One Finite Planet

Ukraine: Putin and China, method or madness?

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What if Russia and China both intended that the invasion of Ukraine would trigger global inflation and food shortages, and a potentially new financial crisis?

That Putin sees himself in the image of Peter the Great and restoring the Russian empire is no secret, and is generally portrayed as evidence that Putin has completely lost the plot. But what is there is a bigger plan involving Russia and China and triggering a financial crisis?

Disclaimer: Russia and China may not have a major joint plan.

At least eight Russian and Chinese warships have been spotted in the seas near Japan this week, another sign of the apparent pressure the two partners have been putting on Tokyo as relations deteriorate over Ukraine and Taiwan respectively.

CNN 2022, June 22: Japan tracks eight Russian and Chinese warships near its territory

Consider, what if the invasion of Ukraine is just part of a larger plan, and one endorsed by China. It is unthinkable that the meeting between Vladimir Putin and Xi Jinping, agreeing a “no limits” partnership, that there was no discussion between partners on how within 2 weeks, and as soon as the Olympics were over, Russia would invade Ukraine. Leaders of both China and Russia have expansionist ambitions. Could a new global financial crisis help those plans?

The idea of Ukraine being part of a larger plan is just one possibility. There are many alternatives.

It is possible that despite the “no limits” partnership, Russia did not discuss with China that it was about to invade Ukraine, and China still happens to support Russia anyway, and this happening would be acceptable in a “no limits” partnership. Or that China felt it was Russia’s own business, just as Hong Kong and Taiwan are China’s own business. But if so, why a “no limits” partnership?

It is also possible that Putin, and China, both thought that the invasion of Ukraine would be no big deal. As the invasion of Crimea, and would have little impact on the world. Russia would continue to supply the world with food and grain from both Russia and Ukraine, and no one would follow through with any of the sanctions the US and other countries were announcing. Under this scenario, the invasion failed, and as a result, Putin will not remain in power, as Russia never planned a long disconnect with the west. The west now considers the current Russian leader a war criminal, meaning reconnection requires a new leader. If this is reality, Putin is effectively a leader whose days are numbered, indulging in his fantasies while he still can.

However, the possibility this page is focused on, is that China and Russia sat down and seriously planned the big picture consequences of Russia invading Ukraine, and knew what they were doing. What if the plan was, that the invasion of Ukraine would trigger a world food and energy shortage, and resulting inflation which, could then trigger a financial crisis. If this was the plan, then Putin, and even China, may be genuinely happy with progress so far. But why? If they knew hat they were doing, where does it lead next and how do the steps so far give them what they want?

Disclaimer: I am not an expert on geopolitics, so do not take anything here as being from an expert. If the logic makes sense, then there may be something to consider, but do not assume I have a reason other than logic to be right. I am an analyst with a science background, with much of the content here centres around science, climate and population. So this is outside my area. I first wrote about the war in Ukraine simply to record my own thoughts, not because I thought my ideas ground breaking.

Could the Ukraine invasion trigger a financial crisis?

The invasion has certainly triggered inflation.

It appears certain that the invasions of Ukraine would have been high on the agenda of the meeting between that the meeting between Vladimir Putin and Xi Jinping, to agree the “no limits” partnership.

With Russia and Ukraine so critical to world food supplies, it is also certain that the resultant disruption of food supplies would have been predictable by both Russian and Chinese strategists. Even assuming these strategists missed the extent of the impact on global energy supplies, they still would have been able to to predict inflation as an outcome.

The Russian invasion of Ukraine and the sanctions that it triggered is behind more than a third of the 40-year high inflation of 8.6%, according to analysis from a leading forecaster.

2022, June 13: Marketwatch.

Inflation is highly likely to trigger recession.

Wall Street is wobbling Tuesday in its first trading after tumbling into a bear market on worries that high inflation will push central banks to clamp the brakes too hard on the economy.

2022, June 14: Wall Street wobbles a day after tumbling into bear market

The spread between the 2-year and 10-year Treasury yields inverted this week for the first time since April on fears that the Federal Reserve’s aggressive approach to tackling the hottest inflation in four decades could lead to a sustained slowdown in growth. The phenomenon – which is rare – has been a historically accurate predictor of recessions.

2022, June 14: Wall Street’s favorite recession indicator is flashing red

Recession and inflation together can trigger another financial crisis.

