January 10, 2023
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The world is not Unipolar… It never was.

Unipolar is the new meme.

But when the example of the leader is not at hand, the herd must think for itself. It does this by means of clichés, pat words or images which stand for a whole group of ideas or experiences. Ed Bernays. (1)

“A language is something infinitely greater than grammar and philology. It is the poetic testament of the genius of a race and a culture, and the living embodiment of the thoughts and fancies that have molded them.”  Jawaharlal Nehru. (2)

How many times have economists told us the world has been unipolar since WW2?

The world is not, never has been and never will be unipolar. Even during the era of Octavian and his massive expansion of the Roman Empire, he still couldn’t conquer the Parthians, could not reach India, and could never have conquered China.

In fact, one could argue that it was Chinese silk and steel as well as Indian spices that brought Rome to its knees.

Nehru didn’t see the world the way we do.

Nehru was clearly the brains behind the revolution. Perhaps Gandhi held the audience, but Nehru had the brains. It was Nehru who understood that India, despite its poverty, would never stand for being occupied. People will starve before they choose submission. (Though in India under the British they had both for a time.)

Today’s economists are mathematicians. In fact, it was the management guru Peter Drucker who warned us of the blind side of what he called “the monetarists.” Unlike Nehru, who saw the world as a seamless kaleidoscope of language, culture, and geopolitics, (as well as greed, lust, avarice, and racism) to todays monetarists, everything is just a number.

This is their blindness.

The unipolar post WW2 world was anything but.

Contrary to economic thought, the biggest superpower in the world in 1950 was not the US, it was the USSR.

Tired of war, and under the iron grip of elections, the west went into isolation. Unhinged from popularity seeking, Stalin did the opposite. Stalin did things no democratically elected person could even dream of. He killed millions of German POWs, sent millions more to Siberia and sucked the life and blood out of his satellites.

By 1980, there was only one major figure in the world that believed the US could topple the USSR. Ronald Reagan.

But polarity was not that simple.

Western Europe, a fledgling group of countries all with separate currencies, created a customs union that eventually became the EU. To travel across Europe as late as 1988 was an insane exercise in passport controls and exchanging currencies.

To go from Italy to Holland, one could lose 1/4th of their money changing currencies. Credit cards, in their infancy, were taken in hotels mainly. There was passport control in every airport, dock, and every time a train crossed an international border.

And then there were visas. In the 80’s an American still needed a visa to go to Japan, Brazil and several other countries. An Israeli passport stamp was the kiss of death in dozens of countries.

Travel was a major pain in the ass.

People confuse market polarity with global polarity.

“Take Warren Buffet for example. To be frank, I’m not his biggest fan… he reads a lot of financial reports and accounting… and it’s pretty boring stuff really.” Elon Musk.

Market polarity is like seeing the world based on what you glean from English speakers. In fact, that’s what accounting is. A language. Nehru would scoff at such simplicity, but you can make money analyzing numbers and in a free trade capitalist country what else is there?

What we call economic growth is basically fractal growth of balance sheets worldwide. The basic assets and liabilities of companies, especially current assets (cash and accounts receivable) and current liabilities (accounts payable and the current portion of long-term debt) are the simple building blocks of the fractal system.

It was propelled worldwide by US government debt fueled by budget and trade deficits as well as accounts payable and receivable, which represent non-interest-bearing intra-company loans.  As in any fractal growth system, it’s simple, its complexity comes from millions of repetitions worldwide.

The so called “unipolar” world is all but over.

A detailed explanation will come later but let me add a few bullet points.

  • The US can no longer finance its trade deficits by borrowing from dirt poor Chinese savers.
  • The growth and emergence of the Asian middle class will make inflation a reoccurring theme.
  • The cost of extraction of fossil fuels is exploding. Population growth is energy related. Fossil fuels create cheap calories. There is no extra energy. Countries will fight for oil.
  • Market prices are becoming meaningless. Just because commodities are being sold for X dollars on NYMEX doesn’t mean everyone is paying that price.
  • The Roman empire moved east to Constantinople because they were bankrupted by free trade with Asia.

In fact, Rome is a great example.

Ancient Rome paid for its imports of silk, steel, and spices by shipping out gold. This gold they got from mines. They fed their citizens with what they called the grain dole. (Ancient food stamps only for the rich)  

The US pays for its imports of crap from Asia by flooding Asian central banks with treasury bills. There’s little difference between printing bank notes and using slaves to dig for and process gold, silver, and bronze. Both are shipped out. Neither are sustainable.

