How the Biden Administration Affected the Implosion of Two Banks and Shook the Financial Industry

We've just seen two major banks fail within days of each other while some financial pundits are alleging that 200 other banks are "vulnerable". What happened? Silicon Valley Bank was the first of the 2023 bank failures it was also the second largest failure in banking history (the largest was Washington Mutual in 2008).

The reason for its failure was due to having a high percentage of its investments in uninsured deposits and risky fixed rate "hold to maturity" bonds or "HTM" bonds (meaning they aren't readily tradable for other higher yield securities).

Silicon Valley Bank (SVB), based in Santa Clara California, represented 50% of the money available to venture capital firms, particularly those with interest in new and emerging technology as well as biogenetics. While it was one of the primary banks to venture capital firms, its total assets were relatively small compared to the major banks like JP Morgan Chase, Citibank, or Bank of America.

According to investigators, 93% of SVB's deposits were uninsured. This means that many of its customers had deposits in excess of $250,000, which exceeds the amount covered by the FDIC. This percentage second highest in the banking industry behind Mellon Bank of New York with 96% of its deposits uninsured. 94.4% of its investments were in long term HTM securities and loans, compared to Mellon's 31.2%, meaning Mellon had more available liquid assets on hand.

Back when technology industry was booming and stock prices were rising, SVB saw its deposits grow from $65 billion in 2019 to $189 billion three years later. ignoring all the warning signs, the inevitable bust came in November of 2021, resulting in many of its corporate investors (especially tech companies) to begin a drawdown of their money, especially in light of rising interest rates and a downturn in the stock market.

To cover all the hefty withdrawals, SVB first blew thru its cash reserves and their convertible short term liquates. They then had to turn to its hold-to-maturity (HTM) bonds, which they were forced to sell at a loss. As the big dollar investors withdrew their money, word eventually spread to the smaller depositors who joined in the feeding frenzy. It wasn't long before SVB was virtually bust.  

The second bank failure of 2023 was the better known Signature Bank. It's failure was primarily the result of a run on the bank by spooked depositors after learning of SVB's collapse (such is the power of mob mentality). However, the underlining reason for its failure was its highly speculative investment in cryptocurrency, resulting in the fourth largest bank failure in the industry's history.

Like SVB, Signature Bank had a similar percentage uninsured deposits at 89% along with 93% of its investments tied up in loans and HTM bonds. While SVB and Signature were the only two banks with investment ratios this high, their implosion sent shock waves through the financial industry. Banks and other financial institutions, both domestic and global, saw their stock prices take a hit amid fears of possible bank runs by depositors and the stability of the financial market in general.

While it's unlikely their will make any more bank runs, the collapse  of SVB and Signature Bank nevertheless reveals an underlining concern by the public and corporate investors alike about rising inflation rates along with rising interests rates amid a shaky U.S. economy and deep concerns about the prospects of a new world war which could quickly go nuclear.

The U.S. economy had been doing rather well, with inflation running from around 1.5% in 2015 to a low of .07% in 2017 under President Obama (the "ideal" rate of inflation is about 2%). When Donald Trump took office in 2017, inflation was still a respectable 2.1% before dropping to 1.4% in 2020. Under President Biden, inflation jumped to 7% in 2021 before dropping slightly to 6.5% in 2022.  It's now hovering at about 6%.

Under President Obama, the economy added 11.6 million new jobs (though the upward trend began under Clinton). Unemployment dropped to 4.7% with the poverty rate declining to .5%.  Median household incomes grew an average of 5.8% over his two terms (by comparison, median household incomes rose an average of 13.9% under President Clinton but dropped to 4.2% under George W Bush). Home prices rose by 20%. The number of uninsured Americans dropped by 15.2 million individuals.

It's worth noting that under Clinton, corporate profits rose 55.2% while under George W. Bush they skyrocketed 118.9% before falling back to 54.9% under Obama (during the Nixon-Ford years, corporate profits rose by a astonishing 125.4%).

During Trump's tenure as President, unemployment rose to 6.3% while 2,876,000 jobs were lost. Nevertheless, the number of job opening rose 25.7%. Poverty continued to decline by 1.3%. The median household income rate grew by 6%. and median home prices rose by 27.5%.

