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The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

The SWIFT De-Dollarization Of The World
March 1, 2022

“While it’s a powerful tool and it’s an appropriate tool to use, this elimination of access to SWIFT, it has far-reaching implications, specifically the priority of trade settlement alternatives to the dollar and a shift towards central bank liquidity in non-dollar currencies, and specifically central banks that are non—call it Anglocentric. This is a shot in the arm in essence for the importance of the Yuan or RMB.” — David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. 

David, obviously, the topic today, it’s going to be hard not to talk about Ukraine, but what I’d like to do first is, we just came out of our staff meeting and one of your great staff, Morgan, he came out and gave us our economic update, and he said, “We had in one day a high inflationary yeartoday.” Okay. So we’re talking, as we record this, this is March 1st. Oil is up 10%, heating oil is up 9%, gasoline is up 7%. We’re talking in one day. Okay? Nickel up 7%; wheat, 5.5%; corn up 5.5%, soybean oil, 5%, and oatsoats, Dave. Living on oatmeal, 5%. So, in one day, really, what we’re seeing is we’re really getting the realization of inflation, aren’t we?

David: Yeah. You know the old phrase, “there’s decades where nothing happens and then there’s weeks where decades happen,” and certainly that has been the case over the last week to 10 days. A lot is going on. Yeah. I try to have a serious conversation at home about Ukraine and Russia’s invasion, and I get blasted by a 10- and a 13-year-old with Hamilton lyrics.

Kevin: Which song?

David: “We’re out-gunned. What? Out-manned. What? Out-numbered, out-planned. You got to make them all stand. Yo, I’m going to need a right-hand man.” It was talking about bringing in George Washington into the mix.

Kevin: Right. All this great music in Hamilton.

David: It is.

Kevin: But war changes many things, doesn’t it? I mean, your kids probably wouldn’t have even been thinking that way and connecting Hamilton to the events over the last week if we hadn’t have seen Zelensky and what’s going on.

David: Yeah, I appreciate that they are listening here and there, and contextualizing, and there is a serious and somber tone when it comes to anything war-related. We know a number of people who were born and raised in Eastern Europe, and one of the things that they’ve always said is that in the context of high stress, it’s very important to keep a sense of humor, and that is one of the best ways of relieving tension. Many years ago, you and I read Gonzalez’s book.

Kevin: Yeah. Deep Survival is one of the best books on resiliency and survival.

David: And one of the things that he points out there, too, is that being able to keep a sense of humor is a way of relieving many tensions. War changes things. People see life differently. They live with an altered perspective, having endured uncertainties, having endured loss, and having seen many horrors. So I think the closer you are to it, the deeper the scars. At the same time, you have leaders that change, some for the better, some for the worse. Treasuries are pressured by massive funding costs. Currencies all too often are devalued as they stretch hope in the national purse towards visions of victory. So, defeat, of course, carries with it in even higher cost, a thousand times the cost.

Kevin: We talk about narratives. Sometimes you have to find out how to match a narrative and Putin’s narrative in his mind seemed to have been that he was going to have a very quick victory, almost a blitzkrieg-like quick victory, similar to Hitler when he came across Europe.

David: Yeah. And there are some similarities also to Czechoslovakia. If Putin was counting on a quick blitzkrieg victory, I guess this is where he’s incorrect, so maybe one of many places, but Putin may have overestimated his capabilities. He may have underestimated a European reaction. The risks now in Europe are extremely elevated, more so than at any time in post-Cold War history, because now you have an ego on the line. You’ve got a Russian defeat, which if you’re looking internal to Russia could very well trigger a coup. There’s a thin line between success and failure, and a low tolerance for failure. In fact, there may be a low tolerance for success as well. That’s a complex issue. Putin now possesses an urgency for victory, and it is, it’s driven partially by pride, but perhaps a greater desperation as each day drags on and holds the possibility of defeat.

Kevin: You brought up your kids watching Hamilton and singing Hamilton, but actually, how many in our generation understand the cost or the price for freedom?

