2023: The year from hell

Disastrous economic policies for more than 30 years led to the political chaos of 2016, which led to the economic chaos of 2020. The cycle moved in January 2022 to another stage in increased upheaval in both arenas. When bad politics meets bad economics, it creates a breeding ground for war.

The situation is only going to get worse.

Look at Ukraine. North Atlantic Treaty Organization (Nato) was created for one reason and one reason only. A military partnership was needed in Europe after World War 2 to contain any thought of expanding the USSR by Joseph Stalin. His troika successors—Malenkov, Beria, and Molotov—were no less expansionist minded.

Nato effectively kept the Soviet Union behind the Iron Curtain. But after the fall of the USSR, domestic political considerations (after the reunification of Germany) made Nato expansion against an economically and militarily weak Russia a good campaign issue. Bad politics.

While moving Nato closer to Russia’s borders, in the name of “Green Energy” and “Climate Change,” western Europe also became increasingly dependent on Russian energy sources. Bad economics.

So Russia feels disrespected by Nato and holds substantial power as a major supplier of European energy. Why wouldn’t Putin take advantage of that situation?

Richard Nixon effectively opened China up to the world and the US to China. The purpose was to put a large wedge between the USSR and China as now Beijing could enjoy economic benefits from moving towards the US. The “One China” policy, as clearly stated by the US, meant that “all Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China.” US National Security coordinator John Kirby said this week that the US is clear about its One China policy and does not support “Taiwan independence.”

Nixon did everything possible to separate China and USSR in 1972. Against the backdrop of the Ukraine war, the US is doing everything it can to push Russia and China closer together. The timing could not be worse. China needs Russian energy. Russia needs China to provide goods to circumvent the sanctions.

However, neither Russia nor China likes being more dependent on the other. That is the way it is. But now they have a common enemy, and the enemy of my enemy is my friend. Pelosi’s trip to Taiwan accomplished absolutely nothing except to show how “strong” Biden is against China during this election year. Unfortunately for Biden, concerns about Russia and China are way down on Americans’ list after inflation.

The next 60 days—which probably not-coincidentally include the Ghost Month—is critical and we will see more stress on the global economy and politics. As the US had no understanding of Putin and Russia, it does not understand the situation that they created for the Beijing government. Xi cannot appear weak and cannot let this go “unpunished.”

Banners reading “Speaker Pelosi, welcome to the Republic of Taiwan” greeted the House Speaker’s motorcade into Taipei. The Americans are either incredibly naïve or are showing —to be polite—a great lack of intelligence and common sense.

But the greater worry that will make 2023 the year from hell is sovereign debt problems. We have been fooled to think that it is countries like the Philippines that are at risk. It is not. The bigger they are, the harder and quicker they fall. The British pound was worth $2.48 in October 1980. Within four years, that currency lost 57 percent. Note that the credit risk default is worse than the Philippines for Brazil, Indonesia, South Africa, Egypt, and India.

The bible may have talked about “rumors of war” but it did not mention sovereign debt, which will eclipse war. As the European Central Bank followed with a rate increase —the first in 11 years—it adopted a “new tool” called Transmission Protection Instrument (TPI). This will allow the ECB to buy the sovereign debt of countries in big debt trouble.

On the top of that list is Italy, Spain, and Portugal not Bangladesh, Uganda, or El Salvador and not only because they are in Europe. 

E-mail me at mangun@gmail.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.