By Michael Every of Rabobank
America and Markets Firstest
I told you yesterday there was a good chance that US equities would ignore the debacle of the collapse of a key US client state, and so they did. Of course it was always 50-50, but the fact that markets could shrug off what is happening in Afghanistan is as damning of their lack of vision as it is of everyone responsible for the debacle inside the Beltway.
Apparently there are still tens if not hundreds of thousands of Americans and US visa holders trapped in Kabul at a time where holding such papers makes one a target, and any outside the capital are considered no longer reachable. Twitter is already filled with tales of deadly reprisals against those who worked with the US, and shocking videos of people clinging to the outside of planes rather than celebrating, as Yanis Varoufakis put it, “the day liberal-neocon imperialism was defeated once and for all.” By Islamic fundamentalism. But Yanis, do recall that the US invasion was triggered by Afghanistan hosting Al-Qaeda before and after 9/11; which was a legacy of the CIA-funded Mujahedeen; which was a legacy of the Soviet invasion and *Soviet* imperialism.
Varoufakis also offers solidarity to terrified Afghan women, and helpfully tweets “Hang in there sisters!” For what, exactly – ‘The Revolution’? The Taliban’s official spokesman, who has a Twitter blue checkmark, will be able to respond even if the women, and a former US president, cannot. Furthermore, a female CNN journalist, dressed very differently to last week, states on live TV of Taliban fighters behind her: “They’re just shouting ‘Death to America!’ but they seem friendly at the same time. It’s utterly bizarre.” And she’s right. Indeed, Western intersectional thinkers might struggle to square how some Afghans would rather die than embrace their “friendly” liberation from despised Western social power-structures; if they had any more mental flexibility than those who always say “because markets”. Now there is a dialectic for you, and goodness only knows what the ultimate synthesis is.
Meanwhile, US President Biden gave an extremely important speech last night in which he stated everyone else was to blame but also admitted the buck stops with him. It was perhaps the most America First foreign policy statement we have yet heard: more Trump than Trump.
Biden denied the Afghan project had ever been about nation building. That isn’t true, but it is a huge reversal. He specifically asked: "How many more generations of America's daughters and sons would you have me send to fight Afghanistan's civil war when Afghan troops will not? How many more lives, American lives, is it worth, how many endless rows of headstones at Arlington National Cemetery?" He underlined: “American troops cannot and should not be fighting in a war and dying in a war that Afghan forces are not willing to fight for themselves.” He stressed: “I'm clear in my answer. I will not repeat the mistakes we've made in the past. The mistake of staying and fighting indefinitely in a conflict that is not in the national interest of the United States".
At a time of Great Power politics and rising geopolitical tensions, the key message of the ‘Biden Conditions’ is that despite lofty talk of liberal democracy vs. authoritarianism: 1) Varoufakis is right, and US liberal-neocon imperialist nation building is over. What we have left is the raw realpolitik of the US national interest; and 2) Even where there *is* a national interest, the US will not fight for those who will not also fight for themselves. Let that settle in for a moment and consider the long-run implications for a world grown fat and lazy on the presumption of the US defense umbrella being there forever for all come rain or shine.
In Asia, Japan is already massively increasing its defense budget, and so is Australia. Do they meet both Biden Conditions for US defense support? Almost certainly yes, if they keep doing just that - though this raises regional tensions. (And China’s Global Times is nonetheless declaring Afghanistan shows Taiwan will have to surrender if Beijing moves against it, which is precisely the room for misunderstanding I have flagged that the fall of Kabul raises). But further West, can you think of a large, complacent, disunited economic block that lives in 2005 in its head, which consistently refuses to spend the money to defend itself, will clearly never fight, and which seems so enamored of trade with Russia and China that, on a longer glide path, it may not be seen as meeting either of the Biden Conditions?
Of course, if you are in the “because markets” camp then none of the above matters, obviously. In which case, you can shift your attention to the upcoming Fed Chair Powell Town Hall at 13:30EDT, where educators and students will ask questions virtually from across the country. (The event will be broadcast at federalreserve.gov and at youtube.com/federalreserve. You can watch CNN, Varoufakis, or Taliban videos while you wait for it to start.) If you don’t like that, the Fed’s Kashkari also has a Town Hall on the economy a few hours later. See? We even have inflation in the number of Town Halls. Or deflation, given that the relative value of them is reduced by just how many of the things we get.
We don’t know what Powell will say, but sometimes a (moving) picture speaks a thousand words: like the one of poor young Afghans falling to their deaths from the outside of a plane in flight. The Fed is, as we know, just as trapped in a failing Beltway-idiocy-and-profiteering paradigm as the US military was in Afghanistan. But it has been doing QE for only 13 years, so perhaps still has at least another seven left until the painful denouement and collapse, and the presidential press conference where it is made clear that QE was never about nation building, and there are now two firm conditions for when such extreme monetary policy will be used.
In the meantime, allow me to share an amazing video that summarises visually what the Fed has been and will be doing to equity markets regardless of what is said today and whatever happens in the real world. It really is worth watching in full, honest.
But linking it back to the overarching geopolitical theme above, not all global trampolines will be getting strong US defense springs in the future: sometimes a fall will go straight through to hard ground, as in Kabul. And so will some currencies. How much is the Afghan Afghani trading for against the US Dollar today?
In other news worth noting, the US SEC’s Gensler has just taken another shot at Chinese IPOs, warning of the risks of the shell structures that are used; Hong Kong has tripled the length of quarantine to 21 days for arrivals from 15 countries, including the US, France, and Spain; and China has just cracked down on “Idol” culture (“Some irrational idol-chasing behavior and unhealthy fan culture have interfered in normal social and economic order and needs to be urgently managed and corrected,” says the People’s Daily). But it all seems friendly.