As we kickoff another trading week, an apocalyptic scenario is now unfolding for the West.
A World Facing A Two-Front War
August 22 (King World News) – Dr. Stephen Leeb: The world currently is embroiled in a two-front war between the globe’s two halves: North West (NW) and South East (SE). One front is the brutal military battle between Russia and West-supported Ukraine. The other is the contest between China and the U.S. for economic and political supremacy. This latter front also has military overtones. If either economy seriously weakened, economic conflict could easily turn into a military one centered on Taiwan.
I do believe that ultimately this configuration will yield to a more multipolar world in which – let’s hope – NW and SE cooperate in preserving the planet for future generations. When both sides step back, I believe they will see the fundamental reality that each has far more to gain from cooperation than from continuing to wage a battle whose repercussions are certain to be catastrophic for all. Meanwhile, though, the NW’s position is becoming more tenuous, with more turmoil in store.
Whatever happens, whatever path is taken, gold – as I’ve said before – will be a major winner. I know that gold’s lackluster performance has been frustrating, but don’t get shaken out. Indeed, ironically, the fact that gold has lagged commodities and has seemed capped on the upside further bolsters its long-term potential…
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One of the defining characteristics of the world has long been the dollar’s hegemony. The current NW/SE conflict has major implications for the dollar’s future role. The possibility of a new gold-centered monetary system poses the biggest potential threat to the dollar. Since the U.S. left the gold standard in 1971, the rivalry between a fiat currency and a gold-backed currency has been apparent in the very strong negative correlation between the two.
Whether or not U.S. banks have been manipulating the gold market, it’s indisputable that banking activities are defined in dollars. Anything that threatens the dollar’s primacy would sharply diminish the power of U.S. banks. As long as the consequences from manipulating gold are less damaging to banks than the harm that they’d suffer from the dollar losing its primacy, banks will be motivated to manipulate gold. And since what is true for banks is true for the entire economic system, and especially the Federal Reserve, banks can feel confident they won’t face more than token punishment.
At some point, though, the world’s dollar-based system could start to implode, similar to 2008 but on a much larger scale. The forces in gold’s favor then would be so strong that manipulation would be futile. And realize that such pressures are starting to build as a result of the two-front war currently being waged.
Russia’s Triumph In Ukraine Is Inevitable
My take is that we are rapidly approaching the point at which the NW loses its ability to control gold. For starters, Russia’s triumph in Ukraine is inevitable. Even maps from pro-Western sources (and to a greater degree, neutral maps) show a relatively slow but steady advance in Russia-controlled territory. Russia is very close to completing its initial goal, control of the entire Donbas region, comprised of Luhansk and Donetsk. It already fully controls Luhansk, while control of Donetsk should be completed within the next few weeks.
Russia also controls a great deal of territory west and south of the Donbas and is positioning itself to take the critical port city of Odesa, with troops being readied to approach the city from both east and north. Control of Odesa would be tantamount to control of all of Ukraine’s Black Sea ports, leaving the rest of the country landlocked.
West of Donbas is Europe’s largest nuclear plant, Zaporizhzhia, which has been under Russian control since the early days of the war. The recent shelling of the plant is a strong illustration of Ukraine’s growing desperation. At first Ukraine claimed, with full support from Western media, that Russia was shelling the plant. But it was so ludicrous to think that Russians would shell themselves that the most recent report from CNN was simply to say that contrary to Putin’s claims, the shelling is sporadic and not systemic…
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Ukraine Shelling Nuclear Plant
At least CNN implicitly admitted the shelling is from Ukraine. Some of the media still adhere to the preposterous claim that Russia is shelling itself. Ukraine’s apparent hope was to create a potential crisis that could lead to a demilitarized zone effectively freezing the conflict in the east, thwarting Russia’s likely advance on Odesa and other eastern targets outside of the Donbas. Some media are also making a big deal about isolated explosions in undefended airfields in Crimea. While these explosions will have some cost to Russia, they will have about as much effect on the war as a protest march in favor of transgender rights in Portland, Oregon.
Turning to China, the picture is more opaque. China has demonstrated its military can blockade not just Taiwan but also the Taiwan Strait, a major waterway for worldwide trade. But if China’s economy is really on the ropes, as reported in the media, it might lack funds for a drawn-out war, leaving the U.S. military position in the East secure.
China And The Art Of War
However, it seems increasingly apparent that China, its distrust of the U.S. growing, is returning to heeding the dictates of the 2,500-year-old old treatise The Art of War. It is magnifying and perhaps even creating ephemeral weaknesses while hiding its strengths. Last week, both The New York Times and The Wall Street Journal had front-page headlines about serious weakness in China’s economy. They were not alone, as on Saturday the Hong Kong-based South China Morning Post, which certainly needs to follow some mainland guidelines on what it can say, wrote:
Economic growth is faltering as the country’s zero-Covid policies, a slumping property sector and disruption caused by the current heatwave all take their toll…China is trying to stabilize its supply chains to maintain its industrial output and boost consumption as the economy slows dramatically in the face of its draconian zero-Covid policy.
