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Why Did Vladimir Putin Invade Ukraine?

Soeren Kern wrote . . . . . . . . .

Nearly three weeks have passed since Russian President Vladimir Putin began his invasion of Ukraine, but it still is not clear why he did so and what he hopes to achieve. Western analysts, commentators and government officials have put forward more than a dozen theories to explain Putin’s actions, motives, and objectives.

Some analysts posit that Putin is motivated by a desire to rebuild the Russian Empire. Others say he is obsessed with bringing Ukraine back into Russia’s sphere of influence. Some believe that Putin wants to control Ukraine’s vast offshore energy resources. Still others speculate that Putin, an aging autocrat, is seeking to maintain his grip on power.

While some argue that Putin has a long-term proactive strategy aimed at establishing Russian primacy in Europe, others believe he is a short-term reactionary seeking to preserve what remains of Russia’s diminishing position on the world stage.

Following is a compilation of eight differing but complementary theories that try to explain why Putin invaded Ukraine.

1. Empire Building

The most common explanation for Russia’s invasion of Ukraine is that Putin, burning with resentment over the demise of the Soviet Empire, is determined to reestablish Russia (generally considered a regional power) as a great power that can exert influence on a global scale.

According to this theory, Putin aims to regain control over the 14 post-Soviet states — often referred to as Russia’s “near abroad” — that became independent after the collapse of the Soviet Union in 1991. This is part of greater plan to rebuild the Russian Empire, which territorially was even more expansive than the Soviet Empire.

The Russian Empire theory holds that Putin’s invasion of Georgia in 2008 and Crimea in 2014, as well as his 2015 decision to intervene militarily in Syria, were all parts of a strategy to restore Russia’s geopolitical position — and erode the U.S.-led rules-based international order.

Those who believe Putin is trying to reestablish Russia as a great power say that once he gains control over Ukraine, he will turn his focus to other former Soviet republics, including the Baltic countries of Estonia, Latvia, and Lithuania, and eventually Bulgaria, Romania and even Poland.

Putin’s ultimate objective, they say, is to drive the United States out of Europe, establish an exclusive great-power sphere of influence for Russia on the continent and dominate the European security order.

Russian literature supports this view. In 1997, for instance, Russian strategist Aleksandr Dugin, a friend of Putin, published a highly influential book — “Foundations of Geopolitics: The Geopolitical Future of Russia” — which argued that Russia’s long-term goal should be the creation, not of a Russian Empire, but of a Eurasian Empire.

Dugin’s book, which is required reading in Russian military academies, states that to make Russia great again, Georgia should be dismembered, Finland should be annexed and Ukraine should cease to exist: “Ukraine, as an independent state with certain territorial ambitions, represents an enormous danger for all of Eurasia.” Dugin, who has been described as “Putin’s Rasputin,” added:

“The Eurasian Empire will be constructed on the fundamental principle of the common enemy: the rejection of Atlanticism, the strategic control of the USA, and the refusal to allow liberal values to dominate us.”

In April 2005, Putin echoed this sentiment when, in his annual state of the nation address, he described the collapse of the Soviet empire as “the greatest geopolitical catastrophe of the 20th century.” Since then, Putin has repeatedly criticized the U.S.-led world order, in which Russia has a subordinate position.

In February 2007, during a speech to the Munich Conference on Security Policy, Putin attacked the idea of a “unipolar” world order in which the United States, as the sole superpower, was able to spread its liberal democratic values to other parts of the world, including Russia.

In October 2014, in a speech to the Valdai Discussion Club, a high-profile Russian think tank close to the Kremlin, Putin criticized the post-World War II liberal international order, whose principles and norms — including adherence to the rule of law, respect for human rights and the promotion of liberal democracy, as well as preserving the sanctity of territorial sovereignty and existing boundaries — have regulated the conduct of international relations for nearly 80 years. Putin called for the creation of a new multipolar world order that is more friendly to the interests of an autocratic Russia.

The late Zbigniew Brzezinski (former National Security Advisor to U.S. President Jimmy Carter), in his 1997 book “The Grand Chessboard,” wrote that Ukraine is essential to Russian imperial ambitions:

“Without Ukraine, Russia ceases to be a Eurasian empire…. However, if Moscow regains control over Ukraine, with its 52 million people and major resources as well as its access to the Black Sea, Russia automatically again regains the wherewithal to become a powerful imperial state, spanning Europe and Asia.”

The German historian Jan Behrends tweeted:

“Make no mistake: For #Putin it’s not about EU or NATO, it is about his mission to restore Russian empire. No more, no less. #Ukraine is just a stage, NATO is just one irritant. But the ultimate goal is Russian hegemony in Europe.”

Ukraine expert Peter Dickinson, writing for the Atlantic Council, noted:

“Putin’s extreme animosity towards Ukraine is shaped by his imperialistic instincts. It is often suggested that Putin wishes to recreate the Soviet Union, but this is actually far from the case. In fact, he is a Russian imperialist who dreams of a revived Czarist Empire and blames the early Soviet authorities for handing over ancestral Russian lands to Ukraine and other Soviet republics.”

Bulgarian scholar Ivan Krastev agreed:

“America and Europe aren’t divided on what Mr. Putin wants. For all the speculation about motives, that much is clear: The Kremlin wants a symbolic break from the 1990s, burying the post-Cold War order. That would take the form of a new European security architecture that recognizes Russia’s sphere of influence in the post-Soviet space and rejects the universality of Western values. Rather than the restoration of the Soviet Union, the goal is the recovery of what Mr. Putin regards as historic Russia.”

Transatlantic security analyst Andrew Michta added that Putin’s invasion of Ukraine was:

“The culmination of almost two decades of policy aimed at reconstructing the Russian empire and bringing Russia back into European politics as one of the principal players empowered to shape the Continent’s future.”

Writing for the national security blog 1945, Michta elaborated:

“From Moscow’s perspective the Ukrainian war is in effect the final battle of the Cold War — for Russia a time to reclaim its place on the European chessboard as a great empire, empowered to shape the Continent’s destiny going forward. The West needs to understand and accept that only once Russia is unequivocally defeated in Ukraine will a genuine post-Cold War settlement finally be possible.”

2. Buffer Zone

Many analysts attribute the Russian invasion of Ukraine to geopolitics, which attempts to explain the behavior of states through the lens of geography.

Most of the western part of Russia sits on the Russian Plain, a vast mountain-free area that extends over 4,000,000 square kilometers (1.5 million square miles). Also called the East European Plain, the vast flatland presents Russia with an acute security problem: an enemy army invading from central or eastern Europe would encounter few geographical obstacles to reach the Russian heartland. In other words, Russia, due to its geography, is especially difficult to defend.

The veteran geopolitical analyst Robert Kaplan wrote that geography is the starting point for understanding everything else about Russia:

“Russia remains illiberal and autocratic because, unlike Britain and America, it is not an island nation, but a vast continent with few geographical features to protect it from invasion. Putin’s aggression stems ultimately from this fundamental geographical insecurity.”

Russia’s leaders historically have sought to obtain strategic depth by pushing outward to create buffer zones — territorial barriers that increase the distance and time invaders would encounter to reach Moscow.

The Russian Empire included the Baltics, Finland and Poland, all of which served as buffers. The Soviet Union created the Warsaw Pact — which included Albania, Bulgaria, Czechoslovakia, East Germany, Hungary, Poland and Romania — as a vast buffer to protect against potential invaders.

Most of the former Warsaw Pact countries are now members of NATO. That leaves Belarus, Moldova and Ukraine, strategically located between Russia and the West, as the only eastern European countries left to serve as Russian buffer states. Some analysts argue that Russia’s perceived need for a buffer is the primary factor in Putin’s decision to invade Ukraine.

