Courtesy of The Automatic Earth.
Esther Bubley for OWI “Sign on the bus route through Indiana to Chicago” September 1943
Saxo’s Steen Jakobsen looks at his data and comes up with a number of predictions, in particular about China: “China is not happy these days”. Then again, who is? Russia is not, that’s for sure. Or Ukraine. Or Japan. Neither are America or Europe. They’re all not happy for different reasons, and even inside their borders there are different reasons people are not happy. When you see how the EU talks about Ukraine, how it will save the country by offering it membership, but not now, how it will offer capital to stave of bankruptcy, but not now and not enough, you get the impression Brussels is simply to blind not to be happy, and you get to feel sorry for the Greeks for having to talk to them.
Washington is not happy because is sees its influence vanish before its eyes in the (too) early eastern European spring sunlight. Armed men occupy parliament building in the Crimea. Doesn’t look like the kind of target the US army has been training for. Ukraine is the core of a larger region that through history has been the playing field of “bigger” powers from both east and west. The region is home to more different peoples and interests than anyone seems to comprehend, and they’ve all got an axe or two or three to grind. Much more Putin’s strong point than it is of any possible US president. The sentiments that blew up the Balkan, by a magnitude of steroids. Unless you play it well and keep everybody happy.
But the Ukraine is dead broke. Its hryvnia currency plunged 19% so far this week, saw some 10% of deposits withdrawn, and had its dollar peg removed, so it’ll fall further. The ruble keeps falling too, and the yuan, so Jakobsen is right, and so is The Automatic Earth by the way: the US dollar is set to rise. It does make one wonder: where has all the muscular language about currency manipulators gone? How long ago is it again that Washington last chided Beijing for keeping the yuan artificially low? Is it a while two years yet? Strange you don’t hear anything about that anymore now that the yuan is tumbling. That’s perhaps the kind of thing that easily gets lost in translation when one has bigger fish to fry.
Like how will Obama play the Ukraine and Crimea theaters. It’s not about Putin sending in his army. It’s a chessboard filled with guerrilla pawns. Over the past century, Ukraine, or rather, what today is the territory of Ukraine, was first ravaged by Stalin in the 1932-33 starvation genocide called Holodomor. In his “Extermination by hunger” campaign, Stalin attempted to obliterate the people living in the most fertile lands in his empire by starving them. The Holodomor may have killed more people than the Holocaust.
Which, less than ten years later, didn’t pass by Ukraine either. And then when the Germans left, it was back to Russian rule again. Hossanah heysannah. Only, Ukraine was never one people. It was just a matter of waiting for the next bad spell for differences to rear their heads again. And here we are. And who are the Ukrainians supposed to trust with their fate this time? The invaders from the east or the west? Who’s going to protect them from the next devil, and then turn out to be that devil…
It would seem that Putin is much better at this kind of chess than Washington. Playing one group out against the other, with all the bad memories collected over time, who needs a Russian army? One difference of course with days gone by is that today everybody, or at least the militant ones, are so much “better” armed than ever. Whole bags full of Kalashnikovs and grenade launchers were apparently dragged into Crimea parliament buildings early this morning by a 120 man strong militia. How do you protect yourself from that? It’ll a jungle out there, but who wants to live in one?
Jakobsen writes that the soon also not too happy Chinese will see their GDP growth slow to 5%, from the double digit numbers they’ve seen for years. Beijing will then manipulate the yuan down, if only because Japan doesn’t leave it any choice. I think you call that currency wars. Which will lead to lower growth in Germany and the rest of Europe, even turning it into negative territory, and squeeze world growth down to 3% or less.
And that will inevitably mean deflation in Europe and the US. And a 30% fall in “developed world” equity markets. Mind you, most of that is not money that will be invested elsewhere, but funny money that will vanish. And lead to a lot more not happy people. 30% looks very reasonable, benign almost. The grand mirage of western economics risks being popped and exposed by armed to the teeth rag tag local militias. Well, something had to do it.
