Thread by @NavroopSingh_

Zoltan Poszar essay on the Geo Economic war are just brilliant. He was the first one who spelled out Bretten Woods III as new monetary order amid this Geo Economic War. He called out Weaponisation of Dollar by West and commodities war by Russia much before in March 2022.

In his August 2022 piece he says America needs to go through L shaped recession opining that Fed may have to hike to 5% or 6% as inflation now structural. He further says Economic war has broken out and wars are inflationary.

the low inflation world stood on three pillars:

first, cheap immigrant labor keeping service sector wages stagnant in the U.S

second, cheap goods from China raising living standards amid stagnant wages

third, cheap Russian gas powering German industry and the EU more broadly.

U.S. consumers were soaking up all the cheap stuff the world had to offer: the asset rich, benefiting from decades of QE, bought high-end stuff from Europe produced using cheap Russian gas, and lower-income households bought all the cheap stuff coming from China.

All this has worked for decades, until nativism, protectionism, and geopolitics destabilized the low inflation world...

President Trump’s hardline approach to China became a bipartisan stance that drove the imposition of protectionist tariffs on China, and what started as a trade war became a technology war:

the U.S. went from tariffs on cheap goods, to banning ASML from selling state-of-the-art lithography machines to China to ensure the balance of technological power remains in U.S. hands

President Xi’s zero-Covid policy continues to frustrate the flow of cheap goods, causing occasional cardiac arrests in global supply chains and backlogs at ports;

trade and economic relations between the U.S. and China became inflationary, in contrast to previous decades when U.S.-China relations were deflationary...

President Putin’s efforts to make Europe dependent on cheap Russian gas – in order to tip the balance of economic power in Europe away from the U.S. – were frustrated by the U.S. sanctioning Nord Stream 2 last November, and

President Putin’s frustration with the shifting balance of military power in Europe (NATO) then spilled over into a hot war in Ukraine on February 24th, which supercharged the economic war.

Both sides went “nuclear” quickly, economically: the U.S. weaponized the U.S. dollar, and then Russia weaponized commodities.

Welcome to the war economy...
...where heads of state matter more than heads of central banks.

Think of the economic war between the U.S., China, and Russia as something that will weaken the pillars of the globalized, low inflation world

the process will be slow, not sudden, but it will be certain, where ongoing economic “tits” for “tats” will have the potential to drive more and more inflation.

Think of the economic war as a fight between the consumer-driven West, where level of demand has been maximized, and the production-driven East, where the level of supply has been maximized to serve the needs of the West until East-West relations soured, and supply snapped back.

think of Russia as a “G-SIB of Commodities” and China as a “G-SIB of Factories” that are the world’s biggest producers of commodities and consumer goods, respectively, providing two pillars of the low inflation world we described above.

By extension, Russia and China have been the main “guarantors of macro peace”, providing all the cheap stuff that was the source of deflation fears in the West, which, in turn, gave central banks the license for years of money printing (QE).

Global supply chains work only in peacetime, but not when the world is at war, be it a hot war or an economic war.

The low inflation world had three pillars: cheap immigrant labor keeping nominal wage growth “stagnant” in the U.S., cheap Chinese goods raising real wages amid stagnant nominal wages, and cheap Russian natural gas fueling German industry and Europe more broadly.

Implicit in this “trinity” were two giant geo-strategic and geo-economic blocks: Niall Ferguson called the first one “Chimerica”. I will call the other one “Eurussia”.

Both unions were a “heavenly match”: the EU paid euros for cheap Russian gas, the U.S. paid U.S. dollars for cheap Chinese imports, and Russia and China dutifully recycled their earnings into G7 claims.

All sides were entangled commercially as well as financially, and as the old wisdom goes, if we trade, everyone benefits and so we won’t fight.

But now the Global Economy is fractured. We have multiple disruptions with Russia & China; Trade War, Tech War, Weaponisation of Dollar & Commodities War are inflationary and this inflation is structural not cyclical. This will last long !!! Be Ready for it.

This is exactly what i opined in my book #TheGreatReset that it all began with Trade Wars with China which got further complicated with Covid-19 & the war in Ukraine with Russia only added fuel to fire. We are in a Geo Economic war as part of the #TheGreatReset !

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