Here's our summary of key economic events overnight with news the war in Ukraine continues in something of a stalemate process as the spring thaw bogs down the Russians. But they are bombing indiscriminately. Still, Western investors no longer seem to be preparing for an international meltdown. Equity markets are recovering. Bond yields are back focusing on the US Fed, oil prices are much lower today, and the main economic fallout seems to just be on Russia. Anyway that's what markets seem to be signaling despite the changed economic conditions.
In the US, American mortgage applications rose, and by more than expected, last week. And mortgage interest rates slipped back at the same time. But these lower rates are not expected to continue for long, so borrowers piled in on the opportunity.
The number of job openings in the US in January slipped marginally from a revised record high level in December. Still, the result was above market expectations as worker shortages persist.
The US WASDE March report indicated that the global market for wheat may not be as tough as first thought. Rising volumes from Australia and India are helping offset the Ukraine uncertainties. The same report sees lower US dairy production, so prices are expected to rise on continued demand strength
Today's US Treasury 10year bond auction was well supported, and the 1.84% median yield was little changed from the same event a month ago. Further, the Fed only participated at a very low level this time, a significant pullback.
Japanese machine tool orders slipped in February from January, although to be fair they are still running very much higher than a year ago.
In South Korea, their presidential election remains too close to call, but the throwback opposition candidate does have a narrow lead as the vote count nears the end.
China's inflation rate is staying low, running at only +0.9% in February. This was as expected. Meanwhile China's producer prices rose +8.8% in February from a year ago, slightly higher than expected but lower than January.
China might be an economic loser on the sharp runups in commodity prices. It isn't unique to China of course, but their high dependence on exports made at fixed costs will put their factory sector under a special squeeze.
Ratings agency Fitch says Russia is about to default on its debt obligations. It has downgraded Russian Government bonds to C. (Russia paying its US dollar bond obligations in rubles is default, says Fitch.)
Russia's pre-invasion consumer price inflation rate rose to +9.2% pa in February. That will be looked back on as 'low' in coming months. In February it took about 80 rubles to buy one US dollar. Now it takes 120 rubles, an effective devaluation of a third.
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Although capacity is still constrained, air cargo traffic volumes are recovering and back to pre-pandemic levels. They were up +3.2% in January from the same month a year ago with Asia/Pacific international trade by air up +5.5%.
Australian consumer sentiment is falling on a growing set of factors that compound each other, including the pandemic, floods, and war. Housing gets an honourable mention too.
Higher interest rates not only affect consumers, they add to government spending as well, and that effect is magnified when budget deficits are growing. In Australia, their $15 bln interest cost on public debt is expected to grow to $18 bln this year, and to over AU$30 bln as their deficits swell. Fast-rising interest rates off a low base supercharges the interest cost, especially when deficits are large as they are in Australia.
The flooding disaster in NSW and Queensland has prompted market experts to predict home insurance premiums will rise at a much faster pace. +10% rises are on their way, as a start as insurers increase their natural disaster provisioning. From the current flooding event, they are dealing with more than 100,000 claims already, and more are sure to pour in. And New Zealand won't be immune because the same insurers operate here and their climate risk aversion is now front-and-center.
The UST 10yr yield opens today at 1.92% and up another +5 bps from this time yesterday. It is back to pre-invasion levels. The UST 2-10 rate curve starts today a little steeper at +26 bps. Their 1-5 curve is very much steeper at +99 bps and their 30 day-10yr curve is also much steeper at +176 bps. The Australian ten year bond is up +2 bps at 2.34%. The China Govt ten year bond is another +1 bp firmer at 2.87%. And the New Zealand Govt ten year is up +7 bps at 2.89%.
In New York, the S&P500 is in full-on recovery in Wednesday afternoon trade on Wall Street, up +2.6% so far. Overnight European market recoveries were reasonably spectacular; Paris was up +7.1%, London was up +3.3% and Frankfurt was up +7.9%. Yesterday, Tokyo ended -0.3% lower. Hong Kong was -0.7% lower. Shanghai was 1.1% lower. The ASX200 ended its Wednesday session up +1.0%. The NZX50 ended up +0.3%.
The price of gold starts today at US$2001 and down -US$43/oz from this time yesterday.
