Raising interest rates in the US causes direct pain domestically but causes chaos in emerging markets as capital floods out, and a cynical actor can deliberately exploit this cycle to make emerging market assets crumble and then swoop in to buy them at pennies on the dollar, showing how interest rate policy is a tool of geopolitical power projection that operates through capital flow manipulation.

Globalization was a 40-50 year aberration in human history; the long run of history shows that international trade and relations have been based on protectionism and mercantilism, where one country runs a trade surplus, controls the value chain, extracts cheap commodities, adds value to them, and captures the juicy end of the profit curve while others remain poor.

People in markets are exhausted with geopolitical headlines and difficulty computing the magnitude of changes, so they are switching off and refusing to trade or price in geopolitical risk until they see concrete evidence on their desks, causing the market to lag enormously and setting up for dramatic repricing when it finally realizes the shifts are real and not just noise.

After the Cold War ended with America's victory through a carefully ring-fenced economy, the US transitioned to a true global economy for the first time, but this system was destined to fail because deregulation meant immediate winners and losers within every economy (rich getting richer, poor relatively getting poorer) and between countries (mercantilist countries like China, Japan, Germany winning while deficit-running countries losing), making breakdown inevitable.

Vice President Vance is attempting to affect political change in Germany by criticizing German censorship of speech, suggesting that America questions whether it should defend countries with illiberal policies, using geopolitical leverage to influence domestic governance choices.

Russia has been injured by the Ukraine war in terms of relationships with other players globally but has gained territory in Ukraine, may emerge with new territory, and if readmitted to the G7/G8 by the Trump administration appears to be achieving some degree of geopolitical rehabilitation despite losses.

Economic policy and statecraft are fundamentally different: economic policy uses tools like interest rates to achieve technocratic economic targets like low unemployment or 2% CPI, while statecraft uses the same tools to achieve foreign policy, national power, and national interests, which are completely different objectives and often contradictory.

Central banks were historically created specifically to finance war and project national power (the Bank of England was established to finance war with France against Napoleon), not for technocratic monetary policy as currently presented, and this original purpose of using monetary policy as a statecraft tool is re-emerging.

Industrial policy is re-emerging in Europe and elsewhere as countries recognize they need state-directed investment in critical sectors, exemplified by the UK's British Business Bank (a state-owned investment bank) directing capital to critical sectors rather than letting markets allocate capital.

A sovereign wealth fund model can be implemented in the US by leveraging unmoneized federal assets, borrowing against them, and deploying the capital into areas of national security importance that markets won't fund themselves, creating a multiplier for the broader economy through increased tax revenue.

Evy uses the term 'fart craft' (using financial system to make money from money) to describe the process of leveraging federal assets up to create capital pools for warcraft (building actual national security capabilities), showing how financial engineering serves geopolitical objectives.

Europe's dilemma is existential: it lacks a strong central government or military and relies on American protection, so it must choose between autonomy (spending heavily to rearm independently) or dependency (accepting American dictates on defense and payments), and markets are currently pricing this existential risk as if it doesn't exist.

Canadian sovereignty and independence may be increasingly questioned if America views Canada as strategically necessary for North American security, particularly given Arctic importance, similar historical patterns of imperial protection turning to absorption, and Canada's relatively small economic and military power compared to the US.

America could offer Canada economic incentives including significant investment in east-west corridors within Canada (via sovereign wealth funds), favorable trade deals, and military protection in a formal alliance, making integration attractive rather than purely coercive, though such carrots are currently not on the table.

As America embraces mercantilism and everyone globally sees this working, other countries are forced to adopt the same playbook because there's no viable alternative; Europe is now pursuing industrial policy with Buy European provisions and attempting to control upstream critical commodity supplies in third countries, a move toward mercantilism driven by competitive necessity.

The mercantilist principle of controlling commodity sources and the value chain is true because if you secure cheap commodity inputs, you can sell products more cheaply than competitors or at higher profit; but if commodity sellers sell at high prices, everyone else faces inflation, making commodity source control essential to mercantilism—an advantage that Marx theoretically denied but which is practically true.

The most likely long-term resolution to universal mercantilism is a negotiated return to spheres of influence with territorial carve-outs negotiated bilaterally (like Cold War cocktail napkin deals), where countries rearm heavily to maximize their negotiating position and then settle on mutually acceptable spheres rather than engage in actual military conflict.

If countries were stocks, Evy would be strongly buying the US and strongly shorting both Europe and China given current geopolitical trajectories and uncertainties.

A cynical reshuffling of winners and losers rather than fundamental system change could occur: existing corporate elite is displaced in favor of a new elite closer to Trump administration (e.g., Elon Musk), similar to what happens in emerging markets when a new faction takes power.

The Federal Reserve currently claims to be on hold and doesn't know what's happening geopolitically, is still studiously apolitical despite obvious political implications, and may see governance rotation to new Fed governors in the coming years who are more aligned with statecraft objectives than with traditional central banking independence.