By Arnaud Bertrand, Tablet, 5/24/22

Arnaud Bertrand is an entrepreneur and commentator on economics and geopolitics. He founded HouseTrip and Me & Qi.

Remember the claims that Russia’s economy was more or less irrelevant, merely the equivalent of a small, not very impressive European country? “Putin, who has an economy the size of Italy,” Sen. Lindsey Graham, R-S.C., said in 2014 after the invasion of Crimea, “[is] playing a poker game with a pair of twos and winning.” Of increasing Russian diplomatic and geopolitical influence in Europe, the Middle East, and East Asia, The Economist asked in 2019, “How did a country with an economy the size of Spain … achieve all this?”

Seldom has the West so grossly misjudged an economy’s global significance. French economist Jacques Sapir, a renowned specialist of the Russian economy who teaches at the Moscow and Paris schools of economics, explained recently that the war in Ukraine has “made us realize that the Russian economy is considerably more important than what we thought.” For Sapir, one big reason for this miscalculation is exchange rates. If you compare Russia’s gross domestic product (GDP) by simply converting it from rubles into U.S. dollars, you indeed get an economy the size of Spain’s. But such a comparison makes no sense without adjusting for purchasing power parity (PPP), which accounts for productivity and standards of living, and thus per capita welfare and resource use. Indeed, PPP is the measure favored by most international institutions, from the IMF to the OECD. And when you measure Russia’s GDP based on PPP, it’s clear that Russia’s economy is actually more like the size of Germany’s, about $4.4 trillion for Russia versus $4.6 trillion for Germany. From the size of a small and somewhat ailing European economy to the biggest economy in Europe and one of the largest in the world—not a negligible difference.

Sapir also encourages us to ask, “What is the share of the service sector versus the share of the commodities and industrial sector?” To him, the service sector today is grossly overvalued compared with the industrial sector and commodities like oil, gas, copper, and agricultural products. If we reduce the proportional importance of services in the global economy, Sapir says that “Russia’s economy is vastly larger than that of Germany and represents probably 5% or 6% of the world economy,” more like Japan than Spain.

This makes intuitive sense. When push comes to shove, we know there is more value in providing people with the things they really need to survive like food and energy than there is in intangible things like entertainment or financial services. When a company like Netflix has a price-earnings ratio three times higher than that of Nestlé, the world’s largest food company, it’s more likely than not a reflection of market froth than of physical reality. Netflix is a great service, but as long as an estimated 800 million people in the world remain undernourished, Nestlé is still going to provide more value.

All of which is to say that the current crisis in Ukraine has helpfully clarified how much we’ve taken for granted the “antiquated” side of modern economies like industry and commodities—prices for which have surged this year—and perhaps overvalued services and “tech,” whose value has recently crashed.

The size and importance of Russia’s economy is further distorted by ignoring global trade flows, in which Sapir estimates that Russia “may account for maybe as much as 15%.” While Russia is not the largest producer of oil in the world, for example, it has been the largest exporter of it, ahead even of Saudi Arabia. The same is true for many other essential products such as wheat—the world’s most important food crop, with Russia controlling about 19.5% of global exports—nickel (20.4%), semi-finished iron (18.8%), platinum (16.6%), and frozen fishes (11.2%).

Such commanding importance in the production of so many essential commodities means that Russia, like few other countries on the planet, is in many respects a linchpin of the globalized production chain. Unlike “maximum sanctions” on a country like Iran or Venezuela, attempting to cut the Russian link has meant and will likely continue to mean a dramatic reorganization of the global economy.

Now that President Joe Biden has publicly renounced America’s decades-old policy of “strategic ambiguity” with regard to Taiwan, it’s worth thinking about what China’s economy looks like when we remove the same blinkers with which we’d always viewed Russia. If we consider the Chinese economy based on exchange rates—by simply converting China’s GDP from Chinese yuan to U.S. dollars—it is valued at about $17.7 trillion (as of 2021), compared to $23 trillion for the United States and $17 trillion for the European Union.

But if we adjust for PPP, we see that the Chinese economy reached almost $27.21 trillion in 2021, compared with $20.5 trillion for the EU and $23 trillion for the United States. In terms of PPP, in fact, China’s economy overtook America’s back as much as six years ago.

