A Trillion Dollar Illusion

The Entirely Predictable Failure of the West's Mission in Afghanistan

In early July, I met with a leading Taliban military commander. I asked when his fighters would arrive in Kabul. His answer: "They are already there." How the Afghanistan mission failed and what happens next.

By Christoph Reuter

Taliban fighters in Kabul / Foto: Rahmat Gul / AP

In early July, before the great storm broke over Afghanistan, Kabul was already surrounded by the Taliban. 

And nowhere were the Islamist fighters closer to the Afghan capital city than on the shores of the Qargha Reservoir, a popular getaway on the western edge of the city. 

People were saying that the Taliban had gathered in the villages behind the nearby hills. 

The last frontline, it was said, was on the shore of the reservoir at the amusement park.

During the day, families were still taking their children to the rides and the restaurants or going out on the water in swan-shaped paddle boats. 

A small, six-member special forces unit even enjoyed a picnic in a wooden pavilion on the shore. 

One of them had to stand guard at the gun turret of their armored Humvee as the rest smoked hookahs and drank colorful sodas.

The next day, I met one of the Taliban’s leading military commanders for Kabul, who received me in the middle of the city in an unremarkable office building. 

When asked how far the Taliban had to walk to get to the lakeshore, he responded: "Not far at all." 

He seemed perfectly calm, a clean-shaven emissary of fear. 

"They’re already there, after all. 

They are the security guards at the restaurants, the ride operators, the cleaning staff. 

When the time is right, the place will be full of Taliban."

Six weeks after our meeting, in the middle of August, the same man drove to the Presidential Palace along with 10 bodyguards and the senior commander responsible for the conquering of Kabul. 

He hadn’t lied when he said that his men had already infiltrated the park at the reservoir. 

What he had failed to mention, though, was that the Taliban were also already in the heart of the city.

Numerous witnesses in various neighborhoods of the capital following the fall of Kabul had similar stories to tell. 

"It started in April," says a longtime acquaintance from the western part of the city. 

"More and more outsiders were suddenly in the neighborhood. 

Some had beards, others didn’t. 

Some were well dressed, others wore rags. 

Completely different. 

That made them difficult to notice. 

But all of the locals realized: They aren’t from here." 

They had silently infiltrated Kabul. 

The outsiders also appeared in the northern and eastern parts of the city, telling those who asked that they had come to Kabul for a new job or for business reasons.

Then, last Sunday morning, "they came out of the buildings holding white Taliban flags, some of them armed with pistols," says a resident of an eastern district of the city. 

It was the ultimate victory over America’s high-tech military, whose air surveillance proved powerless against this army of pedestrians and motorcyclists that would overrun Kabul from within and from outside in the ensuing hours. 

Later that day, they would drive through the city streets in captured police cars – from the air, an image of perfect confusion.

How could such a thing happen? 

How was it possible to lose Afghanistan to exactly the same group that was defeated – destroyed, really – in just two months back in 2001?

An anti-Taliban protest in Kabul on Thursday: The Taliban rolled in like an avalanche. Foto: Marcus Yam / Los Angeles Times / Getty Images

For 20 years, the U.S. – together with Germany, Britain, Canada and other countries – maintained a presence in the country with its dominant military superiority and, at times, with over 130,000 troops. 

The Afghan army and police were trained and outfitted over and over again for a period equivalent to an entire generation – only to ultimately capitulate almost without a fight to an offensive of pedestrians. 

The takeover happened in the morning hours of last Sunday, with the Taliban suddenly appearing in Kabul like a ghost army.

It seems as though all of the efforts made in the last two decades – all of the roads, schools, wells and buildings that were built, all of the over $1 trillion that flowed into the country – were not enough to decisively sway the majority of Afghans to the side of the country’s financial backers.

It was like an avalanche from the north, beginning with the loss of several northern districts only to ultimately crash over the entire country, crushing the established state within just a few weeks. 

The first districts to fall were those with names hardly anyone in the West had ever heard before, but they were followed by entire provinces. 

Day after day, cities surrendered to the advance: Kunduz, Herat, Mazar-i-Sharif, Kandahar. 

The more dramatic the collapse grew, the quieter it became as resistance faded away – until Kabul, the capital city cowering in fear, simply gave up within a matter of hours.

The shock was followed by panic. 

Tens of thousands of people rushed the walls of the Kabul airport in a desperate effort to escape the city and the country. 

The Taliban had long since closed down most of the overland border crossings through which people might have been able to escape to neighboring countries. 

Soon, the metal fences at the airport gave way. 

The guards vanished and masses of people forced their way onto the tarmac.

If images from the fall of Kabul have been burned into the world’s collective memory, it will be these ones: Men running alongside a slowly accelerating C-17 military cargo plane, desperately clinging to the landing gear of the taxiing jet. 

And then, a short time later, small figures losing their grip on the plane and falling to their deaths from hundreds of feet.

People at the airport in Kabul climbing on a plane belonging to the Afghan airline Kam Air. Foto: Wakil Kohsar / AFP

And then the triumphant victors driving through Kabul in pickups, their Kalashnikovs thrust into the air. 

Sauntering into the Presidential Palace and posing there as if it had always belonged to them. 

Ensuring the Afghans that they had no reason to be afraid, that they should carry on with their daily lives and nothing would happen to them. 

All they had to do, the Taliban insisted, was adhere to their rules.

Who is to blame for this disaster? 

Is it U.S. President Joe Biden, as his predecessor immediately trumpeted to the world? 

"It will go down as one of the greatest defeats in American history," Trump said, ignoring the fact that the deal he signed with the Taliban in February 2020 paved the way for the U.S. withdrawal.

Others saw the fall of Kabul as the "result of a large, organized and cowardly conspiracy," as Atta Mohammad Noor, the warlord and former governor of Mazar-e-Sharif, raged on Facebook following his precipitous helicopter escape. 

Ashraf Ghani, now the ex-president of Afghanistan, complained in an interview with DER SPIEGEL back in May of an "organized system of support" operated by Pakistan that was destabilizing his country. 

