indianpunchline | Fundamentally, the Western economies are facing a systemic crisis. The complacency that the reserve-currency-based US economy is impervious to ballooning debt; that the petrodollar system compels the entire world to purchase dollars to finance their needs; that the flood of cheap Chinese consumer goods and cheap energy from Russia and Gulf States would keep inflation at bay; that interest rate hikes will cure structural inflation; and, above all, that the consequences of taking a trade-war hammer to a complex network system in the world economy can be managed — these notions stand exposed.
When the money printing presses whirred in Europe and America, no one felt uneasy about the structural flaws in the system. In a haze of ideological bluster, the Biden Administration and its junior partner in Brussels didn’t pay any due diligence before sanctioning Russia and its energy and resources. Europe is much worse off than America. Inflation in Europe is well into double digits. A European sovereign debt crisis may already have begun.
The accelerating inflationary crisis threatens the standing of western politicians, as they will encounter real popular anger once inflation eats away at the middle class and high energy prices gut business profits.
How to arrest the unfolding slow burn political debacle for both Europe and the US? The logical way is to force Zelensky to go to the negotiating table and discuss a settlement. The narrative of continuing the attrition against Russian forces for the coming months, to inflict hurt on Russia, does not help European politicians. Mariupol, Kherson and Zaporizhzhia have fallen. Donbass might also, soon. What’s the next red line? Odessa?
Paradoxically, the long war in Ukraine could only work to Russia’s advantage. President Putin’s speech at the SPIEF at St. Petersburg on Friday shows how thoroughly Moscow studied the western financial and economic system and identified its structural contradictions. Putin is adept at using the weight and strength of his opponents to his own advantage rather than opposing blow directly to blow. The West’s overextension can ultimately be its undoing.
That’s where the actual inflection point lies today — whether the structural contradictions in the western economies have matured into disorder. Putin sees the West’s future as bleak, hit simultaneously by the blowback from its own imposition of sanctions, and the resultant spike in commodity prices, but lacking agility to deflect the blows due to institutional rigidities.
The big question today is at what point Russia retaliates against the countries who are involved in the gun-running business in Ukraine if they accelerate on that path. The air strikes by Russian jets last Thursday
on the militant terror groups harboured in the US garrison at Al-Tanf
on the Syrian-Iraqi border may well have carried a message.
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