist assault, nor even one a tenth of the size. The total death toll from jihadist attacks inside the US over these last two decades stands at 107…”

Byman’s point is that despite losing in Afghanistan, the US has become skilled at limited interventions: a drone strike to kill a terrorist leader here, a raid by special operations forces there, including the killing of Osama bin Laden and ISIS head Abu Bakr al-Baghdadi, among others. This has forced the terrorist leaders to hide constantly and has eliminated their ability to run large terrorist training facilities.

Our abilities to intercept terrorist phone and internet communications, monitor activity from the skies and coordinate in real time with our allies, allows us to be on top of most large-scale attacks that might be planned against us. From Byman:

“A jihadist arrested in Morocco may have made phone calls to an operative in France, who received money from a funder in Kuwait, who is tied to cells in Indonesia and Kenya and operates under the instructions of a leader in Pakistan…”

All of this is tracked. And the US then assembles this giant jigsaw puzzle, encouraging the arrests of suspects, while using drone strikes where arrests are difficult. Byman implies that we’re being kept safe because of our investment in anti-terrorist assets and technology.

He’s planting a stake in the ground for additional funding for America’s successor to the Global War on Terror (GWOT).

Adam Tooze reminds us that US military spending was driven to new heights by the GWOT. Overall spending peaked in 2010 at $840 billion. You might expect that America’s defense budget would have decreased when we got out of full-scale Iraq and Afghanistan operations, and it did. Tooze says that overall DOD spending fell to $629 billion in 2015.

With Trump in charge, the Pentagon’s budget was pushed back over $700 billion. So far, Biden is staying the course. Our withdrawal from Afghanistan in no way signals a retreat from global ambition, as the budgetary request for National Defense in 2022 is $752 billion, a 7.4% increase.

And the amazing part is that the military doesn’t seem to have an articulated strategy to combat future threats. That may explain why it took 20 years, four presidents and $ trillions for America to replace the Taliban with the Taliban in Afghanistan. As the think tank CSIS points out:

“It has been about 15 years since DoD explained, even roughly, how it calculated the force levels that it was proposing….”

Tooze says: (emphasis by Wrongo)

“In other words, America’s grand strategists formulate goals, the Pentagon draws up lists of things it wants…but it is unclear how each of these decisions relates to the other.”

The US military is a giant professional organization run by leaders with postgraduate degrees. Like most large organizations, it is hierarchical and thrives on amassing internal power. The battle for resources between the branches of the military is intense.

The National Defense Strategy of 2018 redefined America’s future security challenge as great-power competition with China, not counterterrorism. The main arena isn’t the Middle East, but the Indo-Pacific. And Biden is doubling down on this strategic blueprint.

This requires transformative technologies: AI, robotics, cyber weapons, and new space technology. The technology will come from Silicon Valley, even though they have somewhat conflicting technological partnerships with China.

We’re no longer training military in Afghan villages in California, we’re planning on building robot submarines. All of this shows that the withdrawal from Afghanistan in no way signals a retreat from our military’s global ambitions, despite our historically mediocre military leadership.

Time to wake up America! The war hawks in each Party along with the defense contractors have no intention of taking their collective feet off the gas pedal of military spending. What animates the alliance between them are buzzwords and money.

Despite what you think, social programs will always need to be paid for by new revenue, while defense spending is always “on the house”.

To help you wake up, listen to “New York Minute” by Don Henley. While it has some deep relevance to 9/11, it was recorded in 1989 for Henley’s solo album, “The End of the Innocence”. It was one of the songs radio stations in NYC played frequently in the weeks after 9/11. The track features Toto members David Paich on piano and Jeff Porcaro on drums:

Lyrics:
Harry got up
Dressed all in black
Went down to the station
And he never came back
They found his clothing
Scattered somewhere down the track
And he won’t be down on Wall Street in the morning

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Thoughts on the Cuban Demonstrations

The Daily Escape:

Apartment block, Havana Cuba – 2014 photo by Wrongo. Most buildings in Havana are made of concrete and their outer walls are deteriorating from the salt air and deferred maintenance.

