Michael Hudson: The Dollar Devours the Euro

Yves here. The Western sanctions war with Russia will not change the outcome of the conflict in Ukraine. Russia will prevail but what the settlement looks like is very much an open question. However, one thing that is more obvious is that the economies of most European countries, and the euro, will suffer. Michael Hudson argues that they are not collateral damage but intended targets.

Hudson points out that Europe has no prospect of getting adequate LNG from the US until at least 2024 due to the need to increase capacity at ports. Reader PlutoniumKun has described how an even bigger constraint is tankers. Only South Korea builds LNG carrying ships and they are already have a full book of orders. A recent OilPrice article pointed out that US frackers will also have difficulty in ramping up production, due to shortages of key inputs like fracking sand, equipment, cement, and even steel tubing.

Europe seems to be operating under the fond hope that the sanctions will so damage Russia that it will have to relent before the winter cold kicks in. But this ignores the fact that there’s no evidence that Russia is going through any real hardship yet, and its ability to manage around shortages of important Europe-supplied products like car and aerospace parts has yet to be tested.

Plus Russia in the 1990s endured tremendous privation, vastly worse than anything likely to occur in the near or even intermediate term, plus Russians regard this conflict as an existential crisis. Oh, and on top of that, the US has shown no intention of easing sanctions even if Russia were to capitulate tomorrow. What exactly is in this for Europeans?

Hudson explains that the current trajectory has high odds of the eurozone running sustained trade deficits with the US, which will prove difficult to manage given its lack of central fiscal authority and its hawkish central bank.

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 “and forgive them their debts”: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year

It is now clear that the New Cold War was planned over a year ago, with serious strategy associated with America’s perceived to block Nord Stream 2 as part of its aim of barring Western Europe (“NATO”) from seeking prosperity by mutual trade and investment with China and Russia.

As President Biden and U.S. national-security reports announced, China was seen as the major enemy. Despite China’s helpful role in enabling corporate America to drive down labor’s wage rates by de-industrializing the U.S. economy to China’s benefit, the latter’s growth was recognized as posing the Ultimate Terror: prosperity through socialism. It is that clash of economic systems – socialist industrialization vs. neoliberal finance capitalism – that always has been the great enemy of the rentier economy that has taken over most nations in the century since World War I ended, and especially since the 1980s.

In this New Cold War against China, the U.S. strategy was to pry away China’s most likely economic allies, especially Russia, Central Asia, South Asia and East Asia. The question was, where to start the carve-up and isolation.

US strategists saw  Russia as the best opportunity for isolation, both from China and from the NATO Eurozone. A sequence of increasingly severe – and hopefully fatal – sanctions against Russia was drawn up to block NATO from trading with it. All that was needed to ignite the geopolitical earthquake was a casus belli.

That was arranged easily enough. The New Cold War could have been launched in the Near East – over resistance to America’s grab of Iraqi oil fields, or against Iran and countries helping it survive economically, or in East Africa. Plans for coups, color revolutions and regime change have been drawn up for all these areas, and America’s African army has been built up especially fast over the past year or two. But Ukraine has been under attack for eight years, since the 2014 Maidan coup, and offered the chance for the greatest first victory in this confrontation against China, Russia and their allies.

So the Russian-speaking Donetsk and Luhansk regions were shelled with increasing intensity, and when Russia still refrained from responding, plans reportedly were drawn up for a great showdown last February – a heavy Western Ukrainian attack organized by U.S. advisors and armed by NATO.

Russia’s defense of the two Eastern Ukrainian provinces and its subsequent military destruction of the Ukrainian army, navy and air force over the past two months has been used as an excuse to start imposing the U.S.-designed sanctions program that we are seeing unfolding today. Western Europe has  gone along whole-hog. Instead of buying Russian gas, oil and food grains, it will buy these from the United States, along with sharply increased arms imports.

The Prospective Fall in the Euro/Dollar Exchange Rate

It therefore is appropriate to look at how this economic war is likely to affect Western Europe’s balance of payments and hence the euro’s exchange rate against the dollar.

European trade and investment prior to the War to Create Sanctions had promised a rising mutual prosperity among Germany, France and other NATO countries vis-à-vis Russia and China. Russia was providing abundant energy at a competitive price, and this energy supply was to make a quantum leap with Nord Stream 2. Europe was to earn the foreign exchange to pay for this rising import trade by a combination of exporting more industrial manufactures to Russia and capital investment in rebuilding the Russian economy, e.g. by German auto companies, aircraft and financial investment. This bilateral trade and investment is now stopped – for many, many years, given NATO’s confiscation of Russia’s foreign reserves kept in euros and British sterling.

In its place, NATO countries will purchase U.S. LNG – by the time they can spend the billions of dollars building sufficient port capacity by perhaps 2024. (Good luck until then.) The energy shortage will sharply raise the world price of gas and oil. These countries also will step up their purchases of arms from the U.S. military-industrial complex. The near-panic buying will also raise its price. And food prices also will rise as a result of the desperate grain shortfalls resulting from a cessation of imports from Russia on the one hand, and the shortage of ammonia fertilizer made from gas.

All three of these trade dynamics will strengthen the dollar vis-à-vis the euro. The question is, how will Europe balance its international payments with the United States? What does it have to export that the U.S. economy will accept as its own protectionist interests gain influence, now that global free trade is dying quickly?

The answer is, not much. So what will Europe do?

I could make a modest proposal. Now that Europe has pretty much ceased to be a politically independent state, it is beginning to look more like Panama and Liberia – “flag of convenience” offshore banking centers that are not real “states” because they don’t issue their own currency, but use the U.S. dollar. Since the eurozone has been created with monetary handcuffs limiting its ability to create money to spend into the economy beyond the limit of 3 percent of GDP, why not simply throw in the financial towel and adopt the U.S. dollar, like Ecuador, Somalia and the Turks and Caicos Islands? That would give foreign investors security against currency depreciation in their rising trade and its export financing.

For Europe, the alternative is that the dollar-cost of its foreign debt taken on to finance its widening trade deficit with the United States for oil, arms and food.

For the United States, this is dollar hegemony on steroids – at least vis-à-vis Europe. The continent would become a somewhat larger version of Puerto Rico.

The Dollar vis-à-vis Global South Currencies

The “Ukraine War” in its full-blown version as the New Cold War is likely to last at least a decade, perhaps two as the U.S. extends the fight between neoliberalism and socialism to encompass a worldwide conflict. Apart from the U.S. economic conquest of Europe, its strategists are seeking to lock in African, South American and Asian countries along similar lines to what has been planned for Europe.

The sharp rise in energy and food prices will hit food-deficit and oil-deficit economies hard – at the same time that their foreign dollar-denominated debts to bondholders and banks are falling due and the dollar’s exchange rate is rising. Many African and Latin American countries – along with North Africa – face a choice between going hungry, cutting back their gasoline and electricity use, or borrowing the dollars to cover their dependency on U.S.-shaped trade.

There has been talk of IMF issues of new SDRs to finance the rising trade and payments deficits. But such credit always comes with string attached. The IMF has its own policy of sanctioning countries that do not obey U.S. policy. The first U.S. demand will be that these countries boycott Russia, China and their emerging trade and currency self-help alliance. “Why should we give you SDRs or extend new dollar loans to you, if you are simply going to spend these in Russia, China and other countries that we have declared to be enemies,” the U.S. officials will ask.

At least, this is the plan. I would not be surprised to see some African country become the “next Ukraine,” with U.S. proxy troops (there are still plenty of Wahabi advocates and mercenaries) against the armies and populations of countries seeking to feed themselves with grain from Russian farm and oil or gas from Russian wells.

The world economy is being enflamed, and the United States has prepared for a military response and weaponization of its own oil and agricultural export trade, arms trade and demands for countries to choose which side of the New Iron Curtain they wish to join.

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  1. Dirk

    I am reminded by this post that is nothing so stupid that a tenured professor won’t profess it. I am also reminded of Lenin’s scathing analysis of cosseted capitalists: ‘They [capitalists] will furnish credits which will serve us for the support of the Communist Party in their countries and, by supplying us materials and technical equipment which we lack, will restore our military industry necessary for our future attacks against our suppliers. To put it in other words, they will work on the preparation of their own suicide’

    Remembrances of Lenin’, by I. U. Annenkov, includes a manuscript note attributed to Lenin.

    In other words, you would rent out the rope in your “rentier” world by which a Russian who hang you or, if you lived in Ukraine, the bullet they put in your empty heart.

    1. Pp

      Not really a problem, as soon as credits, materials and technical equipment run out the communists will be back at 0, needing new credits, materials and technical equipment, because communism is so retarded that it destroys every incentive to create anything of value.

      1. lance ringquist

        yet the weapons that the russians are wiping the deck clean with of the western capitalists weapons, are incinerating western capitalists military officials that thought they were safe, are either of soviet design, built on soviet design, or were on the drawing boards of the soviets.

        western capitalists cannot even make a aspirin.

      2. Yves Smith Post author

        Suggest you get that knee looked at, as well as bone up on history.

        The old Soviet Union went from a peasant economy to an industrial economy in less than a full generation, and as a result, was the country most responsible for beating Germany in WWII. The West was completely freaked out about that. That was why economists became the only social scientists to get a seat at the policy table. The West was afraid a command and control economy could continue to outperform a free enterprise system. Oh, and then Sputnik too.

        Studies have concluded central planning did beat free enterprise for about a generation because the key manager/bureaucrat types believe in the mission and tried to operate the system with integrity. But then too many started faking forecasts, building in fat, hiding and syphoning off extra output.

  2. DJG, Reality Czar

    “What exactly is in this for Europeans?”

    This is the question that I still cannot resolve. It is obvious that the US is only concerned with the Five Eyes, which means that for the U.S. administration, Europe is England (and only England). German gets a nod now and again.

