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I am a new grandfather, and I fear for the future of my little granddaughter.  I am as concerned about the state of affairs in Ukraine as I am about The Great Reversal and the overall lack of economic demand that I wrote about in December last year.  The two situations share striking similarities – they are both the direct result of American policies, they have both taken over 20 years to develop, and they will both take at least a similar time-frame to unravel.  For the moment the fighting in Ukraine may not seem intense but this is the lull before the storm. In 2015, there appear to be many echoes of the period throughout 2007 when the U.S. sub-prime property market and stock markets around the world peaked.  Everything seemed to be going astonishingly well until the collapse of Lehman Brothers in September 2008 when several decades of easy credit began to violently unwind.  Robert J. Schiller and Nouriel Roubini were among the few economists who foresaw what was coming, the great majority did not.  Right now, major stock markets around the world are once again breaking records so it is time to be very, very cautious.  The Ukrainian situation has been nearly 70 years in the making and it could possibly unwind with catastrophic consequences for us all. Just as, prior to the Lehman Brothers’ downfall, few economists in the West understood what was happening, even fewer people appear to be aware of the significance of the stand-off between NATO and Russia in Ukraine.  Yet it already has the potential to become the 21 st  Century’s equivalent of the “Cuban Missile” crisis, but this time it is Russia being threatened on its doorstep, and not America.  The situation in Ukraine hasn't yet reached the shock stage provided by the Lehman Brothers’ drama, but this is just a matter of time unless we’re all remarkably lucky.  And I'm not alone in this view, on the 22 nd  January the Bulletin of Atomic Scientists moved the Doomsday Clock forward to three minutes to midnight.  The last time the Doomsday Clock was set this close to midnight was in 1984 when the U.S. and Soviet relations were at their iciest point in the Cold War.  Compared to 1984 the general public appears to have little awareness of the dangerous confrontation taking place next door to the Balkans.  Is it because so many people alive now haven't lived through the nuclear arms race and the military stand-off over Cuba in 1962, or known how close we have been to a nuclear Third World War?  Seventy years of relative peace in Europe, and latterly perhaps a reliance on the North Atlantic Treaty Organisation (NATO) and the European Union (E.U.) has created political complacency.  Perhaps most people fail to appreciate that NATO and the European Union, (originally conceived as the United States of Europe, then launched as the Common Market, before being renamed the European Union) were both part of the American diplomatic plan to contain Russia following World War Two. You may think I’m being alarmist but I believe that Ukraine presents a major problem that isn't going to produce a positive outcome for Russia or the U.S., and it will also have lasting negative economic effects for the European Union.  Despite this, few economists have spoken out with any insight about Ukraine.  The notable exception is Lord Skidelski who has the benefit of being a writer and historian, as well as an economist.  The fact that Skidelski is half Russian, has conversed with Putin, and travels frequently to Russia, increases the value of his views.  As a primer I recommend this speech, followed by this one:  Skidelski points out that the formation and continuing expansion of NATO is at the very heart of the present problem.  The American diplomat George Keenan was against the formation of NATO at the time because: “it solidified the division of Europe into armed camps.” Throughout the Cold War and the subsequent break-up of Soviet Russia, the U.S. and NATO were dealing with a financially weakened Russia.  But things have changed and the recent and proposed expansion of NATO has totally gone against the verbal diplomatic agreements made with Russia many years earlier in exchange for Russia agreeing to the reunification of Germany.  At that time the U.S. was adamant that it wouldn't tolerate Russian missiles based in Cuba at close range to them, yet Russia is now expected to calmly tolerate its gradual encirclement with NATO missiles sited in the former Warsaw Pact (the Russian equivalent of NATO) countries of Poland, the Czech Republic and Romania.  NATO has so far appeared to be successful at containing Russian expansion but this strategy only worked while Russia was still economically vulnerable after the break-up of the Soviet Union. After several years with the price of its oil remaining stable at $100 a barrel, Russia succeeded in reaching a much stronger economic position, and it holds all the powerful cards in Ukraine despite covert American intervention.  