"The Taliban receive logistics there," Ghani said. 

"Their finances are there, and recruitment is there."

The list of accusations could continue. 

But the causes of this failure stretch back to the beginning of the invasion. 

The grumblers of today were themselves involved in this debacle, the most expensive act of self-deception of the century so far. 

Only those who understand how this disaster came about will be able to understand how things are likely to progress.

The term self-deception isn’t often used in its plural form, but it should be in the case of Afghanistan. 

The misconceptions from the West started at the very beginning of the intervention, when Washington thought the military would be sufficient to pacify the country, to the end, when Berlin was still asserting that it would only take just a bit longer to reverse the situation. 

Another fallacy was the assumption that a nation could be built and protected if enough money was invested and enough training undertaken. 

The Afghans, too, were guilty of self-deception, with the government and a large share of the population believing for two decades that the U.S. would never pull out.

Some lies served to obscure the true state of affairs in the country, others were the product of ignorance, and still others were truly believed. 

It was a fatal, collective delusion that ended up costing a six-figure number of Afghan lives along with those of more than 3,500 foreign troops. 

A fallacy that unintentionally sent Afghanistan on a 20-year detour from one Taliban reign to the next. 

Meanwhile, an entire generation grew up in the country’s cities under the assumption that the freedoms guaranteed by the foreign powers would be theirs forever.

These lines are born of the experience of having traveled to Afghanistan repeatedly over the course of 19 years and of having lived in Kabul as a correspondent for three of them. 

And they come from the sad realization that I wrote of the predictable failure of this project back in 2009. 

"If you take a look at the progression of the last eight years in Afghanistan, the following conclusion is unavoidable: The longer the international engagement there has lasted, the worse the situation has become," was my verdict at the time, "no matter how many thousands of kilometers of roads have been built, how many schools constructed and how many wells dug."

Nobody planned to stumble into this situation. 

The trigger for the mission was the shock of Sept. 11, 2001. 

Even as smoke was still rising from the rubble of the Twin Towers in New York, the masterminds of the biggest terror attack in recent history were discovered in Afghanistan. 

Al-Qaida leader Osama Bin Laden and his followers had developed a state within the "emirate" controlled by the Taliban. 

Washington’s primary goal was revenge and justice, not nation-building. 

Then German Chancellor Gerhard Schröder promised Germany’s "unlimited solidarity."

It was a different era, marked by the successes and horrors of the millennium that had just come to an end. 

The aftershocks of the euphoric events of 1989, when the Eastern Bloc managed to escape Moscow’s iron grip and Czechoslovakia, Poland and Hungary returned to democracy. 

On the other hand, the atrocities of Rwanda, the slaughter of 800,000 people as the UN stood by and watched, reinforced the idea of "never again." 

The NATO mission in Yugoslavia, which was controversial in Germany, managed to stop the Serbs in Kosovo. 

The Islamist Taliban movement, which ruled over most of Afghanistan following years of civil war, had been merely a side note to the horrors occurring elsewhere.

That was the situation immediately following Sept. 11 when Washington issued an ultimatum to the Taliban, demanding that they arrest and extradite bin Laden and the rest of the al-Qaida leadership or face the consequences. 

The Taliban said no. 

Whether they really meant no, and whether they might have been open to a face-saving plan whereby they would stand aside and allow Osama and the other leaders to be captured, as some from Taliban leadership would later claim, remains unsettled. 

NATO invoked Article 5, the collective defense mandate. 

The UN Security Council unanimously passed Resolution 1368, legitimizing the coming attack as an act of self-defense.

The attack began on Oct. 7 with ballistic missiles, warplanes and B-2 long-range bombers targeting Kandahar and other targets in Afghanistan. 

The Northern Alliance, which joined the U.S. in the fight, arrived on horseback wielding Kalashnikovs. 

Kabul fell without a fight on Nov. 13 and Kandahar, where the Taliban got its start, followed on Dec. 7. 

The victory had taken just two months.

At the time, during this winter of fury, neither the voting public nor the government apparatus asked about plans for the future or the mission’s goals. 

In December 2001, the first Afghanistan Conference took place, an assembly of victors, some of whom dreamed of a return of King Mohammed Zahir Shah, who had been deposed in 1973. 

Missing from that initial gathering, as they would be from all subsequent meetings, were the Taliban. 

Nobody wanted them there.

I arrived in Afghanistan in the scorching hot summer of 2002, just after the U.S. Air Force had bombed a wedding party in the countryside. 

At least that’s what survivors said. 

The U.S. military spokesmen countered that gunmen onboard the U.S. aircraft had fired in self-defense after having been targeted from the ground.

That sounded so absurd that we went there ourselves, traveling unchallenged through the provinces of Kandahar, Helmand and Uruzgan, the cradle of the Taliban. 

But they were no longer there. 

"You know," an Afghan man said one evening around a fire at a rural rest stop, "I was also with the Taliban! 

But they’re history now." 

His tone was laconic, and he didn’t sound particularly disappointed, since he could now plant poppies again, something that had been strictly forbidden under Taliban rule.

In the bombed village in Uruzgan, it quickly became apparent that the story behind the wedding bombing had unfolded rather differently. 

The Americans hadn’t just attacked from the air, but had rolled in with a convoy of heavily armed infantrymen. 

It hadn’t been self-defense at all, but a planned attack. 

Members of a Kandahar tribe had accused allies of President Hamid Karzai of being members of the Taliban.

If you couldn’t defeat the Americans, you could apparently use them for your own purposes. 

It was a pattern that would repeat itself over and over again, and which would contribute to the abject failure of the intervention. 

The great tribal council meeting in Kabul in June 2002 "was the moment when it failed," recalls Thomas Ruttig, who was a UN official from Germany at the time, but who later co-founded the Afghanistan Analysts Network. 

"The moment when U.S. Special Representative Zalmay Khalilzad brought back the warlords." 