And oil prices are very sharply lower today and down by -US$6/bbl. In the US they are now just under US$114/bbl. The international price is just under US$118/bbl.
The Kiwi dollar will open today a little firmer at just over 68.5 USc. Against the Australian dollar we are at 93.5 AUc which is slightly lower. Against the euro we -½c lower at 61.8 euro cents. That all means our TWI-5 starts today at just on 73.4 and little net change from this time yesterday.
The bitcoin price is up a lot today, up +11.1% from this time yesterday to US$42,277. US regulators have signaled it will continue with its light-handed overview of the crypto sector. Volatility over the past 24 hours has been extreme at +/- 5.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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85 Comments
"Higher interest rates not only affect consumers, they add to government spending as well, and that effect is magnified when budget deficits are growing. In Australia, their $15 bln interest cost on public debt is expected to grow to $18 bln this year, and to over AU$30 bln as their deficits swell..."
Now I am confused because so many wise people on here have told me that extra Govt spending causes inflation; but the same people also tell me that higher interest rates reduce inflation.
I get similarly confused when higher interest rates increase the cost of my projects - meaning that we have to charge higher prices. But, when I say this to economists they tell me that I am getting it all wrong - as if I should be lowering the actual cost of a project when one of our major input cost increases. Oh, what to think.
P = CF / 1+ r
Do you understand the relationship between asset prices and the discounting of future cash flows?
Same applies to the resulting NPV/IRR of projects when modifying the discount rate. Projects that may appear viable now are no longer viable if the discount rate applied to them goes up (i.e. cost of capital/risk/required rate of return goes up to fund the project) assuming the cash flows can't keep up with the rate of inflation. Same will apply to houses if wages can't go up at the same rate as inflation - you will have to discount future cash flows at a higher rate but the cash flow isn't increasing enough to offset the larger denominator (interest rate/mortgage rate).
I’m not sure where the confusion falls as it appears all your statements are true (and I’m not an economist).
Perhaps your projects aren’t viable - which in low interest rate environments even particularly poor projects can look like reasonable options.
Hence the discussion yesterday about the need for recessions to clear out the dead wood. At present we have zombie companies and zombie projects all around us.
Can you not see how governments and central banks are backing themselves into a corner with no way out? Higher deficits, high debt, now inflation (which we can’t afford to service in the form of higher interest rates - hence at some point there will be either hyperinflation (more currency devaluations or debt defaults because people won’t want to hold debt assets and will all try to make a claim on real assets but will suddenly realise the value or debt assets far exceeds real assets and that they are holding nothing 😬).
Domestic price increases (as measured by non-tradeable CPI) are being driven predominantly by house building and property maintenance costs, rent, and local govt rates (with a side dish of restaurant / takeaway price increases). I don't see demand for house building subsiding anytime soon, rents have gone up by 3% - 3.5% every year since the GFC (and look like breaching 4% this year), and local Govt won't reduce rates. I think anyone that says that the deflationary effects of interest rate increases will definitely outweigh the inflationary effects in this environment is reaching quite a bit.
Isn't all the money thrown at building houses borrowed? If you reduce the cash available to throw at something, surely prices go down as people just don't build as much. Not all new house building is necessary, some of it is just a speculative waste of resources. Batches/Holiday houses for example. At the extreme end, China's ghost cities..
If it's done right and the economy is actually robust, it won't cause a recession. It only causes recession if the economy already has some issues( in our case it's over inflated asset price) and inflation is getting out of control so that central banks are forced to hike rates aggressively, hence it's not increasing interest rates that causes the recession, it's out of controlled inflation that causes recession.
There is a very high correlation between the Fed raising rates and the economy going into recession. Usually when economies are 'overheating' they intervene and recession follows.
Raising rates undoubtedly reduces disposable incomes, channels money from spenders to savers, leads to reductions in aggregate demand, and drives increases in unemployment (creating a feedback loop of doom). So, of course, raising rates high can lead to a recession.
My point is that in little old NZ where so many of our prices are determined by overseas factors, and we have a fixed minimum wage, and Govt benefits pay large amounts of rent for 300,000+ households, are we sure that raising rates will reduce prices? Or could raising rates just create a position where we have people earning less but still paying higher prices? I guess at least house prices might come down - but maybe there was a less damaging way to achieve that goal?
