Blain’s Morning Porridge August 19^th, 2026: The Rising Instability of the West is a Military Objective

“What do you think of the French Revolution?” … “It’s too early to say.”

The Chinese will be delighted. Western Economies are increasingly polarised and fractured. The US president calls anyone opposing him a “Communist”. The Right Wing threatens mass deportations, while the new emerging Populist Left is demanding redistribution and equality. Destabilising Western Democracies through fake news and disinformation is destroying the resilience of nations to resist. How should markets react?

LINK TO PODCAST

Key Takeaways:

• Western societies are increasingly divided into haves and have-nots. Hence the rise of populism on both left and right. That has impacted social and political cohesion – the factors that determine resilience, a critical national-security asset.
• The West is already at war – fake news, disinformation, propaganda, sabotage and cyber-attacks are undermining stability and resilience.
• The costs to counter hostile nations will be enormous in terms of resources required. Industrial capacity in the west has been neglected. Defence depends on rebuilding capacity, supply chains, labour and skills, and logistical depth. Money is tight after years of QE and welfare spending.
• The financial markets are confused about defence – it’s a critical part of the infrastructure of democracy, but many institutional investors still regard it as “incompatible with responsible investing”!

Heavens above… it’s raining here in Hamble this morning. It hasn’t rained since early June.

Born in the early 1960s, I am one of a fortunate generation.

We were born into the shadows of the Cold War. My mother clung in terror to her new-born as the Cuban Missile Crisis threatened Armageddon. It didn’t happen. The economy boomed. We thrived, dimly aware of the of industrial strife of the 1970s, embracing prog rock, punk, and skateboards (we nearly made them respectable), the big hair, double-breasted suits and shoulder pads of the 1980s, before settling into our high-paying careers and jobs for life (hah!) in the 1990 and 2000s. We bought our own homes, safe and secure in the knowledge of how well we were doing, we had limited concerns about geopolitics because the West had decisively won the Cold War. The world was there for us.

Now we face uncertain futures – wondering if our pension pots will weather taxes, inflation and the utter enshitification of everything that is modern life. (Like trying to deal with monolithic tech giants like PayPal and WordPress.)

The path ahead for today’s kids is very much more difficult. The world has changed and changed utterly. Beaten down by crippling student debt, a work system that barely acknowledges them as anything but disposable, and with limited hope of climbing on the housing ladder they can barely afford their rents. Dreams of forming their own families or achieving security are out of reach for many young working and middle-class strivers in today’s Bust and Broken Britain. Other take the easy way out – declaring themselves sick and opt for life on benefits.

Yet they are surrounded by the trappings of enormous wealth – urged to buy into it… They are sold visions of comfort and pretty things if they buy crypto, gamble, wear the right trainers, or run up enormous debt. Tech is the future, but the goal of tech has evolved into systems that simply sells the marks stuff they can’t afford and don’t need… (Which is why the current trial of Meta in California will be so interesting – what began as a misogynistic programme to rank pretty girls on campus evolved into a marketing machine to extract coin from the vulnerable by exploiting their anxieties.)

Social and wealth inequality is the reality today. A few have. Most don’t. Which is why the young are flocking to Left-Wing Populism, flirting with Democratic Socialism in the USA and attracted to the Green Left across Europe. Their policies are intuitive – tax the rich, make society fairer. Revolutions seldom work and are times of massive upheaval –everything we think about how society works to reward invention, innovation and entrepreneurship will likely be thrown out with the baby and the bathwater.

And, unfulfilled and miserable their lives may be, todays younger generations may be asked to fight to preserve the current system.

The threat of conflict raises a massive question: The West’s defence problem isn’t just that we haven’t spent enough on defence to deter aggression, but now whether our increasingly divided society is willing to pay the costs of defence?

My generation never faced the prospect of a letter conscripting us to fight for King and Country. We smashed the Soviet Union on the economic battlefield and in markets – or so we thought. The current generations may not be so fortunate. How resilient will today’s young Europeans be a call-up to repel external threats?

The West won the Second World War through economic might and industrial capacity – out-producing, out-innovating and out-spending the Axis. Today the West may be inventive and wealthy, but its China that has the industrial capacity to produce the tanks and the guns that may win a hot conflict.

