Sleepwalking down a road to Armageddon — Part one

Wednesday, 15 March 2023 — Albert Park

[8 min read]

Dear Reader,

This series of articles is all about the war in Ukraine, with a close-up of the risks of nuclear war (note: this content was originally published in December 2022).

No story, including the elections, supply chain, a possible recession, and zero-COVID policies in China, is more important.

After the drama of the initial invasion, Russia’s withdrawal from the Kyiv area, Russia’s brutal attack on Mariupol, and Ukraine’s counteroffensives in Kherson in the south and Izyum in the east, the war has reached a relatively quiet stage.

This should not be mistaken for a prelude to peace. Ukraine is stretched thin, and Russia has been preparing for a massive winter attack to roll back Ukrainian advances. Whether any of this succeeds remains to be seen. Still, it’s definitely coming, and the situation will grow more violent and chaotic.

Proxy wars are decided well behind the frontlines

Behind these coming conflicts on the battlefield is an intensification of the financial and economic war being waged by the US/UK/EU against Russia.

The latest developments include a global price cap on Russian oil announced by Janet Yellen. The price cap will fail (they always do), but it’ll make oil deliveries more inefficient and expensive.

When this is combined with Gazprom’s decision on 22 November 2022 to end deliveries of Russian natural gas through Ukrainian pipelines (on top of the UK sabotage of the Nord Stream 1 and 2 pipelines), Russian gas deliveries to Western Europe have come to a near complete halt. This will push world oil and natural gas prices higher, despite some headwinds from the emerging global recession and higher interest rates.

Overshadowing everything is the threat of nuclear war, which has been exacerbated by Joe Biden’s loose talk about nuclear ‘Armageddon’ at a pre-election fundraiser. We are living through the most dangerous moment for world peace since the October 1962 Cuban Missile Crisis. We’ll summarise this threat below.

Playing with fire in Ukraine

Ukraine is the spider in the spider web. It affects geoeconomics, energy shortages, the supply chain, and the desire of many countries to escape US dollar hegemony.

Russian success in Ukraine presages a new international monetary system through its allies in the BRICS+, the Shanghai Cooperation Organisation, and the Eurasian Economic Union. Likewise, Russian failure in Ukraine points the way to a strengthened world economic order with the US firmly in charge. Either outcome is possible. Nothing is more important.

First, a note on sourcing. Winston Churchill famously said, ‘In wartime, truth is so precious that she should always be attended by a bodyguard of lies’. That was true in the Second World War, and it’s no less true today. The US, UK, and EU will lie. So will Ukraine. So will Russia. That’s our starting place in any analysis. If I read something in The New York Times, I can be quite certain it’s a lie.

Lies can tell the truth

They reveal what the sources are really concerned about. If you weren’t concerned about something, why bother to lie about it? Based on the lie, you can know what matters.

From there, you can infer that the lie’s topic is important, and the opposite of the lie is probably true. You can update your inference with what’s called all-source fusion, basically using other intelligence sources, some of which might appear quite minor, to tweak the initial inference in one direction or another.

If enough evidence accumulates, you quickly reach a point where you can give a high probability to a certain state of affairs, even if it’s quite different from what the media tells you.

The war has lasted a long time already. Enough time to assemble trusted sources and make timely forecasts. What follows is the best available analysis:

The status of the war in Ukraine is best understood as a competition between the narrative and reality.

The narrative consists of what you hear from mainstream media, the White House, the Pentagon, and official sources in the UK, France, Germany, and both EU and NATO headquarters in Brussels. The reality consists of what’s actually going on based on the best available sources.

Let’s consider the narrative first

According to the White House, EU, and NATO, things are going relatively well for Ukraine. The Armed Forces of Ukraine (AFU) have advanced in Eastern Ukraine along a line parallel to the Russian fortified lines between Donetsk and Luhansk. Ukraine has also reoccupied the regional capital of Kherson, which lies strategically on the Dnieper River, which is Kyiv’s main access to the Black Sea and international trade.