David: Yeah. Certainly, Ukrainians are paying the dearest price for freedom that many have seen in modern times and their courage is a testament to the human spirit’s response to autocracy and dictatorial presumption. I hope every autocrat in the world takes note that people do care and that freedom, as ethereal concept as it is, it’s something that we are committed to. At this point, Putin will violate all conventions and proprieties of war in order to win. Gloves are off. Nukes have been put on the table. These are treacherous days. Europe will now be full of a generation of Russia skeptics, and that’s probably not what Putin was aiming for. But as a further measure of disconnect from reality and insanity, you’ve got US equities that have rallied back above pre-invasion levels. I think where you’re seeing the intelligent moves, Treasurys tell the more accurate tale of safe haven migration, as do the metals markets.

Kevin: Last week you came back from a trip and you said you had met a man, and we talked about it. This man was an expert at why we fight or why we go to war. But what was interesting is, because I’m reading the book, you’re reading the book right now, this author talks about why we don’t fight first, and that’s probably important. I would imagine, in any relationship, including marriage, you want to find out what works and you want make the fighting part the exception to the rule. He’s laid out what creates those exceptions.

David: Right. So looking at conflict resolution, I mean, fascinating couple because on the one hand, his wife, a PhD in psychology, and he has a PhD in economics. They ended up working together in East Africa, doing some really intriguing studies, but ultimately now he’s focused on conflict resolution, looking at aggression and conflict and tensions and things that can exist for long periods of time without becoming violent and then occasionally they do become violent. Right. Neck deep in his book, he is a very practical economist, man on a mission. I think he’s trying to solve a particular problem, perhaps theorize a bit, too. Christopher Blattman is his name, and he writes the book Why We Fight: The Roots of War and the Paths to Peace to illustrate that most of the time we don’t fight. When we do, and the incentives for compromise breakdown, it’s typically because of one of a combination of five things that are in play.

Kevin: I was really intrigued by those five things. I love it when you can condense a subject and make a model of it so that you can think more clearly about it. I think he’s onto something.

David: Whenever we have Steven Roach on the phone with us to be guest on the Commentary— He’s at Yale now, he was at Morgan Stanley for years, and I’m just impressed by the way that he can succinctly come to these things. He’s already carefully considered, he’s already digested, he’s already synthesized, and to some degree simplified, but not simplified in a way that sort of trivializes an issue. There’s a lot of complexity embedded in that simplification, so—

Kevin: A compression. It’s a compression of information.

David: That’s right.

Kevin: You just have to assume that the person you’re listening to has done the homework.

David: What I appreciate is compression that is in prose, not in poetry. My wife loves the compression of information in poetry, and I just keep on begging, “Will you just tell me what you’re trying to tell me?” There’s a difference of—

Kevin: There’s a place for both.

David: Right. So, Christopher Blattman, he looks at these five things. The first, when leaders have unchecked interests and direct accountability is lacking. That’s the first area where compromise can break down and conflict can arise. The second is when there are intangible incentives, like seeking glory, combating injustice, staying on a righteous path. You can see different versions, whether it’s religiously oriented conflict, or again, just an ego larger than life on display. The third thing he points to is uncertainty, where you’ve got two potentially equally matched parties.

Kevin: That’s like a poker game. There’s a bluff, right?

David: That’s right.

Kevin: And you wonder who’s going to call.

David: And sometimes you have to call. You can’t just let it play out. 

So, the fourth is when there is a commitment problem, which is best understood as anticipating a change of circumstance, which is best understood as anticipating change in the future and seeing that your best chance of action is now, not waiting for the inevitable change to occur down the line. So the commitment of path trajectory. Do you stay the course or do you do something preemptive now? So, it suggests that preemption is beneficial. NATO, Putin, I mean, actually, all four of these kind of fit into the picture to some degree. 

The last he mentioned is just misperceptions, where misperceptions interfere with compromise. If we project something untrue, or, on the other side of the equation, we read an adversary inaccurately because of what they’ve projected. Of course, misinformation is a part of conflict intentionally. But then the question is, are we taking action on the basis of a misjudgment? These are the five areas that he begins in the conversation of Why We Fight: The Roots of War and the Paths to Peace.

