The beginning of the end?

Russia may be an economic footnote in the current world but the disruption of natural resource flows from this war is a major driver of inflation and the FED’s actions.

I’ll gladly take inflation over Russia winning.

The Captain



And in 6-10 years we’ll be assured by all sort of experts that there’s no way Russia is going to… oops they just invaded Ukraine. (Or maybe Georgia or one of their other neighbors.)

That wouldn’t be a good thing but the world is accepting that as part of the economic and political reality and most of the time there is not a big economic disruption.

As time has gone on Russian influence in the world economy has gotten smaller because their system has never been economically successful. I believe that the Russian invasion of Ukraine is a last gasp by Russian totalitarians to maintain their relevance on the world stage before fossil fuels become economically irrelevant.

It is in the world’s best interests that these Russian efforts fail.


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The FED directly controls short term interest rates in the US. To a large degree the FED also influences short term rates in the rest of the world because other countries do not want their currencies to devalue too sharply against the dollar.

By the rhetoric used and the historical ability that the FED has shown the FED also controls inflation expectations. Inflation expectations are the most important factor in ongoing inflation because if inflation expectations are high then actors in the economy will take that into account in their contract negotiations. These negotiations when inflation expectations are high will fuel an inflationary spiral. You can consult a Principles of Economics book if you need that explained.

There is no public finance textbook or course or FED action that will adequately feed the millions of mostly poor people that depend on Ukrainian grain or heat the homes of millions of Europeans that depend on Russian natural gas. Given time the world could develop other sources to fill these gaps but in the meantime those impacted will suffer the consequences of the war. Along with that we all live with higher prices.

It’s a common mistake to look at US impact of the war and see only the high gas prices. The increased fuel costs ripple through almost the entire economy. Everything that you buy at a store or have delivered to your home was shipped there using fuel. The increased fuel cost threatens to start an inflationary spiral as workers and suppliers demand more to cover those costs.

If the war ends so will much of the inflation and impetus for FED rate hikes. At least at the moment fuel prices seem to have peaked and sequential monthly inflation figures have slowed. Year over year figures are still shocking and the FED will be wary of slowing the pace of hikes until more data is available. We’ll need to see if fuel prices can remain moderate during the winter months. If not we’ll be in for another round of sharp increases.


If the war ends so will much of the inflation and impetus for FED rate hikes.

It simply is not dependent on the war.

There was high inflation in the US. We can say that looking at the y/y. But looking at the m/m things are changing.

Fuel will be seasonal as always.

The reason the FED action will work is by lowering corporate IRR.

Ukraine has been shipping more agriculture products.

Inflation globally will continue and possibly rise. Not in the US where it will continue to decline. The reason is other central banks need to raise rates. All the currencies are in relation to the USD. Meaning as our dollar appreciates commodities, inputs, nominally fall in price. Globally depending on the currency they rise in price. The solution is for other central banks to raise rates. It will begin really with the ECB.

The perception is a decline economically for other countries. But they all need to be realistic that America rode the supply side econ trade deficits for something along the lines of 40 plus years now. Several of the other major nations need to step up in this shell game. Clearly Germany wants to step up for a lot of reasons. China is really totally ignorant in the top leadership to the shell game, if Xi things he has a hand that run over the US/EU/UK hands. It is not arrogance on Xi’s part just a dumb wish he is playing out. What else is he supposed to say to the Chinese public, “run me over with a forklift”?