The World Order Reset

Act I: Catastrophe

“The art of war is of vital importance to the State. It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry which can on no account be neglected.” – The first two lines of Sun Tzu’s “The Art of War”

The Dream

What did Vladimir Putin tell Xi Jinping when they met in the cold, blustery first days of February in Beijing? In a ceremony afterwards the two leaders signed a joint-statement condemning the geopolitical audacity of the United States and NATO while declaring the China-Russia relationship to have “no limits.” This was also at this moment when, at least according to American intelligence, Putin promised Xi he would refrain from military action against Ukraine until the end of the 2022 Beijing Olympic Games, which were then about to commence. Whether this is true or not it is impossible to say, though Russia’s tanks did roll across the border into Ukraine just four days after the games concluded. But in either case the question remains: on the eve of war, what did Putin say was actually about to go down?

We will never know the words they exchanged, but it nonetheless seems possible to point what the two leaders probably thought was about to happen. That’s because neither of the two men has ever been particularly shy about saying what they want. And, beyond all of Putin’s personal fixations with pushing back NATO, and “regathering the Russian lands,” and reuniting the wayward Slavs of Ukraine with the motherland, and generally going down in history as the second coming of Peter the Great, these two leaders have been very transparent about long sharing an even broader dream for their countries.

That dream was described explicitly in their February joint statement, much the same as it has been in many similar previous documents: to “advance multipolarity and promote the democratization of international relations”; to put a stop to “Certain states’ attempts to impose their own ‘democratic standards’ on other countries” through “bullying, unilateral sanctions, and extraterritorial application of [domestic law]”; and ultimately to see a “transformation of the global governance architecture and world order.” In other words: to finally free themselves from the hegemonic post-Cold War global dominance of the United States and the “liberal international order” that it has led since 1945.

But February 2022 came at a unique time because it was the moment, as the document put it, at which “a trend has emerged towards redistribution of power in the world.” This was a moment in which, as Xi has described it, “the East is rising, the West declining.” The United States and its dominion appeared be on its last legs.

And it’s not hard to understand why they might have looked at the West and seen it as collectively decadent, weak, and – let’s be honest – often completely deranged. The Western core of the liberal international order was manifestly divided (internally within Europe, between Europe and America, and within Western societies), lazily comfortable with its dependence on Russian energy imports and Chinese export markets, and largely steadfast in its refusal to pay for its own defense amid what Emmanuel Macron had once labeled “the brain death of NATO.” It was easy to assume, in other words, that the West no longer had the will or capacity to fight – a hypothesis that seemed to have been recently put to the test and confirmed in Afghanistan.

The liberal international order therefore appeared to remain propped up only by, as Putin soon put it, an “empire of lies.” The reality of this only had to be demonstrated with a firm push, and the whole façade was liable to come tumbling down, exposing the rotten pillars beneath and perhaps even causing the whole edifice of the liberal international order to collapse. And, if so, then perhaps this was the moment Putin had long prepared for: a chance to break the back of this stifling Western order in one bold stroke.

And what better place to strike than Ukraine? It was, at least as far as Putin could tell, yet another of Washington’s corrupt client regimes, a fake nation with a fake American-trained military that would, like the fake Afghan National Army, immediately throw down its weapons and melt away as soon as Washington’s diplomats had fled the country – alongside their puppet comedian-president, who would speed across the border in a helicopter stuffed full of cash, just like the last guy. After which Russian forces would be welcomed, if not as liberators then at least with general resignation. With Ukraine’s major cities having quickly surrendered once the Spetznaz simply drove in and raised the Russian flag over city hall, with Kiev probably holding out about as long as did Kabul, Putin’s takeover would rapidly become a fait accompli. Their empty rhetoric about deterrence having failed, NATO would have no option but to stand by helplessly. Western unity on any symbolic sanctions would soon fracture as gas importing European states like Germany accepted the inevitable and sought to move on from an embarrassing debacle. The foreign exchange reserves Russia had carefully stockpiled would be enough to tide it over until the West finished wailing and moved on from anger to bargaining. All of the money Putin had wisely poured into guns instead of blini would pay off as Russia’s beefed-up military might was brilliantly leveraged into a strategic triumph over the rich but gutless West. 

Perhaps this is what Putin informed Xi was about to happen – that a quick “special military operation” would be able capitalize on a golden opportunity to achieve their shared dream with little to no risk. This seems to be what Putin and his generals themselves expected, at least. We know this because the columns of Russian trucks that first poured into Ukraine were later found often filled not with fuel, ammunition, or food, but with anti-riot police gear. And many of the troops riding in those vehicles were not regular soldiers, but Russian National Guardsmen, trained and equipped for crowd control duties, not combat. Nor were the approximately 150,000 troops deployed for the operation actually anywhere close to sufficient for taking and holding huge tracts of land in Europe’s largest country in the first place. Nor were the logistics for a sustained campaign ever put in place; commanders of the operation seemingly were not even informed of what they would be doing. Nor were they provided with sufficient air support. Nor was critical Ukrainian military infrastructure destroyed in preemptive strikes. Instead the Russians just drove straight in like they already owned the place.


Events did not go as planned. In fact, the whole plan collapsed within 48 hours, after a helicopter-borne assault by Russian paratroopers meant to capture the critical airports near Kiev were annihilated by ferocious Ukrainian counterattack. Everything immediately went downhill from there. Unable to simply fly into the capital, Russian forces had to try to travel overland from Belarus. In their great tactical brilliance, they had blown up a regional dam and turned half their approach into even marshier land than it was already. They quickly got literally stuck in the mud; years of corruption and disorganization had rotted out their tires, along with their supplies. Their secure communications systems turned out not to work without 4G access, which they had also blown up. They piled up into miles-long convoys that went nowhere, while their soldiers shivered and starved and occasionally deserted.

And of course, rather than surrendering on the spot like they were supposed to, the Ukrainians fought back. Somewhere along the line they’d become real nationalists, willing to fight and die to defend their not-so-fake land, people, and national independence. Their president didn’t flee (though the American diplomats of course did). They were armed with advanced Western anti-tank weapons, and stealthy Turkish drones, and fed a steady diet of NATO geospatial intelligence. And they had the support of the population behind enemy lines, who helped pinpoint the location of Russian vehicles via Google Maps and text message. The stalled or lost convoys got ambushed and wiped out; the burned out wrecks of Russian vehicles piled up on the roadways by the hundreds. Russian generals, in a desperate effort to get things moving, kept travelling to the front and getting whacked. The morale of Russia’s confused conscript army seemed to hover around rock bottom.

For more than a month no progress to capture Kiev was made, even as the capital kept being constantly reinforced with American and European weaponry, thousands of new volunteers, and a huge network of trenches, traps, and fortifications. Meanwhile Russian losses reached staggering levels: based on observable vehicle losses, NATO estimated some 7,000 to 15,000 Russian soldiers had been killed, and far more wounded, with up to 40,000 total casualties by early April – a number that would represent the loss of nearly a third of Russia’s initial force (while Russia only officially admitted 1,351 deaths in the same period, Russian Ministry of Defense numbers leaked to and momentarily published by Russian newspaper Komsomolskaya Pravda in mid-March specified 9,861 killed and 16,153 wounded).

And so, by the end of March, perhaps belatedly realizing that Kiev has six times the population as did Stalingrad in 1942, the Russians finally accepted that they were completely incapable of taking the city, turned around, and retreated – “redeployed” for what Moscow described as a new strategic focus on the eastern part of Ukraine.

In short, the war has been a train wreck for Russia from the start. But it’s hard to understate how much of a surprise this has been for just about everyone. Western intelligence agencies also thought Kiev, and then soon all of Ukraine, would fall within days. The White House was so confident in this that they said so openly and repeatedly. Everything had been counted up in tables, and mapped out on paper, and wargamed, and the end was deemed a foregone conclusion. Many European nations, like Germany, were so resigned to this inevitability that they initially refused to send arms or otherwise complicate their relations with a Russia that they assumed would soon extend its influence much closer to the core of the continent.

The irony then is that Putin probably really was on the verge of getting exactly what he wanted out of the war, just as he’d predicted. It was only the totally unexpected failure of his own once much-feared war machine, and its humiliation at the hands of the Ukrainians, that intervened. And this shock reversed the whole strategic picture, turning Putin’s gambit into a mounting disaster for Russia.

For weeks now I have noticed a strange reluctance among some in the West (at least among my fellow let’s just say “deeply disillusioned with the establishment” observers) to accept the reality of this. As if Western leaders’ demonstrably depthless reserves of stupidity guaranteed Putin immunity from making terrible blunders too. Or as if understandable wariness of our media’s endless ejaculation of pro-Ukraine, pro-escalation, pro-the-current-thing propaganda meant that the opposite narrative must in fact be automatically true: that a Russian victory was probably just around the corner. (The fact is that good regime propaganda is often true – that’s what makes it so effective in its ability to shape narrative with lies.)

The retreat from Kiev should rightly put an end to this. Contra assertions by Putin that all is going “according to plan,” the facts on the ground don’t lie: nothing is really going according to plan for him. The undisguised glee in Washington at being on the comfortable side of a proxy war should also help demonstrate as much (more on that later). True, as a nuclear armed power, Russia cannot ever outright lose this war (contrary to the seeming expectations of some, Zelensky will never ride into Moscow on a tank to accept Putin’s unconditional surrender and drag him to The Hague to be tried for war crimes). But Putin now also cannot win what he had envisioned, either. His original war goals – of disarming and “de-Nazifying” Ukraine (i.e. replacing the regime in Kiev with a subservient, pro-Russian government) – have now had to be abandoned. Instead, (assuming we are not all annihilated in a nuclear exchange) the two sides appear to be headed toward either a frozen conflict or an eventual negotiated settlement, with Putin now in the process of defining success down in order to try to find a politically acceptable off-ramp out of this quagmire.

