Pushing the Wrong Button

Last week I meant to send a draft Superbubble email to myself for a read-through. But I pressed the wrong button and emailed it out instead.

Some of you noticed extra typos. But it doesn't matter, because I do not have the power to wreck national economies.

But our political leaders do have that power, and they have started to use it.

In response to Putin's invasion, EU leaders put themselves at the forefront of efforts to punish Russia. And they are pushing buttons that will have extremely high costs for people in Europe and beyond.

The EU set the most aggressive sanctions, going four times harder than the US and UK combined:

Canada, the US, Australia and other nations on the list are a lot less reliant on Russian imports, so it costs them little to signal support. Canada imposed a total ban on Russian oil, but the small print shows that Canada hasn't imported Russian oil since 2018.

Maybe these sanctions are the morally right thing to do. I don't know. I don't see them helping the people of Ukraine much. And I don't see what will be achieved by piling misery onto the people of Russia. Will they rise up and overthrow Putin? Maybe. Would whoever who comes next be better?

Who knows. But let's roll the dice. Let's do something.

War frenzy is disguising the fact that the EU and US are in positions of great economic weakness. We cannot survive the very high energy costs that prolonged energy shortages bring. The system was already under enormous strain. Higher food and energy prices could put it over the edge, pulling forward financial and banking crises that were going to happen anyway.

Macro strategist Roaul Pal sees Europe printing cash and handing it out to cover food and energy costs ‘resulting from the obliteration of household finances’. Rising energy costs are inflationary. Rising food prices are inflationary. Printing money and handing it out, could push inflation well into double digits.

Even without a major systemic crash, Europeans will at some point start to question the punishment financial war inflicts on them. When will that happen? I'd guess long before the euro loses 10–20% of of its purchasing power.

And these sanctions will harm the world's poor most. Here's a prediction from before Putin's invasion:

We are on the cusp of a significant mass starvation event of our own making. Soon, tens of millions of the world’s most impoverished people will die from an inability to feed themselves, while many of those comfortably getting by now – especially in the Western World – are in for a shock.

With wheat hitting record prices every day, and fertilizers embargoed, the West can outbid the poor for basic food supplies. This risks famine.

Wealth comes from the earth

Russia is in a stronger economic position than the western media tells us. Unlike us they have very low debt and a very large proportion of the world's natural resources:

Civilization needs this stuff. And while America and Canada can eventually re-gear their economies to supply the bulk of their own natural resource needs, Europe's leaders overlooked one important fact:

There are no western European nations on the list above. And breaking with their nearest big provider could be disastrous. The effects are already showing up in commodity markets, which are straining under rising prices and margin calls:

• The price of Nickel surged 111% overnight, causing a halt to trading on the London Metals Exchange.
• Ukraine and Russia are among the world's top 5 wheat producers, and war has pushed prices to record highs.
• Russia provides 13 percent of the world’s fertilizers, and may soon halt supplies.

This process has barely shown up in public consciousness, but has plenty more to run.

Western politicians are, in effect, devaluing our currencies. They do it by imposing sanctions that make the stuff we use much more expensive. Devaluing our currencies to harm an autocrat might harm that autocrat, but could easily harm Europe more.

Today, there are signs that Germany and other European national governments want to exit the sanctions spiral, but it could be too late. They may well have triggered the events that Superbubble has been anticipating. Zoltan Poszar, an influential analyst at Credit Suisse agrees:

"We are witnessing the birth of a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West … This crisis is not like anything we have seen since President Nixon took the U.S. dollar off gold in 1971. When this crisis and war) is over, the U.S. dollar should be much weaker."

Read that quote and read it again. It could be a valuable guide as we transition to a new economic order.

Whether it unfolds over days, weeks or months is anyone's guess.

Lord help us.

x C x

P.S. In response to comments after the last email, nothing here should be taken as endorsement of Putin or his invasion of Ukraine. I thought that was obvious, but seems like it needs to be said.