Mark Galeotti, a leading British scholar of Russian power politics, noted that the possession of a buffer zone is intrinsic to Russia’s understanding of great-power status:

“From Putin’s point of view, he has built so much of his political identity around the notion of making Russia a great power and making it recognized as a great power. When he thinks of great power, he is essentially a 19th century geopolitician. It’s not the power of economic connectivity, or technological innovation, let alone soft power. No. Great power, in good old-fashioned terms, has a sphere of influence, countries whose sovereignty is subordinate to your own.”

Others believe that the concept of buffer states is obsolete. International security expert Benjamin Denison, for instance, argued that Russia cannot legitimately justify the need for a buffer zone:

“Once nuclear weapons were invented … buffer states were no longer seen as necessary regardless of geography, as nuclear deterrence worked to ensure the territorial integrity of great powers with nuclear capabilities…. The utility of buffer states and the concerns of geography invariably changed following the nuclear revolution. Without the concern of quick invasions into the homeland of a rival great power, buffer states lose their utility regardless of the geography of the territory….

“Narrowly defining national interests to geography, and mandating that geography pushes states to replicate past actions throughout history, only fosters inaccurate thinking and forgives Russian land-grabs as natural.”

3. Ukrainian Independence

Closely intertwined with theories about empire-building and geopolitics is Putin’s obsession with extinguishing Ukrainian sovereignty. Putin contends that Ukraine has been part of Russia for centuries, and that its independence in August 1991 was a historical mistake. Ukraine, he claims, does not have a right to exist.

Putin has repeatedly downplayed or negated Ukraine’s right to statehood and sovereignty:

In 2008, Putin told William Burns, then the U.S. ambassador to Russia (now director of the CIA): “Don’t you know that Ukraine is not even a real country? Part of it is really East European and part is really Russian.”

In July 2021, Putin penned a 7,000-word essay — “On the Historical Unity of Russians and Ukrainians” — in which he expressed contempt for Ukrainian statehood, questioned the legitimacy of Ukraine’s borders and argued that modern-day Ukraine occupies “the lands of historical Russia.” He concluded: “I am confident that true sovereignty of Ukraine is possible only in partnership with Russia.”

In February 2022, just three days before he launched his invasion, Putin asserted that Ukraine was a fake state created by Vladimir Lenin, the founder of the Soviet Union:

“Modern Ukraine was entirely created by Russia or, to be more precise, by Bolshevik, Communist Russia. This process started practically right after the 1917 revolution, and Lenin and his associates did it in a way that was extremely harsh on Russia — by separating, severing what is historically Russian land…. Soviet Ukraine is the result of the Bolsheviks’ policy and can be rightfully called ‘Vladimir Lenin’s Ukraine.’ He was its creator and architect.”

Russia scholar Mark Katz, in an essay — “Blame It on Lenin: What Putin Gets Wrong About Ukraine” — argued that Putin should draw lessons from Lenin’s realization that a more accommodating approach toward Ukrainian nationalism would better serve Russia’s long-term interests:

“Putin cannot escape the problem that Lenin himself had to deal with of how to reconcile non-Russians to being ruled by Russia. The forceful imposition of Russian rule in part — much less all — of Ukraine will not bring about such a reconciliation. For even if Ukrainians cannot resist the forceful imposition of Russian rule over part or all of Ukraine now, Putin’s success in imposing it is only likely to intensify feelings of Ukrainian nationalism and lead it to burst forth again whenever the opportunity arises.”

Ukraine’s political independence has been accompanied by a long-running feud with Russia over religious allegiance. In January 2019, in what was described as “the biggest rift in Christianity in centuries,” the Orthodox church in Ukraine gained independence (autocephaly) from the Russian church. The Ukrainian church had been under the jurisdiction of the Moscow patriarchate since 1686. Its autonomy dealt a blow to the Russian church, which lost around one-fifth of the 150 million Orthodox Christians under its authority.

The Ukrainian government claimed that Moscow-backed churches in Ukraine were being used by the Kremlin to spread propaganda and to support Russian separatists in the eastern Donbas region. Putin wants the Ukrainian church to return to Moscow’s orbit, and has warned of “a heavy dispute, if not bloodshed” over any attempts to transfer ownership of church property.

The head of the Russian Orthodox Church, Patriarch Kirill of Moscow, has declared that Kyiv, where the Orthodox religion began, is comparable in terms of its historic importance to Jerusalem:

“Ukraine is not on the periphery of our church. We call Kiev ‘the mother of all Russian cities’. For us Kiev is what Jerusalem is for many. Russian Orthodoxy began there, so under no circumstances can we abandon this historical and spiritual relationship. The whole unity of our Local Church is based on these spiritual ties.”

On March 6, Kirill — a former KGB agent who is known as “Putin’s altar boy” due to his subservience to the Russian leader — publicly endorsed the invasion of Ukraine. In a sermon he repeated Putin’s claims that the Ukrainian government was carrying out a “genocide” of Russians in Ukraine: “For eight years, the suppression, extermination of people has been underway in Donbass. Eight years of suffering and the entire world is silent.”

German geopolitical analyst Ulrich Speck wrote:

“For Putin, destroying Ukraine’s independence has become an obsession…. Putin has often said, and even written, that Ukraine is not a separate nation, and should not exist as a sovereign state. It is this fundamental denial that has led Putin to wage this totally senseless war that he cannot win. And that leads us to the problem of making peace: either Ukraine has the right to exist as a nation and a sovereign state, or it hasn’t. Sovereignty is indivisible. Putin denies it, Ukraine defends it. How can you make a compromise about the existence of Ukraine as a sovereign state? Impossible. That’s why both sides can only fight on until they win.

“Normally wars that take place between states are about conflicts they have between them. Yet this is a war about the existence of one state, which is denied by the aggressor. That’s why the usual concepts of peacemaking — finding a compromise — do not apply. If Ukraine continues to exist as a sovereign state, Putin will have lost. He is not interested in territorial gain as such — it’s rather a burden for him. He is only interested in controlling the entire country. Everything else for him is defeat.”

Ukraine expert Taras Kuzio added:

“The real cause of today’s crisis is Putin’s quest to return Ukraine to the Russian orbit. For the past eight years, he has used a combination of direct military intervention, cyber-attacks, disinformation campaigns, economic pressure, and coercive diplomacy to try and force Ukraine into abandoning its Euro-Atlantic ambitions….

“Putin’s ultimate objective is Ukraine’s capitulation and the country’s absorption into the Russian sphere of influence. His obsessive pursuit of this goal has already plunged the world into a new Cold War….

“Nothing less than Ukraine’s return to the Kremlin orbit will satisfy Putin or assuage his fears over the further breakup of Russia’s imperial inheritance. He will not stop until he is stopped. In order to achieve this, the West must become far more robust in responding to Russian imperial aggression, while also expediting Ukraine’s own Euro-Atlantic integration.”


This theory holds that Putin invaded Ukraine to prevent it from joining NATO. The Russian president has repeatedly demanded that the West “immediately” guarantee that Ukraine will not be allowed to join NATO or the European Union.

A vocal proponent of this viewpoint is the American international relations theorist John Mearsheimer, who, in a controversial essay, “Why the Ukraine Crisis Is the West’s Fault,” argued that the eastward expansion of NATO provoked Putin to act militarily against Ukraine:

“The United States and its European allies share most of the responsibility for the crisis. The taproot of the trouble is NATO enlargement, the central element of a larger strategy to move Ukraine out of Russia’s orbit and integrate it into the West….