Raising rates won’t necessarily reduce all prices, inflation is not always even. The last decade we have had high asset inflation, but little wage or tech price inflation. There are heaps of variables. So it’s unhelpful to try and apply a universal theory to any one economy. You can look at overall trends and patterns, which can be helpful, but there is still more complexity than that.
NZ has eye watering levels of consumer debt. Extremely inflated house prices (according to every measure, except the NZ property-exceptionalist model) and already low interest rates. Our inflation is not only caused by rising import costs. There have been unprecented levels of money printing and bank lending whilst less economic activity has been occuring in many industries because of Covid. The increased money didn’t trigger an increase in productivity or much innovation alas. It triggered everyone to plough into the housing market AGAIN, either by buying or renovating existing homes (because they were rapidly going up in value so seemed a no brainer), or trying to build new houses in what looked like infinite demand.
However, the infinite demand only exists whilst credit is loose enough to facilitate it.
Minimum wage, benefits and rent subsidies are not going to increase fast enough to meet inflation. They already aren’t. How many people have you seen putting stuff back at the till? I see it every week now. The building boom is still just about appearing to exist because there is considerable FOMO of people who have been waiting a very long time for materials or tradies to get to their projects, because there are many projects already in the pipes or half completed, but many of those projects will get moth balled or fall over because of bank margin calls and other cash flow issues.
I agree with you that we are likely to experience a period of stagflation. Or some form of uneven inflation (house prices decreasing while commodities continue increasing) but ultimately people gotta eat. A house price correction wipes out a lot of wealth but letting inflation run too long, risks hyperinflation for basic necessities. You can’t eat your over-valued rental portfolio and when the cost of your mortgage increases and you can’t increase rents, then you bail. That’s capitalism. You invested the capital, no risk, no reward,
Speaking of unviable deadwood zombie projects, looking up Waimea dam is good for a laugh, or a cry. Also a good excuse for taking 3 waters from councils. Almost hitting 3x (that's inflation) the original price, the interest on this is going to be really eye watering.
Typical big project stuff, the actual physical cost of the dam is probably feasible and a good idea, depending on your politics.
However the cost of compliance, H&S, environmental, geotec going 20 x overbudget, engineering, council delays, rubbish tender assessment, council's Audit and Risk Committee, focus groups, think tanks, reviews reviews reviews, 3rd party inspections and external consultants etc etc.
I'm no expert but i wouldn't be surprised if for every $100 spent on the project, $10 went into actual labour and materials.
Give me the state budget for infrastructure and I'll pull this country out of the 19th century and into the 22nd. It'll be done via slave labour and I'll have to bury the nations planners, consultants and TA building departments under the dams/bridges/roads/rail/runways whatever...but I'll get it done!
/s
Forgive my sarcasm.
Our projects must be viable or we wouldn't win tenders. I do contract work for companies in several countries that deliver infrastructure projects. Some require discretion. Borrowing costs and / or the cost of holding cash to finance things upfront can make a material difference to prices tendered. Higher interest rates increase prices. I have done work in tech, housing development and a few other sectors and I would say that this generally holds true.
There is an estimated 3 trillion of demand for bonds in the global market at the moment. It is almost insatiable as people need (and often have) to hold safe assets as leverage and to satisfy regulators. Bizarrely, if NZ issued a few more tens of billions in bonds it could get picked up by one of the global bond indices and demand would increase, and yields (interest paid by Govt) would reduce.
It is important to look at the actual structure of the Govt balance sheet before getting concerned about debt and interest payments. For a start, the Crown holds more financial assets (stocks, securities etc) than it has financial debts (bonds etc). Net financial worth in 2021 was around $75bn - the highest ever. Around $40bn of Crown debt is sat in deposit accounts at RBNZ - the Crown is paying 1% (OCR) on that chunk. Almost all remaining bonds held outside RBNZ are on a fixed rate so interest payments won't increase as interest rates increase. The Crown also does not need to issue lots of new bonds at the moment because it has $35bn sat in its current account (enough to cover around 4 months of spending) and tax revenue is at record levels. Don't believe Grant R when he says we need to tighten our belt - we should be investing in the infrastructure we need to succeed in the 21st century.
