Global Financial Meltdown?

The world is fast becoming an economic tinderbox. The big three — China, Russia and the US — are on a collision course over the global manipulation of the price of oil and the attempt to expand the division of Europe eastward toward Moscow. Geopolitics and global economics intersect in the Ukraine and the Crimea, and they are about to intersect with a vengeance. Like the great American President Abraham Lincoln once said: “A house divided against itself cannot stand”.

I quote Lincoln because he is President Obama’s favorite US president. If anybody in the world needs to listen to Lincoln, it is President Obama. The house of Europe is about to fall, and the likelihood it could take the fragile global financial system with it is great. The Wall St. banks’ dumping of tens of billions of dollars worth of oil onto the global market (through the commodities indexes), in conjunction with Saudi Arabia’s vast oil pumping in the wake of weak international demand and America’s increased shale oil production, have drastically reduced the price of oil in just three months. This has played havoc with the Russian economy and especially its currency, the ruble.

This shock to the global oil and currency system has the US government crowing. But economics and geopolitics (like water and gasoline) don’t mix well. Russia is not going to retreat from the Crimea because of economics. And the troubles in Europe over NATO expansion eastward are not going to be solved by driving the Russian economy over the cliff. On the contrary, nation-states do not relinquish their physical security because of economic threats. Instead, they hunker down. In the case of Russia, they fight back. Not with the Russian Army, but with the same method being used against them — economic pressure, but in the other direction. And what pressure is that, you might ask? The pressure of any debtor — refusal to pay.

European and US banks are still extremely fragile since the last collapse in 2008. Russian oil and gas companies owe the collective Western banking system hundred upon hundreds of billions of dollars. In other words, the “too big to fail” banks are owed money by Russia’s “too big to fail” oil and gas companies. This is fast becoming the ultimate game of geopolitical/economic “chicken”. Somebody’s got to get cold feet, or the Obama presidential legacy will be a second financial crisis in seven years, to be followed by the necessity for the Federal Reserve to bail out Wall St. once again. Could Obama go down in history as the worst American president of all time?

But wait, China’s got a huge stake in this global blinking match. The communists in Beijing have become the world’s most prosperous capitalists. Their economy and its growth are crucial not only to the stability of their nation’s social fabric, but also to the very rule of the Communist Party itself. The last thing the Chinese want is a global financial meltdown. They totally depend on those millions upon millions of American and European consumers to dig into their wallets and pop out their credit cards. The Chinese even supply a lot of the credit. And the Chinese certainly understand the geopolitics of the current situation. The movement of Russia closer to China in recent years has been a neat reversal of the old Nixon-Kissinger move in the early 1970’s. However, unlike the old Cold War era, today China has one geopolitical foot in Moscow and another large economic foot in Washington.

Then there is something called the global derivatives market. You probably remember it from the dark days of the Fall of 2008. In the mini-crisis of last week, as the ruble fell through the floor, the derivatives market spiked. The derivatives market dwarfs the world global economy by at least tenfold. It’s a kind of insurance for every financial transaction on the planet. In the case of a complete and total financial meltdown, there is no agency on the planet that could back-stop a failed derivatives market. Everyone in every country (including Israel) would be broke. The world would be in chaos. This is what is referred to as the “global nuclear financial option”.

What could trigger such a thing? The withholding of Russian oil and gas to its European customers. In other words, a vast producers’ strike. Why would Russia do such a thing? Because it fears that it is being pushed to the wall by a NATO hell-bent on expanding to Russia’s very borders. As President Obama ratchets up the sanctions against Russia, the world slides closer and closer toward an economic showdown. In a globalized world, economic chaos could become the preferred alternative to an untenable asymmetric strategic balance. Instead of a MAD (mutually assured destruction) nuclear war, there could be in its place a preemptive “nuclear financial option”. How far is Washington prepared to go in its attempt to maintain a hegemonic geopolitical position in Europe? And how far would Russia respond economically?

Russia has a long history of autarkic (self-sufficient) economic success. The rest of Europe does not. America hasn’t been an autarky in over a hundred and twenty years. China failed completely in the 1960s, as millions perished in a famine. Russia has vast energy and mineral resources, including gold. America and China do not. In the game of geopolitical/economic “chicken”, Europe, China and America do not hold the high cards. Therefore, it’s probably a good time to rethink NATO and the current anarchy at the heart of the global world order. The geopolitical future of Europe must be reworked. Europe as a security system must be made whole. That means it must be inclusive of Russia. Once this has been acknowledged, the stable functioning of the UN Security Council can, for the first time since its inception, be allowed to work.

The future of the Middle East will require cooperation on an international level. Hegemony throughout the Levant cannot be in anyone’s interest. Because the attempt at hegemony will always be fought; neither a new Ottoman nor a new Persian empire can ever become a realistic possibility. Yet today, without Russian, Chinese or American coordinated input, the stalemate between Sunni and Shia is destroying an entire region. The only thing Ankara and Tehran have in common is Hamas’ desire to destroy the only Jewish nation-state in the world, Israel. The great irony of the Middle East is that the attempt to destroy Israel through the projection of hegemonic power (empire) is turning an entire region into an economic and political failure. The pipe dreams of Erdogan and Khomenei have given the Palestinians a false sense of liberation. In the face of such a Palestinian history, and with Islamism’s desire for empire and hegemony, let it be known to all: Israel must never be forced to accept the suicide lines of May 1967.

Let us hope that Europe comes to its senses before it is too late. Only an all-European partnership, from the Urals to the Irish Sea, can save the continent and the world from its current apocalyptic trajectory. Only a partnership between America, Russia and China can alter the “global nuclear financial option”. Only a superpower multi-polar partnership can save the UN from complete irrelevancy. Only a Sunni-Shia-Jewish partnership can save the Levant from its own self-destructive tendencies. And only a brave, modern partnership — an Abraham Lincoln-like world-house united — can save the reputation of the President of the United States, Barack H. Obama.

About the Author
Steven Horowitz has been a farmer, journalist and teacher spanning the last 45 years. He resides in Milwaukee, Wisconsin, USA. During the 1970's, he lived on kibbutz in Israel, where he worked as a shepherd and construction worker. In 1985, he was the winner of the Christian Science Monitor's Peace 2010 international essay contest. He was a contributing author to the book "How Peace came to the World" (MIT Press).