India vs. Pakistan in Kashmir, Can the US Dollar Remain King?, Political Centrism as ‘Extremism’ in Germany, Fugitive Hindu Guru’s Fake State in Bolivia, Rise and Fall of The Hanseatic League

Every weekend (almost) I share five articles/essays/reports with you. I select these over the course of the week because they are either insightful, informative, interesting, important, or a combination of the above.

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As I write this, skirmishing continues between Indian and Pakistani armed forces despite both sides agreeing to a ceasefire only a few hours ago.

This is not the first time that India and Pakistan have come to blows over the contested northern provinces of Jammu and Kashmir. Nor is this anywhere near the most violent episode in this long-running conflict between these two rival states. Since the Partition of India by the departing United Kingdom in 1947, four wars have been fought between the two, with millions of people being permanently displaced, and quite a lot of civilians losing their lives in the process. The size of these two countries makes any outbreak in fighting an important global matter, but what makes it critical is that both possess their own nuclear arsenals.

At the same time, the fact that both are nuclear-armed has worked to de-escalate flare-ups between the two. Brinkmanship is always a threat, but a nuclear exchange is desired by neither side, despite both claiming ownership to the entirety of Jammu and Kashmir. This nuclear parity permits Pakistan to offset the conventional superiority (at least in numbers) held by its much larger neighbour, India. In parallel to this, certain elements of Pakistan’s deep state also sponsor (with plausible deniability) militant Islamist groups on the Pakistani-side of the Line of Control separating the two country’s armed forces in Jammu and Kashmir. It is these militant groups that destabilize the region, and that routinely draw the ire of the Indian government.

It was also a militant Islamist group that conducted a terrorist attack last month in Indian-controlled Kashmir that claimed the lives of 26 Indian tourists. India felt no option but to react, squarely pointing the finger of blame at Pakistan for harbouring terrorist groups. Pakistan naturally rejected these charges, but its government has never dropped its claim to control over the whole of these two majority-Muslim regions. Destabilization is the only card that it can play, despite it risking a more serious confrontation, one which world leaders hope to de-fuse.

In my opinion, Kashmir is the world’s most significant flashpoint due to both belligerents possessing nuclear arms, their rival claims on the region, the size of their conventional forces, the powerful symbolism attached to ownership of Jammu and Kashmir, and its proximity to China. Despite laying dormant at times, the US Pivot to East Asia will result in more attention being given to this flashpoint because of the jockeying in position between China and the USA, and the diplomatic overtures that will be presented to both Pakistan and India in order to get them on one side or the other. It this specifically this type of environment that invites more foreign intel meddling, and more proxy conflicts. It accentuates the danger of a nuclear exchange between these two neighbouring states.

Opinions are divided as to whether this latest outbreak of fighting will be a routine tit-for-tat, short-lasting confrontation, or something more dangerous. Ian Hall makes the case for the latter:

We’ve seen these kinds of crises before. India and Pakistan have fought full-scale wars many times over the years, in 1947, 1965, 1971 and 1999. There were also cross-border strikes between the two sides in 2016 and 2019 that did not lead to a larger war.

These conflicts were limited because there was an understanding, given both sides possess nuclear weapons, that escalating to a full-scale war would be very dangerous. That imposed some control on both sides, or at least some caution.

There was also external pressure from the United States and others on both occasions not to allow those conflicts to spiral out of control. While it’s possible both sides will exercise similar restraint now, there may be less pressure from other countries to compel them to do so.

In this context, tensions can escalate quickly. And when they do, it’s difficult to get both sides to back down and return to where they were before.

As recently as yesterday, US VP JD Vance said that this conflict was “none of our (the USA’s) business”. Many are concerned by such a statement because, if taken at face value, it removes the powerful influence of the USA from the equation, one that has traditionally worked to de-escalate tensions between the two. In my opinion, Vance’s statement was for domestic political consumption. I am certain that Rubio and his diplomats have been keeping the phone lines busy in the meantime. It is in the interest of the USA to keep peace between the two in order that both can be wooed to the American side in its rising conflict with China (tall order!)

Why did India strike this time?