    I don’t understand at all the enthusiasm for war among the EU’s Mediterranean countries, which means mainly Spain, France, and Italy. They are places where Americans go on vacation–doesn’t George Clooney live in one of them? They are already being written off–yet they are agreeing to being subordinated.

    In Italy, the opposition is coming from Giuseppe Conte, who is holding up a deal to raise the Italian defense budget. He has pointed out that working people end up paying. And I write this given that I’d never vote for the Cinquestellati. Yet they do have one or two interesting politicians (Fico, renegade di Battista). But what Appendino did to my city is appalling.

    The left (the real left) in Italy has also been skeptical. Not the Partito Democratico, which is learning McCarthyism from the U.S. Dems. The real left, though, collectively is at about 7 or 8 percent–divided among three or so parties. Hmmm.

    Smaller European countries like Greece (never exactly a U.S. ally) and Portugal have nothing to gain from supporting the NATO efforts.

    This is what war causes. We won’t know motives for years. We won’t understand economic effects for years, which means that I’m not sure I agree that the euro is being softened up for the kill.

    For now, we subsist on Twitter wars and propaganda pieces in the newspapers.

    1. PlutoniumKun

      I’ve been surprised by this too. The Germans stood down intense US pressure from the US in the 1980’s over the first natural gas pipelines to the USSR, and this was when the Cold War was at its highest. Europe has always consistently resisted US pressure to buy US weaponry and focus on its own industry (even the UK did this, often resulting in gigantic extra costs). Europe has always held its own with trade arrangements, although certainly the architecture of the Euro was something of an own goal (but that was more due to German ordo-liberal economics than neoliberalism)

      So something has changed. Europe is busy digging its own grave now with anti-Russian hysteria and even the most pragmatic of countries seem to be buying into it. They seem entirely oblivious to the reality that there can be only one winner in an economic war with Russia (well, maybe two winners, but neither will be Europe). Maybe its the deep seated fear of the East overcoming traditional pragmatism, or maybe its down to the failure of the traditional left to articulate a counter narrative, but if there isn’t a rapid course change Europe is going to hit an economic calamity by the end of the year and it will be entirely self inflicted.

      1. Yves Smith Post author

        “Countries” or their leadership cadre and the media?

        The propaganda has been non-stop here, but readers report that most people outside the CNN/MSNBC/NYT/Wapo addict cohort are way more concerned about rising food and gas prices than Ukraine, and are not buying the Biden spin that it’s Putin’s fault.

        I can’t prove it, but I suspect the surprise Orban blowout was due to his firm position that he is not getting Hungary involved in this fight.

        Of course, in Europe, the press is also playing openly and successfully on anti-Slav prejudice. The French elections could be an unexpected test. If Macron does worse than expected, and even more so if Le Pen pulls off an unexpected win, my guess it would be that voters are not willing to be economic cannon fodder.

        1. KD

          It is very hard to believe whatever the German leadership thinks it is doing that the German industrialists and the trade unions are going to put up with it. Economically, this sounds like the end of Germany as an export economy, while at the same time, that has been Germany’s telos for the last 40 or so years, at least. Heck, the entire point of the EU was to devalue the German currency to make for cheaper exports, and for German banks to profit off currency arbitrage. All that work to turn around and de-industrialize and run a trade deficit with America? I can’t imagine if Merkel was still in charge the Germans would do something this stupid. Further, Hudson is right about the Euro, and its hard to see the point of the EU if they ditch the Euro.

          People on the street may or may not understand the economic consequences of what their leadership is doing, but at some point it will be evident from the conditions of real economy, and there is inevitably going to be a big political shift. I would predict to the far right, simply because the left is too sold out to neoliberalism and idpol, but there is clearly an opportunity for leftists if they have the fortitude to take it up. If/when such a shift occurs, it will not be appreciated by good ole’ Uncle Sugar–or maybe its Uncle High Fructose Corn Syrup these days.

        2. OIFVet

          I can’t prove it, but I suspect the surprise Orban blowout was due to his firm position that he is not getting Hungary involved in this fight.

          The proof is probably in Bulgaria, where the Revival party has gone from under 2%a year ago to 4% last fall, and to 8% in the span of the last couple of months by simply being opposed to vaccine mandates first, and Bulgarian NATO membership now. And the more that the clueless Western Euros push Bulgarian government to supply arms to Ukraine, the more Revival gains as that’s something that the huge majority of the population is categorically opposed to. Mark my words, the first government to fall because of the war in Ukraine will probably be in Bulgaria, and what will come in its place is probably not very pretty for the US and for the Euros.

        3. PlutoniumKun

          I guess when I say ‘countries’, i mean the leadership classes, in the most loosely defined sense.

          I expect idiocy from politicians and the media. But in most countries the level below – senior industry people, senior government advisors, military and intelligence etc., usually act as a pragmatic counterbalance to the ebb and flow of ‘bright ideas’, whether those bright ideas come from the left or right or elsewhere – at least in the case of European countries. Or put in simple terms, when the CEO’s of Siemens, Erickson, Airbus, VW, etc., think something is unwise, the message usually gets up the chain to whoever is sitting in the PM or Presidents chair., either directly or via the official channels. I know it sounds odd to be looking to the heads of major corporations for wisdom and good policy, but a little pragmatism never goes amiss, and that is exactly what we need right now.

          Maybe it’s the case (as happened in the UK with Brexit), that for political reasons they decided not to get involved in the fight, or perhaps they have themselves been infected with groupthink. Or maybe they are just willing to let this go on over the summer and are hoping war fever just burns out when people are facing the reality of a cold and hungry winter. Brexit is a reminder that sometimes stupid ideas can build up a momentum that can’t be stopped.

          1. digi_owl

            I wonder if it is worth considering where people got their education.

            Because i have for a time now wondered why my national media keep treating a “minor” gunman event in some flyover state in USA as front page news.

            And my suspicion is that the intelligentsia etc has increasingly had some university years in USA, and thus either get fed news from there via their old classmates, or feel a connection with the nation as a whole.

            And increasingly i worry that the same applies to our military etc. This because more and more officers and such have some training years in USA. And we have seen in the past how that has played out in various South-American nations.

          2. Susan the other

            Good explanation of why ‘politics’ is hot air; recreation for the masses. When you define the interests of sovereign societies as those of the “leadership classes” it all makes better sense because it is a paternalistic group of people. Experienced in what works, but, more importantly, what does not work. One thing the leadership classes know in their bones is that they are totally dependent on the consumer class. It’s symbiosis-politics, working behind the scenes to keep all boats floated. I do think this is true. But it just makes me more befuddled because war, especially one so synthetic as ‘the war in Ukraine’, is by any definition irrational. There must be a much, much greater good at stake. Something has convinced the EU to go along with it all and I doubt it was the threat of their own financial ruin. It might have been the imminent threat of the complete failure of the dollar.? Of empty gold vaults? Or the ongoing extinction of the world? You know, some little thing. I like to hope it is methodical madness.

            1. digi_owl

              The fervent belief that Putin is Stalin reborn, and that an aggressive Russian army will not stop until it stands on the French coast overlooking the Atlantic.

              And as for symbiotic, maybe at the best of times, when the workers know their worth and threaten the leadership accordingly.

              But if the leadership manages to keep the workers fighting amongst themselves, the relationship turn parasitic.

              Also, the word “consumer” may be the most obnoxious word that has entered the vocabulary of the world. It is like a resurgent gentleman, the idea that someone can sit there like a foie gras to be and stuff their face with everything the world has to offer.

              No, most “consumers” are workers first and foremost. And they work in order to live. Although most of the leadership wants them to live in order to work, while distracting them with the “consumer” label from their true position in society.

              1. Susan the other

                I totally agree about the term “consumer.” Like a genteel replacement to be used in polite politics instead of “demand”. It’s just too rude to demand. The mommy nazi.

        4. voislav

          It was the same in recent Serbian elections. Serbia is on EU ascension path (real one, not the fake Turkish path), so it’s under obligation to sync its foreign policy with EU. This has been a major issue in the last few years as EU investments have shrunk and Chinese investments flowed in. Russia has a strong presence in the national oil and gas sector, the national oil company is owned by Gazprom (sold about 10 years ago) and a pipeline is being built through Serbia and Bulgaria to connect Hungary and Austria to Turkish Stream. Against this backdrop, the country held parliamentary elections a week ago.

          Socialist Party, which traditionally gets 350,000 votes (8%) shot up to 500,000 (12%) on their pro-Russian platform. Similarly, smaller nationalist parties, which are anti-EU, saw their support increase. The ruling party, which was tip-toeing around the whole issue before agreeing to impose some sanctions on Russia, under-performed the polls by more than 5%. So this is turning into a wedge issue in Eastern Europe. The ruling party has lost its majority and are having to negotiate a coalition with the Socialists (their traditional allies), with the price being the Prime Minister position for the Socialist leader, who is extremely pro-Russian and whose election slogan, ironically, was “Prime Minister of Serbia”. It’s a tough spot for the ruling party which is nominally pro-EU, but has been used its connections with Russia, including a state visit by Putin, to court pro-Russian voters in the past.

          So Serbian government may be in trouble over the anti-Russian policies they enacted and may be forced to backtrack in order to secure majority in the parliament.

          1. Bugs

            Thank you so much for this news on the Serbian elections and the mood there. I have personal connections in Belgrade and really appreciate help understanding the issues at play. My impression the last time I was there (3 years ago) talking to some notable Belgrade liberals was that they were hoping that somehow joining the EU was going to be the magic elixir that made Serbia a “normal country”. I couldn’t understand why and the explanations were sort of reverse Marxian (!).

            Since being pro-Russian during Yugo times was not er, tolerated, it sort of surprised me to see open expressions of support marching down the Knez Mihailova ulica. Strange times.