“Since the mid-1990s, Russian leaders have adamantly opposed NATO enlargement, and in recent years, they have made it clear that they would not stand by while their strategically important neighbor turned into a Western bastion.”

In a recent interview with The New Yorker, Mearsheimer blamed the United States and its European allies for the current conflict:

“I think all the trouble in this case really started in April 2008, at the NATO Summit in Bucharest, where afterward NATO issued a statement that said Ukraine and Georgia would become part of NATO.”

In fact, Putin has not always opposed NATO expansion. Several times he went so far as to say that the eastward expansion of NATO was none of Russia’s concern.

In March 2000, for instance, Putin, in an interview with the late BBC television presenter David Frost, was asked whether he viewed NATO as a potential partner, rival or enemy. Putin responded:

“Russia is part of the European culture. And I cannot imagine my own country in isolation from Europe and what we often call the civilized world. So, it is hard for me to visualize NATO as an enemy.”

In November 2001, in an interview with National Public Radio, Putin was asked if he opposed the admission of the three Baltic states — Lithuania, Latvia and Estonia — into NATO. He replied:

“We of course are not in a position to tell people what to do. We cannot forbid people to make certain choices if they want to increase the security of their nations in a particular way.”

In May 2002, Putin, when asked about the future of relations between NATO and Ukraine, said matter-of-factly that he did not care one way or the other:

“I am absolutely convinced that Ukraine will not shy away from the processes of expanding interaction with NATO and the Western allies as a whole. Ukraine has its own relations with NATO; there is the Ukraine-NATO Council. At the end of the day the decision is to be taken by NATO and Ukraine. It is a matter for those two partners.”

Putin’s position on NATO expansion radically changed after the 2004 Orange Revolution, which was triggered by Moscow’s attempt to steal Ukraine’s presidential election. A massive pro-democracy uprising ultimately led to the defeat of Putin’s preferred candidate, Viktor Yanukovych, who eventually did become president of Ukraine in 2010 but was ousted in the 2014 Euromaidan Revolution.

Former NATO Secretary-General Anders Fogh Rasmussen, in a recent interview with Radio Free Europe, discussed how Putin’s views about NATO have changed:

“Mr. Putin has changed over the years. My first meeting took place in 2002…and he was very positive regarding cooperation between Russia and the West. Then, gradually, he changed his mind. And from around 2005 to 2006, he got increasingly negative toward the West. And in 2008, he attacked Georgia…. In 2014, he took Crimea, and now we have seen a full-scale invasion of Ukraine. So, he has really changed over the years.

“I think the revolutions in Georgia and Ukraine in 2004 and 2005 contributed to his change of mind. We shouldn’t forget that Vladimir Putin grew up in the KGB. So, his thinking is very much impacted by that past. I think he suffers from paranoia. And he thought that after color revolutions in Georgia and Ukraine, that the aim [of the West] was to initiate a regime change in the Kremlin — in Moscow — as well. And that’s why he turned against the West.

“I put the blame entirely on Putin and Russia. Russia is not a victim. We have reached out to Russia several times during history…. First, we approved the NATO Russia Founding Act in 1997…. Next time, it was in 2002, we reached out once again, established something very special, namely the NATO-Russia Council. And in 2010, we decided at a NATO-Russia summit that we would develop a strategic partnership between Russia and NATO. So, time and again, we reached out to Russia.

“I think we should have done more to deter Putin. Back in 2008, he attacked Georgia, took de facto Abkhazia and South Ossetia. We could have reacted much more determinedly already in that time.”

In recent years, Putin repeatedly has claimed that the post-Cold War enlargement of NATO poses a threat to Russia, which has been left with no other choice than to defend itself. He also has accused the West of trying to encircle Russia. In fact, of the 14 countries that have borders with Russia, only five are NATO members. The borders of those five countries — Estonia, Latvia, Lithuania, Norway and Poland — are contiguous with only 5% of Russia’s total borders.

Putin has claimed that NATO broke solemn promises it made in the 1990s that the alliance would not expand to the east. “You promised us in the 1990s that NATO would not move an inch to the east. You brazenly cheated us,” he said in during a press conference in December 2021. Mikhail Gorbachev, then president of the Soviet Union, countered that such promises were never made.

Putin recently issued three wildly unrealistic demands: NATO must withdraw its forces to its 1997 borders; NATO must not offer membership to other countries, including Finland, Sweden, Moldova or Georgia; NATO must provide written guarantees that Ukraine will never join the alliance.

Writing for Foreign Affairs, Russian historian Dmitri Trenin, in an essay — “What Putin Really Wants in Ukraine” — argued that Putin wants stop NATO expansion, not to annex more territory:

“Putin’s actions suggest that his true goal is not to conquer Ukraine and absorb it into Russia but to change the post-Cold War setup in Europe’s east. That setup left Russia as a rule-taker without much say in European security, which was centered on NATO. If he manages to keep NATO out of Ukraine, Georgia, and Moldova, and U.S. intermediate-range missiles out of Europe, he thinks he could repair part of the damage Russia’s security sustained after the Cold War ended. Not coincidentally, that could serve as a useful record to run on in 2024, when Putin would be up for re-election.”

5. Democracy

This theory holds that Ukraine, a flourishing democracy, poses an existential threat to Putin’s autocratic model of governance. The continued existence of a Western-aligned, sovereign, free and democratic Ukraine could inspire the Russian people to demand the same.

Former U.S. Ambassador to Russia Michael McFaul and Robert Person, a professor at the United States Military Academy, wrote that Putin is terrified of democracy in Ukraine:

“Over the last thirty years, the salience of the issue [NATO expansion] has risen and fallen not primarily because of the waves of NATO expansion, but due instead to waves of democratic expansion in Eurasia. In a very clear pattern, Moscow’s complaints about NATO spike after democratic breakthroughs….

“Because the primary threat to Putin and his autocratic regime is democracy, not NATO, that perceived threat would not magically disappear with a moratorium on NATO expansion. Putin would not stop seeking to undermine democracy and sovereignty in Ukraine, Georgia, or the region as a whole if NATO stopped expanding. As long as citizens in free countries exercise their democratic rights to elect their own leaders and set their own course in domestic and foreign politics, Putin will keep them in his crosshairs….

“The more serious cause of tensions has been a series of democratic breakthroughs and popular protests for freedom throughout the 2000s, what many refer to as the “Color Revolutions.” Putin believes that Russian national interests have been threatened by what he portrays as U.S.-supported coups. After each of them — Serbia in 2000, Georgia in 2003, Ukraine in 2004, the Arab Spring in 2011, Russia in 2011-12, and Ukraine in 2013-14 — Putin has pivoted to more hostile policies toward the United States, and then invoked the NATO threat as justification for doing so….

“Ukrainians who rose up in defense of their freedom were, in Putin’s own assessment, Slavic brethren with close historical, religious, and cultural ties to Russia. If it could happen in Kyiv, why not in Moscow?”

Ukraine expert Taras Kuzio agrees:

“Putin remains haunted by the wave of pro-democracy uprisings that swept Eastern Europe in the late 1980s, setting the stage for the subsequent Soviet collapse. He sees Ukraine’s fledgling democracy as a direct challenge to his own authoritarian regime and recognizes that Ukraine’s historical closeness to Russia makes this threat particularly acute.”

6. Energy

Ukraine holds the second-biggest known reserves — more than one trillion cubic meters — of natural gas in Europe after Russia. These reserves, under the Black Sea, are concentrated around the Crimean Peninsula. In addition, large deposits of shale gas have been discovered in eastern Ukraine, around Kharkiv and Donetsk.

