Putin and Ukraine

 

Two recent articles on the Foreign Affairs website deal with the question of what Putin plans to do about Ukraine.  Will he invade or not?

·       Russia Won’t Let Ukraine Go Without a Fight

·       Ukraine in the Crosshairs

I think the first ignores the history of the relationship between Russia and Ukraine, while the second tends to downplay the importance of the history.  The second article refers to an essay by Putin on the history of the relationship, calling it “revanchist drivel.” 

There are several matters that may be prompting Putin to threaten to invade Ukraine. 

·       Putin see Ukraine as a historical part of Russia and does not want to see it move further toward the West. He may try to keep it physically under Russian control.   

·       Lukashenko, the Putin-supported president of Belarus is being challenged by a popular movement in Belarus. Putin may fear losing his proxy in Belarus as he did in Ukraine. 

·       Putin’s popularity and support are sinking in Russia as he faces opposition from Navalny and other challengers.  He may think a foreign success will strengthen his support within Russia. 

Ukraine and Russia

For the last thousand years, Ukraine has been an ethnic and geographical region, but not an independent country.  Kiev, founded around 500 A.D., was in many ways the first capital of Russia, before Moscow, founded around 1150, or St. Petersburg (1700). 

In his article, Putin says:

Russians, Ukrainians, and Belarusians are all descendants of Ancient Rus, which was the largest state in Europe. Slavic and other tribes across the vast territory – from Ladoga, Novgorod, and Pskov to Kiev and Chernigov – were bound together by one language (which we now refer to as Old Russian), economic ties, the rule of the princes of the Rurik dynasty, and – after the baptism of Rus – the Orthodox faith. The spiritual choice made by St. Vladimir, who was both Prince of Novgorod and Grand Prince of Kiev, still largely determines our affinity today.

The throne of Kiev held a dominant position in Ancient Rus. This had been the custom since the late 9th century. The Tale of Bygone Years captured for posterity the words of Oleg the Prophet about Kiev, ”Let it be the mother of all Russian cities.“

 

Over the years, as Russia or Poland became more or less powerful and expanded or contracted, parts of Ukraine became more Russian or more Polish.  The western Polish parts tended to be Roman Catholic, while the eastern Russian parts were Orthodox Catholic.  After World Wars I and II, Ukraine became more fully Russian.  The Russian Communists made the Ukraine SSR one of the Socialist Republics which was part of the Union of Soviet Socialist Republics.  In 1954, the Crimea region was transferred from the Russian SSR to the Ukrainian SSR, probably to advance the career or Nikita Khrushchev, who was the party official responsible for Ukraine.  Thus, when the USSR disintegrated in 1991, Ukraine, including Crimea, automatically became a separate country for the first time. 

For the first few years of independent Ukraine continued as largely a satellite of the Russian Republic.  In 2004, however, a disputed election resulted in the Ukrainian supreme court overturning the election of Putin’s candidate, Yanukovich.  The opposition to Yanukovich created the Orange Revolution, which brought in opposition candidate Viktor Yushchenko as the new president.   Yanukovich, however, returned to power as prime minister in 2006, and after a hiatus, again in 2010. 

Mounting opposition to Yanukovich was expressed in the Euromaidan protests in 2014 resulting in new elections and the election of Petro Poroshenko.  The ousting of Yanukovich, however, prompted Putin to annex Crimea, and return it to Russian rule.  American, Russian, and European political strategists have been involved in the various campaigns for president, including Paul Manafort, who was Donald Trump’s campaign manager for a while.  Manafort worked for the pro-Russian candidates.  In 2019 Volodymyr Zelensky was elected president, replacing Poroshenko.

In addition to annexing Crimea, Putin has used more or less covert military means to bring the eastern Donbas region of Ukraine back into the Russian orbit.  Pro-Russian Ukrainians, supported by covert Russian military, have fought against Ukrainian soldiers.  Reuters reported on November 23 that Russian-controlled forces in Donbas were increasing readiness and hold exercises.   The Atlantic Council reports that on November 15, Putin issued a decree removing trade barriers between Russia and the Donbas region, but not with the pro-Western parts of Ukraine.       

Belarus

Alexander Lukashenko has been Russia’s strongman in Belarus since Belarus became independent in 1994.  He had managed to keep politics relatively quiet until the 2020 election, when protests erupted, somewhat like those in Ukraine in 2004 and 2014. The protests have been led by a blogger, Sergei Tikhanovsky, and presidential candidate Sviatlana Tsikhanouskaya.  Lukashenko cracked down hard on the protesters with beatings, arrests, and torture.   Lukashenko remains in control, but his 2020 election is not recognized by the UK, the EU, or the US because of election fraud. 

