War – Second fase
Written by Pablo González and Pedro Nonay trying to understand War’s consequences.
Entry 4 – War (second phase)
Are we trying to avoid the worst?
November 5, 2022
The big world-changing events have not yet happened, but I still believe they are not far off. The meeting between Scholz and Xi Jinping, to which I dedicate a special section below, may be the beginning of it all. I hope so.
As always, I begin this article with my usual press summary, selected for clues as to what is going to happen. I mix well known news, but which I consider important, with others that circulate in less usual media, which I come across in my searches, or to which I am led by notices from reader friends. Today’s summary is as follows:
- Russia has “suspended” the agreement to remove grain from Ukraine. It has done so after the drone attack on Russian ships in Sevastopol (Crimea). It says they are terrorist attacks made from ships that were allegedly engaged in grain transportation (news here, here, here ,and here).
Russia has responded with attacks on Ukrainian power infrastructure. And it has said that the continuation of grain transport will be contingent on monitoring the vessels involved to check that they are not engaged in military affairs.
The double result is that Ukraine is worse prepared for winter (less electricity for its inhabitants), and less grain will reach the West (more inflation and food tensions).
A few days later, Russia has cancelled the suspension of this agreement. That is, for now, grain continues to flow out of Ukraine. In the meantime, however, grain markets have gone crazy, and uncertainty is the norm.
- Continuing with what I commented in previous entries, I see that the news about the creation of a currency supported by the BRICS countries continues. In this case, they suggest that it will be backed by gold (as before Nixon). You can see the news here.
If true, this could do a lot of damage to the dollar.
It is another attack on the economic stability of the West.
- The following graph of the evolution of Russian international trade this year, published by the New York Times, has caught my attention. The increase in its relations with China is not at all strange, neither is the increase in relations with Turkey and India, nor with Brazil (we will have to see what the new Brazilian government thinks, but I believe that the trend of friendship will continue).
I am a little more interested in the increase of relations with Japan, Belgium, Holland and Spain (the latter, due to my Spanish background).
In short, Russia does not seem to be doing badly, despite the sanctions. It has new customers, and the old ones are not going away at all.
- It is interesting to see the graph published by the Wall Street Journal, based on information from the World Bank, on the percentage of world GDP (GDP) of the USA and China since 2000, and since Xi Jinping took command of China.
The increasing trend in China and decreasing trend in the USA is clear.
- It is also interesting what the same WSJ publishes on the evolution of Chinese and US patents since 2000, and since Xi Jinping’s mandate.
Clearly, intellectual property has been reversed. The saying that the Chinese only copy has been left for the speeches of those who see nothing but the things of their (old) time.
- I already spoke in the previous entry that, in the West, the extreme right and left support the search for a negotiated peace.
It is the “moderate” parties that continue with the line of supporting Ukraine to the end.
Something is changing. It recently came to light that 30 U.S. Democratic congressmen sent a letter to Biden asking him to find a way to negotiate peace. As it turns out, they later withdrew the letter. Little explanation has been given, but all this indicates that the moderates’ faith in continuing the War is weakening (news here). It is curious that this same news has been pushed on Zero Hedge, which is an American WEB considered close to the extreme right, as well as Russia (can be seen here).
In addition, demonstrations are taking place in Germany to demand a negotiated peace. The demonstrators come to say that they do not want to sacrifice their heating, and their prices to help the Ukrainians. In other words, European support for Ukraine is weakening.
- The Russian news agency Tass made public on October 24 that Maria Zakharova, the Russian foreign spokeswoman, announced Russia’s readiness for contacts with all countries to seek solutions (news here).
This does not mean a closed negotiation, but it does mean a change of attitude and message.
- Putin participated in the Valdai International Debate Club (a Russian think tank) on October 27.
Putin said:
- Those in power want to live without rules. The ‘rules-based order’ proposed by the West is designed to allow you to live with no rules at all.
- Not only Europe and the US have the right to choose their own geopolitical path, but also Asia, and of course, Russia.
