Charles Kupchan in the New York Times. Well worth a look.


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Has the West already been defeated in Ukraine? It all depends on how you define victory and defeat and on the time frame you’re utilizing for your analysis. This essay from Asia Times suggests a very bleak outcome for the United States and Europe. Discerning commentators need to ask whether it’s all worth it if it leads to the death of the dollar as the world’s reserve currency.



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Apr 16, 2022Liked by Claire Berlinski

Sigh. David P. Goldman. I used to read (back in 1999/2000) his articles published with his chosen pseudonym, Spengler. I found them initially to be cogently written. But I did not have to read too many of his articles to recognize his formula: some fact mixed with a lot of imagination for an end result not entirely rooted in reality... and that proved, more often than not, incorrect. 25 years is enough time for his arguments to fructify, no?

Goldman's new OpEd is par for his course. To a casual reader, it seems to hang together; to anyone well-versed in the topics Goldman raises - currencies and reserve currencies (again, the US$ is only one of several reserve currencies), cross-rates, commodity markets, and international trade, his analysis does not hang together; a sampling below of nits to pick...

* "The populations of the world’s high-income countries are aging rapidly. In 2001, 28% of their people were aged 50 years or older; by 2040 the proportion will reach 45%. Aging populations save for retirement. The Germans and Japanese save nearly 30% of GDP, and the Chinese save 44%; Americans save just 18% of GDP."

Germany, Japan, and China are demographic time bombs; their population replacement ratios forbiddingly, perilously, even existentially low. The USA has, until recently, papered over its population shortfall with net immigration. Will recent trends continue? Goldman misuses and misapplies the fact to bolster his argument... Except, in the world to come (too soon), the USA could emerge, seems likely to emerge, triumphant for another run around the block.

* "For the past 15 years, American consumers have spent on goods each year roughly a trillion dollars more than were brought in by American exports."

Trade is NOT a zero-sum game. I recognize for many people that notion makes sense but it is neither fact nor reality.

* "The import-led consumption boom and the availability of cheap electronics from China and other Asian exporters fed a digital entertainment boom that inflated the stock prices of Apple, Microsoft, Google, Meta and other US software companies. Foreigners then invested their earnings from exports in US tech stocks, as well as government bonds, real estate and so forth. The tech boom harmed the US economy far more than it helped it, reducing American teenagers to risk-averse recluses addicted to smartphones and social media while generating stock market valuations never before imagined. The result is the biggest bubble in world financial history."

Wow. Do you see what he did there? Where is the connective tissue that backs his assertion that

import-led consumption boom ---> availability of cheap electronics from China and other Asian exporters ---> fed a digital entertainment boom ---> that inflated the stock prices of Apple, Microsoft, Google, Meta and other US software companies ---> Foreigners then invested their earnings from exports in US tech stocks," ... etc.

Nowhere in his essay does Goldman support his assertions; not even his primary assertion, this essay's thesis. Instead, he gets vague ("Foreigners"). Where is his proof that foreigners reinvested into tech stocks? Oops, no support was offered. China produces more than "cheap electronics" but genuflecting to reality and fact are not Goldman's forte.

* "China finds itself suffering from punitive American tariffs and sanctions on technology imports, while shipping more than $600 billion of manufactured goods to the US each year – nearly a third more than it did before the Trump administration imposed tariffs in 2019. China’s leaders want to encourage more consumption and less saving but can’t persuade the Chinese to consume. China, therefore, continues to export to the US and save the proceeds."

I explained this to you in a previous reply. If a company or even a country wants to grow (economically), it must engage with the largest *consumption* markets available to them, primarily Europe and the USA. And those markets negotiate and settle their international trade in English and...

* "The world can do perfectly well without the dollar to finance trade. India and Russia can settle trade in their own currencies, with their respective central banks providing rupees and rubles as required through swap lines. Russia’s surplus with India will be invested in the Indian corporate bond market, according to news reports. India reportedly is gearing up to increase exports to Russia by $2 billion a year, a 50% increase from current levels."

Wow. A $2 billion market. Such a large market. Not.

* "Nothing prevents the 76% of the world’s population whose governments refused to join the sanctions regime against Russia from financing trade in local currency. Asian countries now have $380 billion of swap lines in place, more than enough to accommodate the whole of Asian trade."

