Could Russia Have Used Donald Trump's Business Problems to Recruit Him?

Recent news stories report that President Donald Trump didn't pay any income taxes in 10 of the 15 years starting with 2000. He reportedly paid only $750 in income taxes in each of 2016 and 2017. (See, e.g., https://www.cnn.com/2020/09/28/politics/donald-trump-taxes-election-2020-joe-biden-debate/index.html.) He supposedly took massive write-offs on his tax returns for business expenses and losses to avoid taxes on hundreds of millions of dollars of income.  These reports, if accurate, raise crucially important questions about whether Trump is the successful businessman he claims to be.  More chillingly, these reports raise questions about whether his business problems gave Russia leverage to recruit him as an agent.

When recruiting spies, intelligence services look for weaknesses.  One potentially useful weakness is financial need or financial stress.  A man with business problems is a possible target.  Could Russia have used Trump's business problems to recruit him as an agent?  Trump may be financially connected to Russia or Russians through Deutsche Bank, which has been a major lender to Trump and his companies. See https://www.nytimes.com/2019/08/28/business/deutsche-bank-trump.html.  While no firm connection between Trump and Russia or Russians through Deutsche Bank has been established, Deutsche Bank has confirmed it has some of Trump's tax returns. See https://markets.businessinsider.com/news/stocks/trump-tax-returns-deutsche-bank-relationship-drawing-intense-scrutiny-2019-8-1028482268?op=1#.   So Deutsche Bank may well have known about Trump's massive tax write-offs.  Whether or not Russia knew about Trump's write-offs, it may have known that he needed funding.  U.S. intelligence has said that Russia sought to help Trump get elected in 2016 and is working to get him re-elected this year. What greater intelligence coup could there be than to have one's agent elected the national leader of an adversarial nation? 

So we have to ask whether Trump's business problems gave Russia an opening to recruit him.  The FBI may have been looking into this question, but the fate of its investigation seems to be clouded. See https://www.salon.com/2020/02/18/doj-appears-to-have-abandoned-possible-deutsche-bank-case-involving-russian-money-laundering-scandal_partner/.  Trump has been highly critical of the FBI and his Department of Justice is investigating the FBI's handling of the 2016 Russian interference in the Presidential election and also its investigation into the Clinton Foundation. See https://www.foxnews.com/politics/durham-assumed-parts-of-john-hubers-clinton-foundation-review-source. Is Trump trying to cow the FBI into avoiding a thorough investigation of his links with Russia and Russians?  

America deserves a complete investigation of Trump and his links to Russia and Russians.  That seems unlikely today, with Trump seemingly attempting to strip professionalism from the U.S. Department of Justice and the FBI.  In the meantime, Americans can express their views of all this in the upcoming election.  Will America be truly secure with such a potentially vulnerable man in the White House?  

A Peek Under Facebook's Rug?

There's an old saw about people sweeping dirt under the rug when they do a quick and not necessarily good job of cleaning.   Well, CNBC reports that some Facebook content reviewers are so stressed out by what they see and hear that they are developing symptoms of PTSD, or starting to believe conspiracy theories about 9/11 or the Las Vegas mass shooting.  Reviewers reportedly used drugs or alcohol at work to find relief from their stress, or had sex in bathrooms or a lactating room to escape.  One even said he brought a gun to work in order to protect himself from other employees who made him feel threatened.  See https://www.cnbc.com/2019/02/25/facebook-content-moderators-describe-a-stressful-work-environment.html.  These reviewers, employees of a contractor hired by Facebook, work for wages around $15 an hour to screen violence, threats, hate, and other extreme stuff.  Facebook's contractor says it offers counseling and other assistance to employees.

Is it any wonder Russian government intelligence operatives can use Facebook to undermine American democracy?  Is it any wonder hate groups and other weirdos can use Facebook to promote all manner of sick and extreme views?  Facebook's algorithms can't stop this stuff.  Evidently, Facebook's human reviewers, paid what many consider barely a living wage, can sometimes become so stressed they aren't really able to cope with the job.  So they probably aren't stopping it, either. 

No website is better than its content.  Facebook evidently struggles to control its content.  If its content reviewers can develop PTSD or resort to alcohol, drugs or sex in the lactating room to cope, what reaction might Facebook's users (especially its young users) have to such content?  It may be that so much content is uploaded so fast to Facebook that it cannot truly screen out the bad.  Then again, no website is irreplaceable.  Whatever excuse Facebook may offer for its content problems, no one needs to use it.  The rest of the Internet is a pretty big place, and you're the only person stopping you from exploring it.    

Trump Defeated by North Korea

Notwithstanding President Trump's summit with Kim Jong Un early this month, North Korea has continued to make progress in building its nuclear arsenal (https://www.cnn.com/2018/06/27/politics/north-korea-infrastructure-improvements-nuclear-facility/index.html).  Trump has abysmally failed.  He agreed to a no-conditions summit with Kim, a gesture that legitimizes Kim's standing in international diplomacy.  Trump also ordered the U.S. military to stop participating in war games with South Korea, which the North Koreans have whined about for years as a major provocation.  These were substantial concessions that Trump made, and he got nothing in return.  It's business as usual in North Korea, with strengthening their nuclear arsenal while the U.S. retreats.

Trump has done far worse with North Korea than Barack Obama did.  After taking office, Trump scared the North Koreans badly, and Kim accelerated work on his weaponry.  Now he has intercontinental ballistic missiles that can reach the American mainland and perhaps can or soon will be able to carry the hydrogen bomb he developed in response to Trump's belligerence.  While arranging for the no-conditions summit, Trump called Kim "very honorable" (https://nypost.com/2018/04/24/trump-calls-kim-jong-un-very-honorable/).   With war games halted and Kim diplomatically elevated, America is now weaker and North Korea is much stronger.  Trump was snookered by a kid tyrant.  And he thinks he knows something about the art of the deal?

We must be concerned about Trump's forthcoming summit with Vladimir Putin.  Putin is far more formidable than Kim Jong Un.  What could happen at this summit?  Will Trump surrender to Putin?  Will Western Europe become part of the new Soviet Union?  Will America become a province of Russia? 

Donald Trump's Great Weakness

Under pressure from President Trump, Attorney General Jeff Sessions just fired former FBI Deputy Director Andrew McCabe.  On the heels of this announcement, Trump's attorney, John Dowd, called on the Justice Department's Deputy Attorney General, Rod Rosenstein, to close Special Counsel Robert Mueller's investigation into Donald Trump's potential collusion with Russia during and after the 2016 Presidential campaign.  (See https://www.cnn.com/2018/03/17/politics/john-dowd-mueller-russia-investigation/index.html.)  This seemingly heavy-handed announcement could be read to imply that if Rosenstein doesn't close the investigation, he'll be fired. 

