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“In history, the moments during which reason and reconciliation prevail are short and fleeting.”

Stefan Zweig

Commentary & Analysis

Russia and Ukraine: Can we stomach more lies from the US media and more hubris from US foreign policy? A rant with implications…maybe…

The US mainstream media continues to out due itself in its blatant bias and outright lies about the situation in Ukraine (as they have done with Israel), whose complexities and historical context is way above my pay scale admittedly. But the coverage from the US “never ending war” crowd, which has spread to both sides of the spectrum—liberal and conservative—is downright nauseating.

It is why I found this article, The New Cold War and the Necessity of Patriotic Heresy, written by Stephen Cohen, Professor Emeritus of Russian Studies and Politics at New York University and Princeton University, so interesting and believable. As an aside, it was printed in the very lefty Nation magazine, which is funny because Cohen praises Ronald Reagan in the piece, which must have jarred the sensibilities of the Nation’s beady-eyed little editors.

Mr. Cohen is appalled at the outright propaganda from the US media—right and left—on the issue of Russia/Ukraine. [I recently cancelled my Wall Street Journal subscription as I can no longer stomach their lies of commission and omission on the topics of Russia/Ukraine and Israel. If I wanted lies and touting of positions at such a base level I would watch MSNBC for free.] I digress, back to Mr. Cohen’s excellent summary of US media fallacies regarding Russia and Ukraine:

—Fallacy No. 1: Ever since the end of the Soviet Union in 1991, Washington has treated post-Communist Russia generously as a desired friend and partner, making every effort to help it become a democratic, prosperous member of the Western system of international security. Unwilling or unable, Russia rejected this American altruism, emphatically under Putin.

Fact: Beginning in the 1990s, again with the Clinton administration, every American president and congress has treated post-Soviet Russia as a defeated nation with inferior legitimate rights at home and abroad. This triumphalist, winner-take-all approach has been spearheaded by the expansion of NATO—accompanied by non-reciprocal negotiations and now missile defense—into Russia’s traditional zones of national security, while in reality excluding it from Europe’s security system. Early on, Ukraine, and to a lesser extent Georgia, were the ultimate goals. As an influential Washington Post columnist explained in 2004, “The West wants to finish the job begun with the fall of the Berlin Wall and continue Europe’s march to the east.… The great prize is Ukraine.”

—Fallacy No. 2: There exists a nation called “Ukraine” and a “Ukrainian people” who yearn to escape centuries of Russian influence and to join the West.

Fact: As every informed person knows, Ukraine is a country long divided by ethnic, linguistic, religious, cultural, economic and political differences—particularly its western and eastern regions, but not only. When the current crisis began in 2013, Ukraine had one state, but it was not a single people or a united nation. Some of these divisions were made worse after 1991 by corrupt elite, but most of them had developed over centuries.

—Fallacy No. 3: In November 2013, the European Union, backed by Washington, offered Ukraine’s President Viktor Yanukovych a benign association with European democracy prosperity. Yanukovych was prepared to sign the agreement, but Putin bullied and bribed him into rejecting it. Thus began Kiev’s Maidan protests and all that has since followed.

Fact: The EU proposal was a reckless provocation compelling the democratically elected president of a deeply divided country to choose between Russia and the West. So too was the EU’s rejection of Putin’s counter-proposal of a Russian-European-American plan to save Ukraine from financial collapse. On its own, the EU proposal was not economically feasible. Offering little financial assistance, it required the Ukrainian government to enact harsh austerity measures and to sharply curtail is longstanding economic relations with Russia. Nor was the EU proposal entirely benign. It included protocols requiring Ukraine to adhere to Europe’s “military and security” policies, which meant in effect, without mentioning the alliance, NATO. In short, it was not Putin’s alleged “aggression” that initiated today’s crisis but instead a kind of velvet aggression by Brussels and Washington to bring all of Ukraine into the West, including (in the fine print) into NATO.

—Fallacy No. 4: Today’s unfolding civil war in Ukraine was caused by Putin’s aggressive response to Maidan’s peaceful protests against Yanukovych’s decision.

Fact: In February 2014, radicalized Maidan protests, strongly influenced by extreme nationalist and even semi-fascist street forces, turned violent. Hoping for a peaceful resolution, European foreign ministers brokered a compromise between Maidan’s parliamentary representatives and Yanukovych. It would have left him as president of a coalition, reconciliation government until new elections in December 2014. Within hours, violent street fighters aborted the agreement. Europe and Washington did not defend their own diplomatic accord. Yanukovych fled to Russia. Minority parliamentary parties representing Maidan and predominantly western Ukraine, among them Svoboda, an ultra-nationalist movement previously anathematized by the European Parliament as incompatible with European values, formed a new government. They also nullified the existing constitution. Washington and Brussels endorsed the coup, and have supported the outcome ever since. Everything that followed, from Russia’s annexation of Crimea and the spread of rebellion in southeastern Ukraine to the civil war and Kiev’s “anti-terrorist operation,” was triggered by the February coup. Putin’s actions have been mostly reactive.

—Fallacy No. 5: The only way out of the crisis is for Putin to end his “aggression” and call off his agents in southeastern Ukraine.

Fact: The underlying causes of the crisis are Ukraine’s own internal divisions, not primarily Putin’s actions. The primary factor escalating the crisis since May has been Kiev’s “anti-terrorist” military campaign against its own citizens, now mainly in the Donbass cities of Luhansk and Donetsk. Putin influences and no doubt aids the Donbass “self-defenders.” Considering the pressure on him in Moscow, he is likely to continue to do so, perhaps even more, but he does not control them. If Kiev’s assault ends, Putin probably can compel the rebels to negotiate. But only the Obama administration can compel Kiev to stop, and it has not done so.

