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The recent BRICS and G-20 summits, by highlighting certain positive perspectives, papering over the sharpest disagreements, and adopting some hopeful resolutions, may have had the temporary effect of eclipsing the realities and concerns that financiers and economists have to take into account when making forecasts. A few meetings in high-level circles of corporate investment decision-making in Paris earlier this month yielded some significant takeaways and conclusions that are worth mulling over. The analysts whom I heard and interacted with have many years of experience dealing in global markets, studying economic history, and observing geopolitical processes. They are served by sophisticated financial software although they don’t blindly trust their computers.
Perhaps the most important diagnosis is about the bond markets which are crumbling, in the wake of the real estate slump, in the ‘geopolitical’ West (not identical to the geographic one) as interest rates fall below inflation. As a result, capital is moving to stocks, minerals, even cryptos and whatever alternative is available for relatively solid value acquisition. Likewise, the leading international currencies, the US Dollar and the Euro, as the main Fiat currencies, are being gradually abandoned since they are no longer seen as safe economically or politically. The weaponisation of the US Dollar has been aggravated by the arbitrary confiscation of Russian state and private assets which shows that the US and its client states no longer uphold a free market and the sanctity of their own money but rather see their currencies and securities as political tools to be used against rival and bring to heel ‘disobedient’ countries. This has had a profound impact all over the world, especially in the developing nations that see themselves as potential targets of an increasingly unpredictable and unstable US-led West where ideology and self-interest take precedence over probity and the respect of contracts. The incidence of wokism on US-EU policies has also convinced people in other regions of the world that Western rulers are no longer to be viewed as savvy, wealthy, and experienced decision-makers but rather as abrasive and arrogant but vulnerable prima donnas, prone to various sorts of fanaticism, political, sexual, environmental and economic. As one eminent financial manager put it: ‘social factors matter. The West is no longer seen as the abode of smart and successful people but increasingly, as a factory of weird ideas and weirdos, intent on imposing their fantasies on the rest of the planet’.
An additional onus on the perception of the ‘G-7 and Junior associates group’ stems from the blatant failure of the sanctions policy against Russia. The EU has not been able, despite its pledges and threats to wean itself from its dependence on Russian oil and gas which continues flowing at higher volumes and enriching Moscow because of the higher prices European states have to pay as a result of their own ill-advised decisions. Meanwhile, the US has depleted its strategic reserve and is now also vulnerable to a sudden spurt in energy prices. It is suspected that, come the winter, the Kremlin may suspend oil and gas sales to the West on one pretext or another, thereby instantly triggering an existential energy crisis, and the resulting social turmoil in the already weakened ‘Atlantic’ economies. As if this peril was not enough, the US and its confederates have made threatening moves against Beijing while actually increasing their dependence on Chinese industry for many critical imports. Beijing receives some eighty billion in Dollar value every month in payments from abroad (compared with thirty billion a month in 2017) and can therefore better weather its own much publicized economic challenges: unemployment, real estate market crash, and overproduction.
Indeed, in the last few years, China has raised the added value of its exports, as Japan did in the sixties and seventies of the last century, by becoming the world’s foremost producer of electrical vehicles, inexpensive petrol-fueled cars, heavy machinery, electronics, semiconductors, smart phones etc. The boom is fueled by cheap Russian energy paid for in Yuan. More and more countries, including India, are going the same way and thereby liberating themselves from the Dollar tribute which kept them for decades in relative poverty. In that way, the disastrous and wholly avoidable war in Ukraine has paradoxically freed the developing world from the need to keep a huge amount of its domestic reserves in Dollars for the sole benefit of the spendthrift superpower which used its privilege to embark on a currency-printing binge. Contrary to conventional (Western-promoted) theory about the US and its allies being creators of global growth and prosperity, the rise of many developing economies, at least since the seventies, has taken place despite American policies.
One provocative suggestion from that discussion is that perhaps China, rather than trying to hide its internal failings, is in fact fully exposing them in order to lull its Western rivals into complacency, in the expectation of the PRC’s imminent demise or decline. At least this is what some trade figures suggest. The formidable Chinese export engine is firing all cylinders to offer cheaper alternatives – payable in local currencies or in loaned Renmibi -to US, European, Japanese and South Korean industrial goods and Chinese companies are building huge industrial plants in the Americas and Europe as well as in other regions.
The latest budgetary document from the European Presidency acknowledges this reality and pledges to improve its ability to replace Chinese imports with domestic manufacturing but does not explain how it will make its own industries more competitive, given its expensive workforce, rigid labour laws, high energy costs and environmentally constraining legislation. Brussels combines that noble resolve with a promise to send another fifty billion Euros to Ukraine in the next four years and also a commitment to absorb a few more East European states into the EU, which will increase the burden on the Union’s finances and further jeopardise its precarious ability to maintain minimal internal cohesion.
Like the USA, the EU continues to blow hot and cold about China, talking both rivalry and cooperation, threatening and cajoling in the same breath. Washington has become a champion in this paradoxical art, by regularly claiming it wants to maintain its all-encompassing business partnership with China while ‘choking’ the growth and blocking the high-tech progress of the Dragon. Financial circles are mainly concerned about the accelerating race to the bottom between East and West that are mutually trying to sabotage each other. The ongoing recession in the West and also in China leads some analysts to think that the impulsion for a new cycle of prosperity will come neither from the West nor from the Far East but rather from the South, in which India is the largest economy. A rather clumsy attempt to tie India down to the leaky European boat has been launched in the form of the India-Middle East-Europe Corridor. The latter is aimed at stealing the thunder of the long-planned North-South Corridor and also of China’s BRI. It seeks to fulfill Israel’s desire to be the bridgehead of Europe to the East and Saudi Arabia’s ambition to become a global industrial and commercial hub. Finally, this latest corridor project (whose main future component is a new rail line crossing Saudi Arabia, linking the UAE to Jordan) is expected to lastingly anchor the American-led Abraham Accords, intended to tie the Jewish state to the Arab monarchies with the bonds of commerce and financial interdependence. However, its realisation will require overcoming many hurdles and its economic practicality is still to be demonstrated as it would run parallel to the Suez canal which allows a straightforward maritime route. A rival option is already being promoted by Turkey which does not accept to lose her traditional role as the bridge between East and West, now served by a large industrial base and a vast domestic consumer market.
In conclusion, a few seemingly unavoidable processes are underway. One is de-dollarisation at the global level and the flight of investments towards emerging economies which could force Western states to impose capital controls in the rather near future; but in an era when an estimated 50% of all private financial assets worldwide are held through anonymous trusts and accounts in offshore tax havens, how effective with such measures be? The prognostics are that the American average income may fall by 30% while the European impoverishment may be even steeper.