Author: Eleazar
Source: Shanghai Hualuett Think Tank (ID: HUALUETT)
Since the outbreak of the Russian-Ukrainian conflict, the international financial market has fluctuated sharply, the global supply chain of bulk commodities such as energy and agricultural products has been disordered, and a series of new changes have emerged in the international monetary settlement system. These changes may indicate that a new global economic system characterized by multipolarization is taking shape in the context of an era in which the world has ushered in a century of major changes.
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Table of Contents:
1. The Russian-Ukrainian conflict has made a deeper and more comprehensive disturbance to the global economy and finance
2. The economy has never left the war, the "security" element of economic development
3. The Triumph of the Dollar Military-Industrial Complex and the "De-Globalization" of the Dollar
4. The "digital anchor + resource anchor" of money, the new type of globalization under multipolarization
The Russian-Ukrainian conflict has disturbed the global economy and finance more profoundly and comprehensively
The Russian-Ukrainian conflict is the local conflict with the greatest impact on the global financial market and global economic trade after the "911", and its impact exceeds the depth and breadth of the war in Iraq, afghanistan, and Syria.
The Russian-Ukrainian conflict has left financial markets unavoidable, with volatility in international equities, bonds, commodities, gold and oil all at their highest level in a year. Global equities have been hit hard, especially in Europe and the United States, with the VIX Panic Index reaching its highest since early 2021. U.S. stock market investors have dumped risk assets on a massive scale, with nasdaq entering a bear market for the first time since 2020.
On February 28, Russia decided to close the market, for a total of 18 trading days, reaching the highest record in Russia's modern history. Russian overseas assets were badly damaged, with the market value of Russian stocks listed in London evaporating by more than 90% at the highest, and European companies with business with Russia losing more than $100 billion in market value. Western countries have launched a series of sanctions against Russia, including kicking multiple Russian banks out of SWIFT, and both MSCI and FTSE Russell have excluded Russian stocks from all indices.
From the perspective of commodities, Ukraine and Russia are wheat, corn and other agricultural products, as well as natural gas, oil, nickel, aluminum and other industrial raw materials important export places, the Russian-Ukrainian conflict has become the main reason why the price of a variety of commodities hit a new high for many years, copper, aluminum, nickel and other metals prices climbed. On March 8, LME urgently announced the suspension of nickel trading, and the restriction of Russian nickel exports triggered an epic futures market.
Chart: February 23 to March 28 commodity spot cumulative increase or decrease, source: steel union data
Chart: Brent crude oil, WTI crude oil closing price (US dollars / barrel), source: steel union data
Figure: 2021-2022 Russia, Ukraine agricultural products production and export ratio (unit: 10,000 tons), source: my agricultural products network
Figure: Nickel spot closing price (USD/ton), Source: Wind, Shengang Securities Research Institute
In particular, the impact of the Russian-Ukrainian conflict on the global economy is not limited to the traditional stock market and the mass commodity market, but also deeply affects the ideological field. For example, the International Federation of Felines (FIFe) sanctions on Russian cats, such as the german states declared that the letter "Z" was illegal to use on certain occasions. Behind the superficial absurdity is an explicit conflict of ideologies, destined to have a potential long-term impact on the global political and economic landscape.
The economy never left the war, the "security" element of economic development
In fact, the time of war in human history is much longer than the period of peace, and the elements of economy, production, life and war are often intertwined. Overall world peacekeeping after World War II was also rare. To a certain extent, the economy and the military are interrelated, on the one hand, economic development needs the escort of military forces, on the other hand, military security capabilities need strong economic support.
Judging from the development process of the US military industry, it began with the demand for the military industry generated by the Second Time War. In the late 1920s, the United States fell into a great depression, and Roosevelt's New Deal introduced a ten-year stimulus program, but it did not really get the United States out of its predicament. However, with the massive demand for military production in World War II, the US economy really emerged from the Great Depression and prospered again. This is the so-called "military Keynesianism", which leads to economic expansion through military expenditures, replacing the idea and logic of the military as the extraction of economic resources.
After the Second Time War, the world entered the Cold War pattern. The US military industry has developed into a military-industrial complex from the perspective of maintaining allied security and the US-Soviet hegemony. Throughout the fiery arms race of fifty years, the U.S. private arms industry has entered the longest golden period in history. For most of the Cold War, military spending accounted for nearly half of the U.S. government budget, and all of it went to the private sector, creating and perpetuating the military-industrial complex.
In fact, at present, most of the leading companies in the United States are involved in the field of military production to varying degrees, such as General Dynamics, Lockheed, General Electric, McDonnell Douglas, American Telegraph and Telephone, Boeing, Rockwell, General Motors, International Business Machines (IBM), etc., all cooperate with the Department of Defense and the US military under its jurisdiction, and form a military-industrial complex on the basis of a "buyer-seller" contractual relationship.
Chart: Government Contracts, 1970-1979 (millions of dollars), Source: U.S. Military-Industrial Complex: Pillars of Empire and Challenges, Yuan JiRong
Figure: U.S. Department of Defense 1971-1979, NASA 1974-1979 Turnover, Source: U.S. Military-Industrial Complex: Pillars of Empire and Challenges, Yuan Jirong
After the collapse of the Soviet Union, with the establishment of a U.S.-led globalization system, the military-industrial complex began to expand to U.S. allies. For example, Japan's military industry has long adopted the development model of "educating the military with the people", and the production capacity of military products formed by the investment of many military industries is hidden in private enterprises, so the actual scale of investment in Japan's military industry is huge. In recent years, Japan has increased its investment in the military industry, making Japan have great military scientific research and production capacity and ability to convert from peacetime warfare.