Kevin: Well, I haven’t finished the book, but it looks real good. We’re going to have him on as the book— When does the book come out, actually, Dave?

David: Yeah. It’s probably enough of an introduction for now. We’ll talk with Christopher in April. That’s when the book is published. If you’re interested in getting in queue for a copy, you can pre-order it at Amazon.

Kevin: One of the things I like, Dave, when you go on trips or what have you, in fact, your wife makes comments about it because you seem to meet and get to know people, and it moves you outside of your comfort zone. The beauty with this is this: Here on the commentary, Dave, we could just talk to people who think and act and have a worldview like ours, and just continue to reconfirm the narrative. But what I find when you travel and when you meet these people, these people maybe don’t travel in the same circles that you do, but they have ideas that can be brought to the equation. 

One of the things I think we never want to portray to the listener is that we’re experts. We’re really not ever experts. In a way, what we are is we’re just interested. You have to be interested to be interesting and we’re interested. We have conversations trying to figure things out, not trying to tell people we’re experts, but there are people who have spent their life in one area that can bring, like we talked about, they can compress.

David: What I find is that there’s a lot of people who don’t ask very many questions. They’re more than happy to suck the oxygen out of a room and talk and talk and talk. They’re not interested in you. They’re not interested in any other opinion than the opinions that they’ve already formed. I have to be honest, they’re not real interesting to me. I mean, I think one of the connecting points that I had with Professor Blattman is that he was curious. He asked me questions. I asked him questions. There was a dialogue that ensued, and I appreciated that. So yeah, the Commentary, this is March 2022. This is our 15th year of doing this podcast. This month, we enter into the 15th year. We’ve just finished 14 years of podcasting. I don’t know what 14 times 52 is, but we’ve done a bunch of these over the years.

Kevin: Here’s the crazy thing though, Dave, we’ve been doing it for 15 years, but honestly, this is an extension of a conversation you and I have had 20 years before that.

David: That’s right.

Kevin: 35 years talking to each other, just trying to figure things out.

David: Yeah. What we’re trying to do is bring context and perspective to a range of topics that impact the markets. We’re interested in Reality, Reality with a big R, not as we want it to be, not as it seems to us, but a truth outside of ourselves, if we can access that. We want to get to the truth of the matter. We’re interested in seeing as much of the big-R Reality as possible. Yes, we’re aware that we have countless blind spots and we have false assumptions and we have bad data. So, don’t be surprised when we get something wrong, or we look at an issue from a different perspective, or we have a guest on and we have a few, but not all, things in common with that guest. Sometimes our guests approach an issue from a radically different perspective, and it’s my understanding that we can still learn. Many voices make for a good conversation, a healthy dialogue. I mean, unless, of course, all those voices are in your head.

Kevin: I would’ve almost retitled that book and it wouldn’t have sold, but I would’ve retitled the book Why We Don’t Fight because that’s the angle that he comes in first. Honestly, I’ve got a bookshelf full of books on past wars and Patton’s writings and things like that. That can be very, very interesting. But fighting, and he brings this out, is the exception to the rule. If you really do a sample test of world history, we’re not fighting all the time. There may be a battle going on somewhere, but for the most part, things are settled without kinetic warfare.

David: I had a fascinating conversation with a gentleman at the Durango-La Plata Airport. He was checking me in at the United counter. It’s not every day that someone at the United counter is wearing a Patek Philippe. It’s a very nice Swiss watch. I asked him about it and he said, “Well, I used to live in Switzerland. I’m a lawyer. I wrote a lot of the trade legislation.” He mentioned a couple of big negotiations, like WTO-type negotiations, World Trade Organization. I’m listening to him and going, “Now, how did you end up here?” 

But Kevin, what that calls to mind is that here is a man who was interested in trade negotiations. He’s not going to make the history books. He’s not a part of the war story. He’s a part of the peace story. He’s a part of bringing people together and finding cooperative arrangements, and yet he’s already dissipating into the social fabric. I mean, again, not to minimize contribution he can make at a counter working for United, but it is different than working in Geneva and actually writing out World Trade Organization treaties.