Although food stamp recipients dropped by 1.7%, the consumer price index (the change in consumer prices) rose 7.6%. The number of people without insurance increased to over 3 million individuals, affecting single parent households the most.  Wages for private sector workers, however, rose by 8.7% under President Trump.

Under President Biden, the numbers aren't so rosy. Speaking at the Conference of Mayors, Biden said that thus far under his administration, unemployment had dropped by 16 million. Impressive, but not true. Analysis shows that while unemployment has dropped, the numbers were a much less impressive 5 million.

Biden also claimed to increased the number of new jobs by a record 10 million. Again, not true. Biden's Administration has seen a net loss of 22 million jobs, and while a portion of those jobs have been recovered,  40% remaining unfilled or permanently lost. And, as an aside, President Jimmy Carter grew the largest number of new jobs at 8.4%, not Biden.

President Biden claimed in a Tweet on March 16th that food related prices have dropped. Again, not true.  Data from the Bureau of Labor Statistics shows that over the last year, food prices rose 11.8%. For cereals and bakery goods, overall prices rose 16.1% last year. Dairy and related products (like ice cream, cheese, cottage cheese, etc), prices went up 15.3%.

 Other grocery items such as eggs, fish, chicken and beef saw an increase in prices by 7.7%.  Fruits and veggies had a 8.4% jump in price. Thus far this year, prices are still rising but at a generally slower rate of roughly .03%. Another issue for customers has been the price of gas.

When Biden first took office, the average price of regular gas was $2.39 a gallon. Within a year of taking office, the national average was $5.00 per gallon for regular. Today the average price nationally is about $3.39. Biden falsely claimed in October 2022 that when he took office, the average price of gas was $5.00 and added that his policies were responsible for the decrease. Nevertheless, it our era of under regulated corporate industries, there's not much a president can do on his own about gas prices.

Another factor affecting the mood of the public and depositors alike is the war in Ukraine and rising tensions with Russia and China. The United States spends more on its military---$801 billion---than the next nine nations combined. Russia spends just $300 million on its military, which is less than the UK ($400 million) or India ($500 million), and yet we've allocated over $400 million to Ukraine (the same amount as the entire military budget for the UK!). NATO has contributed roughly $80 billion in military aid with much of that comes indirectly from the U.S..

The result has been a unnecessary prolonging of the war and thousands of needless dead and wounded individuals not to mention billions of dollars in destruction, and yet only China has proposed a peace plan. You would think that the European Union and/or the United States would want to see some sort of peaceful resolution, but nope.

 As a result of continued Western aid, Putin has deployed nuclear ICBM missiles along with threats of using them while various NATO nations (notably Poland) have indicated they might be "forced" to get more directly involved. If Poland does, it could enact Article 5 of the NATO agreement which calls for NATO to come to the aid of another NATO member if attacked. It was this kind of distorted mentality which lead to World War I and we all know how that worked out for Europe.

Beijing has at least put forward a peace proposal as it has strengthened its relationship with Russia, including the shipment of military aid. At the same time it has been aggressively beefing up its military. Having the world's second largest budget, China has already deployed two aircraft carriers and is beginning sea trials on a third. It has enlarged its fleet in everything from amphibious landing crafts and coastal ships to cruisers and destroyers. It has also added shipbuilding yards, bringing the total to six.

Beijing has upgraded its army in terms of training and armament as well as adding troop carriers, tanks, mobile missile launchers, and aircraft. Most notably, it has also enlarged its cyber-military capabilities which not only covers surveillance and communications eavesdropping, but cyber-hacking and electronic jamming capabilities.

To makes matters more intense, China has become much more aggressive in asserting its claim over Taiwan, its border with India, and has challenged the territorial water rights of Japan, South Korea, Philippines, India, Indonesia, and Australia while asserting its own rights over the South and East China Seas.

In terms of trade, China is a major player in the technology market (which directly affected key corporate clients of both Silicon Valley Bank and Signature Bank) dominates the field of electronics. In addition, China is believed to be heavily involved in bitcoin, Ethereum while holding as much as $6 billion in crypto currencies. All factors in the failure of both banks.

China is also a essential trading partner of the U.S.. It makes up 17.48% of our imports. Meanwhile, the United States accounts for just 6.59% of China's imports. Their top import partners are Japan and South Korea who making up  8.44% and 8.36% respectively of its total percentage of imports.

