The Saturday Essay – Failure In Afghanistan

Aug 21, 2021

The Saturday Essay – Failure In Afghanistan

Biden’s mess puts the US in danger on the world stage

This week we explore:

• How the Taliban’s shocking coup could signal the weakening of the US as the world’s #1 superpower.

• The key pillars that make the United States a superpower on the world stage, and why each may be in serious jeopardy.

• How Afghanistan's ability to overcome invading superpowers throughout history is once again playing out in force, but this time with devastating consequences

“You never know how strong you are until being strong is your only choice.​”

– Bob Marley

As our readers are no doubt aware, the 20-year occupation of Afghanistan by the US (along with US intervention in the Middle East it would seem) came to an abrupt and disastrous end this week when the Taliban violently overthrew the Afghani government immediately following our withdrawal from Afghanistan.

The latest news, after days of crisis where Americans and Afghanis attempted to flee the country, comes from the White House, who has stated that they are“working with” the Taliban on the Kabul evacuation.

This is particularly odd wording coming from the United States as it relates to a military action after a defeat.

There are only two ways to “work with” an enemy, especially one as dangerous to our American ideals as the Taliban.

The first is to re-engage in the fight. The second is to do as we are told and leave quietly with our tail between our legs.

The image is reminiscent of (and strikes a familiar and painful chord with) a war that ended 46 years ago. It’s why we liken the scene of helicopters evacuating Americans to the 1975 fall of Saigon in the wake of U.S withdrawal from Vietnam.

This is an epic failure on the world stage with far reaching consequences for the future of America.

The US 20-year occupation of Afghanistan has come at a tremendous cost, both monetarily and perhaps even more importantly, psychologically. According to a Brown University study, the United States has spent $2.26 trillion in Afghanistan since 2001 -- a staggering $300 million per day over the two decades of fighting.

While many in the military anticipated the Afghan government to be able to handle the Taliban with ease, the government was upended in a matter of days, not months or even years.

We believe that those who forget history are doomed to repeat it. This was a lesson the United States would have done well to remember, as many a superpower has unsuccessfully attempted to control the important region.

Afghanistan has forever been a critical territory as it serves as "a gateway to India, impinging on the ancient Silk Road, which carried trade from the Mediterranean to China.” Sitting on many trade and migration routes, Afghanistan may be called the 'Central Asian roundabout, since routes converge from the Middle East, from the Indus Valley through the passes over the Hindu Kush, from the Far East via the Tarim Basin, and from the adjacent Eurasian Steppe.

Many have tried to conquer the territory due to its key land position. Some of the invaders in the history of Afghanistan include the Maurya Empire, the Greek Empire of Alexander the Great, Rashidun Caliphate, Genghis Khan, the Timurid Empire of Timur, the Mughal Empire, various Persian Empires, the Sikh Empire, the British Empire, the Soviet Union, and most recently the United States of America.

But Afghanistan has been too great a challenge for multiple world superpower invaders. These invasions by world powers and their subsequent failures in the region have often signaled the end of their domination.

The most recent superpower to suffer at the hands of Afghanistan prior to the United States was the Soviet Union. The story was told in the movie, Charlie Wilson's War, starring Tom Hanks and Phillip Seymour Hoffman. The film is a must-see for anyone seeking to understand Afghan history.

Aaron Sorkin’s 2007 masterpiece tells the story of how the US supported the Afghan mujahideen during the Soviet–Afghan War in the 1980s. America backed the mujahideen with money, training, and weapons to help them combat Russian Forces while the US was entrenched in the Cold War.

Eventually, with the help of the US, the Afghans were able to defeat the Russians, signaling the downfall of the Soviet Union as a world superpower, initiating the end of the Cold War, and helping facilitate the fall of the Berlin Wall.

The Soviet’s failure in Afghanistan triggered a domino effect which ultimately led to a 30-year (plus) boom in global capitalism. We wonder if the recent defeat of the Americans by the Taliban doesn’t signal the pendulum is now swinging the opposite way, toward global nationalism.

The loss of the global economic ideal would hurt the United States more than any nation in the world. The main beneficiary of this world connectivity over the past 4 decades has been the United States, who, powered by controlling the world's trading currency, have witnessed a global economic system whereby we account for 25% of the world's wealth, while contributing for only 5% of the world's GDP.

And while globalization has unevenly benefited the United States more than any other nation in the world, Nationalism will undoubtedly have a counter effect.

But while the fall of the Soviet Union at the hands of the mujahideen fighters greatly propelled the American superpower for the last three decades, many misunderstood about the longer term implications.

