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

Author: Ian Welsh Page 2 of 451

Conditions for Revolutionary Change In The West: Fiscal

The traditional revolutionary change requirements are:

  1. An inability to pay military, police and functionaries.
  2. A split in the elite.
  3. Popular revolt.

As a rule, all three are necessary.

In the Russian revolution, the military was noticeably absent, or in the case of the Navy, actually revolted. Near the end, with the old government in the Winter Palace and protestors outside, the cadets being used as guards refused to fight, the Cossacks which the government expected to come rescue them never showed up, and navy sailors helped organize the crowds outside and storm the Palace.

There’s a lot of confusion around this issue, and a fair bit of comes from the idea that money doesn’t matter, because you can always print more.

Sure.

How’d that work for the Weimar Republic?

The bottom line is that money is only good for buying what exists or what is close to existing.

What we’ve been seeing for about 60 years now is:

  1. price increases higher than wage increases.
  2. Deindustrialization.

This means the West is making less of what its own populations need, and the populations can afford less of what does exist. Internal capacity is collapsing. (Ignore CPI, it’s not just a lie, it’s a damned lie. Expenses have risen far faster than it suggests.)

The solution to this, such as it was, was to trade: buy what is needed from other countries. The West was almost the sole supplier of goods that other countries wanted: planes, cars, advanced electronics, weapons and so on. For a while the USSR was an alternative, but as time went by that alternative became less and less viable, until the collapse of the USSR, at which point the West was pretty much the only game in town.

But Western elites were drinking their own kool-aid. They wanted reduced wages and environmental protection costs, so they decided to move production overseas, especially to China. Now China can make almost everything that any country might want: they don’t have to buy from America, and as the technical ability to avoid the dollar payment system increases, that means they don’t need the West.

Recently, what we’ve seen is a reduction in Western coercive ability. Not a complete loss of it (yet), as Venezuela and Cuba and Greenland show, but a serious loss in power. In fact the pivot to coercing weak nearby states and vassals is due to the weakness: the US can’t win far from its territory, but it’s still scary to Latin America and Europe.

This isn’t just about the US though, France had its own sphere of African interests, with military bases throughout multiple ex-colonies. It essentially ran multiple countries. Almost all of them have now run the French out. The French nuclear system, for example, used heavily discounted uranium from African vassals.

Trump seized Venezuela’s oil and has locked down Greenland’s resources, but he’s lost the Middle East. (Yes the war continue. Yes the US has lost and the American Middle Eastern Raj is dying and will not be saved.) Africa would far rather do business with China.

So would Latin America, but American military might, “NGOs”, diplomats and intelligence services have so far mostly been able to keep Latin America in the American sphere. So far. As the ability to use naval forces to project forces declines (and it is and will) this will end, though the process may take a couple decades and a lot of pain.

All of this is a roundabout way of saying that the US is becoming much more poor and will continue to do so. Its coercive abilities are low, it has lost Africa and is losing the Middle East. Even Asian countries which have disputes with China (Vietnam, for example) are integrating with China’s economy.

Can’t make it. Can’t force as many countries to sell to the US for cheap. Has much less to sell to the world that it wants at a reasonable price, since China sells all the same things for less.

At this point the system’s only remaining pillar is dollar privilege. Everything is bought and sold in dollars, the US can print dollars, and the US can thus keep buying what it needs.

Except when it can’t, as with rare earths, industrial magnets, and other resources and goods China has decided to stop selling to America, which it can’t make itself and for which there is no adequate alternative supply. These goods, by the way, are necessary for American weapons, and without them the US military will keep becoming weaker and unable to rebuild its arsenal. (On the other hand, Russia and Iran and North Korea all get as much of these goods from China as they need.)

And dollar privilege is ending. Oh it goes back and forth, the US is fighting tooth and nail to keep it going, but the trend is clear. Abuse of sanctions, in particular, has made it clear to everyone outside the West, and even to some inside the West, that being in the dollar system: settling trades in dollars, is a huge vulnerability.

