It does feel that debt crises are starting to creep in everywhere in the west, with anemic growth unable to offset rising debt piles and yields. Of the major western powers, only Germany has a relatively low debt burden, but that looks likely to change with Merz’s tax cuts and military stimulus.
As the US treasury is considered the primary risk-free asset in the western economy, rising treasury yields exert upward pressure on servicing costs for other western countries. All this at a time where Europe is financing a massive militarisation push primarily by issuing debt. I just can’t see how any of this is sustainable.
Also, the whole US economy hinges on the AI bubble and that would almost certainly pop if rates went up. I think the more fundamental issue is that the west is losing colonial access to resources and labour in the Global South, and that’s the real economic shock. On top of that, western companies are simply unable to compete with China in any industry because they have legacy processes and western countries lack industrial density. So, western goods are losing markets, and input costs keep going up. And of course, wars in Ukraine and against Iran are making the whole situation worse for the west.
At that point, we might be looking at the collapse of the entire USD system.
We have never really seen anything like it previously in history right? A lot of people cheer for this outcome and although I understand the distaste towards the dollar (a strong USD centric system means near unlimited projection of violence on the world), I fear that a rapid destruction of the current financial system would do more harm than good.
I think we need at least 1-2 decades more of belt & road, stronger DPRK, Sahel, China, Russia before Chinas economy (resilient as it may be) can offset western finance. Especially since it seems western nations rather turn to increased military spending and accelerationism (a paper tiger imo, but I am thinking of stability here), which if they feel threatened enough in a short enough time might just make things worse.
The best case scenario would be the breaking up of the EU and non-NATO countries turning to Russia/China financial systems as the USD become ever more voilatile, weakening the west further and providing incitaments for cooperation rather than military antagonism. This seems unlikely though.
My expectation is that the west is most likely headed for a 2008 style crash, and this time it’s unlikely that China will bail them out like they did last time when China bought a fuck ton of USDT. And yeah, it’s guaranteed to be a really rough time when this happens. I also expect the AI bubble popping will be a likely trigger for the unravelling.
Once this happens, I expect that countries which spent time insulating themselves from the western financial system will do best. China has been working on dual circulation for a while now. Russia has been decoupled out of sheer necessity, same with Iran. A lot of the BRICS nations are in a good position as well, I’d argue. I personally don’t think that western finances are as central as people make them out to be. What’s more important are labor and resources, and those are predominantly in the Global South. When the western economic model runs its course, those resources and labor power aren’t just going to disappear into thin air as a result.
My expectation is that the west is most likely headed for a 2008 style crash
Oh yes, but probably even bigger. There are more apparent systemic issues now than there was in 08, will be hard to signal stability in the market – the contradictions simply are larger.
But the question is not if, that is clear, but when. If you asked me in the 90s I mightve said within 100 years – now I can only hope we are talking more than one decade…
What’s more important are labor and resources, and those are predominantly in the Global South. When the western economic model runs its course, those resources and labor power aren’t just going to disappear into thin air as a result.
Oh absolutely, I am only worried about the violence a collapsing western empire would bring upon those nations containing the labor and natural resources.
Yeah, it’s gonna be bigger for sure because the economy is much less diversified today. Tech stocks are basically where any growth is happening at all at this point. And regarding the empire lashing out, we’re seeing limits of that in Iran already. The huge mistake the empire made was to outsource its core industries abroad. Now they can’t even produce stuff like magnets on their won. Rebuilding the industrial base is a decades long process under the best of circumstances, and practically impossible in the current environment. So, I expect the west is just going to implode the way Roman empire did.
I expect the west is just going to implode the way Roman empire did.
Let us hope this is all that happens
It seems like the least worst scenario at this point.
Any comment on the petrodollar? I feel that the tight coupling of oil and the USA dollar contributes to climate change
Yeah, it creates structural incentives to continue using fossil fuels. One of the silver linings from the war on Iran could be that the world starts getting serious about transitioning to renewables now seeing how vulnerable oil supplies are.
