There has always been a chance of increased geopolitical tension and the threat of war as the world moves away from the existing unipolar monetary framework towards a multilateral framework. We covered some timeframes and potential increases in the risk of regional war and outright war between major players in a previous POM article a few years back.
The current timeline of events fits with the timeline we predicted back then. We are in fact experiencing an uptick in geopolitical upheaval and mobilization for war on multiple fronts. It should be clarified that just because there is an increase in mobilization does not mean a war is imminent. The promotion of fear has never been one of the motivators here on POM, but trends and facts have to be considered.
It also should be clear to all who are paying attention that there are storm clouds gathering on multiple fronts as we close out 2018 and transition into 2019. The threat of a regional war, or multiple regional wars, along with a larger conflict between major world players, is only one of the potential storm fronts. The ongoing trade war between America and its largest trading partners is another front. It should also be considered that this strategy may also cause direct trade wars between other players without America being on either side, though its involvement and involvement in such trade war spin-offs will be an indirect causation.
While war and trade are two of the biggest factors which get most of the attention, we also need to spend some time considering the impact that ongoing economic and financial volatility will have on both. Nothing is happening in isolation from the rest, so an economic downturn in one nation, or financial crisis, will quickly spill over into other nations and regions which will change the dynamics of the military wars and trade wars which are developing.
IMF First Deputy Managing Director David Lipton has come out with a statement on the gathering economic storm clouds. The next global financial crisis is developing and the world is not prepared to handle the liquidity crunch when it eventually strikes. Stock markets around the world have had a bad year and it doesn’t look like things are going to improve in the New Year.
Some nations have fallen into a currency crisis while others are on the cusp of a growing sovereign debt management failure. The IMF is concerned about being under-resourced again when the next crisis unfolds. There are some theories out there that the developing architecture around the new crypto market could facilitate, or at a minimum, play a role in providing liquidity during the next crisis.
Being that crypto is a new asset class altogether, it’s not surprising that international institutions and central banks would be considering its potential to bridge liquidity needs as the world transitions to the multilateral framework. I’ve even proposed back in the summer that a crisis in the traditional markets and financial system will cause liquidity to shift over to the new crypto market. Most big banks and stock market players have established their own crypto architecture moving into 2019. The obvious one is Bakkt which is owned by ICE, the parent company of the New York Stock Exchange. Bakkt is going live on January 26, 2019. I would suggest that this date represents a turning point where we may see events begin moving at a much faster pace.
How the next crisis unfolds will depend on many factors. Two of which are the outcomes to geopolitical wars and trade wars. The financial crisis could be just some volatility as things shift or could be an outright economic calamity which will take years to correct. I’m leaning towards the former as I always have, but with so many high-risk events unfolding we have to consider the alternative as well.
Probably the largest area of underrepresented risk awareness is building around the UNs Global Migration Pack and the growing resistance to governments which have signed it. As the yellow vest protests in France suggest, there is a growing counter-movement to overall globalization and the mass migration which has been taking place for years now. The yellow vest protests are beginning to spread to other nations in Europe.
This aligns with one of the other long-term POM predictions on the rise of the “new modern nationalism”. Though no one is using this term, and the globalization supporters are attempting to make the word nationalism bad, the truth is that people in most western nations are beginning to push back against policies which are both ruining economies and cultures.
International de-dollarization is also expanding as we have predicted. 2018 has seen a large increase in nations moving away from the traditional role of the USD as the global reserve asset. This will continue into 2019 and pick up even more momentum as the cross-border utility of crypto assets becomes more available to banks and business operating internationally.
The geopolitical hotspots of Eastern Europe and the South China Sea continue to be pivot points which America is focusing on to retain some form of influence over global interactions as the USD system unwinds. The tension between Russia and the NATO build upon its border is the most worrisome. As we’ve covered before, control of the Eurasian continent is the objective. Russia, China, with Iran and a few other smaller players have been positioning to counter any American strategy around and within the Eurasian sphere. How this plays out is difficult to determine as there are so many moving pieces which are fluid and dynamic.
If America can checkmate China on trade then theoretically Beijing could be made to turn a blind eye to the concerns of its partner in Eastern Europe. It’s hard to imagine China folding on Russia, but if it meant an expanded Chinese economic zone in the South China Sea then anything is possible. Would China trade Russia for Taiwan? Does China have the strength and political fortitude domestically to play for both hands? Maybe.
Storm clouds are gathering and we are now in the window of greatest risk when it comes to war and economic collapse. There are many negotiations taking place in the background out of sight from cameras and press corps. It is my continued hope and prediction that all players will eventually work together on a path forward, but the Russia situation concerns me greatly. Russia is being boxed in and it’s hard to imagine the strategy ending in any sort of mutual agreement which will make both sides content. Iran is the wild card which will act based on the perceived strength or weakness of its ally Russia. Though I can also see a situation unfolding where Russia would trade Iran for Ukraine, which could be the name of the game with this strategy anyway. As I’ve always stated, Ukraine and the Middle East, specifically Syria and Iran, are directly related, geopolitically, to the events in Ukraine. One cannot be adequately analyzed without the other.
Let’s stay aware and see what the first part of 2019 brings. I’m sure it’ll start with a bang. – JC
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JC Collins can be contacted at firstname.lastname@example.org