They were the men who had destroyed the country in the earlier civil war, but who had helped the U.S. government of President George W. Bush in the fight against the Taliban.

Khalilzad and others forced the tribal council to include 50 additional men on top of the elected representatives – militia leaders who had ruled with fear and aggression before the arrival of the Taliban. 

They were men like Mohammed "Marshal" Fahim, a Tajik leader who stood accused of perpetrating massacres and kidnappings. 

And Rashid Dostum, the Uzbek leader who murdered several hundred imprisoned Taliban and later had his opponents raped with bottles. 

Both of them would go on to serve as vice president of the country. 

The new holders of power remained uncompromising. 

They immediately set about exacting revenge on their former enemies and plundering the new government.

A U.S. soldier trying to clear the tarmac at the Kabul Airport on Sunday. Foto: Wakil Kohsar / AFP

Billions of dollars earmarked for construction projects, roads and power plants would vanish in the ensuing years. 

Court verdicts could be bought, and rampant corruption corroded the state. 

Farmers, at least in the Pashtun provinces, remained poor and were bullied by the militias of the new rulers. 

The fighters would show up to hunt down the Taliban, but would then cut down the farmers’ almond trees and plunder their villages.

American and German politicians justified the eternal continuation of the military mission by claiming that the Taliban were "still there." 

But that wasn’t true. They slowly reappeared after several years of absence, first in the south and then in the north. 

Starting in 2007, I spent months with a former mullah documenting the Taliban’s slow return in his home district of Andar, south of Kabul. 

"The ill will toward everything foreign, toward Americans, toward Tajiks, toward police, was seamlessly nourished by real wrongs, exorbitant excesses and invented slights," we wrote at the time.

In the north, the German military rhapsodized at the time about the quiet in the provinces under their watch. 

When a new police chief was then appointed and he established a regime of horror in Kunduz, beating farmers and destroying their market stands when they didn’t pay sufficient protection money, the German troops stood by and watched from their hill overlooking the city. 

They were, they pointed out, only there as the "International Security Assistance Force" for the Afghanistan government. 

That presaged the return of the Taliban in Kunduz, with the Islamists taking control of village after village, until the Germans didn’t even dare to make forays six kilometers from their base. 

In September 2009, the German military called in U.S. airstrikes in Kunduz that killed 91 people who were looting fuel from two hijacked tanker trucks. 

The German commander thought they were insurgents.

By then, Germany and the U.S. had invested so much capital, both financial and political, that they had become hostages of their own project. 

For the lack of other achievements, the international aid community in 2009 sold the mere holding of elections as a great triumph. 

But when more and more evidence began emerging of election fraud orchestrated by Karzai’s entourage, the West found itself stuck in an insoluble conundrum. 

If they recognized Karzai’s fraudulent election victory, they would be supporting an illegitimate government. 

If they did not, they would have to force out a government that they had spent billions of dollars supporting.

In the search for a solution, Washington overrode Karzai’s objections and pushed through a second vote, one that would be monitored by UN election observers. 

What then took place is among the darkest examples of the opportunism exhibited by the U.S. government and the UN.

At daybreak of Oct. 28, three attackers launched an assault on the UN guesthouse in Kabul, shot the guards to death, pushed their way into the courtyard and set about slaughtering the almost 30 UN employees inside. 

But they unexpectedly met resistance. 

Louis Maxwell, a former U.S. soldier and security officer, was able to hold back the attackers from a rooftop for one-and-a-half hours. 

No help came from the Afghan police or the army – right in the heart of Kabul. 

Once the three attackers set off their suicide belts, Maxwell staggered out, while four other UN employees were calling others on the outside telling them they would also emerge from hiding.

Just minutes later, they were all dead, the four shot from the front. 

Maxwell was hit as he was standing on the street between two Afghan soldiers. 

Neither of them batted an eyelash. 

They then dragged his body into the courtyard. 

Months later, internal UN investigators only managed to make progress with their inquiry thanks to a chance video of Maxwell’s murder made by a German security officer from a rooftop several buildings away. 

But it was all supposed to remain confidential.

In summer 2010, an FBI investigator asked to meet with me in Kabul. 

When I asked what would happen next, he just shook his head. 

There would be no further investigations. 

Washington, he said, didn’t want to expose Karzai. 

Following the attack, half of the UN staff was pulled out of the country and the second election was cancelled. 

Hamid Karzai got the victory he wanted.

When Joe Biden announced a concrete date for the pull-out in April, many in Afghanistan still refused to believe that the Americans were leaving.

The Americans and the rest of the NATO allies consistently let Karzai off the hook, along with his corrupt family and his secret service. 

The British, for example, wanted to focus on combating drug production in the country. 

When soldiers from the elite British force SAS happened across a gigantic opium storehouse near Kandahar that belonged to the president’s half-brother, all British diplomats were ordered to keep quiet about it. 

When two German hikers were murdered on the Salang Pass north of Kabul in 2011 and evidence pointed to the entourage of a contract killer for the Afghan secret service NDS, secrecy was once again the order of the day.

It was the era of U.S. President Barack Obama – and his then-vice president, Joe Biden, who experienced the unfolding disaster firsthand for eight years. 

Just before he became vice president, Biden had abruptly stood up and left a dinner with Karzai in anger after the Afghan president, in response to questions about corruption in Afghanistan, told Biden that the U.S. is ultimately responsible for everything that goes wrong in the country.

Biden’s current stubborn insistence on a complete and rapid withdrawal from the country may be informed by the fury he felt in those years. 

He knew the situation was a disaster. 

But it ultimately became even more disastrous than expected.

Obama sought to bring the situation under control by steadily increasing the number of troops. 

By 2011, more than 100,000 U.S. soldiers were stationed in Afghanistan. 

They could be victorious anywhere in the country, but not everywhere at the same time. 

More than anything, though, the rapid increase in the number of U.S. attacks, the rising total of civilian victims and their insurmountable military superiority all fed into their opponent’s most powerful narrative – that the Americans were infidel occupiers who must be driven out.

