Tag Archives: US

Russia and the West

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7 Jan. 2021

With Karsten Riise*

MvC:

Mr. Riise, in your opinion, what will be the effect of the new American administration on US-Russia relations?

Karsten Riise:

Biden will probably believe himself and the US to be so important that he can speak “pressure” and promise nothing concretely to Russia. This will be delusionary. Hence, Russia will continue to largely ignore the US and deepen cooperation with China in new areas.

Over time, Biden will find it difficult to restore previous US policies with both friends and perceived foes. Then perhaps, Biden will recognize a US need for a comprehensive understanding with Russia which can open new possibilities for both sides. Trump never had any vision for how he saw a US-Russia relationship and Trump did not have the political support of the US Congress or the EU to make deals with Russia. Biden is the candidate of the US establishment. He will have critical views on Russia, but he can make deals with it.

The best possibilities for Russia with the USA will involve the EU. Peace in the Ukraine. De-escalation and cooperation in the Baltic. Belarus. The West Balkans. And Syria. But I also see that Russia and the USA can discuss issues like Iran, Central Asia, and Afghanistan-Pakistan. Together with the EU and the USA, Russia can be included in a much-needed Pakistan-India peace deal.

MvC:

Please tell me a little more about the way you see EU involvement in all this.

Karsten Riise:

The EU has learned from decades of serious US vacillations. Bill Clinton worked closely with Europe, but the next US president Bush II tried arrogantly to dictate the Europeans, only to find out in his last years that even the US needs partners. Then Obama followed Bush II. The Europeans greeted Obama like a saviour and Obama worked to restore the US-Europe relationship which Bush II had broken down. But the cycle repeated: Obama the “restorer” was again followed by a new breaker. Trump even more adamantly than Bush II broke US partnerships with Europe. Now Biden believes that he like a “second Obama” will meet hordes of US-partners and be hailed to restore US relationships which were broken by his predecessor. It will just not work like that anymore. The EU has also seen that being friend of the USA is often not rewarded and can even be punished. The US imposed cross-sanctions against Airbus, though Boeing enjoys the similar state advantages to what the US accuses Airbus of. Connected with breaking the JCPOA, the US attacked EU firms with secondary sanctions. In the last US deal with China (the “Phase One” deal) the USA in practice agreed that China should push out USD 200 billion of European imports and replace them with American products. And on top, the EU was punished additionally with direct trade-tariffs by the USA. Biden may believe the world starts anew with him 20 January 2021. But not so. The EU has begun to see US presidents as just temporary vacillations. Biden is already surrounding himself with neoconservative foreign policy hawks. Trump demonstrated that strategic EU and American interests may diverge substantially. Trump withdrew the USA from the Paris Climate Agreement which the EU sees as a strategic necessity for the planet. The EU has a strategic need for stability in the Middle East for the free flow of oil from the Middle East. The USA, in contrast, is nearly self-supplied with oil and therefore can take more chances with Middle East stability. The EU is investing heavily in China, the USA not. On the Palestinian issue, Trump also revealed strategic differences between the EU and USA. With Biden, the EU will continue a close trans-Atlantic cooperation, but not like earlier. Once and for all, the EU has realized that the EU must establish more Strategic Autonomy from the USA. Therefore, the EU is beginning to make its own deals with China, deliberately disregarding Biden entering office on 20 January 2021.

MvC:

Looking back on the Trump years, how do you see his foreign policy?

Karsten Riise:

Trump laid bare to the EU, how unreliable and self-absorbed the USA can be as a partner. The JCPOA agreement with Iran was a legally binding deal involving USA’s closest partners, the EU. The USA just broke the JCPOA and sanctioned EU firms for upkeeping it. The USA also just broke the Paris Climate agreement. The Trans-Pacific Partnership (TPP) trade deal was fully negotiated, and the USA just smashed it. Likewise, in the Transatlantic Trade and Investment Partnership (TTIP) the EU had invested 5 years of difficult negotiations with the USA – that was all simply thrown into the US wastebin overnight. And Biden may not reverse this: Instead of Trump’s “America First”, Biden says “Buy American”. The best thing about Trump’s years is that he did not start any new wars – no small feat for a US president.

MvC:

And the future?

Karsten Riise:

EU-USA relations will continue to be close, but the EU is no longer infatuated with the USA. The EU will increasingly take strategic action regardless of Biden and the USA, like we just saw in the EU-China investment deal 30 December 2020. The EU needs to make things work with Russia including the Nord Stream gas project, which the USA wants to block. There is no fundamental contradiction between the EU and Russia.

MvC:

Let’s go into a little more detail, if you do not mind. First, the situation in the Ukraine.

Karsten Riise:

The EU and Russia both agree that the Ukraine should continue as a bridge between east and west. Situations like the one on the Crimea have been resolved elsewhere before. The EU must accept that Crimeans can decide for themselves. Even in another referendum on Crimea’s future, I am sure, Crimea will stay Russian, and the EU must accept that.

