Michael Hudson: The New Cold War’s Ukraine Gambit

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By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “The Bubble and Beyond.” This article is from a new book, Flashpoint in Ukraine, edited by Stephen Lendman. It is currently available from Clarity Press as an e-book, and soon to be printed.

Finance in today’s world has become war by non-military means. Its object is the same as that of military conquest: appropriation of land and basic infrastructure, and the rents that can be extracted as tribute. In today’s world this is taken mainly in the form of debt service and privatization. That is how neoliberalism works, subduing economies by indebting their governments and using unpayably high debts as a lever to pry away the public domain at distress prices. It is what today’s New Cold War is all about. Backed by the IMF and European Central Bank (ECB) as knee-breakers in what has become in effect a financial extension of NATO, the aim is for U.S. and allied investors to appropriate the plums that kleptocrats have taken from the public domain of Russia, Ukraine and other post-Soviet economies in these countries, as well as whatever assets remain.

In a recent interview in The New York Review of Books, George Soros outlines what he thinks should be done for the Ukraine. It should “encourage its companies to improve their management by finding European partners.”[2]

This means that kleptocrats should sell major ownership shares in their companies to Westerners. This would give the West a stake in protecting them, pressuring their government to tax labor rather than the wealthy, and helping them cash out and keep their takings in London and New York to finance Western economies, not that of Ukraine.

The West’s Ideological Conquest of the Post-Soviet Economies

That is not how replacing Soviet communism with a free market was supposed to work out – at least, not for the Soviet side. Mikhail Gorbachev and his supporters hoped that ending the Cold War would enable Russia to dismantle the arms race whose costly military overhead prevented the Soviet Union from devoting resources to produce consumer goods and adequate housing. In addition to the peace dividend, the aim was to establish a price feedback system that would raise industrial productivity and living standards.

The West’s ideological victory – or more to the point, the neoliberal anti-labor, anti-government and pro-Wall Street game plan – was sealed at the Houston summit in July 1990. Russian Prime Minister Gorbachev and other Soviet leaders endorsed the World Bank/USAID plan for shock therapy, privatization, deindustrialization and a wipeout of domestic personal savings (characterized as an “overhang”) to start by impoverishing the population at large and vesting an overclass with the most unequal distribution of wealth in the Northern Hemisphere.

U.S. Cold War advisors urged Russia and other post-Soviet states to give hitherto public assets and property to individuals, preferably to plant managers and political insiders. The cover story was that it did not really matter who got them, because private ownership in itself would lead the new owners to re-organize production along the most profitable lines. Pinochet’s Chile was held out as a shining success story, and a right-wing Pinochetista movement started in Russia.

The Communist Party nomenklatura, Komsomol leaders such as Mikhail Khodorkovsky and Red Directors were excited by these neoliberal promises to turn over natural resources, real estate, infrastructure and factories to themselves. The sanctimonious pretense was that property has its own logic of self-interest, which serves the social good because wealth will trickle down to uplift the population at large. In practice the neoliberal “free market” turned out to be a euphemism for looting. Subsidized by U.S. support and imposed by Yeltsin’s presidential fiat (unconstitutionally, over the objections of the Duma), ownership of hitherto public investment and natural resources were given to managers who made their fortunes by selling their takings to Western investors.

Already before 1990 billions of dollars in roubles already were being siphoned off via Latvia (Grigory Loutchansky and Nordex played a major role), while co-op leaders KGB and army leaders already were creating proto-predatory financial structures. U.S. bankers, officials and academics went to Russia and other former Soviet republics to explain that the most practical path was to create joint-stock companies and sell shares to Western buyers to bid up the price. Western banks helped kleptocrats keep the proceeds from these sales abroad so that they didn’t have to reinvest it at home (or pay taxes). The tax burden was placed on labor and consumers, not on the windfall gains and natural resource rents, land rent or monopoly rent being siphoned off.

Instead of bringing about Western European or American-style industrial capitalism with their heavily subsidized technology and protected agriculture, the effect has been to de-industrialize Russia and other post-Soviet economies, except for East Germany and Poland. In effect, the former Soviet Union was colonized in the world’s largest resource grab since Europe’s conquest of the New World five centuries ago.

As in the other former Soviet republics, Ukraine embraced the neoliberal plan to make kleptocracy the final stage of Stalinism. As Mikhail Khodorkovsky described: “Decent people get out of the system, leaving ‘idiots and lowlife’ – great material for building up the machinery of state. And yet that is indeed our state.”[3]

Along these lines one Russian journalist excoriates Ukraine’s sequence of oligarch-politicians as gangsters:

Kuchma gave orders to kill the journalist Gongadze. Yanukovich, still the country’s only legally elected president, did a couple of stretches in the clink even in Soviet times – for snatching fur-hats in public toilets.

Former Ukraine Premier Lazarenko is now doing time in the U.S.A. for money laundering, fraud, and extortion. His business colleague Yulia Timoshenko, whose complicity in those crimes was proved beyond all reasonable doubt by U.S. investigators, fearing the same fate, sought immunity by moving into politics.

Timoshenko is the person whom ordinary people of Ukraine have called vorovka, feminine for thief, to her face. Indeed, the source of the billions this “engineer-economist” (her position in Soviet times) amassed in the ‘90s is perfectly obvious: pocketing the money for gas that came from Russia to Ukraine and Europe. Getting payment for the gas [sold by] Timoshenko’s corporation was always a wrangle, and at times impossible. She salted away her booty in European banks, often carrying bags of cash across the border, for which she was repeatedly arrested but wriggled out of jail sentences by suborning judges and such. Again, all this is on record. [4]/a>

These leaders have left Ukraine looking like a Northern Hemisphere Nigeria. Real wages plunged by more than 75 percent from their 1991 level wages already by 1998 and have stagnated ever since.[5]
This “cheap labor” makes Ukraine appealing to European investors, who now are making their own move to obtain what Ukraine’s oligarchs have grabitized. The West has made it clear that it will help these individuals convert their takings into cash and move it safely into Western banks, luxury properties and other nouveau riches assets.

The Coup Seeks to break up Ukraine, Libya- or Iraq-style

From a military vantage point, the New Cold War aims to prevent revenue from these privatized assets from being used to rebuild, re-industrialize, and hence potentially to re-militarize the Russian and Near Abroad economies. This is why U.S. strategists have moved to pry Ukraine out of the Russian orbit. The dream is to achieve the Cold War’s coup de grace along the lines outlined by Zbigniew Brzezinski in his 1997 Grand Chessboard: “Without Ukraine, Russia ceases to be a Eurasian empire.” The aim is to break as much of Ukraine as possible out of the Russian orbit and to draw it into the West, and into NATO itself.

This has been the plan ever since President Clinton broke the disarmament agreement made by George H.W. Bush with Gorbachev and extend NATO to the former Warsaw Pact members, starting with the Baltics. The logical extension of this tactic is to promote separatist movements in Russia itself, much as U.S. strategists are seeking to stir the pot of ethnic resentment in China, and as they have done in Libya, Iraq and Syria.

They found their most recent opening when Ukrainians mounted a mass demonstration against the rampant political and economic corruption built in from the outset of independence. The hoped-for aid from Europe turned out to be only to subsidize the kleptocracy, not to promote meaningful democracy. President Yanukovich reacted to Eurozone demands for yet more austerity by choosing Russia’s far better offer. Meanwhile, “Occupy Maidan” was filling up with middle-age demonstrators, women, students, Russian-speakers, nationalists and others whose common aim was to end the thieving. They wanted reforms, and were protesting against the oligarchs, not only Yanukovich but also Timoshenko and the others.

But the Obama Administration seems to be channeling Dick Cheney these days. Its Assistant Secretary of State for European and Eurasian Affairs was the neocon Victoria Nuland, who wanted Arseniy Yatsenyuk to be in charge, an economist willing to turn the Ukrainian economy away from the Russian orbit toward the Eurozone. To accelerate matters instead of waiting for the scheduled autumn elections, a preemptive coup. U.S.-backed separatists mounted a coup, bringing in right-wing neo-Nazi groups and foreign snipers to escalate a violent confrontation on February 20.

Public relations spinning made it difficult to understand who was behind the snipers firing on demonstrators and police. An public campaign by the coup leaders and U.S. spokesmen accused Yanukovich’s police of doing the firing. But a TV investigative team sent from Germany’s ARD confirmed what had been trickling into the news contradicting the American version of events. The April 10 report found that contrary to the claims of the coup leaders in Kiev, the demonstrators were hit from behind by snipers shooting from the roof of “their own headquarters, the Hotel Ukraina.”[6]

One doctor found that all the bullets taken from bodies he examined were identical, suggesting a single group of snipers. The German team quoted family members about how the coup’s new Attorney General, Oleg Machnitzki, has stonewalled them with regard to the details of the death or injury of their relatives. He is a member of the right-wing Swoboda party, appointed to investigate snipers who seem to have come from his own group.

The ARD program quotes a senior member of the new government’s Investigative Committee saying that “The results of my investigations which I have found, simply do not match up with what the prosecutor says” in blaming Yanukovich. The program concluded: “the fact that a representative of the nationalist Svoboda Party as Attorney General quite obviously hindered the elucidation of the Kiev massacre, creates a bad image of the new transitional government – and thus also of all those western governments that support the new rulers in Kiev.”
In a travesty of reality, White House spokesmen portrayed the U.S.-orchestrated violence as representing a spontaneous nationalistic anti-Russian spirit of the Maidan demonstrators, as if they were supporting pro-EU and hence anti-Russian passions. But what evidently happened is that the coup leaders sought to jump in front of the anti-corruption parade by creating chaos and then restore “order” by removing politicians from the Eastern Russian-speaking region.

Yanukovich reached an agreement with the protest leaders to step down and appoint an interim government, but his palatial home was sacked and he fled for safety to Russia. The coup leaders (calling themselves the “transitional government”) fanned regional tensions by banning the use of Russian on television and other public places, and even began to cut off water to Crimea, while replacing local Eastern Ukraine officials with “Right Sector” apparatchiks in an attempt to force the region’s oligarchs and factory owners to turn away from their main markets in Russia and re-orient the economy toward Europe.

Matters have not worked out as planned. The U.S.-backed destabilization moves were so blatant that they prompted former President Jimmy ‘to warn that: “The rest of the world, almost unanimously, looks at America as the No. 1 warmonger. That we revert to armed conflict almost at the drop of a hat – and quite often it’s not only desired by the leaders of our country, but it’s also supported by the people of America.”[7]

Commenting on the anarchy into which the U.S.-backed coup has plunged Ukraine, Singapore’s Prime Minister Lee Hsien Loong summed up what so often has been the result of foreign uprisings backed by U.S. promises.

“I think you should have thought of that before encouraging the demonstrators on the Maidan. I think some people didn’t think through all the consequences. … can you take responsibility for the consequences and when it comes to grief, will you be there? You can’t be there, you’ve got so many other interests to protect.”[8]

Having encouraged the Ukrainian coup by holding out a quixotic dream of joining the EU and even NATO, the United States really has no means to follow through. It is in many ways a reply of the Hungarian 1956 uprising and that of the Czechs in 1968.

The effect is to make the United States look like what Mao Tse Tung called it: a Paper Tiger. Having waved a big stick, the United States and its NATO satellites are now leaving Ukraine broke. The aim of prying it out of the Russian orbit has left the country heavily in debt to Russia for arrears in payments for gas (now no longer subsidized) and in danger of losing Russia as its major market for industrial exports. To cap matters, Western separatists are talking of blowing up the pipelines carrying Russian gas to Germany and other European consumers, to reduce Russia’s trade balance and thus presumably deter its ability to spend on the military.