Cuba was in the news last week after tens of thousands took to the streets all across the country. Reports say that they were chanting for freedom and food. Wrongo and Ms. Right visited Cuba in 2014 and while we didn’t come away as experts in the country or its people, Wrongo has some thoughts about what’s wrong there today. And it isn’t a thirst for democracy.

First, Cuba is suffering from hyperinflation. Prices have skyrocketed and inflation is likely between 500% and 900% this year. This is on top of the economy declining 11% in 2020, and apparently continuing to fall further in 2021. The economy’s shrinking is due to Covid hurting tourism and to the continuing Embargo by the US; but the inflation is the Cuban government’s doing.

Cuba ended their dual currency system at the beginning of 2021. Before that, they had a domestic peso called a CUP, and Cuban convertible peso called a CUC. A dual currency system allows one currency to be used for purchasing domestic goods and services, and the other for foreign goods. The purpose is to make sure that a country doesn’t spend more money on external goods than it is earning from its exports of goods and services.

In a single currency system, when there’s way more demand for foreign goods than export earnings, if you allow people to purchase whatever they want, your single currency will lose value, leading to inflation or hyper-inflation. After Cuba transitioned to a single currency, Cubans could buy more foreign goods, but it has also led to hyperinflation.

Cuba’s caught in a trap: they don’t have enough of anything, including food. Their primary ally, Venezuela, can no longer help (also suffering from hyper-inflation). But shortages are shortages. Moderate inflation prices some people out of the market for a product. As prices go up, the demand goes down. Hyper-inflation imposes the costs on a different group of people, those who can’t get foreign currency, usually the poor.

This is one reason Cubans are in the street.

Second, housing is also a major issue. Most people live in an apartment or house that has been passed down from their parents. All children share equally in the inherited building, so homes are sub-divided into private spaces by the next generation. That means living space is very cramped. Arch Daily reports that:

“The average age of a home in Cuba is just over 75 years old, and three of them collapse every day. Cuba’s housing crisis is perhaps one of the most unique examples of urban inequity in the world.”

As you can see from the photo below, thousands of Cubans live in derelict homes.

Source: ArchDaily

Cubans are questioning how new housing will be built, or where the funds come from to repair existing structures. They are also seeking less state control over the homeownership process.

This is another reason Cubans are on the street.

Finally, Cuba has great home-grown Covid vaccines, thought to be 92% effective against Covid in clinical trials. It is administered in three doses, with two weeks between each vaccination. According to Dr. Guillen Nieto, inventor of the drug, 2.2 million Cubans have already received their first vaccination, 1.7 million their second and 900,000 the third dose. There are 11 million Cubans.

But Cuba just agreed to send 12 million doses to Venezuela, precisely when Covid cases are growing at home. In April they reported 31,346 cases and 229 deaths, compared to 12,056 cases and 146 deaths in all of 2020.

Another reason why people are in the streets. So far, none seem to be about democracy.

Now, Republicans are again bleating about Cuba. It remains to be seen whether the protests are a unique event that will be quashed by Cuba’s regime, or if it’s the start of a meaningful movement.

The US embargo has been our single strategy with Cuba since 1959, and it hasn’t worked. Hoping the population feels hungry enough and desperate enough to revolt against its government is cruel and capricious. The Cuban embargo has been one of America’s biggest foreign policy failures. If you want to change Cuba, you should flood it with American money.

That was starting to happen under Obama.

Based on Wrongo’s 2014 visit, Cubans like American goods. They like American dollars. They’d like access to better food than what they get under the government’s food subsidy program. Under Obama, it was starting to happen.

Trump put a stop to all of that because of Florida’s anti-Castro clique. They still think that cutting off ties to the regime will make a difference, notwithstanding 60+ years of failure.

So far, Biden is just continuing Trump’s policy. Florida didn’t vote for Biden, and its Governor, state legislature and Senators are all Republicans. Biden should just end the embargo and be done with it.

