The argument that war can’t happen because it would be economically bad for all participants doesn’t work very well. Economics affects people’s estimates of the probability of winning, but it doesn’t really affect the motivation to go to war, except in monarchies/dictatorships pursuing wars of conquest. Armed conflicts in the last 100 years or so have more to do with missteps and miscalculations that spiral out of control (or identity politics such as racism or ethnic cleansing) than rational decisions about what is best for the economy. Changes in economic power, such as the crumbling of the US economy and reduced international commitments add to the uncertainties and potentials for miscalculation. I don’t think war in the next decade is necessarily likely, but it is more likely than one would normally expect. These changes often come faster and sooner than expected. And if the US economy is down for the count. The US could be grumbling the way the Russians are grumbling right now. As for the option, I’m not sure how I’d go about pricing it, but it’d be a fun exercise to do if I had the time. We’re not talking about a normal distribution here, or and I’m not sure what the appropriate strike price of the relevant option would be.
newsuper Wrote: ------------------------------------------------------- > > I do think however that if Bernanke is going to > unleash QE3 he also needs to stop paying interest > on bank deposits at the Fed. There’s no point in > flooding the market with cash if it all just ends > up back at the Fed. So that the cash ends up in commodities?
or how about an Iran-Pakistan coalition waging war on China in protection of the Uyghur people… which side does the West take?
It’s kind of funny that a thread on QE has turned into talk of war. The tinfoil hat crowd firmly believes the uprisings in the MENA region were because of The Bernake. QE drove up commodity prices which drove people over the edge in already unstable climates.
I’m not saying to forget history, but honestly it’s dangerous to think the world is like it was even 50 years ago. We’re just seeing the start of social media and its ability to disinfect the more corrupt parts of our planet. While the US economy lacks growth, it is hardly “crumbling”. Everyone else is just catching up.
AlphaSeeker Wrote: ------------------------------------------------------- > ^ > It takes long time for a giant to sink… the US > is no exception… > > So, I doubt any country can challenge the US > military wise in the next 2-3 decades. > > A more possible scenario is that China starts to > engage regional conflicts with its neighbors (not > Taiwan) over territory or resources disputes. US > then intervenes to curb China. China will back > down for a few times. > > Eventually, when the US is weakened economically > and militarily to a certain level, China will make > a stronger stance against the US. Things could get > ugly and scary from there. > > But I think that’s at least 20-30 years from now, > around the time our social security fund is > expected to run out. Yes, that’s more or less how I see things evolving. The time frame is very hard to predict, but yes, I think within 30 years, there is a very good chance that China and the US will have started shooting at each other somewhere around the world, unless China implodes entirely in the interim. If there is shooting, one hopes it does not escalate into anything full scale, and remaining primarily limited to proxy-wars.
Or China goes out with a whimper, like the USSR…
That was the “China implodes entirely in the interim” clause I had there. The most likely scenario for that is civil war based on unequal distribution of wealth between the cities and the countryside based on economic contraction. The cities have the upper hand in crushing a countryside rebellion, because the Party controls the army, is better organized in the cities, and the cities have the wealth to support the army, but the Party may have to open up politics to the emerging middle classes in order to gain their support, or face a civil war on two fronts. It’s a really interesting scenario, because there are so many ways it could play out; and it’s a real possibility. That wouldn’t be a whimper, though. I don’t see China disappearing in a whimper. One way they are all pretty unified is that they feel collectively humiliated by the West for 150 years, and they are eager to regain former glory as the preeminent civilization on the planet. What this means is that - even if China has a democratic transition - it won’t quietly exit the world stage. And Russia isn’t exactly a whimper either. The Soviet Union died, but Russia did not. Russia went through 10 years down-and-out, but it is very much a active challenger to the US on the world stage. Conflict with Russia is even more likely than with China in the short-to-medium term.
bchadwick Wrote: ------------------------------------------------------- > And Russia isn’t exactly a whimper either. The > Soviet Union died, but Russia did not. Russia > went through 10 years down-and-out, but it is very > much a active challenger to the US on the world > stage. Conflict with Russia is even more likely > than with China in the short-to-medium term. I’m not a geopolitical analyst, nor do I play one on the interwebs, but Russia is developing nation at best, far from an active challenger to the US. Their GDP/capita is one quarter of the US’s, and they have half the population.
egal Wrote: ------------------------------------------------------- > newsuper Wrote: > -------------------------------------------------- > ----- > > > > I do think however that if Bernanke is going to > > unleash QE3 he also needs to stop paying > interest > > on bank deposits at the Fed. There’s no point > in > > flooding the market with cash if it all just > ends > > up back at the Fed. > > So that the cash ends up in commodities? Maybe, but is the alternative doing any better? Ideally it would end up in the hands of companies looking to invest and expand their businesses. Anyway, I wouldn’t argue that QE1 and 2 were solely responsible for the commodities boom - if so why are commodities still sky-high despite no QE?
