The recent surge of Russian forces in northeastern Ukraine has poured cold water on the previously euphoric pro-Kiev sentiment following the US Congress’s approval of the supplemental aid bill in April. The fervent cries for Ukraine aid, and the overstated significance attached to it, now seem like relics from a different era.
It’s now glaringly obvious that Ukraine’s faltering war effort can’t be salvaged merely by turning on the Western aid faucet. So, why did the Washington elite treat the $60 billion aid package as some sort of magic wand to avert the impending crisis?
Most of the money, after all, won’t even make it to Ukraine; it’s destined to refill the US’s depleted armory. Ironically, this was a key selling point of the bill – a domestic economic boost. But bolstering the US defense industry isn’t going to help Ukraine’s battered army anytime soon. Even after a massive production effort, the US churns out 28,000 155mm artillery rounds per month, with not all of it going to Ukraine. Meanwhile, Russia produces about 250,000 rounds monthly and fires off an average of 10,000 rounds per day.
This doesn’t even begin to address Kiev’s catastrophic manpower shortage and rampant corruption, both starkly exposed by Russia’s recent advances. Kiev is stuck in an increasingly desperate game of whack-a-mole, deploying its fragmented and overstretched forces to patch the front lines. The lack of fortifications around Kharkov, criticized even by Ukrainian media, highlights the long-standing corruption issues.
So, why did anyone believe that $60 billion would be a game-changer for Kiev? The answer lies shrouded in the fog of Washington’s policymaking, where magical thinking and political imperatives reign supreme. For those who sincerely believed the $60 billion would shift the war’s balance, it was magical thinking. For those riding the political winds and pretending to support Ukraine like a mime trapped in an invisible box, it was political necessity. Often, it’s both, with a murky boundary between the two.
Magical thinking is symptomatic of a declining power that hasn’t yet faced up to its decline. It’s also a period of limited action. In the past, Washington might have resolved a crisis like Ukraine with deft diplomacy or a powerful proxy war backed by industrial and military might. Now, the US appears incapable of sophisticated diplomacy, and its industrial base has withered after decades of offshoring and financialization. Accustomed to fighting insurgencies, it now struggles with the concept of peer warfare. The best it can muster are hefty aid bills. When all you have is a hammer, every problem looks like a nail. When all you have is a dollar-printing press, every problem seems solvable with a cash infusion – even if it’s unclear what the money will buy.
This brings us to an interesting point: a belief in the omnipotence of money. Not necessarily a sincere belief – are there any sincere beliefs left in Washington? – but an ingrained mindset. It’s a framework reminiscent of the approach to financial crises. The Ukraine aid debate can be seen as a financial bailout. Ukraine, the too-big-to-fail institution, is on the brink of collapse, and a bailout is necessary. The bank’s owners might be crooks, but policymakers are more concerned about a spread that’s suddenly turned against the bank – supposed to trade at 1:1 but now blown out to 1:10 (the artillery fire ratio between Ukrainian and Russian forces). A $60-billion bailout is meant to extinguish fires and calm markets.
Zoltan Poszar, the renowned former Credit Suisse chief strategist, observed how some people approach problems by simply throwing money at them. In 2021, when inflation reared its head, Poszar noted that many on Wall Street had no idea how to think about it. Nearly everyone was too young to remember the last serious bout of inflation in the 1980s. They saw the inflation spike as another spread issue on their Bloomberg screens, solvable by throwing balance sheets at it. Poszar explained that the formative experiences for today’s Wall Street players are the Asian financial crisis of 1998, the Great Financial Crisis of 2008, some spread blowouts since 2015, and the pandemic. In all these cases, money was pumped in, and the dislocations disappeared.
Poszar concluded that the current generation of fund managers and traders has only encountered problems that could be solved – or at least hidden – by adding money, whether through an emergency loan or quantitative easing. This oversimplification captures the essence of the prevailing thought pattern. However, the inflation of 2021 was a different beast, impervious to money injections or interest rate hikes. This unfamiliar problem highlighted the limitations of the usual playbook.
Timothy Geithner, former head of the New York Fed and US Treasury secretary starting in 2009, talked about dealing with financial crises by “putting a lot of money in the window” and using “overwhelming force” to ensure market confidence. This lesson from 2008 became orthodoxy for subsequent crises. The stress in the Treasury market in March 2020 and the failures of First Republic Bank, Silicon Valley Bank, and Signature Bank in 2023 elicited a strong regulatory response.
Markets are driven by sentiment, and narrative can be as important as substance. The art of addressing a financial crisis involves both financing and shaping sentiment. Geithner’s approach has seemingly infiltrated US policymaking in Ukraine, manifesting in an endless series of “strong messages” and symbolic gestures with more PR value than military benefit. The $60 billion aid package was presented as a way to “reassure the market.”
The incessant “strong messages” from Washington can also be seen as an attempt to maintain American deterrence. Once established, deterrence is cheap to maintain but costly to re-establish. Deterrence and managing animal spirits are two sides of the same coin, both trying to close the gap between reality and perception.
Max Bergmann, an analyst at the influential Center for Strategic and International Studies, emphasized the importance of morale in an article before the congressional vote on the aid package. He believed passing the supplemental aid would boost Ukraine’s morale and undermine Russia’s, potentially shaking the Russian political system. Bergmann’s position seems to align with Geithner’s “credible commitment” principle, showing how deeply this thinking has permeated Washington’s decision-making.
In sum, Washington’s approach to Ukraine reflects a broader pattern of thought ingrained by its dominant financial industry. The foreign policy establishment, Congress, and Wall Street share a similar mental map, guided by the belief that money and narrative can solve almost any problem. As Shelley wrote, poets are the “unacknowledged legislators of the world.” Today, it seems, the unacknowledged legislators are the bankers and their allies in Washington, with Ukraine learning the hard way that winning a war requires more than money and PR