But so what?  What if Trump fires Rosenstein, and later engineers the firing of Mueller?  Rosenstein and Mueller could easily become martyrs in the eyes of large numbers of people, and end up making big money at prestigious law firms.  They might also get lucrative book deals and become featured commentators on network television.  Look at what happened when Trump fired FBI Director James Comey:  Comey got a multi-million dollar book deal and a position teaching law (which probably would give him time to write the book). 

But what would happen to Trump if he fired Rosenstein and Mueller?  He would look like a demagogue trying to undermine the rule of law.  He could easily trigger a constitutional crisis, in which there would be considerable pressure on members of his own party to impeach him.  If the Republicans in Congress failed to impeach Trump, they would look weak and ineffectual--just as they usually appear.  Thus weakened, their ability to deliver further on the Republican agenda would diminish.  Trump and his Republican cohorts in Congress would end up flailing around futilely even more than they do now.

Donald Trump's great weakness is he doesn't understand people like Rosenstein and Mueller.  They proceed on the basis of law, truth, principle and integrity.  These concepts are utterly foreign to Trump, who seems to believe that he can use money to solve any problem he has (although the Stormy Daniels contract doesn't seem to be working out so well).  Trump can't effectively deal with Mueller's investigation because he doesn't even begin to understand the rules--in this case, the rule of law.  He threatens, like a fascist dictator, to fire anyone who gets in his way.  But in a nation of law, as America is, Trump can't win because he doesn't want to comply with the law.   He's like a player in a basketball game who wants to move the ball without dribbling and tackle opposing players without being called for a foul.  That's not the way to win the game, and Trump won't win, either.

Russia's Nuclear Missile Defeat

When Vladimir Putin, Russia's President, recently announced an array of new Russian nuclear weapons (see https://www.cnn.com/2018/03/02/europe/putin-russia-weapons-analysis-intl/index.html), he unwittingly acknowledged another strategic defeat for Russia.  To be an effective threat, these weapons will have to produced in significant numbers.  Russia is relatively poor nation with a falling life expectancy.  The price of petroleum, its primary export, has fallen sharply in recent years, causing economic contraction.  It has massive environmental problems and a slow birth rate that will lead to the same demographic time bomb that bedevils many nations today. By any reasonable estimation, Russia doesn't have the money for these new weapons.

Putin, like a bad general, is fighting the last war.  For understandable reasons, Russians are paranoid about being attacked militarily by other nations.  They suffered terribly at the hands of the Nazis during World War II, losing 20 million or more people.  But generals who prepare for the next war, not the last one, are the ones headed for victory.  Whether or not Putin believes it, America won't attack Russia militarily.  It will only defend itself, as it did recently when Russian mercenaries attacked U.S. troops in Syria.  The lopsided American victory in that instance should give Putin pause about further military engagement with the United States.  But who knows what goes on in his head.

By diverting large sums of money into weapons technology and the building of a new, large nuclear arsenal, Putin guarantees that his nation will be economically crippled for decades.  The United States won the Cold War because its economy vastly outgrew the Soviet economy, and the Soviet Union no longer had the wealth to maintain its Eurasian empire.  It had to break up and it did.  China is far more powerful than Russia today, not because it has better weapons but because it has a far stronger economy.  America, too, is far more powerful because it is economically way ahead of Russia and widening the gap.  By designing and building more nuclear weapons, Putin has put Russia on the path to another defeat.

How Comey is Winning the Credibility Battle With Trump

At first glance, you might think that President Trump and former FBI Director James Comey are at a standoff over who said what during their one-on-one meetings.  It looks like a he said/he said situation.  But Comey wrote memos about the conversations right afterwards.  These tilt the balance in favor of Comey.  While his critics might say his memos were self-serving, it's implausible to think he wove them from whole cloth.  The President doesn't appear to have any memos.

But the crucial factor would appear to be the issue of tape recordings.  The President alluded to recordings, saying "James Comey better hope there are no 'tapes' of our conversations before he starts leaking to the press!"  Comey called Trump's hand by saying he hoped there were recordings.  The Secret Service has now said it doesn't have any recordings--and the Secret Service would be the organization that would handle the recordation of conversations in the White House.  See http://nypost.com/2017/06/12/secret-service-says-they-have-no-comey-tapes/.  If there are no recordings, that would mean that Trump tried to bluff Comey into silence by hinting untruthfully about recordings that don't exist.  Trump's bluff would only undermine his own credibility.  

Of course, it's possible Trump recorded the conversation on a personal device, such as a smart phone. But if he has a recording that contradicts Comey, he surely would have released it by now.  But he hasn't revealed any recording.  Thus, Trump can only have a recording that supports Comey, or he's erased that recording (which would indicate the recording hurt Trump), or he doesn't have a personal recording (which means he lied about there being one).  Whatever is the case, Comey's winning the credibility battle with Trump.

The Big Question For Donald Trump and the Russia Investigation

After James Comey's testimony before the Senate yesterday about President Trump wanting Comey to shut down the FBI's Russia investigation, the most important question is whether the President recorded his conversations with Comey.  If he did record one or more of those conversations, and the conversations tend to confirm Comey's testimony, the President will be in serious trouble.  It is possible to conclude from Comey's testimony that the President wanted to quash the FBI's Russia investigation, something that could amount to obstruction of justice.  Confirmation in recorded conversations could strengthen that conclusion, perhaps by a lot.

One thing's for dang sure:  Special Counsel Robert Mueller will seek any recordings of those and other relevant conversations.  We will find out sooner or later if the recordings exist.  We may also find out whether they once existed but were deleted or destroyed. If the recordings exist and support Comey's testimony, the President will have a big problem.  If the recordings once existed but have been erased or destroyed, the President will have a big problem.  If recordings never existed in the first place, the President would appear to be a liar for having suggested that they did exist, perhaps a liar trying to bluff Comey into silence.

The only good scenario is if the recordings exist and contradict Comey.  But if that were the case, President Trump would surely have released them already.

How Putin Has Already Blown It

On election day in 2016, Vladimir Putin must have thought he was a pretty smart guy.  The candidate for President of the U.S. that he favored, Donald Trump, had won.  Putin, according to America's intelligence agencies, tried to help Trump out through various nefarious means to discredit Hillary Clinton.  Although it's unclear how much Putin's underhanded tactics affected the actual vote, he probably wasn't averse to giving himself a pat on the back.

That was then.  Things are different now, just two months later.  U.S. intelligence agencies have revealed Putin's shenanigans. Important leaders in Congress, including Republicans as well as Democrats, are alarmed.  Trump nominees for cabinet positions, when asked about Russia, have been very careful to distance themselves from Putin and Russia.  Even Trump has had to admit that Russia tried to interfere in the election.