Russia’s new offensive to try to secure the eastern half of Ukraine may or may not be very successful in taking additional territory. There are some reasons to think Russia will perform better now that it is operating closer to its border and has had additional time to plan and organize more methodically. But there are also reasons to suspect that the Russian military’s problems run far deeper than what can be patched over in a few weeks, or that it has even had time to truly recover from the terrible losses it has already sustained. Nearly a third of Russia’s battalion tactical groups are estimated to now probably be “combat ineffective” after sustaining heavy losses and constant fatigue from weeks of fighting near Kiev, and rushing them a new front without any chance to rest or reconstitute may add little to Russian operational power. Meanwhile Ukraine is being constantly resupplied with more and more weapons and cash from the West.

But in the end Russia’s performance in the east may not actually be that relevant. The myth of Russian military invincibility is already smashed. And even if the offensive does succeed enough to allow Putin to walk away claiming a partial victory – such a hold on parts of southern Ukraine, recognition by Kiev of the “independence” of the breakaway pro-Russia regions in Crimea and the Donbas, and a Ukrainian commitment not to join NATO – this “win” would in reality represent a major strategic loss for Russia. Left with only about the same territory it already effectively controlled before the war; the Russian economy now isolated by sanctions and technology import restrictions, and its ability to replenish its military strength curtailed; Ukraine now absolutely confident in its independent national identity, united forever by a heroic battlefield origin myth; Zelensky’s government still in power in Kiev, and more pro-Western than ever; NATO not only brought back from the dead but completely reenergized, with Sweden and Finland (the latter mere kilometers from St. Petersburg) on the verge of joining the hated alliance; the Europeans offering Ukraine a fast-track into the EU, and Washington eager to play Marshall Plan; Poland, Germany, and multiple once complacent nations in Europe now rapidly rearming; and the “liberal international order” stronger than ever… Russia will come out of this catastrophe in a position vastly weaker than before blundering into it, with no significant improvement in its strategic outlook to speak of and its future prospects greatly eroded.

Putin may grit his teeth and bear this turn of events by adopting the pose of that classic long-suffering Russian stoicism that he’s forced on his populace. But for China this is already a totally unasked for, absolute face-palm-inducing fuckup.


From Beijing’s perspective, this situation is not, at all, what the de facto alliance with Russia was supposed to produce for China.

China tends to take an approach to foreign relations that its defenders would call pragmatic and its critics ruthlessly transactional. Close relationships are not maintained out of an abundance of friendly loyalty, but because doing so is beneficial to national interests. In this case an exceptionally close relationship with Putin’s Russia was assumed to bring China certain significant benefits, extending beyond mere political and ideological alignment.

Keeping the peace along China’s northern border was of course strategically important, but that only required a certain minimum of non-aggression. And while for many years China relied on Russian technical expertise, especially in areas like aerospace engineering, at this point China has pulled well ahead of its neighbor. Meanwhile, with a gross domestic product of only around $1.6 trillion in 2021 (barely above Australia), Russia is not exactly a booming market for Chinese goods. There is of course Russia’s important energy and other resources. But then, with Russia being totally dependent on exports, and China being the world’s largest market, China will always have the option to just buy those. No, what China really saw in Russia was something else entirely.

China is an old empire; it endured much hardship in those times when it was weak. It is also run by a Leninist political party that firmly believes power ultimately grows out of the barrel of a gun. China, that is to say, fundamentally respects strength and is contemptuous of weakness. Russia was therefore long worthy of sincere respect because, while it’s Soviet glory days were behind it and its economy backwards and puny, it retained a military uniformly judged to be among the foremost in the world. In truth, from China’s perspective it was this, and almost this alone, that made Russia a great power worthy of standing as an equal in the councils of the world – a notion Putin himself went out of his way to encourage by staking his reputation on having remade Russia into a formidably martial state.

This martial Russia stood to be a very useful friend/asset for China, in multiple ways, merely by sitting around and looking menacing. In the event of a war over Taiwan, or any kind of regional crisis or U.S.-China conflict, Russia could act as an immensely dangerous spoiler for the United States and its allies. Geographically, a looming Russia would pressure Japan and South Korea from Northeast Asia, expanding the scope of a potential conflict beyond China’s coast, which is hemmed in by a ring of hostile islands. But, most importantly, its presence would threaten the possibility that any conflict with China would expand into a two-front war in both Asia and Europe. The USA would be forced to keep significant forces positioned in Europe to protect NATO from any sudden Russian attack. That China did not have a formal alliance with Russia was no obstacle: it would be sufficient just to keep Washington uncertain and afraid enough to limit its stated desire to “pivot to Asia” and focus on containing China alone. And this threat seemed eminently credible, because as recently as 2019 the experts conducting America’s wargames were predicting, repeatedly, that a Russian invasion of Europe would be so overwhelming that it could capture all of the Baltic States “within a few days,” and that NATO would likely be forced to use tactical nuclear weapons to stop the Russian advance anywhere north of Warsaw.

This mutual fantasy has now been shattered. Far from being poised to overrun Europe, Russia’s Potemkin army proved incapable of even making it through the rag-tag volunteers of Kiev, with their consumer drones and yoga matts. Even if it “wins” and ends up with a few more bites out of Ukraine, it no longer credibly poses any serious conventional threat to NATO. And while the United States will have to stay in Europe for a while yet to soothe local anxieties (and make its defense companies a tidy profit selling huge amounts of arms), it will soon be free to turn eastward with far less anxiety.

For Beijing, this necessarily changes its whole strategic map. For the more than 100 years since the October Revolution of 1917, China and the CCP has been deeply connected to and shaped by Russia. But Russia’s shameful display on the battlefield will prove the original sin that transforms China’s view of it from one of respect into one of thinly veiled contempt. Beijing can certainly appreciate the perks of possessing dependent client states. But in Russia’s case China never wanted a needy dependent clinging to its leg; it wanted the valuable partnership of a great power. Yet it took less than two weeks for Russia to begin begging China for arms and assistance. China has not sent them. If it is no longer a serious military power then Russia has been reduced to just another third-world oil exporter – like a big Eurasian Nigeria, but with terrible demographics. In the end, China will begin to treat it as such.

So while in public China may continue to vigorously support Russia rhetorically, its material support will be limited. Beijing has other priorities to worry about now, because Putin’s big screw-up has placed it in a truly no-win scenario.


Act II: Alone

“For whoever has, to him more will be given, and he will have abundance; but whoever does not have, even what he has will be taken away…” – Matthew 13:12


It’s true that Beijing cannot afford to completely throw Russia under the bus. Russia is still, uncomfortably, the most significant ally China’s got. And if China wants to attract any others in the future then it can’t look too weak and unreliable. Plus Xi has too consistently touted his personal relationship with Putin, on more than one occasion calling him his “best friend” and the man most like himself in the world. Backing off too fast would not be a strong look. Most importantly, a scenario in which Putin’s regime actually did fall, and Russia was transformed into a pro-Western state sitting literally on China’s doorstep, would be a nightmare beyond all comprehension for Beijing. So a minimum level of help will have to be provided to prevent the worst and keep the China-Russia partnership alive.

But, at least in the short-term, China’s priority must be to avoid getting dragged down into the mud by Russia. And unfortunately for Beijing this is a real threat, because Putin’s blunder has put many of its most important interests directly in jeopardy.

Even in China’s own neighborhood the invasion of Ukraine has provoked a passion for rearmament, cuddling up to the United States, and collective defense that must be deeply disconcerting to Beijing. Officially pacifist Japan, for example, not only joined U.S. and European sanctions, and shipped military aid to Ukraine, but is now debating doubling defense spending to 2% of GDP (just as Germany has committed to in Europe) as part of what its prime minister described as an effort to “enhance defense with a sense of speed.” Former Japanese Prime Minister and current ruling party head Shinzo Abe has even proposed that Japan agree to host American nuclear weapons on its soil, while also arguing that the United States and Japan should abandon any ambiguity about their intention to together defend Taiwan – both once profoundly radical steps for a senior Japanese politician to give voice to. South Korea, too, with a newly elected conservative government, is also moving toward a harder defense posture and a closer relationship with the American alliance network. Beijing’s support for Moscow therefore appears to be contributing to rapidly worsening suspicions of China and its intentions in a region traditionally hesitant to trade profitable economic exchange with China for American promises of security.

The worst damage, however, is undoubtedly occurring in Europe, where anger over Russia’s invasion of Ukraine is most intense, and where frustration with China’s closeness with Russia is growing quickly. When Xi and European leaders held a summit on April 1, he implored Europe not to blindly follow Washington’s lead on policy, and to “form its own understanding of China, and adhere to its own autonomous policies toward China.”  But the Europeans were having none of it, with EU foreign policy chief Josep Borrell reporting they had warned Xi not to send aid to Russia, but that overall “the dialogue was everything but a dialogue” – adding that the two sides “did not agree on anything else,” either.

The chance that this anger may translate into movement by Europe towards economically decoupling from China, or even openly sanctioning China over its support for Russia, is a huge risk. Collectively, the European Union is China’s top global economic partner, with a bilateral trade volume of $828 billion in 2021. In comparison, China’s two-way trade with Russia was $147 billion (most of that imports of Russian energy). To put it mildly, Europe is a far more important market for China than is Russia, which is too small an economy to absorb much in the way of Chinese goods and services. Especially at a time when China’s economy is already facing serious headwinds, and the threat of the United States moving to decouple parts of its own economy from China is already growing more serious, losing access to Europe would be extremely costly. This reason alone will be enough for China to carefully avoid openly flouting Western sanctions or to be caught sending Russia military aid.

Moreover, for Chinese companies the risk of triggering American secondary sanctions is no joke. Like everyone else on the planet, those companies conduct most of their global business in dollars, and often still rely on American technological components to produce their products. Which means that America effectively controls who they can sell to. Most of them will never willingly accept losing access to the majority of their global customers just to support Beijing’s impoverished comrades in Russia. Unless the Chinese state forces them to, of course – but so far Beijing has pointedly not done so.