See what Goldman did there? By using the 76% number he makes unwary readers believe it is more than the few countries that want not to get along. And that those people, that 76%, are consumers rather than producers. Remind me, please, the chief reason for American companies to offshore their manufacturing? And why the process is on to re-shore? A hint: You will not find the answer anywhere in Goldman's essay because it did not suit his purpose.

* "To the extent that long-term imbalances emerge in trade, central banks can settle up by transferring gold."

Have you ever physically hoisted a gold brick? It is heavy and unwieldy - like a heavy kettle-bell but without the handle - so in bulk not easily transportable. And Goldman argues that international trade will settle in gold bullion? I want whatever he is smoking.

* "China and Russia were the biggest buyers of gold..."

China and Russia's reasons for buying gold were not the same reason nor what Goldman intimates. Enterprising readers might do a little sleuthing rather than swallow this codswallop.

I will skip ahead to Goldman's final paragraph...

* "What should investors do in this environment? ... The smart money is walking towards the exit, so as not to cause panic. At some point, the walk may turn into a run."

That is his recommendation to investors, to sell the US$? And buy what? Goldman does not say. Nor should he based on his historical track record.

What also does not comport with Goldman's analysis is that the US$ in currency markets trades from strength to strength vis-à-vis other global currencies. (Euro, British Pound, Japanese Yen, Swiss Franc, Russian Ruble, etc.) Investors and currency/commodity speculators can always be wrong but when they bid after 10 year highs for many, 20-year highs for a few, they must sense something... different, no? Should theUS$ maintain its upward trajectory vs these other currencies, what does that reality mean for Goldman's argument of its loss of status as the world's preferred reserve currency?

A suggestion for US$ bears. Put a price and/or time limit on your prediction - at which point you admit wrongitude; Or not - and point out instead the broken clock.

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This is the most serious consideration I've ever seen David Goldman receive. Fun fact: Vivek and I knew him back when we worked at Asia Times and his real name was a closely-guarded secret!

Goldman, as you point out, often plays these rhetorical games in which he pulls a statistic from somewhere, constructs a huge theoretical apparatus around it--i.e., "the birth rate is low in the Muslim world because Muslim women would rather die than be enslaved under the Sharia," does a bit of handwaving, makes a breathtaking prediction--"the Islamic world is about to disappear," then forgets his predictions as fast as possible. Birthrates, as any demographer will tell you, fall when people get wealthier. Declining birth rates in the Muslim world are a sign that women are doing *better* there, not worse. He predicted the imminent disappearance of, inter alia, the entire Turkish Republic about a decade ago. It's still there.

But I like him: He's a lively, entertaining writer and at least he *has* ideas, even if they're not good ones.

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Indeed it depends on how you define victory and defeat. The biggest defeat suffered by either side so far has been sustained by Russia in the Battle of Kyiv. And to my mind that was much more than a tactical setback: It put V. Putin's original objective out of reach.

So now a disconnect exists between Putin's original political objective and the military means at his disposal. Clearly, his original aim was to capture Ukrainian capital, liquidate the present government and replace it with a regime of Russian stooges. The template seems to have been Kabul, 1979. But the military operation intended to secure that objective was botched, as was the subsequent effort to secure it by means of an armored blitzkrieg. Now the Russians are building up for an offensive presumably to secure the whole Donbas region. Given the Russian armed forces' dismal performance so far and the casualties they've already sustained, such an offensive looks risky. One recalls Germany's roll of the dice at Kursk in 1943.

Probably many of the Russian units pulled out of the Kyiv area are combat ineffective at present and can play no immediate role in a Donbas offensive. Also probable is that the dismal military science, logistics, will set limits on the scale of a Russian buildup. It's not so much how many tanks and guns you have that matters, but how many gallons of fuel per tank and rounds per gun.

No doubt the Ukrainians have their problems also but they have one great advantage over their enemy: that of fighting on the defensive.

If Putin is wise, and if the coming Russian offensive isn't a total fiasco, he'll claim whatever gains made as a great victory and cut his losses. But a humiliated despot is seldom wise.

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Thomas, I think there are a multitude of losers from the current imbroglio in Ukraine, but in terms of severity, the Russians are not at the top of the list.

