America Still Leads But Its Allies Are Uneasy, is the title of a recent Bloomberg opinion piece by Niall Ferguson. I have some reservations about Ferguson as an historian but to be fair to him, he is extremely knowledgeable and he is well connected around the world.
In his essay he writes, “An essential ingredient of leadership is an inspiring destination. Where exactly is it that the US would like its allies to follow? The central security challenge is how to keep the geopolitical competition between the United States and China from undermining the economic cooperation upon which their prosperity and the global economy depends. ……. the trouble remains that the American partners pay a disproportionate share of the cost of defending of Europe.”
The view that “The US Carries the Load as Usual,” is typical of Anglo-Saxon historians, politicians and strategists. But we also need to see that most conflicts in the last twenty years were instigated by the US to serve US economic and geopolitical interests. It should therefore, also be clear that the US should very aptly, pay for their mostly useless military escapades, which would also include the war in Ukraine.
On balance, I could argue that the war in Ukraine is net positive for the economy of the US and net-negative for the economy of Germany.
Another issue concerns China according to Ferguson.
“The problem for America’s European and Asian allies is that de-coupling from China is very hard to do. Just think, as I pointed out two weeks ago, of the huge investments European car makers have made in Chinese electric vehicle factories.”
Writing about the German Hyperinflation of 1918 to 1923, Bresciani – Turroni quotes a German author who wrote that, “the new captains of the German economy ‘derived their power from the destructive forces of their time and became rich not with the increase of general prosperity, but with the increase in the poverty of their people’ which in a large measure was caused by the depreciation of the currency.
The fact that the most successful profiteers of the inflation period were speculators rather than producers implied a market distinction between the new rich and the old rich.”
MF: What I find interesting is that we have today similar conditions because as was the case in the German Hyperinflation, everything changes “so quickly in the conditions created by the monetary inflation.”
As it is, in my opinion, the Fed is actually misleading the public by pretending that it is tightening monetary policies, when in reality it is pursuing policies which are likely going to increase inflationary pressures and depress real wages.
In a recent report, I have highlighted the relative low valuations of emerging economies and especially of Latin American equities. In case of prolonged hostilities in Ukraine it is likely that Latin American markets could outperform the stock markets of the combatants and their respective allies. However, be aware that as the title of this report suggests, “Everything changes so quickly in the Conditions created by the Monetary Inflation,” and that to paraphrase the American existential psychologist Rollo May (1909 – 1994), “It is an ironic habit of investors to trade faster when they have lost their way.”
I need to add that long-term buying opportunities in Latin America do not come along every day and are relatively rare. But it would seem that such a long-term buying opportunity is developing, and, therefore, I shall increase my position in Latin American assets over the next few months. Finally, I want my readers to clearly remember that, as Herbert Hoover observed,
“There are only three ways to meet the unpaid bills of a nation. The first is taxation. The second is repudiation. The third is inflation.”
We seemed to have embarked on the third way!
With kind regards
Yours sincerely
Marc Faber
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