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Japanification and the end of the American Dream

2014 August 14
by Ian Welsh

Stirling Newberry and I have been writing about Japanafication for years—on blogs, at least since 2004.

Those of us who are old enough remember when Japan was THE miracle economy.  Technologically advanced, vibrant and rich.  It was eating America’s lunch, and most other countries.  For peak alarmism at this fact in a fictional form, read Michael Chrichton’s Rising Sun.

Tokyo real estate was worth more than the entire world’s real estate combined.

Then the bubble crashed.  Japanese policy was to protect the banks, and to bury the bad loans on the books.  They undertook literally decades of stimulative policy, mostly pouring useless concrete (exactly the wrong thing to do unless your country really lacks that sort of infrastructure, which Japan did not.)

To put in terms familiar to my readers, they extended and pretended.

Japan went into semi-permanent stagnation.

We have, now, the news of a quarter drop in GDP of 6.8% annualized for the last quarter.  (This is blamed on increased sales taxes, but it was coming anyway.)

The long stagnation is over (it’s been over for a bit).  Japan is actually in decline.

This is important because Japanification was always the plan for the US after the bubbles: extend and pretend, stagnate wages and employment.  Pretend.

But there were significant differences between the two countries.  Japan started with massive savings and a huge trade surplus.  It is now in trade deficit and savings compared to debt are way down.  Economic equality was relatively high, as well, spreading demand.

America came out of the financial crisis with a trade deficit, a pathetic savings rate and massive inequality.  This is why I predicted that Japanification would not work in the US.  It could not, because there was no saved fat to be used to create the long bright depression the Japanese had.

This brings us to stimulus and development (not just for developing countries).  The money must be used not for pork projects with no follow on, but to create new industries or to bring money off the sides into the economy.  Pouring concrete (and not even bothering to shore up nuclear reactors in areas which were not electorally viable) was pointless in Japan.  Buying bonds is pointless and even harmful.

Likewise you cannot have real open trade flows and expect to keep whatever you are building.  You build it, you make it work and once an industry is systemized, it can be moved to a low cost domiciale. It takes deliberate government policy to prevent that.

Monetary policy in Japan could never work, because the money went to the wrong things, and much of it immediately decamped overseas in the so-called carry trade—borrow low in Japan, buy securities somewhere else where they had a higher return.

All of this should be obvious and uncontroversial. It is not, it flies directly in the face of modern neo-liberal theory and it is that theory, in the face of decades of failure, that the Japanese followed.

The human capacity for ideologically driven stupidity and atrocity is endless. (Those who do not believed me are invited to study Church history and its effect on society from 1000 AD to 1900 AD or so.)  People will ignore the evidence in front of their eyes, years of failure and continue doing the “safe”, “orthodox” thing no matter what the results.  This is true even for well-meaning people.

Of course, in the US, Japanification has a US twist: it massively increases the wealth of the already wealthy, through unconventional monetary policy.  American leaders are far too greedy to make Japanification work: any surplus, or room to lend, or room to print money, must be given away to rich people as quickly as possible.

I point out, finally, that the first sin in Japanification was buying the bad loans.  This was a huge mistake in the US too, bailing out the banks and not forcing them and their share and bondholders to take their losses was the main mistake of the financial crisis.  Yes, things might have been worse if the US had done so (though steps mitigating the hit on the regular economy would have been easy enough to take with the 4 TRILLION dollars used bailing out rich people), but even so, the US would have recovered better afterwards.

Instead the US has an economy in which 90% of the population has seen an actual decrease in income and wealth, while 10% has seen an increase: with the 1% and the .1% and the .01% benefiting most of all.

Japanification was the plan for America. It isn’t working, it could never work, but the policies in place are nonetheless doing what is most important to their architects: they are making the rich richer, and everyone else poorer and doing it quickly.

The Bush years were the long suck.  This is the deep dive, and remember, the US isn’t in recession yet (though it is in depression).  The pain when it happens (and absent nuclear war, there is always another recession), will be unbelievable.

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2014 August 12
tags: ,
by Ian Welsh

The rise of the ISA is a demonstration of the simple principle Napoleon once summarized as “The moral is to the physical as ten is to one.”

We have seen this for years, and the lesson is never learned by the West.

People who believe in what they’re fighting for, who are willing to both kill AND die are far better soldiers (and pretty much everything else) than those who aren’t.

This has been demonstrated, over and over again.  The Chinese in Korea, the Vietnamese, Afghanistan, Hezbollah.

Moreover endless low-grade war is moronic.  I once noted that Hezbollah was the perfect Darwinian organization; it had learned all the lessons Israel had taught.  It was used to fighting while outgunned and outnumbered.  It learned when not to use modern communications, to operate as a secret state, and so on, from Israel.

The modern form of electronic and surveillance warfare that the US practices is all very nice, and it is powerful, but the US and its proxies have been at war with the Islamic world for decades  The West, basically, does not learn. Its militaries are not getting better (though many will claim they are), except in terms of equipment.

The militaries of those who fight the West, on the other hand, are improving by leaps and bounds.  They move fast, give power to local commanders, isolate and destroy enemies, and regularly surprise their foes.  The ISA, to an extraordinary degree, chooses where to fight and when.  Of course they are winning.  The only people in the Middle East who are almost certainly the ISA troops equal are Hezbollah (and I would expect, their betters.  We’ll find out.)

When you fight wars as a superior power, you want to make them quick, over and out.  An America which invaded Irak, stayed in Baghdad for only two months, and installed the Colonel of its choice as the new leader would still be a US which terrified the Islamic world.

The ISA, I suspect, has another great advantage over the militaries it faces.

