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.
KD on the 24th, explaining why despite the regime's twisting and turning, Russia is on track to win:
If you think any sort of armed conflict with Russia is a good idea you're out of your mind. If you think projecting weakness toward them while at the same time doing anything that threatens their only 12-month deep-water port is going to turn out well you're crazy enough that you deserve the collapse of civil society or even nuclear attack you're risking.
The Zhou regime is a laughingstock overseas--take that to the bank.
At best we end up with austerity. At worst we end up with austerity and China crushes us while we are down. Let’s just hope Soros is dead before that happens.
Too many in the policy-making arena are convinced we can inflate our way out of the debt crises. They let inflation get away before considering that congress is still spending more than it brings in. The problem becomes that inflation without actually paying down the debt only makes it worse. I am personally unaware of inflating one’s way out of debt ever working absent austerity.
It would have been wise to respond with slow interest rate increases from last summer - letting the market respond with a correction - and coupled with cuts to the federal budget. They would have had to end all Covid restrictions as well so people were at least trying to work and not leaving jobs to avoid a faux vaccine, often to a disease they were already immune, with a terrible side effect profile.
Instead they did everything wrong - again - from the feds to congress.
Pain will come - the only question is how much and how long. Eventually every entity that continually engages in spending more than they bring in will reach their credit maximum.
On another note I’m hoping this concept of Goldbacks takes off. Less volatile than crypto, uses the world’s oldest money, and value is set beyond the control of either congress or the feds.