Charles A. Kohlhaas | October 25, 2023
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A wide range of observers who study economic, political, financial, and cultural cycles of the U.S. and the world reached a common conclusion: The various cycles have all converged to a low point during this decade and this convergence will cause maximum disruption. The news over the past few months seems consistent with this conclusion and continues unabated. 

It may be debated whether the current political situation in the U.S. is a cause, symptom, or result of such convergence. The Democrats have descended into irrational leftist passionate hates and animosities; the Republicans are floundering like a fish in the boat, dead but don’t know it yet. The Biden Administration has proved itself the most destructive to American well-being since Lyndon Johnson’s.

Regardless of one’s acceptance of cycle theories, the United States is exhibiting to the world an ineffective government and a fragmented, incoherent society. The world is taking notice and moving to adjust to the situation. Inflation is a problem and Wall Street warned last week of softness in the market for U.S. Treasury debt. The huge spending bills of the last few years may have saturated the world’s absorption capacity for U.S. debt, plus our current government certainly undermines confidence in the “full faith and credit” of the U.S. government backing its debt instruments and the dollar.  

American adversaries are making strategic, aggressive moves to take advantage of the situation before the U.S. comes to its senses and elects an effective government. Putin was an early mover and figured he could take over Ukraine and, maybe, someplace else. The Ukrainians stymied that with support from the U.S., Europe, and the UK, but it is still an unsettled tough war.

Hamas has governed Gaza badly since 2007. It is a terrorist organization full of hate. It is not good at keeping the lights on, picking up the trash, or keeping the economy running. Gaza is crowded, poor, and the leaders of Hamas do not even live there; their headquarters is in Qatar.  Gazans rioted and protested several times and resentment was building. Hamas had to do something. Hamas reached a desperation point and launched its horrific attack on Israel designed to attract maximum attention and cause maximum upheaval. 

The role of Iran is not so clear. Iran sponsors and supports Hamas with funds and arms. The Wall Street Journal reported that Hamas leaders reported they met with Iranian leaders in Beirut who gave the go-ahead for the attack. Iran denies this and U.S. security and intelligence officials report they have no confirming evidence.

Do we believe Hamas? But, then, neither Iran nor the Biden Administration have a record of truthfulness, either. Iran may not have approved the Hamas attack on Israel, preferring to take advantage of the Biden Administration’s willingness to let them collect high oil-export revenues and work on their nuclear program for a few more years to use against us after we elect someone else. Hamas, in desperation, might have attacked without Iran’s approval and lied about it to force Iran’s support.

Hezbollah, a larger, better armed, and much more effective Iranian proxy on Israel’s northern border has been firing over that border, but has not mounted a major attack to open a two-front war. Are they waiting for Israel to invade Gaza? They will do whatever Iran directs.  

Soon after taking office, the Biden Administration resumed discussions with Iran regarding its nuclear program, negotiated release of hostages and released six billion dollars to Iran as part of the deal. Of more financial importance, the U.S. ignored, cancelled, or just failed to enforce its sanctions against Iranian oil exports. Iran now exports about 1.2 to 1.4 million barrels of oil per day, mostly to China. 

The Biden Administration faces strong domestic political pressure to re-freeze the six billion dollars of hostage funds and to re-enforce the oil export ban. That will take Iranian exports out of world supply and put upward pressure on oil prices and inflation. Iran may take the position that, as long as the sanctions are not enforced, it will not unleash Hezbollah and leave Hamas to deal with Israel alone. On the other hand, it is threatening an Oil Embargo.

The Biden Administration has no qualms about dealing with the world’s great criminals and dictators for its own benefit. It is hedging its bets on Iran by turning to the drug thugs in Venezuela to increase production and curtail price increases. Venezuela’s production rate is below its own demand, however, and cannot affect world prices. Inflation is out of control and we can expect higher interest rates and prices, regardless of Biden’s actions.

The suddenness, brutality, and extent of the Hamas attack inflamed emotions and passionate reactions. Israel declared they would exact revenge and crush Hamas and prepared to invade Gaza. It is hoped cooler heads will prevail. Gaza is densely populated and can be expected to be extensively prepared with booby traps, IEDs, and ambush sites. An Israeli invasion of Gaza will be extremely costly in terms of its soldiers, equipment, and funds. Thousands of collateral civilian deaths will generate worldwide horror and opposition. And what will they have when they are done? A Pyrrhic victory. It will also leave Israel vulnerable to an attack by Hezbollah from the north. 

A snake is killed by cutting off its head and the Hamas leaders are not in Gaza. Israel can exact revenge slowly, methodically, and thoroughly as they did with the killers of their Olympic team.  “Revenge is a dish best served cold.”

This attack, with the war in Ukraine, will change many delusions about a benign modern world with friendly global trade. Davos Man is now irrelevant. The UN is useless. I imagine a lot of Israelis, many in the last minute of their lives, suddenly realized the benefit of a Second Amendment. World policy makers need to learn the same lesson on a larger scale.