Wake Up. Things Just Got Real.
I have been critical of President Joe Biden since his policy goals came into focus. In my humble opinion, he deserves the criticism because most of the policies from he and his party are antithetical to the small government, free market principles that made this country great. America could not afford the policies of his radical left flank and their corrosive policies of racial division and economic disarmament before last week, and now that Russia has invaded Ukraine, we really cannot afford it. There is nothing like an existential crisis to filter one’s priorities.
That said, President Biden has done a decent job of mobilizing our allies in a powerful and unified response to Russia. There is a legitimate argument that he should have acted sooner with more force, but it feels like the wheels are finally in motion to create serious economic disruption in Russia and to arm Ukraine with weapons they need to resist the Russian invasion. It has been inspiring to watch Ukrainian President Zelensky’s social media posts and videos rallying his countrymen to resist the invasion. As of this writing, the Ukrainian military and partisans have fought fiercely to hold the capital city Kiyv and other major cities, but the superior Russian forces are closing in. Some folks who have a long history with Putin, like former Secretary of State Condoleeza Rice and French President Emmanuel Macron are suggesting that something is wrong with him, that he is not the calculating rational actor he once was. Last week Putin threatened the west with 'consequences greater than any you have faced in history' if anyone intervenes in his invasion of Ukraine. He publicly announced that Russia’s nuclear forces are being put on high alert. This not-so-veiled threat of nuclear war is something that I thought was just an artifact of my childhood. We’ll never see that threat again, right? It sends chills up my spine. This kind of insane saber-rattling is exactly why we don’t want Iran to have nuclear weapons, though unfortunately that seems to now be a foregone conclusion given U.S. policy over the past decade.
The U.S. and other allies are enacting stiff new sanctions on Russia, while Europe is changing decades of security policy literally overnight. The U.S., European Union, U.K. and Canada have agreed to suspend some Russian banks from the Swift payments system and target Russia's central bank. Swift connects all the world banks in a network, handling trillions of dollars of payments. Without Swift access, banks won't honor payments or transfers from Russia, except for oil and food exports which remain in place (so how effective is this really?) But in a sign of just how swiftly positions are moving, European countries are now in favor of far-more serious sanctions including a total boycott of Russian energy. Germany has just announced that it will finally contribute more than 2% of its GDP to defense. Nothing like the invasion of a neighboring country to focus one’s attention!
No matter how you look at it, the most effective sanction remains cutting off all Russian oil imports from Russia to Europe and the U.S. and that has yet to be done. However, this action comes at a cost in western nations, especially Europe with 40% of its natural gas being supplied by Russia. Even the U.S. imports over 595,000 barrels per day from Russia as of the end of 2021 according to the U.S. Energy Information Administration. Imagine that. America was a net exporter of oil and gas when Joe Biden took office and now, we are importing oil from Russia. This is the direct result of the policies of the Biden Administration whose climate policy is doing everything it can to disrupt the production of American oil and gas and nuclear power. Do we have that luxury now? The nature of geo-political power has been and continues to be all about energy. Who controls it and who needs it?
I am not advocating that the U.S. send troops to Ukraine. Russian firepower is too great and by the time the US could mobilize sufficient forces to make a difference, Russia will already be in control of Ukraine. It would be madness to test Putin’s veiled nuclear threat over Ukraine, despite the heroic efforts of that nation. They would make a fantastic NATO member someday. Rather, the U.S. should mobilize for the longer-term cold war that has now emerged with both Russia and China. That means American leadership must make the case to its people that authoritarianism, both from internal and external threats, is a real and present danger to all of us. This means realizing that even in the US, war is already at hand with the threat of cyberattacks, infiltration of our southern border, and energy-driven inflation. The U.S. is still the most powerful nation on earth, but it is in a weakened state because it is politically divided in ways not seen since the Civil War. The time has come for bi-partisan consensus to emerge so that we can focus on the near and present existential threats that face us. There are still many issues that separate us but those must be left for later. We need to be realistic, play the long game better than our adversaries and avoid military conflict until we rebuild our strength, and their regimes ultimately collapse. We’ve done it before and many of those lessons still apply.