Based on these advances, the narrative says that Russia is in retreat, Russian troops are demoralised, Putin is in jeopardy of being replaced, and complete victory for Ukraine is just a matter of time.

The narrative is then used as a basis for increased financial aid from the US (more than US$60 billion and growing) and increased weapons shipments from NATO members. President Volodymyr Zelensky touts these accomplishments in his customary green T-shirt on video presentations to the UN, G20, and other international audiences.

Here’s the reality

The actual situation on the battlefield is almost completely at odds with the narrative. Ukraine did make advances in the east, but they were against lightly defended Russian positions on or near open terrain. The Russians organised an orderly retreat to fortified lines and let the Ukrainians have the open land, which will become a killing field for Russian artillery.

Russia regarded Kherson as a non-strategic salient. They withdrew to the east bank of the Dnieper River while allowing Ukrainian troops to reoccupy the centre of Kherson. Russia avoided a fight over a city of little strategic value while retaining a chokehold on river traffic from the east bank.

In the meantime, Russia has completed its 300,000-person mobilisation. More than 180,000 of those troops are now deployed behind Russian lines in combat formations. The remaining 120,000 troops will arrive soon. This brings total Russian strength up to about 30 divisions.

AFU strength has been greatly diminished due to high casualty rates. Many so-called Ukrainian troops are actually Polish forces in Ukrainian uniforms. Russian forces are well-rested and well-supplied. They’re being supplemented with Iranian drones, a major force multiplier.

Russia is now preparing to launch a massive counteroffensive

The major objectives are Kharkiv in the northeast, Odesa in the southwest, and Zaporizhzhia in the centre part of the country on the Dnieper River.

Completing these missions will give Russia control of the entire coast from the Sea of Azov to the Black Sea. It’ll also give Russia control of the Dnieper River and Europe’s largest nuclear power plant.

Russia will incorporate this territory into the Russian Federation and will likely move further into Moldova to reunite with a pro-Russian corridor called Transnistria, with its capital in Tiraspol. At that point, Russian strategic objectives will be complete.

Ukraine will be left as a rump state between Kyiv and Lviv. Almost all the industrial, technological, and natural resource capacity of former Ukraine is in the Donbas now under Russian control.

All the best,

Jim Rickards,
Strategist, The Daily Reckoning Australia

This content was originally published by Jim Rickards’ Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here.

Dear Reader,

Was that the ‘something’ we were waiting to ‘break’? From Business Insider:

‘The Silicon Valley Bank meltdown may incite the Federal Reserve to cut rates by 100 basis points by December to prevent contagion in the financial system, Larry McDonald said.

‘That would mark a sharp reversal from the central bank’s current course of aggressive tightening to rein in inflation.’

Recall our forecast: the Fed will continue raising rates ‘until something breaks’. A California bank broke on Friday. And now comes news of more breakage. From Deadline:

‘New York State regulators took over Signature Bank today, the second financial institution to fold in less than a week as the FDIC and Treasury, however, assured depositors at both that they would be made whole in an attempt to stem the growing crisis.

‘“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the Treasury Department, Federal Reserve, and Federal Deposit Insurance Corporation said in a joint statement Sunday.’

A bear in a china store

Both banks were shut down by regulators — after big losses. The bonds of SVB, for example, fell to 31 cents on the dollar.

But that’s what happens when the Fed raises rates. This is the same Fed, by the way, that enticed everyone to borrow trillions of dollars by dangling low interest rates in front of them — for more than 10 years.

Having created a dangerous and debilitating debt bubble, the Fed’s now determined to take the air out of it…as long as higher interest rates don’t cause too much trouble.

But in an economy with US$90 trillion of delicate chinaware, bought on credit, even a small increase in interest rates is bound to cause a lot of breakage. That is the cracking noise we hear coming from California and New York. And while we doubt these are the ‘breaks’ that will cause the Fed to pivot, they help us understand how the crackpots at the Fed crack the pots.