And what if we reduce the proportional importance of the service sector relative to industry and commodities? Services account for approximately 53.3% of China’s GDP, even less than in Russia (56.7%). If we roughly apply Sapir’s ratio of doubling the valuation of the nonservice sector to China, we may have to consider that in a very real and relevant way, the Chinese economy accounts for something like 25%-30% of the global economy on a PPP basis, rather than the current estimates of 18%-19%. That would put the combined Chinese and Russian economies at about 30%-35% of the global economy (again, adjusting for PPP and the overvaluation of the service sector)—a behemoth and likely unsustainable challenge for a trans-Atlantic community that looks increasingly focused on using maximalist economic sanctions to punish bad actors and achieve desired policy outcomes. That challenge becomes even more daunting when we consider that the service sector accounts for roughly 77% of the U.S. economy and 70% of the EU’s—suggesting a potentially significant degree of overvaluation in Western economic heft, and far more parity in relative economic power with China and Russia.

How much does any of this hairsplitting matter? For one, the war in Ukraine and tensions in the Pacific look to be accelerating a division of the world into Cold War-like political and economic blocs. But whereas the West accounted for over 50% of global GDP at the beginning of the Cold War—with the United States dominating global manufacturing and running huge annual trade surpluses—the West looks to be in a weaker if more entrenched position of power today, and its major adversaries stronger in certain ways than the communist bloc was in 1948.

Before we enthusiastically embrace a new Iron Curtain, therefore, it’s worth pausing to consider how many countries in the world will voluntarily place themselves on our side. The countries of what we consider “the West” will—for ideological and historical reasons, in addition to economic and military enmeshment—undoubtedly remain relatively united. But the West only accounts for about 13% of the world’s population, with China and Russia together making up about 20%. That leaves about two-thirds of humanity “nonaligned,” a position that most of them would like to maintain. If we force them to choose a side, we may be surprised by many of the results.

A tally of the countries participating in current sanctions on Russia, in fact, makes it hard to say whether a new Iron Curtain is being drawn around our adversaries or around the West itself. Countries and nominal U.S. allies as significant as India and Saudi Arabia have been particularly vocal in their refusal to take sides in the conflict in Ukraine.

One telling barometer for this dynamic is oil. With Western oil sanctions on the world’s largest oil exporter, prices have predictably skyrocketed, rising from around $75 a barrel at the beginning of the year up to over $110 today. But countries that have refused to participate in sanctions are now taking advantage of the opportunity to negotiate for Russian energy deliveries at steep discounts. If Russia is still able to sell oil around the world, countries like India are able to negotiate for below-market prices, and Western consumers are being hammered with inflated prices, who is really being sanctioned? A similar principle applies to the weaponization of the U.S. dollar and the Western financial system in general: If non-Western countries are increasingly told that access to dollars and transaction systems like SWIFT are conditional on policies made in Washington that may not necessarily be in their own self-interest, the result may be a de-dollarization of the global economy, not a strengthening of the Western order.

None of this is to say that the brutal invasion of Ukraine has been anything less than an atrocity, and that extraordinary measures may indeed be called for in order to counter Russian expansionism and its implications for global peace and stability. But it’s possible that the West, in a fit of self-righteousness and a need to satisfy various domestic demands, may be diving headlong into a future in which the global South and many others besides feel increasingly pressured to make a choice they don’t want to have to make, and which may leave the West more isolated than ever before in modern times.

https://www.youtube.com/watch?v=9Ih1MwvAOv4

This is interesting speculation. I’m interested to hear what my readers think in the comments about it. – Natylie

By Ben Aris, Intellinews, 5/27/22

Russians’ attitudes towards the US have nose-dived to their second worst level on record and the overwhelming majority (87%) believe the Kremlin should not make concessions to the West in order to have the extreme sanctions on Russia lifted.

Only 13% of Russians believe that their country should make concessions to the West. Young respondents under the age of 40 are a little more likely (18%) to believe Russia should make concessions. Older respondents, on the contrary, are the least likely to accept concessions from Russia (only 9% in the age group of 55 years and older), Levada found in its latest survey. 

At the same time, negative feelings towards the US have increased dramatically, with 72% of respondents in March saying their feelings were “bad” against 17% that felt “good” and 1% undecided.