Be Realistic and Learn from the Past
I wish President Biden had been realistic in his State of the Union address but, after his brief tip of the hat to Ukraine at the outset, he continued to push his main policies that are out of step with the majority of citizens. You’d have thought his dismal approval rating of 38% would have been a wake-up call. The severity of the Russian invasion of Ukraine has not sunk in with the vast majority of Americans and its allies. America needs leadership. We go about our business as if this is just another Afghanistan or Iraq type of conflict, two hopelessly political wars against far inferior powers, that we ultimately lost. American citizens are understandably tired of war. However, the difference is that Russia is the world's biggest nuclear power (Yes they have a few hundred more nukes than the U.S.) and their dictator just threatened to use them. This makes any military conflict involving Russia and NATO a clear and present danger to the entire world.
The good news here is that we have a proven strategy that allowed the U.S. to win the 45-year Cold War with the Soviet Union, culminating with President Ronald Reagan demanding that the Soviets “tear down this wall.” That strategy hinged on the idea of mutually assured destruction (MAD) where neither side can really win an all-out nuclear war that would decimate the planet. That required rational actors on both sides which were in place, despite a couple close calls. Once that was understood, it became a war of competing economic models; America’s free-market capitalism versus the Communist top-down command economy. We know who won that. The Cold War was literally a bi-polar world where you chose either America or the Soviet Union as your military and economic ally and the competition was fierce. And there was no “globalism” as we know it now. China was still a third world country and America, and the west effectively had no economic relationship with the Soviet Union.
Don’t get me wrong, I love the incredible benefits we have enjoyed in a globalized world, but it has not come without significant cost to the United States. The rules-based free trading world that we guaranteed for nearly 80 years, was exploited by authoritarian imperialist adversaries who now are much stronger and have publicly shared their strategy of replacing America as the center the new world order. We would be naïve to think that either Putin or Xi will change course with just a little more diplomacy. Until these regimes collapse, hopefully under their own weight, most of our decision making must be filtered through the prism of national security.
What Kind of Changes Are We Talking About?
America and the west must disengage as much as possible economically from both Russia and China because not doing so will enrich and embolden our already aggressive adversaries. Remember we are playing a long-game and a cold war is better than a hot one. Being realistic means understanding that, until there is durable regime change in Russia and China, western economies and markets will have to painfully recalibrate to the new world order. Russia is the world leader for exporting wheat and ranks among the top for global sales of crude oil, natural gas, coal, agricultural fertilizer, iron, aluminum, copper, palladium, and lumber. If you think we have supply chain and inflation problems now, wait until these products go off-line.
For several years I have been following Peter Zeihan, a smart geo-political expert who has been warning of this challenge that we now face. I’ve pre-ordered his new book, "The End of the World is Just the Beginning", due out in June. I’d recommend his writings to anyone interested in the how and why the world just changed and some thoughts on what to expect in the future, and how to plan for it. Here's the preface to the book which sums things up nicely.
2019 was the last great year for the world economy. For generations, everything has been getting faster, better, and cheaper. Finally, we reached the point that almost anything you could ever want could be sent to your home within days – even hours – of when you decided you wanted it. America made that happen, but now America has lost interest in keeping it going.
Globe-spanning supply chains are only possible with the protection of the U.S. Navy. The American dollar underpins internationalized energy and financial markets. Complex, innovative industries were created to satisfy American consumers. American security policy forced warring nations to lay down their arms. Billions of people have been fed and educated as the American-led trade system spread across the globe.
All of this was artificial. All this was temporary. All this is ending.
In The End of the World is Just the Beginning, author and geopolitical strategist Peter Zeihan maps out the next world: a world where countries or regions will have no choice but to make their own goods, grow their own food, secure their own energy, fight their own battles, and do it all with populations that are both shrinking and aging.