It doesn’t use much in the way of electronic communication (those commanders who do, get dead.)  This means that once units are given orders, the local commanders are free to execute those orders as they see fit, rather than being micromanaged by generals in the rear line.  No single person, or even staff, can react as quickly as the commanders on the ground can, or as appropriately.

The sheer stupid of Israel, of America, of the West is stunning to behold.  “Here, let us teach you how to beat us by engaging you in years of inconclusive warfare.”

The correct policy, from a hegemonic point-of-view (not what I would prefer), is to let them have their governments, let their elites rule, and if they get out of hand, knock them over.  Maintain the fear.  Let them get a bit soft and fat, let them have something to lose.

Failure to do this, and coddling of Saudi Arabian Wahhabism, has led to the rise of a truly barbaric form of militant Islam, which also happens to be startling effective on the battlefield.

Don’t teach people how to actually fight you.  Don’t support barbaric regimes like Saudi Arabia’s in exporting their loathsome ideology.  If you’re going to be an imperialist, learn how to actually play the game.

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It seems the Kurds had to retreat because they ran out of ammo

2014 August 10
by Ian Welsh

No, really.

Maybe instead of giving weapons and ammo and money to the Iraqi army so they can abandon it on the field to ISIS (now calling themselves the Islamic State), the US should be supplying the Kurds, who will actually fight.

Just a thought.

As for Iraq, the government policy of trying to fiscally strangle the Kurds is coming back to bite them,hard.  If they’d let the Kurds sell some oil, the Kurds might be holding ground.

I’m sure the supply situation will change. Once it does, there’ll be a real test of the Kurds ability to defeat ISIS.  They’ve taken two towns back with American air support, but they will have to do far more to defeat ISIS.

I suspect part of the problem here is that others who could help, like Iran, Syria, and Turkey are not doing so, since they all have Kurdish minorities and rather like the idea of Kurdistan being defeated and Kurds being slaughtered.

That’s a big mistake.  The Islamic State is far more dangerous to them than the Kurds ever were.

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Russian Sanctions against the West

2014 August 8
by Ian Welsh

Per Russia, from a speech by Medeved:

Russia has completely banned the importation of beef, pork, fruits and vegetables, poultry, fish, cheese, milk and dairy products from the European Union, the United States, Australia, Canada and the Kingdom of Norway.

He also noted that Russia is considering revoking or changing airspace rights over Russia’s Asia Pacific region or Siberia.  This is not a small matter, and would make many flights from airlines in the affected countries far more expensive (while allowing their competitors, in countries which  haven’t imposed sanctions on Russia to out-compete them.)

As zero-hedge points out, the agricultural ban will have a significant negative effect on the European economy, which is already sputtering, and will likely lead to more special monetary policy (giving money to the already rich).

Such policy is very good at pumping up stock markets, but as the US experience indicates, it does nothing for ordinary people, whose wages in the US have fallen (only the top 10% has seen increases).  I warned in 2009 that the policies of the Fed and Obama would lead to at least a generation of worse economy.  Special monetary policy is worse than doing nothing, and very quickly.

The continued pivot away from the West and towards BRICS and other nations is not a good thing for the West.  An integrated Russia is in the West’s best interest: a Russia in the arms of China, is not.  I still cannot imagine anything in the Ukraine that is worth this.

The line in most Western media is that this will hurt Russia more than it does the West and perhaps even cause protests in Russia due to rising food prices.  We’ll see, to be sure, in the short to medium term it will hurt Russia, but Russia does still have plenty of inefficiently utilized agricultural land, and the rest of the world will be happy to sell to Russia.  Note, however, that the US, Canada, and the EU are very cost-efficient agricultural producers and the alternative suppliers are in the southern hemisphere, as a rule.    This will cause a permanent rise in the cost of food in Russia, whether it will be offset by a rise in domestic production leading to higher incomes for farmers remains to be seen.  Such would take time, in any case.

I note, finally, that if you are going to go to war with someone, you should cut off your food dependency before you do. Certainly NATO may not intervene if Russia decides to help the rebel states in the Ukraine, but certainly sanctions would ratchet.  If Russia intends to invade the Eastern Ukraine, it might as well do this now and prepare its economy.

Interesting times.  Let us hope this isn’t another step towards the interesting experience of a nuclear exchange over a country most Americans couldn’t find on a map.

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Kurdish Peshmerga fail to hold Sinjar Mountains

2014 August 5
by Ian Welsh

This is bad.  Very bad.

As the article (which you should read) points out, the Peshmerga had the higher ground, and still lost (holding out all of 2 hours). I don’t expect these are the best Kurdish units and the article does not speak to numbers (though ISIS, traditionally, wins while outnumbered), but it is also true that the Peshmerga today are not what they were even 10 years ago: peace and expansion means they are not the hardened fighters of the past.

The Peshmerga need a victory against ISIS.  I will also suggest that they need to call back up the old veterans, many of whom will still be of fighting age.  This is only the first battle, but the loss was unexpected and should cause the Kurdish military and government to reevaluate.

ISIS is a plague, whose first act is to destroy holy sites of other religions (Shia is another religion to them.)  They do not even reliably keep the Koran’s rules about tolerance (with a tax) of other Abrahamic religions.

This is an existential issue for Kurdistan, the caliphate will not allow a Kurdish homeland.

Those fools who called for the Iraq war and who bungled the Iraq operation, along with those idiots who armed the Syrian rebels are directly responsible for the routine war crimes of ISIS.  Absent the Iraq invasion, ISIS is nothing; absent the Syrian civil war (which was heavily backed by outside arms and money) ISIS is weak.


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Enough Russian Roulette with Nuclear Fire

2014 August 2

As commenter OldSkeptic points out, Russia has now called up reserves:

“Russia’s Defence Ministry plans to call up military reservists across the country for two months of training exercises on new weapons, news agency Interfax reported on Friday.

