Epocalypse Revisited Part One: Sanctions Will Intensify Shortages, Spread Starvation and Inflate Inflation All Over the World

The Daily Doom: Economic News of our Troubled Times

This article is about how Putin’s War and the most intense global sanctions in history, put in place by the West to engage the battle from the sidelines, will make the scenarios I described in “The Everything Bubble Bustmore busted.

[If you didn’t catch the general introduction to this series, “Epocalypse Revisited,” you can read it here, and, if you would like to read this article on my own site, just click the following link and then enter the password phrase “epocalypse2.1” where asked: Epocalypse Revisited Part One]

While central banks of the world united and governments joined in to right the world’s shortest recession in 2020 more effectively than I thought they would, that recovery began, all the same, to drop off sharply in the third quarter of 2021, plunging from 6.7% GDP growth in the US to 2.3%. The fourth quarter popped back up, making it appear we weren’t falling toward recession as I had said we would; but, as I noted at the time, almost all of the growth in that quarter was due to frantic inventory builds that many believed were in anticipation of greater coming shortages. If so, I argued, we were already likely to find the growth in the fourth quarter of 2021 to be detrimental to GDP this quarter because it merely pulled sales forward wherever supplies could be found. The growing shortages forecast below due to war and sanctions will make it much harder to do inventory purchases.

China syndrome goes full meltdown

In my original Epocalypse scenario back in 2015, I wrote that China would not be able to help out when the big crash arrived. Then, when we entered the Coronacrisis back in 2020, I reminded everyone that China would be in no condition to help the world out of the COVIDcrash that was happening as it had during the Great Recession, and we saw over the course of the last two years that China really did do nothing to help. The nation that created COVID-19 had too many troubles of its own.

Now that Putin’s War and the sanctions that have resulted from it are tightening around the world like a boa constrictor, China has become one of the first nations to start falling apart with all of its markets in historic meltdowns.

This is a Global-Financial-Crisis-like bloodbath for Chinese equity investors…. Meanwhile, Chinese junk dollar-bond yields have surged above 25%, the highest since at least the Global Financial Crisis….

The decision to take a vibrant financial hub that was Hong Kong, a gateway for foreign capital flowing into China and a potential model for democratization, and intentionally destroy exactly that which made it a vibrant financial hub didn’t help confidence either. Nor does the dawning realization that Xi Jinping really is a genuine totalitarian Marxist intent on cracking down on seemingly everything and anything….

China’s exposure to Russia, the complexity of dealing with the sanctions on Russia, and the spike in the cost of China’s commodity imports don’t help either….

History has shown over and over exactly where the Marxist-dictator-for-life governance model leads and that is exactly where China is now galloping towards.

The Sounding Line

This week, China’s high-tech stocks took a nice little ride down of 11% in a single day:

The Hang Seng tech index has plunged 61% from its peak last year. The Nasdaq Golden Dragon China Index of U.S.-traded stocks has fared even worse, down 68%, and with another bad day or two, the peak-to-trough decline could surpass its 72% crash in the 2008 global financial crisis.

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The golden dragon is lying on its back dying. It plummeted 30% in just two days — it’s worst plunge ever:

“The market is very panicky,” Paul Pang at Pegasus Fund Managers Ltd., who has sold almost all his stake in Alibaba Group, told Bloomberg. “Sanctions against China are not impossible, if China refuses to take sides on the war in Ukraine. Tech shares are among those risky names exposed in the crossfires in the rising Sino-U.S. tensions….” The Hang Seng Tech Index is the one of the world’s worst-performing tech gauges since the war in Ukraine broke out.

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As JPMorgan explained,

Due to “rising geopolitical and macro risks, we believe a large number of global investors are in the process of reducing exposure to the China internet sector, leading to significant fund outflows….”

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China’s property sector has also been falling apart since the meltdown of Evergrande Group, China’s second-largest property development company. There have been, at least, fourteen defaults by other major developers since then. Sales for some developers plunged as much as 48% in the first two months of this year. Meanwhile the yuan value of all new bank loans has fallen by 70% year on year, despite the People’s Bank of China cutting rates and lowering downpayment requirements.

Some of this was already in play for China, but has become notably worse as a result of the war and its sanctions, leaving China is in no position financially to try to take on the rest of the developed world and the dollar that it uses. (More on that in the next article in this series.)

Inflation’s hot-air balloon lofted higher by war

Inflation is the driver in the Everything Bubble Bust that makes it difficult for the Fed to return to easing, as it has in the past, when its tightening fails … as it has in the past. It’s what drives up bond yields, sucking money out of stocks and flattening the yield curve to finally ring the alarm about recession now that the Fed has released the bond vigilantes by relinquishing its total control of bond pricing. That makes it also the main driver for the crash of the Bond Bubble that I said could be the worst aspect of the Everything Bubble Bust because rapidly rising yields erode the value of low-yield bonds stuffed into existing bond funds leading to runs on those funds.

While Papa Powell just told us all in fatherly calming fashion that inflation is going to get a little worse before it gets “better later in the year” due to wartime sanctions, it is already getting a lot worse and appears to have no chance of getting better later in the year:

AB Holding Company, a German conglomerate that includes investments in companies operating in the areas of consumer goods, forestry, coffee, luxury fashion, animal health, and fast food, among others, published an investor letter on Wednesday warning about continuing inflation….

We believe we are now seeing a tectonic shift to a completely different macroeconomic and investment environment that most leaders and investors of today have not seen or experienced in their professional lives. We see the rise of inflation which, in our view, is not transitory as a major threat to the economy and the returns of global equities,” Olivier Goudet, the chief executive officer of JAB, told investors in the letter….