In January 2013, Ukraine signed a 50-year, $10 billion deal with Royal Dutch Shell to explore and drill for natural gas in eastern Ukraine. Later that year, Kyiv signed a 50-year, $10 billion shale gas production-sharing agreement with the American energy company Chevron. Shell and Chevron pulled out of those deals after Russia annexed the Crimean Peninsula.

Some analysts believe Putin annexed Crimea to prevent Ukraine from becoming a major oil and gas provider to Europe and thereby challenge Russia’s energy supremacy. Russia, they argue, was also worried that as Europe’s second-largest petrostate, Ukraine would have been granted fast-track membership to the EU and NATO.

According to this theory, Russia’s invasion of Ukraine is aimed at forcing Kyiv to officially acknowledge Crimea as Russian, and recognize the separatist republics of Donetsk and Lugansk as independent states, so that Moscow can legally secure control over the natural resources in these areas.

7. Water

On February 24, the first day of the Russian invasion of Ukraine, Russian troops restored water flow to a strategically important canal linking the Dnieper River to Russian-controlled Crimea. Ukraine blocked the Soviet-era North Crimean Canal, which supplies 85% of Crimea’s water needs, after Russia annexed the peninsula in 2014. The water shortages resulted in a massive reduction in agricultural production on the peninsula and forced Russia to spend billions of rubles each year to supply water from the mainland to sustain the Crimean population.

The water crisis was a major source of tension between Ukraine and Russia. Ukrainian President Volodymyr Zelensky insisted that the water supply would not be restored until Russia returns the Crimean Peninsula. Security analyst Polina Vynogradova noted that any resumption of water supply would have amounted to a de facto recognition of Russian authority in Crimea and would have undermined Ukraine’s claim to the peninsula. It would also have weakened Ukrainian leverage over negotiations on Donbas.

Even if Russian troops eventually withdraw from Ukraine, Russia likely will maintain permanent control over the entire 400-kilometer North Crimean Canal to ensure there are no more disruptions to Crimea’s water supply.

8. Regime Survival

This theory holds that the 69-year-old Putin, who has been in power since 2000, seeks perpetual military conflict as a way of remaining popular with the Russian public. Some analysts believe that after public uprisings in Belarus and Kazakhstan, Putin decided to invade Ukraine due to a fear of losing his grip on power.

In an interview with Politico, Bill Browder, the American businessman who heads up the Global Magnitsky Justice Campaign, said that Putin feels the need to look strong at all times:

“I don’t think that this war is about NATO; I don’t think this war is about Ukrainian people or the EU or even about Ukraine; this war is about starting a war in order to stay in power. Putin is a dictator, and he’s a dictator whose intention is to stay in power until the end of his natural life. He said to himself that the writing’s on the wall for him unless he does something dramatic. Putin is just thinking short-term … ‘how do I stay in power from this week to the next? And then next week to the next?'”

Anders Åslund, a leading specialist on economic policy in Russia and Ukraine, agreed:

“How to understand Putin’s war in Ukraine. It is not about NATO, EU, USSR or even Ukraine. Putin needs a war to justify his rule & his swiftly increasing domestic repression…. It is really all about Putin, not about neo-imperialism, Russian nationalism or even the KGB.”

Russia expert Anna Borshchevskaya wrote that the invasion of Ukraine could be the beginning of the end for Putin:

“Though he is not democratically elected, he worries about public opinion and protests at home, seeing them as threats to retaining his grip on power…. While Putin may have hoped that invading Ukraine would quickly expand Russian territory and help restore the grandeur of the former Russian empire, it could do the opposite.”

Source : Gatestone Institute

Flavonoids Are a Flavorful Way to Boost Heart and Brain Health

Laura Williamson wrote . . . . . . . . .

What do blueberries, spinach and dark chocolate have in common?

They’re all rich in flavonoids, the chemical compounds found in plants that give them color – and medicinal powers. Research shows flavonoids provide a wide range of health benefits, from fighting cancer and lowering the risk for heart disease to preserving brain function. They’ve even been used to fight wrinkles.

“The key reason flavonoids are good for us is they have anti-inflammatory effects and are antioxidants,” said Kristina Petersen, an assistant professor in the department of nutritional sciences at Texas Tech University in Lubbock.

Antioxidants help fight inflammation and aging. Flavonoids also have properties that could help prevent blood clots. And a study published last year in the American Heart Association journal Hypertension suggests flavonoids in foods such as berries, red wine, apples and pears may influence gut bacteria in a way that lowers blood pressure.

Because of this, flavonoids play a central role in the Mediterranean, DASH and MIND diets, the eating patterns most recommended by heart and brain health experts. While there are some differences, all three place a heavy focus on flavonoid-rich fruits, vegetables, nuts and beans.

But most people in the U.S. aren’t getting enough flavonoids, largely because they don’t eat the recommended daily allowance of fruits and vegetables. Federal dietary guidelines recommend adults eat 1.5-2 cups of fruit each day and 3-4 cups of vegetables. But only 1 in 10 U.S. adults eat that many vegetables and only 1 in 8 eat a sufficient amount of fruit, according to data from the Centers for Disease Control and Prevention.

The good news is, flavonoids are found in such a wide range of fruits, vegetables and other foods that it shouldn’t be hard to fit them into your diet, Petersen said. They’re found in berries of all kinds, cherries, apples, grapes, leeks and leafy green vegetables such as spinach, romaine lettuce and kale. Like garlic and onions? You’ll find them there as well. Soybeans? They’ve got them, too.

Petersen recommends eating a wide range of flavonoid-rich foods for the greatest nutritional value. “The goal is to eat a variety of fruits and vegetables of different colors. Eat a rainbow,” she said.

If you’re not used to eating a lot of produce, you can build it into your diet slowly, she said.

“Eat one more piece of fruit per day,” Petersen said. “Put one more vegetable on your plate at dinner time. Trying to overhaul your entire diet can be difficult, so start by making small changes.”

Eating fresh, whole foods is the best way to get the flavonoids you need, she said. But it’s not the only way.

If fresh fruits aren’t available, frozen berry mixes are a good alternative, Peterson said. Fruits and vegetables that are flash frozen retain high levels of nutrients, store easily and can add variety to the plate even when out of season.

You can also drink flavonoids. Beverages such as red wine and tea, especially black or green tea, are good sources. Fruits and vegetables can be squeezed into juices or smoothies as well, but Petersen said juicing is less than ideal because it removes a lot of beneficial fiber.

However, she said, “if that’s the only way you can get them into your diet, then do it.”

And, of course, dark chocolate is a sweet way to add flavonoids to your day.

There’s no need to force yourself to eat foods you don’t like in order to get your flavonoid fix. “We never have success in telling people to eat things they don’t like,” Petersen said. “There are so many you can choose from,” so eat the ones you like. And don’t be afraid to try new ones.

Anyone already following the Mediterranean, DASH or MIND diets – or any high-quality plant-based diet – shouldn’t have to worry.

“The goal is to consume a healthy dietary pattern,” Petersen said. “And if we’re doing that, we’re going to be consuming enough flavonoids.”

Source: American Hart Association

If You Thought COVID Was Over . . . . Congratulations, You’re an Idiot

Umair Haque wrote . . . . . . . . .

Uh oh. It’s ba-a-ack. Covid’s surging again, around the globe. In Hong Kong, the line is almost vertical — and this time, we’re talking about deaths. Britain, Austria, France, Germany, Switzerland, China, South Korea, the Netherlands, — all countries where Covid’s spiking, yet again. Finland has 85% more cases than last week. Austria has more cases now than at any point in the pandemic.

