“Unlearning Helplessness” With Macklem Doctrine Is The Best Hedge Against World War III
“Unlearning Helplessness” With Macklem Doctrine Is The Best Hedge Against World War III
If you are not part of the “unlearning helplessness” solution, you are part of the problem.
Summary:
· Joining the dots from G20 Indonesia, to the Munich Security Conference, and Russian Defenders of the Fatherland Day extends the multi-polar pattern.
· The United Nations is the first global casualty of the new multi-polar world order.
· The objective of Russian realpolitik is to exclude Ukraine (and others) from NATO.
· The majority of District Fed directors, who are behind the FOMC tightening curve, are ahead of the FOMC in relation to the global growth risk curve.
· Incremental Ukrainian Anschluss, plus monetary policy tightening, equals global recession followed by Macklem Doctrine.
Come in dot plot number three ….
Mr. Market has not yet connected all the global macro dots, to the geopolitical ones, but he is making rapid progress. As he churns through the global macro dots, the bigger picture will become evident.
Another dot was, recently, plotted in Munich. Combined with the dot, being simultaneously plotted, in Ukraine, and the previous one at G20 Indonesia 2022, a global pattern is emerging. With the auspicious occasion of Russia’s Defenders of the Fatherland Day falling on February 23rd, even the most unimaginative intelligence analyst could have sussed out that something big was about to go down.
President Putin is nothing, if not patriotic, so that he is, by default, punctiliously observant of his nation’s martial holidays. In fact, once you get to know him, he is predictably romantic, in a lethal kind of way, when it comes to affairs of state. The Russian Fatherland was, thus, redefined by President Putin, to celebrate the holiday, and offense was deployed as the best defense at the redefinition party.
· A multi-polar global economic order was born at G20 Indonesia 2022.
(Source: the Author)
The pattern forming, in the dots, and the commensurate price action, is one of the new multi-polar world order. This new world is one in which the United Nations, and all its treaties, protocols, etc., etc are defunct. The UN Security Council veto powers, accorded to its members, which were supposed to avert World War III, have been lethally turned against the institution itself. In the resolution on Ukraine, Russia vetoed and China abstained. Enough said.
The UN can no longer serve the purpose, for which it was conceived, because of its internal governance structure and the current structure of the global polity. Ukrainian President, for now, Zelenskiy has eulogized the UN’s epitaph with the observation that “ the security architecture of our world is brittle. It is obsolete.” Amen to that, and vae victis.
Going forward, there may need to be multiple forums to comply with the new global multi-polarity.
The recent Anschluss in Ukraine was also contemporaneous, possibly even causal, but certainly not coincident, with another global forum from where the world order used to be governed. Appositely, in the spirit of Anschluss, this forum is called the Munich Security Conference. Perhaps it should be renamed the Munich Insecurity Conference.
Even more coincidentally, if one still wishes to stretch one’s credulity a little further, this year’s conference had, already, and presciently, written its zeitgeist strapline well in advance of the violent events that then unfolded.
“Unlearning helplessness” is, allegedly, the best way to deal with the dismantling of the Post-War World Order, if one is being dismantled. Vae ad dirutum!
The conference decided that opprobrium, non-confrontational disapproval, and incremental sanctions are the best way of “unlearning helplessness”. One hopes that the members of the UN Security Council are “unlearning” the “helplessness” of their impotence. One, also, hopes that the people of Western Ukraine have perfected this secret weapon.
All the big guns, including Chancellor Scholz, VP Harris, and Speaker Pelosi, to name but a few, were on the attendance schedule, in Munich, making up what can be called the NATO Quorum. Even Ukrainian President (for now) Zelensky was scheduled. This star-studded cast made for a big box-office hit. All of the cast stood, eloquently, as noisy witnesses to what was happening in Ukraine, and then promptly did nothing too serious about what they saw.
Clearly, the forum was originally set up to debate, and frame the perspective, of the Ukrainian situation in a civilized urbane manner. That was until the agenda was hijacked by President Putin’s inquorate late addition.