          2. Canadian Canuck

            Serbia is an outlier in Eastern Europe as its the only state subservient to Putin.
            The sympathies to Russia stem mainly form the fact that it didnt suffer under the Soviets the same way other ex-communist countries did as Tito, a skillful politician, managed to be friends with the West and the East and exploit them both.
            In the end Serbia will find out that you cant serve two masters.
            Russia doesn’t care much about Serbia but Putin has shown interest only in as much as he can use them to stir conflict in the Balkans to serve his own interests.
            If Serbia doesnt integrate in the EU, its highly probable that the frozen conflict in Kosovo will reignite and the misery and death that will bring on Serbia and Balkans will be incalculable.

            1. Après Moi

              Not at all an accurate representation of events. Not in the least.
              First, Russia-Serbia ties go back a few centuries, as both are Orthodox C. and Russia even under tsars came to Serbia’s rescue (not to mention WWI).
              And I guess we’ve forgotten that Tito famously did not follow USSR – something that did not work out so well in the end? (Do research how Y’s indebtedness to the West led to later troubles.)
              Second, might one imagine that the deliberate destruction of Yugoslavia and the 78-day NATO bombing campaign in 1999 could have something to do with Serbs’ suspicion of all things western?
              What specific information points to Russia not caring about Serbia?
              For Serbia “to integrate into the EU” automatically means ascension into NATO – given the western destruction in the 1990s, perhaps we can forgive Serbs for not rushing in, Kosovo or no Kosovo.

              1. Canadian Canuck

                “…Second, might one imagine that the deliberate destruction of Yugoslavia and the 78-day NATO bombing campaign in 1999 could have something to do with Serbs’ suspicion of all things western?…”

                No, rather it has to do with the genocide perpetrated by the Serbs on thousands of innocent civilians.


            2. OIFVet

              If Serbia doesnt integrate in the EU, its highly probable that the frozen conflict in Kosovo will reignite and the misery and death that will bring on Serbia and Balkans will be incalculable.

              Sounds like a promise to me! Though the analysis that led up to it is, shall we say, lacking. And the language is pure blob. You appear to know next to nothing about Serbs, they are Russians light. They will integrate into the EU, eventually. And them promptly proceed to act like Orban’s Hungary does.

              1. deplorado

                Agree with you, on Serbia and on Bulgaria also.

                In Bulgaria, do watch the “Revival” party ( I think a better and more literal and apt translation of the name is Rebirth party, (Vazrazhdane)), their leader is a real talent, as far as I know rose organically (and very slowly at first), very astute and erudite, and appears resolutely committed to lead — and Bulgarians are rapidly starting to notice.
                If he gets to govern, he will be another Orban for sure.

            3. voislav

              People misconstrue Yugoslavian position during the Cold War, which is very similar to the Serbian position today. Yugoslavia tried to play both sides, using its “neutral” position to profit by being the gateway between the West and Soviet Union. In practice that played out by supplying Soviet Union with technology they could not otherwise obtain from the West, and by supplying the West with an intelligence base into the Soviet Union.

              Serbia is hardly subservient to Putin, its position is that it’s trying to maintain friendly relationship with both because on one hand EU is its biggest economic partner (something like 70% of trade), but Russia is popular with the people and is the main supplier of fossil fuel to the country. Throw China into the mix as well, which has been the main supplier of economic investments into the region over the past 5-10 years.

              EU support in Serbia has been dropping, mainly as the economic benefit is dubious, joining would expose key industries (agriculture, mining, energy) to EU regulations and competition. Croatia had a bad experience, for example their agriculture was devastated, and Slavonian region, which is the main agricultural hub, saw its population decrease by 40% in 10 years.

              So Serbian elites are seeing the opportunity to reinstate the “East in the West and West in the East” status of old Yugoslavia, where Serbia would have access to financing from EU, Russia and China, using their disparate interest to secure favourable economic terms, which would not be available if Serbia simply joined the EU.

              From a more immediate perspective, my family tells me that there has been a large influx of Russian capital into the country, mainly into the real estate market. It looks like a lot of Russians are looking to base their EU-related operations in Serbia, as this would allow them to bypass the sanctions.

              1. Greg

                Thankyou for these two comments, the personal insight into an important part of the world is really great.

              2. deplorado

                Well, we have this today:

                Levi @Levi_godman
                Serbia voted to suspend Russia’s membership in the UN Human Rights Council due to Western pressure and blackmail, Serbian President Aleksandar Vucic said on national television.

                So they are playing both sides, but it’s not a good look.

      2. Dinosaur

        Europe has not faced a real or even potential crisis in the last 70 years where there wasn’t an obvious solution in sight. Therefore we have developed a full blown recency bias. Everybody I know expects the economic & social trajectory to revert back to trendline. The moral high ground we live on has become a dangerous place.

      3. NotTimothyGeithner

        Bonn of West Germany did that though. Berlin of modern Germany is a different place. Bonn making a trade deal with the USSR won’t disrupt the world order. Its like DC in 1860 and 1900.

        Berlin as the dominant faction in the EU moving to keep Moscow or even Istanbul/Ankara disrupts its place in the order of the EU, especially with London having left. The growing Paris/Rome axis (Berlin is terrified of this. The PIIGS aligned with Paris with no London to back Berlin) is also a threat to Berlin’s status. Who is going to keep Berlin on top?

        Then, Berlin has a new coalition in charge that didn’t defeat Merkel. She retired on her own terms. She isn’t a charismatic. Letting her rule all those years indicates Scholtz knows his coalition isn’t that strong. Rocking the boat means a new order is coming. For all of the hoopla, the EU runs to the US whenever it wants something. It hasn’t acted as the EU on the world stage.

        1. digi_owl

          PIIGS+France has an appeal to it.

          I think it was observed after 2008 that really this is how it should have been, except that French banks were just as much under water as the Germans and thus needed to play along to receive some of that bailout money.

          And frankly, EU is zollverein 2.0. And Merkel was perhaps the closest it has come to a Bismarck.

      4. Kouros

        My opinion is that after the disastrous PR humiliation the US suffered on the world scene with the start of Iraq War, with most EU practically condemning the US actions, the US has launched a tremendous action of cultivating and promoting individuals that would sing in tune with the US music score. I have in mind, just of the top of my head, the leader of the Green Party in Germany, and the Deputy PM in Canada.

        Also a super charged Operation Mockingbird 2 was likely launched, operation that we’ll never have a second Church Commission to bring to the public any more. As the former Australian PM said in his fabled interview late last year, the countries are now run by the secret services. And those secret services like to have nice dossiers on everyone, especially the politicians, so that everyone could be blackmailed.

      5. Maxwell Johnston

        Something has indeed changed in Europe since the early 80s (think of the Soviet gas pipeline, the huge protests against Cruise and Pershing missiles, and even Maggie’s UK refusing to boycott the 1980 Moscow olympics) and since the early 2000s (France and Germany opposing the Iraq war). I think the financial meltdown of 2008 has fundamentally altered the relationship between the USA and Europe. The Fed didn’t just bail out Wall Street; it bailed out the European banking system. The Europeans have simply never developed a sufficiently robust central government (let alone central bank and military force) to handle a major crisis, and that remains true to this day. Hence in times of perceived crisis, Europe follows the USA’s lead. But I really wonder if all European countries will maintain sanctions solidarity if the economic pain (rising energy and food prices) starts to bite hard.

        1. digi_owl

          Because EU was never meant to be a federation akin to USA.

          It is an overgrown trade agreement.

          And particularly since it expanded eastward, it has largely benefitted the upper classes, and in particular Germany, while leaving the working class in a lurch. This in large part thanks to the free movement of labor, that has allowed businesses to undermine the hard fought concessions of the unions.

          The EU toll barrier has been employed selectively almost from the get go. It will happily try to push resource rich nations to join in order to avoid punishing tolls on their exports, but will look the other way on industrial goods from China etc because it favors companies over workers.

          Just look at how hard EU is coming down on US tech companies providing services in EU. You can be they would be just as reluctant to do so as USA is if said companies had been based inside EU.

        2. Yves Smith Post author

          The reason the Fed could and did bail out the European banking system was ENTIRELY due to Eurobanks having DOLLAR assets and exposures (CDS on mortgage securities). As in they ate a ton of our shitty cooking and got deathly sick. The only “bailout” was dollar swap lines. Deutsche nominally participated in the CDO recuse but its CDOs were all on commercial mortgages and were money good or had terms that allowed restructurings (Adam Levitin wrote a very long paper on the superior structures and servicing terms of CMBS CDOs). So they didn’t need a CDO bailout, theirs could have been restructured.

    2. OIFVet

      Never underestimate the sheer stupidity of Western Euros and the primal hatreds of the Eastern Euros. Both have been skilfully used by the US to ensure not only that economic integration of the Eurasian landmass is averted, but it has also ensured that Europe is now more dependent on the US than ever before. Macron had the right ideas about Europe weaning itself off American military protection and German attempts at peace through mutual economic interests have both been scuttled good and proper. Europeans are the big losers any way we look at it, with economic pain that will beggar large part of the populations. The US gains somewhat, but it’s ultimate goal of preventing the rise of multipolarity will fail. China wins big by simply staying its course and offering support for resources to Russia.

      Europe though… I am afraid that the conditions will be ripe for the far right to really surge, after having stagnated a bit during the covid era.

    3. BillS

      Mainstream news in Italy has become absolutely unwatchable since the start of the war. The Democratic party and its mouthpieces (e.g. RAI3, La Repubblica, etc.) have gone all in. A couple of weeks ago, mushy liberal (and Demo party sympathizer) Massimo Gramellini gave a sympathetic speech about Azov commander Vyacheslav Abroskin that made me almost lose my lunch. (See here.) There is almost no real discussion about why we should follow the USA into the abyss or the disconnect between peace and arms sales to Ukraine. The media wants war, but does not quite know how twitter wars are different from boots-on-the-ground shooting wars. With such vomit inducing propaganda sold to us as news, let’s just say that NC and its community have become my main source for thoughtful commentary of the events in Ukraine. Thank you Yves, Lambert, JL, Michael Hudson and everybody!