Which is why to date Chinese firms have not rushed to Russia’s aid, but instead quietly complied with sanctions, and in some cases even begun to pull out of the country. State oil giant Sinopec has halted multiple projects in Russia, including construction of a half-billion dollar gas plant, while it assesses sanctions risks. And Chinese state refiners have so far shunned signing new contracts for Russian oil, despite being offered steep discounts. Telecom giant Huawei has temporarily suspended new orders for sales in Russia, and furloughed its Russian staff. Shipments of Chinese smartphones to Russia have fallen by as much as half overall. Computer maker Lenovo has also suspended shipments to Russia. Drone maker DJI has just suspended its business in Russia. The head of the Russian Academy of Sciences says China has even frozen joint scientific research projects without any explanation. Overall, for China “it makes [sense] to stand by and watch what happens next,” as one Chinese executive told the Financial Times – which is not exactly the swift rescue Russia may have hoped for from its best friend.

Still, despite all the risks, China would probably do more to help Russia defy the West if it could. It chafes at the long arm of America’s dictates just as much as Russia does, after all. But the reality is that it can do very little. Because it turns out the “liberal international order” still has China by the balls.

The Sixty Percent

In China’s lengthy strategic literature the difficult to translate concept of shi (勢) plays an especially prominent role. Sometimes translated as “momentum” or “potential,” it might best be described as the potential energy inherent in and available to be released by the configuration of any given situation. On the battlefield, or in a war campaign, a masterful Chinese general’s most important task is, in theory, to subtly and patiently shape the circumstances – using terrain, weather, morale, maneuver, concentration of forces, etc. – to maximize his shi relative to the enemy’s. And then, crucially, to grasp the exact timing of when the ebb and flow of shi has produced the most advantageous possible moment to attack. Or as Sun Tzu instructed:

“When torrential water tosses boulders, it is because of its momentum (shi); when the strike of a hawk breaks the body of its prey, it is because of timing. Strike the enemy as swiftly as a falcon strikes its target. It surely breaks the back of its prey for the reason that it awaits the right moment to strike… Thus the momentum (shi) of one skilled in war is overwhelming, and his attack precisely regulated. His potential (shi) is that of a fully drawn crossbow; his timing the release of the trigger.”

Putin didn’t realize that he had really bad shi and even worse timing. He detected that the West was declining and that the Russia-China bloc had some accelerating momentum on the world stage, but mistook this for having already accumulated enough advantage to be ready to deliver a knockout blow. And only when his strike failed to topple his foes did he find that he no longer had the waves at his back. Simply put, an impatient Putin moved too soon. In particular, China was simply not yet in a position to significantly help Russia prevail in an open contest with the West. 

Much has been made, for instance, of China’s ability and eagerness to buy Russia’s oil and gas if those fiscally crucial exports are shunned by the West. Putin himself declared that Russia will now “redirect” its energy exports to other “rapidly growing markets” instead of Europe. But while it is true that China has a strong appetite for Russian energy, this obscures the reality that Russia cannot simply “redirect” the 75% of its exports currently going to Europe over to China at the flip of a switch – even if the demand is there, currently the infrastructure to do so simply doesn’t exist. And while Xi and Putin signed off in February on the construction of a new gas pipeline from Siberia to China as part of $117.5 billion in new bilateral oil and gas deals, such pipelines will take years to construct. Moreover, China will likely not prove to be a sustainable growth market for Russia in the future, given that the country is moving aggressively, in the name of energy security, to limit its import needs, including by investing $440 billion to build a staggering 150 advanced nuclear reactors over the next 15 years. Combined with losing all of its pricing power if it makes China its only buyer, this seems like a recipe for a serious long-term decline in Russia’s energy export industry (i.e. its only real industry).

Also among Russia’s significant missteps was an underestimation of the robustness of continued Western dominance over the global financial system, and an overestimation of the China-Russia bloc’s ability to challenge that dominance at the present time. Russia was clearly caught off guard by the extent and unity of Western sanctions, with the Central Bank of Russia admitting that the probability of Russia’s foreign reserves being frozen by the U.S. and Europe had been assessed to be “very low,” given that the move was “unprecedented.” Which is why about half of Russia’s $643 billion in foreign exchange reserves amassed before the war were still outside the country when it began, leaving them now in the hands of the West.

Combined with Russia’s ejection from the SWIFT international payment network, this was reportedly a “shock” for China’s leaders. They had not expected so many countries – including even Switzerland, a country that had maintained its strict neutrality for centuries – to so quickly join in on sanctions and endorse the weaponization of a key financial institutions like central banks and SWIFT. While Beijing has long been concerned by the knowledge that the dollar’s dominance gave the United States and its allies such leverage, the brazenness of wielding it against a power as significant as Russia has set off intense alarm, with China suspecting that, even as the world’s second largest economy, it could soon become the next target.

Some commentators have given significant credence to the possibility that this development will only lead Russia to switch to conducting its transactions in yuan, and thereby even help substantially accelerate a transition away from use of the dollar system by many countries around the world. The Chinese alternative to SWIFT, the People’s Bank of China’s Cross-Border Interbank Payment System (CIPS) has been pointed to as a means by which Russia will be able to make this switch. But this significantly overstates the Chinese system’s current ability to be of any help to Russia on this front.

Anyone can create a new payment system or currency – the hard part is getting anyone else to use it. Around half of global transactions last year were paid in dollars, and more than 30% in Euros, while just 2% used yuan. Which is why in the last quarter of 2021 CIPS processed some 13,000 transactions, while SWIFT handled 40 million. So while Russia could continue to trade with China by using the yuan, it then still couldn’t trade with anyone else. Which is a problem, because it can’t fulfill anywhere close to all of its needs just by trading with China. And if Chinese companies are hit with secondary sanctions for buying Russian goods to try to resell in dollars, or for importing components in dollars to sell to Russia for yuan, who else would be willing to trade with them using only yuan?

The real challenge is that most people around the world still have significant reason to hold dollars, given that the dollar retains its status as the global reserve currency, while few people have a good reason to hold yuan (and no one wants to hold rubles). And network effects matter. Russia and China both know this, which is why over the last several years they have diversified many of their transactions out of the dollar – just not into yuan but into what seemed like the next best alternative: the Euro. But, again, this decision was based on the assumption that Euros would be a safe option, which, to their surprise, turned out not to be the case.

The only way out of this trap is for the yuan to become globally desirable, easily convertible, and widely considered legally safe to hold. The latter two cannot happen until China opens its capital account and floats the yuan without state manipulation – which Chinese authorities are extremely reluctant to do because of the real risk that more capital would flee China than enter it. As for the first, tens of billions of dollars’ worth of foreign capital has already fled China since the start of the war as offshore investors reconsider the safety of remaining in the Chinese market given the direction the geopolitical environment is currently trending. Even if people no longer want to risk holding dollars, they don’t yet have a reason to hold yuan instead. And if China were to double down and seriously help Russia evade sanctions, then all three of these requirements would be further undermined, significantly setting back, rather than accelerating, the internationalization of the yuan.

Again Putin moved too early, before any robust alternative to the dollar system had gotten off the ground. It is too soon to say precisely how sanctions will impact the Russian economy over the longer term. They may be manageable for Putin, and won’t slow his immediate goals in Ukraine. But they also certainly won’t help either Russia or China economically compete with the West. The idea that somehow – now that the Russia-China bloc is under heavy pressure and disempowered – this is the moment that will lead to a quick triumph of the yuan over the dollar is a delusion.

That shift may eventually happen over the long term, but as Ray Dalio explained relatively well in his book on cycles of change in the world order (see my review here), historically an upset in the global reserve currency is consistently the last epochal change to flow from the replacement of one reigning superpower by another, following only well after this succession has been cemented economically, militarily, and diplomatically. Ultimately, China cannot overthrow the power of the United States by deliberately undermining and replacing its reserve currency – it can only replace its currency by first dethroning the United States from power.

Yet what this crisis has revealed is that China is still not close to being able to do that. This is not, however, because China is itself a weak country; indeed it may be well on its way to overtaking the United States on a one-to-one basis. But the war in Ukraine has produced a snapshot that is quite definitive: powerful as it may be, China stands almost alone. And that leaves it nearly helpless in the face of the immense power of the U.S.-led bloc being arrayed against it.

If one takes a map and colors in the countries that have actively joined Washington in sanctions on Russia (as above), what you will see is essentially a map of “the West,” with the United States and European Union joined by a few far-flung Asian protectorates like Japan, South Korea, and Australia. Russia and China would accurately point out, of course, that this leaves out not only the majority of countries in the world but also a majority of the world’s population. And yet, the hard truth is that these facts are of very little consequence to the present reality of power mapped here – together these countries by themselves represent around 60% of global GDP, and therefore a large majority of the combined material power in the world, including military power. This is why together they can effectively treat Russia like a Canadian trucker and get away with it, and why for now the dollar will retain its supremacy, and why China’s shi is now shit.

The global economy

For China, the newfound unity of this bloc, and its persistent economic and military dominance, is the greatest of all possible problems. It could be a decade or more (if ever) before China and the shabby band of developing countries that could be called its own bloc of pseudo-allies (currently representing at most maybe around 25% of global GDP) can close the economic gap. That really only leaves China with one option in the near term: to somehow split the developed countries of The Sixty Percent, convincing a sizeable part to either join Team China or at least abandon Washington and commit to neutrality. And that means that – to the certain exasperation of all those young Asianists and others who thought we must surely by now be past such anachronisms – the future of the geopolitical balance now once again fundamentally hinges on Europe.



For a few centuries now, various geopolitical thinkers have described the world as having essentially two different possible configurations of geopolitical power, both pivoting around the Europe’s direction of alignment. Since the time of Hobbes, one has traditionally been symbolically associated with the great mythical sea monster, Leviathan. The other with the great land beast, Behemoth.

In one of these configurations, Europe shrinks back from the alien steppes of Asia – a sense of menace perhaps emanating from the depths of its historical memory – and looks westward across the seas, aligning itself with the more familial power of North America. The balance of world power becomes Trans-Atlantic, and therefore fundamentally maritime in character. The huge interior landmass of Asia is marginalized and outmaneuvered along its periphery by Leviathan. This is the configuration of global power that has long reigned over the earth, first in the age of colonialism typified by the British Empire, and then under Britain’s post-war American successor.