Dan explained in his Friday note that it was under the watchful eyes of the Fed’s thousands of bank regulators…and thousands more analysts on Wall Street…that the ‘second biggest bank collapse in US history [Silicon Valley Bank]...unfolded…without a single person issuing a peep of warning’. As Dan Denning states:

‘Looking at the numbers, deposits at SVB went from $60 billion in 2019 to $189 billion in 2022. The IPO/SPAC/tech boom was good to SVP. But what does a bank do with all that depositor cash?’

What could it do? It bought bonds. And then, as interest rates rose, bonds fell.

On the bright side

For our part, we will continue our jaunt down the sunny side of the street, looking at only that part of the glass that has something in it. And let us begin by looking at more of the absurd, the ridiculous, and the sublime events of the last week.

If there were ever any doubt that Congress is composed of lamebrains, Rep Mark Takano is doing his best to dispel them. CNBC reports:

‘…his 32-hour Workweek Act to Congress, which, if passed, would officially reduce the standard definition of the workweek from 40 hours to 32 hours by amending the Fair Labor Standards Act.

‘His proposal would mandate overtime pay for any work done after 32 hours, which would encourage business to either pay workers more for longer hours, or shorten their week and hire more people.’

It will ‘increase the happiness of humankind’ says its sponsor.

What a hoot it must be to spend time in Congress. A laugh a minute. How on Earth would Mr Takano know what would increase human happiness? And if a shorter workweek would do the trick…why not a 25-hour week…or a 10-hour week…or a week with no work in it at all? How is it that Mr Takano, who otherwise seems to be a person capable of tying his shoelaces and driving a car, can know that a 32-hour week would result in maximum happiness for humans on planet Earth?

We don’t know. But how the members of Congress must chuckle! Like guards at a Gulag…they amuse each other by devising new ways to abuse their constituents.

‘Let’s see how the dopes back home will like this’, they say to each other, with a wink and an elbow.

‘How about we give $52 billion to US defense companies so the Ukrainians can fight for freedom?’

‘Hah…ha…ha…’

‘No…we’ll say “fight for democracy”.’

‘Hah…ha…ha…’

‘And let’s ban TikTok…and force American companies to buy their chips from the companies that give us campaign donations.’

‘Hey, wait…isn’t that unconstitutional?’

‘Who cares…?’

‘Hah…ha…ha…’

Yes, the US Congress is corrupt and incompetent, but what’s new? That glass sprang a leak years ago.

Another tall tale

Probably the biggest joke last week came from The New York Times newsroom. And here too, there’s good news: no one can take the Times seriously ever again.

The Ol’ Gray Lady gave such a fairytale account of how the Nord Stream Pipeline got blown up, even she seemed embarrassed to report it. Reporters checked no facts, interviewed no sources, and challenged no details; the paper simply passed along the government’s latest misinformation.

Joe Biden said he would blow up the pipeline. He had the means to do the crime. And Seymour Hersh — a seasoned, Pulitzer Prize winning investigative reporter — revealed, in detail, how he did the deed. But the Times — acting as a propaganda agency for the Deep State — ignored Hersh’s very credible story and instead reported an unlikely yarn from unnamed ‘sources’ in the government about people who probably couldn’t do the job and probably don’t even exist. Supposedly funded by a ‘Ukrainian oligarch’, the terrorists allegedly rented a yacht, loaded on ultra-high-powered explosives, and somehow escaped notice as they planted them on the pipeline in one of the most carefully guarded seas in the world.

We doubt that Joe Biden will ever fess up. And maybe his team will come up with a better way to put the blame on someone else. But for now, we suspect that some oligarch is going to have to take the rap, so the Times won’t be forced to look any further.

Stay tuned...

Regards,

Bill Bonner,
For The Daily Reckoning Australia