To support President Obama’s assurances that the US-backed side was not conducting the terrorism, the U.S. news media have blacked out the German investigation and similar testimony. Obama’s claims and those of Samantha Power at the United Nations may go down in history as his analogue to George W. Bush’s fictitious “weapons of mass destruction” in Iraq.

As Warren Buffett has quipped, finance and debt pyramiding are weapons of mass destruction. They go hand in hand with mass deception. Opposition to the U.S.-backed coup and its attempt to impose Eurozone austerity on Ukraine is not necessarily pro-Russian, but simply opposed to plans to tear the country away from its major export market and fuel. Of all the post-Soviet states, Ukraine’s economy is most closely interlocked with that of Russia, even with its military production. Disrupting these linkages can only be mass unemployment and austerity. The aim of a Ukrainian anti-Russian turn thus is not to help Ukraine, but to use that unfortunate country as a pawn in the New Cold War.

America’s Ukraine Adventure as a New Cold War Gambit

Why would an American president take so great a risk with his reputation, if not to make a major geopolitical move for a showdown with Russia? The $5 billion of U.S. support (to which Victoria alluded in her notorious phone remarks explaining U.S. support for the coup) has been spent to fuel a movement dreaming of joining the EU. But the drive to turn Russia’s naval base at Sevastopol and into a NATO Black Sea port was stymied by the coup leaders’ over-reaching drive to ban the Russian language in public venues. A majority of Crimeans sought protection by being absorbed into Russia, which Putin hardly could have refused.

Failing to pry away the entire Ukraine, Plan B is to break it into parts, much as U.S. strategists are fomenting Uighur and Tibetan separatism in China. Dismemberment usually is achieved most easily in today’s world under the force majeur of IMF “stabilization” such as tore Yugoslavia apart (an early venture of Jeffrey Sachs). The aim is to break away as much of Ukraine as possible from the Russian orbit, and to do so in ways designed to hurt Russia the most. This entails refusal to pay for gas arrears, and stopping Ukrainian military exports to Russia. IMF and EU-sponsored austerity would lead to deeper dependency on Western Europe for credit that a bankrupt Ukraine, driven into even deeper unemployment, could not pay. The IMF-EU then would insist that its government must pay Western creditors by proceeds from privatization sell-offs. The problem with this is that most Ukrainian debt is owed to Russia – not only for gas but also for other Russian claims including a reimbursement of Russian prepayment for its Crimean naval base.

The Ukrainian coup also aims to impose on Russia the kind of military burden that originally led its leaders to undertake their rapprochement with the West. The idea is to drain its budget militarily by heating up the New Cold War along its borders, leaving less to invest in real economic growth. And if sabre rattling over the Ukraine can taunt Russia into over-reacting, this will revive fears of the Russian bear in the Baltics and other neighboring states, fanning their ethnic anti-Russian tensions. This will help keep their elections from being fought over neoliberal austerity and the pro-oligarchy, anti-labor tax policies put in place since 1991.
Like most national security advisors, Brzezinski depicted Russian resistance to U.S. geopolitical strategy as a threat to re-establish the kind of powerful imperial state that has become economically impossible in today’s world, except for the United States alone. The U.S. aim is to become unilateral global military tsar (or mother-in-law, or whatever metaphor you might want to use), using the IMF, ECB and EU bureaucracy, NATO, the covert operations of America’s National Endowment for Oligarchy Democracy (NED) and Serfdom Freedom House to block foreign resistance to smash-and-grab austerity policy and privatization selloffs.

This perpetual U.S. national security nightmare suspects any industrial power of being potentially military in character. Hence, any nation with a potential to pursue an economic alternative to austerity is a potential enemy.[9]

To military game-players, China and Russia appear as the two great current and present dangers, given their industrialization, control of their own resources and most of all, financial autonomy from the dollar.

Putin made it clear that Russia would be satisfied to see Ukraine as a federalized buffer state, with regional autonomy for each of its ethnic regions. But U.S. strategists fear that this would enable the eastern region, whose export industry is tied to Russian markets, to resist the Eurozone austerity that would force Ukraine to borrow, default, and then pay back by selling off its public domain, banks, farmland, basic infrastructure and industry to Western investors.

The U.S. problem is how to convince Ukraine and other post-Soviet economies to submit to an IMF-EU financial order imposing chronic austerity. The trick is to make Russia look like the major danger, not Western financial austerity and the kleptocracy it supports. When countries waver from following this policy, the fallback game is to make them fear the alternative – a combination of Russian menace and IMF-NATO punishment for not submitting.

In setting the stage for this New Cold War global policy, former U.S. Ambassador to Russia Michael McFaul demonizes Putin. Until his election, “Russia was gradually joining the international order,”[10] by which McFaul means that it was on its way to becoming a U.S. economic colony, with its stock market leading global indexes and making fortunes for Wall Street investors. McFaul goes on to accuse Putin of “nationalistic resurgence,” by which he means protecting Russia against U.S. smash-and-grab attempts to gain control of its raw materials when he stopped Khodorkovsky’s sale of Yukos Oil to Exxon and its partners.

McFaul admitted in another interview: “The reset’s been over for a long time. … When President Medvedev was there, we got a lot of things done that made Americans safer and more prosperous …The American national interest, that’s what the reset was about. The reset was never about better relations with Russia. Outcomes were what mattered.”[11]

Putin was demonized once Russia stopped saying “Yes.”

McFaul must be aware of Putin’s own explanation for ending the U.S. dream: Contrary to George H.W. Bush’s assurances, President Clinton expanded NATO into the former Warsaw Pact members of the old Soviet Union. What ended the “reset” was Obama’s violation of his promise to enforce a no-fly zone in Libya, only to have NATO bomb Libya apart. As Putin explained in a speech before the Duma:

This disregard to rule of law was evident in Yugoslavia in 1999, when NATO bombed the country without a UN Security Council mandate …. There was Afghanistan, Iraq and the perversion of the UNSC resolution on Libya, when instead of imposing a no-fly zone NATO bombed the country into submission. …
“They were cheating us once more, took decisions behind our back, presented us with a fait accompli,” he said, adding that the pattern is identical to that which accompanied NATO’s expansion to the east, the deployment of an anti-ballistic missile system, visa restrictions and numerous other issues.
“They are constantly trying to corner us in retaliation for our having an independent position, for defending it, for calling things by their names and not being hypocritical,” Putin accused. “Everything has its limits, and in Ukraine our western partners crossed the red line.”[12]

Foreign Minister Lavrov explained that contrary to international law and U.S. promises,

western states, despite their repeated assurances to the contrary, have carried out successive waves of Nato enlargement, moved the alliance’s military infrastructure eastward and begun to implement antimissile defence plans. … Attempts by those who staged the secession of Kosovo from Serbia and of Mayotte from the Comoros to question the free will of Crimeans cannot be viewed as anything but a flagrant display of double standards. No less troubling is the pretense of not noticing that the main danger for the future of Ukraine is the spread of chaos by extremists and neo-Nazis.[13]

Putin pointed out that “our partners in Europe recognize the legitimacy of the current Kiev authorities, but are doing nothing in order to support Ukraine; not a single dollar, not a single euro.”[14]

It was Russia that was continuing “to give it economic support and subsidize Ukraine’s economy with hundreds of millions and billions of dollars for now. This situation, of course, can’t continue eternally.” In fact, Gazprom cancelled two major gas discounts for Ukraine, normalizing the price from $268 to $485 per thousand cubic meters starting as of April 1.

The Gas dimension and Ukraine’s Debts to Russia

The usual Western financial strategy for taking an economy’s assets is to subject it to austerity and then foreclose and privatize. The problem is that most Ukrainian debt is owed to Russia. Ukraine has not been paying for its gas this year. Prime Minister Medvedev pointed out that, as President, he “signed the Kharkov Agreement with President Yanukovych. Under the terms of this agreement, we extended our use of the naval base [in Sevastopol] for a long period – 25 years,” paying $11 billion in advance. So on balance, Ukraine owes Russia $16 billion over and above the gas debt.

There is a principle in international law, in accordance with which an agreement remains in force only so long as the circumstances that gave rise to it prevail – clausula rebus sic stantibus … I think it is perfectly fair to raise the question of having Ukraine’s budget compensate these funds. This could be done through the courts, in accordance with the revoked agreement’s terms. Of course, these are tough measures, but at the same time, the agreement no longer has effect, but the money we paid is real, and our Ukrainian partners must understand that nobody hands over money just like that, for nothing.

At the same time, I remind you that Ukraine’s debt, public and corporate, to Russia is quite large as it is. This includes the $3-billion loan that we gave them recently in accordance with our agreement to buy Eurobonds, and the nearly $2 billion that Ukraine owes in accumulated debt to Gazprom. All in all then, Ukraine’s total debt comes to a very large sum.

VLADIMIR PUTIN: 11 billion plus 5 billion?[15]

Most pressing, of course, is Ukraine’s gas bill. Without paying, it may see the gas turned off. And if Ukraine simply siphons off gas being transmitted to Europe, a gas turn-off would threaten about 15 percent of Europe’s gas supply.[16]

Yet this seems to be what US-NATO strategy is trying to bring about. If Russia stops sending gas to Europe through Ukraine and does not get paid, the ruble could weaken, spurring capital flight to the West and leaving Russia with less foreign exchange available to rebuild its industrial economy.

Interim Prime Minister Yatsenyuk claimed that the new price for gas was an act of “aggression” and refused to pay anything at all. But he saw no such aggression in the IMF’s demand to remove gas subsidies for Ukrainians. The rise in price evidently is to be blamed on Russia withdrawing its discount, not on revoking the domestic gas subsidy. The government’s insolvency likewise will be blamed on Russian demands for payment of the debts falling due. To counter this double standard of blame, President Putin pointed out that “the lowest prices were in effect at the beginning of this year and Ukrainian partners stopped paying even at those prices. … April 7 marked a yet another date for payments under the gas contract for March 2014 and they didn’t pay us a single dollar or ruble of the $540 million they were supposed to pay.”[17]

When Ukraine failed to pay the $2.2 billion payment due on April 7 for the March gas, Gazprom’s CEO Alexei Miller pointed out that under the terms of its contract this ended the special discount Ukraine had been receiving. It had been “given on the condition that Ukraine would pay all its gas debts and pay 100% for the current deliveries, and it was clearly indicated that if this did not happen, the discount would be annulled in the second quarter of 2014.”[18]

Prime Minister Medvedev reiterated that no future shipments would be made without prepayment,[19] and President Putin wrote to European leaders:

Instead of consultations, we hear appeals to lower contractual prices on Russian natural gas – prices which are allegedly of a “political” nature. One gets the impression that the European partners want to unilaterally blame Russia for the consequences of Ukraine’s economic crisis.

Right from day one of Ukraine’s existence as an independent state, Russia has supported the stability of the Ukrainian economy by supplying it with natural gas at cut-rate prices. In January 2009, with the participation of the then-premier Yulia Tymoshenko, a purchase-and-sale contract on supplying natural gas for the period of 2009-2019 was signed. Ukraine, right up till August 2013, made regular payments for the natural gas in accordance with that formula.

