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The state of Middle-Earth
In the year 1640 of the Third Age, Sauron's power had not yet fully recovered after his defeat in the War of the Last Alliance, which took place at the end of the Second Age. However, he had not been entirely idle and was slowly regaining his strength in the shadows.
The Great Plague had struck in 1635-36 and killed huge numbers of people, principally in Gondor. Its effect had lessened as it had spread west and north but its impact was still brutal. The garrison at Tharbad was abandoned.
In the northern region of Middle-earth, the kingdom of Arnor had already been divided into three smaller realms: Arthedain, Cardolan, and Rhudaur. Political strife and conflict among these smaller realms had been common, as they were slowly being weakened. The Dúnedain population in these areas was also dwindling. The Witch-king of Angmar, a servant of Sauron, had been watching and waiting and in in 1409 he had captured Weathertop and occupied Rhudaur. Cardolan was weakened by the Great Plague and it finally fell in 1636. It's last remaining strength had made its base in the Barrow-Downs but they fled as rumors of dark sorcery in that place terrified the remaining Dunedain. Arthedain remians though, its men defending its fortress at Fornost under the aging King Argeleb II.
The evil kingdom of Angmar has been at the centre of a re-emergence of Orcs and Goblins in the northern Misty Mountains and Grey Mountains.
In the south, Gondor was still a powerful kingdom, although it was not as strong as it had been during the early days of the Third Age. The king, Tarandor, still ruled. He had just moved the throne to Minas Tirith, confirming Osgiliath's decline. Minas Ithil remains partially garrisoned but it's watch, like the other garrisons around Mordor is beginning to falter. Gondor's coastal regions are regularly threatened by the Corsairs of Umbar. These Corsairs were descendants of the Númenóreans who had turned to evil and had become allies of Sauron, their strength infused with the Gondorian rebels who had fled after their loss in the Kin-Strife 200 years earlier.
The Northmen of Rhovanion, including the Rohirrim, Dorwinrim, and Beornings, are trying to recover from the plague. The Necromancer in Dol Guldur has been at the centre of a shadow that has been spreading northwards in Mirkwood, pushing men and elves before it. Lake-town sits as a trading nexus between the Dorwinrim and the Elves of Mirkwood. In the Grey Mountains dragons have been spawning although few make their presence felt to the south.
The Elven realms, including Rivendell, Lothlórien, and Mirkwood, remained strongholds of wisdom and power, although they were becoming more secluded as the years passed. The Elves were beginning to feel the weight of time and the fading of their presence in Middle-earth. Many Elves decided to leave Middle-earth entirely, sailing to the Undying Lands in the West.
The Dwarven realms of Moria, Erebor, and the Iron Hills were prospering during this time, as they were mostly unaffected by the growing darkness in the world. The Dwarves were focused on their craftsmanship and the pursuit of wealth, while also maintaining strongholds against any possible threats. Erebor, controlled by the Longbeards, is not yet the wonder it would become after 1999.
Hobbits, still a relatively new race in Middle-earth, had officially settled in the Shire in 1601. Some of their kin-folk still lived in the Vales of Anduin.