“We saw this phenomenon early on across our supply chain and inside our companies with rising input costs and salaries upon re-opening post-pandemic. Furthermore, major energy and labor shortages will drive longer-term inflation trends, accentuated by the serious geopolitical turmoil such as war and threats…. We expect the inflation trend to continue, reaching levels not seen since the 1970s….

Confirming Goudet’s warning is Goldman’s Alex Fidanza, who recently told clients, “Global financial conditions have tightened materially, shifting the growth narrative from reflation to stagflation.”

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As I’ve explained before, nominal levels of inflation matching those in the seventies are even worse than the seventies because of how the cost of housing has been dummied down in the equation since the seventies as well as due to a few other tweaks in the algos. So, he’s forecasting inflation worse than any of us in most of the developed economies of this world have ever experienced.

Bankruptcies and busts will be default of war

Putin’s War has certainly increased the number of sovereign debt defaults we are going to see. In talking about the Epocalypse that would come upon the world back in the spring of 2020, I wrote,

There are just too many economic fundamentals that are flawed in our debt-undermined economy and too many economic head winds for the next market plunge to be anything but a disaster. That crash will be harsh enough that several major banks will fail in several of the world’s economies, each having domino affects on other institutions.

The Epocalypse is Different This Time, Yet Much as Predicted

As I wrote in my introduction to this series, many parts of the Epocalypse have not played out. That would make that major prediction a fail, except that it has been playing out in increasingly rapid cycles of ruination and recovery, each a greater calamity than the last. So, the extent of its development through time became more protracted than I thought, but that was because central banks repeatedly intervened with even greater amounts of QE than their prior massive amounts of money-printing, and governments all over the world leaped in with larger bailouts and helicopter money, carving out additional caverns of sovereign debt to lift their falling economies.

The historically massive scale of efforts it took to avert the damage proves how bad the Epocalypse would have been. Those interventions had the effect of breaking the Epocalypse into accelerating cycles, rather than a single colossal train wreck, but each cycle has returned to calamity with greater speed than the last because we have never fixed anything. We just keep throwing bigger wads of money at the problems.

Because we keep putting off the pain with new mountains of debt but no structural repairs or redesign to the fundamentals of our complex modern economies, everything I said about bankruptcies and defaults on debts in my Patron Posts about the Everything Bubble Bust has been intensified by the sanctions that have been laid down globally in response to Putin’s War. Sovereign-debt defaults are now more likely, not less, in nations that will be impacted the worst by these sanctions because they have less capacity to add more debt to carry the burden of the sanctions, especially as some see their credit ratings downgraded due to the collateral economic damage caused by the sanctions.

In describing the Epocalypse, I said,

The more governments try to absorb now, the more their own credit ratings will drop.

Nations have done better than I thought they would in handling the extra debt they piled on during the Coronacrisis, but the number of national debts in default did rise to a new summit (as of last graph available, 2020):

We’ve become so absorbed with the war, that we almost seem to have forgotten the Coronacrisis was far from being over in terms of the financial problems it created and maybe not even in terms of the physical illnesses either, as I laid out in my introduction. Sovereign defaults have not become cataclysmic so far, but they have worsened appreciably, and these new sanctions now pile more pressure onto those sovereign debts. The question that remains is how the damage from those defaults will percolate outward into the economies of other nations.

Leading the pack of sovereign-debt defaults that will result from wartime sanctions, of course, is Russia:

Russia Is Spiraling Toward a $150 Billion Default Nightmare

Russia’s economy is fraying, its currency has collapsed, and its debt is junk. Next up is a potential default that could cost investors billions and shut the country out of most funding markets…. Failure to pay, or paying in local currency instead of dollars, would start the clock ticking on a potential wave of defaults on about $150 billion in foreign-currency debt owed by both the government and Russian companies including Gazprom, Lukoil and Sberbank…. Such an event will revive memories of previous crises, including Russia in 1998, when it defaulted on some ruble-denominated debt, and Argentina three years later….

Signs of looming financial damage are becoming apparent at many of the world’s biggest money managers, including BlackRock Inc. and Pacific Investment Management Co. But it’s not likely to be limited to these giant funds. Because much of Russia’s debt was rated investment grade just weeks ago, the securities were pervasive across global fixed-income portfolios and benchmarks, meaning the impact could ripple across pension funds, endowments and foundations….

“This will be a monumental default,” said Jonathan Prin, a portfolio manager at Greylock Capital Associates….

Russia is already a commercial pariah, crippled by sanctions and the exodus of foreign firms…. About half of the country’s foreign-exchange reserves — some $300 billion — have been frozen…. Because of the sanctions, and various decrees Russia introduced in response, a default appears all-but inevitable…. Fitch Ratings says it’s “imminent….”

Russia’s late-1990s default was on domestic debt, so a foreign-currency default would be the first since the aftermath of the 1917 Revolution…. An official default declaration could also kick off claims on credit default swaps, insurance-like instruments designed to cover losses if a country or company fails to meet its debt obligations.


Yet, that default was just temporarily avoided due to a move by JPMorgan to assist Russia with its payments this week. A provision was made in the sanctions that allows that same intervention each month through May, and then after that the intervention can continue via a special permit. (This is one of the ways governments notoriously build loopholes into their own sanctions, defanging them.) No doubt that backdoor was created precisely because a sovereign-debt default by Russia would create the widespread damage to other economies warned about in Yahoo’s article above.

