Pax Americana

Date: 9/29/2022
Author: Mr. X

It wasn’t long ago that it was taken for granted that the United States was seen as having passed its peak.

The pandemic was the ultimate indication. China model of controlling the pandemic was supposedly the model, Europe was moving farther way from the United States, and Russia was expanding its influence over Central Asian countries in what some theorists were calling a new Eurasian Empire. Just before Russia’s invasion of Ukraine, Russia and China were boasting that their partnership had “no limits.”

“The death of the American Empire has been greatly exaggerated.”

Today it’s the United States that looks relatively stronger compared to every other power bloc in the world. In the wake of the destruction of the Nord Stream 2 pipeline, Europe is more dependent than ever on American natural gas. Cheniere Energy, Inc. (LNG), part of the Rogue Investing Daily Model Portfolio, was up about 6% yesterday.

Europe is diplomatically divided. France, Belgium, and more than a dozen other nations want to cap natural gas prices… but on the other side of that divide is Germany, the undisputed powerhouse of the European economy. Well, at least until recently. The IPO survey of business confidence, the most important German survey of business confidence, is now down to its lowest level since to the 2007-2008 financial crisis. A recession looks practically inevitable.

It’s not just economically where Europe is divided. Politically, it’s unclear whether the EU can promote a united front against Russia or towards anyone else. The most stalwart champion of collective European defense of Ukraine is Poland, but Brussels is deeply suspicious of the conservative Polish government, which it accuses of violating the rule of law. Viktor Orban’s Hungary and the EU, of course, are practically in a cold war, especially because the former won’t toe the line on sanctions on Russia. Now, Italy may be breaking from the Brussels consensus, with the national conservative and “post-fascist” Brothers of Italy party winning a strong victory.

Meloni has successfully taken her party from the fringes to power

Ironically, it’s probably not the Brothers of Italy party which really worries the EU, as leader (and first future female Italian Prime Minister Giorgia Meloni) has been a strong supporter of Ukraine and the anti-Russian line. However, her partners in the coalition government, Matteo Salvini’s Lega and Silvio Berlusconi’s Forza Italia, have taken a notably soft stand on Vladimir Putin in the past. The key here will probably be economics. If Italy starts to plunge into recession, there will be considerable pressure from within the right-wing coalition to ease Italy’s domestic troubles by backing down on sanctions with Russia.

Incidentally, even as this is written, thousands of people are protesting in Prague, demanding that Czechia secure cheap energy with Russia and break from the EU consensus. Indeed, we can expect practically any populist movement in Europe this winter to make a soft-alignment with Russian interests. As the war drags on, Europeans’ determination to show solidarity with Ukraine will be pitted against their own declining economies.

Nontheless, the ruling class will probably triumph. First, Ukraine is giving the West enough hope that it can win the war outright. The United States announced today that it was sending another $1.1 billion in aid to Ukraine, including more of the HIMARS rocket systems that have proven so devastating against Russian forces. The HIMARS arguably changed the course of the war, essentially putting Russia on the defensive since they entered the theater.

Move Fast. Keep Winning.

Russia has trumped quality with quantity by using the Shahed-136 drones from Iranian, which are relatively cheap to produce. They have taught the Ukrainians to fear their own skies again, notably in Odesa, which is probably the most plausible “reach” objective for the Russian army if it can ever retake the offensive. However, included in American aid are new anti-aircraft defense systems, including the National Advanced Surface-to-Air Missile System (NASMAS), the first of which has already been received by Ukraine. More are on the way. “We absolutely need the United States to show leadership and give Ukraine the air defense systems,” said President Volodymyr Zelenskyy in a recent speech. “I want to thank President Biden for a positive decision that has already been made.” Besides, not coincidentally, the Iranian government is suddenly facing protests at home. Quelle surprise.

Second, the opposition to more aid is weaker than it looks. Since the Biden Administration took office, about $17 billion in American aid has been sent to Ukraine. To put that in perspective, the entire Russian military budget in 2021 was about $66 billion. Other nations, notably Germany, Poland, and the Baltics, are also donating money and equipment to Ukraine. American intelligence is also reportedly working with Ukrainian forces.

If you were Russian, you might be pinning your hopes on America’s historic isolationism resurrecting. You’d be disappointed.

