The world is exiting a period of unipolar US hyperpower, which peaked in the late 1990s. The shift toward a multipolar world is gradual but ongoing, with the US share of influence declining across multiple domains. The battle over the Middle East is a symptom of this transition, as empires rarely give up projection capabilities easily.

This framework is based on metrics like education quality (a leading indicator) and global reserve currency status (a lagging indicator due to network effects). The two biggest poles are the US and China, with Europe's pole shrinking.

The breakdown in gold's correlation is due to multiple factors: 1) Pre-existing parabolic price action made gold volatile to the downside. 2) In a crisis, entities sell what they can (gold for liquidity), not what they want to. 3) Bitcoin, which had already deleveraged, is acting as an alternative portable store of value.

Gold had an unusually strong rise in the year prior, hitting price targets and losing its asymmetry. Bitcoin was already washed out before the crisis, so its price action is different.

The economy can function on $150 oil after a period of friction, as it is not an inflation-adjusted all-time high. However, once oil gets well into the $200+ range, things start breaking down. The US economy is already in a K-shaped recovery, and higher gasoline prices put immediate pressure on lower-income consumers.

The US economy is more resilient than many bears think due to large fiscal deficits and high-income spending. However, developing countries like Egypt are already facing severe pain, such as rolling power outages due to higher natural gas import bills.

Supply-driven inflation from energy spikes is generally less persistent than demand-driven inflation from money supply growth. If the war is resolved without a massive increase in money supply, the energy price spike should mostly revert to baseline. The persistent inflation we already have is from the 2020-2021 money supply spike.

The 2022 energy price spike gave less persistent inflation effects. A permanent increase in prices would require a new stimulus to help people pay for energy, which would increase the money supply.

The Iran conflict narrows the difference between Powell and Worsh, as it ties the Fed's hands. Worsh would likely be slightly more dovish, but cutting rates during an energy-driven inflationary spike would be historically unusual and require convincing other FOMC members. The Fed is likely in a holding pattern.

The FOMC has 12 voting members, so the chair is not a dictator. As long as unemployment remains low, the Fed will be constrained from cutting rates regardless of who is in charge.

The conflict is a positive development for Russia, as energy prices are higher and sanction pressure is less. It is negative for China, which benefits from stability and cheap energy, though China is resilient. Europe is significantly negatively impacted.

The vast majority of Persian Gulf energy heads east to China and Asia. Natural gas is the least fungible energy market, leading to persistent pricing spreads.

Food inflation is a significant risk if the conflict is prolonged. Fertilizer inputs come from the hydrocarbon industry. Food inflation is the most damaging type, as it can lead to social unrest in developing countries and squeezes lower-income consumers in developed ones.

Farmers are currently squeezed by higher fertilizer costs without correspondingly higher crop prices. This situation will resolve either through lower input costs or higher crop prices.

Vulnerable emerging markets (energy importers) are at risk of currency depreciation and rationing. They are more likely to lock in permanent inflation because they are more likely to have a money supply spike after the crisis. A decent chunk of this risk is already priced in.

Egypt is an example, where the pound weakened and the government is planning for rationing. Wealthier European buyers outbid poorer countries for scarce energy.

Private credit has issues due to rapid growth and loose lending standards, but the contagion risk to the US banking system is low. Banks have lent ~$1.9 trillion to non-deposit financial institutions, but this is only 7-8% of total bank assets. Losses would have to be massive before hitting banks' capital buffers.

The bigger risk is that high energy prices pop other bubbles, similar to how high energy prices led to the subprime crisis. However, the US banking system is not as vulnerable as it was in 2007-2008.