      1. DJG, Reality Czar


        I only clicked over to your link because I buy LaStampa every morning, and Gramellini has had an outsized deleterious effect, to be polite about it, on the general discussion–what with his insistence on hogging the front page.

        I have seen only one mention in LaStampa that all of that liquified natural gas isn’t going to make it to Italy, which imports 40 percent or more of its natural gas, second only to Germany among the EU.

        Fortunately, LaStampa is still good on local news. I suppose that Gramellini, who is cut out for grander things, can’t make a mess out of TorinoSette and TuttoLibri.

    4. Ignacio

      The question is, I believe, that if you treat them as EU countries and these have already very integrated economies, their external affairs and supplies show, specially regarding energy, different profiles. And these differences might explain the final outcome. The largest problem would be in Eastern EU countries being the ones most dependent on Russian energy supplies. This touches Germany and Italy which are large consumers that import quite a lot of NG from Russia. France depends much less on it but it is highly integrated in the power market in Europe.

      The case of Spain and Portugal is quite different. Much less connected compared with France in relative terms. Spain imports 0 NG rom Russia. Most imports come from Algeria or as LNG from Qatar, and other sources including the US. Because NG prices are settled globally this has resulted in skyrocketing power energy costs. Both Portugal and Spain have managed the EU to agree for an Iberian exception regarding power prices so that global gas prices do not transmit via last-resource-price to the rest of power supplies and in this way Spain and Portugal are managing now to return to more rational power energy prices. The big problem is with oil and the high international prices will certainly be a drag and something about what Portugal and Spain can do little with 99% dependence on oil imports. This will result in higher external deficits indeed. Directly with oil exporters such as Nigeria, Brazil, or Saudi Arabia. With or without sympathy/support for Ukraine this will be the result, with or without buying the propaganda it will be the same so I guess it is easier to go with the propaganda when you have nothing to win and only to loose by showing discomfort about how the conflict is being managed.

    5. Minsky

      If there is nothing in it for the Europeans, would it not be somewhat rational to question this take on the Ukraine invasion–

      “plans reportedly were drawn up for a great showdown last February – a heavy Western Ukrainian attack organized by U.S. advisors and armed by NATO.”

      What evidence do we have for this other than a Facebook posting by Azarov, who has every incentive in the world to rationalize a move against the government that overthrew him?

  3. Thuto

    The clinical diagnosis is in, Europe is suffering a full-blown case of geopolitical Stockholm Syndrome in its relationship with the US. This is the only explanation I can think of that demystifies the increasingly masochistic tendencies being embraced by the EU political elites. Will Orban’s win, in spite of the massive coordinated attempts to smear/discredit, him both inside and outside Hungary, inspire the electorate in other European countries to act as a bulwark against this madness by their “leaders”?

    1. caucus99percenter

      The problem in Germany is that when it comes to a whole host of topics — NATO wars (now including Ukraine), “free trade” pacts, an ever-more powerful centralized E.U. superstate, or effectively unlimited immigration, just to name a few — basically, there is no real opposition voice in parliament (the Bundestag) anymore.

      Except for a few meaningless tweaks around the edges, there is no dissent from the existing TINA consensus, except for the AfD … which the entire political, cultural, and media establishment in Germany has agreed to treat as pariahs and slander as being no different from Nazis.

      Perhaps the left party Die Linke could have been and should be filling the opposition role, but it has fumbled badly and the moment when it could have become a genuinely national rather than regional, former-GDR-only party seems to have passed.

      1. digi_owl

        This is basically the problem across western Europe at least.

        Quite a few politicians still think in cold war terms, even though the fall of the USSR de-fanged the “extreme” left.

        Thus whet you are left with is a champagne left that is very much into the globalist kumbaya Ricardo idea of trade bringing peace as prosperity for all. Thus they have enshrined EU as THE reason Europe didn’t see a major war for some 50 odd years.

        Also, most of them are members of the intelligentsia. And thus for them the EU freedoms are all gravy. They benefit from the cheap labor coming in to do their plumbing etc, while they themselves can pack the laptop and credit card and head for the riviera or wherever while working (why they so readily embraced work from home, as that was their thing already). Online services etc has basically made them disconnected form the larger working population.

        Hell, you may compare some of the social media brain rot that has set in to the eunuchs of the late Chinese empire. Grown men perfectly willing to have their dick chopped off in order to access the wealth and influence of the forbidden city.

        1. Maxwell Johnston

          Re eunuchs: I’m pretty sure that only the testicles are removed, leaving the long shaft in place to perform its non-reproductive function. But yeah, some people will do anything for money and power.

          1. Lali

            In China, castration included removal of the penis as well as the testicles. It’s called emasculation. Via Wikipedia.

            1. Susan the other

              Yes. I remember this detail from Sterling Seagraves books. All they were offered, for prosthetic purposes, was a cork. Which might well serve the European Central Bank in a similar way. The best possible cork, to maintain the deeply vested European anti-inflation fetish, would be to just go ahead and devalue the Euro.

        2. Minsky

          That’s going to be the labor force of the future, though, like it or not.

          Technology is becoming more digitally intermediated and centered around networks. Industrial technology itself is migrating to the cloud.

          That’s not going to stop.

        3. Panecitium Purpureum

          I came across this description of the EU a year or two ago:

          In the words of Majone, its most clear-sighted liberal critic, the world the Union inhabits is one in which ‘the language of democratic politics is largely unintelligible’. Unique in modern constitutional history, he observes, ‘the model is not Athens but Sparta, where the popular assembly voted yes or no to the proposals advanced by the Council of Elders but had no right to propose measures on its own account.’ The political culture of Union elites resembles that of the European Restoration and its sequels, before the reforms of the franchise in the 19th century, ‘when policy was considered a virtual monopoly of cabinets, diplomats and top bureaucrats’. The mental and institutional habitus of Old Regime Europe is still alive in the ‘supposedly postmodern system of governance of the EU’. In sum, the order of the Union is that of an oligarchy.

          From here: https://www.lrb.co.uk/the-paper/v43/n01/perry-anderson/ever-closer-union

          Best Regards

  4. Julian

    This is still the initial stage of shock and awe. There is a good chance, that by early September the EU will come to its senses.

    If not, then the specter of real, prolonged poverty for their people may get enough governments to change their minds after the first winter. There is no rule, that people’s spring comes only to third world countries.

    1. Thuto

      As winter approaches, expect more Bucha-like false flag operations to make it untenable for the EU to come to its senses. To the extent that “coming to its senses” means arresting the spike in living costs by reopening trade with Russia for vital resources, atrocity propaganda will frame this as supporting Putin’s war (see the attacks on Hungary for its pragmatic stance). The US will impose a faux moral quandary on the EU: put its people first (and be accused of supporting Putin’s war) or maintain the current madness trajectory and collapse its economies.

      1. PlutoniumKun

        You are right that there can be a momentum behind stupid ideas that can make them unstoppable. This really is a test for how robust the ‘deep’ institutions are within Europe.

        To refer to Craig Murrays article in the links, the Winter War in Finland can be seen as a good example of where there was overwhelming public sympathy in the West (and in Nazi Germany too) for the Finns, but simple pragmatism won out and the Finns were left to their own devices (with some limited material support). We all know about the ‘appeasement’ over the Sudentenland. When Hungary and Czechoslovakia were stomped upon by the USSR there was huge public sympathy for those countries and a lot of press hysteria, but the US and Europe in both those cases decided to be pragmatic (or cowardly, depending on your standpoint). But with Yugoslavia, the opposite happened and Europe got partly dragged into a mire which it would probably have been wiser to stay away from.

        I think it all comes down to the balance of forces within each country, and within each organisation. But from what I can see, its not looking good. The level of censorship and hysteria over the conflict is unbelievable, I’ve never seen anything like it in my lifetime.

        1. digi_owl

          Because Hitler was still sane enough to see through the French-British ploy of using the Winter War as an excuse for seizing the iron ore mines in Sweden.

          In recent years we see from declassified British documents that they had a plan for provoking a German invasion of Norway, so that the British could intervene. This by things like ignoring Norwegian sovereignty while chasing German ships, and even starting to mine Norwegian waters.

          Thing was that Germany got their invasion underway earlier than the British had planned, and thus had to scramble to send troops.

          On thing to note is that the British forces landing near Trondheim were effectively home guard, with no equipment for fighting armored vehicles. The elite forces were all sent north to secure the Narvik port and thus the iron ore shipments from Sweden.

      2. Julian

        There is not much of an escalation possible now. And people get used to every stimulus if it is provided repeatedly. So there is little the media can do.

        Also EU member states are states – that means each and every has its own infrastructure for projecting state power, including media control. If necessary, the media can be controlled.

        The EU has a very simple arithmetic in front of itself, and I think that, if that was the plan, then not only does Joe look senile, but it would seem even the planners are starting to look detached as if struck by some neurological disease. Otherwise this is a case of a very big set of unintended consequences.

      3. timbers

        If Russia sticks to a more limited goal – securing Donbass – IMO this will be over well before September, at least in terms of full blown war/military operations. But if you mean sanctions then yes…maybe forever.

        1. Spacedog

          I think Russia would like to stop at the Donbass and maybe Odessa, but the trick will be getting Zelensky to agree terms. I don’t think his Western handlers will allow it, Russia might be forced to take the whole country to secure a deal.

          1. Yves Smith Post author

            This sounds very plausible to me. One reason I think they are now not moving as quickly as they could to dispatch the Ukraine soldiers in the cauldron (aside from slower = fewer Russian deaths) is it gives them more time to completely destroy other Ukraine military assets, particularly fuel dumps and ammo caches. MoD reports suggest they think they are largely done, but the last bits are always the hardest to get.

            Really destroying war-making capacity will (somewhat) increase the odds of getting the sort of solution you suggest.