I assume the picture is clear: America can’t make as much, can’t force other countries to sell for cheap, has less to trade that can’t be bought for less somewhere else, and soon won’t just be able to print dollars and buy it anyway.

This brings us back to the enforcer class. Police in America are paid VERY well.

With overtime it’s not unusual for police salaries to hit the mid hundred thousands.

Cops are, generally, pretty well paid.

The military is less so, with salaries in the mid 30K range being common for non-NCO enlisted members.

Cops are well paid because they enforce the laws.

“Duh,” you say, but the point I’m making is that they break strikes, intimidate protesters, enforce property laws and steal more money from people than burglars do–but not from elites. Laws are set up to favor elites and cops are how laws that are unfair are enforced.

They’re frontline against the possibility of change. During the American revolution, those unhappy with officials would gather in large groups and go “have a talk” with their representatives. That sort of thing is basically impossible now.

It should be obvious why it’s necessary for the enforcer class: military and cops, to break from the elites for a revolution to succeed. They don’t all have to, but either you need some on the side of the new order, or you need them to refuse to do their jobs: as was the case with the Cossacks in the Russian Revolution.

A lot of people think that the first requirement of revolution: being unable to pay cops, military and functionaries (someone does need to keep things running) is impossible now in the US.

They’re right.

Now

But as the US becomes poorer and as prices continue to rise faster than wages, even police wages, and especially as actual shortages occur (sorry, we just don’t have any) that will change. You could pay them 10 billion dollars, but if it won’t buy the food, medicine, housing, internet and so on that they need or want, it amounts to “not being able to pay”.

And that’s where the US is in danger of heading. Can’t make a lot of stuff. Can force fewer and fewer countries to sell or “give” resources to them, can’t earn an honest buck in trade because China’s good are cheaper, and soon can’t just print dollars.

(I also expect that a lot of US copyright laws may be overthrown in other countries in about a decade to two decades. No reason to pay that ransom if you aren’t buying from the US, and it’s better to have domestic industry or your own internet companies.)

Every great nation thinks “it can’t happen here” till it does. For the US the endgame grows closer.

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

Preparing For Bad Times, Trumpocalypse Edition

I’ve been warning that there would be serious problems from Trump’s war because of the effect on oil, fertilizer, helium, natural gas and much more.

This was obvious: world use was higher than supply, and stockpiles would eventually dry up. Trump, for whatever reason (I favor blackmail, but hey, insert your reason here), refuses to make peace. Then the Saudis decided to hit Yemen’s capital aiport and Ansar Allah said “you’ve made us angry. You won’t like us when we’re angry.”

There’s some dispute over exactly who hit the pipeline (Sauds say Iraqi militias, Iraqi militia’s say “that’s not our honor” but it doesn’t really matter. Ignore BS about repairs, they remain no more defensible after repairs than they were before repairs are needed.

I expect to see shortages (already here for diesel in America and France), price increases and in some countries, food riots. No real supply management has been done, the geniuses in charge figured “let’s keep prices lower than they otherwise would be, and for sure we shouldn’t make sure farmers have enough at prices they can afford, or any other critical industry.” Add increased fertilizer prices, and BOOM!

So, Trump and co. have blown up the world economy, and 2027 is going to suck extra rancid ass. What to do?

The obvious thing is to stock up, if you can, but that’s not enough unless you’re rich and sure that your income stream is secure.

What you need is to belong to an actual community: people who take care of each other. It could be a very tight friendship group, it could be a large extended helpful family (not a lot of those still around), but the easiest way to get such a community is to join an active church. Active churches and their members give you a support network by default if you get involved. (Don’t just go worship, volunteer for something.)

“But Ian,” you whine, I’m not religious.

Get religion!

Kidding, kidding. There are churches for non-believers too.

So find a church that suits you and start going. Make friends. Be useful and helpful. When you need help the odds of you getting it skyrocket.