There was a claim of responsibility after the attack from a group called the Resistance Front, but it was subsequently withdrawn, so there’s some uncertainty about that. Indian sources suggest this group, which is relatively new, is an extension of a pre-existing militant group, Lashkar-e-Taiba, which has been based in Pakistan for many years.

Pakistan has denied any involvement in the tourist attack. However, there has been good evidence in the past suggesting that even if the Pakistani government hasn’t officially sanctioned these groups operating on its territory, there are parts of the Pakistani establishment or military that do support them. This could be ideologically, financially, or through other types of assistance.

In previous terror attacks in India, weapons and other equipment have been sourced from Pakistan. In the Mumbai terror attack in 2008, for instance, the Indian government produced evidence it claimed showed the gunmen were being directed by handlers in Pakistan by phone.

But as yet, we have no such evidence demonstrating Pakistan is connected to the tourist attack in Kashmir.

This creates the conditions for speculating that other intel groups might be involved.

Hall suggests that the political cost for doing nothing will outweigh continued military escalation by both sides:

It remains to be seen what cost either side is willing to pay to escalate tensions further.

From an economic standpoint, there’s very little cost to either side if a larger conflict breaks out. There’s practically no trade between India and Pakistan.

New Delhi has likely calculated that its fast-growing economy will not be harmed by its strikes and others will continue to trade and invest in India. The conclusion of a trade deal with the United Kingdom, after three years of negotiations, will reinforce that impression. The deal was signed on May 6, just before the Pakistan strikes.

And from the standpoint of international reputation, neither side has much to lose.

In past crises, Western countries were quick to condemn and criticize military actions committed by either side. But these days, most take the view that the long-simmering conflict is a bilateral issue, which India and Pakistan need to settle themselves.

The main concern for both sides, then, is the political cost they would suffer from not taking military action.

External mediation (and the perceived lack of it):

So, how does this play out? The hope would be there’s limited military action, lasting a few days, and then things calm down rapidly, as they have in the past. But there are no guarantees.

And there are a few others willing to step in and help de-escalate the dispute. US President Donald Trump is mired in other conflicts in Ukraine, Gaza and with the Houthi rebels in Yemen, and his administration’s diplomacy has so far been inept and ineffective.

When asked about the Indian strike today, Trump replied it was a “shame” and he “hopes” it ends quickly. That’s very different from the strong rhetoric we’ve seen from US presidents in the past when India and Pakistan have come to blows.

New Delhi and Islamabad will likely have to settle this round themselves. And for whoever decides to blink or back down first, there may be a substantial political cost to pay.

Although tensions between India and Pakistan have been a permanent feature of their relationship since the Partition of India, flare-ups between the two have been effectively managed and de-escalated on a routine basis. The nightmare scenario of a nuclear exchange between India an Pakistan has largely subsided from its peak in the 1990s.

On the other hand, the volatility of the Kashmir issue becomes more pronounced as East Asia becomes the world’s most important theatre of conflict. China controls a portion of the contested region, meaning that the mix of forces makes Jammu and Kashmir even more incendiary. Get ready to learn more about this highland region, and get ready to learn more about Myanmar/Burma, the Philippines, Malaysia, Indonesia, and so on.

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The two most important elements that global US power rests on are:

1. its ability to project military power anywhere in the world
2. the Dollar

There are many other factors that explain why the USA is as powerful as it is, but these two are by far the most important. This is why certain states that have run afoul of the USA have tried (successfully, in the case of North Korea) to develop their own nuclear arms programs. This is also why there have been efforts to move away from the US Dollar in arena of international trade.

The Greenback is king, and it will remain that way for some time to come. Its only challenge in recent times has been from BRICS, and that has been at best a tepid one. The integration of the global economy since the end of the Cold War have made it incredibly difficult to set up a rival system of trade, as the infrastructure that was built since the end of World War Two has proven to be both very sturdy, and practically impossible to untangle one’s self from without causing immense self-harm.

Every so often, we are treated to “the sky is falling” opinion pieces about the US Dollar losing its status as the global reserve currency, and they generally draw little attention…except from the fringes. The sheer size of the US economy, the depth of its capital markets, and the amount of US dollars held by foreign countries in their reserves makes such declarations either very premature, or outright absurd.