Moscow has previously used such exercises to boost troop numbers on its border with Ukraine. There are concerns in the West that Russian forces could intervene in the conflict between the Kiev’s government forces and pro-Russian separatists in eastern Ukraine.

The exercises were planned last November, the defense ministry said, and will last from August until October.”

I have covered the Ukrainian crisis closely since it began for a reason: the real antagonists: Russia and the US, with NATO as an American proxy, are nuclear armed.  Let us review:

  • The Ukraine was part of Russia for about 200 years.
  • Crimea is Russia’s most important naval port.
  • The Maidan protests overthrew a government which, whatever you think of it, was democratically elected.  The Maidan protests were heavily backed by US money and aid.
  • The Russian deal with the Ukraine was far more generous than the EU/IMF deal, which requires cutting pensions in half and likely doubling gas prices, if the gas supplies continue at all. Russia, on the other hand, offered subsidized gas and a fifteen billion dollar loan at nominal prices.
  • While there are those in Crimea who did not want to join Russia, I am aware of no convincing evidence that a supermajority did not wish to. The referendum was somewhat coercive and produced results in line with the last referendum in the region.
  • The rebellion in the East and the South is in regions where the strongest economic ties are with Russia.  While I have seen no polls indicating majority support for the rebels, I have also seen no polls indicating majority support for the Kiev government.
  • Ukraine is very close to Moscow.  Moscow is not defendable, in war, if enemy forces are in Ukraine.
  • It is American doctrine that Russia without Ukraine is not a European Empire; with it, it is.

In 2008, during the Georgian war, I wrote that the next flashpoint would be Crimea.  The experts sneered at that: it could never happen, Russia and the EU had nothing to gain and everything to lose by allowing it.

The EU is, as Old Skeptic points out, however, not in the driver’s seat.  The US is, and NATO is, and NATO is currently led by a hawk.  What Merkel, or Germany, think is irrelevant  unless they are willing to threaten to leave NATO and follow through if necessary.  While Mark From Ireland has pointed out that there are signs of German and European realignment away from the US, they seem to be signs that will take years to develop to actual estrangement.  The current leaders, like Merkel, are of a generation which grew up under American hegemony. While many balked at Iraq, it will be far harder for them to refuse to act if NATO, including Britain and the US, goes to war.

It would take an incredibly brave leader to say no if NATO mobilizes to help Ukraine in light Russian regular forces.

The question, then, is whether Russian regular forces will be needed, or used.

We have, meanwhile, sanctions. So far they have amounted to not much, though they will increase financing costs.  However threats of greater sanctions continue, and slowly the strength of the sanctions has been increased.

I don’t know if OldSkeptic is right, and the plan is to force Russia into a humiliating retreat in the face of sanctions, with the use of military force ok’d to break Russia.  I actually doubt it, because it would be insane.

You don’t risk a shooting war with a nuclear armed state like Russia, who has enough nuclear weapons not just to destroy the US and Europe, but the world, multiple times over; and which has second strike capability which NATO cannot credibly expect to take out.  If either side starts losing and resorts to nukes, things can get out of hand very, very quickly.

But something being insane, or boneheadedly stupid does not mean it won’t happen: if Iraq or Syria (and the rise of ISIS) has not taught us this, nothing will.  American leaders are ideologues, drunk with power, who believe they rule the world and everyone else must bow.  Putin tweaked them hard over both Snowden and Syria, and they have worked since the fall of the USSR to move NATO right to Russia’s borders, something George Bush Sr. promised they wouldn’t do.

Russia feels itself under threat.  The military believes it cannot defend Russia from NATO if NATO is in the Ukraine, and notes also the constant moving up of anti-missile defense, closer and closer to its border; something it believes is meant to degrade its nuclear deterrent (it is, how well it will work is another question.  My suspicion is “not nearly well enough”.)

There is West’s sanction threats have been all stick: there is no upside to Russia buckling to the sanction threats, all they get back is the status quo.  Going forward, Russia having given in to sanctions once, they would have no independent policy the West could not veto by threatening them again.

So how does this play out?

I don’t know.  I do know that the people in charge in America, Britain and NATO are stupid, mad-drunk with power, and ideologues who believe in American primacy at any cost.  I do know that Russia believes it faces a potentially existential threat, and that Putin personally could not survive a humiliating capitulation.  And by not survive I mean he would probably wind up, personally, dead.  Russian leaders like Putin rarely leave office except in a casket.

This confrontation is over Russia claiming some right to interfere in territory it ruled for about two centuries.  Longer than the US has ruled most of its territory, I might note.  If the West can interfere in practically any country in the world, the Russians see no reason why they don’t have the right to interfere in their sphere of influence.

This is not, necessarily, to say that Russia should have the right to interfere with other countries, but given the West’s record of invasions, occupations and coups, it is simply laughable hypocrisy to make any claims that this is about territorial integrity of Westphalian states.


So if it is happening, it is happening for a reason.  To bring Ukraine into the Western fold, to force Russia to bow, and to show the world that even a power like Russia, with nuclear weapons and a huge arsenal, was forced to bow.

As much as the Gaza assault is an endless series of war crimes, and tragic, the greatest danger in the world today is in the Ukraine.  We are closer to nuclear war than we have been since the early 1980s when the Russian leadership was crazed by fear by US deployment of first strike missiles to Europe.

I will suggest, simply, that NATO needs to be disbanded.  The Europeans should simply step outside of it and put together their own military.  They can defend themselves from Russia if it comes to it (it won’t if they don’t poke Russia repeatedly with sticks).  They have a nuclear deterrent (I’m talking France here, not the UK, who probably can’t even use their nukes without American approval, and whose leadership are complete poodles for DC) and can build more if they so desire.