The list of countries that make it all work is smaller than you think. Which means everything about our interconnected world – from how we manufacture products, to how we grow food, to how we keep the lights on, to how we shuttle stuff about, to how we pay for it all – is about to change.
The Militaries of the U.S. and its Allies Are Not Prepared for the New Cold War
The new Cold War will be similar in many respects to the previous one but different in others. Similarities like a bi-polar world with alliances gravitating to one or the other pole militarily and economically. Similarities like the MAD principle is at least one issue that the two power centers hopefully agree on. Right now, the US and Russia possess over 90% of the nuclear weapons on earth but nuclear proliferation is expanding. Iran will soon have nukes despite many years of “diplomacy” that our political leaders promised would deny them a weapon. It’s important to point out that Ukraine handed over 4,000 nukes to Russia in 1991 in exchange for guarantees on its security and sovereignty. So much for that promise. Iran and North Korea have been keen observers. One can imagine Japan and Saudi Arabia soon having nukes on their soil. Really freakin scary!
However, nuclear weapons are not the only concern. Cyberspace, outer space, and human biology are also battlefields of the new Cold War. Many experts say that our electrical grid and other infrastructure have already been hacked by the Russia-China axis who waits to deploy the malware at the opportune moment. We have just witnessed how Covid-19 crippled the globe. It is simply a fact that Covid originated from China and highly likely from a biolab whose gain of function research was funded by the United States Center for Disease Control. It is also a fact that anyone who noticed that fact two years ago was labelled a conspiracy theorist. So, it’s not a conspiracy theory to assume that the Russia-China Axis will exploit biological weapons in this Cold War if given the chance? Finally, outer space has already been militarized by China and Russia who boast of their capabilities to destroy satellites, the lifeblood of global telecommunications.
Unless the United States has some secret weapons or defense capabilities that haven't been made public, we are behind our adversaries in several areas. This isn’t just in the U.S. and Europe, but Asia as well. Meanwhile, both China and Russia, have tested hyper-sonic missiles which could deliver nukes in 2 minutes that may not be detectable in radar. If true, this would be a significant and dangerous power imbalance that should be the #1 national priority to fix ASAP.
The Chinese are keenly watching our every move to gauge if they want to also make a move on Taiwan. Even though they only have about 5% of worldwide nukes, their military is formidable, and their economic power is nearly equal to the United States. Over the past year, Putin and Xi have become close, at least publicly. China has yet to condemn the invasion and so far, seems content with abstaining from UN resolutions punishing Russia, though that means little. The point is, America must defend two completely different regions of the earth simultaneously. Any serious coordination between Russia and China could make things extremely difficult. The American and NATO defense infrastructure needs serious upgrades that will cost serious money. The can cannot be kicked down the road on this.
Sign me up for Education + National Security
Core to upgrading the U.S. military is attracting the best and brightest of our citizens to serve their country. We are an all-volunteer force right now, but I cannot help but think how transformative it would be for our nation if we followed the Israeli or Swiss model where all young people graduating from high school must serve at least two years in the military before starting college or career. Israel has a kick-ass army and all that smart young talent creating huge tech companies, all served in the military. The Israelis can teach a master class on how to survive and prosper under existential threats.
I was lucky enough to have spent the first two years after high school at the United States Air Force Academy where I learned valuable lessons that have stuck with me. Discipline, teamwork, and learning how to fail and recover. Historically, our armed services have been the most egalitarian institution in our society. The military I knew was blind to race, wealth, gender, and sexual orientation. The only thing that mattered was doing your job. This environment fosters friendships that are built by having survived common hardship. Air Force vets are some of my closest friends to this day.