Few realized back then that the mujahideen were not loyal to the US by any means, they simply shared a common enemy in Russia. Over the next decade, the mujahideen would evolve to become today’s Taliban, a group responsible for 9/11 and who has declared the US public enemy #1.

And now, after a 20-year occupation, which according to the Wall Street Journal will cost the American taxpayers an estimated $5 trillion to repay, the Taliban is declaring victory.

Make no mistake about it, the potential ramifications from this fiasco will be far reaching, not only in terms of where our country feels the biggest impact, but in how long we’ll be recovering from the fallout.

And if we look at history to read the signs of the past, we find ourselves once again face to face with the future realities of runaway inflation, political and military turbulence, oil crisis, and a bruised national psyche reminiscent of our mindset in the end of the 1970s.

Unfortunately, this time there is no strong man in either the Fed or the White House to change that trajectory.

The 1970s was perhaps the lowest point in history for American confidence and psyche.

We were beaten, battered, and bruised from the Vietnam War and a struggling economy. The 1970s further witnessed the resignation of Richard Nixon, an oil crisis, stagflation, and ended with a hostage crisis in Iran that lasted for 444 days.

Power is both literal and psychological, and there are three defining characteristics which have made the USA the most dominant superpower the world has ever known.

Our military

Our currency

Our capitalist structure

In the 1970’s our currency was devaluing, our power on the world stage was diminishing as evident by our military’s inability to free our citizens from Iran, and capitalism was giving way to socialist movements.

The Vietnam War, which started in 1955, drained the country until the US finally withdrew in 1975 after an embarrassing 20-year war which ended in an embarrassing defeat...

The war cost the US more than $120 billion, but the cost in lives was far more significant. Over 3 million Americans served during the war, with more than 58,200 killed -- mostly from the nation’s lower class, highlighting the massive wealth inequality gap in our country -- all while unemployment surged and inflation soared.

And once Nixon’s price controls were phased out, the entire artificially supported economy collapsed and the country saw an oil crisis that helped inflation more than double to 8.8%. By 1980, inflation was at 14%.

It wasn’t until Paul Volcker tamed inflation in 1981 and saved the dollar that the United States regained its footing. Ultimately a strong currency is the core necessity for any superpower. But what’s even more important is a sense of national pride.

While it’s true that Fed Chair Volcker tamed inflation and changed the trajectory of the United States for the next 40 years, the real moment that changed the psyche was not a stronger dollar. It was an Olympic sporting event that altered the psyche of our citizens.

It was the Olympic Games in 1980 that signaled the beginning of the end to the Cold War as a ragtag group of college kids helped Americans finally regain confidence and national pride by defeating the impossible to beat the Soviet Union hockey team.

The winter games were hosted that year by the United States at Lake Placid, New York. Back then the United States only allowed amateurs to compete in the Olympic Games.

That was when we witnessed a group of teenagers suit up for the USA in the 1980 Winter Olympics and somehow beat the “unbeatable” Soviets, a team of grown men widely regarded as the best hockey team of all time, and ultimately win gold in what is arguably the greatest upset in sports history.

There’s a great ESPN documentary about it called “Miracle on Ice,” which I highly recommend for anyone interested in not just hockey, but the socio-economic goings on of the time.

In that documentary, they show a news clip where the anchor says “After Iraq, after Afghanistan, after inflation, we finally have something to cheer about. We beat Russia.”

That clip is immediately followed by another clip, one of former President Gerald Ford stating “I really think it was a big strike in the cold war between the Soviet Union and the United States.”

Why bring up hockey in a conversation about military and currency? It’s because the two are intimately connected.

Because this win by a group of college kids prompted America to once again act like America.

A new attitude flowed back into the country, including into the Federal Reserve, where new Fed Chairman Paul Volcker stood up to popular sentiment and did what needed to be done in order to save our currency and beat inflation: he tightened the money supply and raised interest rates.

Overcoming the objections of many other central bank heads, Volcker raised rates to an unprecedented 20%, significantly reducing both the amount of currency and credit available to Americans.

While this triggered an initial economic downturn and raised the unemployment rate past 10 percent, it ultimately produced the exact result Volcker intended. Since then, the US has witnessed a 40-year run of low inflation, steady growth, and rare recessions.

But that golden period may be drawing to an end after the events of this past week.

The military loss for the US comes at a time that coincides with an even more important fundamental: the active devaluation of the dollar by the Federal Reserve. Forty years ago the entire purpose of the Fed was to tame inflation. Today the goal is the opposite, as our Fed wants to let “inflation run hot.”

It’s a one-two punch that could damage our power on the world stage irreparably for decades to come. Both the military loss and the monetary manipulation are extremely important.