This narrative of foreign occupation was so useful that it was deployed by the Taliban and the Afghan government alike, just for opposite reasons. 

It helped the insurgents with mobilization, and it was a source of comfort for those in power. 

Then-President Hamid Karzai, in particular, transformed the narrative into a kind of mantra: The U.S., he would insist, will never withdraw. 

Their interests in Afghanistan are simply too great: fantastic natural resources, geopolitical conspiracies and the rest of it. 

It allowed him to constantly agitate against the American occupiers while having Washington pay the bill.

This alleged powerlessness combined with grand patriotic gestures were the order of the day in Kabul. 

Even when Donald Trump announced his withdrawal deal with the Taliban in early 2020, many reacted with disbelief. 

When Biden announced a concrete date for the pull-out in April, many still refused to believe that the Americans were leaving. 

Even in late June, when Afghan President Ashraf Ghani flew to Washington, there were those in the Presidential Palace and in the ministries who were still hoping that Biden would change his mind at the last moment.

Meanwhile, the massive presence of foreign troops created deep dependencies well beyond the mission’s true aims. 

One of those was sending the Afghan economy down a dead-end road for more than a decade. 

The Provincial Reconstruction Teams (PRTs), as the headquarters of the individual NATO forces were called, wanted to buy peace in the provinces under their control. 

They contracted construction projects and sponsored local media outlets and security companies. 

Slowly but surely, the PRTs became the largest employer almost everywhere. 

In Faizabad in the northeast, a warlord received a five-figure sum each month for the protection of the army camp – so that he wouldn’t attack it himself.

The corruption, nourished by the billions of dollars being poured into the country, "threatens all U.S. and international efforts in Afghanistan," was the conclusion reached in March by John Sopko, who has been the U.S. special inspector general for Afghanistan reconstruction for almost a decade. 

His reports have long provided a detailed look at the shocking situation in the country.

Former Afghan President Hamid Karzai (third from left) with a Taliban delegation. Foto: Abdullah Abdullah / Facebook / REUTERS

The money attracted the greedy to both the government and the military, creating an elite that stubbornly dug in its feet against all efforts to put a stop to the corruption. 

Even as recently as July, with the collapse of the government imminent, the corruption continued to worsen, said Yama Torabi, the outgoing founder of Integrity Watch Afghanistan and the country’s best-known anti-corruption activist. 

"Everyone was trying to drag in money at the last moment," he says.

In early July, the U.S. secretly abandoned their gigantic airbases overnight, first in Kandahar and then in Bagram, north of Kabul. 

They didn’t even inform their Afghan guards of the coming withdrawal. 

The Americans’ No. 1 priority was "force protection." 

The precipitous pull-outs, though, only served to inflame growing resentment among the former allies. 

When withdrawing from a Special Forces base, the U.S. troops destroyed almost all of the armored vehicles at the site. 

"They’d end up on the black market anyway," the commander said. Only one vehicle was left intact.

The drama surrounding the withdrawal was certainly not Washington’s intention. 

But it triggered the internal collapse of the Afghan government, the Afghan military and, indeed, the entire Afghan state. 

"We have never really believed in anything," says the old militia leader Hadji Jamshid in the north, who already fought against the Taliban 25 years ago. 

"They fought for the wrong thing. 

But damn it, they’re prepared to die for it. 

We aren’t."

By July, there was hardly anyone in the Western secret services and militaries who had much faith in Afghan security forces. 

Kabul, though, according to increasingly pessimistic forecasts, would stay in government hands. 

In June, a prognosis from Washington suggested that Kabul would hold out for six more months. 

The BND, Germany's foreign intelligence agency, predicted 90 days on the eve of the city’s capitulation. 

Last Saturday, a high-ranking security official with an international organization in Kabul said the capital would hold out for 17 more days. 

The constant American air surveillance over the capital with drones and B-52 bombers, the official said, would prevent the Taliban from attacking Kabul until the U.S. withdrawal was complete.

But that’s not how things turned out. 

Since spring, the Taliban has been able to smuggle thousands of fighters into the capital, apparently undisturbed by Afghan security forces. 

During our July meeting in Kabul, the Taliban military commander accurately told me that Taliban fighters had long since taken up position at the Qargha Reservoir. 

On the day of the takeover, videos taken at the amusement park there show the fighters joyfully driving bumper cars and jumping on a trampoline.

But as accurate as his claims were about the Taliban’s presence at the amusement park, it remains unclear precisely what the new rulers plan to do with the power suddenly in their possession. 

The commander said that Taliban leadership was open to the idea of a joint transition government. 

Not even the higher-ups in the Taliban, it would seem, expected the country’s political leadership to implode so suddenly and President Ashraf Ghani to fly out of the city on Sunday, apparently finding shelter in the United Arab Emirates. 

The takeover of Kabul was "unexpected," Mullah Abdul Ghani Baradar, the 53-year-old lead negotiator for the Taliban’s political arm, said in a video message.

Which of the quartet of Taliban leaders will ultimately end up at the top? 

Not even that is clear. 

Mullah Baradar, who immediately returned to Afghanistan from Qatar, helped found the Taliban with the legendary Mullah Omar and is the most senior of the four. 

Baradar was instrumental in negotiating the 2020 deal with Washington – talks to which the Afghan government was not invited – that laid the cornerstone for the Taliban takeover.

The Taliban’s true top-ranking "emir" still hasn’t even made a public appearance. 

Mullah Haibatullah Akhundzada, who took over his current position when his predecessor was killed in a U.S. drone attack, is thought to be in Quetta, Pakistan, where numerous Taliban leaders reside.

That leaves two other members of the leadership quartet, one of whom is likely to have gained no small amount of prestige recently. 

Taliban military leader Mullah Mohammad Yakub, around 30 years old, propagated a military strategy of targeted attacks, long-term bribery and clever infiltration in recent weeks – an approach that proved fabulously successful. 

The son of Taliban founder Mullah Omar, Yakub had long been considered too young, too inexperienced and too self-centered to lay claim to become a successor to his father.