If you’re alone, or part of a small family group, you’re always one bad bump away from fiasco. In normal times this is bad. In the the times which are coming, well, it could be catastrophic.

Again: things ARE going to be bad. How bad will depend on where you are, and how stupid and unwilling Trump and MBS, the the Crown Prince of Saudi Arabia, are to make peace.

But I’m sure everything will work out. Neither of them are evil, stupid and have a track record of failure at everything except enriching themselves and clinging to power, right?

Act on this. It doesn’t have to be my suggestions, but do what you can: Shit Mountain just liquefied and started rolling downhill to where you live.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

Open Thread

Use to discuss topics unrelated to recent posts.

Doom, As Predicted

Sigh:

Regular readers will know I have been predicting this for some time. And understand that this is before the effects of Yemen basically shutting off Saudi oil and natural gas entirely because of shipping times.

Diesel is what farmers use. It’s what truckers use. It’s what most mining equipment uses. Much construction equipment. It’s probably more important for the operation of domestic economies than gasoline. Add to this fertilizer shortages, because much of the precursors come from the Middle East, and we’re in a world of hurt. Next up, bunker fuel, the stuff used to run freighters and tankers and without which international trade crashes to a halt, since shipping the is backbone of international trade.

Meanwhile the international bond market is freaking out:

Ouch.

Also ouch.

Are you sick of all the winning yet?

The Feds also increased the Federal reserve rate yet again, and indicated there may be another raise before the end of year.

Perhaps you’ve wondered why high interest rates are used to cool inflation? It’s because borrowing costs are a cost for businesses and individuals: when they go up, people have less money, and thus spend less. This leads to what economists like to call “demand destruction.”

Demand destruction means less economic activity, and enough of it causes recessions and shitty economies, and that’s in addition to the fact that expensive or insufficient fuel will also lead to a shitty economy.

And by shitty economy I mean that I expect to see actual food riots in multiple countries next year. This crisis is one of choice, and on top of that since there was no proper rationing which made sure that diesel and fertilizer and so on got to those parts of the economy which needed it most (yes, that means farmers in particular, but not just them) we’re going to be in a world of hurt.

Everyone with diesel refining who hasn’t already will put exports controls on at the least. That means if your country doesn’t produce enough, it’s not going to be able to buy enough otherwise. Yet another case of “no, you can’t buy anything that matters when it really matters.” Food exports will likely be restricted as well. Can your country feed itself? A lot can’t: for example Britain.

In personal terms I re-iterate. If you can afford to, start and stocking up on staples, medicine, fuel and so on. If you don’t need them, great, you’ll use them up in time anyway, but odds are you will need them and at the least, even if your locale doesn’t have physical shortages, be assured prices WILL rise.

This isn’t a theoretical matter any more, or a case of “later” as it was when I gave these warnings months ago. It’s happening now and it’s going to get worse. The only route out (and even then there’ll be problems, because rebuilding takes time) is for America to admit it lost the war and go to peace on Iranian terms and for Saudi Arabia to do the same with Yemen. All this nonsense about repairing the Saudi pipeline is almost meaningless because Yemen can hit it again and again and has no reason not to until the Sauds end their blockade.

This is a three alarm fire in the economy. The basis of the economy is on fire, and the fire is out of control and spreading. Act accordingly.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

The Structural Incentives Of Western Capitalism Make Competing With China Impossible

JoeQuant’s an ex NY finance guy who moved to Hong Kong. This tweet makes an important point:


He then goes on as follows:

One reason China is “winning” is that if you are a Western auto company, and you make extra money, you will put it into exec bonuses and shareholder buybacks. If you are a Chinese company, you realize that if you don’t put money back into the company, then the competition will eat you alive. At that point as a shareholder or exec you wonder how much is enough. What if I cut my salary to 2 million USD rather than 10 million USD and put the rest into R&D or worker salaries.

Yes.

The reason VW and other German firms made so much money in China for so long is that they had, brace for it, better cars. More technologically advanced. Better handling.

