Ukraine – The Chaos Begins
Well, the Ukraine girls really knock me out.
They leave the West behind.
Back in the U.S.S.R. – The Beatles
…..
I began this website and blog in January with the title “look through the chaos,” because I believe that we are going to see tumult and chaos as the United States and to some degree in the whole world in the coming few years. This chaos will come as we all deal with the resolution of major schisms in 5 different dimensions. Those dimensions are Political, Economic, Social, Cultural and International. You can read more about the foundational ideas of this website here.
I did not and do not know how this chaos will evolve or when, but I am quite certain that it will come.
At least part of it is now here.
The Russian invasion of Ukraine is one of the various potential turbulent world events that could occur. Now that is has happened, much will change.
President Biden’s State of the Union speech contained many fanciful pronouncements and outright lies (see Hot Takes and Words of Others). The one statement he made with which I agree is that Putin underestimated the world response to the invasion. He expected Europe to be divided in their response. But Europe united instead, led by the Germans, Swiss, Italians and others. The United States response has been one of the weakest of any first world nation. We are following not leading. That is one major impact. The world no longer sees the U.S. as leading in international affairs and they believe they need to fill that void. In my opinion this is not a welcome development but one we must live with for another 3 years as long as we have a weak and incompetent president.
Putin, like all dictators, is driven by his ego. I don’t believe that ego will allow him to lose in Ukraine. The Russian military has access to missiles and air power that the Ukrainians simply do not possess. Ukraine has begged the U.S. for this weaponry for 10 years but was denied. If Putin wants to flatten Kiyv, he can do it. We are seeing the Russians escalate the severity of their attacks from the air as I write this. What does Putin define as winning? I’m not sure anyone knows the answer to that question. If he conquers and occupies all or much of Ukraine, we will see more fight in the Ukrainian people which will likely continue as a resistance from within, similar to the French in WWII. The west will provide support for this resistance. I do not see fighting in Ukraine as ending for months or maybe years, unless Putin backs off, which would be welcome but has to be seen as unlikely given his past behavior.
Putin already controls Belarus. If he controls Ukraine and the tiny adjacent state of Moldavia, he will have his forces adjacent to a number of NATO countries. The U.S. ,and the rest of the NATO countries, are obligated to defend them. The Baltic states of Estonia, Latvia and Lithuania are small, very exposed, and hard to defend backing up as they do to the Baltic Sea. Putin wants them badly. We will have to station troops and airplanes and missiles there to have any hope of following through on our Article 5 obligations. Will Biden actually do that? He has wanted to be the president who ended wars (Afghanistan) not begin them. History and world events often do not comport to a leaders’ wishes.
There was a chance to make Russia into an ally. Yes, Putin is a thug but we have allied with thugs before and will do so again in the interests of national security from a greater threat. That would have avoided this whole thing. With Putin’s actions here, that no longer is possible without a regime change in Russia. Will the economic impacts of all the actions taken by nations and companies around the world to pull out of or isolate Russia hurt enough to cause regime change or for Putin to have to back off? That certainly is the hope. But the U.S. sanctions are amongst the weakest of any nation as Biden left many exceptions. He clearly worries more about inflation’s affect on his approval ratings than about anything in Ukraine.
In the scheme of the whole world, Ukraine is small. It has about the population of California with a similar land mass to Texas. But they produce a substantial amount of the world’s wheat and corn. They mine most of the world’s neon. They make wiring harnesses for a number of the European car manufacturers who have therefore had to shut down. In addition, much of the world is cutting off trade with Russia. Russia is a well known energy producer but they also grow a significant amount of the world’s wheat as well as produce a lot of aluminum. The disruptions to markets from all of this will not be benign. Seventy years ago, the impacts would have been far different. But supply chains for so many products are now spread all over the globe and in some cases are concentrated in a single country that develops an expertise. Since the pandemic, many countries have talked about bringing the production or mining of products back “home” so that their economies are not so exposed to disruptions elsewhere. Fine. But this will take time and it will be inflationary.
Inflation was still rising in the U.S. before all of this. Now, inflation is certain to rise even more and be more persistent for longer. The Fed will do their thing. Still the risk of continued inflation and reduced or negative growth looms greater than before. A broad index of world commodity prices was up 4% today. That’s 4% in one day.
Putin did what he did because he wants to change the world order as it exists. Other countries share that desire, albeit with a different change than the one Putin envisions. Those countries are watching. The world order will be different in a year than it is now. The Germans are re-arming for the first time since 1938. The Swiss aren’t neutral. The British are leading world opinion on this, displacing the U.S. The Chinese are trying to figure out how they can come out the winners here. The Indians are surprisingly staying out of it.
And so, the chaos begins. There is much to be played out on the international side of this for which no predictions can be made with any degree of confidence. The only certainty is that there will be spillover from this military international crisis into economics. Inflation will run hotter. Interest rates will rise some. Very high asset prices will continue to decline and some hedge funds with Russian investment exposure will have liquidity problems. The move to onshore production and mining will accelerate. There is a collision coming between bubblish asset prices, massive amounts of debt, inflation and declining growth. It is unlikely to be pretty.
But it could be worse. We could be in Kharkiv right now. God bless those people who are.
I remain respectfully,
Congressman John Campbell
Drive Fast and Live Free