            The other measure short of taking all of the western part of Ukraine might be to take the entire Black Sea coast (they are well on the way) and the entire western side of the Dnieper. They might not have to take the West if they cut it off economically from any water transport. But I haven’t looked to see if they can do that without cordoning of taking Kiev, something they are and should be loath to do (I gather the city is very spread out).

            1. NotTimothyGeithner

              I would also hazard another delay is the cauldron is 60,000 sitting ducks. They have to be killed or taken as prisoners if there is no deal.

              1. Polar Socialist

                According the the Donbass Telegram aggregators there has been, for the last two weeks, intensive fighting going on both south of Nikolaev (where the Ukrainians have suffered heavy losses trying to breach the Russian defenses on Lupareve-Ljumomyrivka line) and south of Izjum where the Russians crossed Donets and are advancing toward Barvinkove in south-west and Slavyansk in south-east.

                Ukrainian army has thrown everything they have capable of moving against the Russians there being well aware that once they break trough the Ukrainian formations in the east are totally cut off. There has been days of artillery duels and actual tank battles, and the Russians seem to be pushing slowly forward.

                Ukrainians are asking civilians from Slavyansk and Kramatorsk to evacuate ASAP while their forces seem to be converging there.

                All that said, it’s really hard to actually know the extent of Russian advance due to extreme communication discipline. Only place names in the very dry Russian MoD daily reports, Ukrainian MoD announcements and mostly videos and pictures posted by citizens can be used to draw even a crude picture of what’s going on.

            2. PlutoniumKun

              I don’t see taking all of Ukraine as militarily achievable. The Russians simply don’t have enough men for a landmass that large. And bear in mind that they may be fighting on two fronts, there are strong indications of a new war breaking out in Armenia.

              I suspect now that the Russian aim is the destruction of as much of the Ukrainian army in the open field – it would be far harder to take units embedded in urban areas. To achieve this they have to threaten ‘deep’ Ukrainian lands so that the Uki army has to come out to fight, rather than bed in (this was the German strategy in both WWI and post Stalingrad WWII). They will want to secure as much of the coast and open lands as possible to create the strongest hand in any deal with Ukraine. In the long term, its strategically vital for Russia to have its fingers on the jugular of all coastal access to Ukraine.

          2. Minsky

            Or perhaps—*perhaps*—the Ukrainians are not interested in being ruled by Russia, Zelensky or no Zelensky. You’re not exactly seeing the Russian forces being greeted as liberators by the Ukrainian populace.

            In which case, yes, Putin will have to take all of Ukraine and employ harsh, repressive measures to rule them by the sword, American-style.

            Or perhaps we’ll see a repeat of what was done with Crimea. He’ll settle for Luhansk and Donetsk, wait a few years, then take the rest of the country.

            Either way, a prolonged refusal by the Ukrainians to ‘settle down’ and accept Russian rule would make it doubly clear they’d rather rule themselves.

    2. Mikel

      All over the world, the governments have a crisis of legitimacy.
      That will not be over this year, so they will not come to their senses. It’s all a wild, lashing out with the intended targets being the most affected – the disbelieving, discontented masses.

  5. Patrick Donnelly

    When dealing with a bully, rushing into fights, it is often best to allow the initial impetus, even encouraging it, in order to more perfectly tire out the cartel that runs the USA.

    Overeach, its a real problem.

  6. Patrick Donnelly

    The EU is well served. They have not stumbled into this. It has been on the agenda for decades.

    Expect many encouragements to the USA.

    Until it matters.

    1. GramSci

      I hope you are right; with a daughter in Spain, I somewhat follow the sentiment there.

      Under normal conditions the brain society maintains a delicate balance between inputs of reward seeking controlled by neurons containing the D1-like family of dopamine receptors and inputs of aversion coming from neurons containing the D2-like family of dopamine receptors. Cocaine is able to subvert these balanced inputs by altering the cell signaling of these two pathways such that D1 reward seeking pathway dominates.

      We pessimists here at NC are the like the D2 receptors.

      Bourgeois Spain looks to me like it’s still on a D1 high. A crash is predictable, but the result could be volatile.

  7. Altandmain

    Right now the full consequences of the Russian sanctions have not immediately become apparent. There’s been some increases of course in the cost of living, but the full impact has not been felt yet.

    By the winter of next year, I suspect the general mood will begin to change. Especially if the option is to freeze during the winters. It’s one thing to sanction a weak and small nation like North Korea or Venezuela. It’s another to sanction a larger nation like Russia. It’s also why I also think that the proposed “secondary sanctions” against China are crazy. They are a major manufacturing power that the West relies on for its manufactured goods.

    Like so many of the other comments here, I suspect that there will be increasingly desperate “false flag” attempts like Bucha to try to force compliance. Another possibility is a missile launched from the Ukraine that they will try for example to blame the Russians on. The Grayzone has been doing some interesting reporting.


    Food prices will rise, energy prices will rise, and the economic competitiveness of European exports will decline, as they will suffer far worse economically than other nations will due to their rising costs. About the only offset I could see is the Euro declining in value due to the recession experienced.

    I think my other comment got eaten, but in the long run, as Hudson has described in the article, the real opponent of the US is China. This whole operation is being done in part to weaken China, which sees Russia as an ally and imports a lot of natural resources from Russia. Naturally, China is not going along with the sanctions and other demands from the US, as it sees that if Russia is weakened, China will be next on the chopping block.

    1. Canadian Canuck

      I love it how you came to the conclusion that “Bucha” was a desperately false flag attempt.
      Please do share your insightful intelligence with the readers here.
      While you are at it, how about EU and Biden made Putin do it.
      I am sure you have a convincing narrative for that too.
      I heard that many time how it’s society’s fault when a criminal murders some one in cold blood.

      1. Michael

        “I heard that many time how it’s society’s fault when a criminal murders some one in cold blood.”

        Perhaps you have evidence of “criminal murders some one in cold blood”. Referring to who?
        Vague at best.
        What is your conclusion about Bucha?

      2. caucus99percenter

        Getting all polemical against one’s fellow commenter without adding anything useful to the discussion oneself? That’s not the way things usually work around here.

      3. Altandmain

        Given that the US broke its word with Russia on not expanding NATO, the Russians clearly see this as a fight for survival. At the end of the Cold War, then Secretary of State James Baker told Gorbachev about NATO that “if we maintain a presence in a Germany that is a part of NATO, there would be no extension of NATO’s jurisdiction for forces of NATO 1 inch to the east.” Gorbachev would later claim that he had been lied to, whereas Baker denied this – either way – it looks like the US was trying to weasel its way out of breaking its word.

        If Ukraine enters NATO, the US will station nuclear weapons in Ukraine along the Russian border. ICBMs and SLBMs usually have a 30 minute launch window. Weapons launched from that close to Moscow would not have such a warming – only a few minutes. That’s also why the Russians don’t want nuclear weapons in the Baltics.

        During the Cold War, the US placed nuclear weapons in Turkey, which is close enough that the USSR retaliated by placing nuclear weapons in Cuba – hence the Cuban Missile Crisis.

        I do think that what’s happened is the West’s fault.


        As far as Bucha, I’m highly skeptical.


        During the Gulf War, there were exaggerations of Saddam’s military as well.


        Then there’s the 2003 invasion of Iraq, where officials lied about WMDs, as a justification to invade. Blindly believing the political establishment is not a good idea at all, given their history.

      4. juno mas

        CC, Bucha is not the “open net” goal you imagine. If the Internet was not being fractured by this conflict you would see more of the “false flag” attemtps by Ukraine to win the propaganda war , while losing the ground war.

        There is real concern that Bucha is nothing like what Zelensky hopes it is.

        1. Starry Gordon

          I have never experienced, or read about, a modern large-scale war without atrocity stories. Some of them are no doubt true — war being the overarching general atrocity — but I don’t think they are as effective as their promoters believe. It is easy to turn an atrocity story on its head and make out the victims to be the perpetrators and vice versa. If by chance someone finally gets arrested and put on trial, it’s years later, witnesses and evidence are dispersed, and everyone wants to forget about the war anyway. There is also a numbing effect as story is piled upon story by the propagandists and their rivals and competitors.

      5. KD

        The first hint might be the white armbands, which signify “friend” to Russia:


        Also, the ones missing white bands are conveniently found with their hands bound with white cloth.

        While the Yeltsin/Putin demonstration in Chechnya makes it pretty clear that the Russians have no principled objection to killing civilians, it seems kind of strange that they would be plugging pro-Russian Ukies. In addition to clear orders from the top to spare civilians and go lightly on civilian infrastructure if at all possible. Assuming some kind of break-down in military discipline, why plug the pro-Russian sympathizers?

        On the other hand, shooting pro-Russian Ukies seems pretty consistent with Azov Battalion’s governing philosophy, and pretending it is some kind of Russian war crime for PR to try and solidify international support for sanctions/condemnation of Russia seems awful convenient for the West. Unfortunately, relying on ultranationalists to do your dirty work means the omelette isn’t prepared by the sharpest knives in the drawer.

        However, one can never know these things, one can only consider the circumstantial evidence and the end question of who benefits? One cannot condone morally great powers insisting on other nation-states serving as buffers, nor can you condone other great powers setting up nation-states to fight their proxy wars in order to justify economic warfare and as an excuse to bleed their enemies. There are no clean hands in this conflict.

        1. digi_owl

          There is another risk. Not sure where i ran into it, but someone claimed that the people interviewed spoke in a way that could indicate them being of Jewish decent. Meaning that this could be a case of Azov et al making use of the fog of war to do a bit of ethnic cleansing.

          1. integer

            Well, Jewish Ukrainian Igor Kolomoisky (who I believe now lives in Tel Aviv) has been one of Azov’s principle funders, so the whole thing is clearly a bit more complicated than the simplistic “jews and neo-nazis hate each other” narrative would suggest.