But, as Joe points out, they didn’t try and keep that lead. They let the Chinese beat them by refusing to properly re-invest their profits.

This is a constant problem in the West: our elites don’t want to compete on price. They don’t want to compete on quality. They want “moats” — they want monopoly profits just for existing.

The problem is that in most industries China doesn’t allow moats. It forces competition. It wants competitive markets. Chinese capitalism is actually what Americans think American capitalism is: red of tooth and claw. In America the Red Queen’s race is “make more money so you can buy more companies and make sure you can’t be bought”, in China it’s “keep ahead of real competition which is trying to have better quality cheaper products.”

I wrote a fairly long article on Germany’s tax and industrial policy earlier this year. The short of it is that they changed the incentives to make it easier for German firms to pay more divdends and do my buybacks, and so that investing outside the country made more sense than investing inside the country.

Then they got exactly what they deserved. Now, since they’re not competitive, they’re starting to switch their automotive industry over to military production.

And no, that won’t end well.

I continue to note that it appears that only communists and socialists seem to understand how to use markets to actually produce widespread prosperity. Capitalists should never be allowed to run markets, because capitalists always want to destroy the markets. The government must always view capitalists as greedy stupid children who must be supervised with heavy application of the rod, because the minute capitalists get rich, they want to end competitive markets. This is logical, in competitive markets no firm is ever secure, no fortune is ever impregnable.

Only oligarchy is safe for oligarchs. Unfortunately oligarchy destroys nations. Why is the US getting its ass kicked? Because it got rid of its industry. It’s that simple. It can’t even produce enough weapons any more, and essentially every industry in effectively an oligopoly–set up to raise prices faster than wages and entirely opposed to actual price and quality competition.

The CPC, not being capitalists, understand that capitalists are stupid, venal scum who must have fist of the state around their throat at all times.

The West used to understand that capitalists needed regulating, especially during the New Deal era. But they never truly understood that capitalists are like powerful nobles. If you don’t keep the boot on their neck, they will destroy you. And so they did and so they have, we’re just playing out the end results of oligarchs taking over the West: all the sound and fury and deaths are just part of an inevitable end-game. The actual damage was done in the 70s thru 90s (people can quibble about the dates) and the rest is just consequences.

If you want free markets, you need people who don’t trust capitalists in charge, and you need to be sure capitalists never capture the government. The second they do, your country is cooked. Depending on how prosperous it was before the oligarchs took over, it may take a few generations, but the end result is not in doubt.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

Defending Most Infrastructure Is Now Impossible But No One’s Getting It

After Ansar Allah grabbed a huge chunk of territory, including coast and islands which let it control the Red Sea, and after blowing up a pumping station and pipeline which will require weeks to repair, the Sauds are doubling down with airstrikes and missile attacks.

And I’m wondering what’s going thru their heads.

Because we’re in a period where, with a few exceptions, anything can be destroyed by missiles and drones if you’re within range. That especially mean port infrastructure, airports, refineries (which have also been hit) and, yes, pipelines.

Whatever one thinks of Ansar Allah, they have shown an ability to absorb massive amounts of damage, and frankly, they have almost nothing. If it comes to a tit-for-tat exchange, they can take the punishment, while Saudi Arabia has all sorts of vulnerable infrastructure.

It’ll take, supposedly, six weeks to repair the pipeline.

Then it can just be hit again, because there is no way to protect it.

This is the new calculus of missile power. It’s hard to defend against, and in the context of western interceptor stockpiles being almost depleted, it’s effectively impossible.

In Ukraine/Russia this favors Russia, because they can hit more. In Yemen/Saudi Arabia it favors Yemen because what they can hit matters much more.

As with the Iran war, the correct play here is peace. Yemen wants an end to the blockade. Give it to them.

