Unlikely cold warriors, Canada and India.

 JUSTIN TRUDEAU EARNS ANOTHER F FOR DIPLOMACY

IS TRUDEAU JUST ANOTHER LAPDOG FOR WASHINGTON?

So, the diplomatic fire fight escalates between Canada and India. It seems this started when India's PM Narendra Modi complained to Trudeau about Canada's support for Khalistan separatists. This happened at the G20 meeting in India. Trudeau then had problems with his accomodations and was also stranded in India for a few day due to plane trouble. It is the second time that Trudeau has been dressed down by a leader of a very big Asian country. The first was few years ago when the Chinese leader XI publicly embarrassed Trudeau for sharing with the media the contents of a private conversation. Whether Trudeau is just dumb or needed to share that he actually had a conversation with someone is not known.

The whole thing blew up when as soon a Trudeau got home he made a speech and accused India of assassinating a Khalistan separatist leader in British Columbia earlier in the year. Trudeau offered no evidence except he stated that intelligence had concluded that the Indian government was involved. Sounds so familiar, some now wonder if this prompting came from intelligence from Canada's southern neighbor.

In retaliation, India has demanded much of Canada's embassy staff leave the country and has now stated they will be limiting Visa's for Canadian citizens, many of whom are of Indian descent.

The whole thing is out of character for both Canada and India, except that it seems there is a lot of suspicion that Washington may be using Canada to increase division and unrest in India. Earlier in the year it is alleged that Washington has been attempting to sow division between Modi and Indians Muslim population, now with the Khalistan separatists. Much of this has to do with India wanting to be a neutral player in the present geopolitical conflict. There is pressure being exerted on India to support Ukraine and also to forgo trade with Russia. 

It seems now it has become the norm for any attempts at division or chaos to immediately be blamed on Washington. It may take a long time for the United States to redeem its reputation, if even possible, with the rest of the world.

Is Poland the first to say enough of Ukraine conflict?

 POLAND ENDS MILITARY ASSISTANCE TO UKRAINE

SENDS UKRAINE A BILL FOR $23 BILLION

It appears that Poland has decided it is time for it to end support for the Ukraine conflict. Several disputes have festered for some time, one is the large number of refuges in the country, which could grow larger from an escalated conflict. Another is the surplus grain coming from Ukraine that has the Polish farmers very unhappy. Then of course, there are upcoming elections which begin on October 15. The mood of the electorate is becoming less supportive of this conflict.

Then of course there is the pending lawsuit by Ukraine over the grain embargo by Poland. Ukraine has threatened to sue Poland it if it does not allow Ukraine grain into the country. This act of arrogance and hubris seems to be the last straw for Poland. Maybe Ukraine believes that Biden can intervene and force Poland to submit, but it will not go well with the Polish farmers and electorate.

Ukraine is very dependent on Poland for the ability to be used as a conduit for arms shipments into Ukraine. Its lack of diplomacy and never ending demands may spell the demise of Ukraine. Poland has been very supportive, but it has limits to what is possible and remain a unified government. Either way, without Poland, Ukraine will be in a more precarious position.

It is unlikely that Poland will reverse its position on military assistance, it is also unlikely that Ukraine will ever pay any bill to supportive countries. Many counties now understand that they cannot keep up this support indefinitely. 

Several countries at the UN meeting have advised Zelensky it is time for negotiations to end this conflict. While Zelensky is now in Washington with his usual list of demand, he has not been welcomed to address congress and it appears the handwriting is on the wall. Support is weakening in many places and many have come to realize this is all a futile endeavor. 

U.S. deficit up 170%, 2023 deficit now $1.39 Trillion.

 COST OF FINANCING DEBT SKYROCKETING

FOREIGN HOLDERS LIQUIDATING

The U.S. debt and deficit is now on a path to unsustainability. If the present trend continues, it will spell serious trouble for the U.S. economy. There really doesn't seem to be much serious concern in Washington. It appears Washington is ramping up to engage in more spending without any end in sight.

At present 30% of federal government debt is held by foreign countries. The biggest holders are Japan and China, both now in the process of major liquidation of this debt. Much of this is caused by uncertainty of the U.S. economic situation and the fear of some sort of sanctions making recovering this debt unavailable. There are other nations lowering their risk in U.S. debt. Most are replacing this debt with the purchase of physical gold. 

The July treasury auctions placed $102 billion of bonds. It is expected that the next auction will be for even more. 

This all translates into a fast growing bill to service this debt as much of the new debt is at higher rates. The cost of servicing the debt is expected to be up 25% to $652 Billion. 

All this is likely to translate into higher interest rates to entice buyers to assume the higher risk of this debt. It is anticipated that just servicing the debt may account for 25% of future budgets.