In the era of COVID, China is an essential importer of pharmaceuticals to the U.S. which covers the gambit from medical equipment, vaccines and commonly use drugs. For example, they account for 95% of our ibuprofen, 91% of our hydrocortisone, 70% of our acetaminophen, 45% of our penicillin, and 80% of the active pharmaceutical ingredients used in other drug manufacturing (they even provide the majority of those medical masks we wore during the outbreak of COVID!).

Technology, as stated earlier, is also a major Chinese import, especially in terms of cell phones, electronic chips used in computers, vehicles, televisions, microwaves, military equipment, as well as telecommunication equipment, computers, semiconductors, and various automotive parts.

Lastly, the Chinese have been doing a lot of shopping globally, buying up mineral and water rights, oil and natural gas rights, mines, agricultural (seeds, fertilizer, etc) manufactures, food processing firms, pipelines, concrete manufacturing plants, farmland, forests, and securing exclusive agreements as they go. If they can't conquer the world outright, then they'll buy it bit by bit.  So long Pax Americana!  

These are obvious reasons why big dollar depositors made a run on these two banks. There's plenty for corporate investors and ordinary depositors, as well as the public in general to be scared of as outlined above.  However, that's no excuse. Other banks, financial institutions, and businesses face these same issues and remain solvent.

Management will likely claim they were trying to maximize gains for their shareholders, which may be true,  but it will be the taxpayers who'll end up paying for their mistakes. Ultimately, it comes down to bad judgment and a failure to maintain a proper fiduciary responsibility in an industry which is in need of tighter regulation.   

 

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Why Did Silicon Bank Fail?

Analysis: Why Silicon Valley Bank and Signature Bank failedso fast

Current US Inflation Rates 2000-2023

Obama's Final Numbers

Trump's Final Numbers

Biden's Misleading Unemployment Statistic

Biden's Misleading Claims About the Economic Recovery and Unemployment

 

Fact Checking: Biden touts falling food prices when they areactually rising

China's Global Shopping Spree

 

Is the U.S. Egging on the War in Ukraine?

What do you think about the United States getting more deeply involved with the Russian-Ukraine War? The U.S. and NATO have been fanning the conflict by dumping increasing levels of military material in Ukraine and promising even more aid. In fact, President Biden recently flew to Kyiv to personally tell Ukrainian President Zelenskyy that the U.S. will be sending some $500 million dollars worth of military hardware. In January 2023, the Department of Defense proposed a $3 billion dollar package in military aid to Ukraine. 

If we go back to January 2022, we'll find that $3 billion dollars in of your money is just a drop in bucket. Starting in January 2022 through January of this year, you and I have paid for $78.8 billion dollars in aid to Zelenskyy. 31% of that (or about $23.5 billion) was exclusively for military hardware. Another 6% (or $4.7 billion) in the form of grants and loan guarantees for military purposes just in case they want to buy from one of our allies or something.

On top of that, American taxpayers have ponied up $18.3 billion in "security assistance". This covers logistic support, training, and incidentals like boots, belts, uniforms, winter/summer uniforms, rations and whatever else that's not covered previously. In short, the DOD is that one stop shopping that despots, tyrants, and warmongers the world over have come to count on. I wouldn't be surprised if each purchase didn't come with a gold "skull and crossbones" stick pin.

So, the total package just for military related items comes to $46.6% billion dollars, or 61% of $78.8 billion dollars in aid we've given so far.  As they say on television infomercials..."but wait, there's more!", and indeed there is. We've given $26.4 billion in financial aid. This is suppose to cover rebuilding Ukraine's infrastructure, ranging from rebuilding buildings and bridges to schools, roads, and general clean up.

So, what about the people of Ukraine? You know, the women and children that Biden briefly mentioned in his press conference with President Zelenskyy? Well, out of the $78.8 billion dollars, they were slated to receive $3.9 billion in aid. This was to cover temporary shelter, food assistance (including baby formula), as well as medical treatment and medicine. That amounts to just 5% of the 78.8% we provided on last year (and that doesn't cover the additional money that Biden just promised).  

It's worth noting that U.S. military aid to Ukraine has far exceed the amount of aid we've provide any other country, including our closest allies such as Israel which has received a beggarly $3.3 billion. Jordan has receives a mere $504 million dollars in military aid. For the record, prior to the war, Ukraine received just $284 million in American military hardware. 