He’s having a hard time

The Democrats, far from facing a Red Wave, are virtually assured to hold onto the Senate and enjoy friendly media coverage. I’m sticking with my prediction that the GOP reclaims the House, though it won’t be by much. Besides, while there are some within the Republican Party who want to cut back on aid to Ukraine, one of the main GOP charges against President Joe Biden is that he isn’t doing enough. In response to President Vladimir Putin’s decision to grant Edward Snowden Russian citizenship, Republican senator Lindsey Graham of South Carolina said: “I believe that now, more than ever, Putin’s days are numbered.” The real choice between American politics is between President Biden’s proxy war against Russia and a more overt war of regime change.

What about in Europe? It will be easy to pin ordinary people’s grievances’ about the cost-of-living and high energy costs on “Russian propaganda.” Look for more crackdowns on social media in the name of national security.

Does the American Empire face obstacles outside Europe? Not really. 

The United Kingdom, now done grieving the Queen, faces the reign of Charles III with serious problems. The International Monetary Fund said that the Conservative British government’s program of aggressive tax cuts will likely increase inequality and will be counterproductive to fighting inflation. “Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy,” said a spokesman. It’s a remarkable sight to see the IMF lecturing the United Kingdom like it is an inflationary basketcase from the Third World.

China’s economy is in serious trouble. According to Capital Economics out of London: “The financial world’s focus on a generational surge in inflation in advanced economies is stealing attention from a generational slowdown in China that is arguably of much greater importance for the long-term global outlook.” The World Bank slashed estimates for growth in East Asia as a whole, and projected economic growth for 2022 in China to 3.2%. That’s well-short of the Communist Party’s promises. America is flexing here too, with Vice President Kamala Harris visiting Taiwan to promise direct support and blasting China’ s “disturbing” actions, presumably including recent Chinese attempts to test Taiwan’s air defenses.

Turkey has its own regional ambitions, but the United States recently brought it to heel as well. Three Turkish banks that were still working with the Russian Mir payments system have pulled out of Russia. The Russian government said this was entirely due to American pressure. While Turkey can enjoy a boost in regional influence by waging its own proxy war against Armenia through its ally Azerbaijan, Ankara is facing domestic economic turmoil. Inflation is now at 80%, and, remarkably, the central banks is still cutting interest rates.

That leaves Russia itself. Hundreds of thousands of people have reportedly fled the country, especially to Kazakhstan, to avoid being swept up in the “partial mobilization.” Ukrainian forces are nearing a second devasting victory in the northeastern theater, with even pro-Russian social media accounts saying that things look grim for their forces in the key railroad juncture of Lyman. President Putin’s annexation of four Ukrainian territories – Donetsk, Luhansk, Kherson, and Zaporizhzhia – rings hollow since the government doesn’t have anything close to total control of those regions. It doesn’t even have total country of Russia – attacks on recruitment offices, including arsons and at least one shooting are dominating headlines.

Yet Russia can’t back down. It wouldn’t just mean the end of Vladimir Putin’s government; it would likely mean the end of Russia. The American government is being increasingly bold about discussing the breakup of the Russian Federation under the ideological guise of “decolonization,” and we can expect there is major American pressure being brought to bear on Russia’s Islamic population, notably in Dagestan. If Russia’s 300,000 new troops aren’t enough to secure the new region, President Vladimir Putin may literally be reduced to a Stalinesque move towards total mobilization, something that the regime may not be able to enforce and that the population won’t tolerate.

Meanwhile, the American dollar has just hit a 20-year high. (Two bullish dollar plays, USDU and UUP, are in the RID Model Portfolio.) The American military has successfully recovered from the humiliation of Afghanistan, pivoting towards competition with China and cutting the People’s Republic off from semiconductors and other critical technology. Russia looks barely able to project power in its near abroad. And while there are divisions within the European Union, Eastern Europe, Western Europe, and the United Kingdom are all firmly subordinated to American leadership.

President Joe Biden may occasionally get lost on stage or mutter a non sequitur, but he and his staff have taken advantage of Russia and China’s mistakes to skillfully – some would say ruthlessly – preserve America’s political, military, and financial leadership. And the biggest victims are arguably the two allies that are going along with it every step of the way – the United Kingdom and the European Union.

4-D Chessmaster?

“Dark Brandon” indeed.

Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for to bring you news on what those with power are debating, planning, and doing.

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