Tag Archives: Petrodollar

Global Shift in the Balance of Power Is Moving from West to East

By Joachim Hagopian
March 18, 2015
Global Research

 

chinadollarA major recent event last week largely went unnoticed by both MSM and independent news sources alike. The British are apparently jumping ship away from the US dollar/petrodollar in an overt effort to align itself more closely with the BRICS alliance as it seeks a new standard international currency. For several years Russia, China, Brazil, India and South Africa (BRICS) have been preparing the world for its transition from USD standard international currency to its own alternative-in-the-making. America’s so called mother country England has seen the writing on the wall and knows the global balance of power is rapidly tilting in favor of where the sun always rises in the emerging East. 

The European central banking cabal from the City of London, a separate and private political and financial entity apart from the rest of both London and England, sent British royalty Prince William to China to quietly sign a deal to become a founding member of the Asian Infrastructure Investment Bank (AIIB). This surprising new development is a clear indication that the royal Bank of England is placing its financial bet and future on China and the East as its rock solid anchor. Much of the world has been looking to move away from and abandon the longtime global financial stronghold of the US Federal Reserve, its World Bank and US dollar standard. A US official feebly chastised UK in the Financial Times:

We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power.

More consternation arose when Germany, France and Italy have additionally made overtures in the same direction. This worldwide trend spells utter defeat for Obama and his disastrous foreign policy. After Washington’s been exerting strong-armed pressure on Australia as its key allied partner supporting its failing Asian pivot designed to check China’s growing regional and global dominance in the Pacific Asian market, Australia is now also looking to follow suit accepting and embracing China’s lead.

According to international investor and entrepreneur Simon Black, the US is experiencing major economic blowback after two plus decades of aggression as the only global superpower:

     … After years of endless wars, spying, debt, money printing, bailouts, and insane regulations, the

rest of the world has had enough. And they’re looking for an alternative.

Enter the China led BRICS alliance and its New Development Bank and now China’s other investment bank entry AIIB. Simon takes liberty in his interpretation of Britain and Europe’s bold rebellion after decades relegated to being a mere puppet of the US Empire:

Look, you have $18.1 trillion in official debt, you have $42 trillion in unfunded liabilities, and you’re kind of a dick. I’m dumping you.

Perhaps some Americans may feel a bit betrayed and unsettled by our longtime strongest global allies one by one seemingly abandoning the US dollar and American Empire in its reckoning time of need. If these geopolitical and economic trends are examined beyond their face value though, the changes occurring now may reflect much more significant, deeper changes than a mere alteration of standard international currency (as impactful as that will likely be for the US). These deep rooted fundamental changes have everything to do with the major global shift now taking place where the West’s ruling power elite itself is losing to the emerging global power rising in the East.

The latest act of bold economic defiance breaking rank with US Empire interests mirrors last month’s bucking trend that Europe exercised when putting the skids on the US campaign for sending heavy armaments to Ukraine and pushing for war against Russia. The fact is Europe and especially Germany depend on natural gas from Russia and the US imposed sanctions on Russia hurt Europe even more than Russia. That along with wanting to avoid war in their own backyard has nations like Germany and France softening their hardline, US pushed anti-Russian posturing.

Several weeks ago German and French leaders attended meetings in Mink, Belarus to negotiate a peaceful way out of the escalating violence in Eastern Ukraine between the government forces in Kiev and the ethnic Russian separatists seeking autonomy in the Donetsk and Lugansk region. In the same way Netanyahu attempted to fan the war flames against Iran, the same day Germany and France were gathering in Minsk to meet with Putin and Ukraine leaders, Secretary of State Kerry showed up in Kiev mouthing the same worn out lie of “Russian aggression” in a transparent feeble attempt to sabotage the Minsk talks. Again, the tie-in is the Israeli-US crime cabal constantly at work every chance they get peddling and promoting more global violence, death and war.

For over a year now Washington’s war drums have been beating louder for NATO to join forces with Ukraine, pressuring Europe to submit as it always has in going along with its permanent war agenda, all the while falsely demonizing Russia’s President Putin with outrageous propaganda lies and nonstop false flags not unlike the WMD lies against Hussein in 2002-3 Iraq. But in a rare gesture of independence, unwilling to start a war so close to home against nuclear powered Russia that Europe relies heavily as a critical source for its natural gas consumption, the powers of Europe are seeking a non-violent resolution to its regional conflict that carries the devastating potential of triggering World War III.