As an aside, it's worth noting that while President Biden is being so generous with your money, he made no mention of trying to find a way to bring this war to end. You would think that in addition to spreading all that money around a little more fairly, especially on the humanitarian aid side, he would want to see a peaceful and fair resolution to this war.

Accurate reports are hard to come by, but it has been reported that at least 8,000 civilians have been killed with over 13,000 others injured. Many experts are saying that the number of civilian deaths have likely been grossly underreported and added that perhaps as many as 100,000 civilians are possibly dead and buried under unexplored rubble. Military deaths on both sides have lost far in excess of 100,000 each with some estimates putting the number of Russian troops killed as high as 200,000.

Here at home, we have a failing infrastructure system (we are rated a "C-" by the American Society of Civil Engineers). The World Economic Forum's of global infrastructure rankings placed the U.S. 13th in the world out of 141 countries, behind the United Arab Emirates and ahead of Belgium for 2019.  

We have a school system which consistently fails to measure up to international standards (we're 14th overall). A healthcare system which is just as bad (the U.S is 11th, which dead last among the leading industrialized nations). We are faced with rising food and gas prices, as well as rising taxes and stagnate wages amid an inflation rate of 6.4% (last year the inflation rate ranged from 7.480% to 9.060% with the majority being around 8.5%).

Our general quality of life has been on the decline for several years. Globally, we are ranked in the second tier at the 21st. Among the top countries ranked above us include Scandinavia, Germany, the UK, Ireland, the Netherlands, Australia and New Zealand, Italy and Portugal. We even have one of lowest life expectancies of any developed nation---in 46th place!

We have the highest income disparity of any developed nation. Top tier incomes among the one percent make more than 84% more than the bottom 20%. The top 20% earned more than half---52.2%---of all U.S. income in 2020.  CEO's average incomes that are more than 399% more than that of the average employee.  Despite laws to the contrary, women still earn on 82 cents for every dollar her male co-worker earns (the disparity is worse among female minorities).

What about the U.S. military? There's no question that after fighting a 20 year war, the U.S. military was pretty exhausted. Much of our equipment, including tanks, planes, and ships, were in desperate need of some intense maintenance. We were starting to run shortages in everything from bombs and ammunition to spare parts.  We've also experienced a drop in enlistments as service members decided to get out (it's worth noting that during our 20 year misadventure in Afghanistan and Iraq, service members did more tours of duty than at any point in U.S. military history. Much of that was under combat conditions).

According to a report published by Defense News, a detailed report by the Heritage Foundation showed that the U.S. military was weaker than it was in 2022. The "Index of U.S. Military Strength" focuses on the need for the U.S. to be prepared to be able to engage in two wars simultaneously or a major regional confrontation. 

The report goes to say that the U.S. military fails to meet that objective, and currently would struggle in a single front confrontation. The article goes on to state that the military is still capable of "projecting" its strength around the world (meaning we can be anywhere at any time), our fighting capabilities are greatly diminished.

Of all the various branches, only the Marines were still rated as "strong" (hooyah "Devil Dogs"!). The Army was rated as "marginal" while the Navy was "weak" and the Air Force was "very weak". The Space Force was also listed as "weak", citing slow updating of ageing technological platforms.

The Navy's score was based on a lack of combat fit ships (most are in need of overhaul) and an inadequate number of additional "manned" ships. The Air Force lacks adequately trained pilots and the pilots they do have are logging in less than satisfactory flight time (same for the Navy). Nevertheless, we seem to have enough "surplus" military hardware to send to Ukraine but not to satisfy our own needs. To me that just doesn't make sense.

Finally, the reports identifies China as our primary military adversary due to its expanding military capabilities, technology, and growing aggressiveness. China was followed by Russia with its large nuclear capability. North Korea was mention as low threat along with various countries in the Middle East including Iran.

So, where does that leave us? At present the United States is still trying to be the world's policeman and arbiter of events. However, things are rapidly changing. China is now the world's largest economy according to some experts Where it can continue at its present pace is another question. Countries like India and Brazil are on the ascent economically too.

