Sunday , 23 July 2017


Will War (or war rhetoric) Be Used To Resolve Worldwide Economic Malaise In 2015?

War has long been used as a panacea to fight the ravages of inflation as well as deflation.  Viewed from this context, war is as much a policy response to economic malaise as it is a political response to a threatening foreign power. [Let me explain further.]

The above introductory comments are edited excerpts from an article* by Clif Droke (cdroke.blogspot.ca) entitled The war cycle: 2015 and beyond.

Droke goes on to say in further edited excerpts:

Most recently, Russia’s president, Vladimir Putin, has shown aggression against Ukraine….[using] militant threatening as a distraction effort designed to take his people’s attention away from the increasingly weak state of the Russian economy.  Since Russia’s economic prospects are closely aligned with the oil market, continued weakness in the oil price will only give the country more incentive to find ways of reversing its woes.  In the short term, a military response may be Russia’s only recourse.

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[In the U.S.] the last six years have seen economic policy governed almost exclusively by the Federal Reserve.  The executive and legislative branches of the U.S. government have done amazingly little and were content to cede their authority to the Fed.  The pendulum swings both ways, though, and the Rule of Alternation suggests that the years immediately ahead will witness a greater authoritative response from government. 

Now that the Fed’s QE program has ended, look for Washington to craft its own policy response to the threat of a global economic slowdown…

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The dramatic plunge in oil and copper prices is a troubling sign that global industrial demand for these key commodities is contracting.  What’s more, both commodities are considered by many economists to be barometers for the global economy.  Indeed, the stunning drop in the prices of many commodities is reminiscent of the prelude to the 1998 global mini-crisis which threatened to plunge the developed world into outright deflation.  A policy response from the Fed in late ’98 was sufficient to restore investors’ confidence, however, and the malaise was quickly reversed.  With interest rates currently hovering near long-term lows in many countries, a monetary policy response today would carry decidedly less weight than it did then.  The only alternative might be a military response.

 

Conclusion

The initiation of a fresh war campaign in the coming years would:

  • provide an emphatic cure for persistently low commodity prices as war spending always leads to higher prices and
  • fix the reduced industrial output of many countries whose economies heavily depends on industry.

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History shows that war is often the last resort of desperate governments whose economies are wracked by diminished demand.  Even the rumor of war can have a short-term impact in boosting prices.  Don’t be surprised then if war rhetoric finds its way back into the headlines in 2015.

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://cdroke.blogspot.ca/2014/12/the-war-cycle-2015-and-beyond.html

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