Ivan's War

The Daily Reckoning PRESENTS:People, who believe that mankind is on an upward slope, always marching toward greater good for greater numbers, have some explaining to do. Bill Bonner explores…


Was ever there a group of people so hapless, so luckless…so witless?

There they were, up to 30 million of them in the heartland of Eurasia, some 6,000 years after civilization had begun, 20 centuries after the birth of Christ, 200 years after the Industrial Revolution had begun, and during the living memory of many people reading this reflection. They drove automobiles. They talked on telephones. They listened to Debussy and Chopin on record players. They tuned into the radio, ate food that came in tins, used condoms, and enjoyed nearly painless dentistry…at least in Moscow.

How did these poor Soviet grunts get themselves into such a fix?

And here, we add an aggravating detail. These men thought themselves not backward, but in the very vanguard of human progress. They were men who had chosen to follow the prophets Vladimir and Josef into the land of scientific socialism. Gone were the old traditions. Gone were the old rules. Thrown out the door were the old religions. Now, the Soviets had a new religion of collectivism, new rules shaped by the communist party, and new traditions enforced by the Narodnyi Komissariat Vnutrennikh Del (NKVD) or the People’s Commisariat for Internal Affairs.

Readers may have relaxed by now, like parishioners at a sermon who see the preacher’s accusing finger pass them by, but not so fast. While the victims in today’s essay are the Soviets, the protagonists – the dramatis personae – of our theme include us all. We may not be communists, or Russians, or soldiers, but we stand on two legs along with them, and breathe the same air.

When war with Germany began, the Soviet soldier found himself in a no man’s land. In front of him was the Wehrmacht, which was, at the time, the best attack force ever put into the field. The German army would most likely kill him or take him prisoner. If he were taken prisoner, he would almost certainly die, partly because the Germans wanted him dead, and partly because they had no way to keep him alive. They had not prepared for the millions of Soviet troops who would fall into their grasp. They had no food to give them and no barracks to lock them up in. Instead, prisoners were often left out in the open, surrounded with barbed wire and used for target practice until they finally collapsed of hunger and exposure.

In back of him, his prospects were not much better. Behind him, Stalin’s police had put up “blocking battalions.” Described as an additional line of defense, these troops were meant to shoot their own comrades if they tried to retreat. “Not a step back,” Stalin had said in his secret order number 227.

Between the Germans and the blocking battalions, there was almost certain death.

“The rates of loss were …extravagant,” writes Catherine Merridale in “Ivan’s War.” “By December 1941, six months into the conflict, the Red Army had lost 4.5 million men. The carnage was beyond imagination. Eyewitnesses described the battlefields as landscapes of charred steel and ash. The round shapes of lifeless heads caught the late summer light like potatoes turned up from new-broken soil. The prisoners were marched off in their multitudes. Even the Germans did not have the guards, let alone enough barbed wire, to contain the 2.5 million Red Army troops they captured in the first five months. One single campaign, the defense of Kiev, cost the Soviets nearly 700,000 killed or missing in a matter of weeks. Almost the entire army of the pre-war years…was dead or captured by the end of 1941.”

Behind these amazing figures is a long story. The Bolsheviks believed they had the secret recipe for a better world. A mood of confidence, of positivism, of rationalism, and of world improvement had settled over Russia. It required destroying the old institutions, relationships, customs, attitudes, traditions and religion. Naturally, not everyone was cooperative. Well, said Lenin, “you can’t make an omelette without breaking some eggs.” So, the shells were cracked with rifle butts.

“Theirs was no ordinary generation,” Merridale continues, referring to the Soviet troops. “By 1941, the Soviet Union, a state whose existence began in 1918, had already suffered violence on an unprecedented scale. The seven years after 1914 were a time of unrelenting crisis: the civil war between 1918 and 1921 alone would bring cruel fighting, desperate shortages of everything from heating fuel to bread and blankets, epidemic disease, and a new scourge that Lenin chose to call class war.

The famine that came in its wake was terrible by any standards, but a decade later, in 1932-3, when starvation claimed more than 7 million lives, the great hunger of 1921 would come to seem, as one witness put it, ‘like child’s play.’ By then, too, Soviet society had torn itself apart in the upheaval of the first of many five-year plans for economic growth, driving the peasants into collectives, destroying political opponents, forcing some citizens to work like salves. The men and women who were called upon to fight in 1941 were the survivors of an era of turmoil that had cost well over 15 million lives in little more than two decades.”