That leaves Sirajuddudin Haqqani, commander of the terror network Haqqani, which is thought to maintain close relations with both the al-Qaida leadership and to the Pakistani secret service ISI. 

He is well known in Washington: He is on the FBI’s list of the world’s most-wanted terrorists and the CIA supported his father 40 years ago in his fight against Afghanistan’s Soviet occupiers.

Given this cast of characters, it is far too early to posit an answer to the key question being asked in the West: Will Afghanistan once again become a breeding ground of terror? 

What the Taliban want at all costs is power over Afghanistan. 

On that count, they are nationalists. 

Terror attacks overseas, though, as they learned to their detriment in 2001, can quickly lead to losing power. 

A lesson which has likely contributed to their becoming an organization that is obsessive about control, in contrast to the first time they ruled Afghanistan prior to the U.S.-led invasion.

Still, they are not able to decide on their own, nor can they rule the entire country alone. 

For the past several months, the Pakistani secret service has been assiduously developing jihad groups in the north and east of Afghanistan that could develop into terror threats to the rest of the world: The Islamic State, Jaish-e-Mohammed and others. 

Pakistan’s leadership, which has for decades been obsessed with the country’s conflict with India, would like to maintain Afghanistan as a dependent hinterland and intends to continue exerting pressure on the Taliban.

         People stranded at the Afghanistan-Pakistan border. Foto: Akhter Gulfam / EPA

Installing Haqqani would likely give Pakistan significant leverage in the Afghan leadership. 

Mullah Baradar, by contrast – who spent eight years in Pakistani custody and was maltreated after he established unauthorized contact to the Karzai government – would likely be an embittered adversary. 

He was only released in 2018 because Washington hoped that it would be possible to reach an agreement with the Taliban if he was part of the negotiations. 

And that hope was fulfilled.

This week, the victorious Islamist radicals struck a more conciliatory tone in their statements and first press conference. 

Of course, they insisted, girls will be allowed to continue their schooling and women will be permitted to work. 

But such assurances mean little; the Taliban have proven in the past their proclivity for rapidly changing course. 

As soon as the last U.S. troops have left the Kabul airport for good and the Taliban have consolidated their power, that conciliation could be quickly abandoned.

TV moderator Shabnam Dawran, one of the country’s most prominent journalists, has already described her experiences with the new rulers in a video: "Today, I wanted to go to my work; I did not give up my courage." 

She was told to go home and that the rules had changed. 

"Our life is at great risk," Dawran says in the video, then asking the world for help.

Serious resistance to the Taliban rulers isn’t likely in the near future. 

To be sure, erstwhile Vice President Amrullah Saleh did not leave the country as Ashraf Ghani did, instead returning to his home in the Panjshir Valley, the last bit of the country that isn’t under Taliban control. 

But Saleh won’t be able to do much from there. 

The valley is legendary for being home to Ahmed Shah Masood, who was able to prevent both the Soviet military and the Taliban from taking the valley. 

Back then, he benefited from supply lines stretching into neighboring countries. 

Today, though, the valley is completely surrounded by the Taliban and also doesn’t have an airport.

Most pressing, though, could soon be the question as to how the Taliban can rule at all. 

Already, several million Afghans are dependent on food aid from the World Food Program. 

Western Afghanistan is currently suffering under the worst drought it has seen in a decade. 

The state coffers are empty and the central bank’s assets are largely stored outside the country, where they are inaccessible. 

Whether the West likes it or not, if aid deliveries are not made and assistance is not provided to the country’s health-care facilities, many people will die.

Soon, the humanitarian situation may force the West to do something it spent the last 20 years trying at all costs to avoid: Support Taliban rule in Afghanistan. 

The Dangers of Endless Quantitative Easing

With growth so uncertain, it is understandable that central banks would be wary of beginning to taper monthly bond purchases before it is clear that inflation has taken off. But they would do well to recognize that prolonging quantitative easing implies significant risks, too.

Raghuram G. Rajan

CHICAGO – Inflation readings in the United States have shot up in recent months. 

Labor markets are extremely tight. 

In one recent survey, 46% of small-business owners said they could not find workers to fill open jobs, and a net 39% reported having increased their employees’ compensation. 

Yet, at the time of this writing, the yield on ten-year Treasury bonds is 1.24%, well below the ten-year breakeven inflation rate of 2.4%. 

At the same time, stock markets are flirting with all-time highs.

Something in all this does not add up. 

Perhaps the bond markets believe the US Federal Reserve when it suggests that current inflationary pressures are transitory and that the Fed can hold policy interest rates down for an extended period. 

If so, growth – bolstered by pent-up savings and the additional government spending currently being negotiated in Congress – should be reasonable, and inflation should remain around the Fed’s target. 

The breakeven inflation rate also seems to be pointing to this scenario.

But that doesn’t explain why the ten-year Treasury rate is so low, suggesting negative real rates over the next decade. 

What if it is right? 

Perhaps the spread of the COVID-19 Delta variant will prompt fresh lockdowns in developed countries and damage emerging markets even more. 

Perhaps more nasty variants will emerge. 

And perhaps the negotiations in Congress will break down, with even the bipartisan infrastructure bill failing to pass. 

In this scenario, however, it would be hard to justify the stock-market buoyancy and breakeven inflation rate.

One common factor driving up both stock and bond prices (thus lowering bond yields) could be asset managers’ search for yield, owing to the conditions created by extremely accommodative monetary policies. 

This would explain why the prices of stocks (including “meme stocks”), bonds, cryptocurrencies, and housing are all a little frothy at the same time.

To those who care about sound asset prices, Fed Chair Jerome Powell’s announcement last week that the economy had made progress toward the point where the Fed might end its $120 billion monthly bond-buying program was good news. 

Phasing out quantitative easing (QE) is the first step toward monetary-policy normalization, which itself is necessary to alleviate the pressure on asset managers to produce impossible returns in a low-yield environment.