I think that millions of American youths would benefit from this experience which is why I would gladly pay higher taxes to fund an expanded GI Bill that would pay for college in exchange for service. We have this now in some form, but the program needs to be upgraded to attract the kind of talent we need. How about this for a deal? All the DACA kids serve in our military in exchange for citizenship? I’d do that deal in a heartbeat. The United States has large problems with its public education system that I view as a long-term national security threat. I have blogged and podcasted numerous times on education reform, so I won’t get into the particulars here. Let’s just say there’s a growing bipartisan movement that believes many of our public schools are on the wrong track and they are taking action at the local level. Locally Grown! Good for them!
America is Broke
The U.S. has over $30 trillion in federal debt and trillions more in unfunded Social Security, Medicare, Medicaid, and many other social safety net promises. With all the recent COVID stimulus and President Biden and his party promising trillions in new spending, the stability of the US Dollar is at serious risk. In a newly less global world, there will be less need for dollars to conduct world trade. Russia and China have already been dialing back their use of US dollars in global trade. This will only be exacerbated as Russia redirects its oil and gas exports to China. This puts the entire system of petrodollars that has underpinned world oil markets for decades under threat. These dollars will be repatriated in the form of more inflation.
The last time the world saw inflation like we have now was in the 1972-1981 after Nixon removed the US dollar from the gold standard. Interest rates spiked to 15%. However, during that time the, the US Federal Debt to GDP ratio was 35%. It has since grown to 128% as of December 2021. In the 1980’s Federal Reserve Chairman Paul Volker courageously broke the back of inflation by drastically raising interest rates which caused a recession. This move by Volker tamed inflation. He understood that when prices come down when people cannot afford them. Imagine if the Fed raised rates so that the yield on the 10-year T-Bond was the 1981 rate of 15%? The interest payments on our $30 trillion federal debt would be $4.4 trillion annually. That represents more than 72% of President Biden’s 2021 federal budget. Completely unsustainable. If the Fed continues to keep interest rates artificially low as it has for the last 20 years, inflation will just continue to rage until our currency and economy collapse. Our federal government and its central bank have painted us into a nasty box with limited bad choices.
So, on one hand, the US has unsustainable budget deficits already but needs to spend hundreds of billions more on defense. Talk about the mother of all political choices! Some of this could be mitigated with European (especially Germany) and Asian (especially Japan) allies also raising their defense spending. Right now, NATO is weak after decades of EU countries not paying their agreed upon minimum 2% of GDP on defense. One of the good things President Trump did was to call this fact out, despite his boorish style in doing so. Again, United States and Europe are now leaning in hard against Russia, with Germany committing to exceeding the 2% minimum. The leadership we need now is one that will tell us the truth about what’s going on and make the case for the long-term benefits that will come from short-term sacrifices made by all of us. Fiscal responsibilities must be shared so everyone on the socio-economic ladder has some skin in the game. This means budget cuts, tax increases, and incentives that show us where to work together effectively. We can do this!
It's all about Energy
The U.S. must unleash its private sector to increase development of its oil and gas reserves to replace Russian oil and gas that comes off the market. This means approving the Keystone XL pipeline and issuing drilling permits on federal lands. America must use the incredibly powerful leverage of the largest oil and gas producer on earth to keep oil and gas prices as low as possible. Nothing hurts Putin’s war machine more than that. President Biden must rise to the occasion and become the kind of leader he sold himself to be. This means being the adult with the small but loud radical wing of his party who prioritize climate change over everything else. Similarly, leaders on the right must be the adults with the more extreme elements of the GOP. This leader should not be Donald Trump, but someone needs to step up. Maybe this issue is the mother of all political choices?
And what exactly will be the message from the adult wings of the parties? How about, “For now, we must live in the world that is, not the world we wish to be.” Climate change is an issue that needs to be addressed, but not at the expense of the national security of the United States. To me, an excellent compromise is to dramatically increase our nuclear power. It is the only scalable zero carbon footprint we have now. Wind and Solar simply don’t cut it. We have the technology and capability. We just need the political will. The EU is facing this same choice only worse because they do not have nearly the fossil fuel resources as the U.S. The good news is that nuclear technology has improved dramatically in terms of efficiency and safety as evidenced by the fact that France generates about 75% of its electrical power from nuclear. Maybe we can enlist brilliant minds like Elon Musk to launch our nuclear waste into the cosmos? Nuclear power addresses climate change and national security simultaneously. What could be more bipartisan?