In the other possible configuration, however, the power of Europe is fused to the emergent power of Asia, connecting Orient with Occident across the vast steppe. In this Eurasian configuration, global power would re-center on the safe interior of what Sir Halford Mackinder called the great “World Island” of the trans-Eurasian landmass, with the bulk of Behemoth marginalizing the maritime rimlands of the periphery. Naturally, this is a vision that has long obsessed Russia, the world’s only geographically trans-Eurasian power. (Hence perhaps why Dmitry Medvedev said the deeper purpose of invading Ukraine was to begin to “finally build an open Eurasia from Vladivostok to Lisbon.”) But, more recently, the Eurasian dream has also been taken up by a new champion that is already the natural heartland of the Asian pole: China.

As described above, these visions are not merely fanciful (despite their fantastic beasts), or even simply geographic, but quite material. If one imagines the world’s power as divided into equal quarters by China, the United States, Europe, and the rest of the world, this is actually not too far from an accurate picture of each of their respective shares of global economic output today. If any two were to unite, they would easily outweigh either of the other two alone – and since “rest of world” is of course not a uniform bloc, that mostly leaves the other three jostling for how to balance between themselves.

While the return of China to particular prominence within Asia is new in this century, the basics of this idea have shaped global politics for at least the last 100 years. It was after all the core dynamic that drove the Cold War: the Soviet Union hoped to complete its partial control of Europe and East Asia and fulfill the Eurasian dream; the United States aimed to prevent it from doing so and to break its hold on Eastern Europe, firmly establishing Trans-Atlantic dominance. This was in fact the whole basis of America’s strategy of containment first proposed in 1946 by George Kennan, who warned that the Soviets could never be allowed to consolidate the balance of the world’s industrial centers located in these regions into their hands alone. This became America’s defining strategic principle for the next several decades – as reflected quite explicitly, for example, in the 1988 National Security Strategy of the United States, where President Reagan put it this way:

The first historical dimension of our strategy… is the conviction that the United States’ most basic national security interests would be endangered if a hostile state or group of states were to dominate the Eurasian landmass – that part of the globe often referred to as the world’s heartland… since 1945, we have sought to prevent the Soviet Union from capitalizing on its geostrategic advantage to dominate its neighbors in Western Europe, Asia, and the Middle East, and thereby fundamentally alter the global balance of power to our disadvantage.

This was also why capitalizing on the Sino-Soviet ideological split to break China away from the Soviet Union in 1972 was at the time widely considered to be a strategic masterstroke by President Nixon – it fundamentally broke the USSR’s Eurasian position. The long-term consequences of helping China grow stronger were at the time considered secondary, if they were considered at all.

And while the (first) Cold War might be over, the contest to establish and defend one of these configurations of global power has lived on. In 2013, Xi Jinping unveiled China’s Belt and Road Initiative (BRI), then called the New Silk Road, a multi-trillion dollar project to build a massive network of infrastructure links – roads, high-speed rail, ports, power lines, pipelines, fiber optic cables, etc. – stretching from China across Eurasia and ultimately terminating in Europe. From the beginning, the core strategic purpose of this was quite clear: to make Eurasia the collective pivot of the global economy by firmly tethering Europe to China. By offering significant potential economic benefits to European states, it meant to draw Europe steadily away from America and closer to China’s strategic orbit.

Xi seemed to realize, consciously or not, the most basic structural logic of U.S.-China strategic competition: if either superpower can completely secure and retain the cooperation of Europe, it will almost certainly win that competition. If neither can woo a haughty and aloof Europe to its side, then both will have to strive to their utmost to capitalize on their own strengths and scrape together a partial coalition, or any other edge they can find, to triumph in a drawn-out struggle.

Hence why when Xi heard French president Emmanuel Macron first begin belaboring how “what Europe represents” can really be entrusted to neither “the other side of the Atlantic” nor “the edges of Asia,” he quickly started to heartily endorse Macron’s calls for Europe to embrace “strategic autonomy.” Beijing concluded that if this meant greater autonomy from Washington then it was all for the idea. Xi began going out of his way to laud Macron as being “correct in advocating the strategic autonomy of the European Union,” while now and then also urging Merkel to help Europe “make the correct judgment independently and truly achieve strategic autonomy.” Unfortunately for China, none of this has quite worked out.

Until recently, it did seem like significant progress was being made in keeping Europe favorably disposed to China. Several European states, such as Italy and Greece, had joined the BRI, resisting pressure from the United States to reject China’s advances. Most significantly, in December 2020 the European Commission signed the EU-China Comprehensive Agreement on Investment (CAI), snubbing desperate entreaties from the incoming Biden administration in Washington to wait and at least talk it over as a couple first. Consisting of multiple mechanisms to facilitate significantly greater European investment in China, and Chinese investment in Europe, it would have helped push Europe into much greater economic entanglement with China. It was naturally pushed primarily by Germany and France, whose export-oriented industries had the most to gain. The EC proudly declared that it had been graced by “the most ambitious agreement that China has ever concluded.” Europe seemed to be on the verge of helping Xi complete his Eurasian dream.

Except that, in a rather spectacular revolt, the European Parliament then refused to ratify the agreement and effectively put it permanently on ice. Many in Europe had been growing steadily more outraged by China’s crackdown on Hong Kong, human rights abuses in Xinjiang, generally aggressive foreign policy, and perhaps most importantly – in particular for many of the smaller states in Central and Eastern Europe – ever more evident failure to actually pay up on investments promised as part of the BRI. With little Lithuania, of all countries, leading the way by dropping out of China’s diplomatic push into Eastern Europe, by the end of 2021 a significant backlash to China had begun to coalesce in Europe.

Now the war in Ukraine has decisively hammered the last nail into the coffin for China’s dream of keeping Europe out of America’s arms. Frustration with China that was already beginning to boil over has been electrified by the shocking realization in Europe that the continent does in fact face real threats to its security and that total economic reliance on authoritarian states may not be an acceptable status-quo to maintain. Urgent talk of “strategic autonomy” is now heard everywhere in Europe – except that, instead of a strong Gallic independence, strategic autonomy now means running to the United States to hurriedly buy as much gas and as many fighter jets as possible.

This means we are at the beginning of a new era. Or, more accurately, a rebirth in a new form of the old one that spent much of the last two decades crumbling apart. The breathtakingly rapid realignment of Europe to become part of a single bloc aligned with Washington, while defining itself in opposition not only to Russia but increasingly to China as well, is likely to be the decisive geopolitical variable of the decade.

Indeed the (re)emergence of this American-led Trans-Atlantic super-bloc – which for various reasons that amuse me I will hereby dub Trans-Atlantis – has the potential to reshape the world in a way that seemed unimaginable before Putin made the impossible possible. Because, as long as Trans-Atlantis remains tightly fused and swimming in sync, it will for the foreseeable future retain unmatched power to dictate the direction of the international order. Leveraging the decisive weight of its global economic and financial power, it will now be able to shape international rules, standards, and norms on everything from trade, investment, and development, to internet regulation and environmental, social, and governance (ESG) restrictions on corporate policy. And, through the weaponization of finance, it will have the tools to police these rules as it chooses.

Alone and Insecure

Suddenly China finds itself alone at the bar. Russia has stumbled off to drunkenly instigate a street fight and lose most of its teeth, and Europa has gone home with the obnoxious middle-aged Yankee in the muscle shirt and overbearing cologne.

Though they won’t let the mask slip in public, leaders in Beijing will now be in a state of intense uncertainty and insecurity, paralyzed over what to do. China must somehow regain strategic momentum, but Russia’s missteps in Ukraine have pushed it down a path with no good off-ramp to either salvage its relationship with Europe or ensure a Russian triumph capable of breaking Western unity.

Moreover, Russia’s totally unexpected failures will cause Chinese leaders to seize up with an intense fear that China’s own capabilities to wage military and economic war are not as strong as they have been led to believe, further limiting their room to maneuver. Or as one anonymous CCP official put it to Nikkei: “The current struggles by the Russian military, which we have long admired, is sending big shock waves across the party.”

They have good reason to be concerned. All of the weaknesses that have undermined the Russian army at every level of operations over the course of the war so far are just as likely to plague the People’s Liberation Army. The Russian officer corps is very top-heavy, with a bureaucracy that puts political loyalty ahead of competence, and with a command culture so rigid that it leaves junior officers unable to take autonomous initiative in the field; this pales in comparison to the politicized culture of the PLA, where there are party commissars in every unit. Years of institutional corruption and misappropriation of military resources helped undermine Russian logistics; the PLA too has long been riven by corruption. Limited training of Russian conscripted forces has led to heavy avoidable battlefield losses; the PLA is no more professionalized. Lack of operational experience has prevented Russian forces from successfully coordinating simultaneous joint air, land, and sea operations; the PLA has far less battlefield experience than the Russians, having not fought a war in more than four decades.

And Russian difficulties in invading Ukraine, a mostly flat plain adjacent to Russia which should have been ideal terrain for mechanized warfare, have highlighted just how much more difficult it would be for China to successfully seize and hold Taiwan. Considering Taiwan is an island more than 100 miles off the Chinese coast, covered in mountains, jungles, and large urban centers with multiple times the population density of Kiev, the losses China should expect to take will reasonably need to be scaled up significantly. And any narrative Chinese leaders have bought into that the Taiwanese would not fight and would welcome their own “liberation” should now be viewed with some suspicion, to say the least. While China’s official estimate has until now been that all of Taiwan could be taken by airborne and amphibious forces, and its leadership “decapitated,” in less than seven days (the time it believes the United States would take to respond), this suddenly seems not just optimistic but totally delusional.

Worse, observation of the effectiveness of modern mobile anti-armor and anti-aircraft weapons in Ukraine hints of the possibility that new technologies could have (once again) shifted the whole nature of warfare to the point that defending forces now have such a lopsided advantage that, like in WWI, war becomes a largely static, grinding affair. American strategists have long feared this possibility, given that China has itself focused on amassing a huge arsenal of asymmetric “anti-access/area-denial” (A2/AD) weapons, such as long-range hypersonic anti-ship missiles that threaten U.S. surface ships’ ability to get close to its shores.  But now the United States is mirroring this strategy through its “Pacific Deterrence Initiative,” distributing asymmetric weapons among its regional bases and allies (as well as feeding them to Taiwan itself) to create what’s been described as an “archipelagic defense” network. If the result is to create a regional “no-man’s land” in which neither side can maneuver, this will most work against China, the power that most needs to change the regional status quo by “breaking through the thistles” and either taking Taiwan or otherwise achieving the ability to safely deploy past the “first island chain” into the open ocean.