That is a turnabout from a slight majority for “good” (45%) versus “bad” (42%) in November last year right at the beginning of the rising geopolitical tensions.

Indeed, the population’s attitude towards the US has been broadly positive for almost all of the last three decades since the collapse of the Soviet Union in 1991.

In the very early days Russians were optimistic that after the animosities of the Cold War ended with the fall of the USSR that the US would step in with its famous entrepreneurial skills and actively participate in rebuilding Russia’s collapsed economy. Aid, such as food relief delivered in 1992 to deal with shortages, was seen as a sign of this co-operation. However, those expectations crashed in the 1998 financial crisis when Russia was left to fend for itself after the ruble collapsed on August 17, 1998.

Friendly feelings towards the US recovered during the booming noughties but crashed again in 2008 thanks to the double whammy of the US-induced global economic crisis and Washington’s backing of Georgia during a short war it fought with Russia.

Relations recovered again in the next decade, only to comprehensively collapse for a third time following Russia’s annexation of Crimea and the start of the international sanctions regime, which remains in place to this day. That collapse was a permanent change, as Russia was always willing to give the US the benefit of the doubt until the sanctions were imposed.

Attitudes towards the US started to improve slowly as the last decade wore on, despite the sanctions, as Russia emerged from a four-year long recession and the feel-good factor of returning prosperity in 2018 and 2019 made itself felt. Attitudes to the US even turned a net positive briefly in 2018 and at the start of 2020, until the coronavirus (COVID-19) pandemic broke out. But feelings towards the US have turned sharply negative again since the war broke out on February 24.

The number of Russians that feel it is necessary to co-operate with the US has fallen by 30%, Levada said, since the war started, but worry that dangers to the country are rising. The share of Russians that feel relations with the US are bad now reached 72% in March, the second worst result since January 2015, when 81% of the population felt negatively about the US and just ahead of April 2018, when 69% said the same.

“Respondents were offered a set of phenomena and processes and asked how dangerous they are for Russia. When comparing the results with the last wave of the survey, which took place in 2016, attention is drawn to the general increase in anxiety and the increase in the proportion of answers “very dangerous” for all the proposed options. At the same time, the greatest increase in fears is associated with foreign policy factors: the actions of the Nato alliance and the growth of US military power,” Levada said in a note.

Older respondents are more optimistic and more likely to expect changes for the better in terms of Russia’s global political influence (42%). Young people, on the contrary, are more sceptical: only 28% expect the strengthening of Russian influence, Levada found.

The number of Russians who believe that Russia was and remains part of Europe has remained virtually unchanged at 68%, against the results of a comparable study conducted in 2016 (64%).

There is noticeable age differentiation in the respondents’ answers: young people are less likely to agree with the statement that Russia is part of Europe than older people.

When asked which countries have respect in the world, the most respondents (88%) believed that China enjoys global respect, followed by Russia (66%) and Germany (52%). But only a third of Russians (34%) thought the US was respected with one in five (18%) saying Ukraine was respected.

Amongst respected world leaders, Russian President Vladimir Putin scored best amongst Levada’s respondents with 87% believing the Russian president is respected. Russian allies also scored well with Belarus’ president Alexander Lukashenko’s 82% and China’s president Xi Jinping’s 82%. Attitudes to western leaders did less well: French President Emmanuel Macron (24%), German Chancellor Olaf Scholz (14%), US president Joe Biden and Ukrainian President Volodymyr Zelenskiy (both 6%).

Levada compared the results of its survey amongst Russians with those in the US, in a parallel survey conducted by the Chicago Council on Global Affairs, which found a mirror image amongst American respondents. Asked which world leaders were respected, the US respondents put Zelenskiy at the top of the list with 81%, followed by Biden (52%), Xi (10%) and Putin (4%).

Virtually all of the revenue is from external sources, debt and printing money.

Interfax News Agency, 5/26/22

Allocations from the European Union in the amount of $603 million and from the United States in the amount of $500 million, as well as $431-million return on war bonds were the primary sources of Ukrainian budget revenue last week, the Ukrainian Finance Ministry said in a statement on its website.