The enduring strength of the greenback is taken as a given by the powers-that-be, but it is also jealously guarded and monitored very, very closely for any potential threats to it. Long-time readers of this Substack know that I don’t take the threat from BRICS very seriously, and I think that my position is wholly justified. Trump has made a couple of negative comments about the organization, but it is largely off of the radar of most people in the USA and Europe. Funnily enough, it is Trump that is seen as a possible threat to the US Dollar’s global standing, one that has been argued during the media meltdown six weeks ago regarding his introduction of tariffs on foreign countries.

Are there grounds for this fear? Or is it just more media sensationalism? I’ll let you decide after you read this piece about the US Dollar, the Federal Reserve, the Bretton Woods System, and the threat of Trump to demolish the entire structure:

When economists seek to account for the dollar’s outsize role as the only true global currency, they point to structural factors such as the US share of world GDP, or the depth and liquidity of US financial markets. This approach underlies the sanguine view of many financial market participants that, come what may, so long as the US remains the world’s leading economy, the dollar will remain its safe haven.

The second Trump administration is a reminder that raw numbers can only take us so far. For as historians will tell you, it is the actions of people, not economies or markets in the abstract, that explain how international currencies rise and fall. It was people who took the crucial steps to build the institutions that made the international dollar. And it is people who will ultimately determine whether these same institutions survive or fail.

‘The sky is falling! The sky is falling!”

Now for some history:

The individual with the strongest claim to patrimony of the global dollar is probably Paul Warburg, German-American scion of the Hamburg-based Warburg banking family. The young Warburg worked in international finance in Hamburg, Paris and London before marrying into the Kuhn, Loeb banking dynasty in 1895 and emigrating to the US in 1902. Extensive international experience impressed upon Warburg the advantages accruing to Britain from London’s position as the leading source of trade credit and investment finance for merchants and bankers in diverse parts of the world. Those diverse parts included the US, which was almost entirely dependent on London and sterling for international credit.

Like many a naturalised citizen, Warburg was deeply loyal to his new country. He worried that the American economy’s dependence on London and sterling exposed it to foreign shocks over which it had no control. He appreciated also that London’s appeal as an international financial centre rested on the backstopping efforts of the Bank of England, which stood ready to act as lender of last resort, guaranteeing the market’s liquidity and stability. It followed that any aspirations the US might have had to promote international use of the dollar were hamstrung by the absence of a central bank.

When I first got onto the internet in the mid-90s and was introduced to non-mainstream US politics, I was inundated with calls to “End the Fed”, and kept coming across long screeds about the Federal Reserve is “evil”. You couldn’t avoid it, as these types of articles, essays, posts, etc. were everywhere. Sure, a lot of these people were cranks, but so what?

Anyway:

Starting in 1906, Warburg became a tireless promoter of the creation of this institution. One of the prospective central bank’s key functions, he argued, would be to develop a market in dollar-denominated credit instruments for use in financing international trade. Adopting European parlance, he referred to these bank drafts or bills of exchange as trade acceptances, anticipating that the central bank would “accept” or buy them as a way of lubricating the new market in trade credit.

Warburg wrote newspaper columns. He spoke at public forums, overcoming shyness born of heavily accented English. In 1910 he was part of the small group of experts who met on Jekyll Island, off the Georgia coast, to thrash out the provisions of what became the Federal Reserve Act. In 1914 he became a founding member of the Federal Reserve Board. The regulations he drafted allowed the Fed to purchase dollar trade acceptances as a way of fostering the market. By the 1920s, that market had grown to the point where the value of dollar trade acceptances matched, and in some years exceeded, the value of trade credits originated in London and denominated in sterling.

The dollar’s status as a rival to sterling suffered a setback in the 1930s, when the Fed withdrew from the acceptance market and the US suffered a series of debilitating banking and financial crises. America emerged from the second world war as the western world’s only superpower, creating an opening for the dollar. But it took the intervention of another singular individual, Harry Dexter White, to cement the greenback’s international role.

Alright, then what happened?