The uproar will limit Trump's options with Russia and Putin.  Congress won't give him a free hand in dealing with them.  It will be tough on the issue of sanctions.  It will insist that the U.S. honor its pledge to defend NATO members.  It will insist that human rights still exist and must be defended.  It will insist that Russia's military aggression not be rewarded with friendship,

Putin has already blown it.  He incorrectly assumed that his misdeeds would go undetected.  But that didn't happen, and now he's been exposed.  He's proven to be an embarrassment and a liability to his buddy, Trump.  The bromance may have to cool off.  Trump has been on the defensive about Putin and Russia, and his post-election sheen is a little tarnished.  Trump has lost some power even before he took office, power he might have needed to cozy up to Russia and Putin.  Too bad, Vlad.  You may have outsmarted yourself.

Everyone's a Loser in Syria

With Russia's entry into the bag of dog doo that is Syria, the chattering classes are all astir over who's up, who's down, who's winning and who's losing.  Russia is the usual nominee for winner.  But what exactly has Russia won?  It can't win the war.  Between ISIS, the Kurds and various other rebel groups, most of Syria is no longer in the hands of the Assad regime.  Russia can't afford to commit the tens of thousands of ground troops, equipment and air power that would be needed to retake and hold all this ground, and the Assad regime's army appears too depleted to mount the major offensives that would be needed.  All Russia can do is prop up an Assad rump regime in western Syria that would be under constant attack.  That would mean an indefinite commitment to a war with no end in sight and no possibility of a Russian victory.  

Russia's puppet in Syria, Bashar al-Assad, isn't a winner; he has only avoided becoming a big loser.  His diminished army can't reconquer what he's lost in Syria.  Russian air strikes will allow him to bolster his lines and tighten up his defenses.  But a few dozen Russian air craft don't begin to provide enough air power to support an offensive that could retake all of Syria.  At the same time, Assad's authority is diminished.  Now, he will have to do whatever Putin tells him to do, and like it, as well.

The Iranians, who apparently negotiated an alliance of sorts with Russia, have had their weakness revealed.  For all their bluster and unacknowledged efforts to build nuclear weapons, they don't have the strength to prop up a two-bit dictator in a small nation.  They had to call in first, their Hezbollah allies, and then Russia.  Maybe the Iranians are claiming a propaganda victory.  But they just ceded power to Vlad the Invader, and it's generally a bad idea to give power to an aggressive despot.  Has the Islamic Iranian government forgotten that one reason Shah Mohammed Reza Pahlavi allied himself so closely with the United States was because the Russians wanted to take over Iran after World War II?

The Shiite dominated government of Iraq has cozied up to Russia and allowed Russian military planes to fly over Iraqi air space in order to reach Syria. Maybe it had no choice; its Iranian handlers could have told it to cuddle up to Putin.  But, reality is you can't be an ally of America and an ally of Russia.  If the Iraqis snuggle up to Putin too much, America may not provide as much military equipment or intelligence to Iraq as it once did.  It may see less value in supporting a Shiite government in Baghdad and perhaps more value in supporting the Kurds.

The Sunni rebel groups--ranging from ISIS to the various metastasizes of al Qaeda to the tiny and shrinking handful of moderate rebels supported by the United States--are ships out of luck.  They can't win, not with Russian military assets located in and protecting western Syria.  They will be battered by Russian air power, and will have to hunker down.

Saudi Arabia and its Sunni allies have quietly been supporting various of Assad's opponents, hoping to unseat him and install a Sunni-friendly government.  That ain't happening now, not with Russian soldiers in Latakia.

The Kurds have enjoyed notable success in Syria, carving out safe havens for themselves and others who aren't Sunni or Shiite crazies.  But Russian air power will likely preclude further Kurdish gains.  The Kurds will have to concentrate on holding what they have.

Turkey has been fighting Russia for centuries.  Now, with Russian military aircraft in Syria, the Russians just flanked Turkey and can hit it from two sides.  Not that Putin has expressed any unfriendly intentions toward Turkey, but given the centuries of war between these two nations, nothing needs to be said.

Israel has been fighting various Russian allies almost since its inception.  Never, however, have Russian military assets been so closely positioned to Israel.  Had Iran been so brazen as to station military aircraft in Latakia, Israel's more advanced air force would have swarmed in the next morning before dawn and walloped the warm living yogurt out of the Iranians.  But Israel cannot attack Russian forces.  It can only watch, and hope that Syria proves to be a hopeless morass for Russia.

And last, but not least, the United States has seen its modest influence in Syria diminish even more.  By propping up Assad, Putin precludes any possibility of an American victory.  Not that it matters since, at this point, America isn't even really engaged in Syria.  The Obama administration issues a steady stream of press releases about Syria, but it's doing little more than talking. Since it's not engaged in Syria, it doesn't have the leverage to get the Russians out.  Hopes that Russia will join hands with the U.S. in attacking ISIS are delusional.  ISIS has weakened America's position in the Middle East.  Why would Putin want to weaken ISIS, which is doing the dirty work for him?  All he needs to do is prop up Assad, his puppet in Syria, while ISIS and America batter away at each other, neither able to conclusively defeat the other.

In the end, the absence of anyone strong enough to impose peace and order in Syria means that the country will be de facto partitioned.  That's what happened to Yugoslavia.  It's what's happening now in Iraq.  The flood of refugees into Europe will continue.  The truth is everyone is a loser in Syria.

OIl's Great Fall: This Time, The Bailouts Will Be Harder

In a desperate move, Russia's central bank recently raised a key interest rate by 6.5% to 17%, propping up the ruble at least momentarily.  This was after the ruble had already lost about 50% of its value in the past few months.  Even if the ruble stabilizes, Russia verges on economic collapse. 

Venezuela was already hitting the skids when the price of oil began its big swoon.  Now, it will possibly default on its sovereign debt.  Other oil producing nations are hurting, too.  Some could survive by drawing down their financial reserves.  Others may not have adequate reserves on which to draw.

The impact of the oil price drops on major financial institutions and financial markets players is much more opaque.  When a key commodity like oil, and the currencies issued by its producers, belly flop as we have seen in the past few months, big losses are inevitable.  Some of these losses could be greatly magnified by the leveraging effect of derivatives.  A crucial question for regulators is where these losses are landing.  Surely there are losses on Wall Street and in the City of London.  But proportionately much greater losses may have been sustained by Russian and other European banks.  Dec. 31, 2014 will mark the close of financial reporting periods for many banks and other institutions. At that point, they will be required to disclose their financial conditions.  It wouldn't be surprising if the losses are big.  Talk of bailouts might follow.