The WHO says all this is just “the tip of the iceberg.”

What happened here?

Let me try to say it politely. If you thought Covid was over, you’re an idiot. Sorry. I don’t mean to be rude, but people who bought this foolish notion, that “Covid is over,” need to get real, or we’ll be trapped in this Covid cycle for the foreseeable future. Let me explain the sad story of how we got here.

As the Omicron surge faded, on the one side, there were politicians, pundits, and public officials, who all converged on a certain story. A narrative. Covid was “evolving to become the flu.” And since Omicron was relatively mild, as soon its surge began to wane, “Covid was over.” This narrative spread across the West, especially — and soon enough, it was on the lips of Prime Ministers and pundits and Heads of Public Health Agencies. We were going to “live with Covid,” because now “the pandemic was ending.”

Life was going to go back to “normal” again.

Let’s take a few examples. The head of America’s CDC proclaimed, “I do anticipate that this is probably going to be a seasonal virus.” The head of the CDC’s Preparedness Center said he hopes this is “the last real large surge from SARS-CoV-2.” Top advisors to Biden urged him to “learn to live with the virus.” Advisors to PM Boris Johnson said Omicron was a “ray of light” towards Covid becoming like the common cold.

What happened as a result? Country after country dropped Covid precautions. All of them.

But they didn’t just drop distancing and mask mandates. Many countries, like the UK, dropped testing and surveillance of Covid too. So now, not only were people more likely to get it, governments can’t even track the spread.

At exactly the same time that a new variant was emerging. A “subvariant,” as the lingo goes at this point — Omcrion BA2, which is kind of like Turbo Omicron, because it’s 80% more infectious than Omicron, which itself was hyper infectious compared to Delta and Alpha. It’s almost as contagious as measles, and measles is the most contagious disease we know of.

On the other side, there were doctors and scientists. The good ones — not the few who parroted the line which is politically palatable. They warned, in unison, that lifting all precautions just as a new variant was emerging was going to be disastrous. It was idiotic. Anyone with a working knowledge of high school biology could, they warned, predict what was going to happen next. Covid would surge, all over again, fast.

Who was right? The pundits and politicians — or the scientists and experts? You probably don’t need me to tell you, unless, of course, again, you’re an idiot.

On Feb 17 2022, Denmark became the first country to drop all its Covid restrictions. All of them. No masks. No distancing. Nothing. Astonishingly, this policy was backed by the State Serum Institute, its public agency which was monitoring and evaluating the pandemic. What do you do when your government is making decisions like that? Never mind. What happened next? Deaths and hospitalisations exploded. The line surged vertically. And now? “About 1½ times more Danes are now hospitalized with COVID-19 than ever before during the pandemic.”

The next example’s so obvious to see it’s actually funny. Britain dropped Covid precautions on Feb 24th. Like Denmark, all of them. Masks, distancing, all of it. On Feb 27th, its Covid cases hit an inflection point — and began to surge, all over again. Just three days later.


There are three kinds of people when it comes to Covid. The idiots of the right wing we know all too well — they won’t take vaccines and deny science. The idiots of the center, though, are the ones who will debate the points above as if such basic realities need fine-grained statistical modelling replete with differential equations and multivariate analysis to explain them. They don’t. Any good doctor or scientist will tell you the same thing. It looks simple because it is simple.

Cases, hospitalizations, deaths literally exploding just days after countries lifted all Covid precautions? Just as a new variant emerging was emerging? It doesn’t take a genius to figure out what happened here. It takes an idiot to deny it.

I use the word idiot in the classical Greek sense. For them, there was no figure lower than the idiot — the self-centred one, the narcissist, the selfish kind of person. The idiot was someone without virtue. Only private interests mattered to them — gain, profit, comfort, and so on. Greek life was built on virtue, and for the Greeks, nobody was more dangerous than the idiot, because they couldn’t contribute to the common good, and without the common good, there was no democracy or civilization.

Whom would the Greeks call idiots today? People who think wearing a mask is some kind of existential attack on their “freedom,” not a net gain of it, increasing public health for all. Freedom? That’s what the Ukrainians are fighting for. Wearing a mask is just common sense, because, yes, the science says it works. Or maybe people who want to believe the pandemic’s over, so life can “get back to normal” — having completely lost sight of the virtues of wisdom, compassion, fairness, and truth.

Remember the two sides? The Covid-is-over side, and the…science side? Who was right? It should be obvious by now. Remember the country that saw Covid cases explode all over again in a classic inflection point just three days after it lifted all precautions? LOL. You couldn’t have a more obvious examples of what’s true.

Covid was not over — just as the scientists and doctors said. Removing all precautions did indeed lead to disastrous outcomes. And yet, even now, the idiots of both sides, left and right will deny it. The right never wanted to fight Covid. But the centre and left gave up on it without much of a fight. Yes, really.

Let me put that in perspective for you. We’re two years into a global pandemic. Just two. And of those two years, we’ve only had fully working measures against the virus for one. Vaccines and masks and distancing. We’ve had just one year of really fighting the virus — and even that’s at the cost of hesitance and infighting and skepticism from, shockingly, even institutions like public health agencies. We have really only fought the virus for one year.

This is a global pandemic. One year of fighting it is not going to be enough. Especially knowing what we know now. Our vaccines fade in efficacy, fast. So do boosters — lasting maybe ten weeks or so, before they begin to lose potency. That leaves us with basic precautions like masking and social distancing.

If we don’t follow those precautions, then Covid will keep recurring. And no, it won’t be “the flu.” Covid is evolving, and will continue to evolve. There’s every chance — let me beat an old drum for a moment — that tomorrow’s variants will be deadlier. How deadly? We don’t know, but Covid could easily recombine with SARS or MERS and then we have a virus with Omicron’s infectiousness, but a mortality rate between 15 and 40%. (By the way, when I say that, I get piled on, harassed, and called names. So don’t take it from me. Listen to Dr. William Haseltine of Harvard Med, saying exactly that.)

And we are making that path of evolution — the deadly one — more likely right now. Why?

Well, think about what the policies of the last few months really did. They said to old people, young people, kids, the immunocompromised — “You’re on your own. Good luck! It’s your problem now. The rest of us” — meaning healthy working age people, basically — “are going to get back to ‘normal’. Covid’s over!! Ha-ha!!”

So we left all these groups at the mercy of the virus. That’s not just morally bankrupt, because of course the test of a civilized society is how it cares for its most vulnerable, and in this case, we just left them to die.

It’s scientifically incredibly dangerous, stupid, and reckless. Because it’s in immunocompromised bodies that Covid mutates out of control, and new variants emerge through recombination. It’s an immunocompromised person, for example, that variants can co-infect, and recombine, because they will stay sick for a long time. Now imagine an elderly one. Now imagine a world of them, just being left for dead.

We are giving Covid a perfect opportunity to become something worse. We’re handing it our world and civilisation on a silver platter — and daring it to feast. What do we do if Covid does recombine with SARS or MERS? Then we die. Or at least many of us do. No, that’s not a joke or an exaggeration. It is reality. Remember how bad Delta was? Even if we have some degree of immune protection now, it’s not going to make us invulnerable to worse strains of Covid, which will invariably kill and hospitalise scores of people. Yes, really.

That is already what’s happening all over again.

