Energy, Currencies and Inflation: Worse for Some by Peter Zeihan on May 25, 2022

Peter Zeihan ^ | May 25 | Peter Zeihan

[dennisw]

Energy, Currencies and Inflation: Worse for Some

by Peter Zeihan on May 25, 2022
 

In the worlds of finance, trade, economies, currencies and energy there is a lot going on. We’ve a war in Ukraine that will likely generate the largest oil dislocation in modern history. The global Baby Boomer generation is retiring and taking their money with them, generating the largest financial dislocation in modern history. Presidents Trump and Biden are following the same script on trade issues, generating the largest trade dislocation in modern history. And the Federal Reserve is tightening monetary policy in an effort to tamp down inflation.
 
The implications of all these seismic shifts are many and massive. Here’s two of them:
 
Whenever countries are struck by economic shocks - like, say, now - investors look for safer places to stash their money. Less money into tech, more into consumer products. Less money into Brazil, more into Europe. The safest of all safes is the United States, and so the U.S. dollar is on a bit of a tear, rising by roughly 10 percent verses most of the world’s currencies since the beginning of the year.
 
A rising dollar has any number of outcomes, but the one making the biggest splash at the moment is its impact upon energy markets.
 
Oil prices were already rising due to a variety of factors ranging from insufficient investment in new projects over the past several years, to disruptions in trade patterns, to, of course, the Ukraine War. For the United States this is known and obvious. But all commodity trade is denominated in U.S. dollars. Oil is no exception. Combine oil’s price rise with a strengthening dollar and much of the world takes a double hit.
 
Brazil’s real has largely kept pace with the U.S. dollar, so this energy hit doesn’t land on Brazilians quite as hard. But Europe and Turkey? Those locales heavily depend upon Russian crude. Not only does that challenge their supply systems, it’s also contributed to the pair’s suffering from significant currency weakness. The end impact? In local currency terms, internationally sourced oil now costs 10-15% more in Europe and Turkey than it does in the United States.

Unfortunately, there is little reason to expect the world’s energy situation to improve within the next half decade, nor is there reason to expect the U.S. dollar to go anywhere but up for years to come. But that is a story for another day.
 
That day is … June 8. That’s when we’ll be hosting our next seminar, Inflation: Navigating the New Normal. You can sign up here:

[Sacajaweau]

COLA was 5.9% in January....far from what’s real right now.

[jimwatx]

” nor is there reason to expect the U.S. dollar to go anywhere but up for years to come.”

This guy just mouths the establishment narrative. He’s nuts if he thinks Europe and the rest of the world will boycott Russian oil & gas as they sink into an economic depression. The dollar may rise short term, but the western financial system is itself at stake. Let’s see how Europe feels about things next winter when their gas and heating bills double and their factories are shutting down.

[Worldtraveler once upon a time]

--- " Let’s see how Europe feels about things next winter when their gas and heating bills double and their factories are shutting down."

It is not necessary to wait until winter. All sorts of businesses and transport rely on a steady supply of energy, and that supply for Europe is in significant part Russian. One doesn't need to see a blackout here and there, for brownouts in a few highly visible places will do the trick, so to speak.

Brown is the new green, which was the new Red.

[genghis]

I have watched about 100 of his videos and learned something from everyone of them. A very smart man

[dennisw]

You are smarter than me. I have only seen 5 or so. ZZZZ_Zeihan is the Man!!!