The hapless Zhou regime appears to have painted itself into a corner with an entire palette of policies. Today at Zerohedge a cleverly written article serves as a thought provoking followup to our discussion yesterday—Monetary Policy To The Fore. Recall that the suggestion raised by my friend George was: Are Russia and China taking advantage of the monetary policy hole the US finds itself in. That suggestion followed on some impressionistic documentation of in the intractability of our current economic situation—damned if we do, damned if we don’t, and the Fed having to make a choice.
Here’s the link to the article, and a recommendation to read it:
The article begins with a tweet that sets the tone, setting the US political economy within the context of the old Soviet style:
Sustain the unsustainable. Yes, that increasingly appears to describe where we’re at. Don’t ask me to explain this, but it’s my gut speaking:
Anyway, the article offers some provocative observations, most leading to the conclusion I’ve been advancing that, one way or another, the US will have to accede to Russia’s demands. Putin is fundamentally cautious. He does his homework and understands our situation. After all, he’s been helping a sanctioned economy to survive and actually do rather well for quite some time. He should have a good feel for what’s coming:
So, can Fedrestroika last? As our Rates Strategy team sees it, the Fed belatedly realizes there is nothing they can do about the supply-chain shortages and high inflation that plague the economy. (Yes, the US could repress inflation by fixing prices, but that would just make its shelves look more Soviet if they don’t also move the means of production home.) As such, the Fed has two choices: do nothing and risk inflation really sinking in; or raise rates knowing that if markets collapse they can then pivot back to zero rates/QE, building high-end condos or business centres, talking about the proletariat, and hoping that things somehow turn around. They know how to do the latter. In fact, it’s all they know.
One wonders how long this dialectic can be peddled before the proletariat prefers a different kind of dictatorship: but that’s a matter for samizdat (or Twitter) rather than the market media and apparatchiks, who all want to keep their lovely dachas.
And ‘Back in the USSR’, both fog of war and diplomacy swirl in the air. A senior Russian politician says Moscow rejects US proposals responding to its security demands as “fantasies”, with their foreign minister threatening “retaliatory measures”. The press says the US response only covered arms controls rather than US support for Ukraine’s right to pursue NATO membership, the red line for Moscow. ...
While Russia’s goal may still be to divide Ukraine, with the huge market tail risks we have already covered, it is assuredly to divide the West, with equally large tail risks over time - and here it is already winning. As the New York Times puts it: “Putin’s goal is to split the Europeans, and then split Europe and the US. If the impression prevails that Germany is not fully committed to a strong NATO response, he will have succeeded in paralyzing Europe and dividing the alliance.” …
Woops! Anyone think Germany is fully committed to a strong NATO response? I sure don’t.
Meanwhile, Germany is fighting a two-front surrender, as Politico reports Berlin is “working behind the scenes to undermine a common position against China”. Chancellor Scholz’s office allegedly fears the EU is becoming too aggressive in its defense of Lithuania against Beijing’s economic coercion, after France last week said Beijing had gone too far …
Clearly, something needs to change: the issue is what (or who)?
Neoconnish policy making got us in this fix—that and, of course, a feckless Congress allowing the country to drift into an out of control administrative state. Trump had ideas, but the Established preferred business as usual: sustaining the unsustainable.
30 years ago the feckless neocon morons destroyed the golden opportunity that existed to cultivate a friendly relationship with Russia. Russia and India allied with the US would have kept China very much contained. And, critically important . . . not sending any strategic industries to China.
At this point, , given the tyranny of the Sock Puppet and the gang, I'm rooting for the Russians. At least Putin comes by his oligarchy honestly.