It seems likely to suppose that governments made sanctions look tough on the surface but will chicken out and allow the backdoor to be used indefinitely in order to avoid the pain that will come from their own sanctions. I don’t think most people in the financial world even knew the backdoor existed because everyone was talking as though Russia’s default was “imminent,” as said in the article above. It may be the provision only exits to buy time for corporations and governments to move financial linkage away from Russia before the default is allowed to happen, though I don’t know who they will sell to without massive write downs.

Political pressure may also build toward forcing governments to allow the sanctions to do their intended work of ruining Russia financially. However, Russia could respond by just wiping out its sovereign debt by decree if its credit rating is going to become so bad anyway that bankruptcy could hardly make it worse. In which case, it can pass the damage back to those who seek to create it for Russia. That makes it impossible to say how this mess will actually play out; but one thing that is easy to say is that the sovereign debt problem that was building has become a lot messier due to the sanctions of war.

This could be huge when and if it is actually allowed to happen. In that case, the cascade of events throughout the global economy over the months that follow Russia’s bond defaults will weaken funds around the world, even destroying some. How much the sanctions worsen the Everything Bubble Bust will depend on how much governments actually have the courage to do what they have led the public to believe they will do (how much fine print is in each sanction to avoid the promised pain).

Back when describing the road to Epocalypse, I also wrote that the crash of the Everything Bubble…

will cause debt-driven economies everywhere in the world to experience credit failure (something debt-drive economies are highly vulnerable to), and so those economies will collapse.

How the Coming Global Economic Collapse will Play Out

(I should qualify that, by “everywhere in the world,” I didn’t mean all debt-driven economies, but nations scattered across the face of the earth.)

Siobhan Morden, a fixed-income strategist at Amherst Pierpont, describes how Russia’s dramatic and sudden plunge from investment-grade to a financial no-go area would worsen losses for debt holders, and you can be sure this is also why a loophole was built in for JPMorgan to use to slow this process down:

“When a default is a slow train wreck due to policy mismanagement, you can reduce the economic impact and contain losses by gradually selling assets,” she said. “What makes this unique is this is a very sudden shock that catches everyone off guard.”

So, the backdoor may just be a smart provision to lessen collateral damage by slowing down the train wreck, but that equally lessens its impact on Russia. Major funds managed by the likes of BlackRock and Franklin Resources are already writing down and jettisoning their toxic Russian debt at fire-sale prices as quickly as they can by as much as 50% to 90%. Thus,

While the debt is substantial, it’s probably not enough to cause a systemic problem for financial markets.

Probably. That may be the operative word there because, remember, this is not just happening as one isolated problem in the world. Other nations will face sovereign debt problems due to the sanctions, and it’s happening when we were already sliding into a global recession that few in the US seem to recognize and as central banks all over the world began tightening into that recession, etc. etc. It’s way too complex for anyone to see how it will play out, but it’s certainly one more massive boulder added to the mountains of debt troubles I wrote about in the Everything Bubble Bust series.

Moreover, what is happening with Russian sovereign debt is happening with the debt obligations of individual companies all over Russia that are certainly going to default, whose debts are also held by fund managers all over the world:

In the meantime, multiple deadlines are looming. Steel and mining company Severstal has a coupon due Wednesday, and both Evraz and Tinkoff Bank have interest payments due Sunday. Gazprom has payments next week, with issuers including Sibur and Polyus to follow.

It’s a long line at the bank window, Folks! Take a number and bring a tent to camp on the sidewalk if you are one of the organizations looking to make it through the court dockets in hopes of someday recovering ten cents on the dollar from any of those debts. The one thing that may speed it up for you is the fact that numerous legal firms have already refused to take up defending the cases in fear they will never get paid!

Expect it to become a shark fight because global vengeance toward Russia is rampant even among financial institutions right now, looking for Red Russian blood:

“There is nearly universal support for Ukraine, even among normally hard-bitten institutional investors. Some of those investors might want to strike a blow for the cause,” said Buchheit. “One way to do that would be to vote to accelerate Russian external bonds once the grace periods run out and pursue legal enforcement of the instruments. I would not be surprised if some bondholders decide to do this with greater alacrity than we normally see following a sovereign bond default.”

I also warned in my writing about the Epocalypse,

As a result of much wider bank failures than last time, the currencies those banks collectively control, will also fail.

That will lead to massive global currency changes, but that is the stuff I’m saving for my next Patron Post to be published in another day or so.

Supply chains become more binding

As supply chains tighten worse under wartime sanctions, shortages will also grow worse. If you think we already had a supply-chain problem that was creating a global recession going into the Everything Bubble Bust, as I described in my last series of Patron Posts, you haven’t seen anything compared to what both the war and the global sanctions will add to that. Even aside from any of the sanctions, the war in Ukraine, on its own, is already physically causing additional supply shortages:

It can be hard to measure the ways that Russia’s war in Ukraine has disrupted the global supply of parts and raw materials needed to complete a variety of products – from cars to computer chips.

But cutting off one of those supply links brought a “depressing feeling” to Andrey Bibik, head of the Interpipe steel plant in Dnipro, Ukraine. He spent the first hours of the war winding down his bustling 24-hour operation and sending almost everyone home.

“It’s empty and lonely. You don’t hear a sound. You see everything is frozen,” he said.

Getting Interpipe’s steel transmission pipes to Texas oil companies and its railway wheels to European high-speed train operators has been put on hold. Hundreds of the plant’s roughly 10,000 employees have joined the fight against Russia. Others have fled; a remaining skeleton crew runs its canteens and makes spikey metal obstacles to block Russian tanks and convoys. Its bomb shelters house dozens of local families at night.


