Can Powell Prevent War Escalation? Status Report On Luongo's Theory Of Everything

That’s the topic that’s addressed by Zoltan Pozsar and Tom Luongo. It all plays into some of our recent discussions—none more so than the discussion of Luongo’s predictions for 2023 (Big Win For Kev? Maybe). I cautiously differed with Tom regarding the war predictions in his 10 point scenario. This morning Tom sounds a bit more optimistic that Powell can pull this out, as compared to Pozsar. Tom thinks (cautiously, because this is all predictive) that Powell will stick the interest rate rises out, while Pozsar believes Powell and the Fed will buckle and pivot—turn on the QE to fund war. That, in my belief, is what McConnell’s Great Betrayal was very much about—another attempt to force Powell’s hand, with WW3 very much in mind.

Let’s see what’s going on. We’ll start with Zerohedge discussing Pozsar’s latest re WW3—yes, we’re actually in it:

We Are Facing The Entire NATO In Ukraine': Kremlin Says, As UK Mulls Battle Tanks

Russian Security Council Secretary Nikolay Patrushev has issued ultra-provocative words claiming that it's not fundamentally Ukraine that Russia is at war with, but that the Russian military is facing all of NATO inside Ukraine.

"The events in Ukraine aren’t a clash between Moscow and Kiev. It’s a military confrontation of NATO, first of all the US and Britain, with Russia. Fearing a direct engagement, NATO instructors push Ukrainian men to certain death," he said in a fresh interview with state-owned newspaper aif.ru.

What’s Pozsar saying?

... two years after Pozsar first correctly predicted the historic monetary and fiscal shock that would emerge as a result of the covid lockdowns, warning correctly in early March '20 - just days before the US financial system nearly collapsed due to covid lockdowns - that the pandemic would lead to a major funding crisis (see "Covid-19 and Global Dollar Funding") and that the Fed should be launching a massive preemptive QE (the Fed did just that, but it first waited for stocks to crash by a third in a matter of days), Pozsar shifted his attention to the multi-polar world resulting from the Ukraine War, a world which according to Pozsar would see the birth of a new Bretton Woods regime, and where the death of the US dollar would coincide with the birth of the petroyuan.

As Pozsar recounts in his first must-read note of 2023 titled "War and Peace" (available to pro subscribers) the events of 2022 inspired him to write four “war” dispatches: War and Interest Rates, War and Industrial Policy, War and Commodity Encumbrance, and finally, War and Currency Statecraft. In these, he identified six fronts (or “hot wars”) in “macro-land” (a “cold place”) where Great Powers were going “at it” in 2022:

• the G7’s financial blockade of Russia,

• Russia’s energy blockade of the EU,

• the U.S.’s technology blockade of China,

• China’s naval blockade of Taiwan,

• the U.S.’s “blockade” of the EU’s EV sector with the Inflation Reduction Act, and

• China’s “pincer movement” around all of OPEC+ with the growing trend of invoicing oil and gas sales in renminbi.

All of this happened in 2022. Luongo’s 2023 predictions are obviously intended to get ahead of all that, to see where things are headed. For my part, looking at these six fronts, it appears that the Eurasian Multipolar front has come out ahead everywhere they’ve engaged. Russia is clearly winning the sanctions (energy/financial) war (as well as the purely military war); China I put ahead, because they haven’t buckled and have taken the initiative in the Middle East (with a big assist from Russia); meanwhile, the US is crushing the EU—but how long can that last? We’re seeing cracks in the initially solid front of EU/NATO support for the war on Russia. Even Poland has made some cautious noises recently (re sending their Leopard II tanks to Ukraine).

I see much of the future hinging on Russia’s success in Ukraine. If Russia builds on current successes—and we’re getting admissions, now, even from Ukrainian officials—EU support will likely crumble and US support will at least fracture, especially in McCarthy’s New House. Then the question becomes, will Europe be content to be crushed economically into abject subjection to the US, or will they reconsider and look East?

Interesting questions, but for now let’s pivot—to Luongo. His basic thesis is that the future rides on whether or not Powell can force the War Party to back down from escalation into a global hot war—by making it unaffordable through interest rate hikes. The trend toward a multipolar monetary system that is gaining momentum strengthens Powell’s hand. The first test will be coming soon. McConnell’s Great Betrayal is a challenge to Powell. Pozsar believes Powell will fold, but Luongo is cautiously hopeful—but they both agree on the fundamentals here.

From Zerohedge's article on Poszar's War thesis.
zerohedge.com/markets/checkm…

Now re-read my GOAT Predictions for 2023. Sound Familiar?

GOAT Predictions for 2023 - Losing My Religion - Gold Goats 'n Guns2023 will challenge all of our assumptions about how we think the world works, many will lose their religions causing big change.https://tomluongo.me/2023/01/07/goat-predictions-2023-losing-my-religion/

Here's the big question for 2023 as to how things play out.
Will there be a massive escalation in war which requires the "Fed to Pivot" or not by June?

The Eurodollar futures are convinced of it. LIBOR will be dead by then.

… [graph]

If you listen to the people 'in the room,' folks like @StrongEconomics, the push for war is a necessity.

Another big topic—the connection between Dollar Imperialism and the Neocon theory of America’s End of History drive to Perpetual Empire.

While everyone wants the Fed to pivot to validate their myopic theories of domestic policy naval gazing, the reality is much starker...

Both Poszar and I are correct. 

Me: The Fed is trying to stop the march to war by aggressively raising rates and shutting down the money spigot, force a crisis onto the ED/OS markets.
Poszar: The Fed will be unsuccessful in stopping the war that is already here. The pivot is coming.

IMO, they’re both in good company.

Everyone else: Be careful what you wish for. Because you may get your pivot to save your misallocated sorry asses, but you'll do so because psychopaths took us to WWIII to save theirs.

I argued above that circumstances provide Powell with some strong support. The Neocon War Party has had nothing but a very bumpy ride so far, and there’s absolutely no reason to think the going will get any easier. Russia has, in essence, destroyed two NATO proxy armies so far without its mobilization taking full effect. NATO is now scrambling to assemble a third proxy army, with dwindling weapons stocks and a seriously dwindling manpower stock in Ukraine—the Ukrainian ambassador to Canada (important to Ukraine for its large emigre population) has now admitted that losses in Bakhmut and environs are “undigestible”. This can’t continue much longer without a massive Russian victory long before that third proxy army can be assembled. But that’s still the beginning to middle phase, not the endgame.

As long ago as 2018 Putin warned the collective West that full deployment of its hypersonic missile systems was a game changer. “You wouldn’t listen to us before, now you will listen.” Instead of listening to Putin, the collective West laughed at him. Big mistake, as they’re finding out. The dispatch last week of the now hypersonic armed Admiral Gorshkov to the Mediterranean was a major shot across out bow (!)—although little attention has been paid to that development. Putin, who always chooses his words cautiously, referred to this as “an important, if not momentous, event.” The collective West would be well advised to listen up this time around. Russia is winning in Ukraine and is now, with China, winning in the Middle East. China, with Russian support, is playing a canny game in the Far East.

My bet—certainly my hope, at any rate—is that the EU will blink, and that the US will, too. The US military—and Congress—in the end will decline to follow Luongo’s “psychopaths” off the cliff to annihilation. The US is simply not in a position to engage in a full on hot war with Russia—or with Russia/China. But Russia/China are not stupid. I believe they will increase the pressure, which will lead to a political crisis here in the US. Regime change will be the endgame.