Still, these drugs are found safe downtownsault.org viagra levitra and effective for both young and old people alike. They have a happy, healthy relationship and have nurtured three beautiful children. downtownsault.org levitra prescription It is enriched B12, iron and zinc. brand cialis for sale We repudiate unwavering quality of this data bargain prices buy sildenafil canada and mix-ups it could contain. The situation in Luhansk is comparable to the one in Northern Ireland. The Good Friday agreement, signed in 1998 by the Republic of Ireland and the UK, ended a much longer conflict in Northern Ireland. That Good Friday model can be applied in Luhansk. Let the people of Luhansk have a vote where they want to belong. The West could accept that for Kosovo, so why not in Luhansk? If the people of Luhansk choose to continue as part of the Ukraine, then Russia (just like the Republic of Ireland in Northern Ireland) should have a structured cooperation with the Ukraine on Luhansk. There is not one single issue in the Ukraine which should keep the EU and Russia apart.

MvC:

I see. Now, the Baltic.

Karsten Riise:

In the Baltic, NATO membership of the three Baltic countries has destabilized security there. It is vital for Russia that the Baltic countries never become a staging area for NATO troop-concentrations directed against Russia, and Estonia is only 130 km from St. Petersburg. We need a treaty which limits the number and composition of NATO troops in the Baltic countries to what they are now, and simultaneously limits Russian heavy troops within (say) 20 km of the Baltic borders. Taking care of both sides’ interests. Practical and straightforward.

MvC:

And Belarus? The EU sees it as a bête noire and seems determined to destabilize it as much as it can.

Karsten Riise:

The situation in Belarus is similar. It has in many ways managed a very successful development, with a basic level of living, high level of education, social services etc. Belarus is ready to continue her own life and Russia is open to that. Belarus will become an enormous success when she gains access to the EU market. Russia just need to secure that NATO will not afterwards turn Belarus into an in-official NATO partner against Russia.

MvC:

I am sure you have your views about the rest of the world as well.

Karsten Riise:

In Syria, the EU has neither the capacity nor the appetite to take over. Human rights are terrible in Syria, but Russia avoided a complete collapse in Syria like the one NATO created in Libya. And Russia supports holding elections once the situation stabilizes in Syria. Fundamentally the EU must be relieved that Russia has taken this responsibility and got this far with Syria.

The planet is shrinking – even Afghanistan is no longer far away from Europe. The EU needs to invest a lot more energy in the EU’s two Mega neighborhoods: Africa and Eurasia, stretching from the Ukraine to Afghanistan and Pakistan. But the EU does not have neither the physical capacity nor the intellectual capability to deal in politics and security in the vast area of Eurasia. Nor has the USA been any more successful at it. Russia simply has got unique insights, relations, capabilities, and connectivity in Eurasia. The EU critically needs Russia as the only possible EU-partner which can help the EU manage all the issues of a Eurasia which includes Turkey, Iran, and Pakistan.

MvC:

Recently there has been some talk about America’s plans for Greenland.

Karsten Riise:

Greenland has got 56,000 people and 2 million km2 of soon-to-be ice-free territory. Greenland has a coastline of no less than 44,000 km with lots of fish and natural riches, and as the ice melts, soon busy sea-lanes to Asia. Tourism is growing with 24% a year, with a steep increase in air traffic and already many cruise ships, which in future may have as many as 2,000 passengers on board. Who has got the capability to assist Greenland in case of airport terrorism? Or in case a cruise ship catches fire or hits an iceberg? Or if two oil-tankers crash? Even the USA cannot manage all that alone since Greenland will not be their territory. Greenland needs deep cooperation with all its neighbors: EU, USA, Canada, and Russia. NATO analyses demonstrate that Russia has a defensive posture in the Arctic. There is scope for cooperation and a new big role for Russia in the Arctic.

MvC:

Finally, China. The elephant in the room.

Karsten Riise:

After the end of Biden’s first term, China will overtake the USA as the biggest economy in the world. China is already a strategic trading-partner which many US friends cannot afford to ignore. Soon, the USA will often only be second trade-partner after China. Biden and the US do not fully understand the implications. China will also be the country with the biggest military-industrial potential. Biden may dream of containing China, but he will not succeed. China is not the Soviet Union. China is too strong, tech-savvy, too many depend on China, and China gets resources from Russia. Absent military blockade and decades of hot and cold war, the US cannot stop China. Such a US “alliance” against China will be split from the beginning. Biden does not seem to have recognized this yet. The US has a rather narrow margin to influence China, mostly to open-up trade. What the US needs is to establish more equal cooperation all around, also with Russia. This includes Central Asia, where China is expanding Belt-and-Road infrastructure and Chinese security interests. Russia will continue a deeper cooperation with China, but Russia will also know how to make use of any US need for strategic Russian cooperation. If the USA at one point becomes willing to offer Russia something very substantial in return for cooperation, Russia will be able to balance relationships with China and the USA in a new way that will be profitable for everyone.

 

* Karsten Riise is Master of Science (Econ) from Copenhagen Business School and has university degree in Spanish Culture and Languages from University of Copenhagen. Former senior Vice President Chief Financial Officer (CFO) of Mercedes-Benz in Denmark and Sweden with a responsibility of US Dollars 1 billion. At time of appointment, the youngest and the first non-German in that top-position within Mercedes-Benz’ worldwide sales organization.

The Punk(s)

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Now that Vice President Mike Pence has finished glaring across Korea’s demilitarized zone and things have calmed down a little, it may be time to take stock. Neither North Korea’s Kim Jong-un, nor his father, nor his grandfather, are or were nice people. The first established, the second and the third led, regimes as horrible and as totalitarian as any in history. To recall what Socrates once said about tyrants, had it been possible to open their souls it would have been found to be full of scars.

