The End of American Hegemony

Analysis From Outside The Anglosphere

Last spring, after imposing unprecedented sanctions on Russia, President Biden quipped that the ruble had become “rubble”. But by the end of the year, Russia’s ruble had outperformed the U.S. dollar, as Russia’s economy proved to be more resilient than the U.S. government had expected. One of the few analysts who hadn’t underestimated the Russian economy was the French economist Jacques Sapir. The French entrepreneur Arnaud Bertrand tweeted a translation of Sapir’s comments, which I shared in this post at the time. 

How the West may have underestimated Russia.

Atoms versus bits; basic materials versus finance and services. $BTU $USO $CENX $GDXJ

— Portfolio Armor (@PortfolioArmor) April 11, 2022

Now, Bertrand has translated key comments by another French intellectual, Emmanuel Todd. As the physicist and genetics entrepreneur Steve Hsu pointed out, Todd predicted the fall of the Soviet Union when most Western analysts hadn’t seen it coming. 

Todd famously predicted the fall of the Soviet Union (based on infant mortality statistics) at a time when CIA and the West considered them highly formidable.

He is a serious thinker. We met at the Society of Fellows at Harvard in the 90s. I’ll retweet from this thread.

— steve hsu (@hsu_steve) January 15, 2023

Below is Bertrand’s thread on Todd, followed by a few thoughts by me in response. 

The Fragility of American Economic Hegemony

He says “it’s obvious that the conflict, started as a limited territorial war and escalating to a global economic confrontation, between the whole of the West on the one hand and Russia and China on the other hand, has become a world war.”

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

… would crumble at the first shock. But what we have discovered, on the contrary, is that a society in decomposition, if it is fed by external financial and military resources, can find in war a new type of balance, and even a horizon, a hope.”

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

… announced that they would never tolerate Ukraine in NATO. From their point of view, the Russians are therefore in a war that is defensive and preventive. Mearsheimer added that we would have no reason to rejoice in the eventual difficulties of the Russians because…

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

He however has some criticism for Mearsheimer:

“Mearsheimer, like a good American, overestimates his country. He considers that, if for the Russians the war in Ukraine is existential, for the Americans it is basically only one ‘game’ of power among others. After Vietnam…

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

Insufficient analysis which today leads Biden to proceed mindlessly. America is fragile. The resistance of the Russian economy is pushing the American imperial system towards the precipice. No one had expected that the Russian economy would hold up against the ‘economic power’..

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

…would collapse, and with them the possibility for United States to fund their huge trade deficit for nothing. This war has therefore become existential for the United States. No more than Russia, they cannot withdraw from the conflict, they cannot let go. This is why we…

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

He firmly believes the US is in decline but sees it as bad news for the autonomy of vassal states:

“I have just read a book by S. Jaishankar, Indian Minister of Foreign Affairs (The India Way), published just before the war, who sees American weakness, who knows that the…

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

…the imperial system is that the United States strengthens its hold on its initial protectorates. As the American system shrinks, it weighs ever more heavily on the local elites of the protectorates (and I include all of Europe here). The first to lose all national autonomy…

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

… protected by our national languages, but the fall in our autonomy is considerable, and rapid. Let’s remember the Iraq war, when Chirac, Schröder and Putin held joint anti-war press conferences.”

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

…30% more engineers. The US fills the gap with foreign students, but they’re mainly Indians and even more Chinese. This is not safe and is already decreasing. It is a dilemma of the American economy: it can only face competition from China by importing skilled Chinese labor.”

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

… soft power, it is a mistake. On 75% of the planet, the kinship organization was patrilineal and one can sense a strong understanding of Russian attitudes. For the collective non-West, Russia affirms a reassuring moral conservatism.”

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

…of the great power, not only anti-colonialist, but also patrilineal and conservative of traditional mores, can seduce much further. [For instance] it’s obvious that Putin’s Russia, having become morally conservative, has become sympathetic to the Saudis who I’m sure have a…

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

…follow the West, which then seems very small.

With an anthropologist reading of this [divide between the West and the rest] we find that countries in the West often have a nuclear family structure with bilateral kinship systems, that is to say where male and female kinship…

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

…values, is at a deeper level a conflict of anthropological values. It is this unconscious aspect of the divide and this depth that make the confrontation dangerous.”

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

There you go. Is he right on everything? I don’t know, but Emmanuel Todd is certainly always a very singular and interesting thinker, with a vastly different analysis from the depressingly predictable bad takes that usually dominate French media…

— Arnaud Bertrand (@RnaudBertrand) January 13, 2023

What Todd Gets Right

Let’s start by noting that the “World War III” Todd refers to above is akin to another Cold War, not a hot war directly between the U.S. and Russia. Let’s hope we can avoid a hot war, though recently mooted escalations increase the risk of one. 

Insanely reckless from the Biden administration, and yet more signs we’re barrelling into something disastrous. Numerous experts have said putting Russian control of Crimea in danger may be the most likely scenario for nuclear escalation.

— Branko Marcetic (@BMarchetich) January 18, 2023

That said, Todd gets a lot right here, but it’s important to distinguish between the United States and the “imperial system” (American unipolar hegemony) he refers to. Barring a total defeat of Russia (which seems highly unlikely, and would come with its own set of problems for us), the Ukraine War will likely mark the beginning of the collapse of the unipolar world. But that need not lead to a collapse of the United States; on the contrary, it could be a boon for the U.S. if it starts to focus on its own borders and not those of countries thousands of miles away. Unlike during the Cold War, we are not facing an opponent attempting to impose a hostile ideology on us. If anything, we have become the ideological empire, as evinced by the LGBT flags flying from our embassies, and our current Two Minutes Hate for a Russian Orthodox hockey player who refused to wear a gay pride jersey during warmups.

NHL analyst says on the NHL Network! that if Philly Flyers Provorov doesn’t want to wear a pro-LBGTQ uniform he should leave America, go back to Russia, and fight in the war against Ukraine. The tolerant left! Holy shit:

— Clay Travis (@ClayTravis) January 19, 2023

We could simply decide to respect Russia’s and China’s respective spheres of influence in return for them respecting ours, and engage in mutually beneficial trade with them. 

The rest of the world’s diversification away from the dollar, sparked by our current economic conflict with Russia, will impact the U.S., as Todd suggests: it will become more expensive to finance our trade deficit, but the obvious solution there would be to balance our trade, obviating the need to finance a large trade deficit. 

Investment Implications 

This is always the hard part, because it’s not enough to figure out what’s going to happen, but whether it’s already been priced in or not, and what other factors may be in play. For example, in our post on the economic war against Russia last April, we included our system’s top names at the time, which seemed to make sense in light of the conflict: consider the Teucrium Wheat Fund (WEAT), our top name then. After all, one would think that a war between two of the world’s largest wheat producers, Russia and the Ukraine, would lead to a spike in wheat prices.

Screen capture via Portfolio Armor on 4/8/2022.

But apparently, that was already priced into WEAT, and that ETF tumbled more than 15% over the next six months. 

Similarly, one might have thought Century Aluminum Co. (CENX) would have benefited from sanctions taking Russian aluminum off the market in the West, and yet its shares plummeted 77% over the same period. Fortunately, investors in our hedged portfolios were hedged, so none of them were down anywhere near that much in CENX. Similarly, investors in our Substack’s core strategy use 10% trailing stops to avoid steep declines in our top names while hedging to limit market risk. 

It still makes sense to consider the macro picture when investing, which is why I’ve shared the Emmanuel Todd observations above, but it’s best to hedge in case you end up being wrong. 

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