A prickly personality, White pursued an unrewarding academic career before joining Henry Morgenthau’s Treasury Department in 1934 and rising to assistant to the secretary with full responsibility for Treasury’s participation in all international economic and financial matters related to the second world war. During the war, White drafted the plan that became, with modifications, the US blueprint for the IMF, the World Bank and the Bretton Woods System, the institutions that provided the basis for the postwar international monetary order and the dominance of the dollar.

To be sure, the US had to negotiate with other countries present at the international monetary conference convened at Bretton Woods, New Hampshire, in 1944. White had to parry with his British interlocutor, John Maynard Keynes. But key elements of the White Plan went straight into the Bretton Woods agreement.

Specifically, White sought to distinguish the dollar as the only fully convertible international currency of the newly minted Bretton Woods System. An early draft of the agreement read that exchange rates should be pegged to gold or “gold-convertible currencies”. When one of Keynes’s colleagues, Dennis Robertson, innocently observed that only the dollar was apt to be freely convertible into gold following the war, White saw an opportunity to cement the dollar’s role. He and his team stayed up all night, redrafting the agreement to replace “gold-convertible currencies” with “gold . . . or the United States dollar of the weight and fineness in effect on July 1, 1944”. The Bretton Woods agreement thus singled out the dollar as the sun around which the other elements of the postwar international monetary system revolved.

The subsequent period of dollar dominance was not attributable solely to White and the institutions created at Bretton Woods. It took the Marshall Plan to provide Europe with the dollars needed to resume international payments and reintegrate its economies into the global order. US leaders had to bypass Congress’s reluctance to join the International Trade Organization by agreeing to establish the General Agreement on Tariffs and Trade.

“….the dollar as the sun around which the other elements of the postwar international monetary system revolved.”

Excellent description.

Despite the setback of 1971, the dominance of the greenback persists to this very day:

Thus, even when the Bretton Woods System of exchange rates pegged to the dollar broke down in 1971, the greenback’s global centrality lived on, supported by the institutions built by Warburg, White and their compatriots: an independent Federal Reserve, an open world trading system to which the US and its partners were committed, and a rock-solid geopolitical alliance. The dollar’s continued dominance derived from sheer numbers — from the US’s large share of global GDP and financial transactions — but equally from relationships and reciprocity.

If this essay sounds like a hagiography of the banking establishment, don’t worry, it is. This is the Financial Times, after all.

Trump as a threat (as usual):

It has taken Donald Trump only a few months to weaken if not destroy those relationships and that reciprocity. Trump and his appointees question the very values and arrangements on which nearly a century of dollar dominance is based. For the first time in living memory, the survival of the institutions on which that dominance rests has been cast into doubt.

To start, America’s economic exceptionalism is in doubt. The US economy has outperformed those of other advanced countries in recent years. It is home to the world’s leading tech companies. It is at the forefront of research in artificial intelligence. It has a start-up-friendly culture where serial entrepreneurs are forgiven their failures, and a well-developed venture capital industry to seed new enterprises. It is a magnet for foreign talent.

But there is no guarantee that what was true in the past will be true in the future. The research capacity of the public sector and US universities is being gutted. Whether skilled migrants will still see America’s pearly gates as welcoming is an open question. Policy uncertainty and doubts about rule of law threaten to make America a less attractive place to invest.

The author also states that the overuse of sanctions on the part of the USA is also a threat, once with which I agree. Then there is also the USA’s actual fiscal outlook:

Then there is America’s troubled fiscal and financial outlook. The dollar has been attractive to central banks as a form of foreign reserves, and to corporate treasurers, sovereign wealth fund managers and international investors generally, because it is available in ample amounts while still holding its value. The US has provided a steady supply of dollars to meet the liquidity needs of an expanding world economy without supplying so many as to erode confidence in their value.

But if this has been true until now, US fiscal and financial woes could, in the not-too-distant future, push the dollar over the edge. The Congressional Budget Office’s long-term budget outlook shows debt in the hands of the public rising from 99 per cent of GDP in 2024 to 116 per cent in 2034, 139 per cent in 2044 and 166 per cent in 2054. Impending legislation, including measures that extend Trump’s expiring 2017 tax cuts, could push debt up even faster. There is no magic debt-to-GDP threshold where confidence is automatically lost. But endless tax cuts, mythical expenditure reductions and high levels of political polarisation will at some point cause foreign investors to doubt the dollar’s prospects.