All three have often been called a danger to world peace, and Un himself has been described as a “punk.” Ever since the Korean War ended in 1953, the North has in fact been responsible for countless incidents, some of them dangerous indeed, along its border with the South. The number of people killed in these incidents runs into the hundreds. However, in Pyongyang favor it must be said that it has not fought a single war in or against any of its neighbors. Let alone countries far from its borders.

During this same period of sixty-four years the great, benevolent, apple pie-eating, mother-loving, and God-fearing American democracy, invariably inspired by the dream of liberty, equality and justice for all, has:

– Tried (and failed) to invade Cuba in 1961;

– Blockaded Cuba in 1962 (this particular act of war, probably the most dangerous in the   whole of history, almost led to a nuclear holocaust);

– Sent its troops to Vietnam (1963), where they waged war until 1973;

– Invaded the Dominican Republic in 1965;

– Invaded Cambodia in 1970;

– Sent troops to Lebanon in 1982;

– Invaded Grenada in 1983;

– Invaded Panama in 1989;

– Invaded Iraq in 1991;

– Invaded Somalia in 1993;
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– Invaded Haiti in 1994;

– Bombed Bosnia in 1995;

– Bombed Iraq in 1998-99;

– Waged war against Serbia in 1999;

– Invaded Afghanistan in 2001;

– Invaded Iraq in 2003;

– Bombed Libya in 2011;

– Raided Yemen in 2017;

– Bombed Syria in 2017.

This list does not include US support, some of it military, to revolutions and counter-revolutions in countries such as Iran (1953), Indonesia (1965), Chile (1973), Nicaragua (1979-90), Serbia (2000), Georgia (2003, the Ukraine (2004), and Kyrgyzstan (2005). Directly or indirectly, Washington’s praiseworthy deeds have led to the death of millions of people.

With one exception (Afghanistan in 2002) all the bombings, invasions and interventions took place in countries that, with the worst will in the world, did not have what it takes to endanger to the mighty US. Without exception, they took place in countries that were small, weak, and often so far away that the average US citizen had never heard about them. Proving that, if you are a small, weak country, even one located on the other side of the world from the US, and plan to disobey Washington’s will while avoiding its oh-so tender mercies, the first thing you need are nukes and delivery vehicles to put them on target.

So can anyone please tell me who the punk)s( are?

Guest Article: US Position is Untenable

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by Karsten Riise

The US Congressional Budget Office (CBO) has newly released a projection of Federal debt 2016-2046.

US Fed debt 2000-2045

The CBO analysis shows that Federal debt is on path to increase from 75% of GDP to 146% of GDP in 2046. These figures exclude state & local government debt of approimately 16% of GDP (source: Fed.Reserve Z1,D1 and BEA.gov), meaning that the total public debt in the USA is on track to increase from 90%+ to 160%+ of GDP.

A public debt of 100%-200% of GDP is possible in Japan and Italy, where nearly all public debt is owned nationally—in Japan, by (often state-promoted) enormous private entities. However, for the USA, such high public debt figures are bound to lead to a fundamental crisis of non-confidence in the US dollar. 

Falling dollar rates and rising interest rates will incur still higher deficits to pay the interests on the public debt. 

A vicious circle threatens the US economy.
When and how it may start, we don’t know.

The biggest driver of the US Federal debt is the aging of the US population. Today 15% of Americans are aged 65+. This percentage will increase by two thirds, so that by 2060 about 24% of the US population will be 65+. Until now, the USA has benefited from a young population. The strain on medicare and social spending of an aging population, even with the still limited entitlements in the USA, will be enormous.

The CBO has calculated, that just to keep the Federal debt at its present level, the balance between tax revenues and federal expenditures must be improved by 1.7% of GDP—every year the next 30 years. In other words, tax revenue must increase and government expenditures must be curtailed.

The US economy is becoming less and less competitive. One reason for this is because the USA has some of the worst 3rd world-like public infrastructure in the western world. Roads, bridges and railways in the USA are a sham. High-speed trains are non-existent. Not only is China building far more kilometers of inter-state high-ways than the US, but it is also one of the world’s leading countries in the field of high-speed trains; in fact, China may become the main-supplier of America’s first high-speed railway line.

Furthermore, American public schools, hampered as they are by violence and other problems. are not exactly the best in the world, The US level of education is going down, as pointed out by the economic guru Michael Porter, who also points out, that the level of bureaucracy and red-tape hindrances to business are enormous in the USA. The middle class is disappearing in the USA, with now barely 50% of the population perceiving themselves as middle class. Median incomes have barely improved or even gone down the past 40 years, significantly reducing the middle-section of the tax base, which is normally the most reliable. The American Dream is a night-mare for most Americans. The Laffer-curve, stating that heavy tax-burdens on the rich will incur less total tax-revenues, still applies for the top-section of the US tax base. Any attempts to heavily taxate (fiscate) the upper 10% (or 0.1% !) of the US tax base will lead to US dollar capital-flight, and acute economic crisis. 

