This Is How the World Ends

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In today’s Money Morning…China watches…is there any bite left behind that bark?…a more serious problem…and more…

All eyes are on the situation in Ukraine at the moment, but there’s an even bigger threat than Russia lurking in the shadows. And this one has the teeth to upend the global economy.

A complacent US on the Ukraine situation could spell disaster for us here in the Asia-Pacific region. I’ll get to the implications in a minute, but first we need to talk about why they’re going to screw this up.

While the situation in Ukraine is sad, I’ll eat my hat if it turns into a broader conflict. There’s no strategic prize for the US in keeping Russia out of Ukraine.

Saving face is about as urgent as it gets. This was made abundantly clear when Russia took control of Crimea in 2014. Some sanctions were the worst of it. Military intervention was never seriously considered.

And here again, the US shows very limited backbone when it comes to this latest incursion. They don’t want the fight. They’re tired of playing world hero and losing. It’s expensive, ineffective, and very unpopular politically back home.

In Afghanistan and Iraq, they had the pretence of an evil terrorist threat to mobilise the national patriotic heartstrings. In Korea and Vietnam, there was the very real fear of the spread of global communism.

But it’s been a long time since the red menace — that is communism — instilled more than a general wariness in the West. It’s hard to muster much conviction in another extension of the Cold War these days.

So why get involved? When you see that bully in the playground picking on another kid, sometimes you just sit in the corner and look the other way. You know you might be able to take him eventually, but not before he sprays that bottle of chocolate milk all over your shirt.

And then mum’s going to be upset. And that’s not good for anyone.

The situation is, of course, a bit more concerning for Europe. But is further Russian expansion after Ukraine a serious threat?

Late last year, Russia demanded NATO rollback recent military expansions in nearby countries. Their proposals were more or less ignored. This move to take power in Ukraine may be a tactic to bring NATO to the bargaining table, not the start of a broader military expansion.

An escalation of this conflict past Ukraine seems very unlikely. But there’s another risk waiting in the wings with very dire implications…

China watches

China is watching this situation very closely.

As far as murderous dictators go, I won’t even try to call a winner between Vladimir Putin and Xi Jinping. I would wager, however, that Putin, who’s been the undisputed ruler of Russia for more than 20 years, has firmer control of his party than Xi, who’s only had power for less than 10 years.

While Xi may be seen as a strong leader, this has largely been built on the back of China’s economic growth. The collapse of several property developers in China is threatening their growth story. Xi may be feeling the pressure to reassert his strength as a leader.

What better way than to deal with a constant thorn in his side — an independent Taiwan. There could be no greater immediate prize for Xi than to conquer and occupy Taiwan.

China will be watching very closely how the US, in particular, handles the Ukraine situation. I think this is something that the US itself will be very aware of.

US warnings against an invasion of Taiwan only have power if they’re prepared to follow through with serious action. The situation in Ukraine raises the big question of how willing the US is to project their power onto external conflicts.

Is there any bite left behind that bark?

A more serious problem

While I don’t want to downplay the seriousness of what is happening in Ukraine at the moment, I do see a potential invasion of Taiwan as a much more serious problem for the world.

It has greater potential to escalate into a broader international conflict. China has much greater economic and military power compared to Russia. Any expansionary moves by them will be seen as a very big threat to the region.

While I won’t call a winner between Putin and Xi for murderous capacity, I will say that China is much more effective at sending chills up my spine than Russia. The Chinese Communist Party has far greater control over its citizens. Human rights don’t exist there.

They pose a real threat to international stability.

If China does try to take Taiwan, I expect we’ll quickly see a very bad situation develop. Sanctions alone on China could be disastrous for the world economy, but no sanctions would be even worse for humanity.

If left unchecked, China will continue an aggressive policy of expansion. It’s just what murderous dictators do all through history when they feel they have enough power to pull it off. Why would this murderous dictator be any different?

I’ve previously written in Money Morning about the need for scenario planning. This is a very real scenario that you need to be preparing for.

Until next week,

Izaac Ronay Signature

Izaac Ronay,
Editor, Money Morning

Izaac is also the editor at Exponential Stock Investor, a stock tipping newsletter that hunts for promising small-cap stocks. For information on how to subscribe and see what Izaac’s telling subscribers right now, please click here.

About Izaac Ronay

Izaac Ronay is an Editor at Money Morning.

He has traded equity index and interest rate futures since 2012 across various exchanges and products. His trading focuses on the relationship between markets and how to maximise return while controlling risk.

Izaac studied Management and International Business and has worked in…

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