Between February 24 and May 25, war bonds yielded $3.068 billion, and the budget gained $1.382 billion from the European Union and $986 million from the United States, while the largest contributions were received from the National Bank of Ukraine – $4.103 billion, or UAH 120 billion, it said.

Loans from international financial institutions, bilateral loans and grants are other primary sources of Ukrainian budget revenue, the ministry said.

by Jerry Kuzmarov, Covert Action Magazine, 5/27/22

Colonel Richard Black has been one of the few former high-ranking military officers or government officials to speak out against U.S. military intervention in places like Syria and Ukraine. He is extremely concerned about the prospects of nuclear war breaking out and appalled at the callousness in which some government officials talk about a nuclear first strike.

In a May 17 interview with CAM, transcribed below, Colonel Black emphasized the grave danger associated with Ukraine’s sinking of the Moskva, Russia’s flagship Black Sea missile cruiser, with assistance from U.S. intelligence. According to Black, this act was tantamount to an act of war. He warns that we’re now “at a 1914 moment [year when World War I broke out].”

The triggering act for the latter was the assassination of the Austro-Hungarian Archduke Franz Ferdinand by a Serbian nationalist (Gavrilo Princip), while the sinking of the Moskva may very well be the triggering act for the outbreak of World War III.

In the Tradition of George Washington

Colonel Black flew 269 combat missions in the Vietnam War, winning a Purple Heart. He served in the Virginia State Senate from 2012 to 2020 and was a member of the Virginia House of Delegates from 1998-2006.

Black is that rare breed of principled conservative who supports limited government including in the realm of foreign affairs. He operates in the tradition of George Washington, who warned in his farewell address about the threat to democracy of a large standing army.

CAM is rooted in the political left; however, an anti-war and anti-imperialist political coalition could be forged with principled conservatives like Black and challenge what veteran CIA analyst Ray McGovern calls MICIMATT—the military-industrial-congressional-intelligence-media-academia-think-tank complex.

Black’s outspoken opposition to U.S. involvement in Ukraine contrasts markedly with so-called progressives like Bernie Sanders, Alexandria Ocasio-Cortez, and members of “the Squad” who have aligned with the Democratic Party establishment war-makers and voted in favor of the recent $40 billion military aid package to Ukraine—among others there.

In 2016, Black traveled to Syria and met with its president Bashar al-Assad, to whom he had written a letter thanking for saving Christians in the Qalamoun Mountain range. In his letter, Black praised Assad for “treating with respect all Christians and the small community of Jews in Damascus,” stating it was obvious that the rebel side of the war was largely being fought by “vicious war criminals linked to Al Qaeda.”

The Islamic State subsequently included Colonel Black on a list of enemies, calling him “the American Crusader,” and quoted a statement he made suggesting that, if Damascus fell, “the dreaded black and white flag of ISIS will fly over Damascus.”

Below is an edited transcript of my interview with Colonel Black:

Jeremy Kuzmarov: Thanks for joining us Colonel. I want to mainly discuss the conflict in Ukraine and Syria with you. But first, if you can start with just a bit about your background, including your involvement in the Vietnam war and how that might’ve shaped your outlook towards war and military intervention.

Colonel Black: I retired out of the Pentagon in 1994 and I have spent a lot of time in the Virginia legislature. I was in the House of Delegates. And in the Senate over a span of 20 years. And Vietnam was an important factor in all this because I want to make the point, I don’t come at this as somebody who is anti-American or anything of that sort. I’m patriotic. I volunteered to fight in Vietnam. I was a Marine Corps helicopter pilot and flew 269 combat missions and was hit by ground fire on four occasions. And then I volunteered to fight on the ground with the First Marine Division. I was a forward air controller and fought in the bloodiest engagement of the entire war for the Marines. During the final battle, I served in about 70 combat patrols, most of them at night, most of them in heavily enemy-controlled areas.

And on the last patrol we were trying to rescue a Marine outpost and during the attack to do that, I was wounded and both of my radio men were killed right beside me. So I put my life on the line many times for the country, hundreds of times, literally. And so I just say that to lay the background, because sometimes you’ll get people who are critical of someone who takes a different point of view like I have and say, well, you know, he’s never done anything for this country.