Ueber-rich people in the US will prefer to dump their American passports and go with their money to the Bahamas, Belize, the UK, Australia, Singapore, UAE, or even South Africa, or Brazil, if doing so is what it takes to protect their enormous fortunes from high taxes.

Poor Americans lack education and training to make them competitive in the global labor-market. America’s left erroneously blames the high percentage of unemployed poor on free trade, but the real problem is the lack of education which prevents the under-class from obtaining productive jobs. Poor Americans are too expensive compared to Asians, and too badly educated and trained, and the infrastructure around them too lousy, to make them able to earn a higher pay. The risk of starvation amongst the poorest in the USA remains high: In Obama’s presidency, one in seven Americans (14%) face the risk of not having enough to eat.

At the same time, the US military inventory is aging, and declining. The number of US ships and combat aircraft is declining, their average service-age goes up and their operativeness goes down. New US military hardware often take the form of useless “white elephants”, meaningless prestige-products like the 20-30 billion dollar Zumwalt class destroyer. The US addiction to over-investments in such relatively useless symbols of “strength” as the Zumwalt, in spite of economic problems and American city-disintegration, violence and poverty, is in the USA a sure sign of decay and decline – just like Rome in its latter days. The US Government Accountability Office (GAO report 15-364 ) has demonstrated, that the US military, in spite of spending 4% of US GDP (source: BEA.gov – extra spending is hidden in separate budgets), has no overview of its own economic needs, and the economy of the mega-expensive F-35 aircraft, according to GAO, has a big chance of not being economically sustainable over time, even for the USA.

http://www.gao.gov/products/GAO-15-364

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In absolute strength levels, the American military is standing still or going backwards.

The US military now delays military purchases in order to keep overall military expenditures flat the next 5 years. 

https://www.cbo.gov/publication/51050

If military budgets are not increased, the aging of the US military will be tough in the 2020’ies. In light of the overall budget problems of the USA from now on until 2045 (as mentioned above), it must be expected that the US military will be economically forced to cut down on absolute strength levels the next 10 years. 

At the same time, absolute strength levels of militaries in Russia and China is going up. 

The qualitative lead in high-precision weapons, cruise missiles, and high-quality combat aircraft has come to Russia and China too. Though the USA still has a number of unique capabilities, especially its carrier fleet, advanced submarines, other ships, and “stealth” aircraft, Russia and China are specifically building up (and exporting!) cheaper weapons to off-set US advantages. 

Military lobbyists in the USA dream of a new US “revolution in military technology” to regain American tech-lead in weapons, but so far such US “wunder-weapons” as rail-guns, laser-cannons etc. have shown to be elusive and too costly, even for the USA. 
On the political front, the UK exit from the EU is a devastating blow to the US system of alliances.

The US economy is unsustainable – and the US military is going down in absolute as well as in relative strength.
Costly wars like Libya have been counter-productive. Afghanistan is becoming a failure. China is getting the upper-hand in the Straight of Taiwan, and Russia surprises (though still under-estimated in the west).
Without the tools-of-power or greater wisdom, Mrs. Hillary Clinton wants to increase the force-confrontation against Russia, China, and others.

A new world order is already developing. Mr. Donald Trump seems to have realized the new situation of the US. Mrs. Hillary Clinton has not – which makes her dangerous in world affairs.

Where Did the Iranian “Threat” Go?

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41l9c6MZegLAs the illustration accompanying this text shows, starting as long ago as 2000, the world has been filled with discussions of the terrible, but terrible, Iranian nuclear “threat.” However, the so-called Joint Comprehensive Plan of Action having been signed in Lausanne in July 2015, the “threat” vanished almost overnight. Now that the dust has settled and the air is clean, I want to return to that topic. Doing so, I shall start with a general account and continue with an Israeli point of view; both because of the role Israel and Netanyahu have played in the story and because I myself, after all, am an Israeli.

First, the background. The origins of Iran’s nuclear program go back to the days of the Shah. The idea, at that time, was to deter the Soviets, whom not only the Shah but President Carter and his National Security Adviser, Zbigniew Brzezinski, suspected of planning a drive through the Zagros Mountains to the Persian Gulf. This explains why the US, though not exactly enthusiastic about what the Iranians were doing, did nothing to oppose it.

The Shah having been deposed in 1978, the Islamic Republic took over. Eighteen or so months later Iraqi dictator Saddam Hussein, seeking to exploit the prevailing chaos in Iran, launched an unprovoked attack on his neighbor. However, he miscalculated; the war, which was supposed to be over in a few months or even weeks, lasted fully eight years. The demands, military and economic, which it made on both belligerents were enormous. The more so because, after 1982, the price of oil kept falling. The difference between the two countries was that Saddam had the Gulf countries to pay for his war whereas Iran did not. As a result, the Iranian nuclear program was suspended.

The war having ended in 1988, the Mullahs resumed their efforts. By then they had every reason to do so. Iran was surrounded by nuclear powers on all sides; proceeding counterclockwise, they were the Soviet Union/Russia, Pakistan, India, and Israel (which, unlike Iran had never signed the Non-Proliferation Treaty). Not to mention Iraq, where Saddam Hussein was known to be working on his own program. Still things moved very, very slowly. So slowly, in fact, as to make one doubt whether the Iranians were really interested in building a bomb in the first place.

