The Purim War - Part 6, Cracks in the Home Front*

Although America’s blockade of the Persian Gulf is working causing oil storage problems in Iran, an implosion of its economy and a collapse of its currency, severe cracks in the home front have emerged. The 60-day clock of the War Powers Act has run out, and President Trump’s approval rating, with gas prices up nearly 50%, has declined to 37%, according to the latest poll. Indeed, beyond the wackos on the Right and the Left who are rooting for Iran, it seems that voices of the liberal establishment are implicitly supporting an Iranian victory. Why? Their hatred of Trump overwhelms all considerations of America’s security interests in the middle east region.

 

So, where do we go from here? Trump’s novel interpretation of the War Powers Act arguing that direct fighting between the U.S. and Iran ceased in early April, means that should hostilities resume a new 60-day clock would start. The ball is now in Congress’ court, but I would note Congress did nothing in 2011 when President Obama engaged in hostilities in Libya for six months. Further, every president since Nixon have has stated that the act is unconstitutional; it looks like we will once again be headed to the Supreme Court on the issue of executive power.

 

Meantime, Trump, and Chinese leader Xi are scheduled to meet in less than two weeks. This meeting has been postponed before, and it may yet be postponed again. Nevertheless, my guess is that meeting or no meeting, Trump will execute the new military plan to attack Iran’s infrastructure as a means to coerce Iran to yield on its nuclear program.

 

Beneath the surface the dynamics of the middle east are changing before us. The UAE is leaving OPEC and there seems to be a budding alliance between the UAE and Israel. Israeli troops are on the ground in the UAE to assist in its first ever deployment of its iron dome air defense system outside of the country.  Thus, it would be a foreign policy blunder of the first order for the U.S. to fail to achieve its fundamental war aims.

* See: Shulmaven: The Purim War- Part 5, Deadlock in the Strait of Hormuz*

AVB/EQR Merger: A Target on Their Backs

REITland is abuzz following a Bloomberg story that apartment behemoths AvalonBay and Equity Residential are talking merger. Such a tie-up would create an $80 billion apartment colossus. From an economic point of view, given the large geographic overlaps and the potential for large G&A savings, the merger would make a great deal of sense. In addition with the RealPage settlement both AVB and EQR lost the ability to engage in collusive practices. So instead of using RealPage, the new REIT would no longer have to collude; it would be one entity. 

However, from a political point of view, it would place a target on the back of the new entity. With high rents becoming a political flashpoint, populist politicians would place everything it does under a microscope and it would be continually harassed. Thus, if I were in the boardroom, I would think long and hard about the potential merger.

My Review of Barry Eichnegreen's "Money Beyond Borders"

 All Glory is Fleeting

U.C. Berkely economics professor Barry Eichengreen opens his history of global currencies with the “Nixon Shock” of 1971 which broke the dollar’s link to gold. (See my previous review of this event at Shulmaven: My Amazon Review of Jeffrey Garten's "Three Days at Camp David..........." ) I also reviewed a much lighter version of what Eichengreen discusses here earlier this year. ( See: https://shulmaven.blogspot.com/2026/01/my-review-of-david-mcwilliams-history.html )

 

Professor Eichengreen, the author of “Golden Fetters,” on the workings of the interwar gold standard, is a serious scholar of international monetary affairs. Here he is writing against the backdrop of a weakening U.S. dollar where the role of the U.S. dollar’s pivotal role in in the global monetary system is being called into question. This is far from the first time a preeminent international currency has been called into question. Eichengreen goes back in time to Athenian silver coins, the Roman denarius, the Florentine florin, the Dutch guilder, the Spanish “pieces of eight,” and the British pound sterling. All had their day in the sun and then faded away.

 

Although there were many idiosyncratic reasons for their demise, there were several common factors involved. The currencies lost their panache because of either internal or external political weakness and the willingness to engage in a debasement policy. Furthermore, as we moved closer to the modern era, Eichengreen notes that there has to be a credible lender of last resort. For example, as trade moved from the Mediterranean to the Atlantic the florin became less relevant and as British power outstripped that of the Netherlands, the guilder lost its relevance.

 

In discussing the rise and fall of currencies Eichengreen goes into great detail about the trading arrangements of the Florentine bankers who had correspondents across Europe at a time when communication was based on the speed of a horse. He also discusses the critical role of the Spanish Potosi silver mine in Bolivia that made Spain wealthy and it flooded Europe with liquidity. He also discusses how Britain’s Baring Brothers and Hope and Company of the Netherlands funded Thomas Jefferson’s Louisiana Purchase.

 

Now getting back to the fate of the dollar the question is how long will its “exorbitant privilege,” in the words of French finance minister Valerie Giscard d’Estaing, last? The privilege enables the U.S. to borrow in its own currency all the while remaining a safe asset for both private and public sector institutions. In 1971 the world said no more, but after a devaluation the dollar became even more prominent in the global monetary system. So, if the “Nixon Shock” didn’t break it, what would? To Eichengreen, even with all of the U.S.’s current domestic and international troubles there remains no alternative. I am sure the British and the Dutch had similar thoughts, but someone whispering in the ear of Secretary of the Treasury Scott Bessent, should tell him that all glory is fleeting.

The Purim War- Part 5, Deadlock in the Strait of Hormuz*

With the Iranians continuing to prevent shipping from leaving the Persian Gulf and the American Navy blockading the entrance to the Strait of Hormuz, it looks like fighting will resume after the ceasefire ends on Wednesday. To be sure the U.S. delegation is now enroute to Islamabad to negotiate; it remains to be seen if the Iranians will show up. Further it is not clear whether or not the Iranian team can bind the Revolutionary Guard (IRGC) to accept any terms they agree to. From the outside it looks like there is a division between the political and military factions of the government.