That the World is already effectively at War has not registered with everyone. The last 80 years of the American Age and peace between the most powerful nations may go down as a historical anomaly – conflict is the norm as nations compete for dominance. In one corner we have America – a faded, polarised, divided shadow of what it could have been as its alliance of aligned powers melts away. In the other corner is the challenger, China. The Middle Kingdom – determined to again have the nations of the Earth kow-tow to the celestial Emperor in Beijing.

The wars being fought today in Ukraine, Iran and elsewhere are all part of the same conflict: challenges to the West mounted by Authoritarian powers in China’s orbit – Russia, Iran and North Korea. Their aim is destabilisation. The war is not confined to kinetics, but fought in the cyber-sphere though hacking, fake-news and sabotage – undermining the stability of the West. The aim is to depress and diminish the resilience and unity of the Western Nations to resist.

They will be well pleased with the results. Western economies riven with doubts and fears about debt, climate change, inequality and distrust. Marvellous. Tick the box. Job well done.

China wisely stays above the actual conflict – shepherding its strength, prepared to use force only if strictly necessary, content to watch Russia (owner of the Siberian natural resources it covets) exhaust itself and the West in Ukraine, while the US fights its unwise war against Iran…

At stake may not be the kind of jack-booted enslavement of continents that Nazi Germany envisaged in the 1940s. Trade and economic dominance is more likely China’s objective. China knows to thrive it has to move its economy from the manufacturer of everything to consumption and become the owner/renter of the modern world, ensuring the World is buying Chinese Tech, reliant on Chinese markets and becomes part of the Chinese Southeast Asian co-prosperity sphere. That requires there are wealthy markets to buy Chinese goods.

To win, the Chinese Communist Party must deliver on its pact with the Chinese people to give them the peace and prosperity it has promised. To succeed, China aims to replace America as global hegemon – a prospect that looks easier by the day the more manic and unpredictable the US president becomes.

To avoid becoming statistics in China’s New World Order the West has a limited time to prepare itself for War. There is still a chance that kinetic conflict can be avoided – but only if the West is able to demonstrate real deterrence, convincing the Axis of Authoritarian states that the economic costs and bloodshed will prove too costly.

To some military watchers it seems the Chinese have followed Sun Tsu to the letter – weakening the West ahead of potential conflict. Forcing the Allies to expend precious war stocks defending Ukraine and the Middle East, learning the massive costs of exquisite defence programmes failed to deter aggression, and that asymmetric warfare – forcing the West to spend millions to shoot down $100 drones – destroys capabilities, and soon exhausts armouries.

Such is the position today. China has not fired a single missile in anger, yet the war stocks of the West are already close to exhaustion. America has just learnt a painful lesson in Iran. Although they have the world’s best equipped, mostly highly trained and motivated armed forces – that counts for little when they don’t have the wherewithal or political will to fight a drawn-out campaign.

To fight back requires many things – not least the acknowledgement we are at War, and for governments to step up and fight. The new UK premier Andy Burnham made clear yesterday he is no Keir Starmer – challenging Moscow by supplying British drones to Kiev to fire at Russia. Yet, talking to European institutional investors about our new defence fund, Spitfire Strategic Capital, I’ve lost count of how many times I’ve been told a variation on the theme – we don’t invest in Defence for ethical, ESG and sustainability reasons.

Countering China will be expensive. The West is already broke. Since 2008, the last Global Financial Crisis, governments have run up massive debts to bail out the economy through cheap rates. To counter China and its axis now will require a step change in military spending to establish the kind of deterrence to stop the prospect of war. Its money the governments of the west are terrified of trying to find – it will mean deprioritising the kind of welfare and social spending that appeals to today’s disaffected younger voters, while asking them to fight for nations that have left them behind. It’s a recipe for yet more political destabilisation.

To survive the coming hegemonic change the West has to adopt a new wartime mentality – building, fielding, equipping the new forces of Democracy. It won’t just be fought with drones. Airpower will be critical. Sea-lanes will need defended. Boots on the ground will be needed. Building the industrial capacity to win by outproducing the other side will be critical. But in the face of the social, wealth and opportunity inequalities that divide the democracies, does the west still have the resilience to resist?

Worth bearing in mind when looking at rising long bond yields.

Out of time and back to the day job…

Bill Blain

Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital

Meanwhile, don’t forget about my new book: The Battle for Hamble

You can read a review on the Society of Professional Economist’s website here.