We Must Secure our Southern Border
The U.S. has gone far too long with a porous southern border, but we haven’t seen anything like the flood pouring into this country since President Biden took office. Along with energy, there is no more stark policy difference between the current and past administrations than with border policy. Between March 1 and October 31, 2021, over 192,000 illegal immigrants were allowed to stay in this country as the Biden administration used an expansive view of limited parole that makes them eligible for work permits. By law, a parole is only granted on a case-by-case basis and only for significant humanitarian reasons or significant public benefit. Neither of these apply to the current situation and the number of paroles granted raises questions about the entire approval process. While the Border Patrol is busy detaining people, thousands of human and drug traffickers traverse our border as regular as a daily work commute.
How can this be in the best interest of U.S. citizens? A February 2022 Gallup poll suggests Americans see what is happening and they are not happy, with 58% being dissatisfied with the Biden border policies. I’ll be interested in seeing updated polling on immigration and border security post Ukrainian crisis. It cannot be emphasized enough how big of a national security risk this represents. Border Patrol has detained people from over 130 countries including some hostile to the U.S. Who can honestly believe that in a new Cold War, U.S. adversaries will not try to exploit our porous borders, and the most generous immigration laws on the planet? This is another bipartisan issue.
Baby Steps First – Focus on Bipartisan Issues
The United States has many challenges that have been festering for years. My understanding of human behavior is that tough issues are easy to procrastinate on. Kicking the can down the road is itself a bipartisan principle. But there is nothing like an existential crisis to clarify what’s important and what’s not. Climate change may be important, but not as important as nuclear war. Transgender issues may be important, but not more important than a failed electrical grid. There is a long list of important issues that liberals and conservatives disagree on but most of those must be put on the back burner until we can resolve the existential crises that America needs to respond to NOW. If we cannot come together to address the big issues of clear common interest, there is no hope for the lesser issues. Very scary thought.
My read of the data indicates that all the issues I’ve addressed here have broad public support and bipartisan support in Congress and the Senate. What we need is leadership to galvanize the support into action. This is the job of the American President. We need Mr. Biden to stand and deliver. We cannot afford to wait three years for a new President. You play the game with the players you have, and we should all pray that President Biden can do what he promised and unite the country in facing these huge challenges. It won’t be easy, but the stakes are too high not to give it everything we’ve got.
In my book, Locally Grown: The Art of Sustainable Government, I spend a lot of time on negotiation and compromise. The need to find some common ground that unites us, lest we devolve into a violent Civil War. It’s not like it hasn’t happened before. My book explains some cool aspects of game theory that do a good job of driving to consensus. Our country worked best when we agreed on the big things. Years ago, our politicians seemed more pragmatic, willing to negotiate. A large bi-partisan majority of American’s don’t like what they see in Washington DC. We need to demand better from our elected officials. The way I characterize these times is to think of it like a store. The store sells only blue products and red products. However, the line out the door is for purple products. Consistent with that thought, I am starting to work with a group called No Labels. It is a collection of 58 Republican and Democrat Representatives and Senators that focus on bi-partisan solutions. Its already an official Congressional caucus that is gathering steam. This seems like an effort that will put some purple products on the shelves.
Tom and Ray Magliozzi of PBS’s Car Talk ended each show by saying; “Well you’ve wasted another perfectly good hour listening to me.” It was pithy and honest. My podcast opens and closes with music clips from a song I wrote a few years back called, “United We Stand”. The chorus is “United We Stand, Divided We Fall, Each One for the Other, and All for All.” I think that’s a good way to close.