The Latest Preposterously Unsustainable Policy

By Eric Peters, CIO of One River Asset Management

“If the territorial integrity of our country is threatened, we will without doubt use all available means to protect Russia and our people,” declared Vladimir Putin, calling 300,000 reservists to join his tragic war, while implicitly threatening to tap his nuclear stockpile.

“This is not a bluff,” warned the dictator, widening the range of possible outcomes we face this decade.

Should Putin suffer total defeat, it could open an era of great prosperity for Europe, Russia, its satellites. Or perhaps it would invite mayhem. What will follow the collapse of Putin’s rule could take many directions. And at the other end of the spectrum, if a desperate Vladimir were to start a nuclear war, Rutgers University estimates famine would kill two-thirds of humanity.

“It is in our historical tradition, in the fate of our people, to stop those striving for world domination, who threaten the dismemberment and enslavement of our Motherland, our Fatherland,” explained Putin, addressing the Russian people, “We will do it now, and it will be so.”

A great-power war, of course, is by far our greatest known threat.

The risks we face from decades of monetary mischief pale in comparison, but they have begun to manifest. “We have taken decisive action,” declared Masato Kanda, describing Japan’s latest circular reference; a policy to buy yen, while printing yen, to buy bonds, while issuing them. Such a preposterously unsustainable policy is only possible in those nations which have built large reserves, and Japan amassed $1.3trln worth. As it draws those down, it’ll sell overseas assets, and in anticipation, US government bond prices hit new lows.

In a desperate attempt to rescue its economy from the stagflationary malaise sweeping the planet, the UK’s new government announced massive fuel subsidies and tax cuts. The pound and gilts collapsed, as if the UK were an emerging market.  This is what happens when nations deplete their reserves, and the British appear to have no policy credibility left in store. This will force the Bank of England to hike interest rates, sharply, into recession, like they did in 1992.  

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