In fact, without the threat of an outright Western military intervention Ukraine is now doomed to a slow and painful Russian annexation.  NATO’s response to this situation has been to create command centres in six previous Warsaw Pact countries, and to form a 5,000 strong rapid reaction force.  The fragile diplomatic relations between the West and Russia are going to become even more brittle as Britain's NATO contribution’s 75 “military advisers” are being sent to Ukraine.  Already Russia's response has been to increase the frequency of its TU 95 long range bombers probing British air defences.  Recent flights have been observed over the English Channel to the east and Cornwall in the south west.  The appearance of Russian submarines off the coast of Scotland also seem to be increasing as Russia demonstrates that the U.K. is relatively defenceless to attack by air and sea. The U.S. and Europe (NATO) are continuing their serious economic warfare against Russia..  Just how much the current low price of oil is due to the U.S.’s determination to financially weaken Russia will only become apparent to future historians, but oil and gas account for over half the value of Russian exports.  That’s the tip of the iceberg: comparatively moderate economic sanctions against Russia are already hurting NATO countries as much as Russia.  For example, over 300,000 workers in Germany previously supplied goods to Russia, and Russia has retaliated to Western sanctions by banning imports of beef, pork, fish, fruit, vegetables, and dairy products from the E.U.  Many U.K. companies are losing out including Marks & Spencers with 4% of their profits come from their 41 Russian stores, and WH Smith who supply Russian railway stations with newspapers.  If Russia decides to respond to any NATO interventions by playing economic hard-ball, Europe will be very exposed.  Just look at the map on the PowerPoint above (it’s available free to download), over half of Europe's gas supply comes from Russia via pipelines and storage tanks in the Ukraine.  Many NATO countries rely on Russia to supply more than 50% of their gas consumption, and six countries are totally dependent on Russian gas.  Should Russia decide to retaliate to NATO’s military actions, or even tighter economic sanctions, by shutting its gas pipelines to Europe, the effect will be devastating - especially in winter. In a worst case scenario, were Russia to continue its military progress in the Ukraine, the U.S. could respond by excluding it from the SWIFT system that makes international payments possible.  If this happen it would be tantamount to a formal declaration of war.  Any direct Russian response would then illustrate NATO's fatal flaw – the sobering fact that this treaty’s Article 5 stipulates that an “armed attack against one or more of them in Europe or North America shall be considered an attack against them all.”  Just remember that the onset of the devastating First World War was the direct result of a single territorial invasion in the Balkans followed by the inevitable cascade of interlocking treaties.  NATO's article 5 has the potential to produce a similarly perilous domino effect far more quickly than that, as the prescient George Keenan feared so much when NATO was created.  Nearly 20 years ago, in 1996, Keenan, then 92 years old, described NATO's eastern expansion as a 'strategic blunder of potentially epic proportions.'  At the time he was ridiculed by many in the U.S. as an out-of-touch old crank, but his words now seem terribly prophetic.  Keenan died in 2005 and it’s a great pity that more intelligent reflection wasn’t given to his views. George Keenan was a rarity, an American diplomat who spoke fluent Russian, had lived in Russia, read and loved Russian literature, and understood the Russian psyche.  His considered opinion was that the U.S. was far too confrontational in all its dealings with Russia.  And, extraordinarily, we are now hearing similar sentiments coming from China.  State news agency Xinhua, usually apparently indifferent to world affairs, recently quoted comments made by Qu Xing, Chinese ambassador to Belgium (the headquarters of NATO).  Xing advised Western powers to “abandon the zero-sum mentality” in their efforts to deal with Moscow and the Ukraine crisis and “take the real security concerns of Russia into consideration."  Xing's public statement went on to say “The United States is unwilling to see its presence in any part of the world being weakened, but the fact is its resources are limited...”  Meanwhile in beleaguered Ukraine many lives will continue to be needlessly lost, and an already poor country ruined, whilst the new “Great Game” between the two superpowers plays out, and a third superpower (China) watches on the side-lines and benefits from supplies of oil and gas at bargain prices.  For now, like grandparents everywhere, I continue to worry about the state of the world in which my little granddaughter will grow up. February 2015
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Pipelines to danger?