The opposition to Lukashenko, may have Putin worried that he is in danger of losing his man in Minsk, like he lost his man in Kyiv/Kiev.  He may think that some kind of military showing in Ukraine will make the Belarussians think twice about following the Ukrainian example. 

 

Putin’s Hold on Russia

Putin still has a strong hold on Russia, but opposition to him is growing, or at least becoming more visible.  His poisoning and imprisonment of Alexei Navalny and the crackdown on the opposition Navalny led indicate that he is worried.  He may think that an exercise showing Russian military strength in Ukraine would help cement his leadership position in Russia.  Putin would see it as a restoration of Russian greatness, and he would expect nationalist Russians to see it that way as well. 

 

 

Vietnam and Afghanistan

I have had two brushes with Vietnam during my life: one was serving in the Army artillery in Vietnam during the war, the second was overseeing databases of Vietnamese who wanted to go to the United States after the war. 

When I was in Vietnam from 1969 to 1970, I had very little interaction with the Vietnamese. I was in a heavy artillery battery that supported American Army soldiers on the ground.  Most of the time we were stationed at firebases in the middle of nowhere, with no Vietnamese around.  A few times we had Vietnamese units on the same firebase, but we did not interact.  They supported Vietnamese units and we supported American units.  We were in northern South Vietnam, which the Army called I Corps.  Occasionally I would ride into town with supply trucks; so, I occasionally saw Hue and Quang Tri. At Firebase Barbara, on a lonely mountaintop not too far south of Khe Sanh on the Laotian border, all of our resupply was done by helicopter.  When Saigon fell, I had no personal connection to any South Vietnamese left behind. 

At the American Embassy in Bangkok, Thailand, from 1984 to 1986, I was in charge of the embassy’s computers.  I was primarily responsible for the computers in the embassy, which mainly handled administrative tasks like maintaining personnel and financial records.  However, as the senior computer person in the embassy, I had oversight responsibility for several other computer operations.  One of them handled data for the Orderly Departure Program for Vietnamese still in Vietnam who wanted to leave the country.  The Orderly Departure Program had been established to try to stop the dangerous exodus of Vietnamese “boat people.” Another handled data for Vietnamese refugees who had already escaped across Laos or Cambodia to Thai refugee camps and who wanted to go to the United States.  This was about ten years after the fall of Saigon, but I don’t know how many of these people had worked for the US during the war. 

According to Wikipedia, from 1980 to 1997, 623,509 Vietnamese were resettled abroad under the Orderly Departure Program, of whom 458,367 went to the United States.  As I recall, a friend at the embassy in Bangkok who worked in the Orderly Departure Program went to Vietnam about once a week to process a planeload of Vietnamese going to the US.  Outside of the Orderly Departure Program, the number of “boat people” leaving Vietnam and arriving safely in another country totaled almost 800,000 between 1975 and 1995.  The UN High Commissioner for Refugees estimated that between 200,000 and 400,000 boat people died at sea without reaching their destination.  About 40,000 Vietnamese refugees were held in Thai border refugee camps until they could be resettled. 

If Vietnam is an example, there will continue to be many refugees fleeing Afghanistan for years to come. 

 

Covid and the Stock Market

Mohamed El-Erian’s opinion piece on Bloomberg says it will take a huge shock to deter risk-taking investors.  He cites five mantras that stock traders have followed over the years:

·       Never fight the Fed.

·       The trend is your friend.

·       There is no alternative.

·       Fear of missing out.

·       Buy the dip.

For me, the first one is the most significant, “Never fight the Fed.” The Fed has become more and more important over the years. When inflation, which had started under Nixon, took off under Jimmy Carter, Fed Chair Paul Volker inflicted painfully high interest rates that got it under control.  Previously at Treasury, Volker had been instrumental in making Nixon’s decision take the US off of the gold standard work without destroying the US or the world economy. 

Fed Chair Greenspan was famous for holding up the stock market with the “Greenspan put,” named for a market option trade that enables an investor to avoid losses on a stock that goes down.  He was tested by the 1987 stock market crash just a few months after he was nominated to succeed Paul Volker.  He presided over a second crash, the dot.com bubble of 2000, and he was Fed Chair during the 9/11/2001 World Trade Center attack, which was a huge blow to Wall Street. 

Ben Bernanke was Fed Chair when the housing crisis hit in 2008, which threatened to bring down many of Wall Street’s most famous banks.  In the end, thanks to Bernanke, Treasury Secretary Paulson, and others at the Fed and Treasury, only one major bank failed, Lehman Brothers. 

When the Covid-19 lockdown crisis hit, Fed Chair Powell reacted even more strongly than Bernanke had.  Although many of the Fed measures to fight the 2008 crisis were still in place, Powell opened the flood gates of liquidity even wider, flooding the financial world with cash. 

