Equities are tumbling. Bond markets are jittery. And investors are selling off their assets as they grow increasingly nervous about the rising level of geopolitical chaos. Russia and Ukraine remain in a tense stand-off. And a new Cold War is very clearly emerging between Russia, its far larger ally China, and the West.

But hold on. Sure, that might be making the markets nervous right now. And yet, while no one wants a conflict, whether hot or cold, the truth is that they can be perfectly OK for the economy, and often quite good. Rearmament kickstarts a wave of spending, creates jobs, and often spurs new technologies.

Investment increases as supply chains have to be reconfigured. And over the medium term, there is always the prospect of victory, leading to the reconstruction of the Russian economy. Investors will be anxious this week, and no doubt next as well. But very soon they will have figured out that actually a new Cold War will be just fine for the global economy - and perhaps even to be celebrated.

It remains to be seen what happens on the Ukrainian border. We will find out over the next couple of weeks whether the Russian President, Vladimir Putin, risks a full-scale invasion, or simply wants to threaten and bully his smaller neighbour into submission. And yet whether the tanks start to roll across the frozen steppes or not, it is now surely clear that Russia, and far more importantly China, will be confronting the US and Europe for a decade or more to come. A new Cold War has started.

Investors have, not surprisingly, taken fright at that. On Wall Street, the tech heavy Nasdaq is down 13 per cent since the start of the year, Germany’s Dax is off by 5 per cent, while the Moscow index is down by 10 per cent since January. Volatility has spiked. One of the few asset prices to be going up is the traditional safe haven gold, which at $US1900 ($2640) an ounce, is reclaiming some of the highs it reached during the last financial crisis.

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Of course, it is easy to understand why. If there is an invasion, sanctions will be imposed on Russia, and the flow of gas and oil will suddenly come to a stop, plunging Germany and much of the rest of Europe into an energy crisis.

If those sanctions are extended to China, global supply chains will immediately crash. “There is a risk of an export embargo by China to all Nato nations, and then, we would have a huge, critical, supply shock for the global economy on our hands,” warned High Frequency Economics in an analysis this week. “European economies would crumble, in a crash similar to the impact of the oil embargo in October 1973.”

True, the short-term impact would be very bad. And yet, over the medium term, a new Cold War might well be good for the markets. Here’s why. First, rearmament. Governments will have to start spending a lot more on defence, especially in Western Europe. Germany’s miserable 1.4 per cent of GDP spent on its armed forces will have to dramatically increase, and so will the Netherlands, also at 1.4 per cent, while Poland, right on the front line of the conflict, will be certain to spend more than 2.2 per cent of output it currently devotes to protecting itself.