The U.S. is showing serious cracks in almost every area, especially the most important ones of education, technology, and global competitiveness.  It's political system has morphed from a Republic into a neo-fascist Corporatocracy; a surveillance state born out of fear thanks to 9/11. We have a social and political divide unlike anything since the decade preceding the Civil War, not to mention a growing economic divide brought on in part by our "outsourcing" of good paying production jobs.

We are unwilling to stop the hemorrhage of illegal immigration. Worse yet, politicians no longer have the decency to lie to us about trying to stop it!  They just ignore and keep on doing as they please. And so, those who encourage them to come over and those who hire them, often turning these individuals into serf labor, go unpunished.

Meanwhile, we maintain the highest prison population in the world; much of which is based on uneven sentencing. We focus on "doing time" rather than rehabilitation for those convicted of non-violent crimes. We even fine and convict individuals for possession of what grows naturally. Tell me corporation self-interest isn't behind this.

I think our chief problem stems from our failure to take a stand and then stand by our decision. We're too afraid of "offending" someone or being called a name than speaking the truth. We don't want to take responsibility for our actions. Instead, we find someone or something else to blame. There are consequences to our actions and we need to step up and own them---good or bad. 

 When it comes to the government we keep falling into the same ole trap that somehow, magically, the "next time it will be different". We allow ourselves to be seduced by the lies. Politicians, the two corporate owned political parties and their corporate owners are counting on it. It won't change. Why? Because we fail to remember the adage that what we allow to happen will continue to happen.

Lastly, we have a bad habit of sticking our noses where they don't belong globally. It's not our place to decide what government or leader another country should have. Did you know that since the end of WWII in 1945, the U.S. has been involved in the overthrown or attempted overthrow of 57 countries, including the predecessor of Ukrainian President Zelenskyy? 

We need to accept the decision of a people freely voting in their own country for the government they want whether we like it or not and then to find ways to work with those governments if we really want to promote democracy. Besides, we wouldn't tolerate it, why should anyone else?

Not everyone wants to be America's "mini-me". In fact, of all 96 democracies in the world, not a single one has emulated the United States. Not one. Instead, they prefer the parliamentary system of the UK where everyone is represented in lieu of our "winner-take-all" two corporate party system.

Americans are, by and large, a very generous people. We've come to the world's rescue every time disaster has struck. In the case of Ukraine, we should continue to help the people of Ukraine with humanitarian aid while stopping to egg on a war aimed at: A: Antagonizing Putin, B: Securing Right to the oil and gas, C: Securing rights to coal and other natural resources, D: Threatening Russia's national security with NATO/U.S. missiles on Russia's border. Our focus should be on stopping a war which could have and should have been avoided.

 

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How Much Aide Has the U.S. Sent Ukraine? Here Are Six Charts

Soaring Death Total Gives Grim Insight Into Russian Tactics

 

U.S. Health System Ranks Last Among 11 High-Income Countries

The Quality of Life

 

US military in decline, threats from China "formable" , report says

Executive Summary of the 2023 Index of U.S. MilitaryStrength

 

 

 

What's Next for Putin and the People of Ukraine?

What's next for Russian President Vladimir Putin? I guess that all depends on who you ask and where you get your news. There's no doubt that Russian news sources are largely controlled by the Russian government. But then, the Western media are just as guilty of their own propaganda. After all, the same corporations which control 96+% of everything we read. watch, and hear also controls Washington.

With that in mind, Russian news sources report that the Russian military is holding their own, if not actually winning in what's now become a war of attrition. Meanwhile, in the West we're told that the Ukrainians are giving the Russian troops a good old fashioned butt kicking (naturally with Western aid).

Russian tanks and mobile units are being decimated while Russian planes and helicopters are being shot down with impunity. As for the much ballyhooed Black Sea Fleet, it's been rendered impotent. We're even told that the Russian military to running on empty when it comes to keeping their war machine supplied with fuel, replacement parts, ammo, and even food, water, and medicine.

Video footage (often provided through the Ukrainian Government) of captured Russian troops are repleve with stories of being randomly drafted, given little or no training, and simply dropped off at random sites in the Ukraine and to await instructions which never seem to come. Many just wonder into the nearest Ukrainian town or village and simply surrender to the first Ukrainians they see...military or civilian.  In short, they're there to use up Ukrainian ammunition as cannon fodder and live (for the moment) targets.

