Feb. 21, 2023

"As Long As It Takes," The Ukrainian War Of Attrition

Yesterday, U.S. President Joe Biden flew to Kyiv to reaffirm America's commitment to continue with the War in Ukraine. In the President's words: "I thought it was critical that there not be any doubt, none whatsoever, about U.S. Support for Ukraine in the war."

As Biden has often repeated, the U.S. is committed to this War for "as long as it takes." Likewise, Vladimir Putin, President of the Russian Federation, is also committed to seeing his country's role in the War through to the end.

So, as we pass the first anniversary of the conflicts, we should prepare ourselves for a war that will continue for some time. The military analysis calls this kind of conflict: a war of att where each side must dig deep to supply the provisions, men, and equipment to keep the battle going for months and perhaps longer.

The support for the War will come from each country's economy. Each nation must manufacture the guns, ammunition, supplies, and equipment needed to fight. From a big-picture (MACRO) perspective, it looks like no contest.

The United States has the world's largest economy (nominally), at ten times the size of Russia. The financial and economic reach of America is prodigious. And Americaerica can count on the firm support of the European Union and NATO.

It looks like a hopeless task for tiny Russia to defeat the collective West in the Ukraine Battlefields, and yet there are certain advantages that Russia has amassed.

Like the United States in World War II, Russian factories and plants have been busy producing the battlefield supplies needed to pursue the conflict. There are extensive reports that Russian munitions factories are working around the clock, in three shifts, to supply the bullets, missiles, and bombs needed to attack. Chief among these is that Russia has already converted its economy into a "War Economy."

On the other hand, the United States has "farmed out" its military production to a select group of Defense Contractors. And although there have been some negotiations to have those Contractors increase production, no increase has yet occurred. Numerous reports show that U.S. Stockpiles of weapons and munitions are rapidly depleting. And one Navy Admiral reports that we are running dangerously low on our supplies.

To put it bluntly, Russia is at War while the United States is "studying the situation."

However, things are not all smooth sailing for Russia, far from it. Yesterday, as we said, Russia reported its latest GDP Growth for 2022. It showed that their economy declined by 2.1%. This decline is primarily due to the Economic Sanctions imposed on Russia by the U.S. and E.U.

On the other hand, on Thursday, the U.S. will provide its second estimate of its GDP Growth rate, expected to be nearly the 3% growth rate shown in Estimate number 1.

Both countries are going through a high-inflation period, with inflation in the U.S. at 6.4% and in Russia at 11.8%.

But then we come to some financial measures showing that the U.S. current financial position could be much stronger—first, trade. Last year Russia, despite the sanctions, had a trade surplus of $21 billion, while the U.S. had a trade deficit of $67 billion. Russia has cash-on-hand (their current account) of $21 billion, while the U.S. has a deficit of $217 billion. And finally, the Russian Government costs just 2.3% of its GDP, while the U.S. Government Budget costs 129%.

Those are staggering numbers and imply that even the United States may be coming to the end of its ability to finance its debt.

The map is a definitive measure of how this War of attrition is proceeding. Before the Russian Special Military Operation, they occupied 16,000 square miles of Ukraine. Today, by the most conservative estimates, and after much back and forth, it is estimated that Russia now controls an estimated 34,000 square miles, or more than double its initial position. As brutal and rough an estimate as that is, it indicates Russian progress in the War.

Europe is a place renowned for its extended conflicts. In the 14th and 15th Centuries, the War between England and France became known as the 100-Year War. We hope and pray that the conflict in Ukraine does not follow a similar path and may end quickly so that the continuing loss of life will end.

But for that to happen, one leader must begin the negotiation process. A President from either country could ask to talk. To ask the other side to negotiate would not be a sign of weakness, but it might begin a de-escalation. Instead of declaring that he'll fight for as "long as it takes," perhaps President Biden could suggest to President Putin that he'd be willing to talk as soon as possible.