Overall, any planned Chinese D-day on the beaches of Taiwan has likely had to be delayed. Xi has little choice but to pause and urgently reassess what the real state of the PLA and its capabilities really are, so that he doesn’t get blindsided like Putin did. The Chinese political system being what it is, Xi absolutely cannot afford to lose a war (any war), whether over Taiwan or anywhere else. It can’t even end up in a stalemate – his head would roll for it. So he has good reason to be risk adverse. In fact he’s liable to conclude that the best course of action is just to wait and hope the whole balance of the situation can be improved by the 2030s, when China will ideally have had a chance to improve its capabilities relative to the United States and Taiwan.

Xi has, however, been very explicit about the reunification of Taiwan with the motherland being an integral part of his signature political promise of achieving the “China Dream” of the “great rejuvenation of the Chinese nation” under his watch. And he’s not getting any younger. If the status quo is now frozen, and he appears unable to deliver on that dream anytime soon, at the same moment as China is isolated on the world stage by Xi’s own foreign policy missteps, then whispered exchanges in Zhongnanhai might begin to ask: “what good has one-man rule even done for China, anyway?” And then even: “is the emperor weaker than he appears?”

The smashed dragon doors of the Hall of Supreme Harmony, historically the symbolic heart of imperial power in Beijing, which were ominously blown in by a freak gust of Siberian wind on March 4, 2022.

But from Xi’s perspective the situation could imminently become even worse. He and others in Beijing are now liable to wonder: what if the real lesson Washington is taking from Russia’s experience in Ukraine is that it can poke the bear until it bites, then trap it, bleed it, and ultimately finish it off? What if it thinks this might also work on pandas? What if Washington now thinks the PLA might also be a paper tiger, just like the Russians? What if it has now been tremendously emboldened in its willingness to fight a proxy war, or even to risk a direct conflict, over Taiwan because it now thinks it could probably win decisively? Or what about leaders in Taipei: could they now be willing to provoke a war by formally declaring independence from China because they also now assumes they could prevail? What if China’s enemies are not going to let it have any more time? Irrational as any of these thoughts may seem to us, they won’t seem that way within the ingrained paranoia of a Leninist state. All this will inevitably provoke a profoundly defensive mindset, and Xi is likely now pointing to his recent decision to at least triple China’s arsenal of nuclear missiles as an act of supreme foresight, given that this may be the only remaining capability allowing China to really keep the wild American’s at bay.

So as Xi orders another Maotai to nurse at the bar, he may reflect on the grim road ahead of him – and brood over whether pride does inevitably cometh before the fall.

Act III: Hubris

“Upon earth there is not his like, who is made without fear. He beholdeth all high things: he is a king over all the children of pride.” – Leviathan described in the Book of Job


The mood in Washington is a bit difficult to describe. Everything is covered in a veil of suitable solemnity and appropriate grief, paired with morally righteous anger over Russia’s atrocious behavior in Ukraine. But under this layer, even if those feelings are genuinely heartfelt, there is often another mood entirely. And that mood is one of giddy excitement paired with barely suppressed subconscious glee.

A miracle has transpired! Not so long ago the world was growing increasingly confusing and grey and threateningly multipolar, and not at all like the good old days when America was young and strong and virile and every country on earth wanted (or at least needed) our freedom inside them. But now, by God Putin old boy, you’ve done it! Everything is suddenly back to the way it should be, all the roles played by the right players, all the lines back on script; the world restored.

Some have described the United States as being in the grips of another moment of zeal alike to that after the 9/11 attacks. This seems close but not quite right. The demand for patriotic conformity might be the same, but the sense of America lashing out unilaterally after being directly endangered by a fearful new and elusive enemy is not. Instead the bipartisan emotion inside the Beltway is more the elation of felt invincibility. American has again been encased by the impenetrable armor of moral justice, taken up the sword of truth, and been mantled with the wings of historical destiny – i.e. we’re back to the 90s baby! Though we can throw in some of the crusading 2000s and wild, peace-through-strength 80s for good measure. The new soundtrack is NATOwave.

Much has changed from just a year ago. The pandemic is forgotten, the good times are rolling, the defense dollars flowing, and America’s liberal-internationalist establishment is going global to toss the Evil Empire back in the ash heap one more time. The Neocons are not only back, all their mistakes forgotten, but currently riding high and crowned with laurels for whatever pious rituals of faith in American hyper-power must have brought us this moment of heavenly reward. Realists and their unpatriotic restraint have been debunked by the science. History is on the verge of ending again. In fact Francis Fukuyama himself is already back on the circuit, predicting an imminent “new birth of freedom” that will make everything possible, including the final end of authoritarianism and populism.

Decadence, it may strike Uncle Sam in between snorting lines of coke in the Atlantic Council bathroom with an old buddy from Raytheon and a hot new friend from Helsinki, is no obstacle to power.  In fact, come to think of it, it’s not unusual for the two to go hand-in-hand for quite a while. Heck, the Romans managed at least a couple centuries of it. What’s a few weird gender-bending religious cults and orgies and riots and corrupt Praetorians when your legions are still masters of the earth, eh? And who now can say that America is not still at its peak, the barbarian steppe hordes pushed back, the future bright?

Indeed a future that was unimaginable only two years ago is now imaginable. All that needs to be done is to ensure the Ukrainians pull through and save their country from Russian aggression – all can agree on that. But, to ensure the brightest possible collective future for Europe and America, it will also be essential to leverage this miraculous turn of events to achieve maximum geopolitical advantage. Which means for this most spectacularly successful proxy war in American history (already surpassing by leaps and bounds even the last long twilight dance with Russia in Afghanistan) to be given enough time to work its magic.

Or in other words, given that, as one U.S. official so elegantly characterized it for the press, “The Russians really fucked this up,” it would be a misstep to let them escape the meat grinder too easily. Which is why, as The New York Times reported in March, the Biden administration now “seeks to help Ukraine lock Russia in a quagmire.” Or as U.S. Secretary of Defense Lloyd Austin put it even more directly while visiting Kiev on April 24, since Russia has “already lost a lot of military capability and a lot of its troops, quite frankly… we want to see them not have the capability to very quickly reproduce that capability.” And ultimately: “We want to see Russia weakened to the degree that it can’t do the kinds of things that it has done in invading Ukraine.” This will ensure, as Secretary of State Antony Blinken subsequently told congress, that Russia’s bloodying in Ukraine “serves as a powerful lesson” to America’s enemies, and allows Washington to “seize what I believe are strategic opportunities.”

While demilitarizing Russia would be great and all, it would hint that ending the war any time soon is not really Washington’s priority. But while some might quibble with how much an extended quagmire is actually what would most “help Ukraine,” Trans-Atlantis is in accord – or at least senior British officials, who, according to historian Niall Ferguson’s account of his personal conversations, have also decided that “the U.K.’s No. 1 option is for the conflict to be extended and thereby bleed Putin” as much as possible.

But then really, as one senior Biden official told a private event where Ferguson was also in attendance, when it comes down to it, “The only end game now is the end of the Putin regime.” From Washington’s perspective, though, why not shoot for eventual regime change, just like President Biden has also called for? It might take a while, like it did back in Round One, but anything is possible now that history is back on track again.

Of course, as a sovereign independent nation, Ukraine ultimately has the freedom to decide its own future, including whether to negotiate an agreement to end the war. Just like the United States has the freedom to decide whether it is willing to lift any sanctions on Russia as part of whatever conditions are negotiated by Moscow and Kiev. And that decision will have to take into account the broader interests of universal peace and justice, as well as America and Europe’s long term interests, because this war is now about so much more than Ukraine.

For as Biden has said: “We are engaged anew in a great battle for freedom. A battle between democracy and autocracy. Between liberty and repression. This battle will not be won in days or months, either. We need to steel ourselves for the long fight ahead.” A golden new age of Pax Atlantis is nearly ready to dawn, thanks to the success of those brave Ukrainians on the front lines, but there is still much important work yet to be done.

Greatly Resetting Your World Order

“Now is the time when things are shifting. There’s going to be a new world order out there, and we’ve got to lead it,” said Biden on March 21, speaking not to NATO but to a group representing America’s top CEOs. “And we’ve got to unite the rest of the free world in doing it.”

Biden’s invocation of a new world order raises a couple of basic questions. The first being what the old order is that a new one would replace. That one is simple to answer, since Biden addressed it just beforehand in his remarks, pointing to 1946 as the last great “inflection point” when “we established a liberal world order” (just after, he noted as an aside, “sixty million people died”). The second question is then obviously: if there is going to be a new order, and it’s not going to be the same as the “liberal world order” that we’ve lived in since the end of WWII, then what exactly is the new order going to be? This is less clear, but by now there are quite a few dots for us to connect.

First, however, it’s worth reflecting on what the “order” established at the end of the war actually consisted of, and therefore what it would mean for a new one to be constructed today.

The post-war order was first of all a geopolitical ordering, in the sense that it essentially recognized the reality of the United States having emerged from the two world wars as the most dominant economic and military power on earth (though the USSR would soon attempt to challenge this, prompting the founding of NATO in 1949).

It was also an institutional ordering, in that it established several very important international institutions to structure how the world was run. The most visible of these was the United Nations, founded (not coincidentally in New York) in 1945 to ostensibly govern the conduct of international affairs. But the most significant new institutions were established earlier, by the Bretton Woods Conference of 1944. Those were the International Monetary Fund and the International Bank for Reconstruction and Development (which later became the World Bank). These were soon joined in 1947 by the General Agreement on Tariffs and Trade (GATT), which would much later become the World Trade Organization.

