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And so we can see a plausible scenario for how this war ends. War is a form of politics, and the Russian regime is altered by defeat. As Ukraine continues to win battles, one reversal is accompanied by another: the televisual yields to the real, and the Ukrainian campaign yields to a struggle for power in Russia. In such a struggle, it makes no sense to have armed allies far away in Ukraine who might be more usefully deployed in Russia: not necessarily in an armed conflict, although this cannot be ruled out entirely, but to deter others and protect oneself. For all of the actors concerned, it might be bad to lose in Ukraine, but it is worse to lose in Russia
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The author has more related articles on his Substack. Highly recommend.
After WW2, America used its Navy to keep global trade and shipping lanes open
Bribed our alliance to fight the Cold War – but Cold War ended 30 years ago
Americans are now done with this arrangement
Population structure was mostly a pyramid in past – more kids, less parents, fewer grandparents
On farms, kids are free labor
In town, kids are expensive pieces of furniture
China today – fastest aging society in human history – result of One Child Policy By 2100, will have <50% of today’s population
CHINA
China imports 80% of oil needs – world’s most exposed trade route since most of it comes from Persian Gulf
China utterly dependent on US-maintained global order for these shipping guarantees
Xi has consolidated power even more than Mao “No one wants to tell him bad news”
China vaccines don’t work against Covid – can’t move away from zero-Covid policy bc healthcare impacts would be crushing
World’s oil and gas investment is only half of what it was 10 years ago
Takes 3-8 years to develop at its fastest
Soonest energy inflation fixes itself is 2025
US blessed with lots of domestic shale – largely fixed our natural gas problems
RUSSIA
Lots of land that isn’t habitable yet can’t be easily defended
Lost control of many access points / invasion points that were controlled under the USSR Only way Russia can protect its borders is to expand
Time’s not on Russia’s side – like China, a severe demographics problem (not enough children and young people)
Russia only has 2M troops – they’re irreplaceable, no more reserves
AFRICA
Over 5 decades, agricultural output increased by 5x
But heavily reliant on global inputs of eg, potash and other chemicals
Expects many wars of collapse as America withdraws from maintaining global order
MEXICO
One of healthiest demographies in the world Mexico in 2060 will look approximately like US today
Exports 77% of all goods to the US – critical bilateral relationship
El Chapo ran a Korean-style conglomerate – many regional commanders that he loosely controls
He saw it as business, not warfare – once he was removed, violence increased (Sinaloa), multiple leaders Sinaloa is largest crime group in the US today, and risk of it getting worse
Geographically similar to Afghanistan – rugged terrain, unsecurable border – may need similar tools to manage it
AMERICAN POLITICS
2×2 – economic conservative v liberal, social conservative v liberal
Military doesn’t participate in the domestic political conversation
“Greatest period of change we’ll experience in our lives”
AUDIENCE Q&A
After the Civil War, the US was split, focused domestically on re-integration, didn’t have time for diplomacy / foreign affairs Dollar diplomacy arose – individual business interests went around the world and did what they wanted
Resulted in hemispheric chaos, led to China’s fall to Communism
Economics is an outgrowth of demography and geography (probably his core thesis)
Han (Chinese) have been around for 3K years, but only been united for 10% of it
Didn’t worry about Taiwan war until recently – but if everything else is collapsing, something to be said about choosing time/place for fight and controlling the narrative (from Xi’s perspective) – considers it 1/3 chance
If China falls:
-N China plain would be its own political entity
-City states from Shanghai to HK will integrate into extra national system / external alliances
China – sex imbalance of 5-20%
95m more men <40yo than women – driving population collapse
Bullish on Turkey – still a developing country, but all energy within arm’s reach, good agricultural inputs, good European cooperation, control / easy access to key bodies of water
Russia-Chinese alliance
Not capable of functional cooperation once you remove US’s overarching reach
Only settled border disputes ~10 years ago
Can’t sustain conflict given demography problems
Something has always bothered me about the reported US unemployment rate. Last month (September 2022) it was reported at 3.5%. Yet it definitely feels like there are a lot more than 3.5% of the US working age population who don’t have a job.
And this number is one of the key data points (alongside consumer inflation) that the federal government and the Fed Reserve use to guide policy decisions.
But unemployment is expressed as a percentage. Which has both a numerator and a denominator. We tend to think the denominator is roughly constant; in reality it’s been anything but.