So, the war, apart from any sanctions, is one more addition to the world’s manifold supply problems by physically cutting off workers and supply routes. Badly needed oil operations in Texas won’t be getting pipe or parts out of Ukraine because there is no one home. And Interpipe is not some little company. It has five factories in Ukraine — all of them shut down. And they don’t just make pipe. They also make rail and train wheels.

“It was a hard choice to stop production. We had plenty of orders, a lot of customers awaiting our material. But if you have to choose between safety, and possible profits, I think the answer is obvious,” said Bibik, who’s worked at the company for nearly two decades. “The most important thing we have is life and we really need to take care of the people we love.”

Similar production halts have spread across other industries in Ukraine, motivated not just by safety concerns but also because the war and mass exodus of refugees have closed off roads and railways to commercial freight traffic. Some of Interpipe’s finished products bound for overseas export are now stalled at the Black Sea port of Odesa.

Moreover, if there is any lesson we learned from the Coronacrisis it is that businesses that get shut down don’t always start back up. There is no assurance that the shutdown doesn’t damage them so badly financially that restarting becomes hopeless:

“I don’t know if our business will survive,” he said. “We do all that’s necessary to support the people, to keep our employees, to be able to restart in a month or two or three, whenever things get back to — at least closer to — normal. But in reality, nobody can predict what’s going to happen.”

And then there is the much bigger sanctions side of the supply-chain impact. For example, two of Interpipe’s chief rivals are in Russia, not cut off physically by road closures or unavailability of employees, but cut off by the sanctions.

While Ukraine accounts for only 0.3% of the world’s exports, in a time when supply chains are badly broken and shortages already abound, every little piece is felt. The bigger problem, of course, comes from the sanctions cutting off most, if not all of Russias 1.9% contribution to global exports. Russia’s contribution, in addition to food, is, of course, energy, but also many raw natural resources, such as such as nickel, copper, platinum, palladium, and uranium.

Obviously, oil and natural gas sanctions will be the most damaging hit to the West:

Russia could soon be forced to curtail crude oil production by 30%, subjecting the global economy to the biggest supply crisis in decades — that is, unless Saudi Arabia and other major energy exporters start pumping more….

“The implications of a potential loss of Russian oil exports to global markets cannot be understated,” the IEA said in its monthly report. The crisis could bring lasting changes to energy markets…

Big Western oil companies have abandoned joint ventures and partnerships in Russia, and halted new projects. The European Union on Tuesday announced a ban on investment in Russia’s energy industry….

So far, there’s little sign of relief. Saudi Arabia and the United Arab Emirates are the only producers with significant spare capacity. Both countries are part of the 23-member OPEC+ coalition, which also includes Russia.


It’s not just that Russia is banned from selling oil in many parts of the world now, but the Big Oil corporations that help them produce oil are moving out, forcing Russia to reduce production. Russia may, of course, respond by nationalizing everything owned by those companies or sanctioning and selling it all off to their own companies, but there is a lot of talent and operational knowledge they will need to backfill in order to operate, and that takes time.

OPEC officials have so far said only that they are committed to their current agreement, so there has been no help to the West there, and why should there be? It is an absurd plea. Biden could do something right here to lessen the blow, but he refuses for religious reasons to even think about helping our allies with increased US production while begging everyone else to increase production as if replacement oil from elsewhere creates less of the global warming he professes to be concerned about.

Then there is the old automobile supply-chain problem. Remember how China had a major impact on auto production because of computer chips? Well, now you can expect a lot more of that due to other parts:

The disruption of another Ukrainian industry — the making of wiring harnesses used in cars — is already hurting European automakers. Ukraine has more than 30 automotive plants, most of them centered near the western border with Poland and other European neighbors, according to a government agency that promotes foreign investment.

So, if you wanted a new car and couldn’t get an American car, now you will have problems, if you didn’t already, getting a European car, too. In fact, the problem is likely to impact American car manufacturers as just one more headache to try to work around in a world of increasing pinches and binds.

And that computer-chip problem? Made worse. Ukraine provides most of the global supply of neon, a gas used to make the lasers that make the computer chips.

And then there is the problem of shipping bottlenecks, which have been made worse for a variety of reasons. First, no shipping company wants to brave the Black Sea now that it has been mined and has missiles flying overhead and, second, because Russia has been cut off from ocean shipping routes. Third, cost of shipping a container from China to Europe has risen due to Russian rail being cut off, forcing more to go around by sea.

Many of the top ocean carriers have also suspended new bookings to or from Russia. These developments could increase volumes and are already resulting in pile-ups at origin ports, possibly causing congestion and increasing rates on these lanes….

Higher fuel costs from climbing oil prices caused by the hostilities are expected to be felt by shippers across the globe, and ocean carriers who continue to service ports in the region may introduce War Risk Surcharges for these shipments….

Approximately 10k TEU [Twenty Equivalent Units, meaning equivalent to a 20′ container] travel across Russia by rail from Asia to Europe each week. If sanctions or fear of disruption shifts significant numbers of containers from rail to ocean, this new demand will also put pressure on Asia-Europe rates as shippers compete for scarce capacity.


Global starvation due to the apocalyptic ravages of war

Here’s where it gets ugly. The amplification of shortages that will become most devastating will happen with respect to the food shortages the world has already experienced because of the Coronacrisis … in very slight ways in the US but in more significant ways elsewhere.