 

As we noted last week it is untenable for the U.S to accept Iranian control of the Persian Gulf and for Iran to maintain its uranium enrichment program. ( See: Shulmaven: "Millions for defense, but not one cent for tribute" ) Thus unless there is a change of heart on the part of the IRGC, a resumption in the fighting seems inevitable. A harbinger of that occurred today with the U.S. seizing an Iranian flagged ship in the Indian Ocean. Indeed, should the fighting resume, it will be taken to a more destructive level than we have seen thus far.

 

Thus, the party goers in Friday’s financial markets are likely to suffer a hangover when trading resumes on Monday.

 

*-See: Shulmaven: The Purim War - Part 4, The Ceasefire Fog*

My Review of Odd Arne Westad's "The Coming Storm: Power, Conflict......"

 War Clouds on the Horizon

In a previous blog I noted that we are living in a prewar era analogous to the runup to the start of World War II. (See: https://shulmaven.blogspot.com/2023/11/reliving-1930s-part-5.html ) Here Yale historian and global affairs professor Odd Arne Westad argues that a more appropriate analogy would be that of the prewar period approaching World War I. In many respects his argument parallels that of Graham Allison’s Thucydides Trap where the rise of China is inducing fear in the United States that has the potential to make war inevitable. ( See: https://shulmaven.blogspot.com/2017/08/my-amazon-review-of-graham-allisons.html ) Instead of the Balkans being the hotspot in the pre-1914 world, today we China-Taiwan, Israel-Palestine, Russia-Ukraine, and Pakistan-India. Anyone of which that could put the great powers in play.

 

In the pre-World War I era it was the rise of Germany that was threatening Britain, but Westad goes further by stating the bipolar world of the Cold War is over, and, in fact, we are now living in a multi-polar world with many strong regional actors such as India, Türkiye, Brazil and Iran.  He further analogizes that Russia is the Austria-Hungary of our day by being China’s junior partner. Similar to our time, the pre-World War I era was characterized by rising nationalism and a growing dissatisfaction with globalism. Fear and resentment were the motivating forces of the era. Sound familiar? 

 

My problem with Westad’s book is that he doesn’t offer real solutions, but who can, to the U.S.-China antagonism and for the regional hotspots. Because the book was written prior to the current Iran War, which has the potential for a great power conflict, Westad doesn’t have much to say.  There is also little discussion on the current revolution in military affairs involving drones and artificial intelligence which is greatly influencing the diplomatic chessboard. That said, if pre-World War I is the appropriate analog, we are in for trouble.

 

"Millions for defense, but not one cent for tribute"

 The American delegation to the Iran War peace talks in Pakistan this weekend should take to heart the words of Congressman Samuel Sewall of Massachusetts in 1798 when he shouted out “millions for defense, but not one cent for tribute.” Those words were said in response to French Foreign Minister Talleyrand’s request for a bribe before negotiations would begin to end the quaisi-naval war with France in the so-called "XYZ Affair." 

The United States was only 24 years old and was standing up to the great power of France. We can do no less today with respect to Iran. Simply put, the delegation consisting of Vice President JD Vance, Jared Kushner and Steve Witkoff should put the Iranians on notice that no tribute will be paid by ships passing through the Strait of Hormuz.” Full stop. 

 

The delegation should also remember the first words of the Marine hymn, which begin with “from the halls of Montezuma to the shores of Tripoli…”  Tripoli being the focus of the Barbary Pirate Wars of the early 1800’s. (See:https://shulmaven.blogspot.com/2026/04/the-purim-war-part-4-cease-fire-fog.html) President Thomas Jefferson had no qualms about fighting the Barbary Pirates and certainly the Trump Administration should show the same fortitude in fighting the modern-day Iranian pirates.

The Purim War - Part 4, The Ceasefire Fog*

The rally in the stock and bond markets and the collapse in oil prices is signaling that the Purim War is all but over. That, indeed, may be true, but we are a long way from a final settlement and there is a nontrivial chance that fighting will resume.  In fact, both sides have already reported ceasefire violations. We will know more this weekend when the U.S. and Iranian negotiators meet in Pakistan.

In the meantime, ships aren’t traversing the Hormuz Strait, and it looks like Iran wants to set up a tollway. Should that happen, it would represent a severe challenge to “freedom of navigation” on an international waterway, a concept that the U.S. went to war three times in its history. (War on the Barbary Pirates, The War of 1812, and World War I) If Iran prevails on this issue, it could rightly claim, that despite its enormous tactical defeat, it won a significant strategic victory enabling it to hold the global oil market hostage.

Although President Trump has stated that Iran will give up its enriched uranium and end its nuclear program, this hasn’t been confirmed by word and deed by the Iranians. Remember that ending the Iran nuclear program was the primary goal of the war to begin with. We will learn much on this point in a few days.

 

As we previously noted Israel would take the opportunity to take care of its unfinished business in Lebanon. ( See: https://shulmaven.blogspot.com/2026/02/the-purim-war.html ) As we speak Israel is pounding Hezbollah in Lebanon and both the Iranians and the Pakistanis are saying Israel’s war in Lebanon are part of the overall cease fire. Both the U.S. and Israel believe that it is separate issue.

 

Thus, the way I see it, the war is far from over with the ultimate winner being determined by the Hormuz and nuclear issues.

 

*- See: https://shulmaven.blogspot.com/2026/03/purim-war-part-3-end-game.html