Global leaders and institutions alike are riddled with fears of an impending global economic recession. As central banks fight to bring down inflation, investors are bracing themselves for a slowdown while the leaders of emerging and developing economies are preparing to intervene in the event of market shocks. On the geopolitical front, the risks of a Russian nuclear strike are mounting, and Xi Jinping’s China is projecting its Marxist Nationalist ideology globally through its stake in ports. Our leaders’ responses to these brewing economic and political crises will forever shape the Day After. 

Markets at risk of ‘disorderly sell-off’, says IMF

Colby Smith and Chris Giles, Financial Times

Policymakers Need Steady Hand as Storm Clouds Gather Over Global Economy

Pierre-Olivier Gourinchas, IMF Blog

The International Monetary Fund (IMF) is urging both the private sector and public officials to prepare for incoming economic troubles. The growth of the largest economies in the world – the US, China, and the Euro area – is expected to stall. The rising price of food and energy, exacerbated by the war in Ukraine, has brought hardship to vulnerable populations. The Federal Reserve is strengthening the dollar by ratcheting up interest rates. The IMF warns that the worse is yet to come. Despite this global slowdown, inflationary pressures have been harder to combat than expected. The IMF recommends that policymakers stay the course on fighting inflation. The risk of overtightening monetary policy, which could push the global economy into a severe recession, is worth it. If monetary policy is not tightened enough, inflationary pressure will increase, the credibility of central banks will be eroded, and economic forecasts will be made defunct. The IMF also warns that fiscal policy should not be contrary to monetary policy, as demonstrated by the Bank of England’s necessary intervention in the market after the UK’s government made unexpected tax cuts. Fiscal policy can help economies adapt by investing in productive capacities, such as human capital and technology, and can strengthen economies against future crises.

The coming woes will hurt emerging and developing economies the most. A combination of increasing borrowing costs, poor trading conditions, and worsening growth expectations threaten emerging markets. Already vulnerable to unstable market conditions, a number of emerging economies have already defaulted or are undergoing debt restructuring. The IMF advises that central banks intervene in economies when a market shock becomes a systemic threat. They recommend that governments of emerging economies maintain price stability, save foreign exchange reserves for when global conditions worsen, and undergo disciplined debt restructuring to avoid a global debt crisis. Time is running out.

A Russian Nuclear Strike in Ukraine Would Cross a Point of No Return

Paul Poast, World Politics Review

The Risks of Escalation in the Ukraine War Are Rising Fast

Alexander Gabuev, Financial Times

As Ukraine has gained momentum in the war over the past month, analysts are debating the degree to which Russian President Vladimir Putin is willing to escalate to reverse losses in Ukraine. The risk is that the Russian president may decide to go all the way up the escalation ladder and go nuclear. A nuclear strike committed by the Russian Federation would be a disaster for three reasons. First, it would undo two pillars central to the United Nations system established in 1945, namely maintaining territorial integrity of states and preventing a direct major war. Secondly, it would break the taboo on first strike nuclear weapons use, which is reserved for retaliatory purposes at present, thereby heightening the risk of nuclear war. Thirdly, it would fuel nuclear proliferation both among nuclear and non-nuclear states, which would seek to bolster their nuclear arsenal in the event of a nuclear conflict. As a result, Western powers should engage in crisis diplomacy during the window in which the Russian Federation signals an intention to use nuclear weapons to thereby freeze the conflict and prevent the disastrous consequences of the use of tactical nuclear weapons.

Applying Volcker’s Lessons

Alex J. Pollock, Law & Liberty

Central banks face recessionary dangers

John Redwood, Financial Times

The Federal Reserve is grappling with the consequences of its actions. High inflation rates – caused in part by lax monetary policy in 2021 – are forcing the Fed to increase interest rates. Central banks around the world are beginning to do the same, but they must be wary of triggering a recession. The Fed has shown no signs of slowing down, focusing purely on fighting inflation and forewarning that the solution may be painful. A recent flurry of sell-offs provides further evidence that markets are expecting a sharp decrease in activity. If we are lucky, the Fed will relax before sending the global economy into a significant recession. However, as we can learn from Paul Volcker’s time as Chairman, restoring financial stability and the Fed’s credibility won’t come without painful decisions – if we have leaders that will step up to the task. 

Some experts ask why the Fed should have such freedom. It was slow to act in reducing inflation, and its relentless increase of interest rates has caused a great deal of turmoil in global markets. It is often argued that an independent Fed will be resistant to partisan efforts to bribe voters. However, critics of this viewpoint assert that the organization’s independence is undemocratic, given the vast power it wields in policy. They recommend a Federal Reserve closely overseen by Congress, with a set inflation goal. Even in this solution, the question arises: how do we watch the watchmen? 

The World According to Xi Jinping

Kevin Rudd, Foreign Affairs

China’s Stake in World Ports Sharpens Attention on Political Influence

Didi Kirsten Tatlow, Newsweek

Under Xi Jinping’s leadership, the Chinese state has developed a “Marxist Nationalist” ideological framework that serves as the philosophical underpinning that informs the development and policy prescriptions for China. The Chinese premier has pushed the country back towards a Marxist direction, reversing free market reforms that had been ongoing since the time of Deng Xiaoping, in the form of a Leninist political and a Marxist economic outlook. Of particular note is increasing Chinese Communist Party interference and assumption of private business; leveraging its business ties with external countries as a means to project Chinese power abroad. The political and economic elements are then augmented by a nationalist outlook that places significant emphasis on redeeming the “100 years of national humiliation” via “the road to rejuvenation.” Marxist Nationalism then, is the marriage of an ideological commitment to Marxism housed within a Chinese context that uses its centralized authority to co-opt powerful business players within the country to project power both overseas and abroad.

This can be seen in the shipping industry, where powerful state-run companies like COSCO buy shares in ports that the company ships to, like in Hamburg Germany. These ports serve as a means to tie foreign countries into the Chinese market and offer China the opportunity to influence economic decisions in those countries. Moreover, they also may act as a security risk, as is the case with the port at Wilhelmshaven, which is just three miles from Germany’s biggest naval and logistics base at Heppenser Groden. Bear in mind that leaked documents have shown that Chinese commissars assigned to the crews of these freighters give ideological training to officers and sailors on board. Thus, Chinese shipping serves as an active example of Chinese Marxist Nationalism in action.