2023 recession

Although the title of this blog suggests economics, in fact it's far more about international relations. 

However, I do find myself remembering how the "subprime crisis" of failing home loans in 2006 was simply a prelude to the "global financial crisis" of 2008 - and wondering if the crypto crash of 2022 is also just a prelude to a world recession of 2023. 

The shares of tech companies have been losing trillions of dollars in value since their late-pandemic highs of mid-2021. Some well-known crypto skeptics say "Crypto as a whole has been bankrupt since May". (That may be when FTX sister company Alameda started using FTX customer funds to pay their bills.) The possibility of recessions in Europe and China (and thus reduced demand) is already keeping oil prices down a little. 

We'll see if they come up with anything helpful at the G-20 summit. 

Crypto spectacle

 Something I just wrote on a private forum: 

"The second-biggest crypto billionaire (Sam Bankman-Fried of FTX) just lost everything, after being called out by the biggest crypto billionaire (Changpeng Zhao of Binance).

"Ironically, Bankman-Fried was a Biden donor, while Zhao backed Musk’s takeover of Twitter."

East, west, and the non-aligned rest

The war in Ukraine returned to life as the antagonists exchanged new blows. After a Ukrainian counteroffensive, Russia annexed four more Ukrainian provinces and called up several hundred thousand more soldiers. About a week later, after Putin's birthday, the new bridge supplying Russian forces in Crimea was sabotaged. In retaliation, Russia appointed a new military commander, and bombarded the power grid throughout Ukraine. 

Also along the way, one of the Nord Stream pipelines supplying Russian gas to Europe was sabotaged. Russia blamed Britain; the explosion was possibly caused by a remote-control mine that had been left there years earlier. Britain was having its own troubles; first the queen died, then the new PM's economic plan led to a currency and pensions crisis, and she was replaced by a rival after just a month in office. 

The European Union fared little better. On top of inflation and the approaching winter, the lack of Russian gas was causing factories to close in Germany, the economic heart of Europe. Chancellor  Scholz and German business leaders went to China, while France's Macron warned that Biden's plan to "buy American" would lead to economic retaliation from Europe.

In China, it was time for the first post-Covid party congress. Alone in the world, China was still regularly locking down cities, at great economic cost, not yet ready to rely on vaccine-based herd immunity. The past two years had also seen the state assert control over the tech sector and the Internet, after a decade of wild competition among behemoths like Alibaba and Tencent. The old model of export-driven economic growth run by capitalist tycoons was being replaced by a new one, in which the state would prioritize advanced technologies of strategic importance, and China's internal market would be cultivated, with the aim of becoming a middle-income country. 

But there were great challenges to overcome: too many old people and not enough young ones, a real estate bubble and lots of debt, and the continuing hostility of the United States, now focused on computer chips. Political stability was therefore essential, to keep the country on track. To this end, Xi Jinping stayed on as president, and filled the politburo with his own men, many of them with scientific and technological backgrounds, appropriate to the new era of high-tech rivalry. Premier Li Keqiang, a  member of former president Hu Jintao's faction, would be replaced by Li Qiang, party head of Shanghai during controversial Covid lockdowns. But foreign minister Wang Yi stayed, perhaps to provide continuity and a familiar face in China's foreign negotiations. 

In the United States, the midpoint of Biden's presidential term approached, and with it a chance for Republicans to snatch back control of the Congress and Senate. Along with external enemies Putin and Xi, and the continuing menace of a Trump restoration, Biden faced a new foe in the form of the world's richest man, Elon Musk. As CEO, Musk has made his companies useful to America's ideological and strategic agenda: Tesla makes electric cars needed for the green transition, SpaceX rockets put American astronauts and machines into space, Starlink satellites provided secure communications for  Ukraine. This focus on producing material goods perhaps helped protect him from the losses which purely digital moguls like Bezos and Zuckerberg faced in 2022. 

