Why Trump's Tariffs Won't Crash the Crypto Market

Prominent German economist Moritz Schularick, president of the Kiel Institute for the World Economy, has suggested that Germany’s path out of its economic slump lies in a pivot toward a war economy, signaling a striking embrace of central planning over market principles.

A Call for a Centrally Planned Arms Industry

In an interview with the Neue Osnabrücker Zeitung, Schularick identified a leadership vacuum in German arms policy. He framed a state-directed industrial policy focused on weapons manufacturing as the solution to Germany's economic challenges, even calling increased arms production a potential "job booster."

Moritz Schularick, president of the Kiel Institute for the World Economy, has advocated for a centrally managed arms production push.

His argument is rooted in geopolitical strategy. "If we want Europe to truly stand on its own in defense soon and not remain dependent on the MAGA-USA," Schularick stated, "then Defense Minister Boris Pistorius must be given the order to work with European partners to eventually replace the USA and its capabilities."

This rhetoric of "orders to march" and military self-sufficiency reveals a dangerous convergence between politics and state-aligned economic research. Instead of advocating for deregulation and lower taxes to cure economic ills, the focus has shifted to centrally managed industrial policy.

Schularick proposes a top-level arms coordinator to manage investment funds, citing the Russian threat as justification. With over €500 billion in defense investments planned by the end of the decade, the goal is to reduce Germany's security dependence on the United States.

The Problem with Production Capacity

A key frustration for Schularick is the slow pace of ramping up arms production. He notes that four years into the war, little has been done to significantly boost manufacturing capacity.

"How many Taurus missiles are finished per month? Not even a handful," he lamented, diagnosing this as a clear deficit in industrial policy.

This perspective highlights a new trend in German economic thinking, where state-aligned research champions an active industrial policy directed by Berlin and Brussels. Central planners like Schularick appear to believe that idle German industrial capacity can simply be repurposed for the defense sector. The assumption is that civilian car production can be easily converted into tank production.

However, this approach creates a new subsidy-dependent industry that pulls resources from civilian manufacturing, produces goods not demanded by private households, and artificially inflates costs for consumers.

The Illusion of a State-Directed Boom

Schularick seems to find a "rediscovered" work ethic in the prospect of a war economy, noting that arms production still operates on a single-shift, five-day work week. The implication is that these state-directed jobs represent Germany's economic future.

Yet, this vision overlooks critical questions. Little thought is given to what civilian goods should be produced to prevent empty shelves during a potential conflict. Schularick acknowledges that Germany has fallen behind not just in producing armored vehicles but also in future technologies like autonomous systems, satellites, AI, and robotics.

The interview fails to address the source of this competitive disadvantage. The possibility that burdensome German policy and Brussels bureaucracy are the primary antagonists is seemingly ignored. This reveals a growing gap between economic reality and the insulated world of politics and state-backed research, which promotes massive economic mismanagement while failing to critically assess Russia's actual military capabilities.

Historical Lessons and Political Realities

The practical challenges of converting civilian production lines to military manufacturing are immense. Beyond financing, the knowledge transfer required to build a centrally planned war economy is a massive and time-consuming undertaking. Germany's political learning curve appears flat, even after decades of a green transformation that primarily succeeded in driving capital out of the country.

This raises a cynical question: Was the goal of restrictive climate policies to corner industry until it faltered, only to fill the resulting capacity with arms production?

As the climate subsidy model fails, a new one appears to be emerging: the European defense sector. Whether this experiment can survive real-world economic pressures like falling productivity and rising debt is highly doubtful.

No deep economic expertise is needed to see that such a militarization strategy is likely to fail. A brief look at 20th-century history reveals the pitfalls of massive resource mismanagement under central planning. Furthermore, modern obstacles include issues of national sovereignty, divergent geopolitical interests within the EU, and a divided union in which Eastern European nations are wary of conflict with Russia.

When economists like Schularick champion the logic of powerful central planning, it suggests a departure from sound economic principles. The allure of high-level positions, such as a ministerial-level arms coordinator, may be a powerful incentive, but it risks leading the economy down a path of short-term ambition and long-term failure.

China is deliberately concealing its nuclear doctrine as a cornerstone of its national strategy, a policy that dramatically increases the risk of a global nuclear catastrophe. This approach marks a stark departure from the norms established during the Cold War.

Despite their intense rivalry, the United States and the Soviet Union worked to maintain open channels regarding their nuclear arsenals. Both superpowers understood the need for clear communication and a mutual understanding of each other's intentions. This cooperative framework was crucial in preventing multiple crises from escalating into a full-scale nuclear exchange between 1945 and 1991.