US labor force participation rates have been in steady decline since the early 2000s:
Hypothetically, if we were to keep the numerator constant, then unemployment rates would have steadily fallen over the last 2 decades without any change in the number of people with jobs!
This aligns more with my own intuition and observations — clearly there are more than 3-4% of Americans without jobs. Something just doesn’t make sense, and this is one potential factor.
I’ve yet to closely examine data on workers comp benefits and Social Security disability benefits, but my belief is that these probably show rising cumulative enrollments over time as well.
I am just larping as an economist here. But I have increasingly come to distrust our government’s official data, whether on consumer inflation or unemployment. Some of you may say, well, duh.
It reminds me of the old Twain quote, there are 3 kinds of lies: lies, damn lies, and statistics.
If we use this data to make decisions, and the data is bad, then necessarily it follows that the decisions are bad.
Please tweet me and tell me where I’m wrong / what I’m missing.
PS:
Both US #jobs growth and wage increases came in broadly as expected. The unemployment rate fell as labor force participation declined (the latter being a disappointment given that greater participation and higher productivity hold the key to so much) Keeps the Fed at 75bps
Of all the types of money printing, the most disastrous for the value of fiat currency – and by extension, society – is YCC. […] Central banks that engage in YCC are essentially pledging to infinitely expand their balance sheets such that a particular interest rate metric does not rise above an unnatural ceiling set by the central bank. The market ALWAYS wins, and the market wins by inflicting crushing inflation on the entirety of human civilisation.
The entire goal of modern European history has been preventing Germany and Russia from joining forces. The manufacturing prowess of the Germans combined with cheap Russian commodities could be a game-changing force from a geopolitical point of view
The EU is an artifice – a political ploy of France to keep Germany down, which the Germans only went along with due to their guilt over WWII. The US shares France’s interests, and it too lurks in the shadows, standing ready to prevent any real alliance between Germany and Russia. A weak EU serves the political interests of America quite well
France, to its credit – and I find very few geopolitical things to give France credit for – actually did the intelligent thing and went all in on nuclear energy. Roughly 70% of electricity generation is nuclear powered. Therefore, their manufacturing base can withstand the cessation of Russian gas flows. Germany, on the other hand, cannot
America is self-sufficient in food, fuel, and people. China, Europe, Japan, and the UK are not so blessed. America can be an autarky if it pleases. As a result, the Fed has the luxury of being able to prioritise domestic political concerns regarding inflation over and above supplying the world (and most of its allies) with a constant flow of dollars. A constant flow of dollars allows the rest of the world to print their currencies and still afford to buy energy in USD terms. It’s a relative game, and if the strongest player goes their own way, everyone else is left to suffer.
From William White, formerly of the OECD. PDF link here.
A few choice excerpts below, I’ll add more as I finish the paper (it’s slow going for me, I was at best a B+ Econ student in college)
AME = Advanced market economy (eg, the US or Europe or Japan)
Rising inflation along with stagnant demand in AME’s would clearly imply other serious problems for the central banks of AMEs. On the one hand, raising policy rates to confront rising inflation could exacerbate continuing problems of slack demand and financial instability. On the other hand, failing to raise policy rates could cause inflationary expectations to rise. Further, were different central banks to respond differently, as they did in 2008, there might also be unwelcome effects on exchange rates.
One disquieting fact is that these long rates have been trending down, in both nominal and real terms, for almost a decade and there is no agreement as to why this has occurred. Many commentators have thus raised the possibility of a bond market bubble that will inevitably burst.
The famous “Minsky moment” is likely to be shorter, harder to predict, and even more self-fulfilling than Minsky suggested. The failure of Bear Stearns and Lehman provide good examples of these dangers. As well, the shadow banking system has an increasingly international flavor. This not only reduces transparency and the quality of regulatory oversight, but also produces a degree of “balance sheet” exposure that could easily precipitate or aggravate foreign exchange crises.
Third, with central banks so active in so many markets, the danger rises that the prices in those markets will increasingly be determined by the central bank’s actions. While there are both positive and negative implications for the broader economy, as described in earlier sections, there is one clear negative for central banks. The information normally provided to central banks by market movements, information which ought to help in the conduct of monetary policy, will be increasingly absent.
The Japanese crisis of the 1990s began with a very high household saving rate, a very strong home bias for portfolio investment and the world’s largest trade surplus. Contrast this, for example, with the almost opposite position of the US today. A marked shift in market confidence in US Treasury debt would then seem likely to lead to a dollar crisis as well.