It’s time for Europe to grow back up, take responsibility for their own defense and future, and stop allowing America to drive the world to war, the brink of war, and possibly nuclear armaggedon.  As for the Ukraine, the Russian proposal of keeping it together, minus Crimea, but with a decentralized structure, and out of any Western alliance is entirely reasonable.

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Life is a Toy, Not a Game

2014 July 31
by Ian Welsh

In game development there is a distinction between toys and games.   A ball is a toy. Soccer is game.  You can do many things with a ball, which are fun, which are not games. It is when you add rules and the ability to win or lose, that a toy becomes a game.

Really life is whatever you want it to be that you can manage to create, while not dying.  Dying is not a loss state if you’re treating your life as a toy, it’s just the end of being able play with life, your toy.  Same thing if you puncture your ball such that it won’t work as a ball any more.

So with toys there are end-states, like death or even just deciding to stop playing, but there are no win states which are externally imposed or socially agreed on.  In soccer we know how we can use the ball (don’t touch it with your hands); how goals are scored, how many people plays, how you win.

If you’ve played it, think SimCity – the city simulator.  There are no win conditions.  If you want to create a huge slum filled metropolis, great.  A small utopian community with great public transit?  Great.  SimCity has no rules, it only has world simulation physics.  These physics don’t match the real world, they are an approximation and a theory, and they limit how you play, but they don’t make SimCity a game: it’s a toy, you decide what sort of city you want.  You can create your own win situation “when I create a city of 5 millions with an average income of over 50K”, but that’s not imposed by the program.  With a ball you can decide you “win” when you can reliably make free shots four times out of five.  But ultimately win conditins in a toy are arbitrary: a matter of personal choice.

Who wins life?  If  you die with the most power or money, did you win?  If you did the most good, do you win?  If you enjoyed yourself the most?  Made great art?  Raised great kids?  Went fishing as often as you wanted?

Life has its own physics, of course, you can’t fly without external aid, for example.  Objects have gravity.  Our bodies impose both abilities and limitations on us, including massive mental limitations most people are only dimly aware of.  Our senses order the play field in a way very similar to cameras in computer games.  The world you see, and smell, is very different from the world your dog sees and smells; let alone the world a bat, with echolocation, inhabits.

Humans set up games all the time.  Capitalism is a game with rules, and coercive penalties for breaking them.  Democracy is, as well.  Hang up a shingle as a doctor without getting society’s approval first and see how long it is before the cops pay you a visit.

Different societies love different games.  Much of Dark Ages and Medieval Europe loved the faith game: the people they idealized were the truly pious, especially the renunciates who kept their vows, like friars and hermits and the occasional strict monastery (they tended to prefer giving gifts to nunneries, nuns being regarded as less likely be engaged in constant drunkenness and debauchery).

For much of Chinese history much of the big game was the examination game: how well you wrote tests based on your knowledge of classic writings and their commentary.

Each game favors are certain type of person: the men and women who rise to the top of the capitalism game have almost no qualities in common with those who rise to the top of the renunciate game, and almost nothing in common with the scholar-bureaucrats who ran the Chinese empire so often.  Different qualities and different development were rewarded.

None of this alters the fact that life is a toy, like a ball or SimCity. You can add rules to it, and enforce those rules with sanctions, but ultimately each person decides their own win conditions.  One of the decisions is whether to play one of the approved games, of course, and many people don’t realize they can opt out of much of those games.

A society’s level of coercion is easily measured when thought of in these terms: how hard is it to opt out of the socially mandated games; or at least how onerous are the requirements of those games?  Will you die?  Go hungry?  Just not get as much approval? How many different games are there, and how easy is it to move between them, so that you can find a way of playing with your toy that isn’t obnoxious to you, and is at least somewhat socially approved.  It’s hard, today, for example, to be a monastic or a hermit; society in the West isn’t set up for it: people won’t feed you.  In Thailand, on the other hand, it’s pretty easy.  People not involved in the monastic or hermit life think those lives are valuable and are willing to support them.

You’re probably thinking “monasticism and hermitting produces nothing”.  First, it’s not true: it produces truths, and temples and teachers and teachings which non-monastics value.  But even if true, it would be irrelevant: the choice of what games societies support is largely non-rational, and based on esthetic, moral and ethical choices, along with pure power considerations.  Bankers in the Western world were a net negative through 00s but they had the power and were valued deeply enough by certain parts of society that they were bailed out for a cost of trillions.  Suburbs are economically unproductive, pure consumption to a degree that shames monastics and hermits, yet US society is largely set up as a giant subsidy for the suburban lifestyle, because Americans value having a house with a yard away from a lot of other people, surrounded by a bunch of other houses very similar to theirs inhabited by people very much like them, generally far from any productive activity.

That’s an esthetic choice: it’s a choice about what the good life is, “the good life is living in suburbs, therefore we will subsidize suburbs massively, because that’s how we want to live”.

That subsidy is a direct drain on all the people who look at suburbs and hate them, and don’t want to live in them.  Living in suburbs requires economic relationships, embedded in law and custom, which are coercive and unequal.

“You win if you buy a big house in the suburbs, have 2 cars and 2 kids and die comfortably”.

That’s a game statement.

Now some people have probably been offended by me calling life a toy, because we think of toys as trivial and disposable and we like to think that lives aren’t, even though we certainly very often act as if other people’s lives are disposable.  But the word communicates that life is something you decide what you’re going to do with.  Life always ends: there are no immortals—so what enjoyment or satisfaction are you going to get out of your toy before you no longer are able to play with it?

And, perhaps, what sort of society do you want to live in, so that you can get the most out of that toy?  And do you care if others are able to use their toys as they want, or not?