Does anyone still remember the financial crisis of 2008? Too Big to Fail, bankruptcies, insider trading, junk mortgages, ninja loans and other esoteric terms were in the headlines this financially brutal year. It was a year many longed to forget, but also a year to remember valuable lessons learned. But have we learned those lessons, or are we forging new pathways to the same calamitous endpoint?

2022, May 20, Forbes: Bubble, Bubble, Toil And Trouble: Is Real Estate Heading For Another Crash?

Things were already fragile from Climate Change fears and after Covid-19.

The escalating coronavirus emergency Thursday sent stocks to their worst losses since the Black Monday crash of 1987, extending a sell-off that has now wiped out most of Wall Street’s big run-up since President Donald Trump’s election

2020 March 12: Worst day on Wall Street since 1987 as virus fears spread

Overall, it is a perfect storm. Similar exposure to risk as for the last GFC, but now combined with inflation and recession even without a GFC, and all on economy not fully recovered from Covid-19. Is it possible Russian and China never considered that inflation as a result the invasion of Ukraine could result in a very distracted world?

Could Disruption aid expansionist plans?

The expansionist plans.

On June 14, the eve of the expected decision by US Federal reserve will raise rates by 75 basis points, China announced an expansion of the role of the military:

Xinhua reported that the six-chapter order would provide a legal basis for expanding the military’s peacetime activities to protect “property, and maintaining national sovereignty, security, development interests, and regional stability”.

The development is in line with Beijing’s ambitions in the Pacific, where it recently acquired the power to defend its investments in Solomon Islands by force through a security deal with Honiara. It also comes as geopolitical tensions with the US rise and threats towards Taiwan increase. Disputes over the Taiwan Strait have been marked by grey-zone activities, including harassment of Taiwan’s airspace by dozens of Chinese fighter pilots and cyberattacks on infrastructure in Taipei.

2022, June 14 SMH: Xi expands China’s military powers to defend interests abroad

China, or least the government of China, wants to take control of Taiwan, gain full control over areas it claims in the South China Sea, and expand influence in the Pacific.

Putin has clearly stated he has a desire for far greater expansion that just Ukraine, and seemingly desires to regain all territory even under Russian control in the past. I wonder if that includes Alaska? Probably not, but Japan feels exposed:

At least eight Russian and Chinese warships have been spotted in the seas near Japan this week, another sign of the apparent pressure the two partners have been putting on Tokyo as relations deteriorate over Ukraine and Taiwan respectively.

CNN 2022, June 22: Japan tracks eight Russian and Chinese warships near its territory

The weaker and more distracted any opposition, the greater chance of success each would have.

Can Distraction Help Pave The Road For Expansion?

Over the past few weeks, the world has been understandably transfixed by Russian President Vladimir Putin’s horrific invasion of Ukraine. Meanwhile, though, his close ally Chinese President Xi Jinping has been quietly taking advantage of the West’s distraction by expanding China’s sphere of influence in the South Pacific. If Washington doesn’t wake up to this threat, China’s efforts to dominate the region will gain dangerous and perhaps irreversible momentum.

2022 April 14, Washington Post: China is expanding in the Pacific while the West is distracted

The above article focuses purely on the distraction caused by the military action itself, it is worth also noting, US policies to Counter China in the pacific are expensive. The tighter the financial situation, the more challenging it becomes to allocate the budget to deal with China in the Pacific.

Then more the US is focused on the Pacific and a financial crisis, the less focus available to deal with Russian expansion.

Regime Change anyone?

Regardless of whether Trump encouraged Russia or not, or whether they had any real impact, it is quite clear Russia has at least previously toyed with having influence on political outcomes in the US. Another recession would significantly impact politics in the USA, and could seal a return to “America First” policies that may be more inclined to allow China and Russia to do as they will. This is complex, as if the result was a return to Trump, that could be seen as a double edged sword by Xi Jinping.

But a global crisis must also hurt China and Russia?

Russia and China are building bridges. Literally.

For decades the Amur River has separated modern China and Russia — its waters cutting though more than 1,000 of their roughly 2,500 border miles. But it’s always lacked one thing: a vehicle bridge.

Now — as Russia’s economic isolation in the wake of its invasion of Ukraine pushes it closer to Beijing — that is changing, with fanfare.