Today, the People's Republic of China (PRC), a rapidly growing nuclear power, has rejected this model of transparency. Beijing seems intent on keeping the U.S. and the international community in the dark, not only obscuring its true nuclear capabilities but also neglecting basic crisis-management tools like a direct military hotline with Washington.

A Deliberate Strategy of Ambiguity

Beijing's refusal to let the West understand its nuclear capabilities—and therefore its intentions—is a calculated strategy rooted in the ruling party's obsession with secrecy. This opaqueness has already had major geopolitical consequences.

One significant outcome was the Trump administration's 2019 decision to withdraw from the 1987 Intermediate-Range Nuclear Forces (INF) Treaty with Russia. The move was less about hostility toward Moscow and more a response to a critical strategic imbalance: China was never a signatory to the treaty and faced no restrictions on its missile development.

Freed from the INF Treaty's constraints, the Chinese military aggressively developed and deployed a vast arsenal of advanced intermediate-range ballistic missiles (IRBMs). This unchecked expansion created a significant threat to U.S. military assets and allies across the Indo-Pacific.

In recent years, Western intelligence has uncovered a massive construction campaign for new nuclear missile silos. These findings have fueled concerns that China's nuclear arsenal is far larger than previously assessed by U.S. intelligence agencies.

Blurring Lines with Military-Civil Fusion

China's strategy of concealment extends to its operational forces. Recent evidence suggests that mobile nuclear missile launchers are being disguised to look like civilian construction cranes.

Specifically, transporter-erector-launchers (TELs)—the massive trucks used to move and fire China's Dong Feng series of ballistic missiles—are being camouflaged with external covers and markings to resemble equipment from Zoomlion, a major Chinese construction company.

This tactic is a clear example of China's "military-civil fusion" (MCF) program, which aims to seamlessly integrate its military and civilian sectors. The strategy serves two purposes:

• It allows Beijing to marshal national resources for a single grand strategic objective.

• It confuses American adversaries, who maintain a clear separation between their military and civilian domains.

How Miscalculation Can Trigger Nuclear War

This systematic deception exponentially raises the risk of miscalculation during a major geopolitical crisis. If U.S. intelligence cannot accurately assess the capabilities and intentions of China's nuclear forces, and if no reliable communication channels exist, American leaders would be forced to assume the worst-case scenario.

Acting on worst-case assumptions during a nuclear standoff is a nightmare scenario. The combination of Beijing's aggressive rhetoric, its refusal to communicate, and its efforts to mask its nuclear forces suggests it may be developing a first-strike capability, a departure from a purely deterrent posture.

Given these developments, Washington must prepare for such contingencies. This reality underscores the importance of proposals like the Trump administration's call for a "Golden Dome" national missile defense system.

At the same time, any calls to dismantle portions of America's nuclear arsenal appear increasingly dangerous. The U.S. arsenal is aging, and its size may no longer be sufficient to deter multiple adversaries. Instead of reductions, a strategic expansion of American nuclear forces, not seen since the Cold War, may be necessary to ensure stability.

Ultimately, unless Beijing and Washington establish a crisis-management framework similar to the one that prevented catastrophe between the U.S. and the Soviet Union, the world faces the real possibility of its first nuclear war—an event that would undoubtedly be the final conflict of our time.

Major financial institutions, including Morgan Stanley and Citigroup, are revising their forecasts to predict more aggressive Federal Reserve rate cuts in 2026. This shift reflects a growing consensus on Wall Street that as economic momentum cools, the central bank is preparing to ease monetary policy.

The updated outlook is driven by a combination of weaker economic data and anticipation of new leadership at the Federal Reserve. With President Trump set to nominate a new Fed Chair, analysts are reassessing how quickly policymakers might pivot to support economic growth.

Morgan Stanley Adjusts Its Timeline

Morgan Stanley now projects a total of 50 basis points in rate reductions for 2026, delivered through two separate 25-basis-point cuts. The bank has pushed back its expected timing for these moves from January and April to June and September.

This adjustment signals a degree of caution regarding near-term inflation, even as signs of an economic slowdown become more apparent. Morgan Stanley’s forecast suggests the Fed will likely wait for clearer economic signals before taking action.

Citigroup Calls for Deeper Easing

Citigroup has adopted a more dovish stance, now forecasting 75 basis points of cuts in 2026. The bank anticipates three 25-basis-point reductions occurring in March, July, and September.

This outlook places Citigroup at the more aggressive end of the spectrum among major banks. It indicates a heightened concern about growth risks and a strong conviction that inflation will subside enough to justify earlier and more substantial rate cuts.

A Broader Consensus Forms Around Easing

The move toward expecting more rate cuts is not limited to Morgan Stanley and Citigroup. A broader Wall Street consensus has emerged, with several key players aligning their forecasts.

