The Great Uncoupling

The war in Ukraine is about a number of things: language and culture; nationalism; buffer zones; resources; and even bees. It has become the playground for a hybrid proxy war between the "East" and the "West". Like the Lend Lease program of World War II between the US and Britain, Russia now appears to be supplying arms to rebels in East Ukraine while trying to remain officially neutral. On the flip side of the coin, the US and allies have openly supplied the Ukraine government with money, arms, and reportedly soldiers - or private military  contractors. To be clear, there are no innocent parties here. There is also no right or wrong side. This is about one thing - interests.

It is also extremely naive to look at the Ukrainian civil war as a one-off. An isolated conflict on the bridge between Europe and Asia. It is far more than that. In fact, the Ukraine conflict is the final tremor in the "Great Uncoupling". To understand what's happening to the world one needs to go back to the early 1990's and the "fall" of the Soviet Union. The question is: Did the Soviet Union lose the Cold War, or did it simply change tactics and create the "Gold War". In other words, did the Soviets, and as importantly the Chinese, decide a military standoff was a flawed strategy, and the better strategy was to beat the West at its own game - namely financially.

When the Berlin wall fell, Russia and China became "quasi-capitalist" societies. By which I mean, fundamental governing structures remained in place, but production of goods and services changed somewhat. Western countries, and particularly Western corporations, began to rely on cheap Chinese goods to drive their economies, and endless supplies of Russian natural resources to feed their production. Over time, the West accumulated huge trade deficits with the East, and more importantly huge debts to cover it. The debts were financed by the East. Now China is on the verge of becoming the largest economy in the world. Similarly, Russia is the great energy warehouse for Europe. Both have highly developed space programs, defence programs, and technology in general.

Fast forward to 2010, and the World Economic Conference in Davos, Switzerland. At the conference both Russia and China insisted on a new "world reserve currency". They argued that, especially after the collapse of the US economy in 2008, that the US currency was no longer strong enough to fit that roll. They were turned away. However, it didn't end there. Now enter the Ukraine crisis.

The United States reaction to the Ukraine crisis has been to financially act against Russia. However, that has suited Russia's purpose. It's given Russia the reason it needed to secure itself from financial instability. It also gave Russia the excuse it needed to take the next major step in the "Gold War" - namely, isolate the indebted countries of the West from the demographic market places of the East. Russia and China immediately started this process by creating, in a sense, a sheltered monetary union between themselves. Firstly, the massive gas deal between them was to be paid in their national currencies - not US dollars. That is the blue print that each country wants, not just for each other, but also the non-aligned BRIC countries like India, Iran, Brazil and the like. By way of example, India's most recent purchase of a Russian aircraft carrier. Another important development was Russia's moves on "card transactions". Russia took steps for credit card companies that essentially make Western cards useless in that market, and even created its own chip technology for cards.

The lesson to learn from these actions is quite simple: Now that Russia and China have the West in an indebted position they aim to starve Western production of markets. For example, Russia and China are creating their own "IMF". They will lend, etc to the developing world in competition with the already existing IMF (which they see as Western dominated). The currency involved with their IMF will be the Chinese Yuan - not the US dollar. Their primary market will be the BRIC countries - which also have the largest demographic markets for consumption of goods. The West will be faced with a limited market for its goods - a market dominated by heavily indebted countries, whose debt is primarily owed to the East, and whose populations are the fastest aging in the world.

In other words, the "Great Uncoupling". The splitting of the world into two camps: North America and Europe vs the rest of the World. The old Soviet Bloc, China, and BRIC versus the rest. The end of the "New" World Order, and the beginning of another. It's a financial war that the West cannot win. On every level, strategically or tactically, the West can not win in a financial war. Largely, a position it placed itself in by losing the discipline that gave it rise in the first place, and the inability to recognize the nature of the financial war since the 1990's. Living far beyond its means, and being helped along the way by those that were only too happy to help it along the way.

So, in many ways Ukraine will be the litmus test of each sides power. Will the West challenge Russia's counter moves in Ukraine with military force? It's abundantly clear that Russia is prepared to do so. It's far less clear that the West has the appetite, or even the means, financially or otherwise, to do so. Will the West simply recognize the apparent inevitability of its financial outflanking, or will it fight til the last man? In a world of mutually assured destruction a nuclear war seems out of the question. Will the West see a large scale conventional war as their one and only last hope? Not likely. The Russians and Chinese, not to mention countries like India or Iran, would be at least their equals. The great irony is that, frankly, the West is no longer in a financial position to fight a large scale war, while the East's debt is minuscule in comparison. yes, we live in a world of ironies at the moment. We also live in a world on the edge - on the edge of divide. At the end of a pseudo World Order, and on the verge of a quite different World Order. But for now, we are on the cusp of the "Great Uncoupling".