Nobody disagrees here. Quality infrastructure has been overlooked for far too many years in NZ and not just in the public domain. More focused capital spending from the Crown and enterprises can lift Kiwi wages faster than anything else.
But we've been in this unending spiral of consultants and bureaucrats spending years masquerading in front of drawing boards to achieve virtually zero. FFS our PPP projects are also meeting the same fate that large public-run projects often do.
Nice post with good data points. And I get where you are coming from.
There is only a demand for bonds because buyers assume they will have their capital returned to them. That can only happen if the debt system continues to function and it only continues to function if everyone collectively believes that the future is going to be better than the present (how capitalism works).
Your projects are perhaps only viable because of the extraordinarily low discount rate that is being applied to them, which quite likely isn't reflective of the actual risk/reward of the project in the real world where central banks aren't/haven't artificially modified the value of money. Are your projects viable at the real rate of inflation (what cost of capital/equity?) or are you using a discount rate closer to the central bank (funny money) risk free rate? If using the funny money discount rate, then of course the project looks good - but as i say above we have a bunch of zombie projects and zombie companies surrounding us because we want to avoid recession and allow the central banks to tamper with the value of money to avoid the inevitable (recession) - and this (recession) has only been avoided the past 5 years because we have been able to drop the OCR to zero. Now we can't do that because we are already there.
The comments above are reflective of bond pricing, house prices, share prices and viability of projects. Modify the discount rate (i.e. don't use the funny money discount rate) and see what happens to prices and what projects/mortgages are actually viable.
"Don't believe Grant R when he says we need to tighten our belt - we should be investing in the infrastructure we need to succeed in the 21st century." Excellent comment. This should be included in a discourse on MMT, and more specifically when the Government creates (not from tax) more money for deficit spending. Under previous models this would increase inflation, but if one considers how it is spent, then you have to ask why in some cases. Government spending into infrastructure that supports the economy should not lead to inflation, but may help reduce it.
I would suggest that other spending towards developing national resilience and less reliance on imports would also not lead to inflation that could not be managed. As a comment from a couple of days ago indicated though, corporations largely looked to low wage/cost areas to manufacture, so bringing that back home may/will make items more expensive, but again that can be managed. Builds more jobs too, so more money in peoples hands, less spend on unproductive areas like benefits. Gains all around really.
made no mention of job changes actually, but obviously you are in the know. but I was referring to just the fat cats. those on the frontline are not bureaucrats. bureaucrats are the shiny arses. I know, I have had to deal with too many of them over the years. all authority no responsibility.
Apologies. That para was drafted before those markets actually closed (and the draft had Paris wrong - it was up +6.6% at that time.) However markets there are now well closed, and the article has been updated with final closings:
"Overnight European market recoveries were reasonably spectacular; Paris was up +7.1%, London was up +3.3% and Frankfurt was up +7.9%."
After the removal of Khrushchev the Soviets seemed to decide that one identity should not hold if not all, but certainly too much power. Hence a troika of sorts, Brezhnev,Kosygin, Podgorny. Over time however Brezhnev eclipsed the other two. As well, I think, a maximum of eight years in the top job was decreed? Putin has got round this by shifting back & forth between positions. You could therefore argue that Putin has defeated the safeguards installed in the 1960s, and had he not, the problems here now today, might well have been avoided. Twenty two years of power & self enrichment is out of balance. Megalomania beckons.
Only if they can't get later model, more capable USAF F16s (Block 52 or later) to replace them. They already operate Block 52+s. The Ukrainians only know MIG 29s or similar era Russian equipment. The US seems paralysed by indecision. A circumstance an agile opponent should and could exploit.
Ukraine is a lost cause now, its gone now in a matter of weeks. You cannot start firing anything from across the border into Ukraine without escalating the war. Putin knows he just needs to push troops to the Polish border. The damage is catastrophic they don't care if the flatten the place and every single civilian leaves. The Russians have been underestimated by the west, everyone thought that it could simply not happen in this day and age.
Nope Russia has badly underestimated Ukraine and the west. They were clearly expecting a capitulation.
Every day there are more Ukraine reservists coming into service, and more weapons arriving.
The longer it goes the stronger Ukraine will be, 44M fighting for their lives remember.