In 2002-2003 the American invasions of Afghanistan and Iraq again changed the situation. Sitting in Tehran, the Mullahs could see their country surrounded by American troops on all sides. Stationed in Iraq, several Central Asian Republics, Afghanistan, and the Persian Gulf—the Persian Gulf, nota bene—they formed an iron ring around Iran. The Mullahs had good reason to be worried. Partly because recent events had shown that, in a conventional war, their armed forces were no match for the American ones; and partly because, as the record since the infamous Gulf of Tonkin incident shows only too clearly, one can never know which country the US will choose to bomb next.

Accordingly, the years immediately after 2003 were some of the most dangerous Iran ever went through. Scant wonder the nuclear program was accelerated. Come 2005-6, though, Tehran had good reason to heave a sigh of relief. With the Americans hopelessly stuck in both Iraq and Afghanistan and domestic criticism of both invasions growing, the threat to Iran diminished.

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Enter Israel. Under the Shah, relations between Tehran and Jerusalem had been excellent. This changed after 1978, but not nearly as fast as most people believe; it may come as news to many readers that as late as the mid-1980s high-ranking Israeli military experts were still helping Iran fight Iraq. It was only after 1988 that things really started changing. Even so Jerusalem vastly exaggerated the threat. As I myself became aware as far back as 1992 when an Israeli officer, speaking confidentially, told me he had received official news that the Iranians already had the bomb.

Between then and 2015, not a year passed without the Israelis claiming that Iran would have the bomb in five years, or three, or one, or even in six months. Back in 2006 one Russian “expert” went so far as to publish what he said he knew was the exact day on which the Israelis would strike. As we now know, both the Iranian “threat” and the Israeli one were, to put it impolitely but accurately, bull.

1427730328899Which brings me to the last question: why did several Israeli prime ministers, Netanyahu above all, raise the ruckus in the first place? The answer goes back at least as far as the mid-1950s when Moshe Dayan, then chief of staff, suggested that Israel should behave like a “rabid dog.” By threatening to go to war (in self-defense, of course), it could loosen the money- and weapon strings in Washington and Bonn. This policy has always served Israel well, enabling it to push through its nuclear program among other things. Proof? In the whole of history, no other country has ever received so much money and so many weapons free of charge.

How close Israel has ever been to launching a military operation against Iran is hard to say. Judging by the fact that neither Prime Minister Begin before he destroyed the Iraqi Reactor nor Prime Minister Olmert before he did the same to the Syrian one ever uttered a single public threat, the chance was never great. As the saying goes, a barking dog does not bite; the more so because success depends more on surprise than on any other factor. Now that the Joint Comprehensive Plan of Action is in force, it is down to practically zero, which is why talk about it has all but disappeared.

Rest thou in peace, dear Iranian “threat.” And while one never knows what some future Israeli prime minister will choose to do, I very much hope that it has been put to rest for a long, long time.

Guest Article: Where China Is Headed

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Iliya Atanasov*

India on the Rise?

The trend is your friend, but all trends come to an end. China’s resurgence is no exception to this time-tested maxim. Rising powers tend to get mired in multi-decade crises, often never to re-emerge. Such is the nature of the world and of human hubris. Yet, the consensus – including much of China’s own political and intellectual elite – gleefully extrapolates from the country’s meteoric rise. Just about everyone appears certain that within a decade or two China will surpass the US economically and mount a credible challenge to American military dominance in the Pacific. Reality and history, however, beg to differ. The foreseeable future is obvious: China’s current path ends in India.

To be sure, a quarter-century of breakneck economic growth has made China the envy of the world. Some half a billion people found new homes in its mushrooming cities. From skyscrapers and bullet trains to satellites and fighter jets, China quickly adopted just about every advanced technology. The country seemingly sailed through the global financial crisis of 2008-2009 as if it was happening on a different planet. More trillions of dollars of foreign ‘investment’ poured in at the tail end of a multi-decade industrial and real-estate boom. Invincible China’s omniscient leaders could make no misstep.

This mythic ascent to global pre-eminence has been just that – a myth. The reality is much less lustrous. Since the late 1980s, the state-controlled banking system has undergone several wholesale bailouts. China’s rulers blazed new ground in mathematics and statistics as the total of provincial GDPs quite often surpassed the central government’s nationwide figure. In leaked diplomatic cables, then-future Premier Li Keqiang was quoted as smiling that GDP numbers are ‘for reference only’. Yes, China’s economy has grown spectacularly, but probably much less so than widespread perceptions. And it happened on the wings of the most epic debt binge in human history. Years and decades of uncorrected malinvestment have inflated colossal bubbles in stocks, real estate and industrial capacity.

As the facts become too loud to ignore, the mainstream groupthink has struggled to find a counter-narrative. Chinese apparatchiks and foreign pundits peddled ‘soft landing’ as a substitute for the unravelling myth of economic miracle. But years of empty talk about rebalancing the economy have only added up to more – much more – of the same. China’s growth story was mostly based on debt-funded fixed investment: plants, real estate and infrastructure.

By 2014, fixed capital formation remained stubbornly anchored at about 45% of GDP, according to the government’s own statistics. In 2015, China still accounted for 57% of global cement output. The much-touted shift away from investment did not materialize. The country produced 30% more cement in the past three years than the US did in the past 116 years

Here is the problem. Any ‘rebalancing’ would require the instantaneous transmutation of tens of millions of semi-literate factory workers into computer programmers. Or laying them off. Neither is feasible, so Beijing has had to backtrack sheepishly every time real reform was attempted.