The latest conference appeared to mark the passing of the Ukrainian Anschluss, rather than to prevent it. As Edmund Burke noted, for tyranny to prevail all that is required is the silence of good men. Although anything but silent, the conference was appreciably, perhaps even appreciatively, Burkeian, despite lots of democratic rhetoric, and posturing, by the big names, thereby accepting the fait accompli, on the ground, in Ukraine.
Mein hosts extended their customary, Bavarian hospitality, and hypocrisy, towards dictators. This hospitality extended as far as maintaining Russian SWIFT Club payments membership for the continued subscription fee, of Russian Oil and Gas, in consideration for membership.
American altruism was also extended, almost in Trump Style, alongside German accommodation, with President Biden’s refusal to immediately sanction Russian energy exports.
There is some strategic logic, in keeping Russia within the global economic system. Expelling Russia will not only weaken the existing system but will also set up an alternative that can undermine the current one.
No doubt, consideration of the strategic outcomes has emboldened President Putin to take his current course of action. Consequently, the strategy adopted by the West is to focus its sanctions on President Putin, as a rogue dictator, rather than the Russian economy in general. Over time, the objective seems to be to isolate him from the Russian economy and polity, thereby, triggering some kind of Beerhall Putsch in Moscow. Perhaps this movie will be playing in Munich, at some conference, in the near future.
So how’s that “unlearning helplessness” working out for you?
The leaders of the “Free World” will now impose incremental sanctions, against the rogue agents of the Russian economy, in proportion to their actions in Ukraine. Many Russian government-connected businesses and individuals are already under pre-existing sanctions. Clearly, these existing sanctions either haven’t worked or have been circumvented in the porous world of global sanction compliance and enforcement. Furthermore, since already in existence, these sanctions reduce the total number of options to deploy in the future.
The West is, already, running out of ideas and options even before it has started applying sanctions. For example, UK Prime Minister Boris Johnson wishes to punish Russia by taking away its Champions League Footy privileges. Looked at in isolation, Johnson’s idea appears trivial in comparison to the Russian actions in Ukraine. Taken as part of a group of reactions, it may, however, add up to some kind of deterrent. For Johnson, it costs nothing, in terms of political capital; and appears to be something impactful if spun well by his press office. Ukraine, henceforth, becomes a vehicle for Western leaders to rebuild their own dodgy political capital after COVID. Every black cloud has a silver lining, as they say. The outcome, of this political grandstanding, will, therefore, be a bunch of sanctions that are egregiously weak if applied in isolation.
This discrete, incremental, response by Western Leaders is reactionary, thereby, incentivizing an incremental Anschluss in Ukraine. Mouthfuls of Ukraine can, hence, be bitten off, chewed, and swallowed, by Russia, until the economic pain of digestion becomes indigestible.
The process of digestion will have global, unintended, consequences.
It’s the (Global) Economy, Stupid (sic) ….
Sadly, multi-polar indigestion, for all involved in the digestion of Ukraine, will come from a global recession, rather than unilaterally for Russia through sanctions per se. Justice will then be served on the political grandstanders, as they are turfed out of office because of the recession. Justice may never be served on President Putin if he retains his grip on power during the recession and beyond it.
Amusingly, the central bankers will survive, as they always do during and after global crises. Indeed, they may be greeted as saviors when they start the massive monetary policy stimulus, again, to counter the recession that they had a hand in creating. Politicians come and go, but central bankers live eternally, or at least their expanded balance sheets do.
The multi-polar order, that was born at G20 Indonesia 2022, was, thus, incrementally, baptized at the Munich Security Conference 2022. It was then given a Russian Orthodox baptism of fire in Ukraine.
Frederick the Great said that it is pardonable to be defeated but never to be surprised. Kudos to the CIA for, checking their Russian holiday calendar, and not allowing the NATO attendees in Munich to be surprised at what happened in Ukraine. A pardon for the incremental response is a bit of a stretch though.