Meanwhile the Russians are having trouble recruiting because noone wants to fight.
https://www.understandingwar.org/backgrounder/russian-offensive-campaig…
tks for that. appears from that, the final thrust to take & subdue Kviv is to be within four days. Yet this will not involve a dedicated, say Plan B, force, that had been held in reserve tactically, for the operation. That in turn suggests the Russian plan was for a quick and fatal thrust, forcing capitulation of the Ukrainian government and people. And now dawns an early thaw, the spring of mud.
Yes it is easy to to criticise from the side lines. But a lack of transparency leaves one doubting the leadership. A CNN article indicates 500,000 US service men have been positioned ready to act, including 100,00 deployed to Europe, and their aircraft being on alert. Defensive postures are being reinforced, especially in Poland.
But Putin is proving the proof of the saying "Fortune favours the brave" (with limits). Quick action by the EU may well have shut him down early, but it appears his threat over nukes has cowed them somewhat. But one must ask then if he threatens to use nukes to hold off external help every time he moves, where will he stop if no one steps up? Do we the west, sit on the sidelines tossing in slings and bows and arrows while he destroys a nation of 80 million people?
Surely the most desirable outcome is a fully free and democratic Russia? It's economic success for the people can only really happen if that is the result. Putin has shown that with him in charge, that is highly unlikely to ever occur and his legacy will be to leave other tyrants in charge when he falls off his perch (or gets pushed). So what other way is there to restore Russia to the desired state except to go hard to smack him down and encourage his removal?
Russia is best left alone. As long as they stay within the limits of the old soviet union, it can fester on its own. The main problem going forward for the west is that is has massive energy reserves as well as rare metals and the west has become dependent on it. The USA is already paying a high price for the attempted sanctions on the energy side and the problem is Biden needs to keep the voters happy where as Putin doesn't care if you starve to death in the street. No prizes for guessing who is going to blink first.
The problem is when he's swallowed Ukraine, he borders with a lot of states who are part of NATO and used to be a former Soviet state. Take a look at a map of NATO puts the lie to many of his claims that so many gullible swallowed. Taking over Ukraine means instead of bordering just three NATO states (Latvia, Norway and Estonia, and ignoring the Kaliningrad Oblast) he will now border on Romania, Hungary, Slovakia, and Poland as well. They are all members of NATO. Moldova on the Black see coast between Ukraine and Romania is not NATO so we will likely see that go down too now.
Tell me what values do you think NATO and the nations who form it, and the UN have demonstrated they stand for?
Murray86 - Beneath the rhetoric about security lies one big fact - it's as much if not more about oil and gas.
Russia is (up till now anyway) Europe's largest oil, coal and gas supplier. In 2012, Ukraine discovered shale gas in the Donbas (not yet separatist) region and in the west between Belarus and Moldova. At the same time, oil and gas deposits were discovered off the coast of Ukraine. These would all have made Ukraine the second largest supplier to Europe, after Russia.
In 2014, the Russia-friendly govt of Ukraine was kicked out in essentially a revolution or popular uprising, and a western-friendly democratic one elected in. This one was not so cooperative with Russia (a large pipeline leftover from Soviet times from Russia to Europe runs though Ukraine and the Ukrainians were now demanding billions more to allow Russia use of it). And so, in the same year Russia went in and annexed Crimea, which effectively cut off 1/3rd or more of that coastal oil and gas resources.
Now Russia wants the rest of Ukraine's resources before they can join the EU and NATO.
So Russia is about greed (oil and gas) but the EU and NATO not so much?
But many indicate the US went to war in Iraq over oil and gas? Why not here? Especially as a Ukrainian control over significant supplies to Europe would likely be more stable and less likely to be subject to unreasonable demands if Ukraine's aspirations towards a democratic state are realised?
I think there are a few holes in that view, but it may not be wrong.
So Russia is about greed (oil and gas) but the EU and NATO not so much?
Never said that. In fact, NATO's involvement in Libya was about oil.
Only that Russia's motivation for this war is as much the oil and gas as it is supposedly security concerns. In fact, having this war makes the security aspect even worse for Russia now as those who've been sitting on the fence now want to join NATO!
I think Poland should keep it's Mig fighter jets.