Actually, I think you’ll find most of the, most of the people pushing for war have done precious little for the country. And so anyway, I just put that by way of background. Now after fighting in Vietnam, I attended law school and I was an Army JAG officer and did a great number of things, including serving as part of the North Atlantic Treaty Organization (NATO) in Germany for three years.

During the height of the Cold War at that time, NATO was a very good defensive alliance. And we were faced with the Soviet Union, which was a very aggressive entity right across the east-west border. Eventually I was in the Pentagon where I advised the Senate Armed Services Committee, and wrote executive orders for the president. And so I come at this as somebody who’s very much, I guess, a part of the American establishment. But I have very grave differences with the direction that we’re headed right now.

Jeremy Kuzmarov: And just for clarification, what years did you serve in Vietnam?

Colonel Black: I was there in 1966 and 1967. I was in two small unit battles where men won the Medal of Honor. It was a time of blistering bloody combat, something that I don’t wish on other people. I have no interest in seeing young Ukrainian men or young Russian men killed in battle for the glory of the politicians and the global elite.

Jeremy Kuzmarov: It seems that you were generally supporting U.S. policy in the Cold War. In hindsight, do you think Vietnam was a misguided war?

Colonel Black: Well, in this sense [yes, it was misguided]. The president of South Vietnam, Ngô Đình Diệm, was a very talented politician. He wanted the United States to provide him with weapons because he was fighting an insurgency and eventually an invasion from the North. But he did not want us to come in with military troops because he said, as soon as you do that, you’re going to be viewed as another colonial empire.

Just like the French, just like the Japanese. When Diệm was assassinated—at the behest of the President and at the orders of the Central Intelligence Agency (CIA)—the North Vietnamese were absolutely stunned. Ho Chi Minh was amazed. He was deadly enemies with Ngô Đình Diệm, but he said the Americans have been astoundingly stupid.

This is because they have killed the one man that we could never outmaneuver. It wasn’t just [in the realm of the] military. Ngô Đình Diệm understood the politics and the complexities of the Vietnamese culture and the North Vietnamese [would have had difficulty] overcoming his insight and wisdom. But we, like we do often, decided, well, he’s an impediment to what we’re doing. We’ll get rid of him. He was taken out by a General’s coup. They captured him eventually with the help of the CIA, took him off in an armored personnel carrier and killed him, assassinated him and his brother. So we never needed to be there [in Vietnam].

Now, once we were there, the people who fought with us [the U.S.] fought with enormous gallantry and courage and self-sacrifice. In many ways. I think we were fighting for a good cause, but we were fighting a war we never needed to fight. And that was really the key issue at stake; that we never should have been there. It would have saved a lot of bloodshed and the war [within Vietnam] would have ended differently.

Jeremy Kuzmarov: Thanks. It’s interesting to hear this. I interviewed a lot of Vietnam veterans before [for my book, The Myth of the Addicted Army: Vietnam and the Modern War on Drugs], and it’s always interesting to hear their points of view. Now you worked for NATO in the 1980s during the Cold War. Can you briefly relay your experience and compare the situation in the 1980s with today?

Colonel Black: [When I worked for NATO] it was at the height of the Cold War and the Soviet Union was very threatening [as Black saw it] and a tremendous nuclear power. There were tanks lined up on the border. Thousands and thousands of tanks. And we thought there was a substantial chance of the outbreak of war. But one thing that was different from today was that both the United States and all of the allies and Soviet Union were extraordinarily cautious about an accidental outbreak of nuclear war. There was an understanding that, if a nuclear war broke out, everybody was the loser.

In one particular incident, we had three young JAG officers and their wives who wanted to go to East Berlin. And the corridor to East Berlin was controlled by the Soviet Union. And we were not allowed to take photographs. And so this group stopped at a checkpoint and there was a Soviet soldier who walked around the car while they went in and submitted their documents at the checkpoint. And one of the wives, she didn’t mean anything by it, she just wanted to get a little piece of history and she snapped a picture of the guard, just an ordinary photo, but some proof that she had lived through this period.

Within 24 hours, the Soviet authorities reported that to the United States. Those three officers and their families were on a plane out of Germany, forever. All of their household goods, their furnishings and things were packed up on an emergency basis. They were on a plane. There was no evidence that they had ever resided in West Germany.

And it just shows the dramatic efforts that we made to make sure that there was not some spark that would trigger World War III. Had we reported that a Soviet soldier did something similar, the same thing would have happened to him. He would have vanished.