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Every move to put the brakes on the rabid debt inflation that keeps China’s multiple bubbles from imploding has sent shockwaves through its banking system and the global economy. After housing showed signs of slowing, Beijing ushered in a stock bubble by allowing mom-and- pop day traders to lever up to the hilt. When that bubble burst, the prospect of social unrest forced a ham-fisted government takeover of the securities markets. Reports have surfaced that the authorities are busy inflating still other bubbles – this time in venture capital and commodities. Meanwhile, official statistics say fixed investment grew over 10% last year. Some rebalancing indeed.

Historically, explosive growth has invariably led up to a protracted and painful crisis period to correct for its excesses. China today is deeper in debt than the US at the outset of the Great Depression. Some recent data put Chinese bank ‘assets’ alone at 367% of GDP, up from 196% in 2007. A bank’s asset typically is someone else’s debt. And it is anybody’s guess how much more unserviceable debt festers on the balance sheets of local governments, state-owned enterprises and the shadow-banking sector, which collectively financed much of the fixed-investment rampage. The People’s Bank of China tallied new ‘total social financing’ at a neat $1 trillion just in the first quarter of 2016. Japan, with its measly 450% debt-to- GDP ratio, must have long been left in the dust by all-conquering China.

What China is experiencing is neither a rebalancing nor a landing, hard or soft; it is a crash. If American experience is any guide, the peak-to- trough contraction in China could easily reach 40% of GDP. It took the US stock market a quarter-century, a world war and a baby boom to recover to its 1929 levels.

Large-scale economic collapse, like market crashes, is not a singular event but a process that unfolds over many years. China’s economy has long been precisely this kind of slow-motion train wreck. And the 2015 stock-market plunge dealt a fatal blow to the soft-landing narrative. Hot money – foreign and domestic – rushed for the exits. Amid plummeting foreign trade, Beijing imposed ever more stringent currency controls while devaluing the yuan, thereby feeding an all-too- familiar vicious circle of capital flight.

According to consensus estimates, some $800 billion fled China in just a year. Chinese looking to park their money out of the country have caused epic property bubbles in major global cities. China’s debt problem is a threat not merely to its economy but the entire world. Yet, in terms of the country’s long-term prospects as a global power, the debt overhang pales in comparison to the demographic and environmental crises that are already baked in the cake. As a consequence of the one-child policy, ever-smaller cohorts with ever-greater job expectations are entering the workforce. China’s higher-education bubble has produced a generation demanding well-paid desk jobs but with even fewer marketable skills than its American counterpart. Meanwhile, millions of illegal immigrants from neighbours such as Vietnam and Burma already toil in China’s factory towns, as local Chinese become unaffordable for manufacturers to employ. This is Japanization writ large.

And then there is the aforementioned concrete. The permanent smog screen over the industrial heartland is one of the country’s lesser environmental challenges. Life in the cities is prohibitively expensive for many migrant workers. As they age and as industrial growth slows and reverses, millions of unlicensed migrants will have to head back, but may not like what they find at ‘home’. The Chinese have literally cemented over large swaths of what used to be agricultural land mostly populated by subsistence farmers.

There is no telling how much heavy metals and toxic chemicals have been dumped into China’s soils and aquifers. The effects of this yet-unfathomed ecological calamity will unfold for decades, impacting everything from productivity to healthcare costs in an already aging society.

Against this backdrop, expectations that China will inevitably subvert US dominance are premature. Granted, economic troubles are not much of an obstacle for nationalism and militarism. But China’s nationalist resurgence and recent maritime adventures are a sign of weakness rather than strength. Careening away from Maoism and towards Leninism underscores the leadership’s acute awareness that the economic story will not last much longer as a source of legitimacy for one-party rule. Such concerns are behind President Xi’s taking direct command of the army. Chinese elites may well decide to inflate a nationalism bubble, just as they encouraged stock-market speculation to deflect attention from real estate. Nationalism is both cheaper and more sustainable.

But then there is the geopolitical context. On the other side of the Himalayas, another giant is awakening from its stupor. India’s economy is much smaller than China’s and shares many of the same pollution problems. But India has three great strategic advantages in the ‘long game’ that China is playing. India has a much younger population and more than twice the population growth rate. It will surpass China over the next decade or two as the world’s most populous country. In addition, India is much closer to the Persian Gulf, where the planet’s most important energy source is concentrated. When it comes to petroleum, India literally stands in the way of China. It also has a tradition of worryingly friendly relations with Japan, which can be a source of capital if an alliance is pursued more actively. Finally, India’s government and economic system are decentralized. In a decentralized economic system, mistakes are more likely to remain localized and less likely to be perpetuated by large-scale bailouts. This is why India has been developing in fits and starts, but also why its growth will be much more sustainable than China’s.

With relatively low levels of debt, India’s explosive surge is just a matter of when. The talk of China’s economic decline does not even begin to capture the size and scope of the global impact. The sheer scale of economic mismanagement puts to shame all previous bubbles, so it is hard to say whether the world as a whole, not just China, will be able to dig itself from this hole without major war. Yes, China’s odds of recovering 20-30 years down the line are not terrible, but in the meantime the new rising power in Asia is going to be India. Per capita, India’s economy is still in its infancy. But watch out – they grow up fast.