There’s no bedrock here, there’s no ultimate source of authority.  Unless you believe in God, there is no system of reason which can logically prove that we should be kind or cruel, want money or not want it, be hermits or epicures; or anything else.

So, what are you going to do with your life, your toy, and how are you going to help, or hinder, others in their enjoyment of their toy?

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The Beginning of an End of the Trans-Atlantic Alliance

2014 July 28

Ian described the proposed EU sanctions on Russia as “not shabby”, but while they are somewhat more serious sanctions than heretofore it’s only somewhat. The most serious ones are the ones on Russia’s financial institutions. Yes it’ll raise costs but will hurt London and Frankfurt including reputationally. It will also have the effect of encouraging Russia’s efforts to build an alternative. And as the FT article points out in the quote you’ve given if pushed they could retaliate and hurt any chances of European recovery quite badly:

The proposal would not initially include a similar prohibition for Russian sovereign bond auctions out of fear the Kremlin could retaliate by ordering an end to Russian purchases of EU government debt, the document states.

Also these measures would have to be agreed by all 28 members which I don’t see happening without a lot of acrimony. For more details if you’re interested see Leaked Russia sanctions memo: the details | Brussels blog :

The arms sanctions are Europe shooting themselves in the foot at the behest of the Americans. They won’t hurt Russia. And indeed could wind up helping Putin’s modernisation drive (see  Russia has little to lose from arms embargo –

Still, the Mistrals represent a rare example of Moscow turning to outside help when it comes to kitting out its military. As such, the effect of a western embargo could be limited.

“[Blocking the sale] would be symbolic more than hurtful,” says Keir Giles, a Russian defence expert at Chatham House, a think-tank in London. “Russia is an arms exporter, not an importer. There has already been all this fuss in Russia about imports from abroad.”

Indeed, since the Ukrainian crisis began to ratchet up international pressure on Moscow several months ago, the Russian defence establishment has become even more entrenched in its ambition to reconstitute parts of its defence industry that withered after the break-up of the Soviet Union.

Most of Russia’s $81bn defence budget is spent internally.

Since 2000, Russia has only engaged in 10 military contracts of any size from overseas suppliers: 4 light transport aircraft from the Czech Republic; 2 diesel engines from Germany; 8 drones from Israel; 60 light armoured vehicles from Italy; 3 light helicopters and 4 amphibious landing craft from France to complement the Mistrals; and from Ukraine, 264 engines, 34 transport aircraft and 100 guided missiles.

Moreover as the FT points out (see: EU to weigh far-reaching sanctions on Russia – “Many ex-Warsaw Pact countries still rely on Russian-made military equipment”.  So far not so alarming other than as a statement of intent. What I do find alarming because it’s blatant aggression is the idea of targeting Russia’s energy development. That’s telling the Russians that America and Europe holds them in the same contempt they hold Iran. Not wise. If you try to strangle their economy and simultaneously point a dagger at their heart they’re going to conclude not unreasonably that you intend waging a regime change war in the not to distant future. Such a war is unlikely to end well for anyone and anyone who thinks that Russia will not strive to lay waste their enemies heartlands has never talked to a Russian soldier let alone a Russian officer. They take threats to their home and those who live there very seriously and they believe in playing rough. (See: Leaked Russia sanctions memo: the details | Brussels blog):

For many involved in the debate – particularly the Obama administration – the energy sector is a far more important target given its centrality to the Russian economy. The measures under consideration in the document would restrict European sales of high-end energy technologies, which are similar to measures the US is working on. They would be very carefully targeted, however, and would only be aimed at long-term production so that it “should not disrupt current supply and trade in energy products”.

So these putative sanctions are fourfold:

1: Restricting access to EU capital markets by Russian state-owned financial institutions
If you read the proposals you’ll notice that the brunt will fall on London and Frankfurt. Remember that the four largest state-controlled banks in Russia are: Sberbank, VTB, the Russian Agriculture Bank and VEB. Sberbank and VTB are both listed on the London Stock Exchange. I doubt the LSE will be happy to take a reputational hit.  Furthermore it’s not all clear to me how these sanctions are going to be tailored so that they also would hit companies such as Gazprombank, which is 100% owned by Gazprom – which in turn is state owned 50%.

Which brings me to the question of alternative sources, in 2013 Russia issued €7.5 billion of bonds via Russian state-owned banks on EU markets. I don’t believe that refinancing such a relatively small amount  would be difficult if two markets in particular Singapore and Hong Kong  refuse to curb those firms’ access .

2: Embargo on trade in arms
So what? The arms embargo seems to me to be utterly pointless and will even hurt the defense preparedness of the EU’s eastern members. And for what? For nothing as the FT explains (see Russia has little to lose from arms embargo –

All of which matters little when it comes to US, EU and Nato efforts to dent Moscow’s military or economy as punishment for its activities in eastern Ukraine.
Russia’s three biggest defence partners – absorbing 61 per cent of Russian exports between 2009 and 2013 – are India, China and Algeria, according to SIPRI data.

Since 2000, the trio have bought $58bn of Russian arms, the think-tank estimates. The US has bought $16m.

$16m? $16m isn’t even chump change.

3: Restricting trade in dual use goods
I’m not convinced that Russia has no alternative suppliers. I think it entirely likely that China will give  big “fuck you” to America and gleefully plunder all the patents it want to. It’s been their standard modus operandi up to now why should they change?

4: Restricting trade in ‘sensitive technologies’ with respect to the energy development sector
See point 3 above.

Finally the fact that these sanctions are forward looking is a major caveat, because it gives Russia time to diversify away in the direction of China in fact the measures on arms, tech and dual use both because they’re very imprecisely drafted and subject massive caveats could very easily undermine the EU and strengthen first China and then Russia.