However, the fact that after signing that contract, Russia granted Ukraine a whole string of unprecedented privileges and discounts on the price of natural gas, is quite another matter. This applies to the discount stemming from the 2010 Kharkiv Agreement, which was provided as advance payment for the future lease payments for the presence of the (Russian) Black Sea Fleet after 2017. This also refers to discounts on the prices for natural gas purchased by Ukraine’s chemical companies. This also concerns the discount granted in December 2013 for the duration of three months due to the critical state of Ukraine’s economy. Beginning with 2009, the total sum of these discounts stands at 17 billion US dollars. To this, we should add another 18.4 billion US dollars incurred by the Ukrainian side as a minimal take-or-pay fine. In other words, only the volume of natural gas will be delivered to Ukraine as was paid for one month in advance of delivery.

Undoubtedly, this is an extreme measure. We fully realize that this increases the risk of siphoning off natural gas passing through Ukraine’s territory and heading to European consumers.[20]

Putin might also have mentioned that when Russia lent Ukraine $3 billion in 2013 to support its currency by buying Eurobonds, it included a clause in the contract “that stipulates that the total volume of Ukrainian state-guaranteed debt cannot exceed 60% of its annual GDP. If that threshold is breached, Russia can legally demand repayments on an accelerated schedule,” forcing Ukraine to default.[21]

This prospect seems likely in view of the Maiden coup’s intention to break Ukraine away from the Russian orbit, disrupting its major export market.

Ukraine’s Fragile Economic Structure and Balance of Payments

Reflecting the geographic specialization of labor established in Soviet times, Ukraine is still a major exporter of military equipment to Russia. But Kiev’s first deputy prime minister, Vitaliy Yarema, threatened to halt all arms supplies to Russia, stating that “Manufacturing products for Russia that will later be aimed against us would be complete insanity.” One report calculates that the range of exports includes “the engines that power most Russian combat helicopters; about half of the air-to-air missiles deployed on Russian fighter planes; and a range of engines used by Russian aircraft and naval vessels. The state-owned Antonov works in Kiev makes a famous range of transport aircraft, including the modern AN-70. The Russian Air Force was to receive 60 of the sleek new short-takeoff-and-landing aircraft, which now it may have to do without.”[22]

Ukraine’s oligarchs also sell steel and other industrial products to Russia. In the US-NATO plan, these factories would be sold to European investors to produce for Western markets. But Eurozone economies are shrinking as a result of their post-2008 austerity imposed to squeeze out debt service for foreign creditors. So the anti-Russian stoppage of export sales threatens to plunge the hryvnia’s exchange rate even further than the 35% decline against the dollar in the first three months of 2014, making it already the world’s worst performing currency this year. As Mark Adomanis at Forbes summed up the economic costs of the coup’s anti-Russian stance: “Russia has always had the ability to wreck economic havoc on Ukraine, and this should have made the West a lot more cautious about the Eastern Partnership and the general effort to incorporate Ukraine into European institutions. In retrospect the entire effort to sign the association agreement appears to have been a rather reckless gamble which no one knew the stakes of.” To avoid a drastic collapse that would plunge the economy into deep depression, the West would have to provide much “more generous (and politically risky) packages of financial assistance.” Instead, all the IMF, Eurozone and United States have done is to egg Ukraine down the road toward financial catastrophe.[23]

Blaming Russia for Ukraine’s Coming Austerity and New Privatization Sell-offs

The problem confronting US-NATO strategists is how to persuade Ukrainian voters to support the neoliberal austerity model of deep unemployment that will force labor to emigrate westward in a wave of “Ukrainian plumbers.” Fanning the flames of resentment from the years of Soviet domination is a tactic that has worked well in the Baltics. Latvia has just joined the Eurozone (following Estonia’s lead) and resentment of the World War II and postwar Russian dominance is so strong that the Russian language is limited to 40% of instruction in secondary schools and effectively banned from public universities (with some small exceptions such as Russian literature). The Maidan coup leaders are playing a similar anti-Russian card to focus the coming election on past sufferings instead of on how the coming IMF-dictated austerity will further impoverish Ukraine’s economy.

A decade ago Russian President Boris Yeltsin went to Latvia and tried to divert this attitude by saying Russians themselves also were exploited by Stalinist bureaucracy. It didn’t have much effect. The trauma of Soviet domination was so strong that Russian-speakers are treated as second-class citizens (many of the older ones without even being granted citizenship). The effect in Ukraine can be imagined by thinking what would happen if Canada were to ban the use of French language in public documents, universities and the mass media. Such a move certainly would prompt Montreal and Quebec to secede. Likewise if New York banned the use of Spanish and encouraged groups expressing a desire to start killing ethnic Hispanics.

For neoliberal US-IMF-NATO strategists, the advantage of fanning ethnic rivalries is to keep focusing Baltic elections on anti-Soviet memories instead of the disaster of neoliberal austerity programs. Playing off ethnic groups against each other has helped lock the Baltics into a pro-EU, pro-austerity program. Ukraine’s coup leaders have been even harsher in closing TV stations that broadcast in Russian, arrested and beaten up leaders opposed to the Maidan coup, and deemed opposition to IMF-EU austerity criminal and “separatist.” All this has led Ukraine’s Russian-speaking eastern provinces to turn to Russia for protection. Foreign Minister Sergei Lavrov claims that the United States is accusing Russia of doing what it itself is guilty of. The Western coup leaders are responsible for breaking up the nation, not Russia. “I will leave these claims on the conscience of our American partners. One shouldn’t lay one’s own fault at somebody else’s door.”[24]
As one report has summarized the coup leaders’ behavior:

Over the last week and a half the Ukrainian government has tried to arrest every protest leader it can find and charge him with being a separatist. Conviction carries a jail sentence of 5 to 8 years.

The banks here, most notably Privat Bank which is owned by the oligarch Kolomoyskyi, are limiting and freezing the accounts of people throughout the south-east region. For the last month, persons working in the coal and manufacturing industries have been told that if they joined the protests, or even spoke about them on the job, they would be fired. And, for the last two weeks, 30% of the workers’ pay has been deducted to support the new National Guard, which is composed mostly of Pravy Sector fighters who have been threatening the population of the region.

Yulia Tymoshenko was quoted last week as saying, “It doesn’t matter who wins the presidential election, we all win. We all hate Russia!” By “Russia,” she also means the people of south-east Ukraine who won’t accept being ruled by an ultra-nationalist government.[25]

The aim seems to be to goad Russia to act intemperately and with brutality, perhaps even to make a serious military move against which NATO can deliver a devastating response from the ships it has moved into the Black Sea. A Russian incursion would support NATO’s claim that Europe needs its protection, and also help keep Ukrainian and Baltic voters more fearful of Russia than of the IMF and ECB. The irony is that NATO was supposed to protect Europe from the threat of military conflict with Russia. Its adventurism at the hands of U.S. neocons now threatens to put Europe at risk, while devastating Ukraine’s economy.

What Blocks Russia from Offering an Economic Alternative

The Eurozone is turning into an economic dead zone, but neither Russia nor major European parties are proposing to change the regressive rent-extracting tax and financial system that is imposing austerity and enables kleptocrats to bleed the post-Soviet economies, and toward which the West itself is moving.

As noted above, one problem blocking both Russian and Eurozone opponents of financial austerity from presenting such an alternative is the U.S. ethnic divide and conquer strategy of playing to distract populations from debating the real economic issues at hand. Another deterrence is the Thatcherite claim that There Is No Alternative.

Of course there is an alternative. But without going back to the events of 1991-94 and rejecting the path that Russia took under Yeltsin at the hands of the notorious Harvard Institute for International Development (HIID), the US Agency of International Development (AID) and World Bank planners, all that President Putin can do is use personal persuasion. His attempt to stop the bleeding has led the U.S. press to depict him as a tsar, not as a liberator from World Bank-Harvard neoliberalism. When he sought to rebuild Russia, he was accused of becoming an autocrat blocking “free markets,” the American euphemism for the kleptocracy that has crippled Russia’s ability to steer its development in the way that the United States and Western Europe industrial economies have done.

Given the political alliances in which Ukrainian politics are controlled by an oligarchy, what can Vladimir Putin offer the country? What is needed is a full-blown alternative to neoliberal tax and financial policy. Yanukovich rejected the IMF-EU “aid” with its destructive “conditionalities” of fiscal austerity and financial deflation, but all that Russia can offer Ukraine are subsidies for its politically gerrymandered oligarchy. In Russia, Putin used “jawboning” to urge the oligarchs and them to invest their takings at home to rebuild Russian industry. But without formulating an alternative to the financial and tax system, and indeed an alternative economic model, Russia can’t offer a better economic system to its Near Abroad.

The cure for a rent-seeking oligarchy is to tax away rent seeking and de-privatize public monopolies. What Ukraine’s kleptocrats have taken (and what foreign investors seek to extract) can be recovered by promoting classical progressive policies taxing land and natural resources, regulating monopolies and providing public infrastructure investment, including a public option for banking and other basic services. That is what drove the U.S. and Western European industrial takeoffs, after all.

It involved a long political conflict with the post-feudal landlord class and financiers, and a similar fight must be waged today. By the time World War I broke out a century ago, social democracy was winning the battle and socialism appeared on the horizon. But today that battle is not even being fought and the economic tools to guide reform – the concept of economic rent as unearned income, and the ability of central banks to create credit in the same way that commercial banks do – have all but disappeared from public discussion.

Russia shies from offering a solution along these lines, because that is labeled “socialist.” Without enacting at least the classical criteria of a free market – a land tax, a natural resource and windfall gains tax on “unexplained enrichment, it is hardly in a position to promote these policies in the Ukraine or Baltics.

Neither Russia nor other post-Soviet republics in 1990 understood what finance capitalism and rent seeking are all about – except for the grabitizers advised by Western interests, of course. When it came to helping rebuild the Soviet economies after they sought Western support in integrating after 1990, the World Bank and U.S. neoliberals promoted a neofeudal political and fiscal counter-revolution against Progressive Era reforms. The Cold War thus was ended by a lethal rapprochement between Western financial interests and local political insiders and gangs.

It was the antithesis of political and economic democracy. Yet this is what still binds today’s post-Soviet oligarchy to the West, supported by Wall Street, the City of London and German business, hoping to take the privatization windfall in partnership with the kleptocrats. Since 1991 Russia has suffered an average reported $25 billion in capital flight annually, amounting to more than half a trillion dollars over the past two decades. This is revenue that might have been used to modernize its economy and raise living standards. It was deterred by the failure to recognize that the precepts of neoliberalism are the opposite of what made the United States and Western Europe prosperous industrial economies.

At the very least, Ukraine and other post-Soviet economies need modern versions of Teddy Roosevelt, FDR and preferably a Eugene Debs. Economically, they need a Thorstein Veblen, John Maynard Keynes and Hyman Minsky. Such voices existed in Russia in 1991, including Dmitri Lvov at the Russian Academy of Sciences. Many non-neoliberal foreign economists urged alternatives to the World Bank-Harvard promoters of kleptocracy. But instead of creating a system of public checks and balances, the Soviet Union refrained from taxing the economic rents it was privatizing. The result was a travesty of free markets. Instead of the ideas of Adam Smith, John Stuart Mill and other classical economists urging markets free from unearned income, economic rent and predatory pricing, the West pretended that the antidote to Soviet bureaucracy would be neo-feudal economies free for enclosures of the public domain, rent seeking and predatory pricing.

Do Russia, Ukraine and Other Post-Soviet Economies Have an Alternative to Neoliberal Austerity?