Kevin: So, I’ve got a book on the shelf called War as I Knew It, written by a general, but in a way, this guy behind the counter could say, “No war as I knew it.” Right? Because that’s really what you want to try to see. Quite honestly, Dave, there are a lot of wars that we have averted because we are the reserve currency of the world and we control the SWIFT. And so, I think we have to look at some of these things too.

David: Well, I think we’ll benefit. In fact, I think we’ll be heartened by the discussion with Professor Blattman. In a time of war, it’s imperative to understand peace, and to know how to find a way back to it. 2,500 years ago, Sun Tzu stated plainly, “There’s never been a protracted war from which a country has benefited.” So perhaps the current conflict in Europe will turn out to be a short skirmish rather than a protracted war. So we can hope that that’s the case. We can certainly pray, and pray for peace, and for wisdom and insight amongst our leaders—the leaders in Europe faced with complex decisions and heightened stress. May cooler heads yet prevail. 

One of the things that we are witness to in a period of strife and conflict is that values are codified through conflict, and refined through the ravages of destruction. People who experience loss begin to look at life very differently. It can impact a generation profoundly. My prayer would be that the impact would be positive, even if the trials are perilous in the weeks and months ahead.

Kevin: There’s a book you gave me called The Treasury’s War, and it goes be behind the curtain of the US Treasury and how the US actually maintains its public policy worldwide, or its world order policy worldwide—its empire worldwide with the hegemon of the US dollar. But does something like this event, like the Ukrainian event and the China-Russia combination, does this actually add to the de-dollarization of the world because these guys are going to have to find other routes around what they’re being sanctioned on?

David: Yeah. The power that Juan Zarate is talking about in The Treasury’s War is only there because we swing a significantly large stick. So yeah, fascinating, this is probably four or five years ago. I spoke at a conference, keynote, and was talking to somebody afterwards, a young guy, and he said something about his interest in the Treasury. We kept on talking, and he had been Treasury attaché in Saudi Arabia for years, and I thought, “I just don’t even figure how somebody so young can do this.” And he says, “Well—

Kevin: He had seen this tool in action.

David: And he said, “I was appointed by Juan Zarate.”

Kevin: Oh, really?

David: So, I mentioned The Treasury War and he said, “Oh yeah, Juan Zarate, he was the one who gave me the appointment.” It ties into our primary topic today, which is de-dollarization, the notion that you can use the Treasury and use the US dollar as a significant weapon, that you can in fact use capital flows as a very significant way of debilitating an enemy. 

If you look at the hegemon of any period, you typically have military might and financial stability serving as operational pillars. Really, it’s the currency stability, the financial stability piece which is the enabling function for the military might. In each previous period of—if you want to think of it as uni-polarity, where there’s not a lot of competition, the primary reference currency for trade and for currency reserve belonged to that hegemon. So you had the Portuguese, you had the Spanish, you had the Dutch, you had the French, you had the British, and now you have the Americans. In turn, each carried the torch for about a hundred years. We’ve held the privilege for about 78 years, so not quite to that point, but there is something unique about it. It’s not a forever deal.

Kevin: Well, and it’s reminiscent of Rome several thousand years ago because Rome held that hegemon status for hundreds of years, but we could see that it was starting to be lost in the outlying areas as people would start to bury gold. I remember reading in Churchill’s History of the English-Speaking Peoples, he talked about a large hoard of gold that was buried about 300 years AD by the Brits at that time because they realized that the Roman currency was falling apart. Now, Rome controlled the military. To your point, if you’re going to be a hegemon, you have to control the military and you have to have a stable currency, but Rome began to create inflation, or basically debase its own currency. You actually see this with these other hegemons as well.

David: That’s right. So the history of midnight gardening goes back thousands of years and is generally an indication of when things are not going well.

Kevin: And that’s happening right now, Dave. I hate to say it, but keep going.