- Now, it is commonplace, with many countries saying no to Washington, even as it tries to pressure everyone. The peoples of the world will not turn a blind eye to the policy of coercion that everyone can see. The West will have to pay a higher and higher price for this.
- Russia does not consider itself an enemy of the West, but it must be understood that “there are two Wests“: traditional values (Christian, Catholic, Islamic) and aggressive, colonial and neo-liberal values. Russia will never put up with the dictates of the latter West.
- The new law must be original, free and fair. The process of forming new financial platforms is inevitable; they should not depend on a single center of government. It will take a great effort on the part of many countries, but it can be done, noting that the West is now using the dollar as a weapon.
- The change of milestones is a painful but inevitable process, the future world order is taking shape before our eyes, and we must listen to everyone without imposing a single truth on anyone.
- Those in power want to live without rules. The ‘rules-based order’ proposed by the West is designed to allow you to live with no rules at all.
- In other words, he considers himself the standard bearer and defender of many countries mistreated by the West.
News here.
- Forbes has published the list of the world’s largest banks. It is clear that something is changing in the control of money.
After the press summary, I will now turn to the issues that seem to me to be relevant to the search for global peace, albeit temporary.
I make special mention that, in this entry, I have changed my usual system. I have decided to provide less of my own opinions, and to focus more on explaining opinions of third parties that I think are important and need to be highlighted. Of course, even the selection of these third parties is based on my own criteria, so there is always some bias.
Pact vs Total War
The experts are disoriented. I am referring to experts in almost everything (geopolitics, economics, commodities, …).
And the markets are crazy (because of the above).
This is so because the present situation has only two very different ways out: either we make a pact on almost everything very soon (the new Yalta conference), ...or we start World War III.
The results are completely different in each case.
Therefore, the forecasts of the experts who are confident in the first case have nothing to do with those who believe that we are going to the second case. And that is happening everywhere.
It is interesting to see how Jamie Dimon (the CEO of JP Morgan) sums up the situation. He says he doesn’t know yet if we are facing a minor hurricane, or the superstorm. Neither case is pretty, but there are big differences (you can see it here).
Scholz and Xi Jinping meeting.
I consider very important the most recent news that has caught my attention. It is about what Xi Jinping said after the visit of German Chancellor Scholz to China (news here, and here).
Xi says that “the use of nuclear weapons in Ukraine must be avoided,” which seems to be a warning to Russia, which is something China has not done so far. But he has done so without in any way disdaining his declared friendship with Russia.
He has also called on Germany and Europe to “play a major role in peacemaking and mediating negotiations.” In other words, he is starting to promote the peace proposal, and is trying to get Europe to step back a bit from the USA for this.
At the press conference, together with Scholz, Li Kequiang said: “we both hope that this crisis will soon be over“. And, as these places, with these interlocutors, are not the place to make pretty declarations without realities behind them, this must mean that China sees this peace as very viable, and that it will try to achieve it.
It is also striking that Scholz has said, at the press conference, that “any change in Taiwan’s status quo can only come about through mutual agreement, and peacefully.” Here one has to remember again where Scholz says that. He would never say it there if the statement were not very covenantal. China seeks such a peaceful settlement on Taiwan, and asks Germany to support it in that, before the West, to include it in the global pact.
The framework of the statements was Scholz’s visit to China to strengthen trade between Germany and China. Perhaps it would be more appropriate (but less diplomatic) to say that what Germany is looking for is for China to help it save its finances, and its access to energy, and its loss of power before the rest of Europe and the USA, … And, if for that, it has to sell parts of Germany to China, it will do so. The German demonstration of “humility, recognition and dedication”, prior to the visit, has been the sale of part of the port of Hamburg to a Chinese company.
It seems that the bases and paths to reach a peace agreement are beginning to be defined. Right after the re-election of Xi Jinping. And, the agreement may be similar to what I have been exposing in previous entries (sorry for the self-publicity).
The agreement could be, as I always say, of the relevance of the Yalta Conference. Something like:
- The West accepts that the world is divided into two parts, where each part imposes its rules. The single rule of globalization (the American rule) is over.