It's one thing for the taxpayers of a nation to bail out the banks of their own nation.  They may be frustrated and outraged, and demand the punishment of bank executives and others.  But they have a strong interest in preserving their own financial system.  It's another thing when a foreign country wants a bailout, just after it sent its Special Forces surreptitiously into a neighboring country to seize territory by force, lied to the world about what it was doing, and then made aggressive moves against many other nations--especially those that border it and have historically been dominated by it.  The West has imposed sanctions on Russian banks.  It can't now bail them out.  It's attempting to force Russia out of Ukraine, using financial leverage as a key weapon.  It can't provide Russia with a financial bailout.

Venezuela has for years been seriously hostile toward the U.S., while getting cozy with Cuba.  Its current predicament is the result of spending way more than it was taking in.  A bailout for Venezuela has no chance of receiving Congressional approval, nor would American generosity do anything to ameliorate the key problem, profligacy by the Venezuelan government in order to win over voters.  The IMF would impose financial discipline on the Venezuelan government as a condition of any international bailout, something the current Venezuelan government surely wouldn't accept.

Free market advocates have railed for years about the bailouts made in the aftermath of the 2008 financial crisis, proclaiming that handouts to the wealthy and powerful would only foster moral hazard and encourage undue risk taking at the expense of taxpayers.  They may have their way in the wake of oil's great fall.  Some of the key players likely to need a bailout won't be getting them.  Chips will fall where they may, and we'll see how the markets operate in the absence of government intervention.  The results will be good for some, bad for others, and undoubtedly painful for many. 

A destabilized Venezuela will probably experience internal political change.  But a destabilizing Russia is much less predictable.  As long as Putin is in power, who knows what will happen?  And what is the potential for Putin to leave power?  Not much and it's not likely to happen in a gracious way.  Demagogues at risk of losing power sometimes turn to foreign adventurism to stay in control.  The farther oil prices drop, the harder these questions will become, and the more disturbing the potential answers. 

The Next Market Bubble

Bulls and bears alike wonder when the next market bubble will emerge and pop.  In recent years, major stock market downturns have come from bursting bubbles.  Recessions, threats of war, terrorist attacks and other disturbances have caused market ripples.  But the big gut wrenchers--the nosedives that wrecked your retirement--have come from the popping of asset bubbles.  The gross over-valuation of tech stocks in 2000, the ridiculous real estate lending of 2005-07, those are the events that clobbered equities.  What does the future portend?

Today, the mess in the Middle East grips our attention.  Medieval atrocities by the Islamic State, a mosh pit with weapons in Gaza, mind-numbing slaughter in Syria and sectarian strife in Iraq appall and fascinate.  But none of them will significantly drive down stock valuations.  They just don't have the economic impact.  The Ebola epidemic is now raging out of control in West Africa.  But America's economic exposure to West Africa is miniscule.  And the disease isn't likely to present a major threat to the industrialized world.

Is there an impending market bubble that could burst and dynamite the world's financial system?  The answer is maybe, in Europe.   The European economy is slowing.  Growth is seen only on alternating Sundays.  The EU stays afloat on a cushion of sovereign and bank debt--a lot of it.  With Europe's slowing economy, it will be tough to pay down this debt and expedient to refinance by issuing even greater amounts of debt.  Risks to larger members like Italy and France are rising.  The EU is a financial and currency union without a unitary government.  Thus, it is tailor made to borrow in bulk without governmental controls to interfere.  We in America know from the 2007-08 mortgage crisis what happens when you bulk up on debt that can't be easily repaid.  The vast amount of European debt presents potential systemic risk, just like the vast amount of American mortgage debt outstanding in 2007.

Exacerbating Europe's problems is the war between Ukraine and Russia.  As Russia's direct involvement in combat is becoming increasingly clear, the war is likely to have ever greater impact on Europe.  Sanctions by the West will probably be heightened, and Russia's retaliation will likely hit Europe harder than America.  Europe's financial system could begin to totter as the EU is pushed into recession and capital flees the Old World.  (Indeed, part of the buoyancy of U.S. stocks can be attributed to the arrival of capital now fleeing Europe.)  A run on the Euro could be the straw that breaks the bubble's back.

The European Central Bank, as always, does a fan dance about how accommodative it will be.  While it's become much more interventionist in the past couple of years, it remains constrained by its anti-inflation charter and the stolid, ever-frowning Germans. Maybe the ECB will save the day.  Or maybe not.

Europe's economy, as a whole, is larger than America's.  A tummy ache there could affect the rest of the world.  if you're worried about where the next bursting asset bubble could come from, keep your eye on Europe.

Vladimir Putin and the Art of War

Sun Tzu, the Chinese military strategist, wrote in The Art of War:  "[T]hose skilled in war subdue the enemy's army without battle.  They capture his cities without assaulting them and overthrow his state without protracted operations."*  This would seem to have been Putin's approach from the beginning of Ukrainian crisis.  Without a shot fired, Russian troops seized Crimea.  Crimea was low hanging fruit, since Russian military personnel were already there on a base that Ukraine had allowed Russia to maintain.  Vlad the Invader was no doubt emboldened by the ease and bloodlessness of this victory to seek control of eastern Ukraine.  And he probably hoped to use his success in Crimea to bluff and bully Ukraine into surrendering without Russia having to fight a hot war.

But things haven't gone Putin's way.  After initial ineffectiveness, the Ukrainian military has rallied and is now on the way to retaking all of eastern Ukraine (except perhaps for Crimea).  Only two major cities (Donetsk and Luhansk) remain in rebel hands, and both are surrounded by the Ukrainians. While a substantial news blackout seems to exist with respect to combat operations, it's clear that the Ukrainian military has suddenly attained the ability to use heavy weapons effectively against the more lightly armed separatist forces.  The success of Ukraine's air force is unclear; the separatists tout shootdowns, but the Ukrainian military is mum on successes.  If Ukraine's air force can now effectively support its ground forces, the separatists haven't got much of a chance.  Air power, as the Islamic State learned the hard way in Iraq, is still the trump card on the battlefield.

How has Ukraine so suddenly become so capable in battle?  One wonders if there aren't advisers in Ukraine, who speak the language with non-native accents and can offer the benefit of experiences from other wars.  No military in the world has as much experience as the U.S. military.  And the Iraq War, fought on flat terrain in and around towns and cities, would have been similar in many ways to the fighting in Ukraine,  It is hard to imagine that there aren't U.S. Special Ops personnel and CIA agents working with the Ukrainians.  Recent claims by Ukraine that its artillery pummeled a Russian armored column entering Ukraine at night, if true, would strongly indicate an American role.  How could Ukrainian artillery smack the yogurt out of a Russian column at night without precise targeting information, such as might be provided by American satellites and drone aircraft? 

But now is not the time for Ukraine and the U.S. to celebrate.  Putin cannot afford to be seen as a loser in this war.  If he were, he'd lose his job, and maybe more.  He'll lash out like a cornered rat if forced to face definitive defeat.  Even as we write, there are reports of rebel reinforcements being sent from Russia into Ukraine--some 1,200 men with 150 armored vehicles, including 30 tanks.  (There we go with U.S aerial surveillance again.)  Putin won't stop fighting.