I think with this Ukraine situation we’re seeing something very alarming which is a complete utter and absolute inability of Western policy makers to even begin to understand the goals and objectives of such powers as Russia and China. If you recall

Governments, politicians, and media in the “western” world seem incapable of understanding geopolitical games as played by anyone elsewhere. Their analyses of the newly proclaimed accord of Russia and China are a stunning example of this. If you recall what happened on May 16th last they announced:

1: A “friendship treaty” that would last “forever” but was not (yet) a military alliance

2: A gas deal, in which the two countries will jointly construct a gas pipeline to export Russian gas to China. China will lend Russia the money on very good terms with which to build its share of the pipeline the quid pro quo was that Gazprom made some not particularly onerous price concessions to China.

Remember all that? On May 15th the Western establishment media printed ream  after ream after ream of complete absolute and utter shite about how such an accord was impossible. Then it happened and the Western establishment media printed ream  after ream after ream of complete absolute and utter shite about how it wouldn’t make much geopolitical difference. Yes it will, it will make a massive difference because it’s perfectly clear to anybody except apparently the American government and its collaborators in Europe that Russia and China are highly averse to the  United States’ and European suggestions that America and its allies should get directly officially involved in the Ukrainian civil war and ultimately that they become militarily involved. Ukraine is not Syria it’s far far far more important than that and Russia will go to war over it if they have to. If Russia goes to war because the Americans and their assorted catamites in European capitals force a war upon them they do so knowing that they have China’s backing and support both overt and covert when they do so. America is in no position to fight a multi-front war in Ukraine, Northern Europe, and Asia.

If you think about it it’s pretty clear that what China and Russia want is a Renversement des alliances with Russia and  Germany becoming close partners leading ultimately to a Berlin – Moscow – Paris axis. And what China wants is to simultaneously tame the USA and reduce its role in East Asia ideally they’d like to do this while simultaneously strengthening China’s economic links with the US. It also wants the US to help it prevent Japan and Korea becoming nuclear armed powers. Could such a renversement work? Yes but getting there won’t be easy. Let’s take the Russian-German alliance first.

The advantage to Germany of including Russia within the Western European sphere would be:

1:  The consolidation of its customer base in Russia.

2: Securing German access to long-term energy supplies and other raw materials not least of which is wheat.

3: Incorporation of Russian military strength as an instrument of German long-term strategic planning. An alliance between these two fundamentally conservative powers would be to the benefit of both and would have the advantage for Germany of enabling it  to hasten NATO’s demise and the creation of a post-NATO European order in which Germany takes its natural role as a leading state. Impossible? No, not at all impossible, there’ll be one hell of a push back, within Germany and the Poles and the Baltic republics will throw tantrum after tantrum about it but ultimately does anyone in Berlin really give a toss about what the government in Warsaw thinks when there’s such a clear and sparkling opportunity for Germany? The same applies to German consideration of what the three Baltic pygmies want if it comes to the point of screwing the Baltics or screwing their own interests the Baltics – not for the first time in their history are going to be kicked down and then kicked again to keep them down.

The Russo-Chinese “friendship treaty” has concentrated certain minds in Berlin, Frankfurt, AND MUNICH wonderfully. They see a glittering prospect slipping away and alarm at this has strengthened the position of those who say that Germany’s long-term survival depends not on NATO where it’ll never be anything more than a subservient satrapy but on working closely with its natural allies in Moscow.

I’ve outlined above What the Chinese want so the question arises is there a corresponding desire in the US? If you look at the prevailing ideology amongst Washington politicians and think tanks you might be tempted to think that the prospects are nil but that’s less the case when you look at what’s in the interest of the major commercial structures who need access to Asia far more than Asia needs access to them.

Both China and Russia in other words want to encourage Germany and the US to move in directions useful to  them and this “friendship treaty” is one of the tools they’re using to accomplish this. They have everything to gain and absolutely nothing to lose and given that they have absolutely not lose and everything to gain the question becomes one of how the debate in Berlin and Washington will play out in the medium to longterm. For obvious reasons I’m most interested in Europe’s future and so for me of the two debates it’s the debate in Germany that’s the most important. So I’ll deal with the emerging debate in the US first just to get it out of the way.

Jacob Heilbrunn  had an article in the LA TImes you can read it in full here The German-American breakup – LA Times I’m going to quote just a part of it:

What’s more, leading German politicians are calling for reassessing negotiations with Washington over a transatlantic free-trade agreement that could be vital to the economic futures of both Europe and the United States. And Interior Minister Thomas de Maiziere announced that Berlin would terminate a no-spy agreement it has enjoyed with the U.S. and Britain since 1945 and begin monitoring them in Germany. As Stephan Mayer, a spokesman for Merkel’s party, put it, “We must focus more strongly on our so-called allies.”

So-called? Such statements, unthinkable only a few years ago, accurately reflect a broader antipathy toward America among the German public, which largely sees Snowden as a hero, particularly for his revelations about the extent of American surveillance in Germany.

Ever since the Bush administration launched the Iraq war in 2003 — which then-Chancellor Gerhard Schroeder vehemently opposed — many Germans have come to view America as a militaristic rogue state, more dangerous even than Russia or Iran. Indeed, a recentInfratest Dimap poll indicates that a mere 27% of Germans regard the U.S. as trustworthy, and a majority view it as an aggressive power. Indeed, a recent
Infratest Dimap poll indicates that a mere 27% of Germans regard the U.S. as trustworthy, and a majority view it as an aggressive power

Emphasis mine. Heilbrun concludes by saying:

“If Obama is unable to rein in spying of Germany, he may discover that he is helping to convert it from an ally into an adversary. For Obama to say Auf Wiedersehen to a longtime ally would deliver a blow to American national security that no amount of secret information could possibly justify.”