Putin’s War by itself (with no sanctions factored in) already seriously crippled European food supplies. As I’ve mentioned in other articles, Ukraine is Europe’s breadbasket. Solely because of the war, Ukraine just banned all grain exports because it has to in order to make sure it can feed itself.

Obviously, farm production throughout Ukraine will drop considerably if missiles continue flying overhead during the next couple of months when it is time to start preparing fields. Tanks stationed in fields will also make tractors wary of entering. Since the tanks are running around, they will make plowing useless.

Additionally, many farmers may have either fled the country or, more than likely, are fighting to defend Ukraine. While the nation can insist the farmers move from war to food growing, that’s not an easy choice when you need all the defense you can get. The ability of farmers to find farm hands will be severely limited. Their ability to get the supplies they need will be physically crushed by Russia’s siege. And they all know their ability to get their crops to market with the badly damaged roads, rails and bridges is already almost insurmountable. So, Ukraine will not be exporting any grain.

Jakob Kern, an emergency coordinator at the United Nations (UN) World Food Programme (WFP), warned Ukraine’s food supply chains were collapsing as Russia bombed key infrastructures such as roads, bridges, and trains.

“The country’s food supply chain is falling apart. Movements of goods have slowed down due to insecurity and the reluctance of drivers,” Kern told a Geneva during a video conference from Krakow, Poland.

“Inside Ukraine our job is in effect, to replace the broken commercial food supply chains,” he added, describing the rebuilding task as a “mammoth” one.

“With global food prices at an all-time high, WFP is also concerned about the impact of the Ukraine crisis on food security globally, especially hunger hot spots,” he said, warning of “collateral hunger” in other places like Egypt, Indonesia, Bangladesh, Pakistan, and Turkey that rely heavily on Ukraine imports.

Michael Fakhri, also warned today, Russia’s invasion of Ukraine may cause a global surge in malnutrition and famine.

“For the last three years, global rates of hunger and famine have been on the rise. With the Russian invasion, we are now facing the risk of imminent famine and starvation in more places around the world,” Fakhri said in a statement.

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It is not just food supply from Ukraine that is being cut off. The Coronacrisis already raised the level of world hunger a lot, but sanctions against Russia and by Russia assure no grain will come out of Russia either. So, Europe will lose a good 50% of its grain supplies.

The US, on the other hand, produces more grains than any nation on earth and is a major grain exporter, so it should have plenty for itself, except the demand from other nations with critical shortages due to both the physical aspects of war and Western sanctions and Russian countersanctions will drive prices way up in the US, unless it protects itself with export tariffs.

All of this has fueled the UN’s Food and Agriculture Organization to warn global food prices could rise another 8-20% from current levels due to the deteriorating situation in Ukraine.

We were already broken past peak food prices prior to Putin’s War due to the Coronacrisis, but here is where these additional shortages are now likely to take those prices:

Undoubtedly we will see a rise in trade protectionism around food exports because that is the one thing most essential in trade to any nation’s survival. That protectionism is one serious anti-globalist possibility here, but I think Western nations will realize that, for their own self-imposed sanctions to work and remain in effect, they will have to help each other out, or the sanction alliance will break apart under the stresses of starvation.

If so, that will mean additional food shortages and higher prices for the US as grains and other food products continue to flow out of the country due to rising demand for those exports. Farmers and middlemen don’t typically sell inside the country for less than they can make outside, so that raises the price of food in the US to match what countries that could find themselves in starvation situations for some of their people are willing to pay.

I’ll talk about that more in the second part of this series; but let it suffice here to say that food prices in the US are going up as result of all this and so are shortages … to what degree will depend on the amount of protectionism that forms to create export tariffs limiting the ability to sell to better prices outside the country. The same can be said for Canada and other food exporting nations. Food prices and shortages will rise in all export nations up to the point where protectionism kicks in. At some level of pain, every nation must protect its food sources and make sure its own people can eat before sending food out of the country. That’s just political reality.

Already, we see nations like Argentina hoarding its own food supply for food security in a world of guaranteed shortages by banning all exports of its large soybean crop. Exports of soya and soy oil will be suspended. Soya, which is milled soybean, is vital for animal feed in the US and many nations, though the US produces enough soybeans to where it can protect itself in the same manner as Argentina if it chooses. If it doesn’t go the protectionism route with export tariffs or outright bans like Argentina, the increased global demand for its soybean crop will raise the price of all meats in the US by further raising the cost of feed.

The problem is not just due to food, itself, being sanctioned. The energy sanctions have already seriously driven up the cost of petroleum-based fertilizers, and Russia has placed sanctions on the export of its own fertilizers. So, the ability of all regions in the world to grow food will be reduced by the shortage of fertilizers:

Ag Powerhouse Brazil Could Be Severely Impacted By Russia’s Freeze On Fertilizer

There’s no question in our minds a global food crisis is emerging…. Fertilizer costs before Russia invaded Ukraine were already high. The invasion made everything worse as Moscow’s protectionism has crimped exports of the nutrients critical for growing all sorts of farm goods….

According to Bloomberg, the South American country imports more than 85% of its fertilizer demand. Russia is its top supplier….

“Restraining fertilizer consumption may hurt crop yields, boost inflation and threaten food security,” Brazilian Agriculture Minister Tereza Cristina said this week….

For some context, Brazil has transformed into an agricultural powerhouse over the last two decades. It has become a leading exporter of coffee, sugar, soybeans, manioc, rice, maize, cotton, edible beans, and wheat. The bigger problem is how the fertilizer disruption and soaring prices may result in future harvest declines.