David: Tying into the Russian access to SWIFT, I think eliminating the Russian access to the SWIFT system—that is, of the ability to transfer money on an interbank basis—this is a part of the mix of penalties and punishments. I think this accelerates de-dollarization, and in the long term damages one of our key operational pillars as a world leader. While it’s a powerful tool, and it’s an appropriate tool to use, this elimination of access to SWIFT, it has far-reaching implications, specifically the priority of trade settlement alternatives to the dollar and a shift towards central bank liquidity in non-dollar currencies, and specifically central banks that are non—call it Anglocentric. This is a shot in the arm in essence for the importance of the yuan or RMB.

Kevin: So it’s like any tool, okay, you keep it sharp by sharpening it and keeping it in good working order. What we’ve done is we’ve actually blunted the dollar and we’re using it. It’s blunting it more and more when we pull the SWIFT system because we’ve blunted it by printing too many and being too far in debt, haven’t we?

David: Right. Creditism has got us to a very precarious place. The US Treasury Department, I mean, if you go back to 2009, they noted that a primary reserve currency has to have several key factors. We’ll put up the link if you want to look at their view of what constitutes the necessary requirements to be a reserve currency. Size of the domestic economy factors in; the importance of the economy in the context of international trade; the size, depth, and openness of financial markets. That’s where obviously the US debt markets are very considerable, no equal at this point, and therefore have a sort of incumbent status. The convertibility of the currency is another key, the use of the currency as a currency peg, which, there’s many countries around the world who do not run a stable currency and so they simply peg to the US dollar. And then, of course, there’s domestic macroeconomic policies.

Kevin: Well, and that’s where we dropped the ball. Domestic macroeconomic policies is where we’ve blunted the tool.

David: Yeah. So they concluded that as long as the United States maintains sound macroeconomic policies and deep liquid and open financial markets, the dollar will continue to be the major reserve currency. That was back in 2009. But the as-long-as piece—that is a conditional statement, and it assumes that we are not at the same time eclipsed by another country or block of countries that exhibit those same factors.

Kevin: So a block of countries, like we’ve turned this thing to BRICS, okay. Brazil, Russia, India, China [and later South Africa]. When you really look at how the alliances are lining up right now and who’s being affected, those BRIC countries are going to have to go somewhere else, aren’t they, to be able to economically survive?

David: Yeah. Carve out India from that, because I think there’s slightly different political alliances and geopolitical alliances, but you really are talking about a group of developing nations that in aggregate has a greater GDP contribution, global GDP contribution, than the United States, and so does in aggregate represent a potential upset. 

Fareed Zakaria described a global economic shift as the Rise of the Rest. Goldman Sachs went further and gave it an acronym, BRICS, right? These are the emerging market commodity and finished good producers, the acronym is Brazil, Russia, India, China. Over the last two decades, they have advanced their position as global GDP contributors. In the process, they’ve found many other areas of common ground as well. Again, I think India has problems with China, where there’s so many other countries and even continents that do not. So you might want to mix the acronym or just look at the collective bunch that could find common ground. Africa comes to mind. 

Setting aside differences, the new priority today is now finishing the installation of a SWIFT alternative. This is what I’m getting at. You’re going to see an enhancement of the currency swap and repo lines directly available to the market from the People’s Bank of China. This does not complete a process of de-dollarization. It’s just a significant leap in that direction.

Kevin: Well, as long as you can print money, we’ve talked about this for years, as long as you can print money and it still has value—in other words, you don’t have high inflation—you can actually accomplish awful lot. But at this point, just like we started the show, in one day, we’ve seen a year’s worth of inflation.

David: Right. So up to this point, the Bank of International Settlements and the Federal Reserve have helped maintain global liquidity, and that’s in the event of a financial shock, of a banking market shock. They’re going to continue to do so. They’ll serve an established clientele of central bankers and financial firms with a global presence. Restricting liquidity to Russia is, as we speak, forcing a new alignment between Russia and China to bypass the old financial order and further entrench a new order. The dollar was the world reserve currency up till 2022. It remains to be seen if it will be so indefinitely.

Kevin: Okay. But let’s say we have a huge shock here in the next week or two, okay. Where are people going to run? They’re probably still going to run to the dollar, right?