Meanwhile, there seems to be no shortage of scenes of smoldering or abandoned T-90 tanks, or planes and helicopters being shot down on social media outlets, yet curiously few scenes of the obligatory dead Russian soldiers and pilots which are displayed as proof of victory.

It's hard to believe that the arch nemesis of "all that's holy and scared", at least according to Western governments (most notably the United States) during the 45 years long Cold War is being thumped by a second tier military like Ukraine.  Starting in the 1950's, Americans lived in fear of ruthless Soviet expansion throughout the world likened to a game of dominos.

In school, we were taught to hide under our desks or along the hallway wall in case of a nuclear sneak attack (which hung over us and our parents like a sword of Damocles). Looking back, I guess that was so the survivors knew where to find the little piles of our ashes. We were told to "drop and cover" behind sidewalk curves or drive to the nearest fallout shelter, which were usually located downtown. You know. Right where the bomb would hit in about 20 minutes.

Meanwhile selected government officials were to be secretly evacuated by the military to their own nearby private bomb shelters under the auspices of "continuity of government" and all before the ice in their glasses of scotch melted. 

 We fought countless wars directly and indirectly, overthrew governments, and assassinated duly elected foreign leaders throughout the world to make it "safe for democracy" (sarcasm intended).  Then, we watched with a certain measure of glee as the Soviets invaded Afghanistan, only to get bogged down in their own Vietnam (a lesson we repeated and took us 20 long years to learn with the same results), and downright cheered when the USSR imploded and collapsed in 1991.  

So, now what for Putin? Well, if we are to believe the mainstream media, President Putin is stuck between a rock and hard place. On the one hand, his generals are extremely frustrated with the progress (or lack thereof) in the Ukraine while many members of the Duma (Russia's version of Congress), along with large numbers of the populace, are increasingly angry over the quagmire that is Ukraine.

The Russian senior military staff are themselves split between what to do. A minority see their best option as throwing in the towel and withdrawing completely with their tail between their legs as they did in Afghanistan 33 years ago. Others see their best solution as consolidating their tenuous hold on the Donbas provinces and forgoing the rest of Ukraine.

Some of the military and political hardliners are urging the use of some of their 5,977 nukes, specifically the smaller "tactical" warheads of which there are about 2,000. Even some members of the powerful state security apparatus, the FSB (successor to the feared KGB) seem to agree.  

These smaller yield warheads have an explosive output of approximately 15 to 20 kilotons of dynamite, which are close to the explosive power of the bombs dropped on Hiroshima and Nagasaki,which killed or outright vaporized a combined 105,000 lives. The resulting fallout caused the deaths of tens of thousands for months and years afterwards, not including the thousands of birth defects which continued to appear decades later.

Most Western observers reject this scenario, saying Putin may be crazy, but he's not stupid. I agree that it's highly unlikely that Putin would use nukes. First, he would be unanimously condemned by the world. There's even the possibility of a coup. Those nations which have remained on the sidelines throughout the conflict would immediately provide Ukraine with humanitarian aid. Some might add military aid as well.  There would be near universal economic and political sanctions imposed on Russia would stagnate it for years if not decades.

Secondly, the nuclear fallout could drift westward, affecting Poland, Hungary, and Romania or spread further west to Germany and Scandinavia. Depending on the targets and wind direction, it's not out of the question that Turkey, not to mention Russian controlled Crimea and the Black Sea with its fishing industry and critical production of oil and gas would be affected.   

If it did drift into Poland and points west, all NATO countries, it could make for a tenuous, but plausible argument for triggering Article 5 of NATO's mutual assist agreement, and thus activate NATO's military. Granted that might be a bit of a stretch (though fallout is certainly possible and even likely), it wouldn't take much given the hotheads in NATO who've been looking for an excuse to get directly into the fight from the outset. 

Any humanitarian relief efforts transported directly into Ukraine would likely be under the protection of NATO. Any provocation by Russia, intended or not, would be all the excuse needed for things to get "hot", thus forcing Russia to pull back to avoid any possible "misunderstandings". To put it another way, everything would be locked and loaded and the safeties would be off. Lastly, it would give NATO all the justification they need in the eyes of the world to fully admit Ukraine into NATO as a full partner. Nukes would be a no win scenario for Putin.

