Fifty years of globalization, fifty years of disinflation, and seventy-five years of Pax Americana likely came to an end 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 will 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 energy (oil and gas).
Here's what corporate media won't tell 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. owes $100 Trillion in entitlement paygos to 70 million Baby Boomers. 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.
3. 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.
Armed with this knowledge, Russian president Vladimir Putin (with the tacit or explicit support of China) threw a figurative molotov cocktail at Ukraine and started a figurative chess game with the U.S.
Ukraine is, unfortunately, just a pawn on the chessboard.
Difficult choices for the U.S.
Putin knows the U.S. is basically stuck between a rock and a hard place.
The U.S. could cut treasury yields below what they are today to fund The Big Three, 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 some of the $2.7 Trillion in entitlement paygos for Baby Boomers in a mid-term election year, but that's unlikely cause it would be political suicide for either party.
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 Brrrrrr" as the only option.
When (not if) the U.S. inflates the money supply to cover costs associated with the Big Three, they will have effectively "stolen" all the oil Russia ships to us for dollars via inflation.
It also makes the U.S. dollar reserves other countries, including Russia and China, 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. It's being weaponized against us.
Expect oil and gas prices to remain high, supply chain issues 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.
As always, stay aware, stay educated, and most importantly, stay cool.
Talk soon,
Old Man Winter