Yet, the Ukrainian military is holding its own and more.  If Putin overtly sends Russian troops into Ukraine, he'll probably sustain more casualties than the war weary Russian people will tolerate.  (Russia took painful losses in Afghanistan and in the wars in the Caucasus.)  Western sanctions would escalate sharply and capital flight from Russia, already a torrent, would become a flood that would impress Noah.  The Russian economy could crater, threatening to take Putin down with it. So an overt invasion of Ukraine by Russian troops entails tremendous risk.

Putin is for practical purposes limited to using the separatists rebels, who are now outnumbered and outgunned.  As a result, he has violated one of Sun Tzu's principles:  "If weaker numerically, be capable of withdrawing."  He cannot commit the forces needed to win, but he cannot withdraw.  He is trapped.

What will Putin do?  Most likely, he'll continue and perhaps increase the covert assistance and support he's been giving the separatists.  The more success the Ukrainian military enjoys, the more desperate Putin will become, and the more covert action he will take.  Since there seems to be a ready supply of separatist rebels, Putin could keep the war going at least for a while.  If the Ukrainian military defeats the separatist forces on the battlefield, the rebels could go underground and fall back on terrorist tactics that have become all too familiar in today's world.  And Putin could apply the economic weapons he's used in the past, such as shutting off the natural gas Russia exports to Ukraine and Europe.  Ukraine may well be on the way to battlefield victory.  But instability and disruption will continue.

*Sun Tzu, The Art of War, translated by Samuel B. Griffith, Oxford University Press, 1963. 

The Failure of European Economic Integration

Economic integration--intertwining the economies of nations--was supposed to promote economic efficiency, prosperity and ultimately peace.  The idea was that if nations need each other to keep their economies humming, they wouldn't start a shooting war.  Continental Europeans, having suffered tens of millions of deaths in two world wars, were particularly impassioned with this idea.  Who can blame them?  Arms races and wars hadn't solved their problems.  The League of Nations didn't solved their problems.  Why not give mutual dependence on each other for cheese, wine, sardines, sausage, and pasta a chance?

At first the idea seemed to work.  The EU prospered in its early years.  We now know those salad days resulted to a large degree from inexpensive borrowing by poorer EU nations, who snarfed up too much easy money and now struggle to avoid the death of a thousand budget cuts.  But optimism held sway in the early days of the EU, and economic kumbaya was extended to the nations of the former Soviet Union, including the big brown bear itself.

Economic integration provides leverage.  The proponents of the EU thought that the leverage would be used to restrain aggression. But leverage by itself is morally neutral, and can be used for good or evil.  Give leverage to a son of a ditch (sp), and he'll use it for evil.  This is what we see in Ukraine today, where Vlad the Invader has seized Crimea, and is sponsoring a "rebellion" in eastern Ukraine against the Kiev government, a war that is increasingly being conducted by Russian soldiers and Russian operatives.  As Russian personnel take over the fighting, the war is morphing into a clash between nations.  This is exactly what economic integration was supposed to prevent. 

Europe's response to Vlad's invasions has hardly gone beyond a tepid wrist slap, and talk of stronger sanctions is matched by behind the scenes maneuvering to prevent any economic consequences from the sanctions.  The horror of the shoot down of Malaysia Airlines Flight MH 17 was quickly followed by France reaffirming its intention to deliver a Mistral class helicopter carrier to Russia, a substantial warship that Russia apparently could not itself build.  Economic integration, it would appear, trumps moral rectitude.

Putin is using economic integration as a weapon, and in his insidious hands, it's devilishly effective.  Europe is dependent on Russia for gas and oil, and can't easily substitute other suppliers for Russia.  Putin has apparently increased his support for the rebels in Ukraine since the Flight MH 17 atrocity. He has much to gain by doubling down.  His increased aggressiveness forces the U.S. and Europe to struggle to respond, and this struggle heightens the divisions between the New World and the Old. He renders NATO a hollow shell, something the Poles have publicly admitted.  Putin doesn't have to conquer Ukraine, or even eastern Ukraine.  All he has to do is keep stirring the pot, and in so doing highlights Europe's dependence on Russia and America's weakness.

Economic integration doesn't turn a monster into a nice kitty.  When done with a dastard (sp), he remains dastardly, and will look for opportunities to slip the knife between the ribs of his trading partners.  The Europeans have, through economic integration, delivered themselves unto evil, and they are now paying the price.

Malaysia Airlines Flight MH 17: Putin's Money Problem

Inevitably, lawsuits will be filed over the shoot down of Malaysia Airlines Flight MH17 in eastern Ukraine.  Typically, the plaintiffs' attorneys will name as defendants just about everyone who had any connection with the shoot down and his uncle.  The airline itself will surely be a defendant.  But we know that.  What's interesting is that Vladimir Putin might, depending on circumstances, be a defendant.

In a civil lawsuit, such as those that will be filed, legal liability does not necessarily depend on proving that the defendant deliberately pulled the trigger or ordered the downing.  A person who was negligent or reckless with respect to supporting and arming the rebels in eastern Ukraine (assuming they're the ones who actually fired the missile) might have civil liability.  Information reported indicates that Flight MH 17 was following a well-established international route at a cruising altitude of 33,000 feet, which is typical of commercial airliners.  Just what do you think might happen if you give a bunch of Ukrainian rebels under air attack from the Ukrainian air force a missile system capable of reaching that high?

Since the Ukrainian separatists might not have the expertise to operate a missile system such as the one that evidently downed Flight MH 17, Russian personnel may have had their eyes on the radar screen and fingers on the trigger.  If so, the link to Putin may be strengthened, and his potential for personal liability increased.

If Vlad faces potential personal liability to the Flight MH 17 plaintiffs, he could have a serious money problem.  Although he denies having money stashed in the West, news reports have suggested he may control tens of billions of dollars of assets, maybe as much as $50 billion.  The plaintiffs' attorneys and the insurance companies that make payouts to MH 17 claimants have a powerful incentive to hunt down that money, if it exists.  And who knows?  Maybe they'll succeed.  In that case, Vlad could lose some or all of his hell or high water fund.

The nation of Russia, too, might be liable if it is shown to have provided the missile system.  And it's potential for liability would be heightened if Russian personnel actually operated the missile system.

There is historical precedent for holding bad actors on the international scene liable for civil liabilities.  In 1988, Libyan agents bombed Pan American Airlines Flight 103.  The next year, Libyan agents bombed a commercial airliner flown by UTA, a French airline (UTA Flight 772).  In both cases, the nation of Libya ultimately paid substantial sums of money (totaling billions of dollars) to settle civil claims. 