In 1991 the United States and Western Europe did the opposite of helping the Soviet Union create a mixed economy, subsidize industry with a progressive tax system and keep natural resource rent, land rent and financial gains in the public domain rather than being privatized. What the West wanted was to extract these rents for its own investors. Russia was turned into an exporter of oil and gas, metals and other raw materials, while weakening its industrial ability to withstand US-NATO military encirclement.

What is needed today to restore natural resource wealth and post-Soviet land and infrastructure from oligarchs sending their takings abroad is a tax code of land and resource rents for starters. What has been relinquished can be recovered to finance public investment to rebuild their economies. This was the essence of the successful Western model, which saw industrial capitalism evolve toward socialism. It is the antithesis of neoliberalism.

Given the hesitancy of wealthy individuals to give up what they have taken, governments probably need to leave them with the wealth they have taken abroad. But new bleeding can be stopped by a rent tax to recapture the pre-1990 economic patrimony that has been relinquished to the oligarchs and, via them, to foreign investors. The economic rent that Wall Street envisions being paid out as dividends will be taxed away, legally under international law, by a tax code distinguishing economic rent from profits on new manmade capital investment and production.

Neoliberals will denounce this policy as if it signals a return to Soviet Stalinism, as if this ever were Marxist. To neoliberals, kleptocracy and neofeudalism are simply the final stage of socialism. But their present system is more an ideological coup d’état, imposed on the former Soviet Union in a moment when disillusion with bureaucratic collectivism was at its peak.

Reading the Communist Manifesto should dispel any thought that Russians had much familiarity with Marxist economics, or for that matter with the classical political economy out of which Marxism emerged. Marx and Engels described the positive achievement of capitalism as bringing bourgeois Europe out of feudal landlordism and inherited wealth. The ghost of Marx might have spoken to Gorbachev, advising him to pave the ground for industrial capitalism by enacting at least the reforms that Europe’s 1848 Revolution advocated: taxing economic rent, followed by instituting consumer protection laws, establishing labor unions, and public banking to take the power of fiat credit creation away from foreign creditors.

The political problem for neoliberalism is how to deter voters from acting in their self-interest along these lines. In Latvia and Ireland voters have submitted to the anti-labor, anti-government policies of global finance. Neoliberals have come to see that they can win at the polls by imposing even more austerity. We are dealing with something like the Stockholm syndrome, most typically when kidnapped victims look to their kidnappers for protection. Poverty begets fear, prompting the weak to vote out of servility to the rich – or against each other in ethnic rivalries. The wider the polarization, the more the poor victims rely on their exploiters, hoping to survive by becoming abject clients in a predatory patronage system.

This means that the further economic inequality widens and the more a population is ground down into poverty and debt, the more the weak identify their interests with those of their oppressors. They believe that their best hope is that somehow the rich will reciprocate by accepting them in a patronage system. The effect is to demoralize populations and make them so fearful that they feel even more dependent on their oppressors, whom they hope will see how obediently they are behaving and will treat them better.

The past century has seen a counter-revolution against the Enlightenment, classical economics and its culmination in socialist hopes to steer industrial capitalism to evolve into democratic socialism. What is occurring today is a self-destructive financial dynamic of impoverishment, dependency and breakdown in many ways like what happened when Rome’s creditor oligarchy plunged the Empire into the Dark Age two thousand years ago. The post-feudal real estate and financial oligarchies, the landed aristocracies of Europe and the great banking families and American trust builders have made a comeback, and the New Cold War is intended to lock in their victory. Ukraine is simply the latest battlefield, and battlefields end up devastated.

Footnotes

[1] Michael Hudson is Distinguished Research Professor of Economics at UMKC, and former Professor of Economics and Director of Economic Research at the Latvia Graduate School of Law. His most recent articles on the post-Soviet economies are “Stockholm Syndrome in the Baltics: Latvia’s neoliberal war against labor and industry,” in Jeffrey Sommers and Charles Woolfson, eds., The Contradictions of Austerity: The Socio-Economic Costs of the Neoliberal Baltic Model (Routledge 2014), pp. 44-63, and “How Neoliberal Tax and Financial Policy Impoverishes Russia – Needlessly,” Mir Peremen (The World of Transformations), 2012 (3):49-64 (in Russian). МИР ПЕРЕМЕН 3/2012 (ISSN 2073-3038)
Неолиберальная налоговая и финансовая политика приводит к обнищанию России, 49-64.

[2] “The Future of Europe: From Iran to Ukraine: An Interview with George Soros,” The New York Review of Books, April 24, 2014, p. 69.

[3] Mikhail Khodorkovsky, My Fellow Prisoners (2014), reviewed by John Lloyd, Financial Times, April 12, 2014.

[4] Sergei Roy, “Ukraine: Triumph, Tragedy, or Farce?” Johnson’s Russia List, April 5, 2014.

[5] Manlio Dinucci, “Ukraine, IMF “Shock Treatment” and Economic Warfare,” Global Research, March 21, 2014, citing IMF statistics.

[6] “Fatal shootings in Kiev: Who is responsible for the carnage from Maidan,” ARD German television, April 10, 2014, translated on Johnson’s Russia List, April 14, 2014, #1. The German investigators confirmed from journalists with the protestors that “the hotel on the morning of February 20 was firmly in the hands of the opposition.”

[7] David Daley, “‘America as the No. 1 warmonger’: President Jimmy Carter talks to Salon about race, cable news, ‘slut-shaming’ and more,” Salon, April 10, 2014.

[8] Gideon Rachman, “Lunch with the FT: Lee Hsien Loong,” Financial Times, April 12, 2014.

[9] The classic statement is by Deputy Secretary of Defense Paul Wolfowitz: “Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union. This is a dominant consideration underlying the new regional defense strategy and requires that we endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power.”, quoting from a Department of Defense planning document, “Prevent the Re-Emergence of a New Rival,” February 1992, in P. E. Taylor, “U.S. Strategy Plan Calls for Insuring No Rivals Develop. A One-Superpower World,” The New York Times, March 8, 1992.

[10] Michael A. McFaul, “Confronting Putin’s Russia,” New York Times op-ed, March 24, 2014.

[11] Patt Morrison, “Michael McFaul — an eye on Russia,” Los Angeles Times, March 26, 2014.

[12] “Putin: Crimea similar to Kosovo, West is rewriting its own rule book,” www.russiatoday.com, March 18, 2014, from Johnson’s Russia List, March 18, 2014 #4. See also “Address by President of the Russian Federation,” Kremlin.ru, March 18, 2014. Complete text in Russian.

[13] Sergei Lavrov, “It’s not Russia that is destabilising Ukraine,” The Guardian (UK), April 8, 2014.

[14] “Russia Continues Economic Aid to Ukraine Despite Illegitimate Govt. – Putin,” RIA Novosti, Johnson’s Russia List, April 9, 2014, #1.

[15] “Meeting with permanent members of the Security Council,” Kremlin.ru, March 21, 2014 (from Johnson’s Russia List).

[16] Daria Marchak and Jake Rudnitsky, “Ukraine Rejects Gas Price as Putin Waits on Prepayment,” Bloomberg, April 10, 2014 (Johnson’s Russia List, April 10, 2014, #42). Putin said Europe cannot refuse the delivery of Russian gas without harming its own economic interests. “European countries take around 34%-35% of their gas balances from Russia. Can they stop purchasing Russian gas? In my view, it’s impossible,” Putin said. (“Putin’s Q&A Session 2014,” Johnson’s Russia List, April 17, 2013, #7.)

[17] “Putin says situation with Ukraine’s non-payments for gas absolutely unacceptable,” NOVO-OGAREVO, April 11. /ITAR-TASS/ (Johnson’s Russia List, April 11, 2014 #4).

[18] Shaun Walker, “Fears of gas war as Ukraine refuses to pay increased prices set by Russian firm,” theguardian.com, 6 April 2014.

[19] Jack Farchy, Roman Olearchyk and Andrew Jack, “Kiev faces Russian gas threat,” Financial Times, April 10, 2014.

[20] President Vladimir Putin’s letter to leaders of European countries. Full text, ITAR-TASS, April 10, 2014 (Johnson’s Russia List). At his April 17 annual question-and-answer session, Putin moderated his stance and “said Moscow is ready to withstand the situation on Ukraine’s payment for Russian gas for another month, but then will switch to upfront payments for gas, amid Ukraine’s inability to pay its debts. ‘We are ready to tolerate a bit more, we’ll put up with it another month. If over the next month there are no payments, then we will transfer over to the so-called prepayment plan in accordance with the contract,’ Putin said.” Johnson’s Russia List, April 17, 2013, #7: “Putin’s Q&A Session 2014: Crimea, Ukraine, Gas, Foreign Policy and Mass Surveillance.”

[21] Mark Adomanis, “Ukraine’s Economy Is Nearing Collapse,” Forbes.com, April 15, 2014.

[22] Fred Weir, “Can Russia’s military fly without Ukraine’s parts?” Christian Science Monitor, April 10, 2014.

[23] Adomanis, op. cit.

[24] Sergei Lavrov, “It’s not Russia that is destabilising Ukraine,” The Guardian (UK), April 8, 2014.

[25] George Eliason, “A Changing Narrative in Ukraine,” www.opednews.com, April 9, 2014.

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80 comments

  1. John

    The irony of all this Obama and his European friends were able to target Putin’s inner circle for sanctions. Somehow, Treasury can connect the dots and put a freeze on their cash. I heard they are also fanning out around the country looking for physical assets to seize.

    This leads to the question is why can’t Treasury find the cash from the super rich Americans who stash hide their money in overseas accounts — away from the tax authorities?

    What a joke. Clearly the new laws Congress and Obama pushed through on reporting on overseas bank account and investment disclosures held by Americans is all to do about Big Brother control and not about paying taxes.

  2. backwardsevolution

    “U.S. Cold War advisors urged Russia and other post-Soviet states to give hitherto public assets and property to individuals, preferably to plant managers and political insiders. The cover story was that it did not really matter who got them, because private ownership in itself would lead the new owners to re-organize production along the most profitable lines. […]

    The Communist Party nomenklatura, Komsomol leaders such as Mikhail Khodorkovsky and Red Directors were excited by these neoliberal promises to turn over natural resources, real estate, infrastructure and factories to themselves. The sanctimonious pretense was that property has its own logic of self-interest, which serves the social good because wealth will trickle down to uplift the population at large.”

    Isn’t this similar to what’s happened in China, with party officials and leaders being first in line when the money was being doled out?

  3. Fiver

    Many a doubter needs to read this piece to get a clear idea of the entire narrative.

  4. Yonatan

    A couple of things are not covered. Firstly, Russia is about to sign a massive deal to supply China. It would not be priced in US$. This would possibly allow Russia to totally survive the effects of a gas shutdown to West Europe. This would also start the process of ending of the US$ as reserve currency. Secondly, China is proposing massive investment for a land trade route from Vladivostok to Lisbon, which would be of enormous benefit to European countries. Again the US$ would be locked out. Both of these actions constitute a major threat to the US$. The second situation is another reason is why Ukraine is being used as a wedge between Russia and West Europe.

    1. Banger

      Dollar hegemony will never be allowed to be threatened. The U.S. has signaled over and over again it will meet that threat with military force. Elements within the U.S. power structure are more than willing to use covert methods as well to “influence” any deal that is threat to that hegemony. Most of the developed world is behind the U.S. imperial structure even the Chinese because the U.S. provides a hierarchy and structure to the world economy. That is one reason, not mentioned, that the U.S. manufactures threats like terrorism to motivate the average American citizen to approve of military spending. We hear over and over again in the mainstream how American soldiers “protect our freedoms” and nearly everyone buys into that right and left.

