| January 3rd, 2022

The Editorial Team at Intelligence Quarterly have put together a lists of risks, economic and geopolitical, for 2022.

  • Biden overcome with life-threatening illness and Kamala Harris takes over the presidency.
  • The Fed will only raise rates if there is another $2tn+ stimulus.  However, if CPI jumps from the current 6.8% to high 7% or even north of 8% in Q1, the bond market could well tighten for the recalcitrant Fed, which still believes that inflation is transitory and is thus prone to making a 1970s-style policy error.
  • An accelerated “taper” and more talk of bringing forward rate hikes causes an abrupt tightening of financial conditions in the US and a significantly higher dollar, causing recession fears to take hold, especially with no added fiscal stimulus, at which point the Fed reverses course and returns to QE.
  • Inflation proves to be not only NOT transitory in the EU, but persistent, increasing pressure from Germany on the ECB, which is then forced to react, causing a debt shock to the profligate Latin countries, in particular Italy.
  • China’s Zero Covid policy leads to more lockdowns and as a result continuing supply chain issues.
  • Supply-chain issues stay bad or even worsen.
  • China impose export controls to the West on key raw materials and products.
  • India-China Himalayan border skirmish, related to China’s water shortage.
  • China’s growing interest in Siberian water and timber could create some tension between Russia and China.
  • China and Russia fall out due to China’s objecting to arm sales by the Russians to India.
  • China-Taiwan war rhetoric dies down, given the risks to shipping, should a conflict occur. In other words, no tankers would enter the region, particularly non-Chinese tankers. Remember,  food security for Beijing is critical.
  • Morocco gains further economic influence in the Maghreb region. In fact, Morocco is Africa’s grand geopolitical prize, so look for an increase in the regional positioning efforts by the West, China and Russia, along with Turkey.
  • Tensions between Egypt and Ethiopia rise over the latter’s plans to divert water to a massive hydroelectric project on the Nile, which would siphon off critical water supplies to the former, given that the majority of Egypt’s 100 million population live in a narrow ribbon of land along the river and in the Nile Delta region. Russia could well try to take advantage of such and create stress points around the Suez Canal, further affecting global supply chains.
  • Public outcry/riots increases as economic woes and lockdown restrictions increase.
  • Dollar threatens 100DXY and settling range bound 94-97.
  • Debt jubilee rumors increase – both unilateral by the US or in coordination with other G7 countries, except the EU, where the ECB cannot do such.
  • Turkey contagion into EU banks, particularly Spain.
  • Turkey contagion into other EM countries, as EM crises normally come in pairs, which then triggers a broader financial markets crisis.
  • US energy price jump, and European prices move higher again.
  • Desperation sets in for progressives as they look to push policies before midterms.
  • GOP returns to majorities in both House and Senate – our current forecast.
  • Macron loses the election to Pécresse, or even one of the two harder right wingers, Le Pen and Zemmour.
  • Draghi becomes President and his appointed technocratic successor loses the government and early elections are called, which the right (Meloni/Salvini) win. Italian bonds crater, which becomes a problem for the ECB.
  • The same social and economic instability plaguing the US is happening across the world. While politicians play the blame game, certain actors are taking advantage of the disorder to push their interests through politically and economically.
  • Another Arab Spring, as food scarcity becomes a critical problem in the Arab or African regions. This could include Iran  of course.
  • Given the sheer size of the reserves, either the CCP is preparing for something or it is in unadulterated panic mode, fearing not enough foodstuffs to feed the population and subsequently facing social unrest. The simplest explanation is the latter, as it would fit with their modus operandi on the matter. Also, per our point above, we believe that China’s Taiwan war rhetoric dies down, something that was actually seen in Xi’s New Year speech.