Higher interest rates and higher inflation is possibly going to set off the next round of labor disputes, higher prices and the risk of hyperinflation. A snowball effect that is not easily stopped without severe economic medicine.

All this, while Washington is obsessed with more spending for the military, foreign aid and expansion of social programs. A recipe for disaster.

 

Prolonged Ukraine conflict will doom Europe.

 CAN EUROPE, AS WE KNOW IT, SURVIVE A LONG UKRAINE CONFLICT?

CAN MODERN EUROPE SURVIVE ESTRANGED FROM RUSSIA?

At present it seems no one is asking the right questions about the conflict over NATO expansion and Ukraine. The bobble head leaders in both Western and Eastern Europe seem to just keep repeating the U.S. narrative that they will outlast Russia in this economic and military conflict. 

What exactly does outlasting Russia look like and what are the potential results? Russia is not going to be defeated in this conflict even it it requires all out nuclear war. Russia believes, and not without merit, that its very existence is dependent on stopping its encirclement with NATO expansion. Russia also believes that if it has to be permanently separated from economic ties to Europe it is worth the sacrifice. Is Europe realistic and aware of what estrangement from Russia will mean to its economic future?

At present, much of Europe, including Ukraine is still getting oil and gas form Russia, maybe not officially, but by round abouts of the sanctions. Russia could tomorrow just completely stop most of its energy from ending up in Europe. What option would this leave Europe, both economically and socially?

Since the dismantling of the former Soviet Union, Russia had been intent on integrating economically and even somewhat politically with Europe. It was a win, win, situation for both, as Russia had lots of energy, particularly natural gas and Europe had decided it was going to be the bridge fuel until more renewable energy could be developed. Long term reasonable energy contracts were the norm and it provided energy that allowed Europe to operate profitably in competitive world trade. It allowed the cutback in coal production and provided the fuel for a modern economy. That is now soon to be a thing of the past, permanently. Europe, realistically has no real plan B, unless they believe that if Russia is defeated they will have control and access to this energy.  If they believe that, then they are really playing Russian roulette with their future.

The root of this dispute is that as Russia transformed from a communist country, it decide it would be very serious about charting its own future, unlike the other former members of the Soviet Union. It understood the dangers of becoming dependent on western banks and powerful interests that had the capability to control the resources and future of Russia. Russia, unlike their former colleges in eastern Europe wanted a free market opportunity but under the control of Russia as an independent country. Sadly, most of eastern Europe exchanged an authoritarian government in Moscow for one in Brussels and Washington. This decision may prove to be their worst decision for their future.

While Russia attempted to become integrated into western economies and politics it became clear that it would never happen without giving up control of its own destiny. When western interests became aware that Russia did not want to submit to giving up control of its future to others, the pressure began, first the narrative of evil Russia, interfering in U.S. elections, and every other opportunity to vilify Russia. The neo-con cold warriors believed they could divide up Russia and exploit its resources. At the same time the Marxist revolutionaries viewed Russia as a traitor to the world communist cause. Russia had no allies in the west, just an unholy alliance that wanted its destruction.

So, here we are, time is running out, will the unholy alliance of Neo-con fascists and Marxist revolutionaries decide that it is time give it up, or do they just need to send long range missiles, provide western air cover for Ukraine or even tactical Nuclear weapons. If anyone thinks that escalation and keeping this up for as long as it takes is a winning policy, we will all be destroyed by their delusion.

Auto worker strike, Trouble for U.S. auto business.

 INFLATION, STRIKES AND ERA OF NON-COMPETITIVENESS

SHORT TERM GAINS, LONG TERM DECLINE IN U.S. AUTOS

This week we saw the beginning of the U.S. auto workers strike, they are demanding 40% pay raises and a 4 day work week. If they really get their desires, they may end with a 3 day work week as the global competition will gladly take the opportunity to take global market share.

In 2022 China produced 27 million units, U.S. 10 million units..Japan 7.8 million units, India 5.4 million, S. Korea 3.7 million. Total global production 85 million units.

Light vehicles domestic sales 2022.

China            23.5 million

U.S.              13.7 million

Japan            14.2 million 

India               3.8 million

Germany        2.6 million

In 1950 the U.S. produced 80% of the worlds vehicles, today around 12%. This number is going to be further challenged as other countries expand their car production.

Chna is of course the biggest producer of Autos now, and growing quickly, domestic sales are exploding and they and they now sell 60 % of the electric vehicles. They have positioned themselves to dominate the electric car batteries and components.

At present, many of the components of U.S. auto production are foreign made, at one time all the components, from switches, electronics, machined parts, tires and upholstery were produced domestically. It was often stated that as the auto industry goes so does the U.S. economy. It could be now estimated that only 25% of auto components are domestically made.