Collectively, these are typically known as the core of the “Bretton Woods system.” Of particular consequence just after the war, the Bretton Woods system established a new set of rules to govern monetary relations between states: countries were required to guarantee convertibility of their (mostly worthless) currencies into U.S. dollars, with dollars convertible into gold at a fixed rate of $35 per ounce (this at the firm insistence of the United States, which owned two-thirds of the world’s gold at the time). This effectively cemented the dollar’s dominance as the global reserve currency. The new world order was therefore also – even primarily – the creation of a new international monetary, financial, and economic order.

Finally it is worth mentioning that the post-war order was also an ordering of official values, beginning with the drafting of the UN Declaration of Universal Human Rights in 1948, followed by a series of other documents, which in essence aimed to enshrine overarching liberal principles into international law.

All of this was only achievable in the unique moment produced by the lopsided balance of power at the conclusion of the war, which left America’s foes and allies alike economically devastated and reliant on U.S. aid. Although estimates vary, it’s possible the United States accounted for close to half of the world’s economic output in 1945. You could therefore compare the U.S. economy at the time to something close to a global monopoly, with the power to set the terms of the market in a way that would entrench its position – which it did. This is not to say the United States and its allies had no benevolent goals, or that much of the world did not welcome this outcome after the defeat of fascism, but there is little dispute that Washington was able to capitalize on an opportunity that uniquely benefited its own status, even as it helped others as well.

If leaders like Biden are now speaking of founding a new world order, it’s because they sense the possibility of a similarly lopsided moment in the global balance, with a similar magnitude of opportunity to re-entrench their “leadership” of the global system. That means building a new foundation for another century of Trans-Atlantic power (the old foundation having become notably unstable and apparently not worth salvaging). A new order would ultimately extend beyond the geopolitical, however: it would ultimately be accomplished by establishing new institutions and mechanisms, formalizing new values, and generally changing the rules of the game to benefit the incumbent powers and constrain upstart competitors.

I’ve just explained in Acts I and II how such an opportune moment might have now unexpectedly fallen into the lap of Trans-Atlantis. But what might a new, Trans-Atlantean order actually involve?

“Listen up folks: have you tried turning your world order off and then back on again?”

There is a theory – or at least a trope – in the study of international relations that hegemons tend to construct international orders that mirror the structure of their internal political orders. So, for example, imperial China built a tributary system, a hierarchical international order in which its neighbors demonstrated ritual obedience but were generally left to run their own internal affairs – thus mirroring the internal Confucian-inflected political system of China at the time, where all paid obedience to the central power of the emperor, but the empire was too vast to completely micromanage every province from the center.

If this theory were to hold, we might already be able to make some guesses as to how Washington-Brussels would structure a new world order in their image today.

First, we can expect that Trans-Atlantis will fundamentally define itself by distinguishing an in-group from an out-group and policing an inclusion-exclusion distinction. That is: it will create a global bloc large enough to have significant economic and technological network effects, then exchange access to that network for continued loyalty. Those who act counter to the interests of the bloc or fail to meet its standards and conditions will be threatened with exclusion from the group (aka cancellation).

We actually don’t need to guess too much on this first point, because U.S. Treasury Secretary Janet Yellen helped begin to spell it out in a speech on April 13 (in which she explicitly invoked the Bretton Woods conference and quoted FDR: “It is fitting that even while the war for liberation is at its peak, [we] should gather to take counsel with one another respecting the shape of the future which we are to win.”) In her speech, she outlined Washington’s plan to “modernize the multilateral approach we have used to build trade integration” by “favoring the ‘friend-shoring’ of supply chains to a large number of trusted countries, so we can continue to securely extend market access” for those “countries we know we can count on.” This would be kicked off by “building a network of plurilateral trade arrangements.”

Since this is obviously in part a recognition that relying on China for critical supply chains is not very smart, and hints at starting to exclude China and its partners from economic ties, it will be a relatively easy sell in Washington. But if Trans-Atlantis is openly hoping to build a system that can one day cancel the Chinese economy, other smaller countries might reasonably wonder about what it would be able to do to them far sooner.

Next, we can expect that this new order would put the virtual first, be vertically integrated, and make public-private partnership a core part of its operating system.

When the United States built the original post-war order, which kicked off the age of globalization, it was the largest manufacturer and trading nation on earth, so at that point rules enforcing free trade of goods stood to disproportionately enrich America. Now China is the largest manufacturer and trading nation, and the U.S. economy is increasingly dominated by very different industries – most notably finance, technology, and digital services. Similarly, Europe (with some exceptions, notably Germany) is also increasingly obsessed with the “digital economy,” and has openly aimed to become a “digital standards superpower” by using the regulatory apparatus of the EU to incentivize global corporate compliance with its principles and preferences. Any new order built by these two powers is likely to reflect this, elevating the importance of facilitating (and controlling) flows of capital, data, and media over just goods. That is, it will prioritize the virtual over the physical. Yellen also foreshadowed this in her speech, emphasizing the need to “incorporate elements of the modern economy that are growing in economic importance, especially digital services,” and to “harmonize our approaches” on data and digital services.

By “harmonizing” their approaches to regulation of the digital economy, the United States and Europe could begin to exert much greater control over how any company or organization offering digital services would be forced to operate in order to have access to the world’s largest market bloc – unless they wanted to bet on the smaller Chinese-led market bloc, which of course will have its own strict standards anyway. As long as Trans-Atlantis is not shy about excluding those who breach its standards, it can use its near-monopoly position to foster bloc-wide vertical integration of the digital economy just as it hopes to do with physical supply chains. This would of course have the advantage of allowing for greater informational and narrative control, in order to protect society from the scourges of disinformation and destabilization by reactionary elements. The EU’s huge new Digital Services Act, which was just passed on April 22 with the intention to force online companies to quickly remove “illegal content,” including “misinformation” and “hate,” in order to “ensure that the online environment remains a safe space” (as Ursula von der Leyen put it), could prove an influential model for such harmonization, since it has many American admirers. Perhaps it could soon be followed up with a harmonized Digital ID.

Such a vertically integrated system would help center and deepen public-private integration, in which the administrative state becomes the key patron bestowing the private sector with certain essential protections and benefits, and in exchange large private firms and the non-profits they help fund become the primary actors in advancing societal progress towards the greater good (as they begin to operate in the interests of their most important “stakeholders,” rather than mere shareholders – i.e. under conditions of “stakeholder capitalism.”) Ultimately this may even help make “sanctions” something that no longer necessarily have to be directed and enforced directly by the state, but which can be seamlessly implemented by the techno-economic stack when certain understood red lines are crossed.

Like this, but imperial economy-wide.

We can also expect this new order would be fundamentally technocratic, centralizing, and anti-federal. Technocratic, because of course digital economy-harmonizing international orders are not constructed by or for construction workers; the professional managerial class has a chance to build its own international order from scratch here, and will take up the duty of running it for the people. Centralizing, because such a system would by nature elevate and concentrate power and capital from the smaller and more local to the larger and more supranational. Anti-federal, because the whole power of the system would rest on collective bloc discipline and what could be described as a principle of ever closer union – possibilities for incorrectly democratic disharmony at the national level would have to be strictly curtailed.

Finally, the inclusion-exclusion dichotomy of this order would help push it relentlessly towards being more and more ideologically binary and maximalist (on which more in a bit).

First it’s probably worth addressing a question many readers may at this point be reasonably wondering, which is: wait a minute, aren’t we really talking about those famous globalist elites? Why would the globalist leadership class of America and Europe, the progenitors and greatest beneficiaries of globalization, suddenly move away from that immensely profitable enterprise and towards a new order dividing up the world into exclusive blocs and putting new controls on trade and financial flows? Well, I believe there are a number of possibilities worth considering that might help answer this.

The first consideration is whether today all capitalism has actually become state capitalism. By this I mean government and business priorities have become so entangled through a symbiosis of power between state and capital that enhancing this symbiosis outperforms systems that keep them separate (outperforms meaning provides better returns on both capital and power). And, therefore, whether all the top players have concluded that those who don’t adapt to this model will be left behind and eclipsed. (This would match the model of how, as French political philosopher Bertrand de Jouvenel explained in his brilliant On Power: The Natural History of Its Growth, all the major countries in Europe had by the 20th century essentially been forced to adopt centralized states capable of total mobilization simply because one of their neighbors did it first.) In a rough example, if today one state chooses to invest heavily into “green” technologies, and there is a lot of money and influence to be made by producing green technologies, then all states who want to compete must invest government money in green technologies, while corporate actors must align themselves with governments in order to tap into this green gold rush, or they too will be left behind by those competitors who do so. If this is the case, then the rise of state-capitalist China has clearly had an impact in forcing political adaptation within the global system.

Relatedly, one might argue that a new exclusionary order is an eminently practical adaptation to make the best out of geopolitical and national security realities now pushing states into a condition of cold war-style asymmetric bipolarization – one that no longer makes total globalization reasonable anyway. The United States’ use of sanctions has, after all, already increased by a rather noticeable 933% over the last 20 years. Then the pandemic dealt another blow to globalization. And now it seems like we’ve reached the point where, as BlackRock’s Larry Fink – and there is no one more globalist than Larry Fink – put it recently, “the Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades.”

If this is the case, and total globalization is over, then a tactical consolidation from a globalization that tries to encompass 100% of the economic globe to a globalization that only tries to encompass, say, 70% of the economic globe, might be a wise move to prevent greater future losses. And any smart aristocrat knows that you have to keep up with the trend of the times or you won’t survive the churn, let alone make returns on investment.

Plus a less universal, more exclusive globalization might actually bring with it some considerable benefits for the state and its oligarchy. As Fink wrote to his shareholders, for example:

These actions taken by the private sector [against Russia] demonstrate the power of the capital markets: how the markets can provide capital to those who constructively work within the system and how quickly they can deny it to those who operate outside of it. Russia has been essentially cut off from global capital markets, demonstrating the commitment of major companies to operate consistent with core values. This ‘economic war’ shows what we can achieve when companies, supported by their stakeholders, come together in the face of violence and aggression.

In fact, Fink marveled, “Capital markets, financial institutions and companies have gone even further beyond government-imposed sanctions… access to capital markets is a privilege, not a right.” And any time you can draw lines around something that’s in demand and control access to it as a privilege that can be limited or revoked, you can raise the price of access.