2022 June 15, CNN: China and Russia are building bridges. The symbolism is intentional

Clearly, trade between Russia and China is on the rise. Russia, with one eight of the worlds inhabitable land, has enormous natural resources, and China, the manufacturing arm of the world, with 1.4 billion people. China can produce anything Russia needs, and China could potentially replace Europe as a customer for Russia gas. Even the pipelines would be simpler.

Russia Despite Sanctions, is not on the brink of collapse.

President Vladimir Putin said Wednesday that Russia is rerouting trade to “reliable international partners” such as Brazil, India, China and South Africa as the West attempts to sever economic ties.

CNN, June 2022: Putin says Russia is rerouting trade to China and India

Russia has lost a lot of export partners, but those remaining represent almost half the worlds population, and with the price of goods Russia exports rising, sanctions may not be as effective as expected.

In the 2008 GFC, China still grew.

Yes, China had a significant dip in growth, but growth still remained above 6%. It is possible China does not want growth as high as 5% today. In 2022, China is persisting with a zero-covid strategy that puts the brakes on economic growth. But do they have the policy despite the affect on growth, or because of the effects on growth?

This time China would not be spared, but could China still win?

Unlike in the 2008 GFC, China is no longer in a position to take the role of growth engine for the world, but it turns out, China needs to find a way to put the brakes on growth anyway.

Even before China’s renewed Covid surge, the Chinese authorities recognized that their economic growth model had become overly reliant on the credit and property markets. That model had led to a situation where over the past decade, Chinese private sector credit increased at a faster rate than that which preceded the bursting of the Japanese and U.S. property bubbles in 1992 and 2006, respectively.

2022, May 23 “1945”: What Happens If China And America Both Have A Recession?

Look no further than the Ghost Cities of China to see how dangerous the problem of debt has become in China, where developers have resorted to accepting grain or garlic as deposits on loans.

The GFC was triggered in part from a real estate bubble and the associated loans in the US where some housing had taken on some of the characteristics of ‘ghost housing’. In the years since the GFC, the disconnect between housing to provide homes and the asset value has grown to the extent that there are now entire ‘ghost cities’ of housing assets no one calls home. While this valuation crisis may be most clearly highlighted in China, the crisis, and potential fallout, is spread around the globe. Many countries are vulnerable.

If there is worldwide recession, while many countries takes a hit on real estate instead of potentially just China, and the balance of trade still favours China. It could provide an opportunity for China to apply some much needed corrections to their economy, without being the only ones affected.

In a war both sides suffer damage. The side suffering the most damage, loses. So all that China requires from a new financial crisis to be seen as a win for China, is to be less impacted than the US, Europe, Japan and competitors in the pacific like Australia.

WWIII?

I already have 3 pages on the war in Ukraine:

In each page I contemplated the risk that the invasion of Ukraine was the beginning of World War 3. So what is the risk now, 3 months later?

On one hand, most countries chose sides at the UN vote, with only 53 of the 193 UN members abstaining, and only 5 supporting the invasion. The 141 of 193 who voted to condemn, means a strong majority of countries definitely chose sides. But what about the 53 abstentions, which includes China? There are enough countries in that group that, together with Russia, they could potentially win a world war.

My main fear previously, was that if Putin, not necessarily Russia, felt backed into corner, he could resort to nuclear weapons, and this threat still remains, with Putin in June 2022 seeming to even suggest a possible nuclear response to Sweden applying to join NATO.

It can be argued there is no logic for Putin leading Russia into a wider conflict, but it is hard to find logic for the invasion of Ukraine, or even most other history wars to increase territory. But they still happen.

So what would happen if Putin/Russia did detonate a nuclear device in Sweden, Finland or Ukraine? Would USA then launch a nuclear attack on Russia? Or would they respond with conventional weapons, to avoid Putin then launching a nuclear attack on the USA? Or, if China would support Putin against conventional weapons, would any real response be too risky? Because if the Putin feels the response is unlikely, he just might go ahead.

There there are joint the military actions around Japan, the expansions moves of China in the South China Sea and the threat of conflict in Taiwan. Tensions have reason to be high.

Conclusion.

I think all that can be said at this time is there is a possibility the leaders of Russia and China have intent to trigger a new financial crisis. Whether that is part of a plan for war, or to enable expansion without the need for war, is not clear to me.

I will keep looking at this and update this page over time.

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