Not being nice to allies also poses a threat:

Finally, the dollar’s global role will suffer if the US is perceived as turning its back on its allies. Countries hold as reserves and use in international payments the currencies of their alliance partners. Not only are those partners seen as reliable stewards of their foreign balances, but holding the currency of one’s ally is taken by the partner as a sign of good faith. Before the first world war, members of the Triple Alliance (Germany, Austria-Hungary and Italy) and the Triple Entente (France, Britain and Russia) held as foreign reserves the currencies of their alliance partners. Still other countries held as reserves the currencies of countries with which they had security understandings.

In the 1930s, not only the Commonwealth and Empire but also a fair number of Britain’s other allies held their reserves in London and pegged their exchange rates to the pound in the arrangement known as the Sterling Area. In the 1960s, the German and Japanese governments supported the dollar, helping to preserve its international currency status, because of the value they attached to their defence alliance with the United States, and specifically to US military forces stationed on their shores. Today, Taiwan, South Korea and Japan hold a disproportionate share of their foreign reserves in dollars because they depend on the US security umbrella. In the wake of Trump’s Oval Office blow-up with Volodymyr Zelenskyy and appeasement of Russia, this notion that alliance politics are important for international currency status is about to receive a real-time test.

Trump is trying to do things, one of which is his attempt to structurally reform both the US and global economies. Judging by this essay, any attempt to try anything risks bringing down the entire structure first put into place at Bretton Woods in 1944. That does not inspire confidence.

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Zee Germans are conducting a very interesting experiment: how to separate the popular will from democracy in a system that claims to be a democracy and that is based on giving every adult the right to vote in elections?

We are nearing the end of this years’ long experiment as Germany’s domestic intelligence agency has classified AfD, now the country’s most popular political party, a “right-wing extremist organization”. This designation means that the entire party apparatus is now under surveillance by domestic intel, right down to all communications made between party members. In short: the security organs of state are spying on AfD across the country, including its members.

Two state-level AfD parties have already received this designation, but this is the first time that a party at the national level has been designated “a threat to the constitutional order”. This “threat” has 152 seats in the German Bundestag, btw.

Even the Americans are taken aback by this ruling:

Secretary of State Marco Rubio condemned a decision Friday by Germany’s domestic intelligence agency to classify the political party Alternative for Germany (AfD) as a right-wing extremist organization, calling the move “tyranny in disguise.”

“What is truly extremist is not the popular AfD—which took second in the recent election—but rather the establishment’s deadly open border immigration policies that the AfD opposes,” Rubio wrote in a post on X in the hours following the decision.

“Germany just gave its spy agency new powers to surveil the opposition,” he wrote. “That’s not democracy—it’s tyranny in disguise.”

Rubio is correct, but there are two important things to remember:

1. this is a result of the de-Nazification policy that West Germany went through shortly after WW2
2. Rubio’s criticism is clearly directed towards anti-Trump elements in the US Deep State, particularly those ones who wanted to ban him from office

Germany is incredibly sensitive about its WW2 legacy, meaning that it is constantly on the look out for anything even remotely right wing in order to quash it and show the world that it has “learned its lesson”. Western liberal consensus is that anti-migration politics is right wing or even far right, despite it representing the majority of public opinion in practically every western country today. Because of this elite consensus and when combined with (somewhat) recent history, Germany’s ruling elites effectively equate AfD to the NSDAP.

After conducting a three-year-long investigation into the party, the Federal Office for the Protection of the Constitution released a 1,000 page report, citing violations of core constitutional principles including human dignity and the rule of law.

“This is democracy. This decision is the result of a thorough & independent investigation to protect our Constitution & the rule of law,” the official X account for the German Foreign Office wrote in a reply to Rubio’s post. “It is independent courts that will have the final say. We have learnt from our history that rightwing extremism needs to be stopped.”