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Saturday Soother – June 19, 2021

The Daily Escape:

View of Lake Champlain from Hog Island, VT – photo by Kim Brown

A few items that were lost in the noise this week: First, the House voted 268-161 to repeal the 2002 AUMF, the Iraq War Authorization for Use of Military Force. The 2002 AUMF allows military action to defend the national security of the US against the continuing threat posed by Iraq. The other AUMF, the 2001 AUMF, issued to allow the president to order the invasion of Afghanistan, remains in effect.

The rationale for repealing these AUMFs is that the power to declare war properly belongs with Congress. Congress’s delegating a blank check to the president via the AUMF’s to make war promoted the indefinite, Middle East military engagements that turned Onion headlines about sons patrolling the same routes in Afghanistan as their fathers into a horrible reality.

Congress has been negligent in reclaiming their power. And while there’s a case for the kind of open-ended military actions of the 21st Century, that case should be made in Congress, where the strategy can be deliberated, and if approved, funded by Congress, our ultimate authority for both war-making and war-funding.

The 2002 AUMF repeal now goes to the Senate and if passed, to Biden, who has suggested he would sign a repeal.

Even if the repeal passes the Senate, the standard Republican line on AUMF repeal is that a replacement resolution must be passed at the same time. That will possibly kill the repeal. And depending on how it is written, it could defeat its entire purpose.

Second, this week, Lina Khan, the author of “Amazon’s Antitrust Paradox” was confirmed by the Senate (with 19 Republican votes) as Federal Trade Commissioner. A 32-year-old, British-born woman of Pakistani heritage is now Chair of the FTC, facing down the most powerful corporations in American history, backed by the full power of the US government.

Khan inherits an antitrust lawsuit against Facebook, which seeks to break up the company over allegations that it copied or acquired and killed its rivals. The lawsuit is a test of Washington’s ability to check Silicon Valley’s power amid a broader debate about changing tech regulations. Kahn will be running an agency that lawmakers and experts for years have warned is under-resourced and lacking technical expertise.

Our existing antitrust laws are robust, but they have been weakened by business-friendly judges and clearly aren’t optimized for our digital world. A bipartisan group in Congress introduced a series of bills that would outlaw many of the allegedly anticompetitive tactics that tech companies used to solidify their dominance. But as with all reforms, it’s unclear whether they’ll pass.

Ms. Khan will be getting more resources. Biden has proposed an 11% funding increase for the FTC, boosting its spending from $351 million to $390 million. The president’s proposal will also allow the FTC to increase its headcount to 1,250, its largest staff since it was eviscerated in the early 1980s.

She enters the FTC with a 3-to-2 Democratic board majority, but it’s unclear how long that will last. Rohit Chopra (D) is awaiting his confirmation to the Consumer Financial Protection Bureau. If he leaves, it could be difficult for Biden to build the bipartisan support needed to install another commissioner.

Finally, it was disconcerting to hear Putin, in his post-summit news conference, play back Republican disinformation. From the WaPo’s Dana Milbank:

“For the past few years, Republicans in Congress have echoed Russian propaganda. On Wednesday, in Geneva, Vladimir Putin returned the favor: He echoed Republican propaganda.”

Milbank notes that the Russians have adopted the talking points of right-wing media about January 6. Putin mentioned that the January 6 insurrectionists are not looters or thieves:

“Many of the suspects, have been hit with very harsh charges…. Why is that?”

Putin read some more from the Republican playbook:

“As for who is killing whom or are throwing whom in jail, people came to the US Congress with political demands….Over 400 people had criminal charges placed on them. They face prison sentences. … They’re being called domestic terrorists.”

It’s surprising how awful Republican talking points sound when spoken by Putin.

On to the weekend, and our Saturday Soother! We will be continuing our yard work on the Fields of Wrong. You know you live in the wilds when Ms. Right can find bear poop 20 feet from our front door. Interestingly, it smelled like the bear had dined on fish. That’s probably enough outdoors reality for this week!

Let’s start our Juneteenth and Fathers’ Day weekend by listening to Harold Darke’s “Fantasy in E Major”. It is arranged here for string orchestra by Clive Jenkins because Drake’s arrangement is lost. It’s played by the Chamber Ensemble of London, conducted by Peter Fisher:

The video is beautiful because it includes paintings by English landscape artist, James Lynch. They’re lovely. Enjoy!

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