This wave hasn’t hit America yet. That is because waves always tend to hit America last. But when it does? It’s not going to be pretty. Less than half of Americans are boosted — and that’s a lower number than in plenty of countries where Covid’s surging all over again. The first two vaccines don’t give you as much protection against Omicron, especially BA2, as against the first variants — that is what waning efficacy means. America will be hit hard by this variant, yet again. And that was all eminently predictable. It’s incredible, given all that, that the CDC let this happen.

We are in the middle of a titanic, historic set of government failures. Truly incredible ones. How is it that Denmark’s public health agencies let this happen? America’s CDC? The list goes on and on. How is it even possible that the people tasked with protecting public health, safeguarding it, paid serious and significant sums to do it…don’t…by denying science and ignoring evidence…and instead cherry-picking facts and nitpicking over details?

We all know the answer to that. Because it’s what’s politically palatable. It’s what Presidents and Prime Ministers want. It’s what a certain segment of the population wants. They don’t care if grandma dies — they just want to go the gym in peace. Hey, no pain, no gain, amirite?! They don’t appear to know how to use the minds they appear not to have.

Our entire governments are pandering to this segment of people. Our entire governments. Public health agencies, governors, heads of state. They are letting them dictate terms, and ignoring the science, hoping that there won’t be political fallout. There’s just one tiny problem. These people are goddamned idiots.

Remember when I said the Greeks said idiots were people who weren’t concerned with virtue, because they were selfish and short-sighted and greedy? What virtue is all this centrally about?

Truth. It was true what the science said. Lifting precautions after just one year of really fighting a global pandemic — and just two years into it — was far too soon. Far too soon. Science predicted yet another wave — and here we are. It was true before it happened, because of course science gives us the power to know. And it’s true now.

But truth these days doesn’t seem to matter. The very centrists who attack the right for falling for Trump’s or Putin’s or whomever demagogues Big Lies…are the very ones…to believe in their own Big Lies. Especially about public health. The pandemic’s ending! Covid’s over! Life, go back to ‘normal’! Yay!! Never mind if it leaves literally every group in society other than healthy working age people abandoned, forgotten, and at profound, severe risk. A risk that then comes back to hit even those idiots who denied it, new variants emerging into a forever pandemic.

The only word people like this is idiots. Yes, we live in an age where truth is a contemptible thing, mocked and hated and scorned. But this? This will take history’s breath away. These people just…let a pandemic…go on and on? When they had vaccines, which they didn’t share with the world? And then they stopped wearing masks and distancing, even as those vaccines waned? While new variants were emerging? Leaving the old, young, ill, and sick to…just…get infected…and die…even if that was the surest way to produce even worse variants?

Whew. History will whistle, the way one is tempted to do, when confronted with idiocy of such staggering proportions that there’s nothing left to say, because words can’t possibly do justice to it. All that’s left it to shake your head in pity at the unutterable stupidity of it, make a sound like a cry, a mewl, and wonder.

What happens to make people into such hardened, relentless, mercilessly self-destructive idiots? What do you even do with them, except wave goodbye, as you watch them walk off the nearest cliff, telling you they’re going to fly?

Source :

Opinion: The End of Fiat Hoving into View . . . . .

Alasdair Macleod wrote . . . . . . . . .

Tragic though the situation in Ukraine has become, the real war which started out as financial in character some time ago has now become both financial and about commodities. Putin made a huge mistake invading Ukraine but the West’s reaction by seeking to isolate Russia and its commodity exports from the global marketplace is an even greater one.

Furthermore, with Ukraine being Europe’s breadbasket and a major exporter of fertiliser, this summer will bring acute food shortages, worsened by China having already accumulated the bulk of the world’s grains for its own population. Inflation measured by consumer prices has only just commenced an accelerated rise.

Because they discount falling purchasing power for currencies, rising interest rates, and collapsing bond prices are now inevitable. Being loaded up with bonds and financial assets as collateral, the consequences for the global banking system are so significant that it is virtually impossible to see how it can survive. And if the banking system faces collapse, being unbacked by anything other than rapidly disappearing faith in them fiat currencies will fail as well.

Unforeseen financial and economic consequences

Back in the 1960s, Harold Wilson as an embattled British Prime Minister declared that a week is a long time in politics. Today, we can also comment it is a long time in commodity markets, stock markets, geopolitics, and almost anything else we care to think of. The rapidity of change may not be captured in just seven calendar days, but in recent weeks we have seen the initial pricking of the fiat currency bubble and all that floats with it.

This is turning out to be an extreme financial event. The background to it is unwinding of economic distortions. Through a combination of currency and credit expansion and market suppression, the difference between state-controlled pricing and market reality has never been greater. Zero and negative interest rates, deeply negative real bond yields, and a deliberate policy of artificial wealth creation by fostering a financial asset bubble to divert attention from a deepening economic crisis in recent years have all contributed to the gap between bullish expectations and market reality.

Today, almost no one thinks that our blessèd central banks and their governments can fail, let alone lose control over markets. And if you walk like a Keynesian, talk like a Keynesian you are a Keynesian. Everyone does — even the gait of mathematical monetarists is indistinguishable from them in their support of inflationism. And Keynesians believe in the state theory of everything, despising markets and now fearing their reality.

This week sees growing concerns that American-led attempts to kick Putin’s ass comes with consequences. Put to one side the destruction wreaked on the Ukrainian people as the two major military nations wage yet another proxy war. This one is in Europe’s breadbasket, driving wheat prices over 50% higher so far this year. Having laid waste over successive Arab nations since Saddam Hussein invaded Kuwait in 1990, the people who have survived American-led wars in the Middle East and North Africa and not emigrated as refugees are now going to face starvation.

Fuelled by the expansion of currency and credit, it is not just wheat prices which are soaring. Other foodstuffs are as well. And we learn through various sources that the Chinese have been prescient enough to stockpile enormous quantities of grains and other comestible materials to protect their citizens from a summer food crisis. Twenty per cent of the world’s population has secured more than half the globe’s maize and other grains (Nikkei Asia, 23 December – see Figure 1). And that was two months before Putin ordered the invasion of Ukraine, which has made the position over global food supplies even worse. And China’s dominant position in maize will hit sub-Saharan Africa especially hard, while global shortages of rice will hit Southern and East Asian nations.

All we need now is crop failures. Speaking of which, fertiliser shortages, exacerbated by the Ukraine war and high gas prices, are bound to affect global food production adversely for this year’s harvest. And well done to our elected Leaders for imposing sanctions on Russian exports of fertiliser, which added to China’s conservation of its supplies will ensure our poor, and everyone else’s poor, face soaring food prices and even starvation in 2022.

Yet, few seem aware of this developing crisis. While Ukraine is an obvious factor driving up food and energy prices, the root cause has been and will continue to be monetary policies driving the leading currencies. History is littered with examples of currency debasement leading to a food crisis and civil unrest: the Emperor Diocletian’s edict controlling prices in 301AD; coin debasement leading to soaring food prices in 1124AD at the time of England’s Henry I; the collapse of John Law’s livre in 1720 France, to name but a few.

From the dollar as the reserve currency, to euros, yen, pounds, and the rest, all of them have been debased in what used to be called the civilised world. And an understanding of money and the empirical evidence both point to a consequential food crisis this summer.

How will we pay for the higher prices? Well, no one need go without, because it will be a Keynesian designated slump. And the authorities will be onto it. Your central bank will simply issue more currency and you might even get some helicoptered to you. Price controls will prove irresistible to our leaders, and just as Diocletian penalised butchers and bakers who raised their prices under pain of death, today’s providers of life’s essentials will be accused of profiteering and taxed accordingly.

And how do we ensure our lifestyles will be not undermined? We can borrow more to pay for cars and holidays. And how do we ensure we preserve our wealth? Your central bank will suppress interest rates to keep stock markets bubbling.