Oh no no, don't keep those Migs! Despite the Ukrainian propaganda (now debunked Ghost of Kyiv), they're not really that good. Most of the Russian planes downed were by the Stinger-type anti-air weapons, not the Ukrainian airplanes.
And since the Russians don't have air superiority, they are forced to fly low, in range and sight of the handheld missile systems.
If you see the picture of the Polish fighters (new F-16s and old Mig-29s) side-by-side, you'll see the Migs leave long dirty dark smoke trails behind them. So easy to spot them from afar or in a dogfight...
I watched an analysis that the reason is because Russia doesn't have the precision strike capabilities of the west, nor the tech to support that style of combat. Hence all the (likely accidental) shelling of civilian facilities, for example (both from poor training and not quite precise equipment).
They're (Russians) more built as a brute force to counter invasions, not to be invaders (unlike the Americans, you could say). Their only successes were either at high cost (Chechna) or just plain overwhelming force (Georgia).
A blessing in disguise really, because China uses mostly Russian designed equipment, which means they must be having second or third thoughts about invading Taiwan!
About twenty years ago I got into a conversation with a recently retired US Navy Captain. He said that when détente etc, Gorbachev, Yeltsin saw the iron curtain lifted, it became quickly apparent that the soviets were not anywhere as well equipped or capable as we had been led to believe.It might not be all that dissimilar now. For instance in Syria, the Battle of Khasham, the US forces destroyed a Russian so called mercenary force, but nevertheless armed to full capacity, reasonably easily, that is no casualties on the American side. Suggests that there are chronic deficiencies that are now being exposed in Ukraine.
For instance in Syria, the Battle of Khasham, the US forces destroyed a Russian so called mercenary force, but nevertheless armed to full capacity, reasonably easily
That's hardly surprising - the Americans have been well trained in the art of war since WW II. (NOT to say they've been successful, just very experienced.) The Ruskis? Not so much - only small limited actions against smaller opponents since Afghanistan.
Truth be told, Russia's military budget has always been much smaller compared to the US (about 1/0th) and China (about 1/3rd), and on the level of the UK and India. Cheaper, less sophisticated and easier to produce is their thinking - leftover from WW II. That works for fighting against invaders, not so much for invading. Once again, the Americans have much more experience there...
Gotta admire their (Russians') confidence (at the beginning) though - among the items in their initial convoys were riot equipment for internal security. They expected to win and have to deal with an unruly population!
I am assuming there is much more roading & built up areas than the vast, endless and undeveloped countryside that so baffled and bewildered the Wehrmacht from 1941 onwards and that might today too, lessen the impact of the thaw, the “spring of mud” that bogged the Germans down, hopelessly. Still the thaw this year is unseasonably early it seems. Heavy armour, off the beaten track, will not be all that mobile for quite a while?
" Western investors no longer seem to be preparing for an international meltdown. Equity markets are recovering".
That answers the question raised in the last few days whether or not one should pull their money out of KiwiSaver growth funds. The Dax up 7.92%, CAC 7.13% and NASDAQ 3.45% - any up turn will take some days to be reflected in account balances.
Those with KiwiSaver growth funds need to expect and ride out volatility in the short term . . . and if not their risk tolerance suggests that they are in the wrong fund
i will confess that i pulled my Kiwisaver back to NZ cash a week before the invasion having been in growth since the beginning and never changed funds or even thought about it. Even after yesterdays Bounce -- the markets are still 8% lower -- so not exactly sweating on it or worried that its gogin to jump another 10% higher in the near future
I don't consider it a lack of risk tolerance as you describe -- been happy with all the usual risks including the GFC as in it for the long term -- but the global risk profile is massively different today -- not just the Pandemic could continue to develop - but global inflation is pretty much locked in for a few years - and the fallout from the conflict will last for years -- Oil in particular will remain much higher for much longer even if the conflict resolves itself -- Politically -- even if Russia packed up and went home tomorrow --- many of the companies businesses and countries will not simply reverse their positions -- as the risk that they are globally blacklisted for doing business in Russia is too high
I consider my change -- a proportionate and appropriate response to both the huge increase in risk - and the improvements in returns that a more cash based fund will deliver over the next period
Rising volumes from Australia and India are helping offset the Ukraine uncertainties.
