This week, WWIII was trending on Twitter as we saw Russia invade Ukraine. Whether you want to call it WWIII or something else, it is clear that we are experiencing military conflict with some of the largest superpowers in the world. I want to talk about what is going on from the perspective of financial markets. WATCH NOW
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Sources:
Ukraine nuclear nonproliferation agreement: http://www.pircenter.org/media/content/files/12/13943175580.pdf
CNN: https://www.cnn.com/2022/02/24/asia/taiwan-china-warplane-incursion-intl-hnk/index.html
Sino-British Joint Declaration: https://digitalcommons.lmu.edu/cgi/viewcontent.cgi?article=1071&context=ilr
Financial Times: https://www.ft.com/content/ba0a3cde-719b-4040-93cb-a486e1f843fb
VIDEO SUMMARY
Before I begin, let me explain that I will be talking a lot about China in this video and giving some criticism. Please know that I have nothing but love and respect for the Chinese people and the Chinese culture. My criticism is of the government, the Chinese Communist Party (CCP). Do not send any hate to any members of the Asian community. Hate crimes against Asians in the US are on the rise. It is horrible and needs to be condemned. These are serious issues, and we should direct criticism towards what needs to change, which is the CCP.
When you look at the global conflicts this week, we see a number of recurring geopolitical themes from the last 40 years. We saw the dictatorship of Russia led by Vladimir Putin invade democratic Ukraine. But the conflict is bigger than these two countries. On one side you have countries like the US and Europe supportive of Ukraine. On the other side you have China and North Korea supportive of Russia. From a financial perspective, this is the difference between free markets and tyranny. In Russia, China, and North Korea, you have one person in charge, who the people cannot vote out, and this one person controls the economic decisions of the country.
What a lot of younger people may not understand is how important nuclear weapons are to this conflict. For example, North Korea is a bad actor on the global stage, but the reason no one can negotiate with such a small country is they have nuclear weapons. Russia, China, and North Korea all have nuclear weapons.
In the conflict between Ukraine and Russia, Ukraine is clearly outmatched because they do not have nuclear weapons. What is ironic, is that they used to have nuclear weapons when they were part of the Soviet Union. When Ukraine left the Soviet Union, they gave up all their nuclear weapons. They have none. They were pressured to do this by the US. Ukraine signed a non-proliferation agreement in 1994 where the US, Great Britain, and Russia promised that if Ukraine gave up nuclear weapons, they would protect Ukraine in the event they were ever attacked. The agreement states the countries would “seek immediate United Nations Security Council action to provide assistance to Ukraine, as a nonnuclear-weapon State Party to the Treaty on the Non-Proliferation of Nuclear Weapons, if Ukraine should become a victim of an act of aggression or an object of a threat of aggression in which nuclear weapons are used.”
In the current situation, Russia has not threatened to use nuclear weapons on Ukraine. However, it is a nuclear power attacking a non-nuclear power who cannot defend themselves. If Ukraine had nuclear weapons, Russia would not have attacked.
There are only nine countries in the world who have nuclear weapons. These can be split up into free markets and tyrannies: (It is important you understand this list)
- Free Market
- US
- United Kingdom
- France
- India
- Pakistan
- Israel
- Tyranny
- Russia
- China
- North Korea
You start to see how global conflict in the world is shaped by these countries because they control nuclear weapons. These two categories show how financial markets are driving this conflict.
We live in a global economy now. We have global businesses and global markets. But when we have large governments that function as tyrannies, it becomes a bottleneck for global business interests. The events of this week have centered on Russia’s actions, but China is the real driver here, because so much money flows through China. The difference between China and a free market is that China is allocating resources primarily to maintain the leader’s power, not where market forces demand. That is why you see strange things happen in their economy like building massive empty ghost cities. China can still function as a tyranny when the economy is booming, but if there is a global recession, which we just experienced, global markets will not tolerate China’s government diverting money to their own personal projects. This creates a bottleneck on global markets, and China becomes a giant sucking sound on the global economy. This is what is creating the conflict. China, Russia, and North Korea all have similar interests which is to keep themselves in power at the expense of free markets.
From a big picture perspective, the invasion of Ukraine by Russia is driven by the conflict between free markets and tyranny. To give another example, just this week, at the same time Russia invaded, nine Chinese aircraft flew into Taiwan’s air defense identification zone.
In another example, we have already seen China take over Hong Kong, starting in 2020. Remember the history of Hong Kong. Hong Kong used to be part of the United Kingdom. They gave it to China in 1997 under an agreement called the “Sino-British Joint Declaration.” This agreement was built on the concept of one country, two systems. Hong Kong would become part of China only on the condition that China agreed that Hong Kong would continue to function as a free market while the rest of China would be communist. The agreement is very strongly worded, with China agreeing to give Hong Kong:
- Freedom of speech
- Freedom of the press
- Freedom of assembly
- Freedom of travel
- Freedom of religion
Among other things. It also explicitly states, “The Hong Kong Special Administrative Region will retain the status of an international financial centre, and its markets for foreign exchange, gold, securities and futures will continue. There will be free flow of capital.”
This is no longer the case. Since China’s crackdown on Hong Kong starting in 2020, they have essentially ripped up this agreement. China just said, “We are not going to follow this anymore.”
The conflict between free markets and tyranny is causing the current global conflict and ultimately WWIII. Nuclear weapons determine the dialog. Here is the problem. China has developed a new technology called hypersonic missiles. Four months ago, the Financial Times reported that China performed a weapons test. Here is a photo of that test.
The Financial Times interviewed five people that confirmed this launch. This is a rocket that can reach any country in the world. How it works, is it flies up to space, and then points down at its target. It lands at super sonic speeds, so fast that it is impossible to intercept. This technology is different than Russia’s current intercontinental missiles. If Russia shot a nuclear weapon at a US city, the US can shoot it down with a Patriot missile. We have a defense if Russia launches a nuclear attack. Our defenses will not work against China’s new technology. Let me repeat this. If China uses Hypersonic Missiles, China can attack the US with nuclear weapons from space. Los Angeles, New York, Chicago could all be gone. The US has no defense against hypersonic missiles.
Since China’s motivation is to keep themselves in power, they cannot back down. They must continue to escalate the situation along with Russia and North Korea.
At this point, I do not see how we can avoid a full scale global war. I do not want to go to war. I am still young enough to be drafted. No one wants war. But if there is a threat that will annihilate your cities and your loved ones, you have to act.
I am also hopeful. War always has an economic dimension that can help you see the outcome of the war. In this case, China is a bottleneck for the entire global economy. The global economy is not going to sit idly by, while China takes everyone’s money to prop up their own tyranny. That is why, in a WWIII scenario, China and Russia will lose.
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Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.