The beginning of the end of QE would not please everyone, though. 

Some economists see a significant downside to withdrawing monetary accommodation before it is clear that inflation has taken off. 

Gone is the old received wisdom that if you are staring inflation in the eyeballs, it is already too late to beat it down without a costly fight. 

Two decades of persistently low inflation have convinced many central bankers that they can wait.

And yet, even if monetary policymakers are not overly concerned about high asset prices or inflation, they should be worried about another risk that prolonged QE intensifies: the government’s fiscal exposure to future interest-rate hikes.

While government debt has soared, government interest payments remain low, and have even shrunk as a share of GDP in some countries over the last two decades. 

As such, many economists are not worried that government debt in advanced economies is approaching its post-World War II high. 

But what if interest rates start moving up as inflation takes hold? 

If government debt is around 125% of GDP, every percentage-point increase in interest rates translates into a 1.25 percentage-point increase in the annual fiscal deficit as a share of GDP. 

That is nothing to shrug at. 

With interest rates normally rising by a few percentage points over the course of a business cycle, government debt can quickly become stressful.

To this, thoughtful economists might respond, “Wait a minute! 

Not all the debt has to be rolled over quickly. 

Just look at the United Kingdom, where the average term to maturity is about 15 years.” 

True, if debt maturities were evenly spread out, only around one-fifteenth of the UK debt would have to be refinanced each year, giving the authorities plenty of time to react to rising interest rates.

But that is no reason for complacency. 

The average maturity for government debt is much lower in other countries, not least the US, where it is only 5.8 years. 

Moreover, what matters is not the average debt maturity (which can be skewed by a few long-dated bonds), but rather the amount of debt that will mature quickly and must be rolled over at a higher rate. 

Median debt maturity (the length of time by which half the existing debt will mature) is therefore a better measure of exposure to interest-rate-rollover risk.

More to the point, one also must account for a major source of effective maturity shortening: QE. 

When the central bank hoovers up five-year government debt from the market in its monthly bond-buying program, it finances those purchases by borrowing overnight reserves from commercial banks on which it pays interest (also termed “interest on excess reserves”). 

From the perspective of the consolidated balance sheet of the government and the central bank (which, remember, is a wholly owned subsidiary of the government in many countries), the government has essentially swapped five-year debt for overnight debt. 

QE thus drives a continuous shortening of effective government debt maturity and a corresponding increase in (consolidated) government and central-bank exposure to rising interest rates.

Does this matter? 

Consider the 15-year average maturity of UK government debt. 

The median maturity is shorter, at 11 years, and falls to just four years when one accounts for the QE-driven shortening. 

A one-percentage-point increase in interest rates would therefore boost the UK government’s debt interest payments by about 0.8% of GDP – which, the UK Office for Budget Responsibility notes, is about two-thirds of the medium-term fiscal tightening proposed over the same period. 

And, of course, rates could increase much more than one percentage point.

As for the US, not only is the outstanding government debt much shorter in maturity than that of the UK, but the Fed already owns one-quarter of it. 

Clearly, prolonging QE is not without risks.

Raghuram G. Rajan, former governor of the Reserve Bank of India, is Professor of Finance at the University of Chicago Booth School of Business and the author, most recently, of The Third Pillar: How Markets and the State Leave the Community Behind.

Trading conditions in $22tn Treasury market worsen ahead of Jackson Hole

‘Lousy’ liquidity sets stage for choppiness when Fed chief Jay Powell speaks this week

Kate Duguid in New York

Minutes from the Federal Reserve’s most recent policy meeting revealed disagreement between members about when the central bank might begin withdrawing its $120bn in monthly asset purchases © AP

Trading conditions in the $22tn US government bond market, a bedrock of the global financial system, have deteriorated as traders brace themselves for a key speech this week from Federal Reserve chief Jay Powell.

Liquidity, or the ease with which traders can buy and sell bonds, has worsened as a series of jerky price movements and uncertainty over Fed policy have kept investors from making big bets. 

Thin trading volumes, with many market participants out of the office in August, have exacerbated the problem. 

The Treasury market is the biggest, deepest and most important bond market in the world and acts as a benchmark that is used for pricing trillions of dollars of assets globally.

Policymakers and investors have been scrutinising trading conditions following the market turmoil in March 2020 in which abrupt falls in liquidity contributed to the acute volatility in Treasuries. 

A severe sell-off earlier this year highlighted how difficulties have persisted even as markets more broadly have steadied.

The recent drop in liquidity comes as Powell is set to deliver a speech at the Jackson Hole summit this week, typically one of the biggest events on the year’s economic calendar. 

Reduced liquidity matters because it can lead to big price swings.

“Liquidity is lousy,” said Andrew Brenner, head of international fixed income at NatAlliance Securities. 

And it could “absolutely cause potential problems next week if Powell has something big to say”. 

Bid-ask spreads for the benchmark 10-year note and the 30-year bond in early August hit 5½-month highs. 

The spreads are now slightly off those levels but remain elevated and have been widening again in the past week. 

Since the Treasury market is so actively traded, this gap, which tracks the difference in the price buyers are willing to pay and the price at which sellers are offering, is typically narrow.

Guneet Dhingra, head of US interest rate strategy at Morgan Stanley, said bid-ask spreads had been widening for two reasons: “The first is that this is the month of August and volumes are typically lower in August . . . and also I think rates markets have become somewhat perplexing to investors and people have a higher degree of risk aversion.”

In the past week, Goldman Sachs’ liquidity index for 5- and 10-year Treasury notes fell well below their 21-day average. 

Another liquidity metric — JPMorgan’s gauge of market depth — has also recently fallen to the lowest since this March. 

At the same time, JPMorgan analysts said last week that individual trades were also having a bigger effect on prices; the ability to buy or sell securities without causing big changes in price is another indicator of liquidity. 

Minutes from the Fed’s most recent policy meeting revealed disagreement between members about when the central bank might begin withdrawing its $120bn in monthly asset purchases, the first step in unwinding its crisis-era support for the economy. 