Ukrainian farmers are busy this spring stealing armoured vehicles. I think we'll have to excuse them on this one occasion given they are doing a better job of disarmament and bring the war to a close than any international organisation.
In future there will be three things one should never enquire about: The age of a lady, the salary of a man or the provenance of a Ukrainian farmers $15m anti-aircraft missile defense system.
Given the low income, subsistence nature of farming in much of Eastern Europe I suspect even an old BTR armoured car or Kamaz truck at about US$20k would likely feed their families very well for a year. A T-72 tank at $250k+ would be a comfortable retirement nest egg once flipped.
The correct answer is a small fraction of what a main battle tank does. If you think war is expensive for NATO imagine the Russians paying for most of this. Estimates I've seen indicate Russian operational costs of US$7bn/day and the EU thinks if you take the total losses into account it's close to €20bn/day.
That's not to mention the reparations likely to be levied on Russian oil in future to rebuild cities they are systematically destroying.
If the people of Western Europe could just show some real solidarity with Ukraine and could handle being a bit cold for a while. Stop buying Russian gas. Remove the Russian banks from Swift that facilitate the gas trade like Gazprom Bank. Then the Russians will be really screwed. Or do we just want to cheer from the sidelines for the underdog while they get slowly ground into the mud.
The Russians are not going to be screwed they have the backing of China. Ultimately both Putin and Xi want the USA to fall and the USD to collapse and lose its global reserve currency status. Its like a game of survivor, sometimes you team up with your enemy to see an even bigger enemy removed from the picture. The issue will be that the USA will simply not relinquish the title without a fight and you will have WW3.
Chinese wealth does not yet match the wealth in the west. And their economy shrunk as compared to America last year (when it had been expected to grow). The decoupling of East and West will reduce wealth on both sides, however, the West has a culture more conducive to technological advancement and innovation. They will plough money into new defence tech, renewables and attempt to rapidly wean themselves of Russian energy and Chinese factories. None of which is positive for China or Russia.
And now the Russia/Chinese threat will incentivise the West to become more united again.
The history of communist authoritarian regimes is that when they withdraw into themselves, they eventually regress technologically. Communism is just not conducive to innovation. China endlessly likes to refer back to their glory days, but they are harking back to deep history. Deep history is great for stoking nationalism and isolationism but not so great for innovation. When the May 4th movement began, it was because Chinese intellectuals realised they were embarrassed to be so far behind the rest of the world. And came up with crack pot ideas about why the West had advanced faster than them, in a way that mostly flattered their sense of superiority and entitlement. They cherry picked which aspects of western values and systems they would engage with, but they did not choose democracy. Modern western democracy is flawed too obvs. All systems are, but western capitalist democracy has done more to lift sheer numbers of people out of poverty, gain education and extend life spans than any other system of governance in the history of mankind. Unfortunately, a lot fo that innovation was in using finite resources which will run out this century (at at the expense of other species and the climate). If the China/Russia alliance forces the West to rapidly innovate and pivot to renewables… who gets the last laugh? While Russia and China will still be heavily dependent on fossil fuels and without a culture more optimal for innovation, the West is likely to leap ahead of them technologically. AGAIN.
When Britain was the worlds factory, when it led the industrial revolution, it spread Western property rights and value systems across the world. The capitalist and democratic system, encouraged innovation in all the countries that adopted (or already had) a similar legal, politcial and value system. Every country that followed Britain (or already had very similar values) rapidly began a population boom. More and more cultures mingled and shared ideas. And felt safe to invest capital within the safety of certain legal rights. It wasn’t always nice. But Empires don’t tend to be. Regardless, we pretty much always have them and they have pros and cons.
So now China is the world’s factory. And in the decades since they took on this role have they spread their culture, legal system, politics and innovations across the globe? Like the Dutch, then the Brits and most recently the Americans did? Have they leapt ahead to become the vanguard of global innovation? No. That isn’t to say that China isn’t successful or hasn’t made huge gains, but certain gains are limited by their politcial and ideological system IMO. And they are still butt hurt (as is Putin) that they do not have more soft power and global cache. But what is it exactly that qualifies a nation to feel like they ought to be treated as more of a big dog on the global stage? Is it population size? It is it because you were fancy and advanced 1000 years ago? No. Most cultural changes are a form of cultural evolution based on what works, along with how appealing your culture is to assimilate to. Neither Russia or China make their cultures appealing to assimilate to. Japan and South Korea still have more cultural soft power than China, despite significantly less wealth.