Saudi Arabia’s army is an infamous joke. They’re flirting with the end of the House of Saud here, because if the money stops, then their population will become a serious threat. The military is weak to avoid a possible coup, but that means it can’t stop a major uprising or invasion. The secret police are scary, but they only work at stomping out small fires, they can’t stop anything major.

Everyone hates the Saudi Royals. I’ve never met anyone who dealt with them who didn’t despise them, even if they were being paid well by the Sauds, they hated them.

This is a new world. Saudi Arabia bet on America to protect them, and that worked for generations. But America can’t any more. The royal family needs to find a new way, and so far the Pakistan/Turkey alliance is a dud.

It’s not looking good for them, but the first thing they need to do if they want to survive is get real about their situation, and about how warfare has changed.

I rather hope they don’t.

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

Open Thread

Use to discuss topics not covered in recent posts.

Ansar-Allah’s Blitz Likely To Reduce Saudi Oil Exports To Near Zero

The picture above is from an Ansar-Allah (Houthi) strike on Saudi Arabia’s East-West pipeline. That and the Red Sea are how they were getting around the Iranian blockade.

About the Red Sea:

Yemen appears to have captured four islands plus the West coast of Yemen, most of which they didn’t previously control. This is… remarkable… because they have no navy, no airforce and one of the islands had an air base.

Meanwhile, they completely routed Saudi mercenary forces, capturing vast amounts of land in thirty six hours:

Saudi (and a few UAE proxies) were routed. They basically fled on contact. This is what happens when merecenaries go up against real troops, and the US isn’t there to help. Saudi Arabia has a huge air force, but it appears to have done basically nothing. (It’s an open secret that the Saudi military is a complete joke.)

MBS begged Trump for help and got none:

Saudi Crown Prince MBS called US President Trump twice on thursday, urging the US to carry out strikes but Trump reportedly declined as there are currently no plans for direct intervention. (Axios)

The US is over-stretched, and not just low on interceptors on missiles, glide bombs and so on.

The war in Yemen was a big project for Obama, and it included a hell of a lot of US support. Even with all that support they were only able to contain Ansar-Allah, not defeat it. (It’s worth knowing that while most of Yemen is not under Ansar-Allah control even now, the areas they control have 80% of the population.)

This is what it looks like when an Empire is in fatal decline.

I consider this good news, overall, but it’s going to absolutely suck for almost everyone. I have warned before, I’m warning again: stock up on staple foods, fuels and so on. Ansar-Allah now has complete control of the Strait, plus that pipeline is down for a while, and they can take it out again, or hit more refineries. Combined with the Iranian blockade, hardly any Saudi oil will be getting out, nor will the precursors for fertilizers.

Much of what was holding the oil market down (other than massive manipulation and releases from the reserves) was China reducing its purchases for months, but they’ve started up again, so demand is actually increasing.

We’ll see if Saudi Arabia has more sense than America: the correct action is to make whatever concessions are necessary. The Sauds cannot protect their infrastructure, their army is garbage, their mercenaries won’t fight and Ansar Allah has them by the throat. If they insist on fighting on they risk losing everything, because without oil revenue, Saudi Arabia is not viable, right down to not having enough food.

Much like the Iranians, Yemen has escalation dominance and is more willing and able to take pain (they lost millions to the last war) than the corrupt and effete Saudis. The Sauds have LOST and if they refuse to admit that, the House of Saud itself may fall. (No one will miss it, except people like Kushner, whom it has bribed.)

I consider yesterday one of the best days, geopolitically, of my life. The American Raj is taking body blow after body blow and is fatally overstretched. But it is going to SUCK for most of us, as prices rise and there are shortages, unless Trump has surgery to correct his chronic case of head in ass and agrees to Iran’s terms, while the Sauds do the same with Yemen.

It’s hard to predict Trump, but my guess is his Israeli masters won’t let him make peace, so get ready: the next year is going to be awful in much of the world.

 

What I write here is for the benefit of everyone, but alas, I live in capitalism and I, and the site, take money to keep running. If you value the writing here and can, please subscribe or donate.

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