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Ultimately all food is global. If nations face shortages, they will bid up the price in other nations to get the food they need, so the people in those nations pay more, too, unless those nations apply export tariffs (the main reason for export tariffs) or ban exports of certain things outright. Either measure can keep prices in the nation with the surplus from rising.

The higher prices for soya and corn, the two main sources of protein and sugars in animal feed, not only drive up the cost of meat by increasing the cost of feeding animals, but those rising feed prices almost always result in many ranchers and farmers reducing their herds and flocks because they lack the cash flow to feed such large numbers. This year’s herd reduction results in next year’s scarcity of meats, driving the price higher for longer.

Eric Peters, CIO of One River Asset Management, warned the current disruption of the global food supply chain could spark a global “great famine.” 

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I hope my friends on my site followed my advice early last fall and started buying double of everything they normally use that has a long shelf life in order to lay in provisions to buffer these shortages. I know we’ve done that at our home and now have a fair supply of things we regularly consume. Least-case scenario, the US never actually has shortages for most of those things, but we have sky-high prices, so the earlier purchases eliminate the inflation for us while the supplies last. If you took my advice or were already doing this on your own, you’ll certainly be glad you did now that the war and its sanctions are piling on.

That is what we have seen with the Epocalypse. It turned out it arrives in waves, and each new wave brought on by the next big black-swan event becomes harder to bear than the one before because we enter it in a weaker condition, nationally and individually. Reasonable preparation individually can smoothen that out a little.

Uprisings on the rise

With respect to small nations holding the weaker hands, I warned in my Epocalypse writings that…

Such total financial failure will also mean that existing governments collapse, and citizens will enjoin each other toward heated battles over what kind of government should take the place of those governments that fall.

How the Coming Global Economic Collapse will Play Out

The wartime sanctions that have increased the likelihood of additional sovereign debt defaults increase the risk of governments collapsing, which also increases the likelihood of greater civil unrest in those parts of the world that struggle the most. Here is how I described that in the Epocalypse scenario:

Anarchy will take over the streets of many of the largest cities of this world. Hostility will rise because trust in government drops and because people are angry that they were betrayed by the last “solutions” that solved nothing.

Still, the masses want an easy answer, so the majority will be able to be led by the right gleaming horse when it appears out of the rubble … and it will (but that’s further down the road and something for another article at a later time).

Discord means the governments of this world will take military action to secure their nations. Governments will try desperate economic measures to save their economies for a couple of years as all of this unfolds, and people will allow such desperate military measures in order to regain security, which is paramount to most people, even above their freedom. First, of course, governments will try amping up the money printing and the low-interest schemes they are used to (because all lack vision and have no new ideas). Because those solutions have already failed, they will not work even for the short term this time.

The Epocalypse is Different This Time, Yet Much as Predicted

You can see, even as the Epocalypse scenario was laid out back then, that it was always something I envisioned playing out over years, not months. It has just been stretched out even more than I thought by ever-greater interventions. Each episode has left us weaker for the next thing that assaults us while shoring us up to avoid pain in the present.

The breakdown of governments due to sovereign debt troubles, leaving the weakest players unable to pay their bills, will be compounded by the food shortages described above. Here is how we have seen that kind of situation develop in more impoverished parts of the world in the recent past:

When food prices go as high as they will now be going in many nations that don’t grow enough of their own food and that are relatively poor, we wind up with social explosions like the Arab Spring. Starving people are angry people. They become desperate people, and if they were already unhappy with their governments, they become rebellious people. This year is likely to see uprisings later in the year as food shortages become real, and 2023 will likely be worse:

Food prices are already past levels that contributed to uprisings in the past, and the outbreak of a war between Russia and Ukraine — which combined account for 28% of global wheat exports and 16% of corn, according to UBS Global Wealth Management — only adds to risks.


Grain prices surged to record highs last week as world food prices are now higher than they were during the 2011 Arab Spring, leaving us with an abundance of caution that political uprisings due to food price shocks could be right around the corner….

Everyone’s favorite permabear, SocGen’s Albert Edwards, opined two years ago about future agricultural price shocks and how they could cause another Arab Spring….

Zero Hedge

ZH lists the following nations as those that import the most Ukrainian wheat. Almost all of them are nations that are likely hotbeds for social unrest even in better times. Notice some of the nations that import the most from Ukraine are those that were involved in the Arab Spring:

Albert says that “we should … watch the unfolding surge in food prices very closely indeed – and with trepidation….”

The reason for that is again what happened in early 2011 in Tunisia: That event marked the start of a chain reaction of social unrest around the Middle East and elsewhere that toppled governments and became known as the Arab Spring….

“T’was always so: certainly, higher food prices contributed to both the French and Russian revolutions, and to the 1989 unrest in China….”

Edwards summarizes his concerns best with the following statement: “even in the richest country in the world, food poverty has become a real problem during this pandemic.”

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Now we are going to add to the food shortages from the pandemic the food poverty from the destruction in the fields of war as well as from the sanctions of war.

Look at what event matches up to food prices that are now a nip above where they were back then:

Dwindling food supplies in Brazil may only act as an inflationary pressure for global food prices, possibly rocketing prices to new heights.

Sanctioned Russian fertilizer billionaire, Andrey Melnichenko, warned the Ukraine conflict would result in a world food crisis.

“The events in Ukraine are truly tragic. We urgently need peace. As Russian by nationality, Belarusian by birth, and Ukrainian by blood, I feel great pain and disbelief witnessing the brotherly peoples are fighting and dying,” Melnichenko told Bussiness Insider. “One of the victims of this crisis will be agriculture and food,” Melnichenko said, adding that the conflict has “already led to soaring prices in fertilizers which are no longer affordable to farmers.”