The Western world engages with China for merceneray profit based reasons, not because China has cultural cache that everyone wants to emulate. The world doesn’t experience Chinese culture and think… “ooh let me be more like that”. Have even China’s neighbours rushed to adopt Chinese culture and legal system? Nope. And if anything, countries that are butt hurt with the West, are still defined by a fight to prevent Westernisation and resorting often to religious extremism (like ISIS) in order to protect their sense of national pride and identify. But tell me, how do we think reverting back to medieval Islamic law would affect technological innovation?
So as history shows us, it will require brute force violence and subjugation to force other countries to accept a new world order and Chinese or Russian dominance (because they have such poor soft power). Unless there is a global ideological shift (which is possible) then western culture still has vastly more cache.
Cultural cache is a huge factor. The Ancient Greeks were so innovative, so open to new ideas, that they still had massive amounts of cultural cache Millenia after their culture was gone. People were still advancing technology and ideas based on their language and thinking. A lot of the innovation in Ancient Greece came because they were open to ideas from other cultures. They encouraged debate (only for rich men obvs) and had proto-democracy. Rome were also only too glad to incorporate the ideas and tech of other cultures.
But what happened in the USSR? Patriotic delusionalism led to technological regression. And it will again eventually if they are headed back down that path.
The greatest intellectuals, scientists and thinkers of the modern era don’t rush to attend Chinese or Russian universities or emigrate there to start new businesses. Naturally, Western capital has invested in China and Russia, but look how quickly it pulls out.
Innovation happens when your culture is at least somewhat welcoming to immigrants and new ideas. China is interested in its own ideas and the belief that its own culture and intellectuals are superior. Whereas Western culture will potentially adopt any idea if its viable and can be turned to a profit. It’s mercenary but ultimately leads to more innovation.
Russia spent the last decade amassing foreign reserves and wealth assets then storing them in the West, and much of that wealth appears to have been confiscated. China would most certainly have noted. I’m not sure they expected that the West to do that to a G20 country.
It takes a long time and some would argue, major wars to reset a reserve currency. Neither Russia or China are even remotely near reserve currency status. So the West still very much has that leverage against them, for awhile yet, which both of them have just been reminded of.
Not to mention that China’s population is expected to keep ageing and shrinking (which is also deflationary) and America is expected to keep growing (entirely because of immigration, which again, leads to more cultural innovation).
I would not be so quick to assume the American empire is over. If China and Russia had waited another decade or so? Yeah, much more likely, but I just don’t think they had reached parity with the West yet.
We’ll see I guess.
Thoughtful, GN. Care to comment about another possibility: rather than a reserve currency as such, a trading bloc which, taken broadly, constitutes an autarky. China, Russia, Iran, India, Pakistan, Kazakhstan, the eastern seaboard of Ukraine, and the wider BRI dependencies. Sure, it might not be culturally appealing, but if there's one concept that most in this lot are familiar with, it's being ruled by force and fear. And Cuba stands as a counter example to your theme: technically stagnant, yet has unaccountably much appeal to more than a few in the West. But that might just be the 50's cars.....
Petrol prices in Australia $1.88 - in NZ 75% more expensive than that at around $3.30. I know we have more tax and duties but other than that why?
https://www.fuelcheck.nsw.gov.au/app
How do I find a good site for prices of Singapore refined fuel over time. Bulk. Anybody got a link. ?
Seeing my diesel heading to triple price in less than two years. (NZ pump). I would like to compare if changes in the international bulk price matches the changes at the New Zealand pump. Or are we being ripped off by our big companies.
https://www.aip.com.au/pricing/international-prices/international-marke…
Latest refinery price USD 1.15 litre. NZD 1.71. Diesel does seem to be increasing faster than petrol
Just like we could have introduced a comprehensive capital gains tax but we did not so we’re happy to screw non asset owners, saving the already well off. Oh well. At least wealthy asset owners still need to put fuel in the Audi and buy the expensive bottle of bubbles so at least we can extract some tax from them while they live in their $2,000,000 homes.
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