As the global economy continues to deteriorate along with the individual sovereign economies and regions that make it up -- especially the largest among them, China, Europe and Japan -- the prospect for war as the last best policy prescription to respond to it grows.
The 18th and early 19th century Prussian General, Carl von Clausewitz, is famous, among other things, for his statement, "War is merely the continuation of policy by other means."
It's important to note that at the time he made this and other observations concerning war and politics, economics was still not yet a field of study separate from politics and governing. That would not happen until much later in the 19th century, when the study economics as a field independent of political economy began.
When von Clausewitz offered that observation, it was inclusive of the idea that war is economics by other means, not simply an extension of diplomacy.
In the past several years I've written numerous columns concerning the terminal economic path that Japan is on. Most notably, I explained why Japan was insolvent and why Abenomics would fail to reignite growth there.
As the Japanese government contends with the issues I wrote about in those columns and the reality that there are no domestic economic policy tools left, the leadership there is preparing for war as the next policy tool.
The same failures of domestic economic policy affecting Japan are being felt in China, as I've also written numerous columns on over the past several years. Most notably I discussed the terminal debt growth in China that has occurred as the country has sought to transition to a developed status.
As the Chinese government begins to exhibit an understanding of the ramifications and consequences of an inevitable debt collapse there, it, too, is preparing for war with its Asian neighbors by way of military expansion throughout the contested islands in the East and South China Seas.
These same issues are playing out throughout Europe, as is most evident in the deeply negative interest rate regime in Switzerland and the continuing failure of monetary stimulus by the European Central Bank to catalyze growth in Europe.
Although the U.S. Federal Reserve just provided the first rate hike in a decade and is telegraphing its intention to continue the process, the justification for doing so is very weak, and if the deterioration in real economic activity continues, the Fed may be pressured to reverse course.
Bizarrely, it appears that the Fed has attempted to pre-empt such pressure by acknowledging that it is aware of the immediate negative economic trajectory, as was evidenced by the last sentence of the first paragraph of the last Federal Open Market Committee statement:
"Market-based measures of inflation compensation remain low; some survey-based measures of longer-term inflation expectations have edged down."
In other words, they are aware of the near-term negative trajectory for economic activity, but their model is predicting an imminent reversal of it.
The record of the FOMC members in this regard is very poor, as I addressed in the columns, "Internal Battle Brews at the Fed" and "Division in the Fed Camp Undermines FOMC Credibility."
The dismal record of FOMC members with respect to anticipating real economic activity and managing monetary policy accordingly was also one of the principal motivations behind the Fed staff economists making their "nowcasting" models public, as I discussed in the column, "The Rise of 'Nowcasting' Economic Activity."
Although the FOMC members are of the opinion otherwise, the most logical trajectory for the U.S. is that its economic activity will be greatly hampered by the growing recessionary and deflationary forces globally.
If that indeed does occur, the traditional monetary and fiscal measures that government leaders globally have come to rely upon as countercyclical measures to thwart economic contractions will be largely exhausted for all of them simultaneously.
That doesn't mean that a large-scale global conflagration is imminent, but the indicators of the potential for such are growing since I last addressed the specific issue three-and-a-half years ago in the column, "War as Economic Policy."
The largest countries in the world are increasingly relying upon militarization as an economic stimulus.
Unless that stimulus succeeds in providing the catalyst for economic growth that has eluded the traditional financial measures, the last stimulus measure will be to put the resources built up militarizing to work.