But alarmed by the left wing of America's culture war, and perhaps by Biden plans for higher corporate taxes, Musk had declared himself a Republican, and put in a bid for ownership of Twitter, the nervous system of America's liberal academics, journalists, politicians, and "woke" corporations. Less than two weeks before the midterm elections, the deal was made, and Musk started firing all the teams responsible for policing discourse on the site. Republicans were ecstatic, Democrats gloomy or outraged. 

In the Middle East, the OPEC+ bloc of oil-producing nations, led by Saudi Arabia, rebuffed Biden's entreaties for a production boost and lower prices, instead agreeing to reduce production, in anticipation of recession in Europe and China, and consequent lower demand. Increasingly independent, no longer trusting America to always take its side against Iran, and simply not wanting to miss out on Eurasian integration and the rise of Asia, Saudi Arabia had followed Iran in applying to join the Shanghai Cooperation Organization, the cornerstone of Russia and China's shared drive to develop alternatives to western institutions. 

Iran itself was beset with another of its perennial outbursts of frustrated and angry youth, this time demonstrating against compulsory hijab and the heavy hand of the political system there, especially in regions dominated by the Sunni minority. Meanwhile it was rumored that its ally Russia - strategically more aligned with Iran than ever, thanks to the western economic war - was allowing Iran to test its military drones on the Ukrainian battlefield. 

Israel elected Netanyahu yet again, this time in coalition with hardline Jewish religious parties. Turkey fought the worldwide trend and continued its unusual low interest rate policies, thereby experiencing some of the highest inflation in the world. And in Pakistan, the saga of deposed PM Imran Khan continued: he was barred from politics for five years, an allied journalist (Arshad Sharif) fled the country but was suspiciously killed in Kenya, Imran himself was shot in the leg but carried on in a wheelchair. 

Pakistan and India had both felt echoes from the Ukrainian war. Imran claimed his parliamentary overthrow was due to a pro-American conspiracy; India had displeased America by purchasing lots of oil from its old friend Russia. America promised technical support for Pakistan's F-16 fighters, possibly a reward for rejoining the American camp; India negotiated an end to its two-year border conflict with China, possibly improving its standing with the anti-American camp, and tested its nuclear-capable missile Agni Prime. Within India, Modi's Hindu nationalists continued their political and cultural consolidation, with opposition media "The Wire" exposed as promoting fake news stories. 

In the Americas, Brazil's Lula completed his comeback with a narrow victory over the "Trump of the tropics", Jair Bolsonaro, but would find his progressive and multipolar agenda greatly constrained by pro-American and Bolsonarist forces. In Africa, talks in South Africa yielded an end to the Ethiopian government's bloody war against the remnants of the previous regime in Tigray province. In outer space, America nudged an asteroid and China extended its space station. The G-20 nations were due to meet in Indonesia, the world's climate negotiators were due to meet in Egypt. 

Echoes of war

It's over six months since Russia invaded Ukraine. The first two months saw dramatic advances: Russian forces swept into the separatist provinces of Donetsk and Lugansk, and after fierce fighting in Mariupol against the Azov battalion, controlled the Azov Sea's coast all the way to Crimea, which Russia had annexed back in 2014. Meanwhile, Russian forces attacked the Ukrainian capital Kiev from the north (from Belarus) and from the east, but withdrew in early April. 

Since then, the front lines have barely moved. But behind those lines, transformations continued. Ukraine itself was the most affected. Millions of women and children left the country (most to western countries like Poland, but some to Russia too) as it became a nation at war, with all men of fighting age conscripted. Military aid poured in from North America and the European Union, a radical strengthening of ties with NATO and the EU. 

Russia too became a nation at war. Officially, the fighting in Ukraine is not a war, it's "special military operation Z"; but the real war is against America, its European allies, and its worldwide power. China is considered a strategic ally in this struggle, concerned as it is to prevent Taiwanese independence. India is expected to remain neutral out of self-interest, and is respected for this. Iran is China and Russia's radical ally against America in the Middle East, and Turkey (like Hungary) is a NATO member which nonetheless needs Russia strategically. 