One big problem for Vlad is that the toothpaste is out of the tube and he can't put it back.  With the plane already shot down, all he can do is scramble to cover his butt.  Current news reports indicate that heavily armed men of uncertain identity are blocking international investigators from getting to the crash site.  Perhaps other men of uncertain identity have recovered the black box and . . . well, maybe the black box will be another victim in this tragedy.  Possibly, many bankers in Western nations are working day and night to shift assets of shadowy Russian entities to new and more obscure locations that are likely to entangle the curious in a briar patch of banking secrecy laws.  But Russia itself can't disappear, nor can it conceal all of its assets. 

The Obama administration has been accused of taking a tepid tack on sanctions over the Russian invasion of Ukraine.  European nations have been criticized for being even more equivocal.  But, to make a living as a plaintiff's attorney, you have to be as shy as a great white shark.  And, unless they have accidents with poison-tipped umbrellas, plaintiffs' counsel for Flight MH 17 claimants may be relentlessly pursuing Vlad and Russia for years.

Going Negative in Europe

"Going negative" is a political term of art, usually meaning that one candidate campaigns primarily by throwing mud at the other candidate(s).  In our jaded times, going negative has come to predominate.  Trash talking, if nothing else, captures attention.

These days, Europe is going negative for political reasons, although not in the usual sense.  The European Central Bank announced recently that it was cutting the interest rate it pays on deposits from banks to -0.1%.  In other words, banks that deposit funds with the ECB will pay a 0.1% fee for the privilege of having the ECB hold their money.  The ECB claims to be concerned with a low nominal interest rate of 0.5%, and supposedly cut rates below zero to spur bank lending.  Whether more lending will be done is unclear, as banks in the EU have been awfully finicky about extending credit in recent years (except to sovereign nations that sometimes aren't creditworthy).  Banks could cover the costs of the ECB's negative move by lowering interest rates paid on deposits (i.e., on longer term deposits that still have a positive rate) and increasing lending rates for existing borrowers. There's no necessary reason for them to make new loans.

The 0.5% inflation rate that supposedly led the ECB to go negative isn't strikingly different from the low inflation that already prevailed in Europe. One can't help wondering how much the EU was motivated by politics, as opposed to monetary policy.  The EU's badly conceived structure--a monetary union without true fiscal controls--encouraged overly enthusiastic borrowing by sovereign members, particularly those that were economically weaker.  The resulting debt crisis was met with the EU's BYOB (bring your own bailout) policy that meant austerity for those least able to cope, and economic recession (or, in some EU member nations, depression).  It's hardly surprising that political extremism flourished.
 
Nationalistic parties in Europe have recently made striking gains in EU parliamentary elections (yes, in the election of delegates to the EU Parliament, a quarter of whom now would favor the dissolution of the EU).  It must scare the mudcakes out of the ECB's bureaucrats that a quarter of the EU's governing body would be pleased to defenestrate the ECB.

Moreover, nationalistic impulses in Russia led to its seizure of Crimea from Ukraine.  Even though Russia formally transferred Crimea in political marriage to Ukraine in the 1950s, Vladimir Putin (Vlad the Invader, one might call him) seems to believe that Russia nevertheless holds a droit du seigneur to take Crimea for itself. In addition, Russian nationalism (plus surreptitious Russian military intervention) has fueled unrest in eastern Ukraine, leading to civil warfare.  It now looks like Ukraine may go the way of Syria.  Neither side is strong enough to win, and both sides are supported by outside interests that cannot afford to lose.  Russia can protect its interests by keeping the insurgency going at a low boil, just enough that Ukraine is afraid to cozy up too closely to NATO.  America has to do something to help Ukraine, but can't offer enough military assistance to decisively defeat the insurgents.  (Given the pathetic performance of the Ukrainian military, the only way the insurgents can be defeated is if we send in the Marines, and that ain't happening).  So, the nastiness of irregular warfare and flight of civilians from war zones, so familiar to observers of the Syrian civil war, is now being replayed in Ukraine.

Policy makers at the ECB undoubtedly noticed the rising manifestations of nationalism around them, and surely understand that the fiscal austerity imposed by the doyennes of the EU isn't doing a bang up job of fostering economic growth.  That leaves the central bank as the only actor in this drama who can administer the antidote to extremism:  the promotion of economic prosperity.  So, the ECB surely is going negative for political reasons.  And that's a problem.  Central banks were created to foster financial stability, not political stability.  But, with political processes in Europe (as well as in America) moribund on their best days, the ECB is trying to bail out a life raft with a tea cup.  And it's not hard to figure out its chances of success.

Fed Guidance in a Fog

The terrain is getting foggier and foggier for the Federal Reserve.  Most recently, GDP barely grew (at an annual rate of 0.1% for the first quarter of 2014).  But nonfarm employment grew by 288,000 jobs in April, a pretty good pace.  And the unemployment rate dropped to 6.3%.  Not that many Fed Open Market Committee meetings ago, an unemployment level of 6.3% would have been below the point where the Fed's guidance dictated a rise in short term interest rates.  But rising rates would make the stock market pout and sulk.  So the Fed has backed away from firm benchmarks for monetary policy and is electrically sliding its way toward a strictly "data-based" policy.  What does that mean?  Apparently, it means whatever the Fed thinks the data indicates it should do in order to promote full employment. But if the data is becoming less clear, then what?

For more than a decade, the Fed has worked to provide greater transparency.  That's perceived to be a good thing because it tells the financial markets what to expect.  Presumably, investors will make wiser decisions if they better understand the lay of the land.  But transparency also encourages risk-taking.  If you know what the central bank will do, you can layer on more speculative bets because one factor that might blow you up now seems predictable.  This perhaps unintended consequence of transparency tends to lock the Fed into its guidance, and limit its options, because if you do something other than what you say, all the hedge funds, big banks and other speculators might get hosed.  And then the specter of a systemic tummy ache would loom. 

With the data getting murkier as the economy recovery sputters along, the Fed has become less transparent.  Most likely, this isn't accidental, as the Open Market Committee no doubt can see that the data is telling them less and less, and benchmarks don't mean what they used to mean.  The gamblers in the stock markets can't be happy, as the odds have become harder to calculate.  Fed policy now depends on the data, and recent data resembles a pushmi-pullyu.  

The Fed still hums the low interest rate melody even though it doesn't sing the lyrics any more.  That's a pretty good pacifier for the stock market, at least for now.  But with foreign affairs descending into the mosh pit (who wants to bet Vlad the Invader won't strike again?), and the economic recovery constantly shifting back and forth between first and second gears, the data--and consequently the Fed's guidance--will probably get foggier.

