Geopolitical Update : Most overlooked .. G7 seize economy, US Politics drives Foreign Policy, USD strike
By Christian Takushi, Macro Economist, Switzerland – 4 March 2023 – Public Release Truncated.
I have seldom had so many talks before releasing a research update.
People are being bombarded with news about the war in Ukraine, the growing sings of a recession, the central bank efforts to fight inflation, the growing risk of a direct NATO-Russia war, the energy transition and the growing US-China confrontation among a long array of crises and structural issues. It is understandable to see only chaos and overlook what is really unfolding behind the scenes.
The probably most overlooked phenomenon
The speed at which events are taking place in the weeks since the start of 2023 prompts me to write this. Actually I started writing this last night ..
I think it is vital to point our faithful readers to what is both ..the most overlooked current phenomenon .. and .. at the centre of the spiralling chaos of overlapping crises and distractions: G7 states are in a long but accelerating process of seizing the economy – this is part of a unavoidable (necessary?) comprehensive political-economic system reset.
It is absolutely vital to see this and to monitor it. Without this piece of knowledge everything in the world seems chaotic and confusing. If one lacks this piece of knowledge one will be emotionally charged and even hopeless.
This is a process that started in earnest in 2009 as Western governments seized financial markets. In the context of the gigantic and historic magnitude of this comprehensive political-economic reset, Covid and the tragic war in Europe are accelerators (some of my peers call them distractions). After this reset, the world cannot be the same, it cannot go back .. not even seemingly.
The world economy especially in the West is experiencing substantial changes. Thanks to an unending array of crises our governments are in an almost continuous discretionary executive power mode. While some leaders are overwhelmed by it, others have come to like it. Intervening massively in the economy for the 14th year in a row.
Getting the causality direction right
It is vital to understand how causality flows in this decade, otherwise business leaders and investors cannot prioritise and discern information fast enough or accurately:
GEOPOLITICS is driving the POLITICAL PROCESS, and this dysfunctional process (policy moves and interventions) is massively affecting the ECONOMY. The feedback loops are weaker, but still worth monitoring.
Not only is the state almost everywhere, the state sees itself forced to intervene and needing to increase its control and surveillance over the economy and businesses, ultimately citizens. Some see this now as coming from a state they distrust, but the main driver for this is not coming from domestic politics, but from the global geopolitical landscape where rupture of old & flawed alliances led to a transition of alliance realignments. The resulting “everyone for himself” necessity is the current operating modus vivendi. No nation can fully trust another.
Why is Q1 2023 special and 2023 an extension of 2022 ?
Q1 2023 is remarkable, any seasoned economist will have noticed that the economy is now sending contradictory and confusing signals in a substantial and recurring intensity. That reflects the degree of years of state interventionism. I warned in December 2022 about relying too much on economic for 2023.
What is happening? The G7 economies can no longer be analysed by traditional economic and financial standards/tools. The G7 economies are now highly “politicised and intervened”, thus every serious corporate management board or investment strategy team is advised to get the support of a political or geopolitical analyst. To do without is at one’s own risk. This is likely to only intensify until 2029.
The only thing I dared to say is that 2023 is poised to be an extension of 2022 – a world driven by the US Political Process. While 2022 was marked by Pres. Biden’s concerted (brilliantly executed we should admit) efforts to win the elections. 2023 will be marked by the GOP fiscal hawks dominating the Republican majority in the House of Representatives. They are forcing Pres. Biden to seek an early resolution of the war – an escalation from Moscow’s perspective before July 2023. A risky process indeed, especially for those living in Europe.
Signs of the Economic Reset: economic data chaos
Many important data time series are screaming “recession” while other key data are showing a hot economy firing on all cylinders. To make the chaos perfect .. after somewhat suspiciously weak inflation data for the November-January period (which led to a massive market rally), vital inflation data of the previous months were revised upwards in February. Something I have never witnessed in such a scale. No just the magnitude of the data aberration and corrections, but the way market participants behaved.
I am calling for many years now for independent audits of inflation, debt, GDP and central bank data. Interestingly, very few in the banking industry, pension system and financial media is demanding this. Independent data and audits are necessary to restore full trust in the system: when the same government that is printing money to finance fiscal deficits, is also giving us the guidance for inflation, fixing interest rates, buying market securities and issuing & correcting inflation data .. on which all the above depend, the conflict of interest is not large, it is gigantic.
An unavoidable reset under way
The current path of Western economies was somewhat foreseeable 10, 20 or even 30 years ago. We embarked on this path in the 1960’s, detached from gold to ditch monetary discipline and begun to print paper-money to live beyond our means in the mid 1970’s. This started the period of Western post-war populism, one driven by ever bigger spending promises with money we didn’t have – nurturing two overly entitled generations that are used to credit card consumerism and instant gratification. Can you relate? “I don’t want a recession nor a correction, next government please!”. I am part of these generations. After 45 years of not solving any structural issues nor crises, but just pleasing voters with ever bigger unfunded programs and exporting inflation & poverty to the rest of the world, what we are seeing is the result of a massive convergence of unaddressed crises that are outside of anyone’s control.
Our Western economies are so over-indebted, consumption so inflated and asset prices so artificially elevated .. the only alternative for our current administrations to stay in power and to avert panic is to gradually increase control over the economy – which with digital currencies and the internet means total surveillance of society.
The solution to this chaos stares at us – but no one wants it
All along there has been a simple and sensible solution. To let consumption and asset prices go down to their natural secular trend level – the natural aggregate equilibrium in macroeconomic terms. But no politician and few voters & investors want that. That would wipe out 10% or 20% of current GDP and up to 40% of asset values. They would see this as a policy failure and wealth destruction. Fact is this is artificially inflated GDP and artificially inflated wealth that needs to be deflated. Several senior directors at five central banks agree with me that what many will call a wealth destruction is indeed a Wealth Normalisation.
So, here I come back with my unpopular conclusion. It is ..
This report has been truncated here – If you want to read the full report, you can write to firstname.lastname@example.org
By Christian Takushi MA UZH, Independent Macro Economist and Geopolitical Strategist. Switzerland – 4 March 2023. Public Release Truncated
Geopolitical and economic conditions need close monitoring, because they can change suddenly.
No part of this analysis should be taken or construed as an investment recommendation.
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