Sanctions and war could trigger global recession
As the Biden administration puts forward its proposal for $30 billion in aid to Ukraine, the largest portion of which is for new military hardware, the US economy is moving into some of the most dangerous economic waters it has experienced in the last few decades.
The accumulation of “past sins” combined with the economic effects of the ongoing Covid epidemic, a war in Ukraine with Russia, and the “killer sanctions” imposed on Russia, have the ability to push the US economy over the top into a great recession. The tremendous financial outlays to keep a long, grinding war in Ukraine going combined with the cut-off of energy and needed foodstuffs otherwise provided the world by Ukraine and Russia, has already created a serious global inflationary spiral. Americans are being hit not only at the gas pump, but also at the supermarket. But what they experience as increased austerity, will be felt as mass starvation in countries in the developing world.
The world economy had already become something of a “financial bubble” even before this array of crises emerged. The amount of world debt in comparison to GDP has gone off the charts, and no longer has any direct relationship to the needs of real production. It has been kept afloat solely by the ability of the US to print dollars, a result of Nixon’s fatal decision to terminate the Bretton Woods system in 1971.
Since then, the world financial system has developed into a veritable “casino economy,” but one which is kept afloat by deductions from the real economy. Trump’s trade policy, which attempted to blame the decay of the US physical economy on China trade, rather than US government neglect, further aggravated the situation with its high tariffs, which have been paid for by already burdened US consumers. The Biden administration has only raised this to a higher level in its attempt to “punish China” for what are US transgressions.
In this situation, already aggravated by the Covid epidemic, the aid to Ukraine and the blowback of economic sanctions are now pushing the situation to a point of critical mass. The recent moves by the Federal Reserve to raise interest rates by half a percentage point is an attempt to stave off a rate of inflation that the country hasn’t seen in 20 years. Ironically, Wall Street, which is generally not amused with interest rate rises, considered this a blessing, fearful that more would be required to stem the growing inflation. From what we can see now, much more will be required.
The global economic effects of the war and the sanctions have yet to be felt in full force. The serious disruptions in the international supply chain, now becoming policy for the United States in its attempt to “wean the world” away from the Chinese market and supply chain, are just beginning to take effect. In addition, ships with food that would have brought Ukrainian and Russian wheat to Africa and the Middle East, are now either stuck in port or empty of cargo. The embargo of Russian energy by the US and its allies has already sent the price of gas and oil soaring. The subsequent rise in the price of fertilizer will make it almost impossible for farmers here to maintain production levels, endangering US food supply.
The Biden administration is only dimly aware of the consequences of their actions, warning simply that there will be “suffering” as a result of their decisions. But they don’t have the slightest idea of how great that suffering will become, or else they would be rethinking their unwise decisions.
In a desperate attempt to maintain what Biden considers to be the US right to unilaterally determine the course of world politics, and his inability to deal with countries with a different culture and a different political system, like China and Russia, the Biden administration is leading the world to a catastrophe that well may exceed anything we have seen in the 20th century. The “proxy war” with Russia in Ukraine could indeed lead to a nuclear confrontation. The effects of the “killer sanctions” could easily trigger a major financial blowout. And the foolish attempt to revamp the entire world system of production and trade in order to assure the dominance of the West in the global supply chain will so disrupt the present international division of labor that it will become impossible to support the present world population. The policy is “genocidal” in the true meaning of the word, and will hit the poorest countries hardest, namely those inhabited primarily by non-white populations.
The effects of this crisis on ordinary Americans will grow exponentially with time, and vague promises by administration officials that the “pain” is only temporary will not be enough to silence the criticism. And the attempt to blame the problem on “Chinese trade” or “Russian aggression” will not be very convincing as the problems accumulate here at home. “You can’t fool all of the people all of the time,” Lincoln so wisely noted. The administration will be forced to either change policy or suffer defeat by an increasingly enraged citizenry. At the global level, more will be required. Regarding the danger of war, China’s proposal for a Global Security Initiative would be a step in the right direction in assuring peace and stability. But to create a world in which the peoples of the world can be guaranteed their right to food, proper housing, and a decent standard of living, there is a need for a complete revamping of a financial system that has benefited the very few at the cost of the very many.
William Jones is the Washington Bureau Chief for EIR News Service and a Non-resident Fellow of the Chongyang Institute for Financial Studies.
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