This campaign to improve the world included getting rid of experienced military officers who were from the wrong class – as most were. It also involved such an ambitious program of careful central planning that nothing worked properly. You’d think that even a government employee could figure out that soldiers needed rifles, but many went to war without them. Nor did they have proper food, shelter, sanitation or clothing.

Fortunately, from a central planner’s point of view, without weapons or training they were usually killed before they starved to death. Little things were missing, too. The soldiers were ordered to go places, but there were no maps to show them how to get there. Only the Germans had maps. Soviet tanks were equipped with radios, but without an adequate code system, Germans could listen in on their tactical discussions.And the high command in Moscow could think of no other tactic other than the frontal assault, and regarded camouflage as cowardly.

By February 1942, three million soviet soldiers had been captured. The Red Army had also lost 2,663,000 who were killed in action. The math was bad, even for a country as large as Russia; for every German who was killed, 20 Soviet soldiers died.

And here, we pause and we wonder. We take our man as we find him, but we cannot quite believe he is the dumb ox he appears to be. There were more than five million armed men at any given time in the Red Army. They could have turned on their incompetent and merciless leaders if they had wanted to. Instead, the lined up and marched to their own slaughter, many of them, perhaps the majority, believing that it would help make the world a better place.

Even now, according to Merridale, they sit around shabby old soldiers homes and congratulate themselves. They beat the fascists! They saved the Proletarian Revolution!Thus, they lived almost their entire lives under the heel of an even more delusional and murderous regime, but didn’t seem to notice.

Here, too, people don’t seem to notice that much of what they take for granted, future generations will take for absurd. The dollar is worth something. You can get rich by spending. Debt doesn’t matter. The American Empire is at war with “insurgents.”

People will believe anything …even if it kills them.

Bill Bonner
The Daily Reckoning
London, England
February 10, 2006

Editor’s Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is – an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount.

Russian Soldier: Ivan’s War
by Bill Bonner
The Daily Reckoning

London, England
Friday, February 10, 2006

People, who believe that mankind is on an upward slope, always marching toward greater good for greater numbers, have some explaining to do. Bill Bonner explores the history of the Russian Soldier.

The world Experiment with paper money proceeds apace – like a Greek tragedy – towards its pre-destined catastrophe. The dollar fell against gold yesterday. Almost all financial assets are falling against gold. The nothing-but-paper dollar is doomed.

We began the week in a dull mood, but we end it in a better one. What happened in between? Nothing much. Our Big E’s are still advancing precisely – like a formation of sharp pins – towards the inflated illusions and conceits of the early 21st century.

The days of cheap Energy seem to be running out…and fast. There is less of it around and more people who want it.

The long Economic cycle of the end of the 20th century has seemingly topped out. For nearly a quarter of a century, gold fell and stocks rose. Get ready for the opposite trend.

Meanwhile, the American Empire has entered its decadent phase. “The British Empire really did seem to make the world a better place,” said an English dinner guest last night.“The quality of manners, style, architecture, behavior, and life itself – if you set aside technological progress – reached a peak in the Edwardian era before World War I.Men, at least of a certain class, tried to act like gentlemen. But it happened at a time when the empire was peaking out politically…and after it had already peaked out economically.

“You could go almost anywhere in the empire – from Africa, to the Malay Peninsula, to India to New Zealand – and get a good drink or find a good conversation. But the empire was run by people of this same class…people who felt they had a duty to maintain certain standards of civilized behavior…at least as we Englishmen saw them.America doesn’t have the same dedicated civil servants, nor the same spirit of self-sacrifice for crown and country.”

Americans are sacrificing plenty for their country: they sacrifice savings for big houses they cant really afford; they sacrifice health care and decent wages for jobs at Wal-Mart.

The Exodus of power and money from West to East continues. Today’s press tells us that the Indian automobile company, Tata Motors, saw its profits rise 46% in the latest period. And the World Bank expects China’s economy to grow three times as fast as the United States in 2006. More on the Exodus below.

But in the homeland, U.S.-based automakers are laying off 60,000 workers, cutting salaries, and struggling to stay in business. Though none was needed, further evidence for the decline in U.S. manufacturing, imperial decadence, and political numbskullery was generously supplied by Senator Hillary Clinton. According to the Detroit Free Press, she came to the Auto City not to bury it, but to praise it…and subsidize it!

