The G7 (major trans-Atlantic countries plus Japan) and the Global South (the developing world led by Russia, China and India) are pushing their confrontation beyond hybrid and proxy wars.

Debilitating economic sanctions, massive supplies of financial support, arms, military instructors, battlefield intelligence, satellite guided attacks, political sponsorships and emphatic vows to destroy challengers of the “rules-based world order” have created uncontrollable conflicts among nuclear armed adversaries in Europe, Middle East and East Asia.

Assuming that some lunatic(s) will not put an end to humanity, the outcome of ongoing confrontations will be determined by economic developments in opposing camps.

Here is what the current economic outlook tells us about the unfolding power play.

Starting with the European Union (E.U) -- whose top diplomat calls it a “garden” in the middle of a “jungle” (the rest of the world) – economic growth has been stagnant this year, with Germany slipping into recession, while Italy and France are facing an apparently irretrievable downturn.

Germany could sink the E.U. economy

Tending to that wilting garden has become a sad combination of hubris, centuries’ old visceral hatreds and egregious economic and political mistakes. The E.U.’s mismanagement of public finances, energy transition and the "garden’s" ongoing hostilities with the “jungle” have led to high inflation, excessive budget deficits and a large public debt.

That makes it impossible to rescue the economy with cheaper credit. And there is no room to increase public spending to offset falling household consumption and business investments.

The irony is that things could even get much worse because the E.U.’s core inflation of 4.2% and a public debt of 90.3% of GDP have alarmed Germany’s incompetent taskmasters. They now want austerity to make a recession deeper and longer.

The U.S. economy is doing much better. Demand and output accelerated sharply during the first nine months of this year to an annual growth of 3%. All major components of domestic demand (household consumption, business investments and public spending) rose strongly.

Many people now think that recession fears in an election year were naive and unreasonable.

One should never underestimate election year “surprises,” but please remember: an economy advancing at nearly double its potential and noninflationary growth rate – with a core inflation of 4% -- is unstable and moving along into a blind alley.

America’s cyclical downturn is merely postponed as a problem for the new administration.

The economies of the Global South troika leaders – China, Russia and India – are facing a very different outlook. They are currently growing in the range of 3.5% (Russia) to 7% (India), with China in the middle.

Fixing the economy is America’s job #1

How long can India grow at that blistering pace -- with a budget deficit of 8% of GDP and an inflation of 5.6% -- is a real puzzle. At any rate, in case of cyclical difficulties those fundamentals leave no room for any supportive demand management policies.

By contrast, China has plenty of room for much lower credit costs to fight price deflation (-0.50% in November) and to stimulate its huge domestic demand for a 5% to 6% growth rate.

That’s not what Russia can do. Moscow must keep high interest rates to cut its 7.5% inflation rate. But Russia’s nearly balanced budget and a trade surplus of 10.3% of GDP are impressive.

With all that, the world is entering the next year with wars in Ukraine and in the Middle East.

Russia wants to “demilitarize, denazify and neutralize Ukraine,” while Israel intends to “destroy Hammas (Palestinian Sunni Islamist Resistance Movement), demilitarize the Gaza Strip (controlled by Hammas) and deradicalize the Palestinian society.”

That’s a tall order – and a warning that both conflicts are global powder kegs.

East Asia is an equally flammable and intractable flashpoint. China considers Taiwan an “internal matter” and its “core red line.” Beijing also wants to control its contested maritime borders in East and South China Seas.

Similarly, the 70-year-old Korean armistice is a permanent danger of nuclear flare-ups.

The world is at an impasse because the U.S. is facing down Russia and China on issues where the current administration has no room for compromise. Future administrations will also have a difficult time to peacefully restore an acceptable balance of power.

Washington, however, could do that. And the best way to proceed would be to rebuild a steadily growing and balanced economy. That would underpin the world’s dollar-denominated trade and finance while strengthening the greenback as a global transactions currency and a reserve asset.

At the same time, America’s unrivaled technological advances should keep its defense capabilities second to none.

Only then will the U.S. have a powerful global constituency to engage Russia and China in a quest for a world order based on a peaceful modus vivendi.