So in fact U.S. cars are today mostly assembled in the U.S. but they are largely produced elsewhere. 

As manufacturers are squeezed by government mandates, government regulations and union demands  they attempt to adjust operations to sustain competitiveness. 

We can expect more of the production of components to be outsourced to wherever it can be produced, without the expense of plant, equipment, inventory and all the hoops to jump though to make this happen. This is economic reality that will not be changed.

The U.S. is now just a small part of a huge global auto business and the growth is mostly in other parts of the world.

The auto worker demands are just the first of what is likely going to be a tend, especially in an election year. The Democrat administration owes its constituents a little payback. We can expect to see the teachers union demand to be compensated for their support and to offset the inflation of this administration. 

This whole affair may end with hyper-inflation and then a further decline in the U.S. economy.

Oil prices going up = another round of inflation.

 CRUDE OIL SHORTAGES BEGINNING NOW

THE PRICE OF EVERYTHING WILL INCREASE

OPEC+ has announced another round of production cuts that are expected to take effect by October 1, this will result in $100 a barrel oil price, which will translate into higher prices for everything. Everything is affected by the price of energy, of course, gas, heating oil and all energy is the first, but it also raises the cost of transportation for everything we use. Food production is very energy dependent, diesel fuel for equipment and fertilizer manufactured from oil products will trigger another round of increases in the cost of production and transportation of food.

Eventually it may also affect the price of electricity production, which is still produced by lots of fossil fuel.  

The only way to offset these increases is for an increase in  production of gas and oil by domestic producers, it is very unlikely that will happen. 

The strategic oil reserve is now reported to be at the lowest level since the 1980's, it has been systematically depleted to keep oil prices down but it soon will not be realistic to deplete it further.

High energy prices in Europe have already seen an increase in coal production and an increasing dependence on the use of firewood. We can expect these trends will be the cause of political and environmental anxiety.

While many will blame OPEC, their reasoning is that the buying power of the dollar, still the major payment option for oil sales is declining, due to fiscal policy in the U.S. The high deficit spending practices have a direct impact on this declining value.

There is a trend to trade oil in other currencies, but that will not help the cost of energy in the U.S. as the buying power of the dollar declines the cost of everything denominated in dollars will rise.

The only long range solution is increased domestic production, coupled with a more responsible fiscal policy by the federal government, both seem to be a low priority at this time.

Global conflict expands and deepens.

 MULTI-POLAR WORLD MAY NOW BE IRREVERSIBLE

CAN IT BE SUSTAINED WITHOUT VIOLENT CONFLICT

We continue to watch as the west has now reversed course from only threats and intimidation to more carrots to expand and keep its allies. We also see Russia and China solidifying cooperation from anyone who is willing and has become ostracized by the west. From North Korea, to likely be used as burr under the saddle of Japan and South Korea, to Venezuela who can expand into another ally in South America.

While many in Europe and even Russia had hoped that the day would come when there would again be peace and cooperation in that part of the world it is becoming clear that time is running out for any possible rapprochement. It seems it is becoming a irreconcilable divorce for the future. While Russia has been damaged by sanctions and war, it is managing and even slightly prosporing, mostly because much of the world is dependent on its food and energy and other materials. Russia has the food and energy for survival, while much of the west either refuses to use its own resources or no longer has that ability. In the long run Russia will do better than Europe in sustainability. 

Decisions have been made to cut oil production by Russia and Saudi Arabia, the biggest producers. The United States strategic oil reserve has now been depleted to dangerous levels, will this administration totally use it up to sustain prices in the election season? It appears higher oil prices are inevitable.

China meanwhile is retaliating to every attempt at sanctioning the sale of products sold to China. Sanctioning computer chips has been followed by China now producing more of their own and underselling the global market. It has also shifted buying grain from the U.S. to allies in South America. It has cancelled purchases from Germany and Japan and replaced these products by domestic production or other allies. It is now the biggest producer of cars and trucks and has a huge market besides the west to sell to and will make the West uncompetitive. It is now producing its own domestic airliners that will likely replace Air-bus and Boeing in the rest of the world. It has made alliances that will insure its supplies of materials and energy.

It appears that the global economy is becoming irreversibly fractured and it would take a team of serious diplomats and statesmen to heal this divide. Sadly it seems to be a rare commodity in Western nations, who are frozen in their global game plan and seem to be willing to go down with the ship, rather change course.

One must wonder how long this ally shopping and economic chess game will remain non-violent. Can these opposing blocks survive in a world jockeying for resources and attempting to sustain their economies and social stability. Without cooperation, there will eventually be winners and losers, the losers may believe they can only survive by the destruction of the other.