The biggest losers are, of course, the Ukrainians who are the victims of a horrific assault. In the years before the Russian attack, millions of Ukrainians emigrated from the country because of the corruption of their government and a paucity of economic opportunity. As a result of the Russian attack, millions more have left.

Even if they were ever inclined to return, what would these ex-pats and refugees to return to? Russia is laying waste to their country. Ukraine’s industrial and agricultural infrastructure is being decimated. Rebuilding, if it’s even possible, will take decades.

Not only is Ukraine being deindustrialized, it’s being depopulated. Most of the refugees are women and children. Ukrainian fertility rates before the war were almost the worst in Europe (and even worse than Russia’s). The fertility calamity faced by Ukrainians now, may simply be irreparable.

Time is not on Ukraine’s side. Russian artillery will dismantle the country little by little. If Putin can’t control the government of Ukraine he will simply destroy the country one step at a time, even if it takes years to accomplish this.

Putin doesn’t need tanks or aircraft to attain his nefarious goals; long range artillery can accomplish the task. The West can provide Ukraine with all the anti tank weaponry in the world; it won’t change the outcome.

After Ukraine, the second biggest loser is the United States and it’s allies, including those not in NATO. The prosperity of the Western world depends upon the dollar’s role as the world’s reserve currency. It’s only the dollar’s role that allows the United States to finance its enormous current account deficit. Our trade deficit with China was between $400-$500 million when Trump left office; it’s now close to $1 trillion. The federal fiscal deficit is in excess of $15 trillion and growing. If U.S. defense expenditures need to increase, our fiscal deficits will grow and grow.

Simply put, if the dollar’s role as the reserve currency is put in doubt, our current account and fiscal deficits become completely untenable. Sadly, it’s not just the United States that would suffer a financial implosion, the American economy has been the engine of growth for the European economies for years, if our economy collapses, Europe’s economy collapses in sympathy.

Since the Breton Woods system was put in place and since the advent of oil as the world’s critical commodity (remember petrodollars), the dollar’s ascendency has been assured. Thanks to the war in Ukraine and the foolishness of globalists like Biden, that system is fraying. Saudi Arabia is selling oil to China in RMB, India and Russia are doing business in their own currencies and the price of gold is near all time highs.

If the war continues much longer trade between India and Russia will increase, Biden’s sanction regime be damned. China is even courting India and a rapprochement between China and India would be a terrible sign for the dollar’s dominance.

But it’s not just India, China and Russia we need to worry about. The Saudis and the other Gulf Arabs despise Biden as much or more than they despised Obama. Freezing Russia’s ability to conduct business in dollars was a huge unforced error by Biden. The move reeked of desperation. Saudi Arabia surely wonders if sanctions on Russia’s dollar reserves might foreshadow a similar move by an American President outraged by the murder of someone like Khashoggi. What do you suppose the consequences will be if the Gulf Oil states conclude it’s too risky to accept payment in dollars?

The Saudis and Chinese who hold so many dollars surely won’t want to see the dollar collapse, but it’s easy to see them slowly but surely reducing their dollar reserves. Just as the last century saw the British pound replaced by the dollar, might we be on the verge of the same thing happening to the dollar? It took two world wars to destroy the dominance of sterling; wouldn’t it be ironic if all it took to destroy the dollar’s dominance was the war in Ukraine?

The consequences of the dollar’s evisceration would be far worse for the West than any consequences faced by the Russians because of their aggression. Sure the Russian economy is suffering. But China can buy all the oil Russia can produce and so can the Indians. Russia can import many of the consumer goods it can’t buy from the West from China, India and eventually other Asian countries that couldn’t care less about Ukraine.

The narcissism of the West is remarkable to behold. Are we so blind to think that Russians will suffer a terrible fate if they can’t purchase lattes at Starbucks, Big Macs at McDonalds or bedroom sets at Ikea?

Outside of Russia’s largest cities with western-oriented consumers, the overwhelming majority of Russians are accustomed to living with few consumer goods. There is almost nothing Biden can do that would impoverish these Russians more than they are already impoverished.