Having enabled the Ukrainian Anschluss, revenge by NATO would appear to be futile, and counterproductive.
Il est ne le divin enfant (sic) ….
If the French are correct, in saying that revenge is a dish best served cold, President Macron has already overcooked President Putin’s Pastila.
· A multi-polar global economic order was born at G20 Indonesia 2022.
(Source: the Author)
President Macron, initially, appeared to be in a hurry to baptize the new multi-polar world progeny of the recent G20 Indonesia summit, thereby, hopefully, also, improving his re-election prospects.
As the French know, from Napoleon, “success has many fathers and failure is an orphan”. Consequently, Macron wanted the new multi-polar infant to have at least three fathers; namely himself, President Putin, and President Biden. If successful, Macron would, then, be less likely to become a Presidential orphan in the upcoming French elections.
The French people have remained unconvinced and watchful of their President. Such was their lack of conviction, that Finance Minister Le Maire was quick to frame the fallout for the French economy, from Ukraine, as “contained”. Le Maire was, already, hedging Macron’s weakening position. France, according to Le Maire, has no economic skin in the game. The hedging was continued by Bank of France Governor Francois Villeroy de Galhau. Villeroy believes that the ECB should be flexible, about normalizing monetary policy, based on events in Ukraine. Perhaps France has more economic skin in the game than Le Maire thinks.
President Macron, certainly, has political skin in the game, and it is getting stretched, to breaking point, by President Putin. Macron’s political strategy was to water down American influence in Europe and promote European engagement with Russia. President Putin is leveraging Macron’s strategy up, as he did with President Trump’s pro-Russian position. Why President Biden would ever have been interested in Macron’s tripartite summit, created by an agenda that wishes to strategically weaken America in Europe is, therefore, puzzling.
EU Commission Vice President Valdis Dombrovskis has sought to set the limits, on President Macron’s ambition, and President Putin’s territorial appetite, at the undefined borders of the separatist regions in Eastern Ukraine. These limits have already been crossed by Russian forces.
President Putin has been clear that nothing short of a declaration by Ukraine, that it will never join NATO, and by NATO that it will never ask Ukraine to join, will pacify him. It is unlikely that he will compromise on any terms that do not include these dealbreakers. It is also highly likely that he will apply similar conditions for other Eastern European and Baltic countries going forward. This is what a Eurasian multi-pole looks like in reality.
Sensing that he had been fooled, by President Putin, President Macron swiftly rescinded his offer to broker a summit with President Biden; and fell into line with the EU’s parameters that had just been broken on the ground. Macron must now face his own electorate as a humiliated presidential candidate.
So, that went well, what else could, possibly, go wrong?
Stepping back, from the noise, and the price action, one may conclude that President Putin has, effectively, been able to reset the European security agenda back to the one that existed at the end of World War II. Obviously, China will want a seat at the global table this time.
The Biden-Putin Summit, proposed by Macron, and hijacked by the Russian President, was, thus, really about the future of NATO. This wasn’t on the agenda at the Munich Security Conference, so President Putin added it with boots on the ground rather than a pen. If President Biden doesn’t want to talk about NATO now, he will have to talk about it sometime in the near future.
Perhaps, to help Biden make up his mind, to settle with Putin, events will flare-up in the Asian multi-pole zone in order to force the American President to make a hasty choice of priorities. It is highly likely that President Xi Jinping has a multi-polar Asian child that he would, also, like to be baptized soon.
No place for Baby Boomers ….
With the world’s news channels, seemingly, transfixed, by events in Ukraine, a few good men in the US Senate are reprising Operation Mongoose.
(Source: the Author)
This author suspects that there will also be a flare-up, of tensions, in Latin America, involving China, that will nudge President Biden’s hand strongly enough to weaken his grip on the NATO multi-pole.
All these unfolding political events will require a proportionate national security response, from America, which will require a disproportionate fiscal response. The traditional source of finance, for the said disproportionate fiscal response, is the Fed’s balance sheet. Consequently, the FOMC’s current strategic intentions and capabilities, to shrink the Fed’s balance sheet, are the antithesis of political strategy.
This strategic dissonance, no doubt, encourages the leaders of the multi-polar threats to America to be more aggressive in the pursuit of their own multi-polar agendas. The application of hybrid warfare, to encourage Americans to think that their nemeses actually live in ethnic enclaves, within the American hinterland’s borders, only serves to blunt the global response from American policymakers.
Still behind that growth curve and lovin’ it ….
Had the FOMC started to withdraw monetary policy stimulus when it first admitted that the US economic rebound was surprisingly strong in Q1/2021, as noted by this author, the committee would now be in a position to provide assistance to the national security imperative.
Unfortunately, back in Q1/2021, the FOMC decided to be taken prisoner by the US Treasury. In captivity, the twin strategies of broad inclusion, and average inflation target overshooting, were pursued with brio. The FOMC is now dealing with the consequences of these prior decisions.
The FOMC has yet to fully embrace its, pre-announced, monetary policy tightening phase. Apparently, it will start playing catch up at the March FOMC meeting. The US central bank is, thus, by default, in no way close to embracing the evolving growth threat narrative.
A deeper understanding, of the Fed’s current position, was recently gleaned in the minutes of the latest Fed district discount rate meeting. The three Fed districts of Kansas, St. Louis, and Cleveland all voted for a discount rate hike. They were overruled by the nine other districts, however, this majority noted that the time to remove conventional monetary policy accommodation was coming.
The fed districts are, thus, by default, closer to the global growth risk threat narrative than the FOMC.
Unfortunately, there is still no FOMC consensus on the course of the upcoming scheduled monetary policy tightening. Consequently, the response time and response itself to the growth threat will be diffused and diluted, respectively.
Fed Governor Michele Bowman sees the risk of high inflation becoming entrenched. She is, therefore, ready to take appropriate action, to address this inflation risk. This sounds like an open mind to hiking fifty basis points at the March FOMC meeting.
Evidently, San Francisco Fed president Mary Daly believes that there is a risk that spiking commodity prices will translate into entrenched inflation. This author would say that the FOMC has elevated this risk by not removing monetary policy stimulus for over a year. Daly would have people believe that the Fed is both vigilant and responsive. This alleged, vigilant responsiveness means that a repeat of the 1970s/80s experiences with inflation and recession will not be repeated. Thus far, however, the FOMC is reprising the behavior which led to the 1970s/80’s inflation and recession episodes.
Daly is focusing on inflation and not the economic damage that the combined impact of inflation, and FOMC response to it, will do. Russian Defenders of the Fatherland Day is not on Daly’s taper timeline, and neither are its economic consequences, for now. Presumably, Daly will change her mind when the three Fates of combined inflation, weaker growth, and tighter monetary policy divine that she should. Perhaps, in homage to Mars the god of war, Daly opined that the FOMC should worship Chronos the god of time, “gradually”, thereby, also acknowledging the recent changes in global macro fortune.
The Ukraine situation has made it onto Fed Governor Christopher Waller’s uncertainty screen. Apparently, it is not a significant enough threat to stop him from voting for a 50-basis points rate hike in March, followed by more to take it to 100-basis points in total by June. After that, he then would like to start shrinking the Fed’s balance sheet in July.
Waller is, hence, six-months-plus behind the growth risk curve and happy to be there. To his credit, Waller, at least, admits that he and his colleagues totally missed the inflation run in 2021. Hence, he implicitly admits that he is now overcompensating with potentially disastrous growth consequences. This author would say that Waller, and his colleagues, did not miss the inflation of 2021. They simply failed to respond, with alacrity, because they were following Secretary Yellen’s prison rules.
Also, to Waller’s credit, his latest extended forward guidance is conditional upon the incoming economic data running hot. Any signs of cooling could then see him quickly alter his views.