It is, in essence, a trick played on us all by using fiat currency masquerading as traditional money. The risk is that the investing public, and then the public on Main Street, will twig it. First the financial asset bubble pops and then we will be unable to feed ourselves. Those who vaguely see the danger by projecting known factors think that decline is a gradual process. The mistake they make is a human element, which results in unforeseen consequences in the form of a sudden financial and economic crisis.

This article is about the approaching financial and banking crises, which we can now say will likely overwhelm us sooner rather than later. We start with a reality check on the current state of the commodity, financial and economic war. That is raging now, and it will almost certainly destabilise the current world order. And the consequences for interest rates will require the entire global financial system to be recapitalised, starting with the central banks.

The developing commodity and financial crisis

If Putin had stuck to his original objective of driving a wedge between Europe and America, he would have been able to push up natural gas prices in Western Europe without resorting to any other economic weapons. Events have dictated otherwise. And now America in kick-ass mode has united its NATO European members to drive up energy prices beyond Europe and food prices globally by proscribing all financial payments with Russia. The wider economic concern is that soaring commodity, energy, and food prices will lead to a worldwide slump.

Driven by an initial flight by investment funds away from risk towards safety, bond yields were initially driven lower from recent highs. Figure 2 shows how bond yields for the 10-year bonds in America, Germany, and Japan had declined from recent peaks earlier this week.

Though yields have risen slightly since, these declines were something of a lifeline for the Fed, ECB, and BOJ, and it would be convenient for them if they were to stabilise at current levels. It fits their preferred narrative, which is that inflation, by which they mean rising consumer prices, is fuelled by temporary factors which will diminish in time. And when Putin is forced to give up his aggression against Ukraine, prices will normalise.

Western policy planners see signs that their economies are being undermined by these developments and expect the outlook will change from inflation to recession. Therefore, central bankers and economists are beginning to think that to raise interest rates would prove to be an error of policy which could drive a mild recession into a possible slump.

Currencies are also affected by the flight to safety. The conventional view is that the safest currency is the dollar, and that has rallied sharply, as shown in Figure 3.

But it should be noted that foreign ownership is already heavily skewed into US dollars and US dollar assets. According to the latest US Treasury TIC figures, Long-term and short-term securities and bank deposits owned by foreigners totalled $34 trillion last December. This represents about 150% of US GDP and has almost certainly risen further since.

By any measure, the US dollar is over-owned by foreigners.

The current wave of foreign currency deposits fleeing into dollars is storing up trouble for the dollar in future, because they either represent inefficiently deployed liquidity for foreigners accounting in other currencies or they are invested in over-valued financial assets. But for now, not only is the dollar the king of currencies, but the proximity of the Eurozone to Ukraine and the commercial links to Eastern Europe in the wider sense undermines confidence in the euro. The euro is the largest component of the dollar’s trade-weighted index in Figure 3 above.

But the flight to safety in currencies and bonds is a temporary step driven by investors in thrall to Keynesian macroeconomics. Having been educated exclusively in Keynesianism they lack an understanding of gold and its monetary role. When freely exchangeable for gold coin, only then does a currency take on gold’s monetary qualities. It has been eighty-nine years since the dollar enjoyed this status, and for the last fifty-one years it has been totally fiat, taking all other currencies off gold with it. In fact, the temporary suspension of the Bretton Woods agreement has been replaced with American anti-gold propaganda in to secure dollar hegemony.

The few people who both understood money as opposed to fiat currencies and manage financial assets have long since retired. All currencies are now state-issued fiat, vulnerable to a schism between their purchasing power and that of gold. The escape from these unsound characteristics will undoubtedly be into metallic money, that is gold and silver, when public confidence in fiat finally disappears. That is not yet the current situation.

Russia’s central bank will be considering its position

The position in Russia is contrastingly different. Over the last two years its M2 money supply has increased by 27% compared with 41% for the dollar. The rouble has not been driven down so much by inflationary policies but by an external threat to it. This has led to cash withdrawals from their bank accounts by middle-class Russians, reflecting an erosion of domestic confidence in the commercial banks. On the foreign exchanges, the rouble has almost halved against the dollar. The Russian Central Bank will be considering its reserves policy, beyond its initial response of raising interest rates to 20% and imposing restrictive foreign exchange controls.

Of the RCB’s total foreign reserves, about $500bn equivalent is in foreign currencies and $130bn is in gold. Sanctions against it have rendered the foreign currency element valueless, at least so long as sanctions are enforced. The difference between fiat currency and gold has been clearly demonstrated. Only physical gold reserves, which have no counterparty risk, has any value to the Russian state. The question now faced by the RCB is how to stabilise the currency and return public confidence in it.

It has some high-value cards in its hand. The run on the banks is likely to diminish in time and the rouble should stabilise after the initial fall on the foreign exchanges. A period of currency stability will take the pressure off the banking system as the panic recedes. The increase in global commodity prices will go a long way towards stabilising Russia’s finances, despite Western sanctions. Russia will adapt to sanctions and find ways to export energy and raw materials. Whenever sanctions have been imposed, such as against South Africa in the apartheid years, after an initial shock the nation emerges stronger. And in the near term, labour costs have been halved relative to commodity outputs.

Meanwhile, a consequence of the failure to take Ukraine will increase the likelihood that Putin will escalate the energy and commodity crisis as a means of destabilising Russia’s Western enemies. He has been forced into a corner in this respect, and we have not yet seen his response. The intriguing question is what Russia will do about gold.

Clearly, with the bulk of its currency reserves sanctioned by the West, gold has become the stand-out asset. And if the RCB feels the need to stabilise the rouble in the longer term, then its gold reserves could be deployed to stabilise the currency and insure it against future hostilities. To advance a gold policy, the RCB might want to drive the dollar gold price higher before fixing a rate for the rouble, which would also have the effect of increasing the value of its gold reserves relative to roubles in circulation. It could do this through Asian markets, particularly the Shanghai Gold Exchange, deploying its yuan reserves.

For the moment, any such action is merely conjecture. But the consequences for the West and its dollar-based currency system would likely be to see confidence in its fiat money system undermined, making it an interesting option for Putin. Together with rising commodity and energy prices rising gold prices would draw attention to the counterparty risks faced by holders of currencies in the foreign exchanges. The West’s response is likely to be hampered by the mindset of fifty-one years of American anti-gold propaganda. And the lack of physical bullion in the US Treasury’s possession to sell into the markets could become widely suspected — this was exposed by the difficulties Germany had in getting the Federal Bank of New York to return a minor portion of its earmarked gold back in 2013.

If gold became an issue, doubtless America would apply pressure on the Europeans to supply some of their gold into bullion markets to drive the price down. But this would probably play into Putin’s hands because the European central banks, facing their own difficulties (more on this below) are unlikely to cooperate. That would drive the wedge between America and Europe, which before his mistaken invasion of Ukraine was Putin’s real objective.

Despite what might happen on gold, if interest rates in Western currencies are not permitted to rise, their purchasing power will be undermined at an increasing pace. Let it be explained for our Keynesian friends: interest rates are not the price of money, but compensation demanded by markets for expectations of a currency’s loss of purchasing power. Withhold that compensation and your currency is toast.

Recapitalising the West’s global banking system

The flight into government bonds and the dollar shown above in Figures 2 and 3 respectively is merely an initial market response seeking safety and to preserve fiat liquidity. And bond yields remaining low are consistent with unrealistic expectations that the outlook will become less inflationary and more recessionary over time. This appears to reflect hope that Putin will fail in his attack on Ukraine, and the crisis will soon be over.