justin88 Wrote: ------------------------------------------------------- > bchadwick Wrote: > -------------------------------------------------- > ----- > > And Russia isn’t exactly a whimper either. The > > Soviet Union died, but Russia did not. Russia > > went through 10 years down-and-out, but it is > very > > much a active challenger to the US on the world > > stage. Conflict with Russia is even more > likely > > than with China in the short-to-medium term. > > I’m not a geopolitical analyst, nor do I play one > on the interwebs, but Russia is developing nation > at best, far from an active challenger to the US. > Their GDP/capita is one quarter of the US’s, and > they have half the population. Yeah, but Russia was a developing country when Hitler invaded and they managed to ward off what had been until then the most successful and invasion force in modern history (with the possible exception of their Japanese allies). Russia the developing country was first to put a satellite in space, and a man, and then a woman, and land on another planet (Venus, I believe). Russia could destroy the world single handedly with its nukes if its leader had consumed enough vodka to do it. Russia very likely has substantial cyberwarfare capabilities and plans of attack. They may not be foolproof, but I suspect they are formidable. Russia could make Europe crap bricks by cutting off fuel supplies from the caucuses and the stans. And Russia, like China, wants payback for what they consider years (centuries, in the case of China) of humiliation by the West. In power politics, per capita GDP is not the only indicator of who’s a player.
bchadwick Wrote: ------------------------------------------------------- > Yeah, but Russia was a developing country when > Hitler invaded and they managed to ward off what > had been until then the most successful and > invasion force in modern history (with the > possible exception of their Japanese allies). > > Russia the developing country was first to put a > satellite in space, and a man, and then a woman, > and land on another planet (Venus, I believe). > Russia could destroy the world single handedly > with its nukes if its leader had consumed enough > vodka to do it. Russia very likely has > substantial cyberwarfare capabilities and plans of > attack. They may not be foolproof, but I suspect > they are formidable. Russia could make Europe > crap bricks by cutting off fuel supplies from the > caucuses and the stans. And Russia, like China, > wants payback for what they consider years > (centuries, in the case of China) of humiliation > by the West. > > In power politics, per capita GDP is not the only > indicator of who’s a player. bchadwick, you display typical Westerm ignorance of the mighty armed forces which Africa conceals in her bosom. A more likely enemy of the US is Botswana, which possess an elite figting force… http://culturesofafrica.pbworks.com/f/1265993514/bushman-stalking-pair-journ.jpg
I think it’s a mistake to think that war is going to provide us the fiscal stimulus to restart the economy. I think war often times has the opposite effect of causing overspending and bankrupting the nation’s coffers. For the example of WW2, there are also plenty of counter examples like Russia’s financial crisis after the Chechen war, or Spain’s default in the 1500s. I’m not sure what the US budget deficit was going into WW2, but maybe that has an effect on the extent of the potential stimulus.
I’m not sure if Palantir’s comment was directed towards me, or elsewhere, but I do want to clarify that my analysis is not that “a good war will fix up this economy, because that’s what WWII did after the Depression.” I agree that the expense of war is often what finishes off a country, rather than what fixes one up. The French and Indian War in the Americas is what finished off the ancien regime in France. Vietnam set the stage for the end of the gold-backed dollar in the 1970s, and Iraq and Afghanistan helped baloon the deficit in the 2000s. Instead, my analysis says that “the change of great-power leadership as one country rises and another declines is seldom accomplished peacefully, and seems even less likely when the world is a crowded place, economically intertwined, and the rising and declining powers have strikingly different cultural values.”
bchadwick Wrote: ------------------------------------------------------- > Yeah, but Russia was a developing country when > Hitler invaded and they managed to ward off what > had been until then the most successful and > invasion force in modern history (with the > possible exception of their Japanese allies). You keep saying Russia, but that was the Soviet Union. They are quite different, and conflating the two isn’t helping your argument. Also, while the Soviets did mobilize their war economy quickly, the ratio of their losses to German losses was somewhere in the 4:1 to 5:1 range, and they benefited from poor logistical planning for the Russian winter and long supply chain. > Russia the developing country was first to put a > satellite in space, and a man, and then a woman, > and land on another planet (Venus, I believe). These are things a planned economy would excel at, so why would this be surprising? > Russia could destroy the world single handedly > with its nukes if its leader had consumed enough > vodka to do it. Russia very likely has > substantial cyberwarfare capabilities and plans of > attack. They may not be foolproof, but I suspect > they are formidable. Russia could make Europe > crap bricks by cutting off fuel supplies from the > caucuses and the stans. And Russia, like China, > wants payback for what they consider years > (centuries, in the case of China) of humiliation > by the West. OK.
