Putin & Nixon and the Economy
Putin & Nixon
When President Nixon visited China in 1972, it was motivated by the idea that it would prevent the two ideological friends, China and the Soviet Union, from establishing closer bonds[i]. Today, it stands out as an act of genius, although China has since become an adversary - some will say, enemy.
When the Soviet Union in the early nineties fragmented into the sovereign nation-states we know today, it opened up new possibilities to tie closer bonds with the eastern nations. Nevertheless, The West continued to view Russia as a threat to the "rules-based order" created by the USA after World War II.
On March 23, 2023, Chairman Xi and President Putin made historic headlines when they declared a close friendship against the US rules-based order. When a major commodity supplier joins forces with a major manufacturing power, it is significant because they have created a powerful potential to outcompete debt-ridden Western economies.
Putin has a degree in international law and a Ph.D. in economics. He is known to be a renowned chess player. Unlike some of our leaders, he has mental faculties firing on all cylinders. He is undoubtedly a match for the Western political establishment that acts on emotions rather than critical and strategic thinking. The Russian friendship with China surprised Washington, but it really shouldn't. Putin did what he learned from Nixon – "The enemy of our enemy is our friend."
Wars, open borders, rising social unrest, cultural decline, and failing institutions are symptoms of the root problem in most Western nations – over 50 years of irresponsible government spending, mostly on welfare and warfare.
It appears fair to argue that Western living standards have peaked. Leading Western nations are effectively broke, barely limping on, supported by a weaponized and declining US dollar. It is due time for Western populations to accept that governments cannot deliver on promises to save from all perils in life, at least not without significant loss of freedom and tanking living standards. Our future spells massive wealth transfers from productive citizens to the growing number of entitled citizens who think society owes them.
The Western economic and cultural decline is the product of incompetent governments. Central bank manipulations have created casino-like markets where investing analysis based on traditional fundamentals is replaced by bets on what the Fed will do next. Bad news has become good news for investors – motivated by the expectation that negatives will force central banks to lower interest rates and reintroduce new rounds of QE. Unfortunately, despite a dire outlook for the real economy, markets may be correct in anticipating a looming Fed pivot. If this bet plays out, it will only postpone the ultimate reckoning that will come sooner or later. Until that happens, our rulers will do anything to prevent capitalism from working. Still, capitalism will be blamed when the ultimate collapse occurs, not the real culprit – interventionism.
Future prosperity rests on the political will to return to the hard work of producing stuff essential for living. We cannot create wealth without the return to the basics of good old mining, manufacturing and growing stuff. Interestingly, these are precisely the jobs the political left considers a threat to its climate policies. A strong left predicts further deindustrialization in the West, causing increased trade deficits and more printing of fiat currencies.
The unpleasant fact is that neither households, businesses, nor nations can spend more than is "produced". This is common sense, but no politician or Keynesian economist will admit so. No wonder, you may say. After all, Keynes is still the political alibi for irresponsible deficit spending.
The sad truth is that artificially low interest rates have demonized the prudent act of saving since the nineties. Savings are indispensable for a nation's economic progress and provide cushions through downturns. History provides empirical evidence that credit expansion cannot replace savings without negative consequences[ii]. Hence, savings-driven economies like today's China will continue to create wealth, while nations with spendthrift governments discouraging savings will underperform.
Western ascendance to power and prosperity was founded on competition, science, property rights, medicine, and work ethics.[iii] It took centuries to create well-functioning institutions, but central banks, our political establishment, and their cronies have crushed it over mere decades. The idea that things can only get worse from here may be deeply connected with our own sense of mortality. Nevertheless, the share speed of the decline we have experienced justifies concern about our future. Most cases of societal collapse are preceded by fiscal crises and wars. A political leadership incapable of responding to crises, spells no return to sanity anytime soon.
The last two years have brought compelling testaments to the abysmal incompetence of the Biden administration and the primary puppets in London and Brussels. It demonstrates what happens when ideology replaces merit as the primary attribute for hiring and electing people for the top jobs.
It was a time when our values used to be admonished and respected, but no more. Both friends and foes look at the Western decline in bewilderment. Western excellence and exceptionalism are only nostalgic memories in old men's minds.
Author: Thor Williams Lihaug
Apr 29, 2023
[i] When Nixon Visited China—And Changed the Balance of Cold War Power (history.com) [ii] Statist intervention – Alasdair Macleod, apr 27,2023 [iii] The West and the Rest – Niall Ferguson