            The unit received backing from Ukraine’s interior minister in 2014, as the government had recognised its own military was too weak to fight off the pro-Russian separatists and relied on paramilitary volunteer forces.

            These forces were privately funded by oligarchs – the most known being Igor Kolomoisky, an energy magnate billionaire and then-governor of the Dnipropetrovska region.

            In addition to Azov, Kolomoisky funded other volunteer battalions such as the Dnipro 1 and Dnipro 2, Aidar and Donbas units.

            Azov received early funding and assistance from another oligarch: Serhiy Taruta, the billionaire governor of Donetsk region.

            There are plenty more articles on this topic, the link I provided just happened to come up as one of the top results of the search I just did. Also, and I expect you are already aware of this, Kolomoisky was instrumental in getting Zelensky elected.

      6. Chris a

        There are many very interesting issues with Bucha and the narrative being force fed to us, not least the fact that the defense dept can’t confirm what happened, the timeline seems incompatible with the Russians did itit the Russians ask for UN involvement, denied by UK, and the dead all had white arm bands indicating they had received aid from Russia. There is more, Scott Ritter mentioned some of the video evidence contradicting the claims you make.

  8. orlbucfan

    You know, I am really sick and tied of being embarrassed and feeling shame simply cos I’m an informed American citizen. All war is wrong, and there are no winners. Having lived my whole life under the threat of thermonuclear war is no picnic, believe me. The day of reckoning is coming, if not already here as shown by worsening climate chaos. Thanks Michael and Yves for this read.

    1. Michael

      Well said!
      Being comfortably numb, consumer citizens will experience the reckoning over the coming years.

      In other news…

      “2,300 Ukrainians in Tijuana and the Number Is Climbing”

      Volunteers are registering Ukrainains when they arrive at the Tijuana airport, Fedoryshyn said. They are given QR codes with numbers showing their place in the line to get into the United States. Most then go to Benito Juárez, unless they want to go to a hotel instead.

      QR codes? more white privilege!

    1. hemeantwell

      Hudson’s article is generally very good. However, his divinity would be more secure if he would come up with a replacement for his neoliberal vs. socialist polarity, something that the recent discussions with Patrick Bond posted here have shown to be highly questionable re China. In what way is Russia socialist? If they adopt an MMTish approach to public finance and drop a neoliberal attitude to public expenditures, e.g. quit cutting pensions, they might escape the neoliberal category. Better than nothing, but not socialism.

      1. Kouros

        How you differentiate between the sanctity of “private property” and the ability of states to organize directly the means of production, which is described in the US as a fundamental sin.

        The dead TPP had, as a major element, the interdiction on member states of having economic intercourse with any SOE. It was a dagger at China’s heart: You either privatize (via wall St) or die!

        New NAFTA imposes restrictions on Mexico and Canada on their ability to enter in certain agreements with China, and the US approval is required.

        So yeah, the shorthand Michael Hudson is using is right on the mark.

        1. hemeantwell

          I don’t think you’re talking about socialism, but rather the relative dominance of US interests as opposed to some other country’s. Where is class in your analysis?

          A more accurate term would be “developmental state,” a term I ran into in criticism of the regime in Egypt, which has long abandoned the goal of organizing the development of that economy as part of a broad, or even sectoral plan and instead is simply a kleptocracy. The writer really missed Nasser.

          Putin deserves credit for reining in some of the oligarchs and redirecting some of the profit flows for use in the reestablishing a national economic base that was gutted in the 90s. That hardly makes him a socialist, more someone pursuing a nationalist project in an oligarchic society. When Hudson uses the term in the way I’m questioning, it’s as though he’s suddenly shifted register and is sliding into the sort of tagging that I associate with sectarian squabbles.

      2. GramSci

        I don’t think Hudson’s fundamental polarity is so much between neoliberalism and socialism as between rent-seeking and productive industry.

        Neither do I think that “socialism” is necessarily better than “capitalism”. There are many exemplars of each, and each has multiple, often irreconcilable, fantasy implementations.

        In my fantasy scenario of U.S. capitalism, nothing changes*, except there is an after-tax maximum wage of about $400k/yr. I prefer that to what’s on offer from the current crop of U.S. “socialists”.

        * Well, of course you have to treat unearned income like earned income and loopholes need closing, but the main thing is to outlaw plutocracy.

        1. Karl

          I like that fantasy ($400k/yr maximum income). Not in my lifetime, but maybe that of my kids. Let’s just index that to inflation; otherwise that won’t be so hard in nominal $, say by around 2040 the way things are going….

  9. Lex

    I don’t doubt that the general contours of the situation were all “part of the plan”, but Hudson looses me at the idea that it’s ever been an actual plan rather than a vague concept. Even the vague concept apparently revolves around best-case scenario projection that “sanctions from hell” would crush Russia in a matter of weeks.

    The EU being colonized by US financial capitalism (more than it already is) is fine, but doesn’t US financial capitalism have to supply the things Europeans need? Actual collapse of European countries isn’t going to maintain the primacy of US finance capitalism. It’s going to lead to right wing, populist revolution that splinters the EU. Once splintered, those nations will be difficult to maintain in the US sphere. Nobody can eat dollars.

    In terms of geo-political defeat of Russia, if this was the “plan”, it’s laughable. Why aren’t all of Europe’s gas storage facilities full? Why weren’t more developed? Shouldn’t the LNG infrastructure be further along? Why was no plan for replacing Russian heavy crude for distillation implemented before the supplies might dwindle? The ad hoc development and implementation of the sanctions also suggests there wasn’t a real plan. If I’m considering seizing Russia’s foreign currency reserves and almost entirely cutting it off from the western financial system, the imperative would be on predicting as many of Russia’s possible responses as possible in order to design counter-responses. What if Russia turns off the taps, can we keep Europe from economic collapse on the short and medium-term timeline and how will we do that? (even if the goal is beating the EU down, we still have to avoid full collapse) What other responses might Russia attempt? They could demand that their foreign debt be paid from the seized funds and we’ll need a plan to handle that. What if Russia starts demanding rubles, is that a realistic response that Russia can implement? Realistic or not, we should probably be ready with counter-counter-measures if they try it.

    These are not serious people. They’re ideologues who believe that an Ivy League degree is proof of intelligence. Pompous, ignorant and bombastic. They live in a fantasy world because they’ve come to believe in their own propaganda with a dash of American “optimism” which is really an irrational belief that everything will always work out ok because it always has before. Since none of them have ever been made to pay for the failures of all their other “plans”, they have no fear of either failure or consequences.

    1. Thomas

      What I generally find fascinating is how US-centric views can be. Everything is a US plan and about the US. If this is true, it is spectacular how well the Russians play along with this plan and how poorly thought through how negative the potential consequences in the EU might turn out for the US. Are there still multiple aspects playing into US interests? Of course.

      For all the failures to understand the European perspective and questions about “what is in it for the EU?”, even a superficial look at European history should reveal why invading and annexing neighbouring countries is kind of a taboo lately (yes, invasions on other continents or without annexation are less of a taboo) and why the prospect of ending up in a Russian empire or even in their declared sphere of interest is not exactly popular in large parts. So maybe nothing is “in it” for the EU economics- or power-wise, maybe it is just that viewing everything solely through an economic lens does not always give you the full picture.

      1. juno mas

        Well, it is through economics that the US projects much of its power. That is what Hudson’s “Super Imperialism” describes (among other things).

  10. The Rev Kev

    Trying to make sense of all this when I recalled a stated strategic aim of the US discussed over twenty years ago when they said that they will never allow a peer power to ever arise to challenge them. Well, the ground wars in Iraq and Afghanistan distracted Washington sufficiently to not see one but two near peer nations arise – Russia & China. And of course the potential power of a EU getting its act together and also becoming a peer power could not be ignored either. So perhaps the plan was to get Russia into a 20-year quagmire while using this to subordinate Europe to this aim via its corrupt leadership. So this way, Russia would soon implode, the EU would be financially crippled and in thrall to the US for resources and this would leave only one peer power to contend with – China. Well, Russia never got the memo about their part in this plan but the European part is working wonderfully. Just so long as you do not have a whole series of governments fall in the EU, one after the other, in the coming years. Hungary and Serbia may just be the start.

    1. Michael

      Failure of imagination?
      Failure of intelligence?

      Imagine if this had turned out to be the RF’s 911.
      That it didn’t speaks to the seriousness of the RF POV.

      Some chatter says Ukr was weeks away from initiating all out war in Donbass with US “aid”.

    2. RobertC

      TRK — I think you will like this 2019 Rand report Russia Is a Rogue, Not a Peer; China Is a Peer, Not a Rogue Different Challenges, Different Responses

      Key Findings

      + China presents a greater geoeconomic challenge to the United States than Russia does

      – China’s per capita GDP approaches Russia’s; its population is eight times Russia’s, and its growth rate three times.
      – As of 2017, China’s economy was the second largest in the world, behind only that of the United States. Russia’s was 11th.
      – Russia’s military expenditure is lower than China’s, and that gap is likely to grow.
      – Russia is far smaller, has poorer economic prospects, and is less likely to dramatically increase its military power in the long term.

      + Russia is a more immediate and more proximate military threat to U.S. national security than China is but can be countered

      – Russia will probably remain militarily superior to all its immediate neighbors other than China.
      – Russia is vulnerable to a range of nonmilitary deterrents, such as sanctions on the Russian economy and limiting Russian income from exports of fossil fuels; multilateral efforts would be more effective than U.S.-only operations, however.

      + China presents a regional military challenge and a global economic one

      – Militarily, China can be contained for a while longer; economically, it has already broken free of regional constraints.
      – Russia backs far-right and far-left political movements with a view to disrupting the politics of adversarial societies and, if possible, installing friendlier regimes. China, in contrast, seems basically indifferent to the types of government of the states with which it interacts, increasing its attractiveness as an economic partner.