I think that Heilbrun is being both optimistic and pessimistic. Pessimistic in that his cri de coeur isn’t going to be listened to in Washington and pessimistic in that from what I can make out in conversations with German friends and colleagues the process of German relations moving from being allied to America to being an American adversary is well underway. Including – particularly, in those sections of the German establishment who have heretofore been America’s most loyal allies. The article is worth reading in its entirety (see Druckversion – Germany’s Choice: Will It Be America or Russia? – SPIEGEL ONLINE – News – International ) but it’s more than a little telling that Der Spiegel is printing things like this:

During an interview in his heavily secured office, Ambassador Emerson* says he comes from the financial industry, an industry in which a rule applies that is also valid in politics: “Satisfaction is expectations minus results.” Emerson’s apparent implication is that Obama was already fighting a losing battle when he came into office — the Germans’ expectations were simply too high.

Emerson doesn’t deny that a few things have gone wrong in recent years. But at the end of the day, he adds, the decision to maintain close ties between Germany and the West should be obvious. Which country has a free press? The United States or Russia? Which president takes a stand and is willing to discuss the limits of intelligence activity with the entire country? Obama or Putin? “We share the same values,” Emerson says, and that must be emphasized again and again.

The Last Straw?

This may be true in theory, but in practice Europe and America are drifting farther and farther apart. This is even evident to people like Friedrich Merz, whose job description includes keeping the divide as narrow as possible. Merz is the chairman of the Atlantic Bridge, a group that has promoted friendship between Germany and the United States for more than 50 years. At the moment, Merz is busy promoting the trans-Atlantic free trade agreement. “The agreement would be a sign that Western democracies are sticking together,” he says.

But even a conservative advocate of the market economy like Merz is often baffled by what is happening in the United States. Merz welcomes all forms of political debate, but when he sees how deep the ideological divides are in the United States, he is pleased over Europe’s well-tempered form of democracy. Responding to the new spying allegations last Friday, he said: “If this turns out to be true, it’s time for this to stop.”

America Has Become Unattractive

To put it differently, it has become uncool to view America as a cool place. Only a few years ago, for example, the post of head of the German-US Parliamentary Friendship Group in the Bundestag was a highly coveted one, filled by such respectable politicians as former Hamburg Mayor Hans-Ulrich Klose. Today it is less desirable. After the most recent parliamentary election, Philipp Missfelder, the head of the youth organization of Germany’s conservative sister parties, the Christian Democratic Union (CDU) and Bavaria’s Christian Social Union (CSU), decided to resign from his post Coordinator of Trans-Atlantic Cooperation and assume the position of CDU treasurer in the state of North Rhine-Westphalia instead. For Missfelder, managing party finances took a priority over a once attractive trans-Atlantic post.

(* incredible though it might seem Emerson the Ambassador to Germany can’t speak a word of German.  The Americans’ casual contempt for their allies in appointing somebody without any German as Ambassador to a major strategic diplomatic post has not passed unnoticed in German political circles – mfi).

When somebody like Friedrich Merz says “it’s time for it to stop” not you will note that “it’s time for us to have a frank discussion” just a flat out ““it’s time for it to stop” then you know that not only are American-German relations in crisis but that even if they manage a temporary reconciliation the structural dynamic between the two countries is irreparably altered. What’s important is that the problem is structural. The individual missteps borne of American complacency and arrogance aren’t important although they’re interesting in and of themselves what’s important is that the breach is structural and thus irreparable.

The basic structural problem is that America is no longer a viable hegemon. It’s been visibly in geopolitical decline for quite some time now and American politicians and policy makers are utterly incapable of coping with this fact. Most of them can’t even accept it let alone handle it competently by minimising American losses. So they keep on flailing about trying do the impossible which is to restore the status quo ante and repair the irreparable. American hegemony or “leadership” to use the term American politicians and policy makers prefer is over.

But the American inability to cope with this simple fact is what makes America so very dangerous because it leads Americans to believe that they can engage in the sort behaviour appropriate to a hegemony at the height of its power without even the possibility of adverse consequences to  themselves. This is why there are so many calls by America to “act” and to “lead” the American policy elite is labouring under the impression that America is still “indispensable” to use Albright’s expression. Very reluctantly the German political elite – and Chancellor Merkel’s party and their allies are coming to realize that the greatest threat to their survival is no longer from the East but from the West.

They’re coming reluctantly but ineluctably to realize that American actions are going to be increasingly at variance with underlying realities, with European well-being,  with European prosperity, and even with European survival and are likely to be increasingly erratic. The United States has committed the one unforgivable crime it has become “unreliable”. And so the Germans  are looking for an alternative and the logical and natural alternative is a European concert of nations that includes Russia. It will be slow and hesitant for the first few years but it’s the way Germany is moving. There are all sorts of issues to be decided such as if German geopolitical survival means they can no longer trust Washington how are they going to trust Moscow? How sweet does the deal they offer Russia have to be? It has to be sweet enough that the Russians will find it in their interests to abide not only by its letter but by its spirit.

The debate has moved on from how to repair relations with Washington that was yesterday’s problem today’s problem is how to cosy up to Russia. That is what’s being discussed in Berlin, Frankfurt, and Munich in intra-elite German policy discussions and those discussions are taking place because of the irreparable breach of trust with the United States that the American government and policy elite initiated.

To Summarize the Israeli/Gaza War

2014 July 27
by Ian Welsh

1) The causus-belli, the kidnapping and death of three Israeli teenagers was false.  This has now been admitted by Israeli officials. There was never a scrap of proof, only supposition.

2) Bibi said Hamas did it, and started a war based on that, for vengeance.

3) Ooops.

4) Except that we all know it was just a pretext.  Doing it based on a lie just rubs that in.