But now we’ve become really quite reckless with the way that we talk about nuclear weapons. Just recently there was a Republican Senator Roger Wicker [from Mississippi] and he’s very senior on the military committee in the Senate. And he said we should not take off the table the idea of putting American troops on the ground and using nuclear weapons. And he was saying, we should be willing to consider a first use of nuclear weapons.

And what he’s talking about is that we should be willing to consider launching a preemptive Pearl Harbor-type strike on Russia with Americans being in the shoes of the Japanese, launching the attack. I think that is insane. It is [also] immoral. It’s a terrible thing for any American to suggest the first use of nuclear weapons.

Jeremy Kuzmarov: Thanks. I feel the same way. And maybe before getting into the current conflict and dangerous situation, if you can say something about, having served with NATO, what your attitude toward the issue of NATO expansion in the 1990s under the Clinton administration is. And how do you think this expansion has contributed to the dangerous situation we have today?

Colonel Black: Yeah. See, here’s the thing; we used to constantly send out messages: “we are a defensive alliance.” Now this is before the fall of the Berlin Wall. When the Berlin Wall fell in 1991, it signaled the dissolution of the Soviet Union; this great empire, literally just fell to pieces. It wasn’t conquered, it just fell to pieces. And the philosophy of Bolshevism, Marxism, communism simply dissipated, it fell apart.

And so what happened is that there was a defensive alliance that the Soviets had—the counterpart of NATO called the Warsaw Pact. With the dissolution of the Soviet Union, the Warsaw Pact disappeared and everybody went home.

And one of the great tragedies of human history is that NATO did not dissolve. It had no purpose to its existence now that the Soviet Union was gone. There was no threat anymore. But you had this enormous bureaucracy with all of these military think tanks. And these people had a lot at stake, a lot of money, a lot of income and so forth.

And so NATO continued and it gradually converted to a very aggressive, assertive alliance. And it began this inexorable march to the east.

Now in 1991, there was a thousand mile buffer between nuclear-powered forces in Germany and nuclear-powered forces in Russia. This was a tremendous safety buffer. And what’s happened is we have gradually marched all the way literally to the Russian border.

And in 2014, we overthrew the legitimate government of Ukraine. There was a presidential coup and the CIA conspired with counterparts in Ukraine and conducted a violent overthrow of the government. A lot of people were killed in the process.

And they installed this revolutionary government. Well, what happened as a result of that is there were a lot of Russian-speaking people in Ukraine, about a quarter of them, and they tend to be focused in the eastern parts, in the Donbas and in Crimea, The people there refused to recognize the new revolutionary government.

They were fine as long as they had a vote, as long as they could participate in the election of their government, but they were not going to join a revolutionary coup. And as a result the Russians were very threatened by what was happening because their Black Sea Fleet was stationed in Crimea at Sevastopol port.

And they were afraid that the new revolutionary government would renege on the 99-year lease that Russia had there. So they moved in now. Crimea was solidly part of Russia, and it had been Russian for 500 years. It is a kind of a historic anomaly that it was temporarily in the hands of the Ukrainians.

And so the Crimean people welcomed the Russians in; they came in quietly, there was not a shot fired. They took over Crimea, held a plebiscite. About 92% of the people voted in favor of becoming a part of Russia. Donbas was a little bit different. They declared their independence from Ukraine.

And that’s really the source of the continuing problem. NATO and particularly the United States and United Kingdom flooded enormous quantities of weapons. And they also sent troops in some cases on the ground in Ukraine, training Ukrainian soldiers to kill Russians right across the border.

And I think there was an intent virtually from 2014 to start a war with Russia. And eventually they got the Russians backed into a corner where they were forced to fight, but before the war broke out, Russian President Vladimir Putin and the Russian government made desperate attempts to achieve peace.

They actually put written peace proposals on the table with NATO, trying to establish a zone that would be de-militarized. And that was rejected out of hand because NATO fully intended to compel Russia to force them into a war, which they did.

Jeremy Kuzmarov: And what do you think the motive is? Why did they want to force Russia into war? This could trigger a world war.

Colonel Black: It’s a very good question. I think that there are several reasons….

Read full interview here.