Germany may be in for a cold winter.

Issue #4 - The War Between Financialization & Reality

Macroeconomics Oct 26, 2022

Welcome to the latest issue of The Qi of Self-Sovereignty. The newsletter exploring what it means to be free in an increasingly not-so-free world.

Whether you're looking to locate your authentic self or investigate sovereignty, you're in the right place! Each week, with just a few minutes of reading, I aim to expand your awareness through a quote and a piece of content that made me go hmm...

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Thought-Provoking Quote:

"Those who impose something on us are not in a position today to dictate their will to us…. I'm talking about the West's sanctions fever." - Vladimir Putin

Regardless of one's views on Russia, the world is at a turning point.

I'm sure most of us have experienced a tumultuous relationship at some point or another—one where we are unable to see things clearly until post-breakup.

I believe that globally we are in one of those tumultuous moments. We, the West, cannot accept that reality is not quite as it seems.

When we combine financialization and the ESG movement, we have a recipe for disaster.

First, for those not familiar with these terms:

  1. ESG (Environmental, social, and governance) refers to a set of "socially acceptable" standards for companies to follow and is used by investors to evaluate possible investments.
  2. Financialization is the process by which financial institutions, markets, etc., become more significant and influential.

In an attempt to window dress and appease fellow leaders, Western nations are naïvely outsourcing their energy from foreign countries that don't follow this ESG narrative rather than producing domestically.

This window dressing, on top of governments who believe the path to prosperity is through:

a) the outsourcing of manufacturing to developing nations

b) the financialization of everything

Will soon realize that true value is not created through financialization. Instead, value is derived from commodities and real assets. Which.... are in short supply. No matter how much governments intervene or central banks print money, they can't create commodities and real assets out of thin air. But that doesn't stop them from trying.

As it stands, governments are rapidly inhibiting traditional means of energy production while at the same time intervening with greater amounts of monetary intervention. If we step back and look at simple supply and demand, when demand outstrips supply, prices must rise until the equilibrium between supply and demand is met. Unless we change tact, there's only one direction for energy prices to go, and that is up.

I'm going to use a meme for summarising global events.

To comply with ESG standards, countries like Germany have been shutting down nuclear power plants and outsourcing energy from nations such as Russia. Germany has consciously removed its own teeth, opening itself up to the wolf that is Russia.

Insightful content which made me go, hmm...

While contemplating this conundrum between ESG, financialization and real assets, it just so happens that a post along the same lines appeared in my inbox, "OPEC's Counterattack" by Kuppy.

*For the financially inclined, I highly recommend following this phenomenal newsletter.

To summarise Kuppy's thoughts:

Investors don't want to sink capital into traditional energy as it exposes them to "constant threats of excess profits taxes, carbon taxes, expropriation and price caps."

As a result, we face energy supply shortages with the reduction in traditional energy investment.

The obvious solution is to make energy investment again favourable. But since woke culture has cancelled that, "the Fed (Federal Reserve) has been forced to embark on a plan to reduce global energy consumption."

The Fed now has to ask itself, how do we reduce oil consumption? Their conclusion, based on their actions of raising interest rates, seems to be to plunge the world into depression.

Kuppy then goes on to say, "Naturally, most global citizens do not want a lower standard of living so that US consumers can continue their orgy of excess."

In response, OPEC, the Organization of the Petroleum Exporting Countries, recently decided to cut oil output by 100,000 barrels per day.

The Fed is now backed into a corner. If they raise interest rates, strengthening the USD and materially impacting the rest of the world, OPEC has shown they'll respond by cutting oil production, causing oil prices to rise, and putting pressure on the global economy and, thus, the Fed.

As Kuppy puts it,

"the message is clear—the Fed can crash global GDP in their fight against oil, but OPEC wields a much larger stick and will cut production even faster."

To end, I am going to leave you with a question, who do you think will win?

a) The nations that control the monetary printers and interest rate levers.


b) The nations who control the commodities and real assets.

I am sure you can guess my answer based on this post. In the future, I believe we will look back on this period in awe as to how we responded. Hopefully, nations will realize that sovereignty is not only important on a personal level but also on the nation-state level.

Thanks for taking the time to read this issue of The Qi of Self-Sovereignty. I hope you found it insightful.

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The future is bright!