Biden's 'surrogate' war in Ukraine could sink the US economy

When US Defense Secretary Lloyd Austin announced in Kyiv that the goal of the US support to the Ukrainians in the conflict with Russia was now to degrade Russia's military power so that they will never again be able to conduct such an operation against any other nation, this transformed a conflict that could have been concluded within a matter of weeks or months into something much more problematic and highly dangerous. With that reorientation, it officially became a 'surrogate' war of the US against Russia.

While US "allies," particularly NATO members, seem to have gone along with this change of strategy, given the influence of the US in the alliance, it is not at all clear how far they are prepared to go. Many are still talking about the need for negotiations, including French President Emmanuel Macron. While there is yet only 'rumbling' underneath the surface, the full brunt of this momentous shift has yet to be felt.

Biden's idea is that through economic warfare, combined with Ukrainian sacrifices on the battlefield, he can bring Russia down, or perhaps only President Vladimir Putin, whom he previously said should "no longer be in power." Another $40 billion has now been allocated by the Congress in aid to Ukraine, most of it for military hardware. This on top of the billions that have already been spent on this risky venture. The sanctions on Russia and the attempt to prevent the sale of Russian gas and oil to Europe have already led to a serious crisis for Europe's energy security.

While Biden is already tapping America's strategic reserves to keep the price of gasoline in the US within certain limits, the price at the pump continues to go up. More significantly, the price of food, which is heavily dependent on energy – and fertilizer – is now sky-rocketing. And business confidence is going down the tubes with Wall Street experiencing a virtual "market meltdown," not seen since the days of the 2008 crisis.

Biden is also getting hit in his own numbers with the lowest figures of people believing that he is doing a good job since he became president. He may not care since it is not likely that he will run for another term. The presidency takes its toll on everyone, and most tellingly on someone Biden's age. But his obsession with Ukraine seems to have made him oblivious to everything else.

Certainly, he can continue his attempt to blame the economic downturn on Putin, but fewer and fewer people are going to accept that for long. He is the president and his job is to fix things. And as Americans continue to see billions of dollars flying off to somewhere in Eastern Europe, while US roads here are in shambles, schools are collapsing, and people are getting laid off right and left, they simply won't care what the situation in Ukraine looks like – if they even do now.

The Federal Reserve has already raised interest rates in the face of rising inflation and has cued in more to be made in the course of the year. But the calculations as to how this situation will develop could be radically overturned by reality, requiring much more than they have predicted. And the rising interest rates will undoubtedly lead to reduced investment and more unemployment.

The longer-term effects will be on the role of the dollar as a reserve currency. The arbitrary measures taken against Russia by freezing Russia's dollar assets have taken the luster off the dollar-based system. If the US can do this to Russia, they can do it to anybody. And the measures now taken by Russia and other countries still prepared to work with them economically and to purchase Russian oil and gas are leading to alternative financial frameworks which bypass the dollar.

All in all, we are just at the beginning of what threatens to become a major economic blowout for the US and the West unless the policy is reversed. Are the Europeans going to stay on board in a conflict in their neighborhood with a nuclear power as jobs are lost, and blackouts and brownouts occur due to energy shortages? And even if the political elites are prepared to weather the storm, are their citizens likewise ready to tighten their belts to preserve the so-called American way of life? It is sure to be a hot summer in more ways than one as the effects of sanctions and war begin to take their toll on people's livelihood. And you may soon begin to see people take to the streets to demand change from what has become an absolutely unacceptable situation.

William Jones is a former White House correspondent and a Non-resident Fellow of the Chongyang Institute for Financial Studies.