First of all, I’m not saying that Russia will be the new United States after a conflict with the US. I’m really just saying that Russians, feeling humiliated by their loss of superpower status after the Cold War and the ensuing inflationary period in the 1990s, are anxious to show that they are still a major power, and their politics is set up to reward people who do that. In essence, the Russian leadership are quietly spoiling for a fight so they can show that they still matter. They have the technology and military capacity to be a real military threat, and even if the US would probably win a long-term conventional war with them, it would still be very costly, and the threat of nukes would scare the daylights out of everyone. They also see that doing things that stick a thumb in the US’s eye (and to some extent, Western Europe’s) is a great way to show that they still matter. So in the scenario of a Russia-US conflict, the idea is that Russia does something provocative to show that they matter (assisting Syria or Iran, or something), confident that the US and the Western Allies are too wimpy to do more than try some UN resolutions, and yet it spills into a real shooting match somewhere. This could escalate, as Russia gets richer on increased energy prices and the US seems to be in economic decline, so the Russians figure they can push the US around. The conflict drains both Russia and the US, and China basically emerges unscathed and last man standing. That was the scenario I was thinking about with Russia. justin88 Wrote: ------------------------------------------------------- > bchadwick Wrote: > -------------------------------------------------- > ----- > > Yeah, but Russia was a developing country when > > Hitler invaded and they managed to ward off > what > > had been until then the most successful and > > invasion force in modern history (with the > > possible exception of their Japanese allies). > > You keep saying Russia, but that was the Soviet > Union. They are quite different, and conflating > the two isn’t helping your argument. > They are different, but they are not really that different. The Russians basically ran the Soviet Union, even if Stalin himself was from Georgia. In land area, the RFSFR was something like 85% of the land area of the Soviet Union. Politics no longer has the Communist Party as the organizing entity, but the State is still pretty much the owner of the most important resources, and freedoms of association are permitted but more on paper than anything else. Aside from the flags and the name, what do you see as the key features that make the “Soviet Union” quite different from “Russia.” I’ll grant you that the population density is a bit lower, now that Ukraine and Belarus are independent, but I don’t see that as a huge change in their geopolitical status.
bchadwick Wrote: ------------------------------------------------------- > Aside from the flags and the name, what do you see > as the key features that make the “Soviet Union” > quite different from “Russia.” I’ll grant you > that the population density is a bit lower, now > that Ukraine and Belarus are independent, but I > don’t see that as a huge change in their > geopolitical status. Population of Russia is less than half of the USSR’s peak. (Ukraine alone had 50M people.) Negative/flat population growth. Capital is no longer fleeing the country; recently capital has been flowing into the country for investment. Most industry has been somewhat privatized; the citizens are now benefiting from the great natural resource wealth; a significant middle class has developed; this is creating many sub-industries allowing the Russian economy to sector-diversify. What’s similar? The land?
> What’s similar? The land? The land, the natural resources, the people who live on that land, the culture, the politics, the geopolitical aspirations. So there’s a lot of wealth now owned by oligarchs, as opposed to controlled by the Party bosses. How is that different, exactly? Yeah, Russia today is different from the Soviet Union, but the United States of 2010 is also pretty different from the United States of 1985 (tech, economy, how much of the economy is owned by the top 1%). Are you saying that it’s wrong to refer to the United States as the United States, because capital is fleeing the US, whereas it was coming to the US in the 1980s? You say > You keep saying Russia, but that was the Soviet Union. > They are quite different, and conflating the two isn’t helping your argument. That’s quite an assertion. Then you say… > Capital is no longer fleeing the country; > recently capital has been flowing into the country for investment. > Most industry has been somewhat privatized; > the citizens are now benefiting from the great natural resource wealth; > a significant middle class has developed; > this is creating many sub-industries allowing the Russian economy to sector-diversify. These would seem to strengthen my argument that Russia can pose a challenge to the US geopolitically. Thanks for helping my argument. To be fair, you do say: > Population of Russia is less than half of the USSR’s peak. > (Ukraine alone had 50M people.) Negative/flat population growth. Which I agree weakens my claim, but not critically.
Back to the QE3 subject. With market dropping like today, negative feedback loop is being rienforced signfiicantly. I know Fed should not base their decision on stock market that much, but the wealth effect (or the lack of it) is key part of the negative feedback loop… as it leads to weaker cosumer confidence, lower demand, and slower growth… on and on. Do you think Fed will come and try to break the feedback loop? Or The economic data are still not bad enough while the inflation risk is still too high?