A good argument could be made for Russia to simply withdraw from the Ukraine proper and focus its energies on the contested Donbas region, which is comprised of roughly 40% ethnic Russians. After all, Russia's military has pretty much mucked up most everything in western Ukraine while invigorating Ukrainian resistance.

Russia's badly depleted and demoralized military would have a substantially smaller area to contend with, and they would have the support of a large pro-Russian minority. The Donbas could provide a link with Russian controlled Crimea.

It's worth noting that several Western pundits claim that the Ukrainians are doing such a marvelous job in fighting Russian troops, that after driving them out of the country proper, they should move into the Crimea and retake it. An interesting notion but unlikely. The Crimea has strong links to Russia dating back to the late 1700's. A substantial portion of the population (about 60%) are ethnically Russian, speak Russian, and identify with Russia.

In March 2014, the Crimean Supreme Council held  a referendum for the Crimean people. They were to decide to rejoin Russia or readopt their 1992 Constitution which gave them autonomy. With a turnout of about 83%, some 96% voted to rejoin Russia. Critics of the referendum (mostly Americans) cited no outside observers to verify the election results, and therefore rejected the outcome. I suppose the same argument could be used for our recent elections too don't you think?

Regardless, Russia has been in the Crimea since Czarina Catherine the Great's annexation in 1783. It's home of one of their largest military installations, Sebastopol, and it's the source of vast amounts of oil and gas which has been propelling Russia's economy (perhaps the main reason Kyiv wants it back).

The Donbas (formed from the name of the area---Donets Basin) is comprised of two pro-Russian provinces, the Luhansk and Donetsk. 68.8% and 74.9% respectively speak Russian.  Fighting has been going on there for roughly 8 years, resulting in the deaths of somewhere around 14,000 people. Control of the Donbas would allow Moscow a direct connection to Crimea and the all important Sebastopol.  However, it's more than just having a land connection to Crimea. The Donbas is resource rich, especially in coal.

The hard coal reserves in the Donbas are one of the largest in the world, worth in the neighborhood of $57 billion dollars. It is also rich in methane gas, rock salt, limestone, mercury, and various types of ore. The Donbas had a gross regional product output in 2020 of 7.0 billion Euros and accounts for 6% of Ukraine's GDP.  

Prior to the 2014 invasion, Kyiv had an agreement with Royal Dutch Shell to develop one the key Yuzuvska natural gas field. Due to the war, that was suspended in 2014. Royal Dutch Shell finally withdrew from the agreement in June 2015.

The securing of the Donbas is too important to Putin to permit him to fully withdraw from the Ukraine. It is and perhaps has always been at the heart of the invasion, notwithstanding Putin's repeated refusal to allow a NATO presence in Ukraine. Such a presence would surround Russia's western frontier with NATO missiles, box in its Black Sea Fleet, and potentially restrict its access to vast amounts of oil, gas, and natural resources.

Russia should no more been expected to accept such as a fait accompli than the U.S. would with a Chinese military and economic presence on our Canadian and Mexican borders. His invasion was in many ways as colossal a blunder as Napoleon's invasion of Russia in 1812 or Hitler's in 1941, but from his perspective, it may have been the lesser of two evil. 

At the same time, a complete withdrawal would devastate Putin's credibility at home, especially with its powerful oligarchs, military and FSB, and key members of the Duma. Such a move would likely result in a coup with Putin's removal from office either voluntarily or horizontally. Failure to leave will led to more dissent at home, and again, a possible ouster.

Securing the Donbas offers Putin with a chance for a militarily victory and stability at home before things spiral too far out of hand, but it leaves him with a dangerous enemy in Kyiv who will undoubtedly seek revenge by keeping the Donbas unstable. It also provides Kyiv with the best excuse it could ever have for full NATO membership, and with it, protection of the global corporate elite.

Finally, Russia will remain outside the reach of the Western capitalism and its ruling elite, where perhaps it should be. The sanctions will likely remain for now, as much as punishment for rejecting Western neo-feudal capitalism as for its invasion of Ukraine. Putin will be portrayed as unstable and a tyrant in the West for his disruption of the "Great Reset" of the New World Order. 

 

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Crimea: Six years after illegal annexation

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Putin's tactical nuclear weapons could pack the same punch as atomic bombs dropped on Japan

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