April 8, 2022 | Seppo Niemi

World in Turbulence. Quo Vadis, Humankind?

Europe and partly the whole humankind is again facing “das tolle Jahr” in 2022 (see 1848 in Europe).

National economies weakening, skyrocketing inflation rate, increasing interest rates, broken supply-chains, stumbling international trade, energy production and trade, skyrocketing energy prices, contracting and diminishing agricultural production and worsening food shortage, all ominous trajectories looming at the same time.

The proxy war in Ukraine, where Russia and the US are militarily against each other by proxies (Donbass/Russian forces vs. Ukrainian forces/foreign mercenaries), is escalating dangerously. The current Ukraine crisis, together with severe sanctions imposed by Western states, is complicating even more the complex great power relations, more powder kegs are smoldering in Asia (especially Taiwan case), Middle East and Africa. The global conflagration is looming.

Fed’s decision dilemma…

With money printing in the trillions, sky-high debt at all levels and excess government spending that’s off the charts…the Federal Reserve has painted itself into a corner. The Fed can either keep printing trillions and let inflation skyrocket (hyperinflation) or tighten monetary policy and watch the market crash.

In other words, Fed can sacrifice the stock market and see the US economy depression or the collapse of dollar status and meet its ramifications (collapse of US great power status). What they do next will have serious implications for the stock market and the US dollar in 2022 and beyond.

Over the last six weeks, many Fed officials, including Fed Chair Jerome Powell have stated that the Fed is behind the curve on inflation and needs to start raising rates by 0.5% multiple times this year. Ms. Lael Brainard, the Fed Vice-Chair, gave a speech on March 5, in which she stated the following:

High inflation places a “burden on working families”
It is of “paramount importance” that the Fed stop inflation
The Fed will start reducing its “balance sheet at a rapid pace” as early as May
The Fed is prepared to take even “stronger action” if needed

In other words, Fed is stating publicly that the single most important focus for the Fed today is ending inflation. This means aggressive rate hikes and shrinking the Fed’s balance sheet as quickly as possible. The Fed is now stopping inflation by popping a bubble.

… and the obvious outcome

Based on latest statements of Fed authorities, it seems clearly that Fed has made its selection; Fed has chosen the option of interest rate increases, curbed inflation and making market crash, which means that nearly all stock markets globally will crash.

In such situation, the US believes that they can manage to hold their relative position approximately in the similar power position as today and will be capable to wage successful wars against main competitors. In letting global market crash and avoiding the US hyperinflation, Fed consciously tries to avoid weakening of dollar’s status (and weakening the US great power status).

The development in the military technology and in the posture of nuclear weapons has been and is such that the relative power position of the US, compared with its peer competitors China and Russia, will deteriorate in growing speed during late 2020s.

From the US point of view, the next 3-5 years (2022-2026) will be the last promising years to escalate tension between great powers, giving the US a competitive edge versus its peer competitors.

In late 2020s and especially in early 2030s, the relative military positions of great powers will evolve, from US view point, in deteriorating way giving too much military benefits to China and Russia.

Sanctions from hell

The US and the EU are accelerating the spiral of sanctions, both the quantity and the quality of imposed sanctions are escalating all the time. Western states are upping the ante and Russia is replying in kind. Both parties see the only way is to add more and more stakes. Europe is even more accelerating the sanction spiral and, needless to say, is going to plummet into economic abyss. The final red lines or existential issues are now at hand.

It seems quite clear that Germany’s days as an Engine of Europe are numbered. Excess sanction policy will crash the industrial backbone of Europe causing mass unemployment and avalanche of business defaults and bankruptcies.

France’s position, based on nuclear energy and nuclear weapons, will highly likely stay and even strengthen so that France is going to be the next (and the sole) European power in the future world.

The EU, as an organization and structure, will disintegrate, compared with the current situation. The days of “Brussels elite” are also numbered. After the dust of the current crisis has settled, the whole “old” Europe shall seek a new identity and place in the future world.

Triangle game of great powers

The positions of current great powers – the US, China, Russia – will be determined by the outcomes of waged wars.

If the world is not totally annihilated in the nuclear war (WWIII), those two camps, which I described in my previous article “Cyclical transformation turning into doomsday”, March 21, 2022, are still valid. No doubt, the trajectory is going that way.

Breaking the vicious circle

Breaking the current dangerous vicious circle seems to be very, very difficult, nobody is willing to lose the face. The climax is approaching quickly and suddenly, even by casual accident. The final phase will be, no doubt, the nuclear Armageddon or WWIII, waged with nuclear arms.