The U.S. is currently arming Ukraine with a dizzying display of weapons. American-made M777 Howitzers, FGM-148 Javelins, FIM-92 Stingers, and Switchblade Kamikaze Drones. These are good times to be an arms maker.

Without question, the technology of the military-industrial complex is remarkable. And its appetite for destruction is gluttonous. Too much ‘defense’ spending is never enough.

Yet the gross misallocation of capital for the purpose of destructive consumption will have consequences that remain for many decades. It will further enlarge America’s massive $30.5 trillion debt pile with no economic benefit in return. This guarantees a future that will be less prosperous for American workers who will have to pick up the tab.

What’s more, Biden, the commander in chief, is going all in. And why not? His public approval rating has fallen to 36 percent. The elderly fellow is seriously struggling. He needs a miracle.

Perhaps war is his answer. Sadly, Biden recently signed a mega $40 billion military aid bill for Ukraine. As Ron Paul noted…

“To put this giveaway to Ukraine in perspective: just since late February, the US has provided nearly $60 billion in ‘assistance’ to Ukraine. That is almost half that country’s entire 2020 GDP! Washington has literally adopted Ukraine in our name and on our dime.”

At the same time, and at a great cost, Putin is slowly succeeding. Invading Ukraine has proved much more difficult than annexing the Crimean Peninsula in 2014. Nonetheless, the recent taking of Mariupol has established a full Russia controlled land connection between the Peninsula and the pro-Russian areas in Donetsk and Luhansk.

Putin now has control over the entire Ukrainian coast of the Sea of Azov. And now controls much of the provinces of Kherson, Zaporizhia, Donetsk, Luhansk, and Kharkiv. The optimistic NATO narrative appears lacking.

Something terrible is setting in. A costly and protracted war in Ukraine. Certainly, the $40 billion aid could turn into several trillion – or more – over the next decade like it did in Afghanistan and Iraq.

Just 90 days in, and the implications are rapidly multiplying and ricocheting around the globe like metastatic cancer.

Russia, for example, is the world’s third-largest oil and natural gas producer. Sanctions have limited some Russian energy sales. However, higher prices have delivered substantial energy revenue to Russia. 

To counter this, Europe is working to phase in an embargo of Russian oil later this year. Hence, higher oil and gasoline prices are here to stay. Moreover, a full-blown energy shock – with extreme price spikes – is possible. 

Remember, carbon based energy – not the green stuff – is what powers the world economy. High energy prices and shocks will inevitably translate to economic pain and recession…maybe depression. This will get ugly. But that’s not all… 

Irreversible damage to world food markets has already occurred. The effects are somewhat latent, for now. But, as night follows day, disaster is approaching. 

Before the war, Ukraine produced 30 percent of the world’s sunflower oil, 6 percent of its barley, 4 percent of its wheat, and 3 percent of its corn. Russia has blockaded all of Ukraine’s Black Sea ports, its primary export route to the rest of the world. The war could also reduce planting of future crops by up to an estimated 35 percent. 

And guess what? 

Russia’s also a major exporter of sunflower oil, wheat and barley. Plus, Russia is the largest exporter of nitrogen fertilizer…and the Russian government has halted fertilizer exports. Higher energy prices also increase the cost of food production and transportation. 

Since the war commenced, wheat prices have jumped about 30 percent. Sunflower oil, used for cooking, is up about 50 percent. The global cost of fertilizer is up 230 percent. 

It’s not hard to fathom a painful combination of higher food prices and lower crop yields wrecking mass chaos in the very near future. Developing nations in parts of Africa, Asia, and the Middle East, will be especially vulnerable. 

According to Sara Menker, CEO of Gro Intelligence, the world has only 10 weeks’ worth of wheat left to deal with the crisis. 

By our estimation, you can give or take a week or two in the countdown to world famine. 

Sincerely, 

MN Gordon for Economic Prism

 

 

 

MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.

 

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