Melnichenko said global food supply chains were already under pressure from COVID impacts, and “now this will lead to even higher food inflation in Europe and likely food shortages in the world’s poorest countries.”

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In the US, I suspect uprisings from soaring prices and, to a lesser degree than in other nations, from actual scarcity of some food items will likely take the form of another enraged and distrusted election. The media will do its best to fan the flames. Fox News, for example, uses almost 100% of its Ukrainian war coverage as opportunities to pound on Biden while claiming Trump had nothing to do with the shortages or inflation at all. (If that were true, how is it that I was writing article after article during Trump’s final year showing how shortages and scorching inflation were developing that would take us into recession at the start of this year and then into the crash of the Everything Bubble? It’s not like that just became obvious to me after Biden was elected.) So, the divisions will widen along political lines until they engulf us because neither political party in the US remotely understands the fundamental flaws that keep bringing us around for the next and worse cycle.

Financial fails guaranteed by the sanctions

As Goldman Sachs’ head of hedge hogs, Tony Pasqsuariell, just put it,

I’ve been banging away at this craft for 23 years, and the past few weeks rank right up there with some of the highest velocity periods for markets that I’ve ever seen. There are no mysteries here: global growth was slowing … major policy shifts were underway … then the geopolitical variable exploded….

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That’s right. This has been underway since the Coronacrisis began in 2020 as a result of the steaming financial dung heap we created with our responses to COVID. Moreover, the groundwork was laid in by inattention to financial flaws that existed before the Great Recession and the years of financial profligacy that provided artificial life-support without the benefit of essential surgery to fix the problems. (All part of the rinse-and-repeat cycles I laid out more than a decade ago in Downtime.)

Pasqsuariell described this overall transformation as a “paradigm shift” in these words:

Said another way: market dynamics were becoming significantly more complicated — and, the degree of difficulty around money management was appreciably rising — for several months in advance of the Russia/Ukraine situation, and that mess has opened the door to a set of potential tail risks that most folks never had to contemplate….

I think we should all be keeping a close eye on the funding markets — and, perhaps more importantly, the corporate credit markets — for signs that something more significant is manifesting….

If you take a really big step back, one can argue the past few weeks have poured kerosene on a tectonic shift that’s taken shape over the past six years…. I think the trend is clear for all to see now … it has only been amplified by the East/West geopolitical tension … and, it marks a paradigm shift from the world I came up in.

Zero Hedge

I find the statement that this is “a tectonic shift that’s taken shape over the past six years” particularly interesting. That’s how long ago it was that I said the Epocalypse was about to hit. I just wasn’t expecting it to take six years and counting before we were able to see that the financial crises during that time are all parts and pieces of one extensively protracted bust-up, where each new stage requires another calamity to crack the stuck plates and release another megaquake.

Elements of Epocalypse

Here’s a catch-all section for other aspects of the Everything Bubble Bust that could be altered by something as large as the parade of global sanctions that has just rolled out.

The Bond Bubble Bust may slow down a little as a result of flight of capital to the US — the old best-horse-in-the-glue factory situation. So far, it does not seem to have slowed much with bond yields taking another jump up on the Fed’s announcement of its first rate hike. We’ve seen a lot of the pumping action I’ve described between bonds and stocks, and the breakdown is going at about the pace I expected. There is, however, now an increasing likelihood of global flight of capital that could keep treasury yields down, and rising yields are what I’ve said would lead the breakup of the other two major markets — stocks and real estate.

Mortgage rates in the housing bubble have continued to rise due to all the financial uncertainty around the Fed’s taper, rising bond yields, and inflation, and have just started to impact sales; but the war does’t seem to have changed the pace interest increases much so far. So, the slow squeezing off of the housing bubble appears to have begun. How quickly it will deflate, I don’t know, since long-term bonds may not fall as fast under the flight of capital created by Putin’s War and the global sanctions erected against it. However, as noted in my introductory article to this series, the yield curve for treasuries is already pricing significantly into inversion.

The war, of course, could broaden, or other wars could breaking out, and that would change the picture substantially; but for right now it appears China is less likely to attack Taiwan because this war has given it way too much to deal with on top of its COVID problems. I said I’d stay away from hypothetical for this series, so I’ll leave that there.

So far, the US dollar remains stronger internationally while the yuan and ruble axis has diminished because few nations want to upset the etro-dollar order. Many have suggested Russia, China, Iran, and Syria were reaching toward cracking the petrodollar, but China, in Xi’s talk with Biden, spoke of restoring relations with the US and has appeared increasingly reluctant to side strongly with Russia, lest it upset a great number of its trade partners, including Ukraine. Arab nations are likely to tread lightly, too, for the time being because Russia has the stink of death on it, so no one wants to get too close to Putin, lest the stench rub off on them. (I’ll go into this more in the next Patron Post on the impact of the War and Sanctions on globalism.)


There are always countervailing vectors to be factored in when projecting how these things will turn out. One of the biggest is that I expect all these sanctions will give central banks some pause in their tightening. We’ve already seen the EU move back toward easing and have seen the Fed back down from an expected 50-basis-point hike (a double hike) to a 25-basis-point interest hike.

The sanctions provide some possible cover to CBs for the resulting higher inflation as they can argue with some legitimacy that the inflation-driving shortages from sanctions and plague lockdowns are beyond their powers to battle against with financial policy; yet, CBs have been reluctant to let the world believe anything is beyond their powers because the public and political belief that they can solve everything financially helps keep them in power. They need us to keep believing they can save us in order to keep from having their great financial power stripped from them.

