05 Sep

The “Last Straw”?

“It’s tough to make predictions, especially about the future.” – Yogi Berra

“Straws” are piling higher and higher on the back of the global camel. At what point will the camel’s back buckle? [ED NOTE: Timing being everything, those who style themselves as “seers” capable of predicting the future should pay close attention to Mr. Berra’s advice.]

Although the heaviest “straws” are the “hot wars” in Ukraine and the Middle East (where alliances are hardening), war is spreading. There is civil war in Sudan, insurrections in Burkina Faso/Mali/Niger, terrorism in Somalia/Nigeria/Congo/Pakistan, civil war in Myanmar, escalating military clashes between Pakistan and Afghanistan, threats (military and otherwise) by China against its neighbors (notably Taiwan and the Philippines), and ongoing hostility between India and Pakistan, Turkey and Greece, Turkey and Israel, North Korea and South Korea, and others.

The Ukraine War has passed the 4-1/2-year mark. Vladimir Putin has ruled out a peaceable solution and is expanding the conflict’s scope. Russian sources report that its armed forces in 2027 will be adding 300,000-400,000 men, many provided by North Korea. In response to British Prime Minister Burnham’s promise of UK help for Ukrainian long-range missile production, Putin has threatened direct military retaliation, leading British tabloids to note the unique vulnerability of the island nation’s infrastructure and Russian media to add that British citizens would have “3 days to learn to breathe underwater” should Russia launch a Poseidon torpedo. Putin similarly has cautioned Poland, Latvia, Lithuania, Estonia and Finland that they would be “the first to fall and suffer” should they intervene on Ukraine’s behalf. Russian incursions into its airspace recently led Finland to request Swedish help in monitoring its border. A Russian drone on August 4^th threatened Leipzig’s airport, Romania on August 20^th destroyed a Russian drone that had targeted a drilling platform, and Slovakia on August 25^th foiled an arson attack on a drone factory. Russia is sending a clear message: Any country considering supporting Ukraine will become a Russian target.

As a consequence, CIA Director John Ratcliffe on August 25^th flew to Moscow in an effort to persuade Putin to enter into peace negotiations. He was unsuccessful. Putin treated Ratcliffe’s visit as a sign of weakness (highlighted by reports of shrinking stockpiles of Western munitions). In a speech following Ratcliffe’s visit, he dismissed any notion of ending the war and instead escalated by launching increasing quantities of ballistic missiles at civilian targets. He further accused Ukraine of opening a “Pandora’s box” by its drone attacks on Russian infrastructure and promised “blowback on the most sensitive sectors of your economy.” Those actions are creating increased instability…, in Ukraine, in Europe and in Russia itself, leading to the outcome TLR warned of 4 years ago: “Since losing is not an option for Putin…, escalation over time is more likely than negotiated settlement. This does not bode well for Europe, for stretched American military resources, or for a global economy fighting inflation, threatened recession, tangled supply chains, rising U.S.-China tensions, currency conflicts, climate change [ED NOTE: 2026 is experiencing a super El Niño] and simmering disease flare-ups.”

Meanwhile, Iran has tightened its grip on the Strait of Hormuz, with Ray Dalio characterizing the Iran standoff as “a classic big test of the world’s leading great power (the U.S.) … analogous to the test the British Empire faced (and failed) when the Egyptians seized the Suez Canal [in 1956]. With the U.S. publicly threatening all the world’s nations with sanctions if they don’t go along with the U.S. plan to starve Iran into allowing free passage through the Strait of Hormuz [ED NOTE: Treasury Secretary Bessent having announced “the single greatest financial offensive ever marshalled against an adversary”], countries will now have to decide either a) to go along with the U.S., which would be a great and obvious success for the U.S…, or b) to defy the U.S. threats and allow the Strait of Hormuz to remain under Iranian control, which would be a great and obvious failure for the U.S…. Thus far, China and Pakistan have made clear that they won’t go along with the U.S., so it will be interesting to see if the U.S. follows through with its threats or will be caught bluffing.”

A collateral consequence is that the “cold war” initiated by the U.S. to further the Administration’s “America First” onshoring and tariff policies is heating up. Although last year America was compelled to accede to China’s rare earths’ threats, this year it will be Canada, formerly America’s #1 ally, that will be forced to accede to America’s threats and, in so doing, will take a giant step towards vassaldom, an outcome that other countries (in Europe, Southeast Asia, South America and elsewhere) are seeking to avoid.

Economic pressures similarly are multiplying.

Domestically, TLR in May discussed “The Affordability Crisis” and last week highlighted America’s “Debt Meltdown.”

America’s Strategic Petroleum Reserve has been drawn down to a 44-year low to keep a lid on prices at the pump. However, despite using the SPR to suppress gas prices (already >$4/gallon), refined product disruptions are escalating with some airports running low on jet fuel and nationwide diesel prices up by >45%.

Meanwhile, America’s “Deportation Machine” continues to grind, shrinking the workforce, slowing America’s economy and skewing the unemployment rate lower. With immigrant workers departing in droves, basic services at hotels, bars, restaurants, etc. are declining, creating higher pay for low-income workers (which is inflationary) and increasing costs for owners (reducing profits in affected industries). Those anti-immigrant, anti-visa policies also are materially reducing the quantities of foreign students, tourists, and highly-trained foreign workers (the latter under America’s revised H1-B program).

Then there are the Russian/Chinese/Iranian/North Korean (“Axis”) bots pushing divisive messaging, the proliferation of alarmist AI predictions (coupled with the recent >50% collapse in the LLM Token Expenditures Index that portends higher capital costs at a time when America is in the midst of the greatest capex bubble in history), nuclear proliferation, the “soft power” policies being pursued by China (and others) that TLR highlighted beginning in April 2019, and the undermining of Congressional responsibility, America’s judicial system,  America’s Constitution and its Rule of Law.

These and other “straws” are cumulating in number and impact. The hope is that the global camel is so strong that there is no “last straw” heavy enough to “break the camel’s back” (whatever such a “broken back” might entail).

Finally (from a good friend)