To see this one must think like Nehru and not an economist. Look at “the living embodiment of the thoughts and fancies that have molded them.”

Markets are highly centralized and specific. If an Indonesian company sells iron ore to a Chinese company, they use central bank US dollar CLEARING. The trade is iron ore – US dollars – Chinese company – Chinese central bank Yuan.

There’s no law that states US dollars must be in that trade.

Multipolar trading is already being used.

As Zoltan Pozar (3) of Credit Suisse tells us, this move to commodity-based trading and away from US DOLLAR SETTLEMENT is already happening.  

Global gold purchases by central banks (4) have gone way up in the last year. In addition, countries have spent the last three years repatriating gold back to their own countries from US vaults.

So, do these countries pay with gold?

But, using Nehru’s thinking, it’s not that simple.

Contrary to what economists tell you, countries don’t buy with gold. Gold is not a currency to be used by people or companies. Gold is used in settlement. Settlements are done by central banks.

When central banks (being banks) settle accounts, they ship (or receive) the amount equal to the deficit (or surplus) on their national accounts. If China sells 100 billion yuan of goods to Indonesia and Indonesia sends 100 billion in goods back to China, no gold changes hands because there’s no trade deficit.

But here is where it gets interesting.

In two-way trade, Indonesia can hold Yuan from China. Just because you CAN settle in gold doesn’t mean you must.

Countries can do anything they want. They can pay in any form of barter they please including loan forgiveness. China could pay for part of their oil purchases with Saudi Arabia by stationing 100,000 troops on the Yemenis border.

Turkey could pay for Russian gas by giving Russia hassle- and toll-free access to the Bosporus. In fact, since President Biden shut the SWIFT settlement system to Russia, they have set up new trade venues with stunning speed.

In other words, “the living embodiment of the thoughts and fancies that have molded them.” They can do whatever TF they please.

Just because this process may be slow it can still be catastrophic.

Market values are determined by hub prices on exchanges multiplied by all of the resource sold everywhere, if there’s general agreement as to the pricing mechanism.  (Most commodities are sold on delivery contracts and priced at hubs)

Small changes in volumes at hubs can quickly turn these agreements into mush.

 A good example was this past (2022) year when President Biden unleashed US petroleum reserve volumes on the US pricing hub at Cushing Oklahoma.

The Saudi’s countered by raising the price they charged Asian buyers. Not only did they reject the NYMEX price, they, rejected their own OPEC basket price!!

WTF you say? China buys Saudi Crude with US dollars. The US does not buy Saudi crude. They put a defacto lower limit on how many dollars they’ll accept.

Not to be outdone Nehru’s India did the opposite.

Faced with rapidly rising wheat and rice prices, India shut down exports. (5) When the “thoughts and facies of those that have molded them” were thrust on US based financial commentators, they were transfixed. The whole idea that a country would feed its poor at lower prices rather than leaving prices up to the greedy paws of foreign speculators was a language totally foreign to them.

Market wheat prices blew up and who paid the price? EU importers.

(Nehru was unsophisticated. You never could convince him that starving 100 million people was good for economic growth. Such a socialist!!)

This is why we call the FED chairman the emperor of the Ka-Ching Dynasty.

In monetary theory, everything can be solved by simply wallpapering the world with more money. In fact, they don’t even call it money (which must be earned) they call it capital which can be “created.”

(The new meme is manifested. Manifested is like asking the tooth fairy only it involves harnessing all the universes cosmic energy as well as a double latte with six expresso shots.)

The fact is though, Chairman Powell is no dummy. He knows exactly what he’s doing and is very honest and frank about it. The problem is, he can’t stop it. His car is going straight at the cliff and the brakes are shot.

So, how do we get out of this mess?

To put it simply, we don’t. Our lesson from systems engineering applies to the world at large.

All processes grow with forward loops and growth is stopped with restrictive loops. When the system becomes old, it’s strengths becomes weaknesses as it becomes more rigid.

As it cannot overcome its innate rigidity, it fails. Rigidity as the inability of the system to change and evolve.

Survival involves staying in the system and evolving with whatever comes out the other end.

To do this one must think like a systems engineer not a monetary economist. Forget markets, or at the very least, think of them as illusions. Stop trying to make (or use) silly predictions, especially from “experts.”

Become more like Nehru and less like a stockbroker. Your options aren’t stocks and bonds. There is an infinite world out there.

PS: This topic will be a reoccurring theme on the Landon Fillmore Systems website. Keep in touch.