      1. EoinW

        I find it hard to believe China will sit by and watch Russia fall. They have to be aware how isolated and vulnerable that would make them. The Chinese have gone along with the American game because it benefited them. The more reckless US leadership becomes the more that threat outweighs the benefits. Going after Russia has got to be as reckless as one can get.

        The best news of 2014 was Prince Bandar getting the sack in Arabia. A very pro-American force. Was he not the one who threatened terrorist attacks at the Sochi games if Putin didn’t back down on Syria? Since the sacking we’ve seen moves indicating China courting the Saudis, or is it the Saudis courting China? Could we see all of Asia move against pax Americana at once?

        The question is: can China crash the dollar singlehandedly or even take all of Asia with it against the dollar? Or does the West have accounting tricks up its sleeve to keep the debt circus going endlessly, even after foreigners dump the dollar?

        1. lolcar

          I imagine any overt declaration of economic warfare by China would be simply met by freezing or zeroing out China’s $US holdings. It’s all just bits and bytes held on a computer at the Fed.

      2. craazyboy

        I think you’ve way overestimated our ability to enforce global transactions at gunpoint.

        The global economy is upwards up $60T and we will shoot ourselves in the foot long before we can enforce doing it dollars. The main reason for now is convenience, liquidity, and most major oil exporters agree to take payment in dollars. But for the most part it is all voluntary, except for the case where oil regimes need propping up with our military/covert intervention.

        But Russia and China don’t need us for any of these things and could easily go their own way, and many other countries could as well. They just need to make trade agreements in their own currencies and have their central banks work together on a bi-lateral basis.

        1. NotTimothyGeithner

          The Latin monetary unit never held the status as the pound de spite being denominated in gold*. Changing without alternatives won’t just happen, and the US dominates a very large continent and has access to both the Atlantic and Pacific as well as established trade routes. This is one of the real proponents of the dollar, and much of the spread of the dollar was established during World War II and during the implosion of the old colonial empires. That situation won’t just happen again. The dollar will be necessary for North American business which is still vital unlike a much smaller island. Canada despite its Dominion Status matched the US’s old gold standard as a matter of practicality and ease. Did it threaten the pound sterling? No.

          Deals between countries are one thing, but multinationals use the dollar. They can use it to price goods in every country. Switching over costs money to make a political statement, and the crazies here haven’t even issued libertarian funbucks. A serious company will use dollars until something happens to make it unprofitable.

          *Where are the gold bug fetishists?

          1. craazyboy

            I don’t doubt that the dollar will continue to be used in the US – until huge piles of them exist in wherever the secret hiding place is they keep them now.

            As far as LatAm currencies, my biz contacts down there were always where quite anxious to dump theirs for dollars as soon as possible, because their MMT machine ran so much faster than ours did. And Panama makes a great banking biz out of opening foreign exchange accounts where you can denominate it in dollars, or swiss francs and really make a killing.

            The Saudis were miffed long ago that Nixon went off the gold standard, but then realized that you can just charge more dollars for oil. Oil has gone from $2 to $100 since, and the Saudis lived happily thereafter.

            And yes, multinational corporations will navigate the terrain as efficiently as they can. Chinese and Russian companies will exchange goods if their banking systems will exchange rubles and yuan. China also has been trying to set up something with Brazil. Asia is trying to develop a trade/monetary block.

            Nothing has to go 100% one way or the other. But it seems to be moving in a direction where global commerce will be more fragmented than just using the three big majors – dollar, euro, and yen,

            As far as gold fetishist go, the biggest ones are governments in time of war. That’s my main reason for not owning any – they come and steal it from you.

        2. Crazy Horse

          I agree, Crazy.
          Just how is the American Imperial Military Assassin Drone Death Star strike force going to be used against an economic alliance between Russia and China? I think they might encounter a little more opposition than when they are used against tribal villages in Pakistan.

          Combine Russia and China into a non-dollar trade block along with Iran, and “neutral” India will soon join in. In this hemisphere Venezuela, Brazil, and perhaps Argentina will welcome the opportunity to break free from dollar hegemony. And who is Australia’s most important trading partner? Even thoroughly shock- doctrined Chile knows where its copper brings the best price. Looks like half the world’s economy already.

          The hearths in Germany might get very cold if they try to buy gas with dollars from a Russia that that demands payment in gold or Mercedes’ instead of digital dollars from the FED.

          But I’m sure the collective wisdom of John Kerry, Billary Clinton, and Barack O’Bush have thought this through and have an Exceptional ending in store for us.

    2. sufferin succotash

      Driving Russia and China together is really astute strategy, equivalent to Germany driving Russia, France and Britain together before 1914 and then getting paranoid about “encirclement”. Well, it would furnish a welcome diversion from such pesky issues as economic inequality and environmental degradation, Baltic peoples aren’t the only ones getting played here.

  5. Si

    Quite a read!

    What hits home for me is that the narrative provided in the article requires concentration in order to begin to understand the forces that are in play. The concept (in reality) of a demoralised population who bow down and look to their oppressors for favourable treatment is chilling.

    The battlespace has always included a psychological dimension, but now I wonder if it has been brought to an art form. ‘To subdue an enemy without doing battle’ is one of the ultimate aims within the Sun Tzu.

    And unfortunately the ‘enemy’ is us, anyone who is not one of the minority of powerful insiders.

    Si

    1. Nobody (the outcast)

      Yes indeed, quite a read and I had that same response to the penultimate paragraph — chilling.

      “At the very least, Ukraine and other post-Soviet economies need modern versions of Teddy Roosevelt, FDR and preferably a Eugene Debs. Economically, they need a Thorstein Veblen, John Maynard Keynes and Hyman Minsky.”

      I’d say the U.S. is in need as well.

    2. digi_owl

      We humans like to think of ourselves as rational (just look at the crazy that is “rational expectations”). But as psychology, and its marketing bastard, has learned, we are pretty much slaves to emotions. What we think of as rational acts, are emotional acts that we rationalize in hindsight.

      As such, politics to day had done a 180 on the days of FDR. Now it is all about hitting those emotions hard, fast, and often. Shock and awe is more than a US military doctrine.

      In a sense modern political marketing has taken the post-roman religious message and filed off the religious symbolism. Now we don’t fear hell in the afterlife, we fear terrorists (and their “rogue state” backers) bringing hell to our doorstep. And only the valiant politicians (and their corporate supporters) stand in their way.

    3. Tsigantes

      The late, great, English socialist Tony Benn said “I think there are two ways in which people are controlled. First of all, frighten people. Secondly, demoralize them. An educated, confident, and healthy nation is harder to govern.”


      1. Si

        Wow Tsigantes! – Did Tony Benn really say that! What an amazing quote.
        The demise of education, the high unemployment of the young, zero hours contracts…..

        Good post, thanks

        Si

  6. EoinW

    Excellent piece! Thank you.

    It’s my hope that Putin’s patience and caution is the key to prevailing in the end. Time has to be on Asia’s side, given the debt bubble in the West. The current status quo would suit me nicely for another 20 years, however for the sake of world peace, the sooner the economic collapse hits us and the sooner the US military and its NATO proxies are impoverished the better it will be for everyone else. Fingers crossed that time is on Putin’s side.

    But it’s not on the side of the western democracies. In fact, I believe time is already up for us. I’m sure the next stage in our electoral history will be rigged elections. Only when public awareness makes it necessary to do so – if public awareness ever occurs. I’m afraid it is already too late to change things at the ballot box in the West. For the sake of the rest of the world, I would hope internal conflict in the US and America’s allies will distract the West from its endless warmongering for good. That’s hardly in my best interest, nor any other reader here, however we have given power to these psychopaths for too long. Only fair we should pay the price now, not the rest of the world.

    1. Jackrabbit

      . . . we have given power to these psychopaths for too long.

      Lets not blame the victim. The ‘psychopaths’ have used power to gain more power via deceit, misdirection, intimidation, etc.

      1. EoinW

        Yes it is more convenient for us all to be innocent victims rather than take any responsibility for the actions of our own governments. It’s not like one isolated incident snuck up on us. This has been going on for years. How many people in Iraq died? How many have been punished for that crime? How many of the now victims have cared enough to even want anyone punished? Naturally people won’t take responsibility if it all falls apart. So much easier for them to be victims and blame someone else. Just like our governments and bankers will be blaming the Russian and Chinese. Similar logic. I wonder why?

        1. Tsigantes

          Writing from Greece, I can assure you that blaming the victim (in our case the Greek people) is a key demoralisation ploy. a propaganda tool, and means to create distraction for the austerity-imposing governments and EU/Troika [EU-IMF-ECB]. Germany has been the lead offender in ‘morality and blame politics’, precisely – I would suggest – because it stood to benefit most. Meanwhile, in Europe the morality spotlight is never turned on Germany itself.

    2. ambrit

      I think the 2000 U.S. Presidential contest, with its’ overtime sudden death finale proved that rigged elections are already here. Try doing as I have; go to a local Representatives “Town Hall” style meeting and ask a few unpleasant questions. The next meeting you show up at, watch what the “handlers” do. Gerrymandering is old fashioned compared to what goes on today.

      1. rayduray

        ambrit,

        I’ve done as you suggested. And I’ve been forced to retire from the field Now the racket here (Central Oregon) is that the event handlers per-qualify the “open questions” and the mic is passed along to the innocuous puff-ball questioners and away from anyone who has done any serious thinking about world in our townhalls. And this is with the rather liberal Democrats here in Oregon. With our GOP rep, (OR-2), he never appears in public, or if he does it is in obscure little hamlets with a population of 96, or on six hours notice to keep the public at bay.

  7. Banger

    I tried to find something wrong or overdone in Hudson’s analysis and I could find nothing. His narrative about Ukraine and how it fits into U.S. Russia policy is spot-on. Most Americans don’t understand that the sort of Machiavellian maneuverings Hudson speaks of has become, essentially, U.S. policy. The split in Washington is between those who want to be more aggressive and use military force to spread neoliberal hegemony and those who prefer to let corruption take its course–but that’s another discussion. But all sides in Washington agree on the goal and that is a U.S. centered global Empire ruled by a permanent oligarchy. One of the main features of Western Civilization since the fall of Rome has been to re-establish that Empire. They view a tight and authoritarian system is the best way to establish a convivial society that guarantees a system that provides a clear structure for people who forget about public or private morality and gives them a chance to enjoy entertainments, purchase toys, remain in a state of perpetual adolescence; in exchange the public must kiss the ring of power whether it is the State of the Boss–in fact they are one and the same.

    Because Mr. Hudson’s analysis can only be found or understood by a very few people and the “dialogue” is mediated by a media that is nothing more than the Ministry of Truth of the Imperial Court we cannot organize resistance based on intellectual analysis. Yesterday’s discussion of the anarchism of Cody Wilson is important in this discussion. Reform, in an inverted totalitarian state, is impossible–there is no hope that we can have a sane discussion about jobs, the environment, foreign policy if the Western intellectual class lacks a way to take up Hudson’s ideas–they are simply ignored in the U.S.–this is the tragedy of the U.S. intellectual class. All you have to do is spend time reading the New York Review of Books, once a decent venue for intellectual discussions, has now become yet another neoliberal propaganda sheet. American intellectuals are as radically deluded as Tea Party activists–perhaps more so because at least they have the instinct that something is radically wrong.