Meanwhile, NATO Supreme Commander US Air Force General Philip Breedlove fashions himself to be a Dr. Strangelove incarnate, making repeated bogus claims and lies of Russian army presence inside Eastern Ukraine in a vain yet persistent attempt to foment war. Having such a deluded and deceitful warmonger in charge of the NATO nuclear arsenal poses a calamitous threat to the entire world. Yet his commander-in-chief Obama has chosen not to relieve him of command. Instead German leaders have openly criticized Breedlove and the European Union wants to replace NATO with its own continental army. This very public geopolitical conflict over such widely differing Western approaches toward Ukraine seriously undermine American Empire’s global influence and power, again underscoring simultaneous developments around the world that indicate consistent across the boards US foreign policy failures and from the broader context, a rapid US decline as the sole global hegemonic superpower.

Putin advisor Sergei Glazyev nailed it when he said:

The war has been provoked to destroy the Russian World, to draw Europe into it, and to surround Russia with hostile countries. Unleashing this world war, America is trying to deal with its own internal problems.

Current economic turmoil reverberating in Japan is in large part due to the notorious corruption of the Abe government that may soon have additional problems to contend with once accusations over a fraudulent past elections get fully exposed. Abe has been a subservient tool used by the same international crime syndicate controlled by subversive Israeli-American forces. As such, Japan will also be moving away from the USD/West geopolitics and very likely pivoting toward China and a Pacific alliance that excludes the US Empire finding itself increasingly isolated on the outs.

Though incumbent Prime Minister Netanyahu is the apparent winner in today’s Israeli election, the despot had to claw and fight for his political life to survive another day. Recent revelations that he’s been a Russian spy surfaced right after his disgraceful debacle in front of the Israeli captured US congressional audience on Capitol Hill two weeks ago and then came the despicable treasonous display of 47 Republican senators threatening letter to Iran. Bibi’s days of hate, war and paranoia are numbered as the ugly truth about his evildoing will continue to unfold that will soon bring him down. Showing his true evil colors right to the end, the day before the election Netanyahu once again reminded the world that an autonomous Palestinian state will never come to pass while on his watch.

Within the last couple weeks other mysterious events suggesting some cataclysmic, behind-the-scenes development included the apparent disappearance of Vladimir Putin for 11 consecutive days, fueling speculation from an internal political coup to possible sickness and/or death to witnessing the birth of his child at the bedside of his girlfriend in Switzerland. Because so many monumental breaking stories and developments seem to abound every week, Putin’s normally high profile lifestyle would naturally generate even higher profile speculation over his abrupt, extended disappearance. Of course it begs the question asking if it’s merely coincidental with these other earth-shaking events or very much related.

For years the CIA and US Empire have been hard at work in nations from Eastern Europe through the Caucasus to Central Asia all the way to China courting the favor of corrupt dictators and supporting coups promoting anti-Russo-Sino US puppet governments along the entire corridor bordering Russia and China. Despite such Obama’s plan after the 2008 Russian-Georgia conflict was to a reset relations with Russia. But with last year’s US-induced Ukrainian coup and Russia’s annexation by consensual vote of Crimea that “reset” plan went out the window. In 2011 Russia, Belarus and Kazakhstan signed the economic alliance of the Eurasian Union. Meanwhile, recognizing the strategic importance of the land bridge between Europe, the Middle East and Asia, Putin has made inroads strengthening ties with the three South Caucasus nations. Putin enticed Armenia to also join the Eurasian Union and has mediated hostilities between Armenia and oil rich Azerbaijan while seeking to repair and realign with Georgia that previously leaned toward the West. US Empire has largely failed to gain a foothold in this part of the world.

Other key geopolitical developments that have been ongoing for some time center in such remote places as western China’s mineral and oil-rich Xinjiang Province. With the powerful US Navy patrolling and to a great extent controlling Pacific waters in conjunction with Obama’s flop of an Asian Pacific pivot, the geopolitics chessboard strategy to hem the two adversarial giants in with hostile neighbors has generally backfired. Furthermore, the US was not prepared for Russia and China to suddenly renew an ultra-close economic, political and military bond that would effectively counter US Empire’s hegemonic aggression. They promptly signed a $400 billion oil-gas pipeline deal that will span a landlocked pathway, thereby foiling the US plan to seal off the China’s energy access via the Pacific. Hence, Moslem populated Xinjiang Province that is the proposed pipeline passage route has become a highly contentious target where the West and CIA in particular have been funding and supporting a separatist movement and acts of terrorism as a disruptive interdiction tactic. Overall this covert strategy has failed.

The Western cabal controlled crime syndicate led by the likes of kingpin Israeli Prime Minister Benjamin Netanyahu financed and supported by the likes of multibillionaire Sheldon Adelson and the Saudi royal family along with congressional henchman and ISIS friend Senator John McCain and the rest of his treasonous Republicans, the rogue US intelligence agency the CIA and NATO’s General Breedlove are all bent on plunging the US Empire-NATO forces into World War III on multiple warfronts at every global hotspot – Ukraine, Syria, Iran, the Caucasus all the way eastward to China’s Xinjiang Province and northward to the oil-rich Arctic against the forces of the two most powerful nations of the East – Russia and China. As a desperate last ditch attempt to retain its many centuries of Rothschild-Rockefeller power and dominance, these evil-minded, megalomaniacal psychopaths know that their hitherto unchallenged global control and strength that have bankrupted and nearly destroyed the planet is fast slipping away. So they seem all the more erratically resolute in seeking revenge by taking the entire earth down with them.