Occasionally, someone from the Western media bucks the overall narrative. In a previous interview I quoted a front-page WSJ article that pointed to a vibrant Russian economy. This week, it was an article by a Bloomberg opinion writer, Anjani Trivedi, who has spent most of her working life in the East including in Hong Kong and currently Dubai. Though she has written for the WSJ and more recently for Bloomberg, her only time in the U.S. appears to have been four years at MIT. I researched her background because I wanted to know if there was anything about her that separated her from other journalists, and the answer seems to be less exposure to the narratives that dominate our media.
Her recent opinion piece for Bloomberg was titled “Don’t Believe the Forecast. China is Fine.” She acknowledged the dismal numbers that have been making headlines including those on housing, lower-than-expected industrial output, and the sharp cut in GDP expectations. But – and I admit these numbers surprised me – she noted that in the industries that really mattered, things were going gangbusters. For instance, EV production and sales have been growing at a better than 100% rate. Moreover, foreign investment in China’s high-tech industries soared by over 31% in the first six months of the year. In other words, the industries critical to the country’s future paint a very different picture.
Another journalist, David Goldman, a well-respected U.S. economist who writes for the Asian Times, also recently presented some Chinese data that while consistent with what I knew still surprised me, as it spoke to the economic hold the country has on the fast-growing SE. Chinese exports to nine fast-growing countries, whose population combined with China’s represent about 50% of the world, came to $70 billion in the month of June, nearly double pre-Covid levels.
All Warfare Is Based On Deception
As for the negative economic effects of zero-Covid, here I am speculating. A major downside to China’s remarkable success (and a major reason I’d never want to live in China) is that its government, without a second thought, ruthlessly will do whatever it wants if it serves a greater purpose. I’m suggesting that zero-Covid has been an utter farce whose real purpose has been to harm the West. China wants to be in a position of broad-based growth later this year when the West is likely suffering from the effects of higher commodity prices and, in the U.S., extremely high household debt levels…
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Anyone glancing at the Covid numbers has to be skeptical about the continued sporadic lockdowns. The lockdowns have disrupted the lives of tens of millions of Chinese while causing the outside world to continue to suffer from disrupted supply chains. This was especially true when Shanghai, probably the most important trade port in the world, had ships lined up for miles while Shanghai residents interviewed on YouTube indicated they had no idea why they had to remain in isolation for so long. Both case numbers and especially deaths from Covid have been minuscule in China compared to the rest of the world. During the period of zero-Covid, fewer than 600 Chinese have died from Covid, most of them elderly, meaning many of these deaths likely resulted from secondary conditions. In New Zealand, with much less than 1% of China’s population, more than 2,000 people have died in the same period.
Also true, with the exception of the elderly, nearly 100% of the Chinese population has been vaccinated. And why a lower percentage of those most vulnerable to Covid? Again, it’s hard not to be cynical about some of China’s policies. The bottom line, though, is that China is positioned to declare victory over Covid anytime it wants, halting all lockdowns – at which point, growth will surge. It will do so at whatever moment it thinks its resurgent growth will inflict as much pain as possible on the West.
An Apocalyptic Scenario For The West
There are various pathways to a multipolar world in which king dollar loses its crown. But as we approach the end of the year, a dramatic apocalyptic scenario has become increasingly probable. Russia will have furthered its status as a commodity king, while a resurgent China will get first dibs on the critical energies its economy needs. At the same time, Europe already becoming a basket case, could be on the verge of a breakup, especially if we get a cold winter.
The likelihood of some form of this scenario no doubt accounts for increased non-dollar trading among countries. Turkey – yes, the same Turkey that is a member of NATO – and Russia, for example, recently signed a trade deal amounting to $100 billion a year that will be in the currencies of the individual countries. Then there is the digital yuan, which will be another powerful tool for leaving the dollar behind, especially in all those SE countries so dependent on Chinese imports.
As it watches the success of China and Russia, the U.S. will be doing all it can to avoid a recession. Our only tool will be printing ever more money. In the context of high inflation, ballooning money supply could easily lead to a mass exodus from the U.S. bond market.
In the short term, the results will not be pretty unless you own gold. In fact, it is likely gold will play the canary in the gold mine with an historic upward spike preceding the turmoil. With the possibility of major change so close, the pressure on gold could increase as desperation in America reaches fever pitch. I emphasize that because if something you know should be rising is instead falling, it is all too human to think you’re wrong. This time, take it as a sign that you’re more right than you know.
If we are going to save our planet and if America is ever going to show a semblance if its former greatness, the scenario or something like it is in our future.
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