Major banks now projecting 50 basis points of total cuts in 2026 include:

• Goldman Sachs

• Bank of America

• Wells Fargo

• Barclays

While specific timelines vary between institutions, the general agreement on policy easing marks a significant shift from earlier expectations.

Data and Politics Drive the New Outlook

The revised forecasts are shaped by two primary factors. First, recent jobs reports have been weaker than anticipated, fueling concerns about slowing economic activity. However, persistent inflation remains a complicating variable, leading some analysts to believe the Fed may pause in early 2026 before initiating cuts.

Second, political dynamics are playing a key role. Wall Street widely expects that a new Fed Chair appointed by President Trump could be more inclined to favor lower interest rates. This view aligns with comments from Treasury Secretary Scott Bessent, who has emphasized the need to reduce borrowing costs.

Where Interest Rates Could Land

Based on these projections, the federal funds rate is expected to settle into a neutral range of approximately 2.75% to 3.25% by the end of 2026. Whether the Fed ultimately delivers two or three cuts, the message from Wall Street is becoming increasingly unified: the next major policy move will be downward.

Russia’s Foreign Ministry has issued a stark warning that any deployment of troops from NATO countries onto Ukrainian soil would be considered an act of foreign intervention, making them legitimate military targets. The statement follows a renewed push by Ukraine and its Western allies to establish a framework for such a deployment as part of a potential peace arrangement.

Moscow's Red Line: A Direct Threat to Security

Russian Foreign Ministry spokeswoman Maria Zakharova delivered the message, clarifying that Moscow's position covers more than just soldiers. "The deployment of military units, military facilities, warehouses, and other infrastructure of Western countries on Ukrainian territory will be classified as foreign intervention," she stated.

Zakharova emphasized that such a move would pose "a direct threat to the security of not only Russia but also other European countries." She concluded with an unambiguous threat: "All such units and facilities will be considered legitimate combat targets of the Russian Armed Forces."

The UK-France Pact Fueling Tensions

The Kremlin's sharp rhetoric comes in direct response to a "declaration of intent" signed by the United Kingdom and France, which commits both nations to lead a future troop deployment in Ukraine.

Figure 1: Ukrainian President Volodymyr Zelensky, French President Emmanuel Macron, and British Prime Minister Keir Starmer sign a 'declaration of intent' in Paris, establishing a framework for potential troop deployments.

British Prime Minister Keir Starmer described the agreement as paving "the way for the legal framework, under which British, French and partner forces could operate on Ukrainian soil." However, the document currently lacks specific details on the composition or mission of such a force.

"Coalition of the Willing" and US Involvement

The declaration was finalized after a meeting in Paris between Starmer, French President Emmanuel Macron, and Ukrainian President Volodymyr Zelensky. The gathering was framed as a meeting of the "coalition of the willing"—a term for countries open to sending troops to Ukraine. US envoy Steve Witkoff and President Trump's son-in-law, Jared Kushner, were also in attendance.

While the United States has not committed to sending its own troops, it has signaled a willingness to provide air support and other forms of assistance to European forces deployed in Ukraine. Zelensky's office confirmed this, stating that Ukraine "values the United States' readiness to support forces tasked with preventing a recurrence of Russian aggression."

Peace Prospects Dim as Confrontation Looms

Despite some calls within the EU for a greater focus on diplomacy, the path toward a negotiated settlement appears increasingly blocked. The likelihood of a lasting peace deal remains extremely low due to several key factors:

• The continued insistence by Western powers on deploying troops to Ukraine.

• The willingness of the U.S. to provide "NATO-style" security guarantees for the country.

• President Zelensky's steadfast refusal to cede any Ukrainian territory to Russia.

Governments in the US, UK, and Japan have recently fallen over public anger at the rising cost of living. Now, events unfolding in Iran show that authoritarian regimes are not immune to the political fallout from soaring inflation.

Protests ignited in Tehran late last month after the Iranian rial collapsed to a record low, driving up the price of essential goods. The demonstrations, fueled by an economic crisis deepened by global sanctions, have since spread nationwide. In response, Iran's religious and military leadership has threatened to crack down on what they label "rioters."

The Islamic Republic is no stranger to public dissent. In 2022, women led massive demonstrations against their treatment following the death of a young woman in custody. The 2009 "Green Movement" protests over the disputed re-election of President Mahmoud Ahmadinejad were the most severe unrest since the 1979 revolution.

Historically, Supreme Leader Ayatollah Ali Khamenei and the Islamic Revolutionary Guard Corps (IRGC) have suppressed these movements, often violently. This time, however, two crucial factors make the situation different, leading one expert to predict significant change is on the horizon.