This power can be used to pressure others, even China, to submit to better terms. If they don’t, the squeeze can accelerate over time. There should be no need for anything too drastic. If they do, the outcasts can be brought back in, as long as they perform the appropriate ritual obediences and pay the appropriate political, cultural, and financial tribute to the appropriate beneficiaries. In the meantime, never fear: BlackRock and their fellows will surely find ways to keep making money on the rise or fall of the China market one way or another. Globalization is dead, long live globalization!

It is true, however, that getting a little too exclusive and increasing use of sanctions by nearly a thousand percent does run some risk of alienating some parts of the rest of the world and weakening your overall brand, so to speak. Some may even become resentful. What if this undermines cooperation?

But there is one final keystone piece – and potential crowning achievement – of the new world order that could help with this problem, and is already under urgent development: a Trans-Atlantic central bank digital currency (CBDC) system.

As I noted in “Just Say No to CBDCs,” a “digital dollar” or “digital Euro” would enable essentially total and instantaneous state control over all transactions in society, anywhere, at any time, and regardless of national borders. But as I also explained, other countries like China are now also experimenting with CBDCs, so:

In the long-run, only the development of a similarly fast, convenient, convertible, widely used, and easily controlled digital architecture seems certain to allow the West to maintain its collective dominance over global financial flows, preventing the enemies of America and its allies from escaping the long arm of the liberal international order’s sanctions regime.

Which is probably why a consortium of seven of the largest Western central banks and the Bank of International Settlements (including the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan) had already begun to experiment with a joint system to “enable interoperability and cross-border transactions between [their] domestic CBDCs” as they move forward with development. But now the war in Ukraine is likely to add even greater urgency to these efforts, as Trans-Atlantis seeks to capitalize on the present opportunity and secure its sanctions powers for the long term, even as China and Russia try their best to escape those powers with their own alternatives.

Or maybe you’d rather take Fink’s word for it on this too:

[A] less discussed aspect of the war is its potential impact on accelerating digital currencies. The war will prompt countries to re-evaluate their currency dependencies. Even before the war, several governments were looking to play a more active role in digital currencies and define the regulatory frameworks under which they operate… A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption.

Were Trans-Atlantis, with its preponderant share of the global economy, to establish a system that allowed for instant conversion, transfer, and data sharing between their various digital currencies and central banks, this could form the keystone of a new era of centralized power. Not only would it allow for new, unpresented methods of direct, granular financial control, but it would help to head off any long-term decline in the use of the dollar and the euro by ensuring there could be no alternative that was remotely as valuable for global commerce. It would, in effect, represent another re-founding of the global monetary and financial system equivalent to the establishment of the Bretton Woods system that cemented the first century of American power.

And, with a CBDC system in place, a market-dominant, vertically integrated Trans-Atlantis seems like it would be in a strong position to demand much of the world play by its standards and conform to its values. But what would those values be?

The Binary is Real

Are you a small nation yearning to live free? Or a regular Joe from small-town Lubelskie/Midlands/Maharashtra/Oklahoma who just wants to be left alone to grill and raise a family with the same values as your father and his father before him? Well I have some bad news for you: Trans-Atlantis is not going to leave you alone until you’ve been thoroughly enlightened. Pluralism might in principle be an old liberal value, but today there is no liberal West anymore. We are moving beyond the liberal international order, and the successor order has a successor ideology all lined up – one that it is going to be very insistent that you follow.

The U.S. State Department, for example, has already proudly informed us that it is now engaged in a “historic shift” that “requires advancing racial equity and support for underserved communities across all dimensions of U.S. foreign policy and the broader foreign affairs mission”; that it is consequently adopting an “analytical framework” that will “will underscore embedding equity into the State Department’s foreign affairs work as a strategic National Security imperative”; that this framework will be integrated into determining how all money is spent on all “U.S. foreign policy and assistance, public engagements and exchanges, grants, procurement, contracts, and consular services”; that it “will engage high-level diplomatic partners and individuals worldwide” in order to “build global support for the advancement of racial equity”; that the United States will “embed intersectional equity principles” into all its diplomatic messaging and efforts to use “inclusive, equitable messaging to combat disinformation”; that it “will foster strong partnerships among individuals of underserved communities and their allies in their advocacy for social and policy change” worldwide; and will “work closely” with “LGBTQI+” organizations to “catalyze progress” worldwide; and so on.

And I’m afraid this small sampling of ideological exuberance is but one small part of a U.S. government that is eagerly looking forward “using American leadership abroad” to begin “strengthening inclusive democracies worldwide.” The Department of Defense has a new plan too. So do more than 90 agencies of the U.S. federal government. And at this point I needn’t even mention the EU’s position on this kind of thing.

But then Joe from Oklahoma could have already pointed out from experience the likelihood of Washington ever leaving you and your local culture alone. And really, when could the United States ever really refrain from being an ideologically missionary nation abroad? Never.

There are, however, some additional factors now at work beyond America’s ingrained habit of trying to remake the world in its image. The structural setup of the new order is itself likely to help push much greater ideological zeal by both Washington and Brussels.

If the dominance of Trans-Atlantic power relies on the unity of that bloc – on being able to bring to bear the full weight of the whole bloc against competitors – then any disunity or fracture within the bloc is a danger to the entire world order the bloc seeks to maintain. It could even lead to the dissolution of the bloc. Any internal disharmony is therefore simply too dangerous to be tolerated (even if the official motto of the EU still happens to literally be “unity in diversity”).

Meanwhile, there must be some clear guidelines for those who want to join this exclusive bloc and need a way to signal their loyalty. Similarly, if banishment from the club is to be wielded as an effective threat, then it will help to have bright lines to separate the inner from the outer, the acceptable from unacceptable. Maintaining an official ideological alignment will be a tempting way to try to address all of these needs.

Finally, though, we of course simply can’t discount the personal motivations of a policy elite in Washington and Brussels that are now overwhelmingly progressive in their own ideological outlook. They will inevitably reflect that ideology in their view of the world and approach towards it.

In any case, we already know how this ideological divide will be characterized: it is the dualistic “battle between autocracy and democracy” that Biden has repeatedly described (or alternatively the battle between authoritarian and “European” values, as Brussels tends to describe it, which is the same thing). This rhetorical division is now exceptionally powerful because, as Russia has now demonstrated for everyone, there really is an authoritarian threat out there. But the democracy-autocracy dichotomy will hardly be restricted to threats from the outside – it will be (and already is) the go-to way to characterize any ideological disharmony within the system as well. Or as I warned in “Intersectional Imperialism and the Woke Cold War”:

In this worldview, in order for a democratic state to be a legitimate [capital D] “Democracy,” it is not enough for it to have a popularly elected government chosen through free and fair elections – it also has to hold the correct progressive values. That is, it has to be Woke. Otherwise it is not a real Democracy, but something else. Here the term “populism” has become a useful one: even if a state is not yet authoritarian or “autocratic” in a traditional sense, it may be in the grip of “Populism,” an ill-defined concept vague enough to encompass the wide range of reactionary sentiments and tendencies that can characterize “resistance” to progress, as based on “traditional values,” etc. And ultimately, we are told, “Populism” is liable to lead to Autocracy – because if you aren’t progressing forward in sync with Democracy, you are sliding backwards along the binary spectrum toward Autocracy.

Moreover, as in the case of the struggle between Capitalist-Liberalism and Communist-Authoritarianism during the original Cold War, the insidious “forces” of Populism-Autocracy are present not only out in the undecided “Third World,” but even lurking inside Democracies in good standing – constantly threatening to tip them, like dominoes, into the opposite camp. Hence why Biden issues warnings like the one claiming that, “in so many places, including in Europe and the United States, democratic progress is under assault.” The fight against the perceived forces of Populism-Autocracy within the United States, or within the European Union, is not in this conception at all separate from the fight against the likes of China and Russia on the world stage; they are the same fight.

This cold war-inflected dichotomy between the forces of Good and Evil empire will go on to shape official policy, on everything from internet censorship and education policy, to ESG standards, to national security policies and assessments of what constitutes foreign threats. And it is certain to prompt all manner of enthusiastic interventions, at home and abroad.

So if you are country interested in neither being assimilated into Trans-Atlantis’ Progressive Utopia nor being forced out into the marginalized sphere of Putin and the Chinese Empire, you may find yourself in a rough spot for a while.


Act IV: Nemesis

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” – Ernest Hemingway


The story goes that whenever Roman emperors held a triumph to celebrate their great conquests, they would, as they were paraded through the streets of Rome, be accompanied on their triumphal chariot by a slave holding a crown above their head but whispering repeatedly: “Look behind you. Remember you are a [mortal] man.” Or, in a version from Pliny that I like even better, bidding them beware: Fortuna gloriae carnifex – “Fortune is the butcher of glory.”

There are a few ways Fortune might still butcher the eagerly grasped-for glory of Trans-Atlantis. Plus more than a few ways Biden and co. could just straight up blow it.

The first of these is underestimating the level of blowback likely to come from Trans-Atlantic triumphalism. Blowback is a term that gained attention after 9/11 as a way of describing how U.S. interference in the Muslim world had helped inspire anti-American sentiments. In this context it can serve to describe the predictable teeth-clenching resentment that is going to be created if Trans-Atlantis accelerates its attempts to force itself and its ideology and rules on the rest of the world because it sees a moment of relative weakness by the China-Russia bloc. More than one aspect of what is likely about to happen is liable to produce blowback.

A strategy of dividing the world into blocs will in itself produce resentment from those developing countries that do not want to have to choose sides. The weaponization of finance to help enforce these blocs will only make this resentment worse, whether or not it is successful in forcing them to choose. And, more subtly, a re-emphasis of the central importance of developed Trans-Atlantic nations, and de-emphasis of the importance of the developing world (as I have myself emphasized here) is liable to in itself help foster a sense of being ignored and/or marginalized.

But all of these sources are likely to be surpassed by the blowback produced by centralized cultural imperialism. That’s because the reality is that the cultural value system of today’s United States and Europe is already a weird global outlier. They have together “drifted away from the rest of the world cultures and now jut out like some extraneous cultural peninsula” on a map visualizing global cultural values like the one below, as The New York Times’ David Brooks recently pointed out in one of those odd flashes of elite self-awareness.