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I am a new grandfather, and I fear for the future of my little granddaughter.  I am as concerned about the state of affairs in Ukraine as I am about The Great Reversal and the overall lack of economic demand that I wrote about in December last year.  The two situations share striking similarities – they are both the direct result of American policies, they have both taken over 20 years to develop, and they will both take at least a similar time-frame to unravel.  For the moment the fighting in Ukraine may not seem intense but this is the lull before the storm. In 2015, there appear to be many echoes of the period throughout 2007 when the U.S. sub-prime property market and stock markets around the world peaked.  Everything seemed to be going astonishingly well until the collapse of Lehman Brothers in September 2008 when several decades of easy credit began to violently unwind.  Robert J. Schiller and Nouriel Roubini were among the few economists who foresaw what was coming, the great majority did not.  Right now, major stock markets around the world are once again breaking records so it is time to be very, very cautious.  The Ukrainian situation has been nearly 70 years in the making and it could possibly unwind with catastrophic consequences for us all. Just as, prior to the Lehman Brothers’ downfall, few economists in the West understood what was happening, even fewer people appear to be aware of the significance of the stand-off between NATO and Russia in Ukraine.  Yet it already has the potential to become the 21 st   Century’s equivalent of the “Cuban Missile” crisis, but this time it is Russia being threatened on its doorstep, and not America.  The situation in Ukraine hasn't yet reached the shock stage provided by the Lehman Brothers’ drama, but this is just a matter of time unless we’re all remarkably lucky.  And I'm not alone in this view, on the 22 nd   January the Bulletin of Atomic Scientists moved the Doomsday Clock  forward to three minutes to midnight.  The last time the Doomsday Clock was set this close to midnight was in 1984 when the U.S. and Soviet relations were at their iciest point in the Cold War.  Compared to 1984 the general public appears to have little awareness of the dangerous confrontation taking place next door to the Balkans.  Is it because so many people alive now haven't lived through the nuclear arms race and the military stand-off over Cuba in 1962, or known how close we have been to a nuclear Third World War?  Seventy years of relative peace in Europe, and latterly perhaps a reliance on the North Atlantic Treaty Organisation (NATO) and the European Union (E.U.) has created political complacency.  Perhaps most people fail to appreciate that NATO and the European Union, (originally conceived as the United States of Europe, then launched as the Common Market, before being renamed the European Union) were both part of the American diplomatic plan to contain Russia following World War Two. You may think I’m being alarmist but I believe that Ukraine presents a major problem that isn't going to produce a positive outcome for Russia or the U.S., and it will also have lasting negative economic effects for the European Union.  Despite this, few economists have spoken out with any insight about Ukraine.  The notable exception is Lord Skidelski who has the benefit of being a writer and historian, as well as an economist.  The fact that Skidelski is half Russian, has conversed with Putin, and travels frequently to Russia, increases the value of his views.  As a primer I recommend this speech, followed by this one:  Skidelski points out that the formation and continuing expansion of NATO is at the very heart of the present problem.  The American diplomat George Keenan was against the formation of NATO at the time because: “it solidified the division of Europe into armed camps.” Throughout the Cold War and the subsequent break-up of Soviet Russia, the U.S. and NATO were dealing with a financially weakened Russia.  But things have changed and the recent and proposed expansion of NATO has totally gone against the verbal diplomatic agreements made with Russia many years earlier in exchange for Russia agreeing to the reunification of Germany.  At that time the U.S. was adamant that it wouldn't tolerate Russian missiles based in Cuba at close range to them, yet Russia is now expected to calmly tolerate its gradual encirclement with NATO missiles sited in the former Warsaw Pact (the Russian equivalent of NATO) countries of Poland, the Czech Republic and Romania.  NATO has so far appeared to be successful at containing Russian expansion but this strategy only worked while Russia was still economically vulnerable after the break- up of the Soviet Union. After several years with the price of its oil remaining stable at $100 a barrel, Russia succeeded in reaching a much stronger economic position, and it holds all the powerful cards in Ukraine despite covert American intervention.  