The Limits of Globalization

Russia's seizure of Crimea reminds us that globalization isn't all it's cracked up to be.  The fall of the Soviet Union led to self-satisfied proclamations in the West about the triumph of capitalism and history ending in a glowing halo of liberal democracies.  Economic globalization would supposedly lead to worldwide reallocation of capital and resources to ever more efficient applications, with the result that economic tides would rise everywhere and prosperity would simmer in every pot. Nations and peoples worldwide would become increasingly interdependent and interlinked, making mutual tolerance in everyone's pecuniary interest.  Pots would melt around the world, diversity would be embraced, and preschoolers everywhere would learn the lyrics of Kumbaya.

Russia is interlinked with the rest of the world today:  economically in the energy markets and the financial markets, and securitywise with America and Western Europe in terms of dealing with Islamic radicals.  But none of that made a difference when Ukraine moved toward closer links with the West.  The centuries old Russian imperial imperative--that the Eurasian heartland be controlled from Moscow--howled.  Russia endeavored to maintain strategic geographic advantage by snatching control of Crimea's ports and naval bases, securing military and trade access to warm water.  Political machinations inside Ukraine have increased, in an effort to impede its Westward shift.  Russian troops in large numbers coincidentally gather for exercises within spitting distance of Ukraine's borders.  The economic sanctions imposed and threatened by the West have had no discernible impact on Russian policy. 

Globalization was an illusion fancied by people who fancied themselves elites.  This fancy illusion could be maintained as long as one cultivated ignorance of history.  But globalization is nothing new.  Europe in 1913 had extensive cross-border economic and financial relationships.  The European elites of the day were multilingual, cosmopolitan and cultured.  Somehow, none of that prevented the ignition of World War I over . . . well, nothing.  The most ridiculous war ever fought, World War I resulted in 20 million dead and peace terms imposed on Germany that were so harsh they practically guaranteed another war.  And that war--the Second World War--would require only 21 years before exploding in a frenzy of land grabs disturbing similar to what Vladimir Putin is doing now.  Whatever economic, financial, cultural and other ties are fostered by globalization, they don't trump the tribalism that characterizes almost all peoples in Europe, Asia and Africa.

Tribalism is difficult for Americans to grasp.  Having built a remarkably successful, diverse nation, Americans struggle with the idea that narrow concepts of group, based on cultural and historical ties, could somehow be so important as to justify conquering and killing.  Surrounded by the enormous economic benefits of the Melting Pot, Americans don't understand why other peoples can't embrace tolerance when tolerance will allow them bigger shopping sprees at the mall. But history tells us that you have to understand and deal with other peoples' irrationalities.  War, after all, is essentially always irrational.  But there are plenty of wars, all the time.  A smart foreign policy incorporates the need to consider and address other peoples' motivations, whatever they may be.

Economic sanctions have a role in America's and Europe's response to Russia.  But it would be a mistake to think they will be enough.  The sheer exertion of power will also have a place.  This doesn't mean triggers need to be pulled.  Strengthening NATO would get through to Putin, whose attention you get only if you exert power.  A pragmatic alliance with China should be sought (recall that Russia and China fought brief shooting wars in 1929, 1934, 1937 and 1969, so the Chinese have no illusions about Russian intentions).  The Japanese, who fought two wars with Russia in the 20th Century, should get a fist bump and more.  Unavoidably, America's Cold War coalition will have to be rebuilt.  And that's okay.  What's not okay is to believe that reason, plus maybe a few trade deals, will bring Putin around.

How Putin Makes America Look Good

Not long ago, America was having a lot of bad hair days in foreign affairs.  The war in Iraq ended without stirring speeches or victory parades.  The war in Afghanistan is winding down, but won't have a prettier conclusion.  America led from behind in Libya and messed up in Benghazi.  Then, America led from even farther behind in Syria and, not surprisingly, got an aviary flip from the Assad regime when President Obama objected to the use of poisonous gas.  To avoid being totally blown off by a two-bit tin pot dictator, the Obama Administration had to work with Vladimir Putin's autocracy for a face-saving compromise that still isn't near full implementation.  America's grand strategy of pivoting toward Asia has floundered as extremism of numerous varieties keeps provoking eruptions in the Middle East and Europe.

Now comes Vladimir Putin--let's call him Vlad the Invader--who puts the shine on the United States.  Using the most transparently farcical of pretexts, Putin seized Crimea from Ukraine.  Okay, so there was a referendum in Crimea as to whether or not to "validate" the Russian land grab.  But with thousands of Russian troops "guarding" the polls to ensure "integrity" to the voting process, we knew how the vote would turn out before the polls opened.  There is nothing America can do to prevent Russia's annexation of Crimea, just as there was nothing America could do to stop Putin's 2008 land kleptomania in Georgia.

But America can and will react.  The EU will talk a lot--and then talk some more.  It will issue a few condemnations and maybe even an excoriation.  But sanctions?  Well, let's talk some more. 

America's sanctions will be primarily economic.  And Russia will respond in kind.  America's economic interests will suffer.  But Russia's economic interests will suffer more.  Not necessarily in terms measured by dollars (or rubles), but in terms of relative pain.  Russia has a much smaller and weaker economy than America.  And Russia's economy is growing slower, with continued prospects for slow growth.  Crimea requires significant subsidies, which will further drain Russia's resources, along with the added cost of all the military "exercises" the Russian Army is staging with walking distance of the Ukrainian border.  From a strategic standpoint, Russia's nuclear arsenal is a match for America's.  But Russia's economic arsenal is far weaker.  And Russia's energy customers and trade partners will look elsewhere for supplies and opportunities, not wanting to give leverage to a bully with a powerful military.

The Cold War was primarily an economic struggle.  America and the Soviet Union engaged in a 50-year competition to build to the most advanced and powerful military.  Arsenals cost money, and America's vastly greater wealth left the Soviet Union moribund, unable to deliver prosperity or even anything approaching a First World standard of living for its citizens.

As America and Russia swap sanctions, it is important to keep in mind that, realistically, the goal isn't to force Russia out of Crimea.  That won't happen.  The goal is to turn the crisis into an opportunity to make America once again the world's shining beacon of freedom and democracy.  America's sanctions, although likely to be ineffectual in terms of sending Russian troops back to the barracks, will contrast sharply with the EU's decrepitude, and the near silence from the Asia.  As an ironic consequence, America's influence around the world, and especially in the periphery of Russia's borders with many former members of the Soviet Union and former Soviet satellite states, will likely grow.  After all, no one likes a bully.  The bottom line is Putin has made America stronger.

The outcome of the looming war of sanctions is difficult to predict with precision.  But the advantage lies with America and its great economic strength.  Germany and Japan won the early rounds of World War II.  The Soviet Union won most of the early rounds of the Cold War.  But we know how those stories ended.  Even if Putin will be able to feel like a studly fellow for a while, time isn't on his side.  Keep the faith.