A sharp turn towards missionary cultural imperialism on behalf of America’s new elite progressive faith – and that’s what it is, even if Washington and Brussels would never admit to or even recognize it as such – is not likely to go over very well with much of the world. In fact it’s likely to combine powerfully with feelings of being economically coerced by an arrogant hegemon to produce the international equivalent of how deep red American states feel when they are threatened with corporate punishment if they don’t bend over before the progressive cultural tide. They will resent this infringement on their sovereignty, begin brainstorming how to push back, and even dream of someday seeing a more dramatic comeuppance for overbearing moralizers.

In the near term this may not amount to much, given that, as I explained earlier, Trans-Atlantic fusion will enable the West to establish a dominant share of the global economy even without the inclusion of many other states. But in the long term the countries of the developing world are likely to become more economically important (even if simply because they’re the only ones with positive demographics), and will play an important future role in determining what standards and models of development are adopted in the coming decades. And while Washington may ignore these countries, China won’t. In time this may add up.

We have for example already seen India bristling at demands from the West that, as the world’s largest democracy, it to do more against Russia, China, and “authoritarianism” at the same time that it is constantly harangued by Washington over the cultural politics and “democratic backsliding” of its Hindu nationalist government. Saudi Arabia, meanwhile, drew significant attention recently for reportedly considering selling oil to China in yuan instead of dollars because it’s grown completely fed up with Washington. And while even this would not significantly weaken the dollar’s supremacy in the near term, many such decisions will build up over time into what will be a world that has effectively positioned itself to break free from America’s rules as soon as the opportunity of a strong alternative does present itself – CBDC system or no. A transition could then someday happen much more swiftly than anticipated following any revelation of Trans-Atlantic weakness (ala Britain’s Suez Canal crisis).

All of these risks are likely to be greatly accentuated if, with the Neocons back at the wheel, Turbo-America can’t resist thrusting itself vigorously into every tempting sandtrap that presents itself in the coming years – which now suddenly seems a much more likely possibility than it did even six months ago.

Meanwhile, much as the anxious Trans-Atlantic elite intuits (though for the wrong reasons), an even greater risk comes from inside the Western house. The imposition of ideological dictates, and the weaponization of state and private power to try to enforce them, is certain to generate just as much blowback within America and Europe as in the rest of the world. But a triumphalist need to push total conformity as part of the new cold war is liable to lead only to a buildup of internal instability, disunity, and even the threat of fracture – both within nations and within the EU. And, again, if either half of Trans-Atlantic unity substantially fractures, the bloc’s whole leverage over the world will collapse. A wise leadership elite would, one would think, therefore go out of its way to avoid antagonizing and stimulating internal political and cultural conflicts. But of course we know (because they’ve already started) that they are instead intent on pushing the accelerator all the way to the floor on every possible issue.

And that hints at the greatest danger of all for Trans-Atlantis: a seemingly complete inability of its leadership elite to grasp or reckon with – let alone address – glaring domestic weaknesses, or to prepare for pending crises that are staring them in the face and stamping at the dust like a giant grey rhino.

Losing the Next Crisis, Together

To review, assumptions of a Trans-Atlantic world order rest on combined relative economic weight. There are essentially three different ways it could fail:

  1. Trans-Atlantic diplomatic unity breaks and the United States and China face off without Europe, putting both on a more level playing field.

  2. China grows faster than the competition and, along with its partners, overtakes the Euro-American bloc in total economic size.

  3. The United States and/or Europe grow much slower than China, or otherwise internally collapse, allowing China to overtake and marginalize them.

The direction of world order therefore rests on relative economic performance. And, to cut to the chase, there is an obvious economic storm coming that could soon see a newly risen Trans-Atlantis either established as the rock of the new world order or sink below the waves.

There are now no shortage of famed economists (and bank after bank) willing to warn emphatically that the risks of an economic crisis are now exceptionally high. The war in Ukraine and sanctions on Russia have exacerbated interruptions of economic supply chains that had already been battered by pandemic lockdowns, further elevating inflationary pressures around the world sparked by pandemic-era spending. Commodity prices are pushing record highs. In Europe, the price shock from an interruption of Russian oil and gas is liable to on its own plunge the continent into a deep recession. In the United States, if the Fed does not act aggressively to control inflation by raising interest rates then inflation will quickly undermine consumer spending power, eventually pushing the economy towards recession; if the Fed does take aggressive action to raise rates then this tightening will even more quickly tip the U.S. economy into recession. And further paralyzing policymakers are layers upon layers of bubbles. The U.S. housing market is in a bubble again, while the financial asset bubble is quite possibly at its most gigantic proportions in American history – even if it’s blasé to admit it.

The S&P 500: definitely completely rational exuberance connected to economic fundamentals, not JPow’s printer.

Meanwhile, total U.S. public and private debt is above 370% of GDP, higher than before the 2008 financial crisis. And a significant portion of that increase has been driven by out-of-control government debt, which is now over $30 trillion, or more than 125% of GDP (more than at the height of WWII borrowing). Nearly $7 trillion of that debt was added in just the last two years. And that’s just the United States. Total global debt passed 350% of global GDP in 2021, or more than $300 trillion, up around 30% from 2019. Before the 2008 global financial crisis it was 280%.

In the United States, raising interest rates would add trillions to the cost of just paying interest on the national debt, threaten the solvency of private debtors, and threaten to pop both the financial and housing asset bubbles at once. Abroad, it threatens to help tip the world into a huge emerging market debt crisis (which is in fact already happening) at the same time as energy prices and food prices are soaring disastrously.

This is all to say that the economic picture facing Trans-Atlantis is deeply fragile. If a full-fledged economic crisis strikes, how will it fare? Will it remain internally unified and resilient, or will its existing political, cultural, and class conflicts become hyper-charged? Will its governing class react proportionately and competently, or will they panic and make a further mess of it? Will Europe maintain its commitment to putting strategic security first, or will it turn back towards the temptation of betting on the Chinese market to provide an economic boost? Will other countries in dire economic and financial difficulty turn to America and Europe and find the assistance they will seek, or will they need to turn to anyone that will help them, including China? I would bet the latter answers are a lot more likely.

Before Xi gets too excited, however, he should also consider China’s own position. China’s economy has been slowing steadily as its state investment-driven growth model has reached a point of diminishing returns and its demographic profile worsens. Meanwhile all that infrastructure spending has also pushed its debt levels into very dangerous territory. Total Chinese debt reached at least 280% of GDP in 2021, and that figure does not include piles of murky debts kept off-books in the shadow banking sector – the real total could be much higher.  

This addiction to debt-financed growth is already facing a reckoning after the default last year of Evergrande, a real estate firm with some $300 billion in liabilities, kicked off a slow-motion crisis in the Chinese property sector. More than 10 big Chinese property firms have since defaulted, including on some $14 billion in bonds – this in a sector that represents as much as 29% of all Chinese GDP and entangles more than 40% of China’s $45 trillion in banking sector assets.

This crisis, and China’s rapidly worsening overall economic picture, is now being made exponentially worse by Xi’s absolute ideological insistence on China sticking with the total insanity of its never-ending “zero-Covid” lockdown policy. About 45 cities and a third of the Chinese population, accounting for about 40% of China’s total economic output, are now under some form of lockdown, and those lockdowns are costing China at least an estimated $46 billion in lost output per month, or over 3% of monthly GDP. The business class – domestic and foreign alike – has understandably lost patience: 20% of foreign manufacturers say they will exit China if the policy remains in place. Searches on WeChat related to emigration have increased seven-fold since March and the rich are already fleeing. Even when the lockdowns are over, for many the idea that the Chinese regime is at the very least a competent actor that governs pragmatically will have taken a hard blow.

Combined with the threat of American sanctions, investor confidence in China has therefore collapsed, and at the worst possible time. Foreign investors dumped $18 billion in Chinese bonds and $7 billion in stocks in March alone. Overall, Chinese stock markets have fallen more than 20% this year as capital has begun to flee the country at unprecedented rates. Leading Chinese tech companies are in the process of laying off thousands of staff.

This is not to say the Chinese economy is about to collapse. But it is not exactly in a strong position at the moment. Any major recession or financial crisis elsewhere in the world could easily push China into a crisis as well, especially given China’s reliance on exports (some 30% of which currently go to North America and Europe). This of course also works in the opposite direction: should the Chinese economy go under first, it will almost certainly instigate a serious crisis for the rest of the world.

The point, then, is that neither America, nor Europe, nor China seems to presently be resting on very stable foundations to outlast a big economic gale. And Fortune’s storm is coming – it’s only a matter of precise time. So when that next global economic crisis arrives, the future direction of world order is likely to ultimately come down to which of the major power-blocs comes out the other side better off. And that will depend on which has the greater resilience, internal coherence, and governance capacity to persevere through a major systemic shock and emerge in a position to lead.


I don’t know which side that it going to be. If forced to guess, I’d probably pick whichever one still makes stuff more tangible than financial derivatives and isn’t run by a gerontocracy. But it’s hard to say. And besides, I think there is another very possible outcome to consider as an alternative scenario: that neither Leviathan nor Behemoth manages to “win” the next crisis. That instead each power center performs badly, and Nemesis butchers them all.

In this future the newly lopsided bipolar world precipitated by chance events in Eastern Europe doesn’t take off for long. Instead global economic crisis helps shatter the global order, fracturing everything from major international relationships, to internal social and political systems, to potentially even current national borders. Supranational and multinational organizations are largely discredited. Globalization goes well into reverse; Larry Fink deploys a golden parachute and retires. No country is left strong enough to play hegemon for some time, and we enter a century of struggle. Instead of a global order we end up with global chaos.

Xi would finally get his multipolarity; though he might not like it as much as he hoped.

What would emerge out of this in the end, as the world eventually reordered itself? Who knows – but it probably wouldn’t be what anyone is expecting today. Perhaps if they’re lucky some small nations yearning to live free could even find their chance after all.

Read More

N.S. Lyons