In short, twenty years of US policy have led to this fateful American-Russian confrontation. Putin may have contributed to it along the way, but his role during his fourteen years in power has been almost entirely reactive—indeed, a complaint frequently lodged against him by hawks in Moscow.

Does it all come back to follow the money as usual? We know from history if the money crowd is not behind an international offensive–one that molds its actions into a “US security interest” in order to justify US taxpayer funding–it doesn’t happen. [I would add for reference the role of Stanley Fischer as described in a Currency Currents I wrote back in March, Stanley Fischer: Now his appointment to the Fed makes more sense…to “help” Ukraine?]

In the case of Ukraine, the money crowd sees opportunity on at least two fronts regarding energy:

1. Utilize NATO as a battering ram (and soldiers as usual cannon fodder for geo-money-strategy if need be) against Russia in order that US energy interest can take over that lucrative energy flow to continent; after Russia decides to restrict flows to Europe once conflict breaks out in full.

2. Exploit untapped energy supplies in Ukraine itself and of course the Western energy companies would love to “help” Ukraine with that messy gas network.

[The same quest for control of energy might be the primary motivation behind Israel’s devastation of Gaza. Why? Well, because Gaza’s got gas! From The Gaurdian, “IDF’s Gaza assault is to control Palestinian gas, avert Israeli energy crisis.” I am shocked I didn’t see that story in The Wall Street Journal. LOL…

Is there a point to this rant? I hope so. At least here are some conjectures…

1. Russia will not allow the West to control Ukraine. Ukraine is Russia’s key buffer zone and a Western “aggression” is a direct challenge to Putin’s presidency in the eyes of the Russian people, who seem to love their President (something we can’t say about the US President for sure).

Some thoughts on the potential dangers…

a. Therefore, if the US administration continues to allow NATO to discuss Article 5 in public as if the Ukraine is an acting member of NATO it is a bad sign and it creates a real danger of pulling others into the conflict (Article 5 states: The Parties agree that an armed attack against one or more of them in Europe and North America shall be considered an attack against them all…..)

i. But this bravado on the part of NATO, which is clearly another breach of its role, it is supposed to be defensive, not offensive, could drive a wedge between the US and Europe. Why in the heck does Europe need the US meddling in this anyway? It is Europe that has the most at stake, economically and otherwise; it should be solely Europe’s decision on how to respond. (Of course we know why the US meddles: The US wishes to maintain its political/military/economic dominance over the continent because if Germany decides Russia is looking better, then the whole game of NATO and US defense shield cum-reserve status starts to come unraveled with a new player on the block—named China—looks much bigger.) But constant meddling goes to the heart of what US foreign policy has become—hubris filled.

ii. The Eurozone isn’t exactly sailing along. Should the Ukraine conflict deepen along the lines of US intent (remember when that great statesperson, Assistant Secretary of State, Victoria Nuland (who is married to a key apologist for the US warmonger crowd, Mr. Robert Kagan) said “F—k the EU”; it kind of told us who is driving this runaway truck of ignorance. And if this current course proceeds as hoped by the US, it likely means more than just Italy will be officially in recession (unofficially it is economic devastation for real workers seeking meaningful employment in the periphery countries—in reality it is a depression for most of the working class—not a rebound).

iii. If the recession/depression deepens in Europe, you can bet fringe parties on both extremes gain more ground and real legislative power. This will seriously dent the chances of success for the Eurozone in general, and may fatally imperil the single currency once and for all.

iv. The European single currency in its current form is not a viable alternative to the US dollar for reserve status (as much as many wish it was); the Ukraine crisis could imperil it further (but interestingly not be good for the dollar longer term either).

In fact, for all of you who wish to return to the Gold Standard, you don’t have to envision what it may look like. The single currency experiment is a good real time representation of how a gold standard works. Instead of having currency flexibility to allow for degrees of competitiveness through cross-border pricing (i.e. lower prices for inferior goods, etc.), the adjustment has to come in the form of lowering wage rates to gain relative competitiveness, i.e. domestic deflation. This is how the gold standard worked in history in order to restore the balance of payments. And with it came plenty of economic volatility under the gold standard. In short, workers, take the brunt of the adjustment in order for the country to gain relative competitiveness. At least that is the theory. But brain drain and lack of education/scientific funding, etc. which are keys to competitiveness, become the norm during a prolonged domestic deflationary adjustment. So in reality it may take decades for proper adjustment, if ever. [A recent excellent piece on this topic comes from Professor Michael Pettis.]

Now, if real people continue to suffer the ravages of this adjustment on the periphery of Europe, won’t political leaders be seeking more scapegoats? So maybe either Germany becomes a scapegoat, or Russia, or the United States? Maybe the Eurozone sees a lot more opportunity and a lot less meddling when it looks toward China.

No matter how one slices and dices this, it is bad for the global economy, relations between US and Russia, US and Europe, and potentially very beneficial for China riding in on a White Horse (after linking even closer with Russia in a series of energy deals).

So maybe the US policy “best and brightest” should take a look at what they have already reaped across the world with their strategic chaos and remember that Russia has the ability to shoot back in a big way.

So, longer term bets if this crisis continues:

1) Sell EUR/USD

2) Sell commodity currencies

3) Hold US Treasuries

4) Hold German bunds

5) Buy oil?

6) Buy Japanese yen?

I just want to say thank you to Canada. As much as this will anger most Canadians, I will be sewing a Canadian flag patch onto my clothing if I ever travel internationally again.

Note: Well, it looks like my last issue, a call for a dollar correction lower, was wrong in spades. New swing low in EUR/USD, and GBP/USD; and USD/JPY is heading for the 103 swing high level. We are looking to get short AUD/USD today for a long-term punt based on this weekly chart of AUD/USD: