Fifty years of globalization, fifty years of disinflation, and seventy-five years of Pax Americana likely died when Russia began a full-scale invasion of Ukraine on February 24, 2022.
On the surface, this is about Russia invading a sovereign nation. Dig deeper and you'll find Russia's grand strategy is much more opportunistic.
A global power struggle has kicked into high gear as Russia (with an assist from China) looks to reset the existing U.S. petrodollar system in favor of a system that features multi-currency pricing for oil and gas backed by multi-currency and/or gold reserves.
Here's what corporate media isn't telling us about the Russo-Ukrainian war and what it means for the economy and small businesses in the U.S.
What Putin and Russia (and China) know
1. Peak cheap oil means the U.S. cannot afford to sanction Russia's oil and gas out of global markets without risking a crash of the global economy.
2. The U.S. is in no position to risk a recession. If the U.S. goes into a recession, it'll be forced to default on its sovereign debt or inflate the money supply.
3. The U.S. owes $100 Trillion in entitlement paygos to 70 million Baby Boomers and the record $4 Trillion in tax receipts collected in 2021 are not enough to cover the Big Three - treasury spending, entitlement paygos, and defense - which totaled 120% of tax receipts last year.
Difficult choices
The U.S. could cut treasury yields below what they are today, but that would essentially place treasury yields below zero. Can't do that when you're the global reserve currency.
The U.S. could cut $2.7 Trillion in entitlement paygos for Baby Boomers in a mid-term election year, but that's political suicide for either party so there's zero chance of this happening.
The U.S. could cut the defense budget in the middle of a pissing contest with Russia, but hell will freeze over before our defense budget gets the ax.
That leaves "money printer go BRRRRR" as the only option.
When the U.S. inflates the money supply to cover costs associated with the Big Three, they will have effectively stolen all the oil Russia has shipped to us over the years in exchange for dollars via inflation.
It also makes the U.S. dollar reserves Russia, China, and other countries hold worthless in real terms.
So here we are. At war with the world's biggest energy supplier and the world's factory.
All this to say...
Inflation is not transitory.
Expect oil and gas prices to remain high, supply chain bottlenecks to worsen, and food to get more expensive.
2022 is shaping up to be a greater challenge than 2020 and 2021. Do not panic. Do plan accordingly.
Stay aware, stay educated, and most importantly, stay cool.
Talk soon,
Old Man Winter