This tragedy was avoidable but Biden is escalating rather than de-escalating. Given the impossibility of a Ukrainian victory and the remote possibility of a putsch against Putin, a negotiated settlement is the only way out. Accusations of genocide and war crimes, however justified make a negotiated settlement less achievable.

There will be no victors here. But the Ukrainians and the West are in the process of suffering a defeat that is even more egregious than the defeat Russia experienced in Ukraine’s west.

How many dead Ukrainians will there be before Biden and his globalist overseers conclude that their willingness to fight till the last Ukrainian is not only immoral, but also a huge mistake?

Everyone hopes Russia will lose and hope springs eternal. But before we celebrate Russia’s military incompetence, let’s get real. Russia has failed to pacify Ukraine in six weeks. The United States failed to pacify Afghanistan in more than a decade.

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You lose a war by failing to achieve your objective. That's why V. Putin's on track to lose this war. Whatever happens, he won't be in a position to destroy or dominate Ukraine. Russia has not the power to subdue and occupy a nation of 40 million people united by a visceral hatred of Russia.

I find the claim that this war was avoidable to be dubious. Rather obviously, Putin had been planning this for a long time. For a variety of reasons, he judged the moment to be right. What might have stayed his hand?

I cannot agree that the US and the West generally should throw Ukraine to the wolves on the argument that in the long run, it's for their own good. If the Ukrainian people are willing to stand up against Russia's blatant and unprovoked aggression, they should be supported, not abandoned.

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Thomas, I think it’s clear what might have stayed Putin’s hand. For one, assurances that Ukraine would be demilitarized and would never join NATO. Secondly, Putin might very well have been deterred if Ukraine granted either independence or, at the very least, greater autonomy to the Russian-speaking areas in Ukraine’s east.

I understand that none of this would have been palatable to the Ukrainians. Instead, they are watching their nation be dismembered.

The bigger question for Americans is not what would have deterred the Russian invasion, but why Biden and his clique of deranged globalists were so gung-ho on encouraging Zelinsky’s maximalist demands. I think the answer is obvious. NATO was as giddy at the prospect of placing missiles that could reign terror down on Putin’s nation as the Russians were in the 1960s about placing missiles in Cuba, a mere 90 miles from the United States.

NATO missiles placed in Ukraine could be located in such a way that they were a mere 300 miles from Moscow. While these missiles might be defensive in nature at first, they could be converted for offensive purposes inexpensively and with ease.

The idea that Russia would ever tolerate this possibility is as laughable as the prospect that the United States would tolerate this situation in reverse. In fact, we know how the United States would react. Kennedy threatened nuclear war when the Soviets enticed their Cuban client to house offensive weapons. Should we really be surprised that Russia is now making nuclear threats of its own?

Biden, assuming he is actually the author of American policy (or even aware of it) just couldn’t resist the prospect of obtaining such an outstanding strategic advantage over Russia. It’s not just the globalist’s visceral hatred of all things Russian, it’s their nostalgia for the Cold War. Then there’s the fact that neoconservatives and their liberal internationalist cousins have deluded themselves into thinking that America’s destiny is for all the peoples of the world to be just like us.

Even tens of thousands of dead Ukrainians and millions of Ukrainian refugees haven’t deterred Biden from his lust for NATO’s strategic advantage. Do you really think that when at long last Zelensky seeks a negotiated solution with Russia that NATO won’t insist on setting the terms or at least approving them?

Biden may be out of it but Blinken and Sullivan are not. To them, tens of thousands of dead Ukrainians is a price they view as well worth paying to obtain the military advantage they seek over Russia. To my mind this makes them barbarous. Much less barbarous than Putin but barbarous nonetheless.

Most importantly the follies of this amoral crowd (both Republicans and Democrats) have left the United States weaker than its been at any time since the end of the Second World War. Trump, for all his many faults actually articulated it pretty well when he said “America never wins anymore.”

He was right and the reason is that the globalist cadre squandered American wealth, strength and resolve on the ridiculous notion that we could reinvent the world.

First they gave us Afghanistan. Then gave us Iraq and now they are giving us Ukraine.

The only real difference between the three is that with our newest war to make the world safe for democracy we’re not only impoverishing Americans, we’re exporting poverty and hunger to the entire globe.