      + In the security sphere, the United States should continue to hold the line in east and southeast Asia, accepting the larger costs and risks involved in counterbalancing growing Chinese military capabilities. Meanwhile, Washington should help its regional allies and partners to field their own antiaccess and area denial systems. Finally, the United States should take advantage of any opportunities to resolve issues and remove points of Sino-American tension, recognizing that its bargaining position will gradually deteriorate over time.
      + In the economic realm, the United States needs to compete more effectively in foreign markets, persevere and strengthen international norms for trade and investment, and incentivize China to operate within those norms. Given China’s efforts to take technological leadership in the long term and the potential advantages that such leadership brings, the United States also needs to improve its innovation environment. Measures could include greater funding for research, retention of U.S.-educated foreign scientists and technologists, and regulatory reforms that ease the introduction of product and process improvements into businesses and the market.
      + In responding to China’s Belt and Road Initiative, the United States should move to secure its own preferential access to the world’s largest markets, the industrialized countries of Europe and Asia; assist nations in increasing connectivity with the world economy; work with partners to ensure more transparency in China’s Belt and Road projects; and increase support to U.S. exporters and investors.
      + In all these challenges, the United States will be more successful coordinating action with allies and trading partners.

      1. juno mas

        Ukraine conflict was initiated for immediate security concerns: Russia anticipated a serious military operation by the UFA in the east. After years of both actual and perceived provocation. Being a smart-ass on the street can get you a bloody nose—don’t sass the Bear. Right?

        All that stuff that the Rand Corp contemplates has been shown to be “American exceptionalism”.

        The next few years will bear that out.

      2. Karl

        “In responding to China’s Belt and Road Initiative, the United States should move to secure its own preferential access to the world’s largest markets, the industrialized countries of Europe…”

        Ukraine war seems to be playing out as a way to accomplish that for the U.S., yes?

        Whether the U.S. is actually planning this (and has the ability to carry it out), or not, the question is: will the U.S. be better off? Will it succeed? I think the abundance of evidence from past U.S. “Marches of Folly” is that it won’t.

        Whether the EU continues with the Euro or adopts the dollar (as Michael suggests may eventually happen), the U.S. will have to continue to bleed dollars to keep the EU afloat, IMHO. And will Europe really want dollars if the U.S. can just freeze/confiscate them at any time?

    3. hemeantwell

      The distinction between “aim” and “plan” is useful here, because it sets up an awareness of how the polyglot US system may be united around the aim of supremacy Rev Kev describes while it’s various branches pursue plans that are not well-synchronized. Several days ago Yves brought out that reportedly the sanctions regime was devised by factions (State Department, Treasury?) that did not consult with the Fed. If true, it’s a great example of the kind of interorganizational dissonance that seems to be particularly strong during periods of strategic tension and uncertainty. I may be wrong, but to me there’s a strong whiff of desperation about this, the playing of a card from a wobbly hand.

      I’m reading Carolyn Eisenhorn’s Drawing the Line: America’s Decision to Divide Germany, 1944-1949. It’s not only tremendously helpful re the development of the Cold War, the opportunities lost, but it helps attune you to the complexity of organizational competition in the making of foreign policy, particularly how groups ‘win’ by creating fait accomplis that make their plan the only one that can be pursued. If it is true that NATO was encouraging an invasion of the Donbass, that could represent a faction’s attempt to resolve matters in its favor, trying to force others to fall in line. Given the level of risk and the strong possibility of a mixed or unhappy outcome, it’s likely we’ll be hearing from the losers soon.

      1. Karl

        Very interesting! It would seem that the Pentagon has, within it, one faction that’s going against the grain, e.g. trying to cool some of the inflammatory rhetoric coming out of the White House. Latest example: reports (counter to the Biden narrative) that DOD can’t independently confirm that the “war crimes” were carried out by Russian troops. If so, which faction is the adult in the room? JCS? Sec. of DOD Austin?

        This thesis, of many contending factions, explains a lot, I think. Without a coherent policy or plan at the top, and being mostly reactive to daily events, the resulting vacuum is filled by various contending factions. The result is more incoherence.

        Such factionalism can be a source of strength (e.g. creativity) in peace time but in a crisis can be dangerous. A big worry for me is that Biden, increasingly, doesn’t seem to be up to the job.

  11. OIFVet

    Clare Daly, Irish MEP, is one of the few voices of reason in the Euro parliament:

    The EU economic war against Russia does nothing to help innocent Ukrainian citizens, victims of this illegal war. Russia is undeterred, while EU citizens face disastrous inflation, rocketing energy costs, and a historic decline in living standards. This is madness…

    Also, Her reply to a Bulgarian MEP is just as as good I hope that as the economic pain hits the EU citizenry, voices like hers will overcome the US comparators in the EU.

  12. Michael Fiorillo

    Much respect for Michael Hudson, but in what sense is this war extending the conflict between neoliberalism and socialism, as he states near the end of the article? Both Russia and China may have powerful state involvement in banking, investment and industry, but that alone doesn’t make them Socialist. Russia in particular can in no accurate way be called a socialist country.

    Isn’t this much more about resources (energy in particular), great powers and their spheres of influence?

    1. Alex Cox

      I think Michael Hudson uses the word “socialism” to apply to China because there the government effectively controls the corporations/dominates the oligarchy. Whereas in the West the corporations & the oligarchy run the government. Hudson calls the latter situation “neoliberalism”, though Mussolini had a different word for it.

      In the case of Russia, weren’t Yeltsin, Putin, Medvedev and their colleagues neoliberals, or at least fans of neoliberalism, in the 1990s and for a while thereafter? That seems to be changing now, but whether a Russian autarky will be “socialist” remains to be seen.

      In England, in the 1960s, we had a “socialist” government and much of what is now privately owned was in state hands: the airlines, the railways, Austin/Morris and other car companies, water and power. The state ran those enterprises pretty efficiently – private enterprise having failed to do so – at least until Thatcher and her successors came along.

      1. Bruno

        “I think Michael Hudson uses the word “socialism” to apply to China because there the government effectively controls the corporations/dominates the oligarchy. Whereas in the West the corporations & the oligarchy run the government.”

        That is indeed the situation. But neither label “socialism” or “neoliberalism” in any way corresponds to reality. In China, where “the government [that is, the nomenklatura] effectively controls the corporations/dominates the oligarchy” what you have is not “socialism” but monopolistic state-capitalism. And in the USA, where “corporations & the oligarchy run the government” what you have is not any variety of “liberalism” but statified monopolistic-capitalism. Between the two frenemy systems there is a deep-seated imperial (or, if you’re fond of that anachronistic term, imperialist) rivalry.

      2. Bruno

        “I think Michael Hudson uses the word “socialism” to apply to China because there the government effectively controls the corporations/dominates the oligarchy. Whereas in the West the corporations & the oligarchy run the government.”
        That is indeed the situation. But neither label “socialism” or “neoliberalism” in any way corresponds to reality. In China, where “the government [that is, the nomenklatura] effectively controls the corporations/dominates the oligarchy” what you have is not “socialism” but monopolistic state-capitalism. And in the USA, where “corporations & the oligarchy run the government” what you have is not any variety of “liberalism” but statified monopolistic-capitalism. Between the two frenemy systems there is a deep-seated imperial (or, if you’re fond of that anachronistic term, imperialist) rivalry.

    2. Polar Socialist

      While not necessarily socialist, Russia has since the time of Peter the Great kept the strategic industries* in tight government control. Some of them were privatized in the 90’s, but by now almost all have been incorporated back into government controlled entities.

      For example Ilyushin, Irkut, Mikoyan, Sukhoi, Tupolev and Yakovlev were all pushed into United Aircraft Corporation, while all aviation and space engine companies operate under United Engine Cosporation. Both are owned by Rostec, which is owned by the state.

      * necessary for the state to be able to mobilize for war at any given time due to there being no natural, defensible borders for Russia.

  13. digi_owl

    It starts to look like USA want to try to recreate the post-WW2 debt situation that held sway over (western) Europe until at least the Vietnam war.

  14. Anthony G Stegman

    To clarify minds in the United States there will need to be nuclear war to reset the playing field globally. In the New Stone Age global hegemons will not exist.

  15. orlbucfan

    Never under-estimate the arrogant, aggressive stupidity of the American “elites.” Fascinating, intelligent comment thread. Many thanks!

  16. Steve B

    Question still remains about the crisis: ‘What’s in it for the EU?’ Hudson has claimed in previous articles that EU leadership receives bribes from US. I wouldn’t be surprised, but Hudson offers no evidence to back up his assertion. More probable explanation is ideological capture of European elites through US leadership programmes like Fulbright.

    Bigger question: “What’s in it for ordinary Europeans?” Answer seems to be nothing tangible. Probable result of food and fuel shortages will be EU legitimation crisis and increased national populism. Marine Le Pen in the upcoming French election is the bellwether: she has promised to pull France out of NATO. Would this lead to Frexit? Could the EU itself be a casualty of the crisis, if prolonged?

    1. Anthony G Stegman

      It is in the US interests for the EU to crumble. It would then be much easier for the US to exploit each nation individually. A united Europe is a stronger Europe. The US wants a weak Europe.

    2. Starry Gordon

      One of the conclusions I would think Europeans would draw from current events is that the US, once thought to be omnipotent, cannot or will not protect its allies. That would lead to the belief that Europe had better think of some way of protecting itself independent of the US. That in turn could be expected to lead to either the breakup of NATO or a new version of it not dominated by the US.

      I don’t see much consideration here of the domestic American response to the war and the sanctions. Only a few months ago media were full of predictions of civil war in the US, which seems to indicate some perception of very serious conflicts within the society that might as well be exacerbated by war, rather than necessarily bringing about solidarity and coherence, especially if it continued over a long period. Someone once said that there was no people so willing to go to war, and so unwilling to fight it — something borne out by American public opinions of military adventures in Korea, Vietnam, Iraq, Afghanistan, and elsewhere.