It is estimated that Japan has the ability to produce 20,000-50,000 fighter jets, 13,000-14,000 tanks, more than 2 million tons of displacement of ships, 200,000 guns, and more than 300,000 missiles per year. Assuming that there are no international restrictions on the export of Weapons and Equipment from Japan, the output of Japan's military industry can reach more than 30% of the world arms market.
Today, dollar capital has been deeply bound to the huge military-industrial complex industry. In 2019, a total of 15 U.S. companies entered the top 25 of the global military industry, and military sales accounted for 60% of the total sales of the top 25.
Chart: Arms exports from key countries in 2019, Source: Stockholm International Peace Research Institute (SIPRI)
Chart: Military enterprises in key countries in 2019, Source: Stockholm International Peace Research Institute (SIPRI)
The Triumph of the Dollar Military-Industrial Complex and the "De-Globalization" of the Dollar
There have been some new changes in the Russian-Ukrainian conflict this time, and this new change is that the "dollar military-industrial complex" of the United States this time is explicitly, actively, and directly provoking regional conflicts and profiting from them. This is an upgrade of the way US dollar capital operates, indicating that the Russian-Ukrainian conflict will be a key node in the "de-globalization" of US capital.
Since the collapse of the Soviet Union, the wars provoked by the United States to the outside world include Iraq, Afghanistan, Syria, etc., and these wars or local conflicts are either directly involved by the United States or directly involved in the US-led NATO, and at least will seek moral high ground such as "counter-terrorism" and "weapons of mass destruction". In this Russian-Ukrainian conflict, the US dollar and military-industrial complex no longer seeks this kind of "cover", from invisible instigation to explicit initiative, and more actively seeks to complete the financial closed loop of "capital-military-capital".
This change in American finance capital is in line with the natural result of the self-development of American capitalism. If we look at American capital from within, its transition from "globalization" to "de-globalization" is in line with the internal logic of its development.
We know that the last round of globalization began with the collapse of the Soviet Union, and the core features were trade liberalization and the transfer of industries to developing countries represented by multinational enterprises, behind which was the globalization of Western financial capital. Through the globalization of capital, the globalization of American ideology, the globalization of American lifestyle, the globalization of US debt and the US dollar, and the globalization of AMERICAN science and technology and information technology are the underlying logic of promoting globalization in the previous stage.
The main driving area of this "capital-industry-capital" capital closed loop is the Four Tigers (Four Little Tigers) region of Western Europe and Asia, which can be said to be very successful. But pushing into areas like China and Russia, where there is a sense of independence, resistance begins to emerge.
China's side is mainly industrial upgrading and scientific and technological innovation, constantly squeezing the profit potential of American capital in the industry. This is also one of the reasons why the Trump administration pushed for "de-Sinicization", but found that the push effect was not good. Capital seeks profits, and when capital's profit potential in industry declines, it will inevitably seek more profitable areas.
In this Russian-Ukrainian conflict, the United States successfully realized the model from "capital-industry-capital" to "capital-military (security)-capital" through the "United States Foreign Military Financing" (FMF) and capital repatriation. The inevitable result of this mode switch is the "de-globalization" represented by American capital.
Figure: The "capital-industry-capital" structure of the dollar hegemonic strategy after the Cold War, Source: "Research on the Dollar Hegemonic Strategy after the Cold War", Aicheng
Figure: The structure of "capital-military industry (security)-capital" of the dollar hegemonic strategy after the Cold War, source: "Research on the Dollar Hegemonic Strategy after the Cold War", Aicheng Qi
The "digital anchor + resource anchor" of money, the new type of globalization under multipolarization
Whether the "de-globalization" represented by American capital represents a reversal of the trend of "globalization" is not necessarily true. In this Russian-Ukrainian conflict, we have seen that there may be many new changes in the international monetary system.
For example, after the Russian-Ukrainian conflict, the volume of international digital currency transactions has surged. Both sides of the Russian-Ukrainian conflict are major players in digital currency transactions. According to 2021 data from the University of Cambridge, Russian citizens have more than 12 million cryptocurrency wallets with total assets of about 2 trillion rubles and $23.9 billion, and Russia accounts for about 12% of the global crypto market share. Ukraine already ranks in the top 5 in the world in terms of cryptocurrency use, and a report shows that Ukraine ranks fourth in the world in the global cryptocurrency adoption index in 2021.
During the Russian-Ukrainian conflict, more than $40 million in material assistance was completed through digital currency. Ethereum co-founder Vitalik Buterin called for support for Ukrainian dang through UkraineDAO.
We believe that with the multipolarization of the global economic system and the "de-dollarization" of the global currency, economic and trade exchanges and national security are facing increasing challenges, and the decentralization and concealment of digital currencies have almost become the optimal solution to international sanctions, which is the basis for the formation of the "digital anchor" of international currencies in the new era.
In addition, Russia pushed for oil and gas settlement in rubles to counter U.S. sanctions against Russia for shutting down SWIFT. After the "ruble settlement order" was announced, the ruble exchange rate was stabilized and its "resource anchor" was rediscovered. Judging from the above indications, with the "de-globalization" of AMERICAN capital, a new monetary system characterized by multipolarization and a global monetary system based on the characteristics of "digital anchor + resource anchor" are accelerating.