David: Yeah. In many respects, the US dollar remains the go-to source of liquidity. It continues to be a reference for global lending. When panic strikes, the dollar and US Treasurys are still a primary safe haven. We see that even now in the US Treasury market. Some have said, “Oh, well, the Treasury market is indicating that there’s very little inflation anticipated in the market.” No, quite to the contrary. You’re seeing a significant bid on a safe haven basis. The world is not in a good place, and you’re seeing the size and depth and transparency of our capital markets, which are yet unequaled, being called upon, and they are filling that role as a safe haven. But there are several factors which might accelerate the trend of de-dollarization, and you just hit one of them, hit the nail on the head. It includes high levels of inflation. It includes further fiscal commitments which can call into question the stability of our debt markets. It includes a mass migration of trade participants to an alternative system of invoice and transaction settlement. As it turns out, oil and gas contract settlement is kind of important. We figured that out almost 50 years ago.

Kevin: We went off the gold standard in 1971, but we still had another pillar holding the dollar up. If you think three pillars, the reserve currency status, the dollar was backed by gold, that was the second one. And then the third was the petrodollar. Henry Kissinger, and then going all the way back to Franklin Roosevelt before the end of World War II, secured the fact that dollars would be the only thing that people could buy oil in. Now, what’s that look like right now? This is very different than the 1970s, isn’t it?

David: Well, and I might frame that a little differently to say that the reserve currency status for many years was based on the implied value of the dollar vis-à-vis gold.

Kevin: Yeah.

David: Then in ’71, when Nixon closed the gold window, all of a sudden it’s free-floating and fiat for the first time, and we have to lean on something else.

Kevin: Oil.

David: That’s right. So, the last period of acute currency stress in the US was cured in large part by the commitment of crude oil being traded in US dollar terms. The year was 1974, and the Saudis agreed to those terms, but that established a floor for our currency, which was previously in free fall. So fossil fuel energy is still a key ingredient in global economic activity and how it is traded. That forces the issue of reserves. That forces the issue of currency balances denominated in dollars. In essence, we’ve forced an audience for our currency, and we maintain the audience consistent with the volumes of traded goods and commodity products priced in those terms.

Kevin: Over the last few years, you’ve talked on this commentary about the reliance of Germany and therefore Europe on Russia for energy. We even talked about that last week. Liquid natural gas— I think, what was their usage? More than 50% came from the Russian side, didn’t it?

David: A lot comes from Russia. This reorientation, that’s what we were talking about last week, of Germany reorienting towards Russia and China, I think that reorientation has been happening for many years. It’s my position that Nord Stream 2 is one more critical shift in that process of shifting alliances. So you’ve got the US and the UK that have effectively supported the conditions for Nord Stream 2 suspension, controlling pre-conditions, and through NATO creating tensions with Russia. Yeah, things like missiles in Poland and trip deployments throughout Eastern Europe, which is not to excuse Putin in any way for his launch into Ukraine, but we’re not talking about Putin operating in a vacuum either. The post-World War II global power structure—and particularly the post-Cold War power structure—has the most to lose in this redrawing of an energy map.

Kevin: So, let’s look at this because doesn’t the United States supply quite a bit of European natural gas as well?

David: Well, I hate to say follow the money, but US exports of LNG [liquid natural gas] have nearly doubled since the end of 2021—from then till now. And so there is a money trail to be followed. US LNG fills a decent part of the European and specifically German energy consumption gap—not enough to reduce prices, but you have Qatari LNG which will supplement in the years ahead as considerable production comes on stream by 2026, and that assumes that Nord Stream 2, that pipeline, is kept on ice. But LNG is an energy source that comes at considerably higher prices than gas from Russia, and this is the untenable part of a US or Qatari fix.

Kevin: So, the suspension of Nord Stream, you’re saying that’s probably not going to be permanent.