And there you have it. Germany’s 12 years of Nazi rule means that the country cannot be permitted to oppose mass migration even if the democratic majority shares this view. This ruling now permits the German constitutional court to decide whether to ban the party or not. This would be the nuclear option. If that button is pressed, western liberal democracy seals its doom as its overarching internal paradox (think: Popper) comes to the fore.

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I really, really like the British term “chancer”. A chancer is defined as “a person who exploits any opportunity to further their own ends.”

Chancers provide us entertainment through their scheming, manipulating, and ambition. I love reading stories about chancers, and I’ll share this current one with you which details how a Hindu guru on the run from authorities in India has been trying to set up an autonomous state in South America via indigenous rights:

Followers of a fugitive Indian Hindu guru on a mission to establish his own state are popping up across Latin America, offering hundreds of thousands of dollars to buy land in Ecuador, Paraguay and now Bolivia.

At the end of last year, a representative of the Baure Indigenous people in the Bolivian Amazon signed a “perpetual” contract leasing 60,000 hectares (148,260 acres) of their vast rainforest for $108,000 (£81,910) a year.

A representative of the Cayubaba Indigenous people signed a similar contract, leasing 31,000 hectares for $55,800 annually.

On the other end of the contracts, the profiteer was the United States of Kailasa, which, despite presenting itself to the Indigenous peoples as a nation, is not recognised by any country or the UN.

The fictional nation was created by Nithyananda – a self-anointed “godman” and the “supreme pontiff of Hinduism” – in 2019, after he fled India while facing charges of abducting children for his ashram and one of raping a follower.

After failed attempts to buy land in Ecuador and Paraguay – and even signing an agreement with the US city of Newark, which was later scrapped when officials realised Kailasa did not exist – the fake country turned to Bolivia.

Gotta keep trying:

Between September and November 2024, its representatives signed contracts with at least four Indigenous groups for the 1,000-year lease “with automatic and perpetual renewal” of their lands.

Everything seemed to go according to plan until the Bolivian newspaper El Deber exposed it last month.

“When I first read the contracts, I thought, ‘I must be imagining this’. They were so irrational that it felt like magical realism,” said Silvana Vicenti, the journalist who broke the story.

According to the contracts, seen by the Guardian, Kailasa would control vast swathes of land, “with full sovereignty and autonomy” within each Indigenous territory including rights over the airspace and all natural resources above or below the ground.

The Indigenous groups would be obliged to “defend Kailasa in any legal proceedings” and support its recognition “as a sovereign and independent state, protect it against aggression, and back its admission to international organisations such as the UN”.

For Vicenti, it seemed like “a monarchy with Indigenous subjects”.

Bolivia is not having it:

“The contracts are a total scam,” said Morales. “But the strangest part is that, to this day, no one knows exactly what happened. First, how did they get in? … How did they reach these places and start directly approaching sectors of Indigenous Amazonian territory?”

The Bolivian government has yet to provide all the answers.

After the case broke, it issued a statement denying diplomatic ties with the fictitious country.

lol

On 24 March, Calderón announced that Bolivia had expelled 20 foreigners “linked” to Kailasa – of different nationalities, including Indian, British, American and Chinese – who had entered the country as tourists but were seeking to “obtain land” in Indigenous territories.

and

Nithyananda, whose whereabouts remains unknown, gave a “live presidential address” on social media last Wednesday to dispel “malicious rumours” allegedly spread by “anti-Hindu media outlets” claiming he was dead.

He did not mention Bolivia directly, but his YouTube channel has published videos where his followers admit to signing the lease agreements and claim they sought to “support environmental protection … and [provide] humanitarian aid” to the Indigenous communities.

The Guardian sent a list of questions to the Bolivian government and Kailasa’s “office of international relations” but has not received a response.

The Multi-ethnic Indigenous Territory II organisation, which includes the Ese Ejja people who signed the contract, issued a statement that said Kailasa had “manipulated” some of its representatives and taken “advantage of their vulnerability to extract a signature with the promise of easy money”.

The group added: “Our territory is not for sale, it is not for rent, and it is not subject to any kind of negotiation. Our land is the legacy of generations who have cared for and defended it with blood and resistance.”

Pretenders used to be very common in older days when monarchies were the norm. It’s good to see that these types have not been completely relegated to history.

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