*Iliya Atanasov is founder & CEO of moneyfact.org and senior fellow on finance at the Pioneer Institute for Public Policy Research in Boston, Massachusetts.

A Thirty Years’ War?

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For those of you who have forgotten, here is a short reminder. The Thirty Years’ War started in May 1618 when the Protestant Estates of Bohemia revolted against the Catholic Emperor Ferdinand II. They threw his envoys out of the windows of the palace at Prague. Fortunately for them, the moat into which they fell was filled with rubbish and nobody was killed.

imagesHad the revolt remained local, it would have been suppressed fairly quickly. As, in fact, it was in 1620 when the Habsburgs and their allies won the Battle of the White Mountain. Instead it expanded and expanded. First the Hungarians and then the Ottomans were drawn in (though they did not stay in for long). Then came the Spaniards, then the Danes, then the Swedes, and finally the French. Some did less, others more. Many petty European states, cities, and more or less independent robber barons also set up militias and joined what developed into a wild free for all. For three decades armies and militias chased each other all over central Europe. Robbing, burning, raping, killing. By the time the Treaty of Westphalia ended the hostilities in 1648 the population of Germany had been reduced by an estimated one third.

The similarities with the current war in Syria are obvious and chilling. This war, too, started with a revolt against an oppressive ruler and his regime. One who, however nasty he might be, at any rate had kept things more or less under control. At first it was a question of various “liberal” Syrian factions—supposing such things exist—trying to overthrow Bashir Assad. Next it turned out that some of those factions were not liberal but Islamic, part of a much larger movement originating in Iraq and known, for short, as IS or Daesh. Next Hezbollah, which in some ways acts as an extension of Assad, and Iran, which had long supported Hezbollah against Israel, were drawn in. The former sent in fighters, the latter advisers and arms.

Even that was only the beginning. Smelling blood, the Kurds, whose territory straddles both Syria and Iraq, tried to use the opportunity to gain their independence. This necessarily drew in the Turks. To prevent its native Kurds from joining their brethren. Ankara started bombing them. To satisfy Obama, it also dropped a few bombs on IS. The US on its part started training some of the “liberal” militias, to no avail. US instructors did no better in Syria than their predecessors had done in Vietnam, Lebanon, Afghanistan and Iraq; what is surprising is that they, and their bosses in the White House, never learn.

Next the US itself entered the fray. Fearing casualties, though, it only did so to the extent of launching drone-strikes, which are more or less useless. The Russians, determined to avoid the loss of their only remaining base outside their own country and to keep Assad in place, launched airstrikes on some, but not all, the militias. The French, hoping to achieve God knows what, did the same. Fueling the conflict are the Saudis who will oppose anything the Iranians support. Too cowardly to send in their own useless army, they are trying to get rid of Assad by heavily subsidizing his enemies.

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With so many interests, native and foreign, involved, a way out does not seem in sight. Nor can the outcome be foreseen any more than that of the Thirty Years’ War could be four years after the beginning of the conflict, i.e. 1622. In fact there is good reason to believe that the hostilities have just begun. Additional players such as Lebanon and Jordan may well be drawn in. That in turn will almost certainly bring in Israel as well. Some right-wing Israelis, including several ministers, actually dream of such a scenario. They hope that the fall of the Hashemite Dynasty and the disintegration of Jordan will provide them with an opportunity to repeat the events of 1948 by throwing the Palestinians out of the West Bank and into Jordan.

That, however, is Zukunftsmusik, future music as the Germans say. As of the present, the greatest losers are going to be Syria and Iraq. Neither really exists any longer as organized entities, and neither seems to have a future as such an entity. The greatest winner is going to be Iran. Playing the role once reserved for Richelieu, the great 17th century French statesman, the Mullahs are watching the entire vast area from the Persian Gulf to Latakia on the eastern shore of the Mediterranean turn into a maelstrom of conflicting interests they can play with. Nor are they at all sorry to see Turks and Kurds kill each other to their hearts’ contents.

Finally, as happened in 1618-48, the main victim is the civilian population. Just as in 1618-48, people are being robbed, despoiled, and killed. Just as in 1618-48 the slave trade, especially in nubile females who can be raped and young boys who can be conscripted, is undergoing a revival. Not only in Syria, but in Iraq, where IS is fighting both the local Kurds and whatever ragtag units the Iraqi “Army” can field. Ere it is over the number of refugees desperately seeking to escape will rise into the millions. Many, not having anything to lose, are going to risk life and limb trying to reach Europe. Joining others from Libya and the rest of Africa, at least some will link with the Salafists, an extreme Muslim sect that is already very active in the continent’s cities. Of those who do, some will turn to terrorism. Terrorism, unless it can be contained, will increasingly be answered not just by extremism, the loss of civil rights and the breakdown of democracy—that is beginning to happen already—but by terrorism.

And whom will everyone blame? Israel, of course. But that is something we Israelis, and Jews, are used to.