The truth about the horror and destruction these Western oligarchs have conspired and caused worldwide for centuries cannot even be fathomed. They have ensured a permanent state of war (in the US alone 93% of its 239 years) right up to the present Bush crime family-neocon fabrication of the “war on terror,” then under Obama this last year alone wrongly plunging America into another dangerous cold war with Putin’s Russia, and dozens of tragic false flag events like 9/11 designed to demonize Moslems into becoming the instantaneous post-Communist designated enemy of the twenty-first century with the US-Saudi-Israeli creation of al Qaeda/ISIS. These dark malevolent forces of evil that have propagated so much misery and suffering on humanity for so long are finally at last being exposed like never before.

The Western oligarch agenda to inflict a globalized system of absolute totalitarian fascist police state NWO control on every nation and people on earth trapped in hopeless debtor bondage may just be running into a brick Eastern wall as clear losers in the ongoing economic/currency war. Despite the constant jabbing of Putin and his Russian bear in vain attempts to manipulate him to react with military force in eastern Ukraine and despite the failed overt assault in the form of US Empire’s Asian pivot designed to close in and isolate China from the rest of Pacific Asia, ironically it’s the United States that finds itself increasingly alone as the longtime global village bully that’s finally met its match about to get its comeuppance. The smarter, economically stronger forces emerging from the East are winning the power war potentially without even firing a single shot against Western oppressors. Hopefully peace will prevail and the international crime syndicate that has long controlled the West will be deposed of as the murderous traitors to both peace and humankind.

As a necessary qualifier, actual real life tends toward shades of gray far more than black and white. Undoubtedly elements of corruption and evil lurk behind all the most powerful nations in both the West and the East. But the forces of China and Russia appear to be seeking a far more rational, humane and even peaceful resolution to the West-instigated West vs. East geopolitical military showdown sinisterly orchestrated by the international crime cabal’s global agenda of polarization, militarization, privatization and unsustainable, insurmountable debt-driven feudalism based on pure theft, deception, exploitation, impoverishment and pervasive planetary destruction.

Seeking to avoid the inevitable bloodbath that would result from world war and possible nuclear annihilation of all life forms on earth, the East appears to be seeking to avert such global disaster by ensuring that this ongoing war is won by successfully transitioning to an international currency backed once again by the gold standard. The Western central banking cabal consisting of the Bank of England and other European central banks, America’s Federal Reserve Board, its World Bank and International Monetary Fund along with the Israeli-US government crime cabal all stand to ultimately be stripped of their absolute power that have the entire world drowning in debt, crushing destabilization and impoverished despair. But now a light at the end of the tunnel at least is shining a little brighter.

Joachim Hagopian is a West Point graduate and former US Army officer. He has written a manuscript based on his unique military experience entitled “Don’t Let The Bastards Getcha Down.” It examines and focuses on US international relations, leadership and national security issues. After the military, Joachim earned a master’s degree in Clinical Psychology and worked as a licensed therapist in the mental health field for more than a quarter century. He now concentrates on his writing and has a blog site at http://empireexposed. blogspot. com/.

The New Global Economy: Rise of China, Decline of the United States?

By Gulam Asgar Mitha
Global Research, January 26, 2015
Oriental Review

 

money5There is a limit to economic manipulations by empires. All empires have perished due to economic hardships. The Ottoman, Soviet and the British empires were no exception in the past century. Waste was the key product of these empires. Whether the only empire – the US – understands it or not, the fact is that its economy is being undermined due to its wasteful policies, living beyond its means and by dictating it’s economic and foreign policies on free nations and by treating them as satellites. The US has used economic sanctions (strangulation) against countries to gain an advantage but these are failing. In the latest round against Russia, the US has used the instrument of oil to apply sanctions in partnership with the Europeans who themselves are in economic hardships while China has agreed to partner with Russia to thwart the objective. On 15 January 2015 a Singapore’s newspaper reported that on 22 December 2014 Chinese Foreign Minister Wang Yi stated that though China is willing to help Russia if needed, it has the ability to overcome the current economic problems. China, a founding member of the BRICS, is lining up the bloc and that of the SCO – and their currencies – to support Russia in need.