Investors will be watching Powell’s Jackson Hole speech on Friday for any signs of a decision on the timing or pacing of that taper. 

It is not just August trading volumes and uncertainty about the Fed’s path that have dried up liquidity. 

A fall in Treasury yields since mid-May has baffled many investors because it has come even as many economists and the Fed itself have a sanguine outlook for economic growth and the labour market. 

“Many clients have not particularly understood how rates markets have moved and that has brought in a degree of caution you wouldn’t normally see,” said Dhingra.

Farewell to Yet Another Failed Monetary System

By Egon von Greyerz

The beginning of the end of the current monetary system started exactly 50 years ago. In the next few years the world will experience the end of the end of another failed experiment of unlimited debt creation and fake fiat money.

Economic history tells us that we need to focus on two areas to understand where the  economy is going – INFLATION AND THE CURRENCY.

These two areas are now indicating that the world is in for a major shock. 

Very few investors expect inflation to become a real problem but instead believe interest rates will be subdued. 

And no one expects the dollar or any major currency to collapse.

But in the last two years money supply growth has been exponential with for example M1 in the US growing at an annual rate of 126%!  

Von Mises defined inflation as an increase in money supply. 

The world has seen explosive growth in credit and money supply since 1971 and now we are seeing hyperinflationary increases.

Hyperinflation is a currency event. Just since 2000 most currencies have lost 80-85% of their value. 

And since 1971 they have all lost 96-99%. 

The race to the bottom and to hyperinflation is now on.

As I will explain in this article, history is telling us that the explosion of credit and money supply will lead to rapid increases in inflation and interest rates and an even faster fall of the US dollar.

When it comes to monetary events, inflation and the currency are totally interdependent.

Normally an economy will be sound when the currency is sound. And the currency is sound when the economy is sound.

Sounds pretty simple doesn’t it. But then why has no currency ever survived in history? 

And why has every economy collapsed when the currency has collapsed?


For anyone who has thoroughly studied economic history, monetary chaos never comes as a surprise.

As long as there has been any kind of money or monetary system, chaos has always followed at regular intervals.

Without chaos there cannot be order. 

That is the inevitable consequence of economic cycles. 

But when governments and central banks interfere in the natural cycles of ebb and flow, the world is more likely to have disorder even in the good times and chaos in the bad times.  

Thus government interference and manipulation distort natural cycles.

So “Doing God’s Work”, as Blankfein, a former Chairman of Goldman Sachs stated in 2009, is likely to lead to constant disorder and chaos.

Cycles, whether they are economic or climate, are normally self-regulating. 

“Doing god’s work”, whether it involves trying to lower the earth’s temperature or creating fake money, is more likely to create chaos than order.

In ancient Greece, 

Chaos was originally thought of as the abyss or emptiness that existed before things came into being.

In economic history, chaos is a regular phenomenon. 

Since no currency has ever survived in history, it follows that the demise of a country’s money is always linked to chaos.


On August 15, 2021, there is exactly 50 years since the beginning of the end of the current monetary system.

Richard Nixon was the unfortunate executor of the inevitable fall of the dollar and the collapse of the US and most probably global economy. 

As I outlined in my recent article The Dollars Final Crash Down A Golden Matterhorn, we cannot really blame Nixon for the destruction of the dollar.

Profligate spending and monetary discipline are the worst of enemies. 

For a politician, the mere thought of frugality would never enter their mind.

In order to please the people and either avoid a revolution or the risk of not being reelected, a leader will always choose the easy way out which is creating debt and printing money.

Thus Nixon was in no way unique in going from a gold backed currency to printing whatever fake money was required to continue the illusion of prosperity. 

As history tells,  this is an event that has taken place throughout history at an amazing frequency.


The risk of the dollar collapsing without gold backing was major but Tricky Dick (Nixon) together with his Secretary of State Henry Kissinger had a clever, albeit temporary, remedy for that problem.

They offered Saudi Arabia military protection with the Saudis agreeing to sell all oil in dollars globally. 

The US would also sell/give Saudi Arabia major quantities of military equipment.

So that was the start of the Petrodollar which has temporarily protected the US dollar currency from crashing to Zero.

But Nixon’s promise to the American people 50 years ago on August 15, 1971 that “Your dollar will be worth just as much tomorrow” hasn’t quite held true to say the least.

Yes, one dollar is still one dollar. 

But in purchasing power terms it is only worth 2 cents today compared to 1971. 

So in half a century, the dollar has lost 98% of its value compared to real money i.e. GOLD.

But the real collapse of the dollar has not started yet in spite of the 98% fall since 1971.


Since the Great Financial Crisis in 2006-9, there has been an exponential growth in US Money Supply.

Looking at US M1 money supply, the graph below shows how it grew from $220 billion in August 1971 to $19.3 trillion today.

From 1971 to 2011 the growth seems modest at a compound annual growth (CAGR) of 6%. 

If the dollar purchasing power declined by the same rate, it would lead to prices  doubling every 12 years. 

Or put in other terms, the value of the currency on average would drop by 50% every 12 years.

Then from 2011 when Money supply started growing in earnest, M1 has grown by 24% annually.  

This means that prices in theory should double every 3 years.

Finally, from August 2019 to August 2021 M1 has gone up by 126% a year. If that was translated to the purchasing power of the dollar it would lead to prices doubling every 7 months.


Von Mises defined inflation as growth in money supply and not in prices. 

The Western world until now has experienced very little consumer price inflation. Instead the credit expansion has created exponential inflation in asset prices.

I experienced how asset inflation in the UK in the late 1960s and early 1970s led to price inflation with the collapse of the UK stock market and the pound.

I received my first options in the company I worked in 1972 at £1.27. 

Two years later they were worth 10 pence. 

The FT index went down by 2/3 and the pound lost 40% against the dollar between 1972 and 1976.

Another remarkable move in the 1970s which I experienced was gold going form $35 in 1972 to $850 in 1980. 