The senator from New York proposed a “Marshall Plan” for Detroit, bursting with the usual pork and fat, and spread it thickly all over town. The senator then lectured the autoworkers on what it would take to get their mitts sticky with grease:“In a democracy,” quoth the former First Lady, the tougher half of Billary, and a veteran cattle trader, “you have to win to set the agenda.” In other words, if you want to pick someone’s pocket, stand in line and vote. In due course, presumably, for Mistress Clinton.

We thought George Bush had set a standard for political discourse that wouldn’t be matched for many years. The hurdle of imbecility and vacuity were set so high in his tenure, we expected it to stand as a record for at least a few presidential cycles. So, we’re pleased to see the lady give him a run for his money. Her comments and proposals, as reported in the paper, were so senseless we couldn’t even laugh, and we were beyond tears.

Despite the Big E’s, we’re enjoying the giddy splendor of the Fin de Bubble period.After all, what’s not to like?

Houses are still selling for more than they are worth and so are stocks. Consumers are still spending money they don’t have. The world’s richest and most powerful empire is still borrowing from poor people in poor countries. And the former chairman of America’s central bank is getting $250,000 for attending a fancy dinner in Manhattan.

This last item caused some throat clearing and eyebrow raising among the sniffy set.They had labored under the illusion that Mr. Greenspan was a species of saint. Surely he walked among us only to make certain that we all had stuff – and had it more abundantly. Surely he turned New York City tap water into Chateau d’Yquem, and walked across the Washington’s Potomac River barefoot. Now, they are flabbergasted to see the man in white stooping to pick up a few quarters.

Sometimes, we feel as though we are the only ones in the world to really understand the maestro. Nothing that he does surprises us, because we might do the same thing.The people want more paper money? Well, give it to them good and hard.

And now that he is out of office, why shouldn’t he get a little of that easy green stuff himself?

Nor does it bother us that he gave out some inside information to the rich and powerful.In fact, we kind of like the way he charged them for it, and we hope he had his own trade in place before the news hit the financial wires.

More news the pundits at The Rude Awakening…


Chris Mayer, reporting from Gaithersburg, Maryland:

“Investment opportunity dwells among the dispossessed…I learned this lesson anew at last week’s 9th Annual Columbia Investment Management at New York’s Columbia University.”

For the rest of this story, and for more market insights, see today’s issue of The Rude Awakening.


Bill Bonner, back in London with more views…

*** According to the White House’s new 2007 budget, Bush will meet his goal of slashing the deficit in half over the next four years. But – surprise, surprise – this rhetoric is nothing but smoke and mirrors.

Addison tells us, “When Bush talks about cutting the deficit in half, he’s not talking about dollar amounts. Instead, the plan calls for a reduction in the deficit to half of the current percentage of the nation’s GDP.”

That means the deficit doesn’t actually have to decline for the president to declare he met his goal of cutting it in half. “To hit their target,” says Addison, “the economy just has to grow by 3.3% a year for the next 4 years.”

The new budget spending plan, at $2.77 trillion, will leave America with a record $423 billion deficit. The 2007 Defense Department budget alone will cost America $439.3 billion, 7% more than 2006. And does not include spending for wars in Iraq and Afghanistan, which would add another $120 billion for 2006.

“The sheer magnitude of this budget shows that there is little political resolve to deal with spending at the federal level,” Addison continues. “In the current climate, all problems, no matter how small are believed to be problems Washington needs to solve – rather than at the state or local level. And so the budget is 2,400 pages long and weighs 11 pounds.”

[Ed. Note: As a declining empire, it seems that the only thing America has left to offer in a globalized economy is the soft warmth of her protection. Financed by debt… and we’ve tried to tell our leaders in Washington that imperial financing rarely pays – but you can find out for yourself:

“The Most Feared Book in Washington!”

*** We wondered what causes such big changes in our moods. We also wondered how whole societies seem to get caught up in “moods” or sentiments that later seem preposterous. More on that below.

*** Colleague Karim Rahemtulla went off to India to try to figure out what is really going on.He sends this note:

“What will $600 per month will buy you in India?

“A friend of the family recently relocated to India from London to focus on a $400-million property-development project. At dinner the other night, I asked him about the types of adjustments he is making, noting that after just a few days in Dilli (what the locals call Delhi) I would not move there for all the tea in India. After our conversation, I did lean towards rethinking my position…maybe half the tea in India.