The USA accepts it, reluctantly, because Europe dissociates itself a little from the West. And the USA knows that, without Europe, it is powerless against Russia and China.
Europe is approaching, just a little, China (not Russia) because it sees its own collapse very close, and because it believes that playing the role of “bridge” could be useful, and also because it sees that its population is starting not to hold and has very divided opinions (due to the previous Russian propaganda on the extreme right and left). It could be that this “surrender” of Europe will end up being bad for it, like the Chamberlain pacts, but, for now, they see it as interesting.
- China says it is in charge of “stopping Putin”. And it can do so, because Putin knows that, without Chinese support, however indirect, and without Chinese purchases of Russian energy, Russia will not hold out.
In order for Putin to accept, he asks to be allowed to “win something”, that is, to save his face. That materializes in him keeping the Donbas, which, although Ukraine does not like it, he has to accept it if he loses the support of the West, besides being true that these are areas with a strong Russian influence on their population.
- China says that, in order to be encouraged to take these positions, it is asking for things for itself. The first is that a peaceful system be established, albeit a long one, whereby it gets Taiwan back. And, with the proper temporary rules for business and technology transfer, that is something the West can accept (something like the very slow devolution that was done in Hong Kong).
In addition, China will ask to strengthen its currency, and to do more business with Europe, which will not be difficult for them to negotiate.
- The parties give each other deadlines to reorganize their factories and raw material supplies in the process of separating the world into two blocs.
If this happens in some form similar to the one described above, and if it is done well, we could be looking at the “new normal” and have long-term peace.
If done poorly, it could be a stopgap that gives us only temporary peace.
The truth will only be known with the passage of time.
The risk of not accepting the agreement is in the USA. I do not see other parties very opposed to it. And, in the USA itself there are already many forces supporting similar lines, even among moderates.
The other risk is the classic risk of any agreement. It is the discussion of details. We will see, …
Growth crisis vs. decline
I really liked this article in FPIF, which is a media linked to the American left, a bit populist, but with a lot of level.
He tries to deduce whether China is going to replace the USA as the center of power, or whether we are heading for other scenarios. He wonders if the world is facing a moment of transition of hegemonies.
After his study, he concludes that the USA is in a crisis of decline, and China is in a crisis of growth. In the meantime, neither country is strong enough to impose itself on the other.
He says that, with the current (American) hegemony, globalization and “financialization,” acting in concert, have created great inequalities, and have eroded American production capacity.
I find it very significant what you say that, with the deindustrialization of the West, not only have jobs been lost, but more importantly, the ability to pass on knowledge from one generation to the next in the West has been lost.
Going further, he says that the West has lost (and poor countries have gained) the synergy between production and technological innovation. In other words, “outsourcing production” has preceded the outsourcing of high technology. I consider this reasoning to be very accurate.
He also says that the West’s loss of hegemony is not only economic, but also ideological and political. He says that the masses of the West have lost their middle class sentiment to become indebted consumers, with great economic insecurity, which is radicalizing them. This seems to be an issue that can hardly be refuted.
On the other hand, speaking of China, he says that it has managed, in a few decades, to become the world’s leading superpower in terms of industrial capacity. And it has gone from being a recipient of Western technology to now being the innovator. He gives the data that, between the years 2013 to 2018, China has accounted for 28% of the world GDP growth, which is more than double what the USA has accounted for.
But, precisely because of this accelerated growth, China has problems of social and regional inequalities, excess productive capacity, real estate bubbles, and environmental issues. It is what he calls the growth crisis.
However, although he recognizes some corruption problems, he thinks that China has sufficient support from its society in terms of politics and ideology. Moreover, it is gaining the support of the South (Africa, South America and Asia) with its investment policies without imposing its ideology.
After analyzing all this, including military issues, he believes that the time has not yet come for China to aspire to world supremacy. He therefore believes that we are facing a time of transition, where the two powers will have to coexist, without either being hegemonic.