5) Hamas has been fighting better than last time, inflicting enough Israeli casualties to matter.

6) Israel has been deliberately leveling large parts of Gaza.  The damage is much worse than Cast Lead.  Most refugees will have no home to go back to.

7) Israel wants truces now, but by and large it’s Hamas who is refusing them.

8) Why?

9) Because the status-quo ante is unacceptable. Gaza was under siege, unable to bring in most goods, food, water and so on and most residents could not leave, even for life-saving medical care.

10) Hamas’s condition for the end of the war is substantially “life the siege”.  If the siege is not lifted, the parts of Gaza which have been flattened cannot be rebuilt, because the equipment needed cannot enter Gaza.

11) Israel can inflict as much collective punishment (a war crime) as it likes on the Gazans, but it can’t make Hamas stop fighting, or shooting missiles.

12) Israel also wants, as part of a condition for peace, for Hamas to let it keep hunting down the tunnels. In other words, it wants Hamas to allow Israel to destroy its ability to fight back even a little.

Israel has a problem.  It takes two to make peace, and Hamas won’t.  Israel could re-occupty Gaza, of course, but that leaves them with occupation troops in Gaza indefinitely, and while they’ll eventually root out Hamas, they’ll take significant casualties doing so.  Plus, then, they have to run Gaza rather than just try to starve it into submission.

Though I know of no polling, I have seen more than one interview where non Hamas Gazans have supported Hamas continuing the war until the Israelis lift the siege.  The general consensus seems to be that living in Gaza is death already.

The larger problem is simple enough.  Israel is an apartheid state which wants to pretend it doesn’t rule its Bantustans while at the same time slowly strangling them to death, and in the case of the West Bank, continuing to settle them.

This is an unsustainable position.  Israel needs to either become a secular state with equal citizenship for all residents regardless of religion or ethnicity; or the logic of situation will require them to remove the Palestinians once and for all.

As a bleeding ulcer, Israel does not work.  More and more diaspora Jews are turning away from it.  At some point the foreign aid it requires to exist will go away.

Israel was always a profoundly ill-considered venture: the idea of giving Jews a homeland by pushing current residents out, in many cases literally, of their homes, could only be an ongoing war crime and this is no longer the great colonial era, where genocide to create settler states is acceptable (nor is there a great plague to target only Palestinians and wipe out 90% of their population, as with the Native Americans.)

Israel is a state which, as currently constituted can only continue to exist by engaging in regular and ongoing war crimes and crimes against humanity.  Its right to exist is irrelevant, its ability to exist is the question.  Israel will either engage in as great a crime as was used to justify its existence after World War II, or it will become a secular state.  The two state solution is dead.

Some actual serious sanctions proposed against Russia by the EU

2014 July 24
by Ian Welsh

Not shabby:

EU diplomats will weigh sweeping Russian sanctions on Thursday that include a proposal to ban all Europeans from purchasing any new debt or stock issued by Russia’s largest banks, according to a proposal seen by the Financial Times.

The sanctions measure, contained in a 10-page options memo prepared by the European Commission and distributed to national capitals, also proposes barring the Russian banks from listing new issues on European exchanges, preventing them from using London or other EU stock markets to raise funds from non-Europeans.

The proposal would not initially include a similar prohibition for Russian sovereign bond auctions out of fear the Kremlin could retaliate by ordering an end to Russian purchases of EU government debt, the document states.

Now these aren’t nearly as sweeping as they could be, but they aren’t a joke.  The practical effect would be to force Russian banks to raise money from China and the Muslim world.  The cost would be somewhat higher.

I do wonder if the Europeans have thought through Putin’s response, however.  What would be the next level of sanctions if these pass and Putin doesn’t do what they want?  What if, instead of de-escalating support for Ukrainian rebels, he increases support?  The Ukrainian rebels may have shot down an airliner, they have also shot down multiple military aircraft, and just shot down two jets.  What do you think they could do with more equipment and more men?

I’ve  never really understood why the West has gone all stick and no carrot with the Russia in relation to the Ukraine.  Putin’s approval ratings, thanks to the Ukrainian crisis, are sky high in Russia. If he invaded tomorrow, they’d be higher

What does he get if he does what Europe wants?  So far it’s all been downside.

I see this repeatedly in Western negotiations: Iran gets nothing for playing, except that it doesn’t get to have all its rights under the non-proliferation act and some sanctions (punishments) are eased.  The only carrot is “we’ll stop hitting you.”

I don’t think Putin’s the type of man, nor the Russians the sort of people, who respond well to those sort of threats.  They don’t see themselves as the “bad guys” (an infantilization in any case) in Ukraine.  From their POV a democratic government was overthrown, and they’re supporting ethnic Russians in the face of a government which wants to impoverish them through unnecessary IMF reforms.

They don’t see themselves as in the wrong in Ukraine.  They don’t see themselves as weak.  They don’t like being threatened.  They don’t like Europe and the US acting as if they have the “right” to punish them for looking after their own interests in ways the West rarely hesitates to

The Ukrainian mess is one of those situations where I can’t see the stakes for the West being worth the game.  What is West getting from this?  For Russia, on the other hand, the Ukraine in the West’s pocket is a spear ready to be thrust home at Moscow. It destroys strategic depth.  And Ukraine was ruled by Russia for centuries, this is their sphere of influence.  This is important to them, the stakes are high.

Why does the West keep acti9ng as if the stakes are high for it?  Is destroying Russia’s ability to defend itself from NATO that important?  Is keeping Russia from having strategic depth that important?

If it is, and it’s hard to see anything else in Ukraine worth fighting over (any natural resources would be sold to the West if they wanted them); then it’s hard not to conclude that Russians should be alarmed, because all the West gets out of this confrontation which is important, is Russian weakness.

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