Hiroshima, or Then There Will Be Ten

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Exactly seventy years ago, on 6 August 1945, the US dropped the world’s first nuclear device on Hiroshima. Three days later it dropped the second one on Nagasaki. The total number of those who died either on the spot or later, as the result of radiation, was probably between 150,000 and 200,000. President Truman’s reasons for using the bomb have been in dispute ever since.

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“Ways toward nuclear disarmament–PIR Center”

What has not been in dispute is that, ever since, the US has done everything it could to prevent other countries from obtaining the weapons it already had. Not that I blame it; any other Power in its position would have done exactly the same. The first country to which the policy was applied was Stalin’s Soviet Union. In 1941-45 Stalin had been known as “Uncle Joe.” Now, within the space of a few weeks or months, he was turned into a monster. One which, in some ways, was even worse than Adolf Hitler. Stalin was an atheist. Stalin was a Communist. Stalin was hell-bent on dominating the world. In seeking to realize that objective, he recognized no moral laws whatever. It was, all of it, in vain. Four years after Hiroshima the Soviet Union did in fact test its first bomb. And what happened? Nothing. Stalin did not invade Europe, as had been feared. Let alone unleash a third world war.

Confronted by a fait accompli, Washington switched it attention to its own allies, Britain and France. One could not, of course, accuse them of being atheists, or Communists, or non-democratic. Let alone of presenting a danger to the US, or seeking to dominate the world, or whatever. Some more benign reasons had to be invented. Some more benign reasons were invented. Such as, for example, the claim that, once the British and the French possessed their own nuclear arsenals, the Soviets might think they could attack them without necessarily involving the US, thus weakening NATO. The consequences would be terrible. Again, their efforts availed the Americans nothing, Britain tested its first bomb in 1952, France in 1960. And what happened? Nothing.

Next it was the turn of China. Its leader, Mao Zedong, was even worse than Stalin. Let alone his successors who, as détente took hold, had turned into more or less “responsible” and “calculable” actors. Mao was a revolutionary. Mao was a dictator. Mao was a Communist. Mao was a mass murderer. Had he not supported North Korea? Had he not sworn to regain Taiwan? Had he not dared call the US a paper tiger? And did not Khrushchev say that he had said that he was prepared to sacrifice three hundred million lives so as to put an end to imperialism? How could one permit such a man to put his finger on the trigger? In October 1964, he did. And what happened? Nothing.

Unlike China, Israel was a tiny country of two and a half million tucked away in the Middle East. It was also democratic. By no stretch of the imagination did it present a danger to the US or any of its allies. And yet the US under Kennedy did what it could to prevent Jerusalem from going nuclear. So much so that, by some accounts, Prime Minister Ben Gurion resigned over this very issue. This time the rationale was that an Israeli bomb would immediately lead to a nuclear arms race in the Middle East. With Egypt, as the largest Arab country, in the lead. In fact, that did not happen. As of 2015, Egypt still does not have the bomb.

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In 1974 the Indians set off what they called a “peaceful nuclear explosion” (PNE). No sooner had they done so than America’s ambassador to New Delhi, Daniel Moynihan, went to the foreign ministry. You have, he lectured them, done a terrible thing. Not because India might use the bomb, but because it would cause the “Moghuls” in Karachi to build a bomb of their own. By that logic, incidentally, the US should have avoided building the bomb out of fear that the Soviet Union would follow.

In the event, Moynihan was right. Ten years or so later, the “Moghuls” did in fact go nuclear. In 1998 both India and Pakistan tested their bombs. And what happened? Nothing.

And then it was the turn of North Korea. Everyone knew that the people in Pyongyang were as bad as anyone could be. They had set up a terrible dictatorship. They had developed a strange doctrine, known as Juche and roughly translatable as “we ourselves.” They starved their own people. They staged some dangerous incidents along the border between them and South Korea. They had the regime’s opponents torn to pieces by dogs (though this particular accusation later turned out to be a figment of someone’s imagination). In 2006, to the accompaniment of dire warnings, they tested their first bomb. And what happened? Nothing.

The logic behind the “international,” read mainly American, attempts to prevent proliferation is clear enough. Since 1945 no country has gone to war more often, and against as many opponents scattered all over the world, as the US has. Nor has any country more readily threatened to use its nuclear weapons. After all, it had far more of them than anyone else did. Conversely, each time another country obtains the bomb the number of those the US can attack without risking nuclear escalation goes down by one.

And then it was the turn of Iran. Iran is not a democracy (as if, judging by the fact that, in the past, quite some non-democratic countries acquired the bomb, it matters). Iran is not transparent (ditto). Iran supports terrorism (ditto). Should it develop the bomb, then that bomb may fall into the hand of terrorists. Etc., etc. Note that the rationales keep adapting themselves to circumstances. However, the objective remains always the same.

That is also why the details of the agreement with Iran, about which so much is being said and written, do not really matter. The controls may or may not be effective. They may or may not expire after ten years. Regardless, the Mullahs will continue their nuclear program so they can build the bomb if and when they need it. Partly that is because Iran is surrounded by nuclear countries on all sides. Partly, because of America’s habit of sending it troops to fight in or against other countries, with reason or without. One way or another, they will keep it in operation whether the rest of “the world,” agrees or not.

That is why, sooner or later, out of hundred and ninety or so countries on this earth there will be not nine nuclear ones but ten. And very little, if anything, will happen.