      1. Tom Doak

        Do you mean “protect” militarily or economically?

        I think a lot of Europe was in on the ruse that Ukraine was not a real ally but a buffer zone between them and Russia. I can’t imagine they really expected the US Air Force to come in blazing.

        However, I do think a lot of European leaders will soon wake up to the fact that our sanctions against Russia also impose a terrible toll on Europe. What they need is not an independent NATO, but an actual EU government. But none of them actually want that, either.

        1. Starry Gordon

          The Ukrainians (or at least their leadership, or whoever was running their leaders) seemed to think so. I suspect the game was similar to that played on the Georgians. Obviously the leaders of a small country like Georgia would not have attacked Russia unless they thought the US was going to back them up somehow, which it did not. This plan requires the belief that the United States is omnipotent and can scare even the Russians if it chooses to. Some of Mr. Zelenskyy’s remarks seemed to indicate that he expected far more help than he got.

          An actual government, in the present world, requires the ability to use force, so, the EU must have a military side not dominated by the US or it will remain a colony and suffer the consequences.

  17. Anthony G Stegman

    I’ve often wondered why countries such as Russia and China hold so much of their foreign currency reserves in Dollars, Euros, and Pounds when they can lose it all via sanctions. Are they so naive to think that the US and Europe will play nice with them? How will Russia ever replace the hundreds of billions of dollars that are now gone and never to be recovered? From what I understand China has more than a $1 trillion dollars at risk of sanctions. That too may well be gone and never recovered.

  18. Mikel

    Everyone is having a hard time making sense of how the EU/USA/UK is planning. Lots of comments pointing to economics that don’t add up.
    Well, this all has to do with deep cultural hatreds. And this is not simply along the communism/socialism/capitalism lines because all the parties involved are deep into neoliberalism – China and Russia included. More than any of the players care to admit, their hair is on fire about cultural changes in the world.

    1. Susan the other

      Imo, the end game for global neoliberal financialization is a huge global depression over many decades as the entire world is forced, because of limited resources and global warming, to restrict their economies and impose strict rations. And… the end game for national industrial socialism is… the same thing. Neoliberals are far more cutthroat however. They are willing to go to war for all their grift and graft even if it is temporary. They are willing to loot pensions and deny health care as if it were not criminal behavior. There is never a discussion on the goal. I think that’s because freedom loving neoliberals want to be “free” to be self-serving opportunists, and control-freak industrial socialists don’t want to lose control of large angry populations. But the End is the same for all of us. We have to evolve socially to adapt to the environment that sustains us. And that is where the discussion should start. It’s more like China and Russia want to share the wealth, but we Westerners don’t wanna share, and at this crossroads we begin to look like national socialists while Russia and China look more like globalists.

  19. Revenant

    A very cynical thought of what’s in it for Europe: perhaps Spain gets Morocco (with bonus Western Sahara), France Algeria and Italy Libya? Gas, gas and gas and oil respectively, plus lots of solar in development (for example, the crazy scheme for a GW solar park in southernmost Morocco to supply UK by dedicated cable landing hereabouts in Devon). Europe’s productive agriculture sector gets high prices. France’s African colonies get mine projects (uranium, rare earths). Absent Russia, there is a new scramble for Africa.

    But I am really not convinced the thinking is this cool and thorough. It seems to be Russia, Russia, Russia….

  20. Newport

    Maybe the Russian attack on Ukraine is viewed by many countries in Europe as an existential threat to them all. That threat trumps, with a small T, arguments over US hegemony and NATO. Putin has accomplished what many never thought we would see in our lifetimes – French and German agreement on anything substantial, in particular NATO spending, arming the Ukrainians and strong sanctions on Russia.

    “The Western sanctions war with Russia will not change the outcome of the conflict in Ukraine. Russia will prevail…” – I think that hope that you are not correct. If this does come to pass, we will all suffer greatly. Europe will be a mess and China will likely invade Taiwan :((.

    1. NotTimothyGeithner

      The outcome of the war was decided by day 5 at the latest. At that point, the Ukrainians had the bulk of their army deployed in the Donbass, could no longer resupply them, and couldn’t bring up forces. The Russians had artillery not just planes on the roads necessary to cross the Dnieper if not the bridges themselves. Even the wildest fantasies of a NATO imposed No fly zone meant bringing up planes from all over the globe. Heroism and freedom gobbledigook don’t work against artillery.

      The Russians largely turned to moving on the Azov heavy units and Maripuol (sp?) while rumored 60,000 Ukrainian troops just sit surrounded without a way to get out. With cleanups of other areas, the Russians appear to have brought forces down to the cauldron.

      The Europeans know Russia isn’t an existential threat. They know exactly where the combat is. And every military knows this.

  21. mark bowllan

    Currently re-reading Michael Hudson’s 1979 (with a more recent update) “Global Fracture”. Alot of very relevant and timely information in there.

  22. RobertC

    Too too funny — what a zinger:

    Despite China’s helpful role in enabling corporate America to drive down labor’s wage rates by de-industrializing the U.S. economy to China’s benefit, the latter’s growth was recognized as posing the Ultimate Terror: prosperity through socialism.

    It perfectly captures the “Who me?” blame-free perspective of the financialization of the US economy and government.

    There is no turning this financialization into industrialization.

    A few days ago Gail Tverberg argued No One Will Win in the Russia-Ukraine Conflict

    I concurred: there will only be survivors and losers.

    Those nations proactively preparing for our civilization’s nemesis, rapid climate change, will be the survivors.

    A map is always helpful Eurasian Economic Union

  23. flora

    Thanks again for a Michael Hudson always on point post.

    Europe and the “solidarity of Europe” is always a fraught question. See Greece v (for example) Hungary. See the West’s suggesting Germany and France should seriously and heavily re-arm. (Wasn’t that the source of much of the early 20th C problems?)

    Thanks again for this Hudson report.

    1. caucus99percenter

      E.U.-superstate ideologues think they can force the “solidarity of Europe” idea upon national publics top-down. No wonder it fails; like most things that stay top-of-mind only as long as they are supported by marketing and propaganda, it’s an illusion.

      My view is that “solidarity of Europe” will only be a reality when it develops organically, from the bottom up — based on national publics’ actual lived experience of its benefits, not just politicians’ happy talk, or corporate ad campaigns featuring feelgood diversity imagery.

  24. Dave in Austin

    Day 34. General Milley says it will be “a long slow grind”.

    Please remember day 34 of:

  25. Sound of the Suburbs

    The Euro had neoliberalism built in, and can help us see some of the problems.

    The Euro was designed in the good old days before the problems of neoliberalism had come home to roost.
    They got the real fanatics in from the University of Chicago.
    “The putative “father of the Euro”, economist Robert Mundell is reported to have explained to one of his university of Chicago students, Greg Palast: “the Euro is the easy way in which Congresses and Parliaments can be stripped of all power over monetary and fiscal policy. Bothersome democracy is removed from the economic system” Michael Hudson “Killing the Host”
    This was one of those all important design criteria for neoliberal fanatics.
    Everything would be controlled by perfect markets.
    Governments and the electorate were the only things they really had to worry about.

    Everyone cheered as periphery economies boomed on borrowed money, e.g. the Irish Celtic Tiger economy.
    No one realised Wall Street was flooding the world with toxic assets.
    It’s nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world” All the Presidents Bankers, Nomi Prins.
    The periphery nations boomed on money borrowed mainly from the banks at the core.
    The big European banks loaded up on Wall Street’s toxic assets.

    The Titanic was heading straight for the iceberg.
    The neoliberal designers of the Euro-zone had expected perfect markets to ensure none of these things happened.
    Nations didn’t have their own central banks to backstop national financial systems when a financial crisis hit as this wasn’t seen as necessary.
    The Titanic hit the iceberg and there weren’t enough life boats.

    The markets hadn’t batted an eyelid while all this was happening, and they got no signals from the markets that anything was going wrong.
    Market participants are really hot on public debt, though.
    Once Governments had patched up their banks as best they could, and suffered from falling tax receipts after the crisis, Government debt ballooned.
    The markets reacted, and drove bond yields up at the periphery making things worse.
    Market forces were intent on destroying the Euro-zone.
    It looked as though the Euro project was doomed until Mario stepped in to save the day.

    TBTF only works for big banks when nations have their own central banks to backstop the financial system.
    In 2008, the Euro-zone discovered their banks were too big to bail as the usual mechanisms to do this had not been incorporated into the design of the Euro-zone.
    Governments could not get the money from their own central bank to backstop the financial system.
    Neoliberals used to believe in everything being controlled by perfect markets, and so they didn’t need to worry about financial crises as they would never happen.
    Neoliberals hate Government spending, and never realised a day would come when Governments had to spend to bail out the financial system, but it did, and they couldn’t.

    European Governments didn’t realise what they were giving away with the Euro.
    Nations don’t have their own central banks who can monetise Government debt.
    In the UK, we could monetise Government debt to fund the fiscal stimulus necessary when Covid struck, they couldn’t do that in Europe.

  26. LawnDart

    Russian Ruble per US Dollar:

    22nd of February: 78

    1st of March: 105

    8th of March: 144

    15th of March: 99

    22nd of March: 98

    Now: 78

    EDIT.. and now: 75 — higher value than pre-invasion.


  27. djrichard

    At least in the case of Puerto Rico, while it doesn’t have its own sovereign currency, it does get fund transfers from the US Fed Gov. Something other countries can’t get when they adopt the US currency. So other countries that are on the US currency operate fiscally just like any other state of the US except without benefitting from any Fed Gov largess. Just like “states” within the eurozone for that matter.

    Regarding balance of payments with the US, I suppose eurozone could make up the difference by becoming yet another safe harbor for off-shore trusts. I think there are pockets within the eurozone already, aren’t there? Just put some more juice to that to create demand and voila, balance of payments ;-).

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