War and Interest Rates
Credit Suisse Economics: War and Interest Rates" 1.08.2022.
Thus, with slight exaggeration, the low inflation world stood on three pillars: first, cheap immigrant labor keeping service sector wages stagnant in the U.S.; second, cheap goods from China raising living standards amid stagnant wages; third, cheap Russian gas powering German industry and the EU more broadly
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U.S. consumers were soaking up all the cheap stuff the world had to offer: the asset rich, benefiting from decades of QE, bought high-end stuff from Europe produced using cheap Russian gas, and lower-income households bought all the cheap stuff coming from China. All this has worked for decades, until nativism, protectionism, and geopolitics destabilized the low inflation world..
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If you see the “special relationship” between China and Russia in this context, you can see it as an “alliance of resources” that supplies the necessities the West needs to ensure social stability at lower ends of the income distribution:think of Russia as a “G-SIB of Commodities” and China as a “G-SIB of Factories” that are the world’s biggest producers of commodities and consumer goods, respectively, providing two pillars of the low inflation world we described above. By extension, Russia and China have been the main “guarantors of macro peace”, providing all the cheap stuff that was the source of deflation fears in the West, which, in turn, gave central banks the license for years of money printing (QE).
Thus, with slight exaggeration, the low inflation world stood on three pillars: first, cheap immigrant labor keeping service sector wages stagnant in the U.S.; second, cheap goods from China raising living standards amid stagnant wages; third, cheap Russian gas powering German industry and the EU more broadly
....
U.S. consumers were soaking up all the cheap stuff the world had to offer: the asset rich, benefiting from decades of QE, bought high-end stuff from Europe produced using cheap Russian gas, and lower-income households bought all the cheap stuff coming from China. All this has worked for decades, until nativism, protectionism, and geopolitics destabilized the low inflation world..
.....
If you see the “special relationship” between China and Russia in this context, you can see it as an “alliance of resources” that supplies the necessities the West needs to ensure social stability at lower ends of the income distribution:think of Russia as a “G-SIB of Commodities” and China as a “G-SIB of Factories” that are the world’s biggest producers of commodities and consumer goods, respectively, providing two pillars of the low inflation world we described above. By extension, Russia and China have been the main “guarantors of macro peace”, providing all the cheap stuff that was the source of deflation fears in the West, which, in turn, gave central banks the license for years of money printing (QE).