Emerging Markets: Another Asset Bubble Popping

The emerging markets asset bubble is popping.  Financial markets in China, Brazil, Turkey, Russia, and India have been falling, with no end in sight.  Commodities prices have declined.  And the major stock markets--in Japan, Europe and the U.S.--have been dragged down in consequence.  All because the Fed began to reduce its quantitative easing program.

We've been here before.  Fed easy money policies contributed to the tech stock craze of the late 1990s and the real estate and mortgage bubbles of the 2000s.  Those earlier bubbles popped when the Fed began to withdraw accommodation.  You have to wonder whether the Fed will ever learn:  long periods of accommodative policies inevitably create asset bubbles somewhere, and when the accommodation is reduced, the bubble will pop.  Painfully, since there is no other way for an asset bubble to pop. 

When tech stocks, and then real estate and mortgage markets, crashed, recession and unemployment followed.  The results included, among other things, higher and higher levels of unemployment and greater inequality of income and wealth over the past 15 years.  When the Fed repeatedly uses its very blunt monetary weaponry to combat economic slowdowns, the rich get richer and everyone else stagnates or declines. 

What will the Fed do in response to the emerging markets downturn?  Initially, nothing.  It will hope that the positive momentum that has emerged in the U.S. and to a limited degree, in Europe, will be enough to maintain overall global economic equanimity.  But if the decline extends for several more months (particularly in major stock markets), expect the Fed to rethink its stance and get the monetary printing presses revved up again.  As we have discussed before (see http://blogger.uncleleosden.com/2014/01/expect-nothing-from-government-in-2014.html), fiscal policy will be darn near nonexistent this year.  Fed easy money policy is the only way for the federal government to combat economic distress.  And even if more money printing means yet another asset bubble a few years down the line, and more income and wealth inequality, the only choices nevertheless remain easy money or easy money.  The Fed's policies are the only game in town.

One might lament that the Fed never seems to learn that too much accommodation leads to yet another asset bubble that pops, causing distress and dislocation that leads to more accommodation, which only continues the cycle.  But the problem is the Fed has little choice.  Congress and the White House mostly stare at mirrors and ask who is the fairest of all.  The business community waits for the federal government to stimulate the economy, reduce its risks and heighten the potential for profits.  The Fed personifies moral hazard:  the rest of the world has learned that, when push comes to shove, the Fed will act.  So there's no need for anyone else to step out front and center and take the lead. 

How do we break this vicious cycle?  Well . . . uh . . . there was once a time--long, long ago--when the private sector would lead the way out of recessions.  Businesses would start to expand, banks would start to lend, investors would start to take risks.  But how likely is that to happen now? 

How Does Obama Define Success in Syria?

Barack Obama has flinched.  Not once.  Not twice.  But three times in the last year or so.  Each time, he rattled the saber at Syrian President Bashar al-Assad, Assad called Obama's hand, and Obama flinched.  Now, evidently rattled himself by the unexpected rejection of military action by the British Parliament, Obama seems to be looking around for someone to offer a fist bump.  French President Francois Hollande has been supportive, but Obama has called for Congress to pass a resolution endorsing a military response to Assad's use of chemical weapons on Syrian civilians.

The Democrats, who control the Senate, are feeling queasy, but may support a narrowly crafted resolution.  The Republicans, who control the House, are skeptical and may reject the resolution. 

The Administration has offered a variety of negative reasons for striking Assad's forces, arguing that bad or negative consequences will ensue if the U.S. does not strike.  Chemical weapons are horrible and are prohibited by international law.  The United States, and especially the President would lose credibility.  The Iranians would be emboldened in their quest for nuclear weapons.  The North Koreans would be emboldened to pull more septic content.  The Russians would be emboldened in any number of ways. 

Chemical weapons are horrible.  But does the President see himself as a referee, seeking to penalize Assad for face masking?  Is the President's plan to throw down a yellow flag, move Assad back a few yards, and then let the slaughter continue?  Is it okay for Assad to continue his nationwide massacre if he just limits himself to conventional weapons?  Why don't we issue striped uniforms to the U.S. military and give them whistles to blow along with cruise missiles to fire?

As for credibility, Assad is in a fight for his very life.  He couldn't give a rat's left ear what Obama does, because Obama won't put U.S. boots on the ground and hasn't even provided military support to the Syrian rebels that he promised months ago.  Obama doesn't present a significant threat to Assad.  Maybe Assad's forces will refrain from obvious use of chemical weapons for a while and employ more conventional but plenty lethal weaponry to kill many more Syrians.  But nothing Obama is contemplating will make him more credible to anyone who matters.

The Iranians are, if the vaguely sourced information published by the press over the past few years is accurate, hellbent on building nuclear weapons on the fastest possible schedule.  It won't matter a bit what Obama does in Syria.  A U.S. military strike there will only lead the Iranians to more comprehensively disguise their activities.  But it won't dissuade them in the least from halting their nuclear program.

The North Koreans are constrained by the presence of 26,000 U.S. troops stationed along the demilitarized zone in the Korean peninsula.  North Korea can't do anything substantial to South Korea or any other nation without affecting these troops.  As long as those troops are there, what Obama does or doesn't do in Syria isn't significant.

As for Russia, Prime Minister Vladimir Putin is ex-KBG.  If there was an intelligence service that knew how to spot and exploit human weakness, it was the KGB.  Putin surely has Obama figured out--the man isn't bold.  He's not a risk taker.  He wants to be on the winning side no matter who that is or what happens (this is how the U.S. wound up being detested by everyone in Egypt--we tried to be everyone's buddy and ended up no one's buddy).  Obama is like the political equivalent of Microsoft--very successful, but not so likely to continue that success in the future because of an aversion to taking real risks.  Whatever carefully calibrated and narrowly focused military strike Obama now orders isn't going to convince Putin that Obama is anything except a smart, but cautious man trying to stay on his feet in a back alley brawl.  The smartest man in the alley might win the brawl, but the meanest man is the one you have to watch out for.

To persuade Congress and the American people that military action in Syria is justified, President Obama has to present positive reasons.  We need to know how we succeed, how we win.  Waging war for the purpose of stopping bad people from being bad isn't likely to work, unless one is prepared to wage total war and completely conquer the enemy, as America did to Germany and Japan in World War II.  No one has suggested that America conquer Syria.  For the past fifty years, America has dived into military adventures for poorly conceived reasons, and not surprisingly done poorly.  The only clear case for offensive military action--the 2001 invasion of Afghanistan-- was thoroughly botched by the second Bush Administration when it failed to deal definitively with Osama bin Laden after trapping him in late 2001 at Tora Bora.  We're still suffering the consequences of that failure.  If President Obama wants our support for a strike in Syria, he should tell us how we attain victory.  If there is no victory that can be defined or attained, we should hold our fire.