“In London, he was not a person of little means either. After all, you can’t be poor anywhere and be involved in a development project of this size. But, I got the distinct feeling that being a little fish in a big pond was not his style. ‘I have people to make my bed, clean my shoes, house, make breakfast, drive me around, run errands, cook and do just about anything else…not one person mind you, but one for each task. I hang out with Indian socialites at night hitting the exclusive parties and making deals over a Courvoisier and a Cuban’. Sounds like a pretty luxurious lifestyle. But it must cost a fortune, no?

“In Dilli, his staff of seven “servants,” including his driver, gets a grand total of $800 per month…for all of them! His biggest expense is his expensive taste for partying, and even that is less than half the cost of London. So, he is needless to say, adjusting very well in his own version of the Neo-Indian Colonial lifestyle. Sure, the streets are dirty, the water is undrinkable, the people poor, but when ultra-luxury has a price equal to a nice car payment in the United States, some things can be overlooked…by some people, anyway.

“In his part of Dilli – actually just past the outskirts – a luxury apartment decked out in marble and about 3,000 square feet, will set you back about one crore – a cool 10 million rupees. That is about the average wage of an entire small Indian village in 50 years. One crore is about U.S. $250,000.00, chump change in comparison to the U.S. housing market. And that is after an increase of more than 60% in the past two years. He lives in Gurgaon, an up and coming area in Haryana province, about 30 kilometers from central Dilli. It takes a good hour to get there, but then when you have a chauffeur, time does seem to take as long to do anything or go anywhere.

“In Gurgaon, you will find modern malls selling everything from iPods to plasma screen TVs. A new five-star Westin is getting ready to be built, and the area is dotted with mid-rise multi-national office buildings. Now, if they could figure out how to get rid of some of the animal carcasses being gnawed on by loose dogs in the middle of the street, or the stench and pollution of human habitation, it may make it past its neighboring province on the scale of third to second world.

“The area is also populated by NRIs, or Non Resident Indians, who are flocking back to India with tons of money to invest in everything. They are the real drivers of resurgence in many areas. After all, spending winter ‘back home’ for a few months of luxurious pampering for the cost of a new big screen TV back in the United States does have a certain appeal. These NRIs are buying up real estate, creating new call centers and I.T. operation left and right. They are booking big profits while the times are good. And, the times are good for Indians…those that are educated. Their salaries are bounding upwards, but still not close to what we are paying in the West. Here, lies India’s advantage, and just maybe the hope for its future.

“Here, is why we cannot compete with Asia. This advertisement appeared in the ‘Power Jobs’ section of the Hindu Time in New Delhi yesterday; it’s for a well-known Indian snacks company.

“‘Factory Manager – Law graduates with a minimum of 10 years experience in Liason/Civil/Electrical work and the entire gamut of HR/PM and IR processes and Legal compliances thereof. Candidate will be responsible for taking complete charge of production in an automated snack-foods plant in Bikaner. Must possess excellent supervisory skills. Knowledge of ISO 9001and HACCP, government rules and regulations applicable to food industries like license approval. Trade Mark Registration etc. will be a definite advantage. Renumeration (20K to 25K).’

“That 20K to 25K is monthly, but it is in Indian Rupees. That works out to about $600 on the high side, per month. Compete with that!”

*** While India makes money, the American Empire squanders it…on bullets. Imperial troops are trying to kill “insurgents” in Iraq. Who these insurgents are or why the Untied States would want them dead, are matters left for future historians or surrealist artists. We just note that America’s war against Iraqi “insurgents,” whoever they may be, has gone on for longer than its involvement in World War II. And now, the running cost is rising to equal the expense of the Vietnam War – when as many as 500,000 U.S. troops were on the ground in Southeast Asia. Paul Craig Roberts, former assistant secretary of the treasury under President Reagan, recently tried to figure out the math:

“The official estimated number of insurgents in Iraq has been 20,000.

“According to reports of the Government Accounting Office (GAO), by September the U.S. military had used up 1.8 billion rounds of small caliber ammunition in Iraq.

“That means ‘U.S. troops have fired 90,000 rounds at each insurgent,’ states Roberts matter-of-factly. ‘Very few have been hit. If 2,000 insurgents have been killed, each death required 900,000 rounds of ammunition.'”

“Think about that,” says Roberts. “Hollowed-out U.S. industry cannot produce enough ammunition to defeat a 20,000-man insurgency.”

We remember the line from “Apocalypse Now”: “What ya shootin’ at, soldier?”

The trouble is, contractors can’t make enough bullets to keep up. The Pentagon has had to buy bullets from overseas.

The Daily Reckoning