Ray Dalio (the oracle) has written again
Whenever Ray Dalio writes, it is a luxury to read him, … and almost an obligation. I have already spoken about him, his circumstances and his book (in Entry 1), so I will not repeat the presentation.
The fact is that, on November 1, he has published his new article, as a continuation of his book (“The Changing World Order”).
I’m not going to contribute anything of my own here, but I see it very necessary to make my little excerpt of what he says (especially for those who are lazy to read him in English).
Among many other things, in a long and dense article, he says:
- He sees a clear risk of civil war (he is talking about the USA), or international war. He does not say it is certain, but very likely if nothing is done. He sees the highest risk for 2025. I am happy with that view, because I see it as more imminent. If Dalio is right, we have more time to find solutions. Besides, my readers know that I trust Kondratief a lot, and his followers have always talked about 2025 (it may not be a coincidence).
- He speaks of the confluence of problems, which feed back on each other, in the three great cycles he has studied. They are the long-term cycle of debt, money and economy; the cycle of internal order-disorder of the country; and the cycle of international order-disorder.
In the first cycle, he believes that inflation, currency depreciation, loss of value of financial assets, risk of default on financial assets, … create great destabilization.
In the second, he says that the great social inequalities lead to populism, both from the right and the left, and this leads to irreconcilable differences of opinion between the two sides, which does not allow finding valid solutions for the majority.
In the third of the cycles, he argues that when countries with similar powers have great differences in the way they approach the exercise of that power, the risk is great.
- He reminds us that, in all this, acts of nature (droughts, floods, pandemics, …), as well as human adaptability and invention, also play a major role.
- He classifies wars into different types, and says that one usually evolves from the first to the next. They are trade wars, technology wars, capital wars, geopolitical wars, and military wars. And, without saying so, he makes us see that the previous ones have already occurred and we are about to reach the large-scale military one.
- It also reminds us of two truths about wars: i) they often do not go according to plan, and ii) the outcome is often worse than imagined.
And he exposes some very interesting tables of historical comparison of measures of control of society, and of capital, in wars, as well as of the losses they generate. With this he tries to justify his theory that we are very close to repeating the steps that led us to WWII. He tries to worry us enough to try to avoid that situation.
The following day, on November 2, Ray Dalio published another article, as a continuation of the previous one, but much more optimistic.
He is saying that, not only can we avoid the risks of war, but we can reach the best times in history. And it tells us what we should all do to achieve it, based on adaptability and human invention.
It states that:
- It is necessary to put the finances in order (those of the country, company, personal, …) with productivity, debt reduction, …
- It is necessary to create a great political center that represents the majority, that allows the parties to agree among themselves, and that can win over the populisms (that want to prevent the parties from agreeing).
- Rival countries must negotiate agreements that make their rivalries more bearable and avoid war.
And he tries to convince us that it is worth making that effort, because the damage will be much worse otherwise. We will see if people will listen to him (individuals and leaders).
Hopefully they will listen to him, but we already know that people are very particular, and that they arrive at unexpected results after applying unsuspected reasoning.
Marshall Plan – good news
Interesting news is that the USA and Ukraine are setting up a working group to restore Ukrainian infrastructure (news here).
That’s like preparing the Marshall Plan to fix the country after the war.
Of course, there are economic profit interests involved. In addition, it will have to be seen who can tackle these jobs after the new global pacts.
What is important is not those much-needed repairs, nor those speculative interests. What I see as essential is that, if someone is already fighting for these contracts, it is because they think that the time for breaking things is over and the time for fixing them is beginning. In other words, they believe that the end of the war is near. Let’s hope they are right!
The most important of all that has been commented in this entry is that there is a possibility that the parties will sit down to try to settle the conflict. It would be best if they did so before the end of the year, when winter starts to make energy supply more difficult, and before it becomes necessary to introduce new economic sanctions. If they do so, we shall see whether they reach a definitive or provisional agreement, but something is always better than nothing.
That’s as far as I’ve gotten for today on this entry. If you liked it, I appreciate you passing the link to the blog to whomever you like.