    As Chris Hedges notes we must resist and the anarchist project in all its variety is the only game in town–the only one with vitality, the only one that has begun to capture the imagination of youth (at least those who don’t believe that making money is all there is in life). Younger politicals understand viscerally how totalitarian the system has become while us older folks still imagine we live in the flawed U.S.A. we grew up where reform was possible if only we petition our representatives etc.

    The argument contra anarchism is that it will allow “criminals” to run wild etc. This upper-middle class fear of criminals comes from propaganda from endless cop shows and movies and, in the eighties and afterwards was used to scare people into creating a police state and imprison massive numbers of people. I’ve socialized with “criminals” and they are like puppies compared to the hustlers on K Street or Wall Street who are not, btw, averse to violence if they can get away with it. People can self-organize as we see when there is major disaster and the state is missing–I think we need an ongoing discussion about the anarchist alternative that seems to me to be the only way to re-establish legitimate order. The criminals now run the society so it’s foolish to fear the minor league criminals.

    1. James Levy

      What I found most obvious from my perspective is that the US Power Elite sees its real opportunities for return on capital in looting the periphery, not developing the core (to use Wallerstein’s typology). They prefer a risky strategy of fishing in, or creating, troubled waters over using the Fordist model of handing out cash with one hand and then taking it back (in exchange for, as you say, toys and entertainment) with the other.

      What we’ve got to do is marry the inequality narrative with this one. If people can be led to understand that their tax dollars are going to enforce this grotesque system, and the plunder is not being redistributed, it might piss people off and wake them up. Let everyone know that your money and your kids are going off to enforce a system that only makes the rich richer and more powerful and you powerless and poorer, then we might have something.

      1. craazyboy

        And we might throw in the fact that the corporate tax percentage of total government revenue has dropped in half over the last 15-20 years.

        They would be the chief beneficiaries of spending priorities.

    2. Jackrabbit

      People can self organize . . . when the state is missing . . .

      This is libertarian.

      You are co-opting Hedges. He calls for resistance on both the individual level social level – but not for a libertarian outcome. His message is: don’t contributed to a corrupt system (as an individual) and join mass movements to change the system.

      1. EoinW

        I’ve the greatest respect for Hedges, however I don’t think his is a winning strategy for two reasons. One, the mass protest needed is never going to come until things are so bad it’s too late. He’s right that peaceful protest is the best solution, however the idea ignores exactly what people are like in this society. It’s just too inconvenient for most of us to take to the streets. Two, peaceful protest against people with no respect for human life? That’s hardly a fair fight. One group throws shoes or pies in the face. The other quite willing to murder hundreds of thousands of people to get what they want. That’s the reality. I want Hedges to be right and me wrong. He does have more credibility than I so here’s hoping!

        1. Si

          Good post EoinW – and I think you are (sadly) right. A proper functioning democracy was the way, vote the bastards out. However, I think our choices now are largely between the devil and the deep blue sea. Not that much is different between the parties despite the rhetoric. It seems that lying to get votes is almost what we expect nowadays. Promises don’t have to be kept, and more and more is promised to play into our desperation.
          The protest movement in the US was expertly neutered. We are on the end of pretty effective psyops operations imho.

    3. EoinW

      Nice encore to Hudson’s piece.

      I highly doubt labels – like libertarian or liberal – will matter in the end. The sooner people realize the state is their enemy they can begin to protect themselves. Ultimately the individuals and small groups that adapt will have the best chance of making it through. it would be nice if we could push a magic button and reset with the bad guys all gone and a decent government in charge. Afraid it won’t be that easy. Self sufficiency will be the key to fixing things. A spoiled society relying on Big Daddy government has to eventually be hollow from the inside. It shows in our behavior and our fair weather morality. We need to do better than that next time. Bottom line: western society does reflect what westerners are really like. We have to become better people for society to change. That begins one individual at a time.

      1. backwardsevolution

        EoinW – good post, and the reply above it too re Hedges. People will not protest until they feel some pain, and they’re not there yet.

      2. Jackrabbit

        The state is not the ‘enemy’. The people who have taken control of the state and run it to their benefit are the ‘enemy’.

        What is key is creating safeguards to prevent crony capitalists from taking such control.

        Libertarism results in a defacto ‘state’ of comprised of fiefdoms. The largest, most powerful fiefdom in a certain region would probably dominate the others. I’m skeptical that such an arrangement would be better for most than what we have today.

        1. fairleft

          You should be extremely skeptical. Unless we rid ourselves of all greedy sociopaths prior to the advent of anarchism, it leads to what we have now but without the veneer of a democratic state.

          I’ll take Hudson. He pinpoints exactly what the problem and what needs to be done. There is no need to switch to some entirely new and untried economic system and it puts you way behind rhetorically as well. The most powerful argument we’ve got is that we’ve done this before in Western Europe and gotten it mostly right.

    4. Dan Kervick

      There is no viable anarchist project.

      And the whole idea of pursuing an “anarchist alternative” to re-establish a “legitimate order” is a contradiction in terms.

      1. allcoppedout

        I beg to differ Dan. The original modern plan was the highly credible mind over matter leading to eternal life …

      2. Banger

        The anarchist project is not about creating a particular system. Systems need to emerge from the situation. In some situations capitalism is perfect, in others socialism works and even monarchies can work and have worked rather well. The corporate national security state needs to be undermined and anarchism is a good placeholder until we have the freedom to create something pragmatic–my own sense is that there ought to be many alternatives and a lot of dialogue rather than ideology.

    5. allcoppedout

      Most criminals are sad and ill. Armed bandits and zealots do represent a threat. Just north of Lake Chad there is an area where one AK-M and a thousand rounds of ammunition could change the balance of power. I go with nearly all Banger says here, except the idea that anarchism re-establishes a legitimate order. It helps demystify the institutions of illusion, but one can leap into the molten furnace of reality and emerge, like Nietzsche, a warmongering ponce stuck in Attic tragedy.

      The Indians have just elected a Hindu fascist.

    6. digi_owl

      The Roman way of conquest seems to have been:

      1. remove the current head(s) of state
      2. declare that all taxes now go to Rome
      3. make the local pantheon a aspect of the Roman one
      4. leave the regional leaders in place
      5. park a legion in the area to support said leaders

      The biggest issues they had were a bunch of monotheists out east, and that over time their leaders became war weary.

      These days 1 gets done by “popular” uprisings, 2 is done via the corporations buying everything at fire sale prices, 3 is ignored, with 4 and 5 pretty much a carbon copy.

  8. mf

    the Ukrainian crisis, a byproduct of emergence of fascism in Russia, in itself a byproduct of a continuing deterioration of Russia in a post-soviet era, has one unexpected benefit in the western political sphere. It brings out the truth about political movements and people in politics. And so it did for prof. Hudson

    1. digi_owl

      Hilariously we now seem to have fascists fighting fascists, with each side decrying the other as such in chest thumping grandstands.

  9. damian

    Very well done!

    But you leave the question as to Putin’s alternatives unanswered. It sounds like military intervention by Russia in the east to Odessa would be met with NATO reaction, so he will not do that.

    The south people must understand autonomy yields taxing authority and regulatory manipulation that can return the privatized assets over the last 20 years back to public ownership and then distributed from there. But they lack the cash flow sustainability absent Russian support. Russian sponsored mercenaries, like Greystone who are already in Ukraine, can be introduced to the field and why hasn’t it been done yet – to motivate the people? The election – no matter what the results, the US will put a new Nuland team in place once again – so why wait? It seems we have reached a point where Putin is hesitating for the next move.

    What are his options if securing the southern Ukraine from US control is the objective and will these alternatives be successful? Maybe a follow up piece?

    1. EoinW

      NATO is a typical bully which only picks fights against small nations that can’t fight back. Russia could invade Ukraine and NATO politicians will try to talk Putin to death.

      Why I think Putin is waiting is because taking over eastern and southern Ukraine, or the whole country, is an economic burden Russia doesn’t need. There was a clear benefit to Crimea, which is why it was annexed. The rest of Ukraine just isn’t worth the trouble. Let the IMF blow up its balance sheet funding the Kiev government with money to pay its gas bill.

      Of course there is also the old fashioned notion Putin doesn’t want to endanger Russian lives or the lives of innocent civilians by invading. I know that sounds nostalgic, especially as such a notion would never hold back any western politician from starting a war.

      1. damian

        the cost either way is considerable – including doing nothing. Long term you have NATO at the Russian border without a defensive buffer if they take control of south which will sooner or later cause problems in Georgia again and elsewhere. plus Crimea is surrounded. can easily blockade the port with a base of operations in Odessa- so with buffer east to west – the northern Ukraine is cut off from Black Sea and NATO curtailed for the future to greater extent

        There is Chevron gas discoveries with potential revenue, extensive farm land which china will pay for production, and industry in east – steel, military goods, technology etc., plus 20 million people to protect the border with a buffer at their cost

        seems between protecting the gas line and long term protection of Russia – taking the risk with limited assets is better than unknown future with NATO

        Biden / Brennan / Kagan et al. are already dividing the spoils – seems time is of the essence

        1. Crazy Horse

          Good to see that somebody remembers the fact that Ukraine was the breadbasket of the old Soviet Union. Even after decades of looting, it is still the third largest exporter of corn and wheat in the world. A fact I’m sure the Chinese have not failed to notice.

    2. NotTimothyGeithner

      I think part of the issue is the US alliance is divided and expected a quiet coup.

      The Kiev junta is pulling UN mission helicopters. There is no plan on how to deal with a disruptive population. That would take money that the Junta won’t spend, and the Russian bases aren’t offensive bases. Rolling over the border takes time and preparation.

      Take the Nazi invasion of France. The French weren’t lulled into thinking the Germans weren’t going to attack during the phony war. They knew the Nazi were massing. What the French weren’t ready for was the mass formation of tanks as units themselves. Their anti tank weaponry was spread out, and the Nazi were basically knocking out Paris by the time generals, the least creative minds in the world, realized their war preparation wasn’t out of touch. Dunkirk was similar too. Attaturk’s defense of Gallipoli was similar too. Churchill’s plan depended on no seemingly suicidal charges, so when Atwater ordered his men into the British guns, the British fell apart because they were focused on an elaborate plan.

      Putin understands that war is not something that happens on a chess board. Those massed Russian troops on the Ukraine border are the old bases out of Western bombing range. Are they ready to roll out tanks? The Hungarian and Prague uprisings went on for some time before the Soviet tanks rolled in. Putin isn’t playing chess, he is the President of the Russian Federation.

      Peace with the West is the best outcome, but he won’t tolerate Russia living on dictated terms which is why he responded to the Georgian invasion and grabbed Crimea. I doubt Put in will tolerate NATO installations in Ukraine, but Put in has China which is also concerned about US military hegemony and knows Kiev is run by fascists and billionaires out to steal. He just has t o wait for the Kiev junta to screw up. The leaders of the coalition against him aren’t popular and aren’t seeing a boost from this aggression. Unlike American pundits, Putin isn’t a complete moron and hasn’t done anything surprising given his rhetoric. He isn’t inking a deal for bases in Brazil as part of an antiAmerican alliance.

      Why would Putin act? The Kiev junta can’t put down uprisings. The West won’t provide the resources, and Kiev will self destruction their own.