The Fed “put” still exists and is more powerful today than it was in Greenspan’s day, justifying the maxim, “Never fight the Fed.”   The “put” has a double sided effect of keeping the US out of recession, but also magnifying inequality by enriching stock market investors.  This is a larger group that it was in previous generations, but still by no means includes everyone, and does not benefit investors equally.  It clearly favors the richest investors.  It subsidizes the rich to prevent the economy from collapsing for everyone. 

El-Erian mentions a phenomenon that has existed mainly since the the 2008 housing crash: low interest rates and bond yields.  People are buying stocks because bonds are such a bad deal.  Bond prices go down when interest rates go up.  There is no way for interest rates to go but up from here, and that means there is nowhere for bond prices to go but down. 

Interest rates are low for several reasons, but the main one is that the Fed buys them all as soon as they are issued by the Treasury.  If there is  no demand for bonds the interest rate goes up.  The Feds “quantitative easing” policy of buying bonds like crazy means that there is no reason for rates to go up because the Fed buys so many bonds quickly, no matter what the interest rate is, thus preventing the normal bond market from operating for normal investors. This is a global phenomenon because almost all central banks, particularly in Europe, have programs similar to the Fed’s “quantitative easing” resulting in negative interest rates in some countries, where banks charge you for holding your money instead of paying you interest. 

The loss of the bond market as an alternative to the stock market has meant that the stock market has risen even faster than in the past because of another of El-Erian’s maxims:  “There is no alternative.”  This is illustrated by the fact that the market has risen so much even as the Covid pandemic has played havoc with the economy.  Most recently the US suffered one if its most embarrassing defeats in Afghanistan in the last few days, but the defeat has almost no effect on market optimism.  The world may see the US as incompetent, weak and vulnerable, but investors see it as strong and vibrant. 

US investors have turned against China in recent days because it has cracked down and restricted many of its most famous high-tech companies.  They see this as a Chinese turn away from innovation toward more repressive government control.  There is an element of this, but I think China may be reacting to what it sees as excesses in the world financial markets, and is trying to limit this excess in China.  If this is the case, then I think it is good thing.  I worry that the excessive optimism in the US markets may be leading to a fall at some point, but I thought we would have seen something crack long before now. 

Finally, I think the US needs to repair its infrastructure, but I am not sure that now is the best time to do it.  We have spent like drunken sailors since the Covid crisis, running up the most debt since World War II.  I think this may be an overreaction.  Covid has killed many, but mainly it has killed older people, while war mostly kills people in their 20s, some of their most productive years; so, there is less of an effect on the economy.  Despite the fact that the damage to the economy was not as great as a war, the US government borrowed as if it were.  The borrowing was encouraged by the new, trendy idea that deficits don’t matter.  For some reason the economists have decided that governments never have to pay off their debts and so it doesn’t matter how much debt they have.  I don’t believe this idea.  I think someday interest rates will go up and it will become very expensive to pay off a gigantic federal debt.  Therefore, I don’t think this is the best time to start a very expensive infrastructure project.  It is as if you had just gotten out of the hospital with big medical bills and when you got home said, “Now is the time to build that new swimming pool we’ve been talking about for years.”  You should spend on big projects when you don’t have extra bills, like we have for the Covid stimulus.  We should get our house in order first.  We can always spend on essentials, like repairing bridges before they fall down, but we shouldn’t take on big, new projects now.  

Ancient Rome and the US

 I have been reading some history of Rome to see if it had any lessons for today.  In the description of Rome around 133 BC, I found Mary Beard’s description apposite.  She writes: 

Looking back over the period, Roman historians regretted the gradual destruction of peaceful politics. Violence was increasingly taken for granted as a political tool. Traditional restraints and conventions broke down, one by one, until swords, clubs and rioting more or less replaced the ballot box. At the same time, to follow Sallust, a very few individuals of enormous power, wealth and military backing came to dominate the state – until Julius Caesar was officially made ‘dictator for life’ and then within weeks was assassinated in the name of liberty. When the story is stripped down to its barest and brutal essentials, it consists of a series of key moments and conflicts that led to the dissolution of the free state, a sequence of tipping points that marked the stages in the progressive degeneration of the political process, and a succession of atrocities that lingered in the Roman imagination for centuries. 

Beard, Mary. SPQR: A History of Ancient Rome (p. 216). Liveright. Kindle Edition.

 Her subsequent, more detailed, discussions brought out more similarities, the growth of parties divided by bitter animosities and points of view, increasing disparities between the wealthy and poor.  Violence and murder was much more common in ancient Rome than in the US today.  But it does make one wonder about where the US is heading, for if history does not repeat itself, it often rhymes.