Is Putin Popping the Superbubble?

A few economic realities can help us understand the war in Ukraine and what happens next

Header illustration graphic. World order with paper plane made of folder dollar bill

You've heard a zillion stories on the whys and wherefores of Putin's invasion of Ukraine. Wild tales are told by all sides. Some are plausible, many are not, and it's hard to tell which is which.  

So here's a version you might not know. I put it together from public records and discussion with people better informed and better connected than me.

🚨 🚨 Warning: Do not believe stories you read on the internet. 🚨 🚨

Superbubble is about how financial and monetary matters shape reality, so we begin with an economic problem I have mentioned before:

For decades, European leaders have hated being forced to use the US dollar – especially in the energy trade. The comments below give a taste of the attitude:

From 1972:

[The dollar system is] an unbelievable collective mistake which, when people become aware of it, will be viewed by history as an object of astonishment and scandal —Jacques Rueff, economic adviser to the French government

In 1987:

The situation we are in now is completely absurd … The richest country in the world, the United States is being financed by the rest of the world, including developing countries —Wim Duisenberg, first President of the European Central Bank

And in 2018:

It is absurd that Europe pays for 80% of its energy import bill – worth €300 billion a year – in US dollars when only roughly 2% of our energy imports come from the United States —Jean-Claude Juncker, former President of the European Commission

Paying tribute

Client or tributary states are those that maintain their political position and security by paying financial tributes to a more powerful 'controlling state'.

The dollar-based global financial system requires Europeans (and others) to work to create, then export goods to the US. This earns the dollars required to pay for oil and gas under the petrodollar system.

I call this the Sedan Chair economy. Dollars can be typed into existence and exchanged for the world's natural resources and manufactured goods. These goods will not be paid for in real terms. Nations that export to the US and accumulate piles of US paper know that the value of these dollars will – at some point – be inflated away by the US government. Over time, the inflow of real stuff helps fund America's gigantic deficits, while lowering their trading partner's standard of living.

This is what decades of free stuff looks like.

This is a terrible deal and has been going on for more than 50 years. And Europe and the world's producers have signaled that they would rather get gold in return for their oil, gas and manufactured goods than US Treasury paper.  


Any war will have multiple causes. In this story, the seeds were planted with Germany's attempt to solve their core economic problem: a serious lack of natural resources, especially fossil fuels.

Despite that handicap, German industry is mega-productive. To continue being mega-productive they need secure supplies of energy – supplies denied to them by geography, geology and some bad political decisions.

So recent governments looked to solve their energy deficit in two main ways:

So Gerhard Schröder (chancellor from 1998–2005) and Angela Merkel (2005–2021) pushed Nord Stream 2. And once upon a time Putin was very keen on partnership with the West:

Recent events show that interdependence with Russia is risky. Another risk is how the US treats nations who try to bypass the dollar in energy trading – as Muammar and Saddam found out.

But over two decades, Schröder and Merkel balanced fealty to the US and NATO, while increasing economic ties with Russia.

And it went quite well – Europe continued buying Russian gas through Ukrainian pipelines  – even as Ukraine became politically unstable in 2014.

Nord Stream 2 even survived President Trump's attempts to block it – when he railed against Germany buying Russian gas while NATO defends Germany from Russia. But Trump didn't push hard, and early this year Nord Stream 2 was only one certificate away from sending gas to Germany, and euros to Russia.

The interesting bit

However, the game-board changed with the arrival of four German politicians into positions of power:

  • Ursula von der Leyen (EU president, CDU)
  • Olaf Sholz (German chancellor, SPD)
  • Annalena Bärbock (German foreign minister, Green Party)
  • Robert Habeck (German finance minister, Green Party)

I won't go into conspiracies about their motives, but in this story, three of the above aim to bring Germany and the EU back into the United States’ political orbit.

As the US dollar-based global currency system winds down, Ursula, Robert and Annalena are working – against the historical trend – to align Germany and the EU with US foreign and monetary policy.

And after the German election last year it was signaled to Russia that Germany and the EU would turn away from cooperation, threatening a new era of hostilities and a new Cold War.

Putin Lights the Fuse

So earlier this year Putin met with Xi, got some kind of approval, and invaded Ukraine, knowing that it would bring sanctions and cause a severe – possibly permanent – break with the West.

Putin's wager is that the West's great weakness debt, and our economic systems cannot survive without Russian oil and gas.