      1. VietnamVet

        No matter what corporate media doesn’t say; democracy movement money was spent to bring Ukraine and its resources under Western control. At first I thought Russia would invade to protect the Eastern Russian speaking provinces; but even with a Civil War heating up there Russia hasn’t intervened yet. With right sector thugs marauding through the East, supported by the American government, killing civilians, the chaos will spread and expand.

        http://lightbox.time.com/2014/05/15/ukraine-referendum-deaths/#2

        Sooner later, the unelected neo-nazi regime in Kiev will provoke a response out of Russia. Or instead, Ukraine will naturally split asunder. NATO troops will intervene to save access to Western Ukraine. In a hot civil war with armed NATO and Russian troops eyeball to eyeball, a shooting war will break out. In the last 68 years there has never been a hot war between nuclear powers because once it starts it is impossible to stop the escalation that leads to a nuclear holocaust. I see nothing that can stop this from occurring now.

  10. Trish

    Michael Hudson cuts to the truth like no others writing on economic geo-political affairs. The juxtaposition of Pilkington’s article on Cody Wilson and the language of power and Hudson’s article where he speaks truth to power is clever if maybe unintentional and is equally illuminating, equally vexing.

  11. susan the other

    Michael Hudson – breakfast of champions. Took me two hours to read this piece and it was worth it, as usual. Hudson’s sense of what works socially is unparalleled. The thing I hate to say, but always manage to do so, is that Hudson puts the environment second. I’m not sure about that part. For instance (Ukraine is totally dysfunctional socially and economically – everyone agrees): what to do about a post Cold War country that was never a country in the first place and was only kludged together like Iraq for the sake of temporary stabilitiy? Add to that quandary the price of oil (it must be kept high for the stability to persist however the high price of oil is ripping Ukraine apart…) and the price of global warming whereby too much economic stimulation creates future unfit for human survival. My brain spins away. But I suspect even this is in good part theater. Because Russia could no longer survive giving away its gas at such a discount – not to mention that that discounted gas threatened the price support for energy globally and in the EU – and we see that Russia has raised its price per thousand cubic meters to Ukraine by $200. Hmmmm. The Chronic Austerity that is the preferred solution of the Oligarchic class serves to maintain the Oligarchies and their live style at the expense of the serfs. But this is a false choice. There could be other solutions to the mess we find ourselves in as a planet. I wish Hudson would address them.

    1. NotTimothyGeithner

      Iraq wasn’t glued together at least recently. Much of the modern borders and power sharing arrangement through Hussein go back to the Ottoman conquest. Although the Sunni were on top of the more numerous Shiites, the Ottoman elite didn’t want too many problems and would check in from time to time. The Sunni elite could have been ousted by an alliance of Christians/jews, Kurds, and Shiites.

      Losing the semi-distant overlord in the Ottomans, the Sunni elite had to militarize. Faisal was a postwar exception, but he fell because he was an outsider. Of course we knocked out the Sunni elite’s control of the region, the lowly Sunni didn’t want to give up their place. The Shiite have their own divisions over how things should be, and the Kurds don’t like the Sunni but are necessary to counter Shiite numbers. They can go their separate ways or fight it out, but we knocked out a very long institutional rule in Iraq. Much of the Middle East still functions along these lines without an outside arbiter who understands the governing relationship who can remove governors, quash uprisings, or handout goodies. We* just put too much stock in the post Henry Tudor ascension France and England/future UK which prior to that had kings in London who didn’t speak English and claimed to rule France.

      Attaturk founded Turkey because he didn’t want to deal with the old Ottoman relationships while making his own reforms. The Ukraine as a country is 400 years younger at a minimum than what we might recognize as Iraq. Of course, there has almost always been a state ruled from Bagdhad and before that Babylon which approached Syrian and Palestinian cities, bordered an Iran Ian state, disappeared into Arabian deserts, and halted into northern mountains.

      The refugee crisis created by Israel in ’48 led to imbalances which created problems around the Middle East.

      *Not just the neocons. The people who raved about purple fingers also really don’t understand there was a governing system for 400 years which provided a fair amount of prosperity and autonomy. Democracy doesn’t just happen. The Pilgrims were the minority on the Mayflower. The would-be traders knew that the centralized pilgrims could rule them because they would be dispersed. Regular votes was the solution, and they convinced the pilgrims to accept that power sharing arrangement which would protect their interests too because the traders would want a reasonable town to go to. These relationships really matter, and part of Iraq and Libya’s problem is we ignored them. The Allawites seeing Libya and Iraq and not having a foreign community to receive them stuck it out which is partly why Assad is still there. The regime has people who need it to exist.

      1. susan the other

        yes. I agree this goes back a long time in our recent memory… and my point is that,even more recently, since c. 1980, we have realized that the Earth cannot carry our delusion. So what is your answer. In terms of equitable existence.

    2. allcoppedout

      Hudson and Keen rarely make the kind of mistakes in ordinary reasoning I’ve found all over standard economics. What we see little of are images of a future society that makes sense and what the economics of achieving that would be, including breaking down current bad political, military and energy practices. One example is the assumptions concerning economic wo/man. We are generally groaf-oaf rather than rational – a situation intentionally brought about through propaganda, shiny newsrooms and false history. Current economics is nearly all just variations played out in this framework or false ‘Idols’.

      We need to know whether we can survive with one planet and 7.1 billion people. It’s obvious we can as we do, but there are questions about how long given global warming and poisoning. The economic analysis, given weight of scientific evidence, would shift from comparative advantage to capacity building for sustainable lives. This is a bigger leap than the one we associate with Einstein’s kinematics. Contrakshun becomes growth in this model. Current politics cannot continue. And had I been talking about this today, instead of Michael Porter regional development plus, I’d have had no fee.

  12. ToivoS

    Over-all a pretty good summary. One error and one big omission, however. It is wrong to look at NATO warships in the Black Sea as a serious military presence. The US Navy could not operate there in a real shooting war. The ships now there would be sunk within hours should fighting break out. Check out sunburn sn-22 and sn-27 antiship cruise missiles if you want to know why. Those US destroyers now there are purely symbolic, perhaps sacrificial decoys. The US wouldn’t put an aircraft carrier battle group into the Black Sea.

    The omission is no mention of Nord Stream, the gas pipeline under the Baltic Sea that was built by the Germans and Russians for the purpose of by-passing Ukraine if political instability threatened the Ukrainian lines. Nord Stream went on line in 2012. Just today someone blew up the main line running through western Ukraine, I suspect we will not see any disruption of service to Europe.

    1. James Levy

      The question of military options is cost. The Germans lost 126,000 men killed, wounded, and missing and 2000 airplanes in less than 6 weeks of fighting to overwhelm Holland, Belgium, and France. It was not a walkover. No major power today, with the possible exception of China, would be prepared to accept such losses in such a time frame. Yes, the American destroyers could be sunk, but it would take 50-100 lost Russian aircraft to do it. My guess, and it is only a guess, that given maximum effort and absolute priority the Russians can field perhaps 900 modern combat aircraft. Do you risk 10% of your air force in an opening gambit? And factories can’t turn out more than a few planes a month. And replacing pilots is even more of a headache. So I think Putin will be ultra-cautious about getting into any shooting engagements with the Americans.

      Just to clarify: the problem for the Russians isn’t that the Americans are all ten feet tall and way better than them–they aren’t–it’s that the Americans have, compared to everyone else, so many planes, so many trained pilots, and so much technology that the fantastic levels of attrition that modern weaponry forces on you will always leave the Americans with something after you’ve committed and lost everything. It’s a numbers game.

      1. Lambert Strether

        I agree that Putin will be extra-cautious, but he’s got troops on the ground, there, who’ve been in some wars recently, I would think. Can NATO match that? Can the US? Subject to correction, but my take is that losing* two wars, Iraq and Afghanistan, has left the Army pretty weak; that’s why no expeditionary force in either Libya or Syria.

        NOTE * We can make all kinds of geopolitical arguments about how we really won, especially if the goals were just chaos and pain and warlords, but if we won, where were the victory parades?

      2. ambrit

        Mr. Levy;
        If and when Russia perceives NATO and the Americans as an existential threat, then questions of attrition will be mooted. Also, did you not get the memo about the Gulf Region war games a few years ago where the player representing the Iranian Republican Guards sank a big chunk of Americas fleet with unconventional tactics? Technological and a slight numerical superiority are not guarantors of victory. As an instance; what are the effective combat flight hours of the various airframes fielded by the sides? What about a flock of cruise missiles? R2D2 on the deck of a missile cruiser will run out of ammo sooner or later. Ever hear of SLCM? A plain old fashioned diesel powered submarine can get off a passle of those, even with incoming ASROCs.

        1. James Levy

          It all depends on levels of commitment. Kamikaze pilots were a lot smarter than cruise missiles, and the Japanese threw 100s of them at the American fleet off Okinawa, and did a ton of damage. But the Americans were in their own way as “fanatical” as the Japanese, and were determined to force an unconditional surrender at any price. If the Americans want to smash the Russian Air Force, and are prepared to lose a 1000 planes to do it, they can, and still have a 1000 more when the Russian Air Force has ceased to exist. The will to victory sounds like horsehockey but it is a real thing. If two sides are equally determined, then god fights on the side with the bigger battalions. Russia does not have nearly as much operational firepower at sea and in the air as the Americans do. The US Navy has at least 70% of all the naval power on the planet, and three of the five next naval powers–Britain, France, and Japan–are allies. China has neither the forces nor the logistical backup to come to Russia’s aid in a naval struggle. And American cruise missiles can go from sea to land as easily as Russian ones can come from land to sea, and American ships have significant anti-aircraft and anti-missile capabilities. If I were in Moscow, and doing the calculations, I’d advise my political masters to wait until we are a lot stronger and America a lot weaker before risking armed confrontation.

          1. ambrit

            Mr. Levy;
            What I’m afraid of is the neo-cons in Washington doing the same calculations and saying; “OK guys. Now is the best chance we’ll ever get. Get the front man in the White House to start the count down.”
            The other big wild card is nuclear weaponry. I seem to remember a study done years ago where every single use of tactical nukes on the battlefield escalated into full blown strategic exchange. That’s the real worry. It wasn’t called MAD for nothing.

      3. DonNeedNoStinkinUserName

        I think the Russians – IF it turns to a shooting war – will lose about zero planes. Mobile shore batteries will launch the Yakhont / Sunburn anti ship missile system which it appears the Americans do not have a proper defense against. The US has a broken worn out army good at fighting poorly armed villagers, not battle hardened (Chechnya anyone) veterans who are not going to be fighting with “rusty antiquated equipment” as our MSM characterize the Russians as having

    2. Peter Pan

      NATO/US warships in the Black Sea are symbolic and have no military value against Russia. I highly doubt that NATO/US would engage these ships if Russia were to invade Ukraine or Moldova. Russia would have to shoot first at NATO/US before those warships would be used. I suspect that the USA’s preemptive strike agenda does not apply to either Russia or China.

    3. EpluribusUNO

      One wonders whether they might indeed be potential sacrifice, as false flag or preemptive by Russia. It’s happened before. Lusitania. Maine. Pearl Harbor (just to mention the FF )ships. Now public just hears “Putin Bad”, but get a destroyer or carrier attacked = Casus HOT belli.

  13. Jerry

    I read that Vice President Joe Biden‘s son and a close friend of Secretary of State John Kerry‘s stepson have joined the board of a Ukrainian gas producer controlled by a former top security and energy official for deposed President Viktor Yanukovych. Just what is a father to do during these tough economic times to get their sons into the 1%?!!!

  14. Peter Pan

    This post is a fantastic read and certainly makes it into one of the top ten posts on this blog. Was it posted on any other blog prior to it’s posting on NC?

    I wonder if the e-book or printed version will be made available in Russian and Ukrainian languages?

    1. Yves Smith Post author

      Aside from Hudson’s own blog, this was the first publication on the Web.