And then there’s the prospect that unlike what happened in Afghanistan and Iraq, this imbroglio leaves the world vulnerable to nuclear annihilation. The fact that globalists really don’t give a damn about that risk tells you everything you need to know.

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"I think it’s clear what might have stayed Putin’s hand. For one, assurances that Ukraine would be demilitarized and would never join NATO. Secondly, Putin might very well have been deterred if Ukraine granted either independence or, at the very least, greater autonomy to the Russian-speaking areas in Ukraine’s east."

I don't think so. First, the Kremlin's beef was less NATO than Ukraine joining the EU. That was what prompted the Maidan Revolution. Second, the Kremlin issued an explicit ultimatum, one so unreasonable that it was clear they were determined to go to war. Nothing about autonomy in the Russian speaking areas (and this had been the subject of endless negotiations over a period of years; Zelensky was entirely willing to negotiate); and only tangentially about NATO in Ukraine. Putin demanded NATO withdraw from every region that had previously been part of the Soviet Union. Were you prepared to offer that? What do you think would have happened next if we did?

I think you're vastly overstating our eagerness to place missiles in Ukraine, taking Kremlin propaganda points too seriously, and overlooking the history of this conflict and its context. Since 2007, Putin has been engaged in a determined and consistent effort to re-enslave the former Soviet Union and return us to the world of the Cold War, or even before it. This is the explanation most consistent with his rhetoric and actions. Suggesting that this happened because of *American* aggression denies all agency to Putin.

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Claire, I don’t even know what Kremlin propaganda is promoting. I don’t read any of their outlets and, in case you’re wondering, I don’t think I’ve watched Fox News for 5 minutes in the past 5 years. So it’s really unfair for you to suggest that I’ve been deluded by Russian propaganda.

I don’t think my argument robs Putin of agency. He’s the primary villain here; everyone with a brain knows that. But that doesn’t mean that the Biden Administration didn’t help instigate the conflict and it certainly doesn’t mean that the Administration is doing anything to resolve it.

Actually, Biden is doing everything he can to keep the war going in the vain hope that somehow Putin will be deposed or Russia will collapse. His position, which insures that tens of thousands of additional Ukrainians will die, is not only wrongheaded; it’s evil.

I could accept the idea that NATO would happily acquiesce to any negotiated settlement that Zelensky would agree to, but I don’t believe it would. NATO’s ambitions and Zelensky’s may be almost identical at the moment, but I doubt it will stay that way. If the pressure of the war inspires Zelensky to make difficult compromises, my guess is that NATO, which is funding the war, will insist that at least some of its ambitions be incorporated into any agreement. Your belief that the West is on the side of the angels here beggars belief.

Unless I missed it, I don’t think you’ve ever told us what type of settlement would be satisfactory to you. Would you be happy with any agreement Zelensky reaches or are there conditions that in your view should be considered unegotiable regardless of what the Ukrainians decide?

Prior to the War, Ukraine’s sovereign debt exceeded $175 billion. That It was already considered a default risk is evidenced by the high rates that were asked for to insure against a default.

According to reports, damage to Ukrainian infrastructure totals around $85 billion; that’s after only 6 weeks. What do you expect the totals will be after 16 weeks or 6 months or 2 years?

Is it any wonder that Ukraine wants to join the E.U. now more than ever? It strains credulity that the United States with sovereign debt of $15 trillion will pick up much of the bill. Ukraine hopes that the E.U. will pay the hundreds of billions it will take to rebuild the country and lure the ex-pats and refugees back. What this means in practice is that Germany will be asked to foot the bill. How do you think that will go over at a time when high energy prices are hurting German consumers and threaten to damage German industry? Will Germans be willing to contribute what may be more than $100 billion to reconstruct Ukraine at the same time they are being asked to significantly increase the defense budget?

The wildcard in all of this is the role of the dollar. If it’s viewed as increasingly unreliable, it’s not only the American economy which will suffer grievously, it’s the European economies too. And that doesn’t even include the economic dislocations caused by inflation. None of this bodes well for the reconstruction of Ukraine.

It’s not very hard to make educated guesses about who the only winner from this conflict will be. Who will have the money and the will to rebuild Ukraine? The most likely candidate is China which could end up owning Ukraine lock, stock and barrel.