A proper understanding of the crisis in prices is that they are fuelled not by war itself, but by currency debasement. Following both the Lehman failure and covid lockdowns global currency debasement in the Western partnership has been both substantial and universal, and the fallout from Putin’s war can only increase it further. Therefore, measures of inflation will not decline back towards the 2% target but increase substantially. Following the initial commodity and financial crisis, driven by market expectations interest rates are bound to rise significantly despite central bank suppression.

The effect of higher interest rates on the banking system will be materially different from past cycles. US commercial banks have not increased their lending to Main Street materially in recent years, focusing on credit creation for the financial sector and the Federal Government. According to the Fed’s H.8 Table, since 11 March 2020 (before the Fed reduced its funds rate to zero and instituted QE of $120bn per month) the expansion of bank credit in favour of securities in bank credit has increased by 32%. The increase in favour of loans and leases has been only 6%. We can assume that the cycle of bank credit in its contraction phase will be driven more by rising bond yields and collapsing stock markets than by conventional business credit contraction.

Central banks have become similarly vulnerable themselves. They have taken on the role of investors in government and agency debt, and the Bank of Japan has also accumulated equities through exchange traded funds. So not only will commercial banks suffer losses that threaten to wipe out their equity, but the major central banks face the same problem when rising interest rates getting beyond their control undermine the value of their investments. Rising interest rates mean that the entire Western banking system will need to be bailed out by a recapitalisation.

It may surprise those unfamiliar with the differences between money, currency, and credit, that new capital for a bank is always financed from its own balance sheet. In effect, temporary credit is turned into permanent capital. This is because either a deposit from an existing customer is re-allocated, or one is paid in from another bank creating a new deposit. Alternatively, and this is usually the case today, an agent is appointed to arrange subscriptions for the new capital, be it in the form of a rights issue or placing. On completion, the agent transfers subscribers’ deposits to a deposit account created for the purpose at the recapitalising bank. The deposit is then exchanged for the extra capital promised to the depositors under the terms of subscription.

Understanding the process is important. Most people would think that money or currency is involved when it never is. Bank capital is always provided out of bank credit.

A central bank raises capital by the same means but has the additional facility of creating and then redeeming its own bank notes, swapping them across its books for permanent capital. For this reason, a note issuing bank or central bank is never stuck for permanent capital. Furthermore, when you read that a bank has permanent capital of a billion dollars, most people think it is paid up in hard money. But it is an illusion funded entirely by bank credit — credit created by the bank itself.

To explain the mechanics, we can refer to how the Bank of England’s capital was increased in 1697. The Bank was founded in 1694 to act as banker to the government with an original capital of £1,200,000.

In the second half of 1696 the Bank had stopped payment due to a depositor’s run on its stocks of silver, brought about by a shortage of new coin following the Recoinage Act of January that year, and its circulating notes fell to a discount of 20% to their face value. To restore public credit in the Bank, Parliament in 1697 determined to increase the capital of the bank by £1 million (the actual figure in the Bank’s records was £1,001,171 10s[i]) but no part of the increased capital was actually paid up in money, which was silver (England was on a silver standard at that time). In pursuance of the Act £800,000 were paid in Exchequer tallies (effectively a loan issued to the Treasury by the Bank to allow the Treasury to subscribe for stock) and £200,000 in the bank’s own depreciated notes which were taken at the full value in cash. Thus, at the first increase of capital from the original £1,200,000, £200,000 of the capital consisted of its own depreciated bank notes. And the Bank was then authorised to issue its own banknotes to the amount of this portion of the increase in capital, so that the quantity of circulating banknotes remained the same.

Such are the methods by which the capital of a bank which issues notes may be increased. But the capital of a bank which does not issue notes may be increased by similar means. The essence of banking is to make advances by creating credits or deposits, and they can be used to increase its capital. The method was proved in the case of the Bank of Scotland when it increased its capital in 1727.

Suppose that a bank wishes to increase its capital and its customers wish to subscribe. In theory, they may pay in currency (that is bank notes) but today that never happens. But they can give the bank a check drawn on their account. This is the same thing as paying the bank in its own debt to subscribe for capital. It is the release of a debt owed by the bank to its customer, and that debt released then becomes a matching increase of capital. The recently agreed procedures for bank bail-ins, whereby a failing bank is recapitalised by exchanging bond obligations and large deposits for equity stock, accords entirely with these principals and is the way in which the capital of all commercial banks is increased.

Having clarified the procedures, we can now understand how the global banking system can be recapitalised and the potential difficulties.

The consequences of a mass bank recapitalisation

The recapitalisation of commercial banks which are not irretrievably bankrupt has been not uncommon in the past. For the first time, we are likely to see additional losses on central bank bond investments at all the major central banks (excepting China and Russia) which on a mark-to-market basis will wipe out their notional equity, leaving balance sheet liabilities exceeding their assets. And because this will occur as interest rates rise and bond prices fall, it is likely to occur when commercial banks need rescuing from the same effects of rising interest rates on loan collateral and their bond investments, along with the complications of the usual cyclical contraction of commercial bank credit.

In 1697 the recapitalisation of the Bank of England was to stop the run on silver coin. No specie was involved in the recapitalisation. The outward appearance of the bank’s stability was enhanced which removed the embarrassing discount on its bank notes, making them acceptable as a substitute for silver coin. Today, the objective of a mass central bank recapitalisation will be so that their credit as issuers of fiat currencies can be maintained.

The obvious concern becomes how such an exercise will affect confidence in their currencies. With the Fed, the ECB, the BOJ, and the BOE all technically bust and with no money backing them (that is physical gold), the fiat currencies they issue rely on confidence in the issuer and its currency. The losses on their bond investments from rising interest rates and the need for their recapitalisation will be synchronised by circumstances. How this plays out in terms of public confidence in financial markets and currencies for now is a matter of speculation. But we should bear in mind that while the other central banks can perform a modern version of the Bank of England’s 1697 recapitalisation, the ECB has no government treasury ministry to act as the principal counterparty.

Its shareholders are the nineteen national central banks in the euro system. Nearly all the national central banks have liabilities in excess of their assets as well or will have on just a small increase in euro-denominated bond yields. There is the further complication that through the TARGET2 settlement system some NCBs are creditors of the ECB already, and most of them owe euro credits to Germany’s Bundesbank, that of Luxembourg, Finland, and a few others.

A further concern will be about the survival of commercial banks in a higher interest rate environment. Of the expansion of commercial bank credit in the US since March 2020, the overwhelming majority has been into government and agency debt. The average balance sheet leverage of the US’s global systemically important banks (the G-SIBs) is about eleven times, so a rise in interest rates sufficient to discount the falling purchasing power of the dollar will wipe out the capital in all of these banks, even before other negative effects of a collapse of financial collateral values are accounted for.

The commercial banking networks with the highest leverage are in the Eurozone with its G-SIBs asset to equity ratios averaging over 21 times, with some considerably higher. The Japanese banks are also at about 21 times. Both the ECB and the BOJ have imposed negative interest rates, so the rise in global interest rates are bound to wipe out commercial bank capital in these jurisdictions first.

These problems are only defrayed for as long as the Keynesian establishment, including the investment community, is unaware of the consequences of currency inflation past, present, and future. When it has become clear that whatever happens in Ukraine only aggravates a situation over food, energy, and other prices with their knock-on effects we will have seen bond prices already collapsing, taking down the whole banking system from top to bottom.

Full faith and credit in fiat currencies is bound to evaporate, repeating on a global scale what happened in John Law’s France in 1720.

Source : Gold Money