David: I don’t think it’s permanent. I think you’re talking about a few years, if not a few months, where the project’s back on track, fully supported by the German people and political elite. Energy prices are a huge consideration as higher rates of inflation on a long-term basis are just— They’re politically intolerable. So, not only will the efforts to scuttle the project by US interests have failed, but a stronger tie between Russia and China will have been forged through the swap lines and the repo market liquidity tools established in the middle of the Russia-Ukraine conflict. Then, of course—this is future tense—then comes the flow of gas through the pipeline, and de-dollarization is—call it a future inevitability. And that is, it’s an inevitability if we allow the previous currency floor to be implicitly removed through an energy map reorientation.

Kevin: So in a way, these maps that you have hanging here in the office, Dave, where you have the shifting of world power, you’ve got several hundred years’ worth of maps, actually, several—

David: Thousand.

Kevin: —thousand years worth of maps. We could be seeing the map shifting again.

David: Exactly. I think we’re moving quickly to the cartographer’s table, and I fear we will not have changed that appointment, merely just delayed it with the skids greased in the interim by the SWIFT suspension.

Kevin: So, we’ve got to factor in, Xi is probably watching very closely and stroking his chin and saying, “Okay. What’s my next move with Taiwan?” We take Russia as a separate entity than China. We talked last week that if we were to take Russia and China as somewhat of an alliance, that would be ominous, wouldn’t it?

David: Yeah. And I hope the US brings the full force of its military to Russia in support of Ukraine. As we discussed last week, there is critical analysis being made by the Chinese on this incursion and the world’s response to it, which will determine the pacing and/or the depth of commitment to taking Taiwan, I mean, taking Taiwan. The fact that we sent retired defense ministers on an official visit to Taipei this week is acknowledgement that the Biden administration gets it. So hats off to them. There’s a very significant power shift, which can be accelerated in 2022, where Russia and Ukraine look just like the tip of the iceberg.

Kevin: So when you say tip of the iceberg, just looking ahead, you’ve already admitted that sometimes we get it wrong, we have blind spots, but if you had to predict and look ahead, what are some of the effects that we should be looking for over the next few weeks, months, years?

David: Well, I realize we don’t know how the conflict with Russia and Ukraine ends. What I would say is that the next step, the next shoe to drop, does relate to Taiwan. There’s some important lessons that were learned not only by Xi Jinping, but also by the US and the rest of the world in that 2020 to 2022 period as we were dealing with COVID and trying to wrap our minds around how to get the supplies we needed through the supply chain to be able to meet demand on the other side. We’ve seen how critical certain aspects in the supply chain are. Today, it’s fair to say that one of the most critical links in the supply chain is Taiwan. 70% of the world’s semiconductors come from that island.

Kevin: Wow. Wow.

David: 70% of the world semiconductors come from that island. Why is that worth repeating? Because we can’t make cell phones or cars. We can’t make anything today without Taiwan being in the picture. If you wanted to cripple the global economy, if you wanted to control the global economy, you have an opportunity. 

I think, again, the observations made by both Putin and Xi about Western response to the Ukrainian conflict is absolutely critical here because they’re going to project off of that, what can be done, what should be done, and the timeframes that it will be done as it relates to Taiwan, the reunification. I mean, we think that 100,000, 150,000, 190,000 troops on the border in Ukraine are sending a message, or that incursions into Ukrainian airspace are sending a message. 

We’ve had that message for several years now. China is looking for the opportunity to take Taiwan. And if they believe that they can, they will. And in so doing, we find ourselves crushed, crushed. You want to talk about de-dollarization, talk about not being able to exist in a 21st century mode of operation. Who are we, who is anyone that doesn’t have access to semiconductors? I mean, this is one of the most critical strategic pieces we have in play in decades, and they’re only going to see permission granted if the West does not hammer Russia on this. If the West and Europe is willing to hammer Russia and Putin for their incursion into Ukraine, perhaps a loud enough message, a clear enough signal is sent that China is tamed. Otherwise, their appetite for “reunification,” it’s an appetite that can’t be sated.

Kevin: You’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. You can find us at,, and you can call us at (800) 525-9556.

This has been the McAlvany Weekly Commentary. The views expressed should not be considered to be a solicitation or a recommendation for your investment portfolio. You should consult a professional financial advisor to assess your suitability for risk and investment. Join us again next week for a new edition of the McAlvany Weekly Commentary.

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