It's a struggle between unipolar and multipolar world orders that has been happening at least since 2014, but which finally turned "hot" in 2022. Among the thousands of military and civilian dead, there was one in Moscow that stood out to me: Darya Dugina, daughter of multipolarity ideologue Alexander Dugin and a rising figure in her own right, killed by a car bomb which (according to Russian intelligence) was placed by Ukrainian infiltrators, and which was probably intended for her father. 

Away from the battlefield, the war was mostly economic. Russia was cut off from western financial systems, accelerating its turn towards payment systems that don't use dollars or euros. Russia in turn got ready to cut off the gas to Europe, threatening not just a cold winter for ordinary people, but high prices and economic havoc as business and industry had to pay much more for energy. Ukrainian grain and Russian fertilizer had trouble making its way to world markets, increasing food prices and threatening food shortages in a number of countries. The worldwide economic effects of the war blended with other forms of post-Covid havoc, such as inflation and supply chain disruptions. 

Despite its worldwide effects, for now the war was mostly a Russian and European affair. It drew a new bloody frontier through Ukraine, between the "Russian world" of tradition and national sovereignty, and the "western world" of progressivism, globalism, and environmentalism. It loomed over West European politics: Germany's new red-green coalition, Italy's besieged technocracy, France's renewed struggle between Macron and Le Pen, Britain's new prime minister (fourth Conservative PM in a row). Central Europe, previously more concerned with EU diktats regarding immigration and gay rights, mobilized to prop up Ukraine against their historic Russian foe... 

But elsewhere, the war was not quite the center of attention. Even in America, where Ukraine (along with Taiwan and Iran) was considered a crucial front in the global struggle for democracy and American primacy, the political class were mostly concerned with the continuing threat from Trump's populism, which opposes elite values on a startlingly wide range of issues: race, gender, immigration, guns, abortion, foreign policy. The famous American culture war continued, as bitterly polarized as ever, with Congress and Senate elections due in November, and presidential elections two years after that, and the balance of power entirely up for grabs. 

Outside Europe, Russia, and North America, the war was viewed through the lens of self-interest, as just one more factor in the ever-shifting global landscape. 

China steered its economy through the rigors of continuing Covid lockdowns (pursuing a minimum-Covid policy long after the rest of the world had capitulated), the threat of a huge financial bust in real estate, and the post-Covid, post-Trump reorganization of world trade. The next party congress is due in October. 

In July, former Japanese prime minister Shinzo Abe, heir of a political family stretching back to the militarist era of World War 2, and de facto leader of the nationalists in Japan's perennial ruling party, was assassinated by a loner who claimed to be motivated by Abe's connection with a Korean fundamentalist church known for its anticommunism. A third of the government's ministers then resigned, because of their own connections with the church; but the death of Abe was also a blow to the Indo-Pacific Quadrilateral of America, Japan, India, and Australia, that was set up to contain China, and which had only recently broadened its agenda from security to economics. 

India engaged in military cooperation with America and with Russia (and really, with anyone they could except China and Pakistan), and saw industrial tycoon Gautam Adani rise to third richest in the world, behind America's Musk and Bezos. Pakistan's fractious opposition united to vote no confidence in celebrity PM Imran Khan, replacing him with the brother of exiled former PM Nawaz Sharif; but Imran's party said this was a plot orchestrated by the Pakistani military, afraid of Imran's multipolar nationalism and America's wrath, and promised to fight back. The powerful Rajapaksa brothers, who ruled Sri Lanka since ending the bitter civil war in 2009, were themselves brought down by their own experiments with eco-progressive nationalism, which proved to be ill-adapted to the economic rigors of Covid and the Ukrainian war, and bankrupted the country, leaving it at the mercy of China and India. 

Brazil prepared for October elections: current president Bolsonaro, the "Trump of the tropics", and former president Lula, the popular union leader whose era ended in the massive exposure of all-party political corruption that originally brought Bolsonaro to power. Israel prepared for November elections, the fifth in three years, all of them a struggle between supporters and opponents of Benjamin Netanyahu, the main face of Israel in the era of Iran's nuclear program. 

The Labor party returned to power in Australia after nine years of conservatism. Trudeau's government in Canada did a deal with the progressive New Democratic Party in order to solidify its support. In the Philippines, strongman Duterte was replaced as president by Bongbong Marcos, son of a former strongman, with Duterte's daughter as his vice president. 