For anyone who hasn’t seen Charlie Wilson’s War, it does a fantastic job of showing how one congressman (Wilson) was able to accomplish the impossible and topple Russia during the Cold War.

Spoiler alert: the movie ends with a warning from a CIA agent (a powerhouse performance by Phillip Seymour Hoffman) saying that now things are really going to get bad.

Wilson managed to raise more than $1 billion for the covert war effort from Congress, but then tried to raise $1 million (with an M not a B) for rebuilding schools in Afghanistan, only to be told that congress had no interest in that and had already moved on.

We were so intent on staying “covert” and keeping our fingerprints off of the situation that we did not bother cleaning up after ourselves. The US helped facilitate a war, then left without helping stabilize the country (even knowing that religious fanatics were pouring in), without creating any kind of foothold for ourselves in the area, and without even collecting the advanced weaponry we provided.

The mujahideen felt used, as if they were pawns -- which they were. Since that point many of their sects have evolved into the Taliban. Their hatred of America has become nearly palpable.

A decade later on September 11, 2001 the same fighters we supported against the Soviets in the 1980’s attacked us on our own soil.

Today, after 20 years and $2.26 trillion spent by the US, at the moment we leave, the Taliban has immediately reclaimed an entire country giving them total control of a strategic military foothold from which to carry out their extreme agenda.

And the United States lost more than reputation, we lost the ability to control some of the most valuable rare earths in the world.

In 2010, an internal US Department of Defense memo called Afghanistan “the Saudi Arabia of lithium,” after American geologists discovered the vast extent of the country’s mineral wealth, valued at at least $1 trillion. Lithium is essential for electric vehicles and renewable energy batteries, one of the most vital economic sectors in the world at the moment.

That wealth now provides the Taliban potential funding and trading opportunities with countries such as China, Iran, and Russia, who are key players in the renewable energy space and have begun their own cold war with America and who are all seeking to move away from US dollar hegemony.

We believe this military failure will only further embolden China to continue to follow through with fully reclaiming Hong Kong.

As if on cue, to send a signal to the world, China has already jumped to take full advantage of the situation. China’s media is pushing Chinese nationalism and the decline of US influence.

And here is where military might and currency power intertwine. As we were leaving Afghanistan with our tail between our legs, the Biden administration attempted to claim victory by explaining that the second phase of the war against the Taliban had already begun; the economic phase. According to a report on CNBC;

• The Taliban will be hard-pressed to tap Afghanistan’s financial assets after the U.S. froze the country’s reserves in Federal Reserve accounts.
• A Biden administration official told CNBC that any central bank assets the Afghan government has in the United States will not be made available to the Taliban.
• Ajmal Ahmady, Afghanistan’s central bank chief, who fled the country, wrote Wednesday that he received a phone call Friday that shipments of U.S. dollars would be halted.

Biden’s response to the Taliban’s takeover of Kabul was to freeze the Afghan central bank’s assets totaling $9.5 billion.

The message is clear; If we cannot beat them militarily, we can certainly punish them through the WTO, the IMF and the SWIFT system and strangle their access to dollars.

We wonder aloud how long it is before the United States claims that the Taliban is officially using Bitcoin as their currency, and use that crisis headline to further regulate or make outright illegal all cryptocurrencies.

This is assuredly why central banks (and companies) around the world are buying gold. It’s not just central banks that can see the writing on the wall. If the US doesn’t get its way, it will be punishing our enemies with the power of the dollar.

The move away from the dollar has been ongoing.

According to a quarterly summary from the World Gold Council, global gold reserves expanded 39% higher than the five-year average for the first half of the year, noting strong purchases by Thailand and Hungary.

India’s Central Bank purchased 700 tonnes of gold (a record amount), and Brazil’s Central Bank increased its gold holdings 92.4% in just the last 3 months.

Remember, those who forget history are doomed to repeat it. The political unrest happening in Afghanistan could represent a tipping point that America’s might on the global stage has been dinged dramatically. That it’s occurring precisely as we are both weaponizing and weakening the dollar we believe signals a terrible moment in time for our country.

Our ongoing weak dollar policy will be the catalyst for significant inflation. Inflation erodes a country's confidence and we believe could be signaling the end of forty years of globalization.

For those who remember history, the fall of Afghanistan represents a pivotal moment, one we believe could be another signal of a new, 1970s-esque stagflationary environment that coincides with a polarized country whose psyche hasn’t been this weak in forty years.

Ironically, the Winter Olympics this year will be held in Beijing, China - at a time when China seeks to exemplify their new power on the world stage.

Those who forget history…

Best,

Adam Baratta

Founder

Brentwood Research