Globalists who detest Russia should reflect on how happy they will be with an alliance of Russia, China and maybe India. My guess is that however sour globalists are now, things only get more unpleasant for them from here.

I simply don’t think that globalists have thought this conflict through. Idealists that they are, they’re leading with their hearts (and prejudices) not their intellects.

In one of Thomas Gregg’s interesting comments on this thread he suggests that Putin has already lost. Even if you accept that he’s right, it doesn’t mean that Ukraine and NATO aren’t also losers. I think that the current imbroglio insures that Ukraine, the United States and it’s allies are likely to end up the biggest losers of all. If I’m right, who’s to blame? It’s the globalists who get this conflict wrong just like they did in Iraq and Afghanistan.

It’s easy for globalists to celebrate the prospect of Finland and Sweden joining NATO. In practice that means two more dependent nations for the United States to defend. Who will be providing that defense? It’s mostly American boys from the heartland who couldn’t find Ukraine, Finland or Sweden on a map who will be asked to put their lives on the line. Globalist intellectuals, not so much.

Oscar Wilde once famously said “there are but two tragedies in a man’s life. One is not getting what he wants and the other is getting it.”

I can’t think of a better take on the globalist credo.

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Apr 14, 2022Liked by Claire Berlinski

But Claire, if we just give the autocratic the things he's asked for, he'll be satisfied and leave us alone. His apologists have assured me this is our fault.

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I should include this in the next newsletter. This article by Cathy Young is excellent, and would be helpful to anyone trying to weigh these claims: https://www.thebulwark.com/what-really-happened-in-ukraine-in-2014-and-since-then/

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Many people seem to have talked themselves into the proposition that all V. Putin wanted was to keep Ukraine "demilitarized" and out of NATO—the underlying assumption being that NATO poses a security threat to Russia and that therefore, Putin has a legitimate grievance.

This is wishful thinking.

It was, I believe, Zbigniew Brzezinski who said that with Ukraine, Russia is an empire but without Ukraine, the Russian imperium is defunct. This, not NATO, is the issue for Putin. His program of restoration of a Russian empire depends first and foremost on the elimination of Ukraine as a sovereign state and ultimately on the eradication of the Ukrainian national identity. That, from the Russian perspective, is what this war is all about.

This is nothing new. The tsars and the Bolsheviks before him believed as Putin does and sought to suppress Ukrainian nationalism. Stalin's Terror Famine of the early Thirties and the purge that supplemented it had this as a primary objective. In all some five million Ukrainians were killed, which goes far toward explaining why Ukrainians today are fighting so hard to keep the Russians out. They know what lies in store for them if Putin gets his way.

So the "neutralization and demilitarization" of Ukraine would only have set that country up for the fate Putin envisions for it.

It's not for third parties to decide what's best for Ukraine, or to pressure them into surrender for the benefit of America and the global economy. It may be recalled that a similar policy was followed in 1938, when Britain and France negotiated with Nazi Germany over the heads of the Czechoslovakian people, and delivered that country up to invasion and dismemberment. It will also be recalled how that worked out in the end. It was, in Winston Churchill's memorable formulation, a policy of feeding the crocodile, in the hope that the crocodile would eat you last.

Putin is exploiting the Donbas in just the same way that Hitler exploited the Czech Sudetenland: as a pretext for the dismemberment of his prey.

As for Putin's alleged fears concerning NATO missiles in Ukraine, I have two observations. The first is that since the IMF Treaty, no such NATO missiles have existed. The second is that people who make this argument disregard its mirror image. Do the front-line NATO states have reason to fear Russian missiles on their borders? Indeed they do, given Russia's war in Ukraine. That, ironically, is the one thing that might lead to the reintroduction of NATO intermediate-range missiles. That's one way that Putin's war could backfire on him.

Already we see another way that it's backfiring on him, e.g. the strong possibility that Sweden and Finland will join NATO. Finland especially, with its memories of the Winter War, has good reason to fear and distrust Putin's Russia. It's a virtual certainty that even if those two countries don't formally join NATO, they'll become defacto members of the alliance. Apparently their governments are under no illusions concerning Putin's real objectives. Finland, after all, was a province of the Russian Empire.

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I agree with all of this.

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