In May, the disk around the Milky Way's central black hole was imaged by an array of earthbound radio telescopes. In July, the James Webb Space Telescope, located a million kilometers beyond Earth's orbit, began to send back images of the earliest galaxies ever observed. 

War in Ukraine

Tug of war is a sport in which two teams pull on opposite ends of a rope. For years Russia and Europe/America have played geopolitical tug of war over the fate of Ukraine, a motherland of eastern Slavs. Last week, it became a real war: Russia recognized the separatist republics of eastern Ukraine, and invaded the rest of the country, vowing to "demilitarize and denazify" it. The western powers (members of NATO) have condemned the act. They have been cautious about getting involved in the fighting, but escalated financial warfare quickly, severing numerous economic ties with Russia - though for now, energy-hungry Europe continues to purchase the natural gas that is Russia's main export. 

Perhaps the American withdrawal from Afghanistan convinced the Russian leadership that it was time to decisively bring Ukraine back into the Russian sphere of influence. In December 2021, Russia suddenly demanded a treaty from America that would guarantee Ukraine's neutrality, and restrict NATO activities near Russia's borders. America refused, and during the February winter Olympics in China, began to warn that Russia had decided to invade. The prediction was not believed, even in Ukraine, but two days after the Olympics ended, the invasion began. 

There was a vote at the UN General Assembly, deploring Russia's actions, and it might be compared with previous UN motions criticizing China's actions in Xinjiang and Hong Kong. On both occasions, the NATO countries of North America and western Europe were united in voting to condemn. What about the rest of the world? When it came to criticizing China, very few other countries joined in. These were Chinese internal affairs, and even Muslim countries showed no interest in the western campaign for Uighur human rights. 

On the other hand, Russia has now recognized separatists and invaded another sovereign state. No state on Earth wants to be invaded or partitioned, and so, even though Russia gave its reasons (security threat from NATO, persecution of ethnic Russians in Ukraine), many more countries regard Russia's actions as dangerous - as setting a bad precedent. Only a literal handful of countries voted in defense of Russia, e.g. allies like Belarus and Syria, and the vote to deplore drew support from many world regions outside of NATO. 

Still, many significant countries have refused to take sides. China, which in recent years has repeatedly declared that Russia is now a close strategic partner, has called for peace talks that will address the grievances of both Russia and Ukraine, and has strongly opposed the western economic sanctions against Russia. India also values its ties with Russia, especially as a source of military and strategic technologies. This is producing friction with America, for whom India is a very willing partner when it comes to the military and economic containment of China; but India has firmly declined to take sides against Russia. 

Africa and the Middle East are also divided between opposition to the Russian invasion, and neutrality. South Africa, a BRICS nation, abstained from the UN vote (unlike BRICS partner Brazil, which voted to deplore). Ethiopia, still at war with its Tigray rebels, also abstained (and its ally in that war, Eritrea, voted in support of Russia). 

Iran (and Iraq, and Pakistan) also abstained. The case of Iran is interesting. The Biden administration would like to revive the Obama nuclear deal with Iran. Trump scrapped that deal, instituting harsh economic sanctions. The rumor is that the deal may soon be revived. Iran is an ally of Russia in many ways; but does Biden's America think they can create distance between Iran and Russia, in return for lifting the sanctions? 

Life goes on for most of the world: After the Winter Olympics, China has started its annual "two sessions" of political deliberation. France is preparing for presidential elections in April; the external crisis in eastern Europe, and resulting weakness of anti-system candidates, makes Macron a favorite to retain the position - not just leader of France, but leader of Europe along with Germany's new, post-Merkel, red-green government. 

And the era of Covid seems to be fading out. The Delta strain from India, and then the Omicron strain from South Africa, combined with progress in mass vaccination, and political and social exhaustion with anti-Covid restrictions, saw increasingly many governments resigned to treating Covid as a background problem rather than a global priority. For America in particular, the confrontation with Russia requires that the old crisis be retired, so that attention can be focused on the new one.