The ‘New World Order’ Looks A Lot Like The Old World

Headlines continued to paint a somewhat grim macro picture Tuesday.

2020 now seems like an epoch — the beginning of humanity’s reversion to the mean. Disease and war have always plagued our species. Price stability was never a given. The gold standard “worked,” with the scare quotes standing in for myriad caveats and footnotes, not least of which is the lunacy inherent in handcuffing economic development and progress to a literal rock.

While perusing a lament for the demise of gold-backed currency on Monday evening, it struck me that the author implicitly (and probably inadvertently) described product innovation ushered in by consumerism and an unshackled money supply as somehow a negative development. At one juncture, dandruff shampoo found itself in his crosshairs — hygiene, apparently, is the superfluous offspring of humanity’s perilous adventures in fiat.

We’ve had disease and, now, an old school war of conquest. Central banks (sans Kuroda-san) can’t tighten fast enough. On Tuesday, the RBA jettisoned the word “patient” from its policy statement. That might sound trivial, but it wasn’t. To describe Philip Lowe as recalcitrant in the face of mounting price pressures would be to be materially understate the case. At one point, Lowe’s stubborn adherence to dovish rates guidance found him falling two years behind market pricing. Aussie yields jumped to a new “since 2014” high Tuesday and the currency surged. “The RBA is gearing up for rate hikes,” said an astute strategist in Sydney. (Remember: People get paid hundreds of thousands of dollars per year to deliver those kinds of incisive observations.)

What if developed market central banks are unsuccessful in curbing inflation? What if we just can’t do it? The de-globalization push is likely to gather steam. Efforts to shore up supply chains are likely to mean re-shoring, which sounds good (if you can get past the distinct possibility that it’ll mean lost jobs and a return to poverty in some parts of the developing world) until you think about how much it’s going to cost to build things like iPhones in a developed economy where wage pressures are acute, labor is making power moves for the first time in decades and raw materials are volatile and impossible to source.

How long would the inflation fight have to go on before somebody, somewhere, decides to take another stride backwards and reestablish some loose link between money and metal? Then we’d have the regressive trio: Pestilence, marauding armies in Europe and gold-backed currencies.

I’m just kidding. But, do note that quite a few of the so-called “new world order” frameworks that are suddenly en vogue sound a lot like the old world. Modern man doesn’t trade commodities for other commodities. That’s a barter system. Nor do modern economies depend on the discovery of new precious metals deposits for economic expansion. Such systems are condemned to deflation unless someone finds new metal in the ground. The only other options are dilution or seizing someone else’s metal by force. The latter is associated historically with genocide.

In any case, doomsday headlines were splattered across the financial pages Tuesday like so much blood on the streets of Ukraine. “81% of US adults are worried about a recession hitting this year,” read one. “US Supply-Chain Pressures Soar to a Record,” another trumpeted. And still another: “EU’s Von Der Leyen to Visit Kyiv as Toll Mounts.” “Toll” was a reference to dead civilians, not a train fare.

Note also that “Le Pen risk” is back. Suffice to say the last thing Europe needs right now is for Marine Le Pen to seize power in France. The projected runoff gap between Le Pen and Emmanuel Macron was 20 points a month ago. It’s six now. We’ve seen this movie before. She doesn’t win. That said, cost of living is a flashpoint in France just as it is in every other developed country in 2022.

Earlier this week, Bloomberg’s Cameron Crise asked if “the brave-new-world hype” is justified. He was clearly referring to Zoltan Pozsar. Let’s hope the answer is “no.” Because as currently envisioned, the “new world order” looks a lot like the old world in many respects.