In my view that exponential move will be dwarfed by what we will experience in the next few years.

As the chart below shows, inflation in the UK went wild in the 1970s. 

I experienced the perfect combination of a collapsing currency and surging prices. 

The average inflation was around 15% for 6-7 years in the 70s. 

Mortgage rates went to levels that would make all borrowers bankrupt today. 

The interest rate on my first mortgage was 21%!

As the graph shows, annual inflation was 1% for 171 years and has averaged 5.5% since then – a 5 x increase! 

We must thank Nixon for that.


As I have pointed out in many articles, the gold price is currently not reflecting the massive debt expansion and money printing that the world has experienced, especially since 2006.

The graph below tells the story. 

I am including it in many of my articles just to illustrate that gold at $1,800 in relation to US money supply is today as cheep as it was in 1971 at $35 and in 2000 at $300.

Skillful but deceitful manipulation, through the issuing of uncovered paper gold, by the BIS and bullion banks has so far kept gold well below its intrinsic value, measured in dollars.

The short term relationship between money supply and inflation is not straight forward but the long term effect on inflation is inevitable.

So the fact that money supply is increasing much faster than the decline of the dollar is only a temporary disconnect.

As money supply continues to grow exponentially, leading to chaos in the US as well as  in the global economy, we will soon see the dollar reaching the abyss as the Greeks defined chaos.

The dollar has outstayed its usefulness as sound money and will soon be in the graveyard where every single currency in history has ended up.

It would be very brave of anyone to doubt or deny the demise of the dollar.

The dollar collapse into the abyss will happen. 

Take my word for it. 

Anyone betting against thousands of years of history would be a fool.

Yes, I do know that the world is full of fools who believe that it is different today. 

But it never is. 

History has a 100% success record when it comes to the total destruction of every currency that has ever existed. 

I obviously exclude eternal money in the form of gold or silver.


What we are seeing now is what von Mises called the Crack-up-Boom.

Von Mises defined a crack-up-boom as:

The crash of the credit and monetary system due to continual credit expansion leading to unsustainable and rapid price increases or inflation.

The consequence would be “a final and total catastrophe of the currency system involved.

So I dare anyone to bet against a perfect history record as regards a currency collapses and the imminent demise of the dollar.

The only question is how long it will take before the dollar loses another 98% from here. 

It has taken 50 years to lose the first 98% but losing another 98% or more from here is likely to go much faster. 

It could take 5 years or maybe 10 but I fear that it could be very quick. 

History also tells us that once hyperinflation takes hold, it develops very quickly. 

It could all be over in 2-3 years.

But although the collapse of the currency can be very quick, the effect on the economy and the financial system can last for years or even decades when, as in this case, we are dealing with a global explosion of debt.


In the coming collapse of the monetary system, wealth preservation will be critical. 

Physical gold and silver has a proven record in history as the ultimate form of wealth preservation.

Measured in collapsing paper money, gold and silver will reach unthinkable levels.

In the next 5-10 years, precious metals will vastly outperform all asset classes in real terms.

“Creeping Fascism” Isn’t Creeping Any More


Would-be dictators aren’t letting the covid crisis go to waste. 

Instead, they’re using it as a pretext for sometimes shocking, sometimes silly impositions on what used to be seen as basic freedomes. 

Some examples, starting with this from Consent Factory’s CJ Hopkins: 

It’s August 2021, and Germany has officially banned anti-lockdown demonstrations. Other public assemblies, like the Christopher Street Day demo (pictured below), one week ago, are still allowed. The outlawing of political opposition is a classic hallmark of totalitarian systems. It’s also a classic move by the German authorities, which will give them the pretext they need to unleash the New Normal goon squads on future demonstrators.

In Australia, the military has been deployed to enforce total compliance with government decrees … lockdowns, mandatory public obedience rituals, etc. 

In other words, it is de facto martial law. 

This is another classic hallmark of totalitarian systems.

In France, restaurant and other business owners who serve “the Unvaccinated” will now be imprisoned, as will, of course, “the Unvaccinated.” 

The scapegoating, demonizing, and segregating of “the Unvaccinated” is happening in countries all over the world. 

At the sillier end of the spectrum, Zero Hedge notes that Apple has banned a dating app for the unvaxinated:

Apple on Saturday removed a dating app for unvaccinated people. Allegedly, the app violated Apple’s policies for COVID content. 

Considered the “Tinder for anti-vaxxers,” Unjected is a dating-and-community app for unvaccinated people. 

In May, the app was launched after top dating websites, such as Bumble and Tinder, partnered with the White House and encouraged users to get vaccinated. 

Apple removed the dating service from its App Store after being contacted by Bloomberg. 

In an email to Unjected, Apple said the app “inappropriately refers to the Covid-19 pandemic in its concept or theme.”

And in maybe the weirdest bit of fascist overreach, it is now apparently unacceptable to mention Hitler.

A Twitter/Instagram account called 100YearsAgoLive (run by a Jewish blogger) noted that July 29 was the 100th anniversary of the führer’s ascension to the top of the Nationalist Socialist German Workers’ Party, aka the Nazis. 

Instagram censored the post for violating community standards. 

As Matt Taibbi notes: 

The frightening thing about the 100YearsAgoLive incident is that it’s not hard to see this becoming a trend, where history itself is deemed to violate common decency. 

The whole idea of historical education is to prevent future horrors via graphic warnings from the past. 

Survivors of the Holocaust have always been adamant that we must “Never Forget,” that places such as Auschwitz must never be buried or hidden away but instead displayed prominently, made into lasting cultural artifacts whose purpose is to be so conspicuous as to prevent the natural human impulse to whitewash our sadly expansive history of evil.

In the name of combating hate speech, violence, conspiracy theory, etc., Internet platforms are removing not just advocacy, but knowledge, in a wide-ranging effort that may help the companies create a more frictionless, commercially successful product, but will impede the past from chastening the present. 

If the aim is preventing the spread of hateful ideas, nothing could be more counter-productive that cleaning away the record of their real-world impact.