Broken Promises

[courtesy Google Images]

Reuters

“The EU summit in Brussels seemed unlikely to adopt more than symbolic measures [against Russia] . . . .  The European Commission has announced an aid package of up to 11 billion euros ($15 billion) for Ukraine over the next couple of years provided it reaches a deal with the International Monetary Fund, entailing painful reforms like ending gas subsidies.”

The Russian’s will take Crimea by implied force and the West will take the western Ukraine by monetary subjugation. The eastern Ukraine’s fate remains to be discovered.  Either way, the former Ukraine will lose some or all of its former sovereignty.

The major powers of the world have allegedly promised to “help” the Ukraine, but no one will truly help the Ukrainians remain independent or sovereign.  Instead, the big predators will carve up the Ukraine like a dead water buffalo.

“France has a deal to sell warships to Russia that it is so far not prepared to cancel, London’s banks have profited from facilitating Russian investment, and German companies have $22 billion invested in Russia.”

Those facts indicate that while right and wrong may be noble concepts, when it comes to geopolitics an in general and the Ukraine in particular, it’s all about the money.  Insofar as France, England and Germany are making more money off their relationship to Russia than they are off their relationship to the Ukraine, they will not impose any serious sanctions against Russia.

•  Last week, Mish Shedlock reported in his Global Economic Trend Analysis that Russian President Putin had said,

 “The tense situation in the Crimea, associated with the possible use of the armed forces, just dissipated, the need for that did not arise. The only thing which was necessary, and which we did, was to strengthen the protection of our military installations . . . Therefore I believe that it will not be necessary for us to do anything like that in eastern Ukraine.”

Translation?  The “war” in the Ukraine is about over.

Russia has annexed the Crimea and will hold it.

Russia won’t go further into the Eastern Ukraine—at least, not for now.

Six months from now, a year from now, maybe two years from now, Russia will take the Eastern Ukraine and once again, the world will do nothing but wring its hands.

Putin got away with “half a loaf” today.  He’ll take the other half, tomorrow.

•  The Israeli newspaper Arutz Sheva which published in article entitled “Ukraine’s Lesson for Israel: ‘US Guarantee Worthless”:

“Ex-Member of the Knesset Aryeh Eldad notes that in 1991, the US and Britain guaranteed Ukraine’s security in exchange for nuclear disarming.”

But as we can see, the US and UK promises of 20 years ago are no longer worth as much as they were then.  The Ukraine, relying on US and UK protection against Russia, gave up its nuclear arsenal in the 1990s.  However, Ukraine now finds itself unarmed in a face-off with Russia (which has the world’s largest arsenal of nuclear weapons) and unprotected by the US/UK.

Result?  The Ukraine is out-gunned and can therefore kiss the Crimea goodbye.

The Arutz Sheva article continues:

“The lesson for Israel from Ukraine’s current plight, according to ex-Member of the Knesset Aryeh Eldad, is that Western guarantees of Israel’s security must never be trusted.

But that’s not exactly true.

That lesson isn’t a result of the “Ukraine’s current plight”—it’s the result of the US government’s financial plight.  Our government is insolvent and can’t afford to keep the treaty promises it made to the Ukraine.

On the face of it, our inability to make good on treaty obligations to Ukraine may not seem so important.  However, our government’s inability to keep its treaty promises in the Ukraine implies that it might also be unable to afford to keep its treaty promises made to Israel or Japan.

If our government fails to honor treaty obligations to the Ukraine, we can reasonably suppose that some middle-eastern countries will be encouraged to step up their attacks against Israel.  Likewise, we have to believe that China will view the US failure to back the Ukraine as evidence that the US might also fail to fully perform its treaty obligations to defend Japan.   China must be at least slightly encouraged to step up pressure on Japan over the Senkaku islands.

The drama in the Ukraine will ultimately affect geopolitics far beyond the Ukraine, itself.

Given its financial plight, the US government may not only be unable to keep all of its treaty promises to foreign countries.   It may also be unable to keep its retirement promises to So-So Security beneficiaries, pension promises to former government employees, promises to repay the National Debt, or even the implied promises to maintain some fairly stable value of the fiat dollar.

Because our government is broke, a lot of promises made in the past will go unkept.

Our government’s abandonment of the Ukraine is simply one concrete instance of many such broken promises that may be headed our way.

•  If foreign nations conclude that some or many of the treaty promises made by the formerly mighty U.S. government can’t be kept, those nations will stop relying on the bankrupt US government and start seeking security from other sources like Russia and China that are not insolvent.

It may seem odd, but a primary casualty of the Russian annexation of the Crimea could be the fiat dollar’s status as World Reserve Currency.  Insofar as the foreign public and foreign governments lose confidence in America’s military power and ability to keep former treaty promises, foreign confidence in the fiat dollar will also wane.  As foreign public confidence in the dollar wanes, the dollar’s status as World Reserve Currency will also wane, and the fiat dollar’s purchasing power will decline.

I doubt that the loss of confidence reflected in the Arutz Sheva article will be critical.  But I also doubt that such confidence, once lost, will be easily regained.  If so, our Ukrainian adventure may result in a small but permanent devaluation of the dollar.  Similar future instances of government’s inability to keep its promises will also tend to devalue the dollar.  Each individual devaluation, each individual broken promise, may be small–but their effects will be cumulative.

If government can’t keep its promises, the public won’t maintain their confidence in the government, the economy or the fiat currency.  Without public confidence, the entire con-game will collapse.

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