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> Every conflict ends diplomatically (including WW2)

WW2 ended with Berlin being captured by the allies and Japan being nuked. How was that a diplomatic end to the conflict?

How about the German Instrument of Surrender [1] and the Japanese acceptance of surrender terms [2]?

[1]: https://en.wikipedia.org/wiki/German_Instrument_of_Surrender

[2]: https://en.wikipedia.org/wiki/Surrender_of_Japan#Occupation_...

Weren't those unconditional? Hell, callong any of the two world wars being ended by dimplomacy is quite a strong argument...

You're trying to draw a distinction that doesn't exist.

The Allies said to Germany they wanted unconditional surrender. The Germans agreed. Various terms were agreed to including the cessation of military operations (on both sides). This is, by definition, a negotiated agreement ie diplomacy.

Putting the highly questionable ethics of the two atomic bombings of Japan aside for a second, these bombings like any military operation are ultimately a negotiation tactic.

By that definition every war ever ends via diplomacy. It makes the claim meaningless.

Can you explain a little bit about what you mean by the "...and really can't" line? Is this just because they lack some of the mechanisms of a true central bank as a shared entity across the eurozone, or something less obvious?

> "...and really can't"

So, a certain level of inflation is actually good. The general benchmark modern developed nations go for is 2-3%. High inflation can cause all sorts of problems even without getting into hyperinflation. Negative inflation ("defaltion") or even zero inflation causes problems too. Just look at Japan over the last 35 years to see this in action. Deflation promotes saving rather than spending such that there is less economic activity and this has a knock-on effect on creating unemployment.

Side note: lack of consumer spending is a ticking time bomb for China thanks to having to fund your own retirement and the demographics caused by the One Child Policy.

So 2-3% is really the sweet spot.

It's also worth noting that countries that run deficits like inflation too as it decreases the real value of their debt.

Central banks can contrl interest rates by setting the benchmark rate. For example, if the Federal Reserve offers 5% for US Treasury bonds (which are considered essentially "risk free") then why would a bank lend a business or you money at less than 5%? It's more risk for a lower return. This is monetary policy.

So as you can imagine if someone can only borrow money at 20% vs 2% it will have an impact on economic activity. That's the point. In the US, high inflation is seen as being driven by demand outstripping supply so interest rates are a crude tool for reducing demand. That's why the Fed has been raising rates.

The eurozone largely has the same inflation problem thanks to energy demand and housing but doesn't have the economic activity driving it. So if the ECB were to aggressively raise rates, the fear is this could cause a deep recession in the eurozone.

So that's what I mean by "they really can't> The eurozone has the inflation but not the economic activity.

I think it's because some of the member states are already heavily indebted with weak economies, like Greece and Italy. A recession caused by monetary tightening may be annoying for Germany or the Netherlands, but very bad for most of the southern European countries.

This.

Italy already pays 1.9 percentage points higher rates than Germany, and has 140% debt to GDP. If the ECB sharply raises rates, then Italy's debt might become unsustainable. The Economist notes: "The country probably cannot tolerate yields on its bonds much above 4%. Around that point, the goals [of the ECB] of price stability and defending indebted countries would become irreconcilable. Should interest rates surge, the euro area would look dangerously frail. "

https://www.economist.com/leaders/2022/06/23/how-fighting-in...

The common explanation is that it will fuck up the countries with a high debt to GDP ratio, like Greece

I was wondering about this too. I'm in Canada and we've been raising our rate even more aggressively than the USA. What is stopping Europe?

Italy and Greece have a lot of debt so raised interest rates means their payments go up a lot more. Since they are part of the euro and can't print their own money they have no easy options.

Well, uncovered interest rate parity would have DEF strengthen not ABC.

There are indeed other mechanisms, e.g., currencies with higher interest rates experiencing higher demand, but that also has limits/doesn't hold strictly etc.

Huh? Say you own DEF. Wouldn't you rather trade it for ABC to gain more interest?

The scenario was presented as follows:

> ABC's central bank has 10% interest rates. DEF's central bank has 1% interest rates. […] You could borrow DEF 1B, convert to ABC, earn 10% interest and then pay it back later. If the exchange rate remains fixed, that would be a risk-free return of 9%.