  15. EmilianoZ

    Another NC classic post.
    I PDFed it for future reference. Not counting footnotes and comments, that was 8 pages of dense small font text.

  16. Abe, NYC

    Analysis of 1990s is generally pretty good, the rest is the usual unadulterated Russian propaganda. In the same way, Western intellectuals extolled the virtues of Stalin in 1933, as he was willing to stand up to Hitler; it turned out later that this was all going on even as Stalin-orchestrated genocide was unfolding in the Ukraine*. Anyway, in 5 short years Hitler and Stalin were BFFs, and the rest is history.

    This is ugly. I have no doubt there will be no shortage of excuses progressives will find for Putin’s increasingly thieving and murderous behavior, but sooner or later things will snap. It’s very possible that these intellectuals’ support for Putin will end up fatally compromising the whole progressive movement, and will help the neofeudal forces prevail in the West and, indeed, in Russia.

    *Holodomor, which took the lives of anywhere between 2 and 7 million people and left Ukrainians eternally grateful to Holy Mother Russia.

  17. Abe, NYC

    I’m tired of opinions, so I’ll try to stick with facts. No time to do much research, just the first things that came to mind.

    1. Putin replaces progressive income tax with 13% flat income tax rate – one of the first things he did in office; enjoy the article and the source. (Comment: This surely did miracles to stamp out the rent-seekers!)

    2. Putin signs law which stipulates that Russian Federal Budget compensates Russian citizens for losses incurred as a result of “unjust” seizure of property by a foreign court. (Translation: When a Russian oligarch’s, or another fraudster’s or money launderer’s property is seized by a US court, the losses are compensated from Russian taxpayers’ pockets. This went practically unreported.)

    3. Putin signs law that equates bloggers with mass media and makes them “responsible” for the accuracy of the information they publish. No comment needed.

    4. Putin
    signs a secret decree
    awarding over 300 journalists for their “objective coverage” of the annexation of Crimea. (Question: Are there any Western intellectuals on the list? If not, they should be.)

    5. Russia’s 2013 Corruption Perception Index rank at 127 out of 177 countries (Comment: behind Indonesia, Egypt, Mexico; proudly tied with Pakistan after 14 years of Mr. Putin’s rule).

    And so… after the US government in general and Obama in particular have been justly vilified here for catering to bankers’ interests at the expense of the long-suffering middle class; for creating a super-efficient propaganda machine; for legalized corruption and open refusal to prosecute frauds – can somebody please explain how Mr. Putin has become the hero of the day? I would be really grateful.

    1. NotTimothyGeithner

      Putin isn’t a hero, but he isn’t a thug acting on my behalf. If you don’t grasp this important distinction, you will never be satisfied assuming you aren’t so me bot desperate to drum up support for defense spending.

    2. Jackrabbit

      I don’t get the sense that people on NC are particularly fond of Putin. Most see the Ukraine move as simply reflecting neocon overreach and neolib corruption. There is a concerted effort by TPTB/MSM to ignore or belittle such concerns, including painting critics as unpatriotic Putin lovers.

    3. Abe, NYC

      The post pictures him as a hero, unafraid to stand up to Wall Street and Ukraine’s fascist junta. That he’s not acting on your behalf doesn’t make him any less of a thug.

      1. fairleft

        In the Ukraine context he is supportive of those fighting the fascist and neo-Nazi National Guard, i.e., Svoboda and Right Sector in the official uniforms awarded them by the Kiev government.

        Generally, Putin (like China) has decided to fight for a Russia independent of the US/EU/NATO/IMF superstate. That superstate is the main driving force pushing for needless worldwide austerity. So, some of us cheer against it, which means at least for now we cheer for Putin. It’s kind of like rooting against the Yankees …

  18. Paul Tioxon

    Excellent presentation of a situation that is complex and will not make any sense without using a scale of analysis beyond personalities in conflict or it’s all about money, explained with a pie chart and graphs. Sometimes you can not say anything at all without writing quite a bit, just so we can get the whole situation in a comprehensive manner. We have a much better picture of what is going on now, with this article. One mystery, that can not be answered with rhetorical questions or blanket condemnations, is why the neo-cons in the form of Nuland especially, has been allowed to function in Ukraine and against Russia under the Obama administration. I am sure there is a clearer explanation than American hegemony. Like invoking the will of god, we do get any understanding about specific details of facts that are the basis of comprehension.

    One thing we do know, is that in distinct choices in Susan Power, and Obama’s Atrocity Prevention Board as a foreign policy initiative was supposed to dial down the New American Century Project. We are in full retreat from grand scale warfare from Iraq and Afghanistan. To replace that policy of warfare against an entire nation, is the use of the military against trans-national terrorist threats. We can’t do business with a country and at the same time demonize them as a national security threat. But we can now go after trans-national threats in portions of other nations, even portions of America where trans-national threats can reach out to the heart of the Homeland. In this way, the US military and its adjuncts, NATO, can operate in the trans-national manner of capitalism without overtly declaring war against another nation in its entirety. The kidnapped girls of Nigeria are example of the new foreign policy focus. It allows for intervention in key areas of national interest. Nigeria is one of only 2 countries outside of the America we import oil from. The other is Saudi Arabia. We have moved to distance ourselves from the Middle East and can NOT afford to allow Nigeria to implode when we want to control the oil coming out of that area.

    http://www.whitehouse.gov/blog/2013/05/01/update-atrocity-prevention-strategy-implementation

    So why then, is there a continued press to push NATO into the teeth of Russian borders? The policy of direct military domination has failed and is moving to soft power coupled with drone strikes and small anti-atrocity moves as grounds for military intervention. These also require little in the way of demands upon allies, NATO or not. Two competing foreign policy formats in the same administration. The one targeting Russia and the Ukraine a seeming leftover from Soviet expert Condeleeza Rice with Nuland left behind to carry missions from a seeming cast adrift policy. But Nuland is no small player. Was she just left in place due to no one else really ready to fill the post of Russian policy expert and an aggressive triumphalist of American supremacy over the USSR? Or is it just a form of benign neglect from an overwhelmed administration with little concern for foreign policy as the defining agenda? How bad is Nuland for provoking Russia and how high profile is she? Take a look at an interview with here from the middle of the Iraq war period.

    ——————————————————————————————————————-

    The US’ “ambitious agenda” was outlined by the US ambassador to NATO (and former aide to Cheney) Victoria Nuland’s interview in the January 24 Financial Times. The US wants a “globally deployable military force” that will operate everywhere – from Africa to the Middle East and beyond. It will include Japan and Australia as well as the NATO nations. “It’s a totally different animal,” to quote her, whose ultimate role will be subject to US desires and adventures. NATO must have a “…common collective deployment at strategic distances.” Troops to Afghanistan are largely symbolic, a secondary issue to the much more important question of NATO’s future in American calculations over coming years. NATO, which was originally to be a European-focused alliance, would now become global in scope.

    The official Munich conference on security policy in early February – which Rumsfeld attended along with Brent Scowcroft, former Defense Secretary William Cohen, and other advocates of the traditional Atlantic alliance – reflected the American desire to transform NATO so it will again be a useful weapon in its sheath of military choices – particularly its manpower. This is all the more essential because his plans for reforming the entire military will lead to a 20 percent reduction of maneuver battalions in favor of larger headquarters and more high tech weapons, and soldiers on the ground will be scarcer than ever. It also wants the NATO states to spend more on their military forces, thereby relieving the US from increasing its already huge budget deficit.

    March 17, 2006
    American Foreign Policy and the Future of NATO

    by Gabriel Kolko

    http://www.antiwar.com/orig/kolko.php?articleid=8717

    1. NotTimothyGeithner

      I do think this is an understaffed administration, and my general feel is the leaders of western countries are largely reacting to machinations of others. Triangulation is a defining characteristic of Obama despite the obvious flaws which lead one to box himself in.

      I think Obama and his Euro gang woke up to shenanigans with little understanding or staffs capable of demystifying the events. Certainly, the old PM wasn’t popular in Kiev, and outside of Kiev, who knows about Ukraine? Would be spies are Ukrainian experts.

      The Western leaders aren’t popular which leaves them frightened (Cameron is on the record as an advocate for releasing the Chicot report soon despite the damage it will to the MIC in the UK because it’s his only way to win), and I think Team D at all levels is obsessed with being perceived as cut and runners. The result is bluster and a Kiev junta worried that assurances from Nuland and her cronies won’t materialize.

      Kerry is trying to build a legacy and is completely off t He reservation. Obama’s fear of being weak or being wrong won’t let him can Kerry. Se belies was only recently let go despite her obvious inadequacy during the ACA rollout debacle.

      As to why Nuland is allowed to operate, people like people when we meet them. Jesse Owens noted his rejection by his own country but was personally waved to by Hitler himsef. I use to date a Republican. My old neighbor was a Republican state legislator, and he was a friendly guy who shoveled an elderly neighbor’s walkways. There was no guile. I think people have this idea that bad people can be recognized by cackling and various threats to get Superman the next time they meet, and when they don’t find a tank of sharks in their office and see a world’s best dad mug, they just focus on that because it’s easier and we are probably primed to think about those personal things.

      Have you ever met an Iranian who came over in 1979? Or Cuban in 59? Eastern Europe (non Jewish anyway) in the late 40’s? I bet they were polite and said please and thank you, even sharing their culture with you, but some of those refugees are here because they are on prescription lists. Their victims remember them, and there are many victims. Oh sure, some are political prisoners, but when they were waxing nostalgic about the family farm, did you ask how many serfs worked the land? Of course not! Human beings don’t think like that.

      In many ways, our Congressmen are cheap whores. The real currency is attaching a friendly face. Great tee times are worth more than SuperPacs. It’s why Newt’s loathsome billionaire is an outsider. He is ugly, or Dan Snyder, the owner of the Redskins can be denounced by politicians, no one would spend time with the guy if they weren’t paid.

      Obama’s corporate devotion H’s kept him from governing and left him in a weak position. This is why I think Noland remains.

  19. Ow my balls

    One of the interesting things about this thread is how fast the lanchester models come out, despite everybody talking about an essentially economic post. No need to wargame this cuz military action na ga happen. No matter how stupid Nuland or Kerry is. Not because of the balance of terror, either.

    Remember when Libya fought the US to a standstill? 1992. Remember how? They went to court. When the USG couldn’t shut the case down they backed off. Why? Two reasons. The US was afraid of setting legal precedents sanctioning illegal use of force. And the US had a big skeleton in its closet: it was lying about Lockerbie, and that would come out at trial.

    Now the US command structure is exposed not just to state sanctions but to criminal penalties for individuals – fundamentally different because you can never be sure the state won’t throw a virgin into the volcano in a pinch, and maybe that virgin will be you.

    And again now the US has a little skeleton in its closet. His name is Tamerlan Tsarnaev, Russian alien, and his name will come up in any ICJ case. Because one of the ways he was used was as a grievance or potential casus belli against Russia. And because the US government is lying through its teeth again. The court might get into the question how this big dope learned to blow shit up even though he was totally punch-drunk. Or the question of maybe the big dope is not quite dopey enough to trust the feds who are making him do stupid terrorist tricks. Or maybe did FSB give him a shoulder to cry on about those FBI dicks pushing him around. FSB knows shitloads about this attack on the civilian population and in an actual independent court ICJ the US can’t control the whodunit.

  20. fairleft

    Michael Hudson has written many great essays, but I nominate this as his best. It’s a succinct summary of where the world is at now, locking in on the main problem and providing only solution.

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