Dina Esfandiary, who heads Middle East geoeconomics for Bloomberg Economics, forecasts that the Islamic Republic "is unlikely to survive in its current form" through the end of 2026. While change seems inevitable, its ultimate form remains an open question.

The Economic Collapse Fueling the Uprising

The primary difference in today's protests is the dire state of Iran's economy. After years of sanctions, the financial situation has deteriorated dramatically.

The rial has lost approximately 40% of its value, which has helped push year-on-year food inflation to an estimated 70%, according to Gavekal Research. This crisis is compounded by years of drought and poor water management that have crippled domestic food production.

The economic pressures on ordinary Iranians and businesses include:

• Protracted power cuts

• A weak job market, with one estimate putting labor force participation at just 41%

This challenging environment has caused many small and medium-sized businesses to collapse. Esfandiary notes that enterprises connected to the IRGC are attempting to fill the void, concentrating economic power.

As poverty spreads, so does resentment toward the politically connected elite who remain insulated from the crisis. Tom Holland, deputy global research director at Gavekal, observed that "broad swathes of the population" have now united to demand political change. In a telling sign of eroding support, even Tehran's Grand Bazaar—a traditional bastion of conservative government backing—has been on strike for nearly two weeks.

A Weaker Iran on the World Stage

The second key factor is Iran's diminished geopolitical standing. The regime's influence in the region has been significantly weakened by several recent events. Last year, the ouster of Syrian President Bashar al Assad ended a crucial alliance for Tehran. Furthermore, Iran's allies Hezbollah in Lebanon and Hamas in Gaza have been bombed and degraded.

More directly, a two-year exchange of fire between Israel and Iran culminated in a surprise American attack on Iran's key nuclear facilities last June. President Donald Trump has continued to threaten more action, including offering support to the protestors. Esfandiary argues that regardless of the credibility of Trump's threats, the Iranian government now faces a real possibility of external conflict.

Four Scenarios for Iran's Future

If the current system is indeed unsustainable, what might replace it? Esfandiary outlined four potential outcomes.

She assigns a low probability to either an outright collapse of the government or a genuine reform program that addresses public grievances. This leaves two more likely scenarios: the system remains in place but with different leaders at the helm, or a military coup led by the IRGC.

Another major variable is the health of the 86-year-old Supreme Leader, Ayatollah Ali Khamenei. His death would trigger only the second succession process since the Shah was overthrown in 1979.

"The difference this time compared with last time is the IRGC is much more prevalent," Esfandiary said. "There is no scenario in which the next supreme leader doesn't work very closely with the IRGC."

While these outcomes may not be promising for advocates of democracy, they could still lead to a form of rapprochement with Washington, marking a significant evolution in the complex history of US-Iran relations.

Gold has surged back to record territory, erasing its late October losses and closing December at an all-time high. The precious metal capped its best year since 1979, fueled by a 64% rally in 2025 and an astonishing gain of nearly 140% since the beginning of 2023.

According to strategists at UBS led by Giovanni Staunovo, the new records were driven by a confluence of factors, including "demand for real assets amid USD weakness, geopolitical tensions, institutional uncertainties, and low seasonal liquidity."

The Fundamental Case for More Upside

Despite the powerful rally, UBS analysts believe the underlying fundamentals support further gains for gold in 2026. They point to a significant drop in U.S. real interest rates, which represent the opportunity cost of holding non-yielding assets like gold. These rates are now at their lowest point since mid-2023, making gold a more attractive investment.

With this backdrop, the bank remains bullish on gold and recently increased its March 2026 price target to $5,000 an ounce.

"We think gold's role as a diversifier and hedge is undiminished," the strategists noted. "For investors with an affinity for the asset class, we think a mid-single-digit allocation to gold can fit in a diversified portfolio."

Geopolitics and Structural Demand

Recent world events have underscored gold's defensive appeal. UBS highlighted the market reaction following the unexpected U.S. military capture of Venezuelan President Nicolas Maduro. On the day of the news, gold and silver prices climbed 2.2% and 4.3% respectively, while Brent crude oil fell 1.3%.

Beyond short-term shocks, long-term demand trends provide a solid foundation for prices.

• Central Bank Buying: UBS expects central banks to purchase between 900 and 950 metric tons of gold in 2025, just shy of the previous year's record.

• Global Demand: Total global gold demand is forecast to hit approximately 4,850 metric tons, which would be the highest level recorded since 2011.

Rising Government Debt as a Tailwind

Adding to the bullish outlook is the sharp rise in government debt across advanced economies. According to the International Monetary Fund, this debt is projected to reach about 110% of GDP this year, a steep increase from roughly 75% two decades ago. The IMF forecasts this figure will climb further to 118% by the end of the decade.

This trend continues to reinforce interest in gold as a reliable store of value in an environment of increasing fiscal pressure.