If you have now 100 ABC = 100 DEF you have the choice of getting in 1 year 110 ABC or 101 DEF. If ABC depreciates against DEF and in one year 1 ABC = 0.918 DEF both choices become equivalent.

Would you really go into "broken currencies" with high interest rates, for example?

The carry trade in FX, i.e., borrow in low yielding currency invest in high yielding currency is a classic trade, but it is not risk free. FX can move against you.

Basically, uncovered interest rate parity says that the interest rate differential creates an offsetting effect in the FX rate. Empirically, that is a bit shaky/doesn't always manifest, there are debates on time horizon, etc., though. In short, FX not easy to predict.

> This is a temporary situation

You're quite optimistic. I fear this is a 1930 moment. By the end of the decade we might have a Nazi Russia, WW3, North Korea attacking the South, China taking advantage of the situation and invading Taiwan. Japan remilitarising and maybe becoming a nuclear power.

> Nazi Russia

I'm not sure if you're talking about Putin or after Putin. Putin is an autocrat in all but name already. It's unclear whta'll happen to Russia when Putin inevitably dies. It could plunge into chaos, which is a big risk of any cult of personality.

But Ukraine has revealed that Russia's military is a paper tiger. Russia too is in decline (demographically).

> WW3

So if we actually have nuclear war between major powers, it's over. There's really no point worrying about this happening because it's unlikely you can impact this outcome so you'll be better off just assuming it won't happen.

> North Korea attacking the South

I don't fancy their chances. Sure NK has a large standing army but they can barely feed themselves. Kim Jong-Un isn't an ideologue. If anything, he's Saddam Hussein, which is to say he's motivated by his material reality rather than, say, any kind of fundamentalism. Kim likes his luxuries. Attacking the South would invite his own personal ruin. The only way I see this as realistic is if NK will otherwise collapse. Is a collapsing NK really that much of a threat? I mean they could cause a lot of people to die but could they succeed? I somehow doubt it.

Remember too that NK only really exists because China wants it to exist. China, like any major power, likes having buffer states between it and other major powers. The US is no exception here either. The US almost started wW3 over Cuba after provoking the USSR (ie Jupiter MRBMs in Turkey).

China doesn't war on th eKorean peninsula. China likes things the way they are. Just how long would NK survive without Chinese support?

Side note: it has been a huge failure of US foreign policy not to consider that Putin too would want a buffer to NATO.

> China taking advantage of the situation and invading Taiwan

What'll eventually happen with Taiwan is a big open question. China knows what a shitstorm it would be to invade. Success isn't guaranteed either. A small body of water can be a huge barrier to even large militaries. Only 17 miles separates England and france at the closest point and Nazi Germany could never cross it and invade. Had there been a land bridge, the UK would've absolutely fallen in 1940-41. No one has successfully invaded England by sea since 1066.

> Japan remilitarising and maybe becoming a nuclear power.

Japan is a declining power due in large part to demographics. Japan is a bit like the UK in that it is highly dependent on imports. It also has a major power in the form of China as a direct neighbour. I really doubt Japan is the will or even the means to become a major military power.

I'm honestly way more concerned about the rise of fascism in the United States than anything you mentioned.

> But Ukraine has revealed that Russia's military is a paper tiger

Russia has lost the blitzkrieg but gained ground in Donbass through regular warfare. They are throwing USSR era resources into the battle and haven't even issued a general mobilisation order. When China is going to sell them computer chips, they will have the resources to build guided missiles and ICBMs. I'm afraid they are not quite the paper tiger that the Western press is painting them to be, nor the 'glorious' USSR. I hope this war would end up like Afghanistan for Russia, further weakening it and leading to yet another break up. But it might end up like Chechnya.

China is showing a unwillingness to really help Russia in any meaningful way, because they likely fear the ire of sanctions as well.

I don’t think much can help Russia at this point in time it’s really just a matter of time till they run out of steam, it is Afghanistan all over again.

>Japan is a declining power due in large part to demographics.

I mean, if you're calling Japan a declining power due to below-replacement birth rates, then every industrialized nation, including Russia and the US, is a declining power.

> Putin may be hoping a European winter (where the effects of an energy shortage will be more pronounced) will sway the odds in his favor.

Global warming. Checkmate, Putin.

Winter is coming.