This week we examine the unique dynamics of the new era of geopolitical conflagration. We first take a look at the possibility of a more multipolar world as the BRICS bloc meets in Johannesburg. We then move to examine the unique position that the Chinese economy finds itself in. Then, we discuss Argentina’s recent rightward shift, and we finish this week’s newsletter by looking deeper into the fall of the Russian ruble.

The à la carte world: our new geopolitical order

Alex Russell, Financial Times

The world order dominated by a single superpower, the US, is fading as the world returns to an older era where alliances are chosen among a slew of options, rather than dictated top-down by superpowers such as during the Cold War. The dawning multipolar era is therefore likely to be characterized as an era of empowerment for middle powers such as Saudi Arabia, India, and Germany, with the opportunity to reap the benefits of engagement with America, China, and every other nation. As the author of this article puts it, “We should no longer talk of the non-aligned movement, but of the multi-aligned movement.”

The BRICS grouping, which is meeting in Johannesburg, South Africa, represents the new burgeoning structure in many ways. The grouping seeks, fundamentally, to alter the economic game to their advantage and away from what is perceived as a stacked deck in favor of the West. And interest in the group is growing, as countries stack up to seek inclusion into the group. If all 22 applicant countries were to join, the BRICS alliance would make up 45% of the global economy. Still, the group reflects the realities of the coming age, as national interests clash with group cohesion, potentially reducing the group’s ability to operate and expand. In the background, the US and China will continue to vie for influence, while the middle powers being suited are set to reap the benefit.

China’s Unique Ailment

China’s Japanification

Robin Wigglesworth, Financial Times

China’s Hidden Financial Dangers Erupt With Shadow Bank Crisis

Bloomberg News, Bloomberg

Is China on the brink of Japanification? The term was created by economists to describe Japan’s period of deflation, economic sluggishness, declining property market, and financial stress as the country tried to deleverage after accumulating excess debt (also called Japan’s “Lost Decade”). One of China’s largest ‘shadow banks’ and holders of troubled property developers, Zhongzhi, recently missed payments to customers, and consumer confidence has plummeted. According to JPMorgan analysts, there are similarities between China today and 1990s Japan, but with significant differences that make China’s situation unique. Of particular worry is China’s demographic situation – China’s total population began to decline in 2022, while Japan’s began declining in 2008, almost 20 years after its lost decade. In addition, China’s GDP per capita is only around $12,800, much lower than 1991 Japan’s, $29,470. China also has constraints on policy options to dig itself out of its malaise, such as a high local government debt level and an already low interest rate. So far, China’s economy is still chugging along, however slowly. Time will tell whether China is able to avert disaster or fall into an economic pit.

Argentina’s Turns to the Right During Deepening Economic Crisis

Argentina deeper in crisis, Ecuador votes

Capital Economics

Milei Has Already Changed the Terms of Argentina’s Political Debate

Bruno Binetti, World Politics Review



Flirting with default, Argentina is turning rightward

Hector Torres, Financial Times

Argentina’s PASO primaries produced a major shock to the markets, as right-wing libertarian economist Javier Milei took the largest share of votes in the mandatory primary elections. While the result was split among three major parties, with Milei’s La Libertad Avanza at 30%, Bullrich’s JxC at 28%, and Massa’s Peronism at 27%, markets immediately reacted to Argentina’s rightward, pro-market lurch. The government, too, responded, immediately devaluing the peso. Further, turnout stood at 70%, lower than is typically seen. As such, Milei is not a shoe-in come elections in October. Nonetheless, the political debate will occur on Milei’s terms, as the candidate fights to dollarize the economy, destroy the central bank, and reduce regulations, bureaucracy, monetary printing, and taxes.

The election comes at a time when sentiment in Argentina is boiling over at the increasingly dire economic situation. Currently 45% of the country sit below the poverty line and the country’s debt continues to climb. The possibility of a sovereign debt default has only continued to rise, especially in the wake of the primary results. Additionally, recession has struck the country, with expectations for GDP growth in 2023 hitting -3.5% in 2023 and only improving to -2% in 2024. Reforms are therefore needed. Yet, even if Milei is elected to power and is able to push the right pro-market buttons, Argentina will experience significant pain in the short-term, with the benefits only possibly manifesting after a period of significant hardship. Such hardship has sunk prior governments, such as Mauricio Macri’s moderate pro-market reforms during his presidency from 2015 to 2019. As such, Argentina’s road to economic success is riddled with pitfalls and a positive economic future is anything but a certainty.

Consequences of Russia’s Sinking Ruble

Russia will struggle to cope with a sinking ruble

The Economist

Kremlin Unfazed as Ruble Crashes Through 100 vs. Dollar

Jake Cordell, The Moscow Times

The Russian ruble recently fell below the value of one American cent, the cheapest it’s been since the country’s invasion of Ukraine. Russian policymakers acted for the first time since the early days of the war, raising interest rates 3.5 points to 12%. The ruble’s dramatic fall has consequences for Moscow’s ability to wage its war of conquest. Russia’s inflation, predicted by its central bank before the latest fall in the currency, was to be 6.5%, above the government’s 4% target. The collapse has also weakened Russians’ trust in their economy – foreign cash holdings have increased 23% and outflows to foreign banks have gone up 41%, a sign that cash is increasingly being sent out of Russia. However, the falling ruble may have some benefits. Russia’s exports, such as crude oil, have brought in more rubles (as the price of oil is dollar-based) that the Kremlin can use to buy arms, ammunition, and salaries for its soldiers. Moscow’s immediate impulse is to keep the economy spinning while being able to fight its war, no matter the long-term damage that it may inflict on the Russian citizenry.