"We Need to Talk About Ukraine"
by Jim Rickards
"There’s plenty to discuss, from the Fed to inflation to the supply chain issues. But we need to talk about Ukraine. Yes, that’s right. We need to talk about Ukraine. That’s because nothing is more important in the world right now. Why? Because Ukraine is the spider in the spider web of the global economy.
Ukraine affects geopolitics, geo-economics, energy and food shortages, supply chains and the desire of many countries to escape U.S. dollar hegemony. It may even potentially involve nuclear war. That’s why the United States has taken such a strong post-Cold War interest in Ukraine — a region of Eastern Europe no American president would risk a drop of American blood over until the Berlin Wall fell.
Russian success in Ukraine would lead to a new international monetary system through its allies in the BRICS+, the Shanghai Cooperation Organization and the Eurasian Economic Union. On the flip side, Russian failure in Ukraine would lead to a strengthened world economic order with the U.S. firmly in charge. NATO would be ascendant. Where things stand today, either outcome is still possible. Much will depend upon the next few months. With that as background, let’s dive into the analysis…
First, a note on sourcing. Winston Churchill famously said, “In wartime, truth is so precious that she should always be attended by a bodyguard of lies.” That was true in World War II, and it’s no less true today. The U.S., U.K. and EU will lie. So will Ukraine. So will Russia. That’s our starting place in any analysis. If I read something in The New York Times. I can be quite certain it’s a lie. That’s to be expected. The New York Times is nothing more than a channel for CIA and MI6 deception.
Still, lies are valuable. They reveal what the sources are really concerned about. If you weren’t concerned about something, why bother to lie about it? Based on the lie, you can know what matters. From there, you can use inferential methods to assume the topic of the lie is important and the opposite of the lie is probably true. You can update your inference with what’s called all-source fusion; basically, using other intelligence sources to tweak the initial inference in one direction or another. If enough evidence accumulates, you quickly get to a point where you can give a high probability to a certain state of affairs, even if it’s quite different from what the media are telling you.
All-source fusion can include comments from retired military and intelligence officers who have good contacts among former colleagues and who are not afraid to speak the truth because their careers are no longer at risk. It can also include informed sources from neutral countries like Switzerland, and former U.N. peacekeepers who were on the front lines in the Donbas region of Ukraine.
Sometimes we even gain insights from what’s called pocket litter. These are scraps of paper or other objects from the clothing of prisoners or casualties that may have maps, phone numbers, notes and other commentaries on the war that provide insights not otherwise available. But pocket litter can be used for counterintelligence. Sometimes a body is left with fake maps and battle plans in the jacket pockets intended to be discovered by the enemy.
Now you see why intelligence work is referred to as the wilderness of mirrors. You can’t trust anything to be as it appears. Having said all that, read on. I believe that what follows is the best available analysis of the war in Ukraine, based on the best available evidence. It may be a bit of “inside baseball” for the introductory reader, but everyone needs to catch up before it’s too late.
Here’s the mainstream narrative:The status of the war in Ukraine is best understood as a competition between the narrative and reality. The narrative consists of what you hear from mainstream media, the White House, the Pentagon and official sources in the U.K., France, Germany and both EU and NATO headquarters in Brussels. The reality consists of what’s actually going on based on the best available sources. Let’s consider the narrative first.
According to the White House, EU and NATO, things are going relatively well for Ukraine. The Armed Forces of Ukraine (AFU) have advanced in eastern Ukraine along a line that runs parallel to the Russian fortified lines between Donetsk and Luhansk. Ukraine has also reoccupied the regional capital of Kherson, which lies strategically on the Dnieper River, and is Kyiv’s main access to the Black Sea and international trade.
Based on these advances, the narrative says that Russia is in retreat, Russian troops are demoralized, Putin is in jeopardy of being replaced and complete victory for Ukraine is just a matter of time. The narrative is then used as a basis for increased financial aid from the United States (over $60 billion and growing) and increased weapons shipments from NATO members. President Zelenskyy touts these accomplishments in his customary green T-shirt on video presentations to the U.N., G20 and other international audiences.
Here’s the reality…The actual situation on the battlefield is almost completely at odds with the narrative. Ukraine did make advances in the east, but they were against lightly defended Russian positions on or near open terrain. The Russians organized an orderly retreat to fortified lines and let the Ukrainians have the open land. Russia withdrew from Kherson because they regarded it as a nonstrategic salient.
Russia regarded Kherson as a nonstrategic salient. The Russians withdrew to the east bank of the Dnieper River while allowing Ukrainian troops to reoccupy the center of Kherson. Russia avoided a fight over a city of little strategic value while retaining a chokehold on river traffic from the east bank. The Russians essentially organized an orderly retreat to fortified lines and let the Ukrainians have the open land, which will become a killing field for Russian artillery. Even with that withdrawal, almost all the industrial, technological and natural resource capacity of former Ukraine is in the Donbas now under Russian control.
In the meantime, Russia is now preparing to launch a massive counteroffensive. Russia has completed its 300,000-person mobilization. Over 180,000 of those troops are now deployed behind Russian lines in combat formations. The remaining 120,000 troops will arrive soon. This brings total Russian strength up to about 30 divisions. They are being supplemented with Iranian drones, a major force multiplier. The major objectives of this counteroffensive are Kharkiv in the northeast, Odesa in the southwest, and Zaporizhzhia in the center part of the country on the Dnieper River.
Completion of these missions will give Russia control of the entire coast from the Sea of Azov to the Black Sea. It will also give Russia control of the Dnieper River and the largest nuclear power plant in Europe. Russia will incorporate all of this territory into the Russian Federation and will likely move further into Moldova to reunite with a pro-Russian corridor called Transnistria with its capital in Tiraspol. At that point, Russian strategic objectives will be complete. Ukraine will be left as a rump state between Kyiv and Lviv.
Ukrainian officials are preparing for a brutal winter ahead by evacuating civilians from cities likely to be the scene of new battles with Russian troops. These Ukrainian expectations seem at odds with the mainstream narrative of victorious Ukrainians on the offensive against demoralized Russian troops.
Meanwhile, AFU strength has been greatly diminished due to high casualty rates. Meanwhile, advanced weapons supplied to the AFU will be of little use because the AFU has not been trained to use them and there are logistical obstacles to moving them to the front lines. Many so-called Ukrainian troops are actually Polish forces in Ukrainian uniforms. Again, Russian forces are well-rested and well-supplied, and are being supplemented with Iranian drones, a major force multiplier.
The economic impact of these developments is momentous. Biden has vowed that the sanctions will not be lifted until Russia leaves Ukraine. But Russia is not leaving. This implies that sanctions will continue indefinitely. The sanctions have had little economic impact on Russia. But the effect on Europe and the U.S. has been devastating including energy shortages, inflation and supply chain disruption. These effects will persist and cause the EU and U.S. to fall into a severe recession in the first half of 2023. These effects will persist and cause the EU and U.S. to fall into a severe recession in the first half of 2023.
The dollar will remain strong for reasons independent of the war in Ukraine, having to do with a growing global liquidity crisis. Stocks will fall significantly due to recessionary conditions. Bonds will perform well as interest rates decline alongside economic decline. Gold will remain strong as more countries look for ways to avoid U.S. economic sanctions and as central banks diversify away from dollars toward gold. Brace yourself for more volatility as we head toward the winter months. Moving cash to the sidelines is a prudent thing to do."