While CBs can back away from tightening to slow the collapse of the Everything Bubble, they cannot do that without allowing the flames of inflation to rise into hyperinflation in a guaranteed extreme shortage environment like we have now. So, they are still caught in this catch-22. It’s just now they may have some capacity to blame their failure on the war and its sanctions. There is no guarantee for them, should they try to do so, that anyone will believe them; and loss of trust is loss of everything for central banks managing fiat currencies. (See “The Moron’s Guide to Money: What gives money its value?“)

Moreover, rising bond rates, now that the Fed has left the table, are already doing the Fed’s interest-tightening for it. The Fed’s rate hikes will actually just be catchup to what the bond vigilantes have already priced in — a mere attempt to look like the Fed is still in control of interest rates. The Fed’s only way to get that control of those rates back is to return to QE and seize control again of the bond market.

Unemployment is bound to rise again due to additional sanction-related shortages and sanction-related bottlenecks in supply lines and the complete cutting off of many supply lines, curtailing the ability to conduct business, but that will ease pressure from the current lack of available workers, which will create some deflationary counterforces.

Of course, one big counterforce that has broken the Epocalypse into a series of megaquakes with short rests between the earth-shaking events is the government’s readiness to leap to bailouts of those too-big-to-fail corporations predominantly owned and run by the one-percenters and more recently to leap in with newly permissible helicopter money to placate the masses during the bailouts as was done last time. Bailouts are the biggest reason I laid out in Downtime as to why we always face the same problems again on a larger scale because we never allow capitalism to do its dirty work. Instead, we choose to avoid the pain of correction by making the pain and need of correction worse down the road. We have seen each new round takes a lot more energy, and the rebound becomes more fleeting. So, I am very doubtful bailouts will help much this time, but not at all doubtful that they will be tried.

The counterforce to the counterforces is that an emergency return to QE in the present high-inflation environment risks pushing us into hyperinflation (which for my definition would be any inflation rate that comes in at 100% or more a year). On this part, I am much less than sure, as I’ve never gone seriously down the hyperdrive road in my predictions; but the actual risk emerges if CBs return to money printing in an already hot inflationary environment under even worse shortages than those we’ve already seen. That’s a foolishness they would only try because they continue to believe in the same black magic that promises to heal terribly flawed economic fundamentals that are causing horrible economic results with more money. (The flaw is that this money is only created by piling on more debt.)

More money out of thin air has been their one-size-fits all answer, so it’s hard to imagine the banksters imagining anything other than even more, more-money. If they go that route, I think it will move us straight into greater instability. I was going to say “lead into massive instability,” except that we’ll already be in massive instability by the time the Fed feels the need to take that dangerous step. That’s a bit too far down the road for me to have a clear sense of how it will go, and it would be attempted under hypothetical conditions. So, I’ll leave it there.

Without such a return to QE, the free market will apply its own innate economic tightening to cool inflation eventually, even if the Fed backs down from raising its target interest rate (which would come at the cost of looking like its lost control of interest since bond vigilantes are going to raise market interest anyway). Recessions eventually become their own inflationary corrective:

Consumption remains the biggest component of GDP, accounting for about 67% of annual output. Normally, growth in consumption is driven by credit, but stimulus checks and other fiscal transfers drove personal incomes significantly higher during the pandemic, fueling a mini-boom in consumption.

Now that disposable-income growth is beginning to fade, an extension of credit will be necessary to maintain the prevailing rate of consumption. However, rising rates are causing lending standards to tighten and banks are becoming less willing to extend consumer loans. Consumption will face growing headwinds as credit is squeezed.

Zero Hedge

Recessions are a natural counterforce against inflation that work by economic destruction, except that either an extension of credit through Fed-induced lower rates and QE or outright helicopter money in this case will make the supply gap even worse by adding demand without adding supply because the supply problem has nothing to do with a lack of money. So, if the Fed attempts to raise income or lower credit costs to stimulate consumption, then the widening supply gap will drive prices higher even in a recession.

An epic conclusion

It seems we are now all the more at a crisis point of either crashing all markets in the Everything Bubble Bust by tightening or moving fairly quickly into hyperinflation if central banks pour on the massive amounts of QE that would be necessary to push these cracking markets along any further.

Understand, I’m trying to piece these profound changes together on the fly with the rest of you, so I may be a less accurate right now because I’m thinking my way through the biggest financial train wreck in our lifetimes. It’s going to be impossible to know where all the cars full of dying humans will come to rest in what will look like a pick-up-sticks pile-up of train cars.

As the Goldman analyst above put it,

Amidst a period that’s featured epic volatility and risk transfer, my instinct is to approach the path ahead with a high degree of both humility and simplicity.

I can understand all of this sounds like doom-porn hyperbole, and some of the counterforces above are likely to kick in with enough strength to tamp some of this down, but not in a way that resolves anything and averts the Epocalypse.

As I said, my goal was to lay out a REALISTIC worst-case scenario — that is to say the shape of the world we are marching into IF there are no hypothetical catastrophes to make it even worse or hypothetical rescue attempts to soften the fall. So, I’ve laid out some possible counterforces here, but those are hypothetical, though it’s highly likely some of them will kick in at some point. I think you can see the current events are taking us into a seriously rough ride if they don’t.

If you want to consider how we endlessly repeat these cycles because of these kinds of rescue attempts and see what we need to do to stop the worsening of each new cycle, I’ve pulled my original articles about the cycles into a small book:

Next up: the impact of sanctions on globalism.

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