A bit longish. And many of the points are familiar, but he ties it into such a nice package we are compelled to share.
From Doomberg:
“One mustn't look at the abyss, because there is at the bottom an inexpressible charm which attracts us.” – Gustave Flaubert
In 1988, Stephen Hawking published one of the best-selling science books of all time. In A Brief History of Time, Hawking made the impossibly complex topics of astronomy and modern physics accessible to a lay audience, inspiring countless young students (and at least one green chicken) to pursue a career in the sciences. It is estimated that the book has sold an incredible 25 million copies worldwide.
In Chapter 3 of the book, Hawking introduces the reader to the Big Bang Theory and the concept of a gravitational singularity, which Wikipedia describes as “a condition in which gravity is so intense that spacetime itself breaks down catastrophically.” Essentially, since the laws of physics are eviscerated at a singularity, what happened before it is both irrelevant and unknowable, and one could consider such an event as having reset the universe’s clock. Here's how Hawking describes it in his book (emphasis added throughout):
“This means that even if there were events before the big bang, one could not use them to determine what would happen afterward, because predictability would break down at the big bang. Correspondingly, if, as is the case, we know only what has happened since the big bang, we could not determine what happened beforehand. As far as we are concerned, events before the big bang can have no consequences, so they should not form part of a scientific model of the universe. We should therefore cut them out of the model and say that time had a beginning at the big bang. Many people do not like the idea that time has a beginning, probably because it smacks of divine intervention.”
The simple truth of a singularity applies whether it occurred in the past or will in the future: what transpires on the other side is unknowable from here.
Given the horrific and still-unfolding events of Vladimir Putin’s invasion of Ukraine and the West’s collective response to it, one can’t help but wonder whether we are on the cusp of an economic singularity in which the laws and bedrock beliefs that formed the foundation of international economic order for decades break down. The consequences are similarly unknowable, but we suspect a great reset may indeed be upon us. Even if a ceasefire is announced moments after we publish this piece, shocking damage to the global economic system has undoubtedly already been done and certain genies won’t easily be put back into their bottles.
Before proceeding, we should state clearly that what follows is not a critique of the Western response to the invasion but rather an assessment of the potential first- and second-order consequences of these historic moves, as well as speculation on where some of the harshest economic crises might manifest in the near future. While we join in the hope that these measures achieve their desired direct effect, there’s no denying these are truly unprecedented times.
The most stunning move by the US and its allies was cutting off the Russian central bank’s access to most of its $630 billion of foreign reserves. Without access, one wonders if these funds are really “its” reserves at all? What is ownership without access? No matter how justified that move might seem today, there’s no escaping that this action will reverberate for years to come. In a blunt opinion piece in the Wall Street Journal titled “If Russian Currency Reserves Aren’t Really Money, the World Is in for a Shock,” reporter Jon Sindreu had this to say about how central banks everywhere must now view their reserves:
“Many economists have long equated this money to savings in a piggy bank, which in turn correspond to investments made abroad in the real economy. Recent events highlight the error in this thinking: Barring gold, these assets are someone else’s liability—someone who can just decide they are worth nothing. Last year, the IMF suspended Taliban-controlled Afghanistan’s access to funds and SDR. Sanctions on Iran have confirmed that holding reserves offshore doesn’t stop the U.S. Treasury from taking action. As New England Law Professor Christine Abely points out, the 2017 settlement with Singapore’s CSE TransTel shows that the mere use of the dollar abroad can violate sanctions on the premise that some payment clearing ultimately happens on U.S. soil.”
In for a shock, indeed. In essence, Sindreu’s piece argues that this move substantially increases the risk that the US dollar loses its privileged status as the global reserve currency and, at a minimum, likely ensures a polarization of the global economy into at least two camps – the West in one and Russia/China/Iran/Saudi Arabia plus other targeted or aligned countries in the other. If $20-30 trillion or more of global GDP spurns the preexisting reserve currency, is it still the reserve currency? If reserves can be negated overnight, are they even reserves? How many other countries must hedge against the possibility of similar sanctions? Should we add India to the list?
....MUCH MORE