The Ukraine situation has, also, made it onto the radar screen of Cleveland Fed president Loretta Mester’s monetary policymaking machine. The event is registered as an inflation tailwind vector and a growth headwind vector. The resultant vector remains one whose “modality” has a higher inflation than recession component. The growth situation would, therefore, have to substantially erode before Mester would adjust her multiple interest rate hikes, and balance sheet reduction, monetary policy coordinate settings.
Atlanta Fed president Raphael Bostic expects the data to come in hot. In response, he expects to hike interest rates at least four times this year. In addition, after two rate hikes, he expects balance sheet reduction to begin.
· James Bullard no longer has credibility.
(Source: the Author)
Since the FOMC adopted his aggressive prescription, to address what he called the “inflation spike”, James Bullard has risen to prominence. He has also painted himself into a corner, whereby, doing anything other than being aggressive will undermine his credibility. The Ukraine situation has provided Bullard with an opportunity to soften his guidance, but he has declined to accept it. He still sees 100-basis points of rate hikes by July, with balance sheet reduction slated to take over from there.
Long live King Thomas, or at least until the March FOMC meeting!
Famous last words: “If you can keep your head, and say Holy Cow, when all of those around you are losing theirs, and shouting Katie bar the door, you should be the Fed Chairman my son!”
(Source: the Author)
Richmond Fed president Thomas Barkin continues to keep his cool head, whilst his colleagues are losing theirs to inflation dogma groupthink. Whilst saying that the “logic” for rate hikes currently remains unchanged, by events in Ukraine, Barkin looks at how things might potentially change going forward.
Barkin’s latest guidance put the events in Ukraine into context for the American economy. Inflation, by default, will rise with the oil price rise. This rise of inflation will, however, erode aggregate demand, not only for gasoline but also, for consumption in general. Thus, Barkin is saying that Stagflation is a probable outcome.
Barkin’s positioning, for Stagflation, is different from his original positioning for normalization. Originally, he wanted to get monetary policy settings back to neutral before deciding on what to do next. Now, with Stagflation looming, he seems less committed to getting back to neutral as quickly. Instead, he appears to want the economy to find its own way through the current crisis and to observe how it adjusts.
One senses that Barkin, would definitely not go for a 50 basis points hike today. Thus, his commitment to a 50 basis point hike in March must have weakened also.
Ahead of that growth curve and lovin’ it ….
The Macklem Doctrine of America’s global imperative may make bigger fools out of the FOMC than the incoming inflation data.
(Source: the Author)
No doubt, well before, the FOMC (sans Barkin) changes its position, the thought leader of the Free World, North of the border, will be leading the charge. This thought leader is not the tyrant Justin Trudeau. This person is, of course, the pro-growth Bank of Canada Governor for whom the eponymous Macklem Doctrine is named. Victoriam Macklem!
Japanese Prime Minister Fumio Kishida is the first developed economy leader to formally embrace Macklem Doctrine, in all but name, as a response to the Ukraine situation. Kishida has announced that going forward, monetary policy will be coordinated with fiscal policy. Japan has been doing this for donkey’s years, already, so this should be viewed as a signal of continuation. The lack of criticism, from the global economy, and from global capital markets, for such inflationary pro-cyclical economic policy heresy was deafening. Timing is everything, and this would appear to be the time.
Governor Macklem, and Prime Minister Kishida, have painlessly unlearned their helplessness and learned of help through the joy of Macklem Doctrine. Other policymakers may require a more painful lesson.
When the lesson ends, it may then be declared that the tragedy in Ukraine was the catalyst for change to defeat the multi-polar order of tyrants, rather than to be defeated by them. Along the way, supply chains get unblocked, thereby defeating inflation and creating sustainable economic growth. Win, win, win.
As Mr. Jefferson once said to Mr. Smith: “the tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.” The Founding Fathers didn’t have QE back then, otherwise, it would, undoubtedly, have also made its way into Jefferson’s patriotism. Today’s tree of liberty, in addition, has supply chain issues; apart from that it’s still business as usual for the mortal, but necessary, patriots.
Vae tyrannis.