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Michele Bullock knew her crisis would arrive, eventually.
As the Reserve Bank of Australia governor told a Committee for Economic Development of Australia event in Sydney on Tuesday, her predecessors all had their big moments when “something went pear-shaped” – the bursting of the dotcom bubble for Ian Macfarlane, the global financial crisis for Glenn Stevens and the pandemic for Philip Lowe.
Michael Every says Trump’s big agenda may still be underestimated by many in markets. David Rowe
Bullock finds herself fighting a new wave of global inflation that is being driven by a war being fought 12,910 kilometres from Martin Place. “I think it is pretty much the world we live in now,” she said.
For Michael Every, global strategist at Rabobank, Bullock’s predicament is hardly surprising.
“The joke in markets goes that rate strategists are now oil strategists. And I’d add that now they have to be military strategists,” Every says.
He adds – only half jokingly – that the best way for the US Federal Reserve to figure out where interest rates should go next is to talk not just to the US Treasury, but to the Department of Defence, so it can get a sense of America’s plans for the conflict in the Middle East, and the direction oil prices are heading.
“That’s just as true for the RBA, of course,” says Every, who will appear at the Sohn Hearts & Minds Investment Leaders Conference in Queenstown, New Zealand on November 6; it’s the first time the event has been staged outside Australia.
The idea that Bullock and her team might be more interested in military strategy than employment, productivity or even housing – all topics she was expertly quizzed on by Chelsey Drake, chair of law firm Allens, during Tuesday’s discussion – sounds silly at first. But Every notes that the Bank of England, widely acknowledged as the world’s first central bank, was set up to help fund England’s war on France.
And as Bullock herself acknowledged, the supply shocks that the RBA is battling – Russia’s invasion of Ukraine, the tariff war started by US President Donald Trump and now the expanding conflict in the Middle East – are all born of a shift in the global world order, whereby decades of free and open trade are being replaced by a world of geopolitical tensions and even outright conflict.
Trump’s economic statecraft
On the day Trump was re-elected in 2024, Every used his daily market note to declare that the central theme of Trump’s second coming would be “economic statecraft”, an age-old concept whereby leaders seek to use the economy as a political vehicle.
Sure, markets had been thinking harder about geopolitics for a few years, but Every suggested investors need to consider what he called “grand macro strategy”, where countries clearly identify their national interests and use three tools to obtain them: the economy, political power and military power.
For Every, this is a natural result of the end of a 45-year period where America’s military might underpinned a period of globalisation, open trade flows, falling interest rates and, largely, peace.
But eventually, he says, that system began to destroy itself. Not only did that system lead to inequality and increasing polarisation, but nations such as America have found that “if you send all your factories to Asia, you eventually won’t be able to build aircraft carriers rapidly enough to deter other people”.
Trump’s economic statecraft is a reaction to that, in Every’s view.
The US president has used a combination of economic tools (think tariffs), military power (think the “invasion” of Venezuela and the far less successful sequel in Iran) and political pressure (think about how the US has forced Europe and others to start investing in defence again) to try to pressure other nations to support his America-first goals, through either formal or informal alliances.
Has it always worked? Canada’s proposed associate membership of the European Union suggests not.
But Every suggests thinking of Trump as the pilot of an aeroplane. For the past 45 years, he argues, the plane has been on autopilot, and everyone’s forgotten how economic statecraft works. Now, Trump and his team are in the cockpit twiddling various dials, and not everything has gone to plan.
And Every argues the broad brush strokes of Trump’s grand macro strategy are there. If Trump’s favoured candidate, Flavio Bolsonaro, wins Brazil’s general election in late October, then a loose pro-Trump alliance would sit over the Americas, which he describes as “the swing producer for the entire world”.
Or take oil, Bullock’s big problem. America’s dominant position in energy production has been strengthened via the move on Venezuela, and even by his moves in Iran. Clearly, the situation looks like a mess. But Every notes it’s a mess that makes America the world’s only truly dominant energy player; he predicts a ramp-up in hostilities after the November midterm elections, whereby either the US and its Middle Eastern allies knock Iran out, or the mess gets deeper.
“If the Middle East is destabilised and no one can get anything out at a reasonable price, you effectively have to kind of put a cross through it,” he says. “That makes the Americas even more important.”
Brave new world
Every has been connecting the dots on these big macro moves for decades and admits it’s exhausting. Every day he posts on social media a barrage of headlines from around the world that suggest the next few chess moves.
Still, isn’t it all a bit big-picture for a strategist from a bank best known – in Australia at least – for serving farming and agribusiness clients?
Every disagrees. For starters, an Australian farmer’s supply chain and export targets could change dramatically in the next 25 years depending on how this new world is reshaped.
But Every’s description of this brave new world isn’t that far away from the one Bullock offered on Tuesday, when she said we are in an environment where “different countries and jurisdictions are looking at trying to protect themselves”.
And that suggests investors, businesses, policymakers and central bankers may be underestimating what’s coming.
“We are not set up for a geopolitical world,” Every says. “We’re not resilient in any sense, despite the fact that we talk about it. We don’t have optionality on imports or on exports. We don’t have fail-safes or spare capacity.
“All of that’s going to have to change,” he says. “And the macro implications of that are just enormous. If lines on maps can move, lines on your screen will move a lot.”
Moment of truth
As Trump prepares to meet Chinese President Xi Jinping at the White House later this week, the ramifications of a world that splits into blocs aligned with each superpower will be brought sharply into focus.
Every says the moment of truth for Australia is probably coming. “I’ve been coming down here for 10 years and banging this drum, warning people that there’s a cold war looming, and that ultimately either China or the US will say, ‘Are you with us or against us?’”
It’s possible, he says that artificial intelligence could be that decision point.
Every admits he’s no tech expert, but he does love his science fiction, and he can’t help but think that the moment one of the American AI giants announces they’ve truly cracked artificial general intelligence (the machines thinking for themselves) is the moment that this technology will be seized by the US government as a matter of national security – with the added benefit that it will have all been funded by the private sector.
Then, Every says, allies will be forced to choose whether they’re on the side of the bloc with AGI, or not “in the same way they did when nuclear weapons arrived”.
You get the feeling that central bankers will have lots to think about in the coming years. As will grand macro strategists.
“There hasn’t been more of a Michael Every moment than where we are now,” the man himself says. “But I don’t think this is peak Michael Every.”
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