And as a new Iron Curtain is erected, it is clear that the world's autocrats could devastate Western economies by withholding essential commodities and manufactured goods.  

The winners and the losers

One month into the war/sanctions spiral, we can see who the main winners and losers will be. The losers:

  1. The Ukrainian people – Thousands may be killed and millions turned into refugees. The best they can hope for is that Zelensky signs some version of the Minsk 2 agreement – which he could have done long before the war started.
  2. The world's poorest people – War, sanctions, and export embargoes threaten mass starvation across Africa and the Middle East especially. Putin, Macron and others have warned of famine in the next 12-18 months, each side blames the other of course.
  3. The Russian people – Will suffer as yet unknown economic hardships resulting from western reactions to Putin’s invasion. It is not yet clear how much harm will be done, and estimates vary depending on who is lying to you.
  4. EU citizens – Europe gets millions of refugees, expensive gas, food shortages, rising inflation, a newly hostile neighbour, and a shitload of hi-tech weaponry handed out, right on their doorstep

Unless something changes Europe looks to have been roped back into funding US deficits for years to come. This means Europe will continue to work to get dollars to pay their energy bills in USD. Add inflation, much more expensive US LNG, and Europe faces a serious decline in living standards.

The winners:

  • The United States. The American government succeeds by cutting off supplies of Russian gas to Europe, driving up Europe’s energy costs to make it less competitive, and getting Europe to subsidize the US LNG industry (which is only viable at higher prices). These are huge economic advantages, and have been sought by the US for a long time. Here's former US Secretary of State Condoleeza Rice telling Germany what to want back in 2014 – just as Ukraine was having their US-sponsored coup or uprising or whatever it was.  
  • NATO/The arms industry – NATO looked to be drifting into irrelevance, until Putin made his move. Four of the world's top six weapons makers are NATO nations. In response to war in Ukraine, Germany and others are increasing defence spending by hundreds of billions of euro.

    Generally about half of defence spending goes directly to big weapon-makers. And they have long pushed NATO expansion as a means to ensure new markets for their wares. I expect they are toasting Putin in the boardrooms of Raytheon, Northrop and Lockhead Martin.
Arms manufacturers got a nice little bump.

Historian Niall Ferguson – a supporter of US and UK foreign policy – made some interesting points in this Bloomberg article. He claims that the Biden administration:

Seeks to help Ukraine lock Russia in a quagmire without inciting a broader conflict.

And that the British government believes that:

the UK’s No. 1 option is for the conflict to be extended and thereby bleed Putin.

Okay. Good to know that a long Afghanistan-style war in Ukraine suits the US and UK governments. And why wouldn’t it? They'll only get a fraction of the refugees, and sanctions and war hurt them a lot less than it does Putin’s neighbors.

The great game

Anyway, that is today's tale. I don't ask you to believe it, because only time will tell its value. That means we are going to have to use our brains. And I recommend healthy distrust of everything you see and hear coming out of Moscow, Kiev, Washington, London, Brussels and any other location you can think of.

Behind closed doors, a great game is being played by incompetent and corrupt leaders. They play with the lives and wealth and security of billions of people. And when I look at Joe and Kamala and Vladimir and Volodymyr and Boris and Liz and Ursula, I see every chance they will fuck this up.

The war/sanctions spiral situation is now out of anyone's control. If we're lucky, this will result only in very high inflation … But we have all the ingredients for a more destructive crash than 2007/08.

The West has never before faced a major crisis with:

  1. Record levels of unpayable debt.
  2. Extreme stock market overvaluation.
  3. Serious under-supply of essential natural resources.
  4. Threat of world-wide famine.

Whatever the outcome of the war, extreme damage has been done to the world's economy – and the effects are only starting to show up. Inflation, commodity shortages, and market failures have already begun, and can only get worse as we approach the biggest financial crisis of our lives.  

Putin is getting real

Like him or loathe him, Putin has taken the initiative to reshape the world's geopolitical and monetary order in ways that disadvantage dollar-issuers and favours the world's commodity producers.

In this story Putin set a trap – and the US pushed Ukraine and the EU into it. A similar view is elaborated in this interview with analyst Luke Gromen. I recommend you listen to it and understand a future where dollars are devalued and gold is revalued upwards via commodity markets.

And gold and dollars are emerging as the key weapons in this financial war:

The Superbubble view is that years of inflation and an absurdly high price of gold will be the solution to this mess

Stay tuned.

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