In fact, without the threat of an outright Western military intervention Ukraine is now doomed to a slow and painful Russian annexation.  NATO’s response to this situation has been to create command centres in six previous Warsaw Pact countries, and to form a 5,000 strong rapid reaction force.  The fragile diplomatic relations between the West and Russia are going to become even more brittle as Britain's NATO contribution’s 75 “military advisers” are being sent to Ukraine.  Already Russia's response has been to increase the frequency of its TU 95 long range bombers  probing British air defences.  Recent flights have been observed over the English Channel to the east and Cornwall in the south west.  The appearance of Russian submarines off the coast of Scotland also seem to be increasing as Russia demonstrates that the U.K. is relatively defenceless to attack by air and sea. The U.S. and Europe (NATO) are continuing their serious economic warfare against Russia..  Just how much the current low price of oil is due to the U.S.’s determination to financially weaken Russia will only become apparent to future historians, but oil and gas account for over half the value of Russian exports.  That’s the tip of the iceberg: comparatively moderate economic sanctions against Russia are already hurting NATO countries as much as Russia.  For example, over 300,000 workers in Germany previously supplied goods to Russia, and Russia has retaliated to Western sanctions by banning imports of beef, pork, fish, fruit, vegetables, and dairy products from the E.U.  Many U.K. companies are losing out including Marks & Spencers with 4% of their profits come from their 41 Russian stores, and WH Smith who supply Russian railway stations with newspapers.  If Russia decides to respond to any NATO interventions by playing economic hard-ball, Europe will be very exposed.  Just look at the map on the PowerPoint above (it’s available free to download), over half of Europe's gas supply comes from Russia via pipelines and storage tanks in the Ukraine.  Many NATO countries rely on Russia to supply more than 50% of their gas consumption, and six countries are totally dependent on Russian gas.  Should Russia decide to retaliate to NATO’s military actions, or even tighter economic sanctions, by shutting its gas pipelines to Europe, the effect will be devastating - especially in winter. In a worst case scenario, were Russia to continue its military progress in the Ukraine, the U.S. could respond by excluding it from the SWIFT system that makes international payments possible.  If this happen it would be tantamount to a formal declaration of war.  Any direct Russian response would then illustrate NATO's fatal flaw – the sobering fact that this treaty’s Article 5 stipulates that an “armed attack against one or more of them in Europe or North America shall be considered an attack against them all.”  Just remember that the onset of the devastating First World War was the direct result of a single territorial invasion in the Balkans followed by the inevitable cascade of interlocking treaties.  NATO's article 5 has the potential to produce a similarly perilous domino effect far more quickly than that, as the prescient George Keenan feared so much when NATO was created.  Nearly 20 years ago, in 1996, Keenan, then 92 years old, described NATO's eastern expansion as a 'strategic blunder of potentially epic proportions.'  At the time he was ridiculed by many in the U.S. as an out-of-touch old crank, but his words now seem terribly prophetic.  Keenan died in 2005 and it’s a great pity that more intelligent reflection wasn’t given to his views. George Keenan was a rarity, an American diplomat who spoke fluent Russian, had lived in Russia, read and loved Russian literature, and understood the Russian psyche.  His considered opinion was that the U.S. was far too confrontational in all its dealings with Russia.  And, extraordinarily, we are now hearing similar sentiments coming from China.  State news agency Xinhua, usually apparently indifferent to world affairs, recently quoted comments made by Qu Xing, Chinese ambassador to Belgium (the headquarters of NATO).  Xing advised Western powers to “abandon the zero-sum mentality” in their efforts to deal with Moscow and the Ukraine crisis and “take the real security concerns of Russia into consideration."  Xing's public statement went on to say “The United States is unwilling to see its presence in any part of the world being weakened, but the fact is its resources are limited...”  Meanwhile in beleaguered Ukraine many lives will continue to be needlessly lost, and an already poor country ruined, whilst the new “Great Game” between the two superpowers plays out, and a third superpower (China) watches on the side-lines and benefits from supplies of oil and gas at bargain prices.  For now, like grandparents everywhere, I continue to worry about the state of the world in which my little granddaughter will grow up. February 2015

Pipelines to danger?

Click here to download the PowerPoint chart: Click here to download the PowerPoint chart: Click to return to page