The rise of the United States economy in the 70’s and 80’s was mainly due to the gold standard being abolished during Richard Nixon’s Presidency. This event was historic as it allowed the green back to be infinitely printed. In an effort to prop up the value of the dollar, Nixon negotiated a deal with Saudi Arabia that in exchange for arms and protection they would denominate all future oil sales in U.S. dollars. Subsequently, the other OPEC countries (primarily the Arabs and Iran under the Shah) agreed to similar deals thus ensuring a global demand for U.S. dollars and allowing the U.S. to export some of its inflation. It is only a matter of time when that partnership with Saudi Arabia may collapse.

The American debt can no longer be used to sustain GDP growth. After World War 2 the American economy was creating approximately $2.50 worth of economic growth for each dollar of debt that was being generated. By the 70’s that growth declined by 80% (or $0.50) and currently it is a meagre $0.05 for every dollar of debt. Jim Rickards author of the New York Times bestsellerCurrency Wars wrote: “Currency wars are one of the most destructive and feared outcomes in international economics. At best, they offer the sorry spectacle of countries’ stealing growth from their trading partners. At worst, they degenerate into sequential bouts of inflation, recession, retaliation, and sometimes actual violence.” Rickards blames the US Federal Reserve economic policies of printing trillions of dollars to stimulate the American economy.

In an article published by International Clearing House Peter Koenig wrote that “the US is able to maintain pressure on other currencies, currently the ruble, only as long as the petro dollar remains the major world reserve currency. This is the main reason why Washington gets away with a seven-fold indebted dollar (i.e. total outstanding and uncovered commitments are currently more than 7 times higher than the US GDP (US$ 17.6 trillion, 2014 est. – vs. US$ 128 trillion of unmet obligations –unfunded liabilities); making the US worldwide the most indebted country – by far”. But “Once the demand for the (petro) dollar fades – as hydrocarbons are no longer dealt in dollars – the value of the dollar will decline and at worst may result in hyperinflation in the dollar economies, including those closely linked to the US economy.”

China is a fast rising economic power in direct competition with the US having overtaken it in only the past 2 decades. There are several factors which will enable China to overtake the US as the major economic power, some of those being:

THE CURRENCY WAR

In April 2013, Australia had joined the ranks of several Southeast Asian countries to trade directly with China in the renminbi (yuan). These SE Asian countries were South Korea, Indonesia, Malaysia, Singapore and Thailand. Australia’s banks, superannuation funds and financial houses will be even better placed to help in the growth of China’s service economy. Australian Prime Minister Julia Gillard had said: “This is good news for the Chinese economy and good news for the Australian economy.” Australia now exports more goods to China than any other country, and trade between the countries has been growing.

In October 2013, China and European Union agreed to a currency swap deal to boost trade and investment amounting to 350 billion yuan and €45 billion. This was the first currency deal between China and a non-Asian trading partner. In June, China had struck a similar agreement with the Bank of England worth up to 200 billion yuan.

Chinas-top-10-trading-partnersOn 8 November 2014 Prime Minister Stephen Harper of Canada announced in China that the two countries have joined the ranks of several countries which have inked agreements with China to deal directly in their respective currencies. This basically removes the middle currency, the US dollar. Canadian exporters doing business with China had to use the US dollar resulting in higher currency exchange costs and longer wait to close deals. Not so any longer. Trade between Canada and China is expected to double and triple in the coming years.

The renminbi had a market share of less than 1% in 2009 but that share has been steadily growing where it has now reached a market share of 18% by mid-2014. In comparison the market share of the US dollar is nearly 65%. In early 2013, the renminbi had ranked 12th place but by March 2014, the renminbi had climbed to seventh, behind the dollar, euro, pound, yen, and the Australian and Canadian dollars when ranked by value of payments made in that currency. Another measurement of the renminbi’ s acceptance is the number of global financial institutions doing business in the yuan. It has grown from a meagre 1000 in 2010 to over 10,000 in 2014. These numbers reflect the yuan gains as the Chinese economy continues to grow and more countries continue to sign agreements in currency trades.

Chinese currency manipulation and the clandestine gold purchases by China (and now Russia) is likely to aggravate the currency war looming on the horizon.

BREAKING THE CONNECTIVITY BOTTLENECK IN ASIA

The business of America has always been business. The US has played the role of Shakespeare’s Merchant of Venice willing to extract the pound of flesh. The business of China is also business but without extracting the pound of flesh. Whereas China has been extending its global influence through friendship, the US has been extending its global influence through submission by using its huge arsenal of weapons. US, along with the western European nations, has been extracting its pound of flesh through the World Bank, IMF and the Asian Development Bank (ADB). The financial assistance provided by these institutions does not come without strings that exclusively benefit the sponsors and much less to the recipients.

China has been more interested in extending its influence in Asia mainly through development of infrastructure projects. In late 2013, China first announced the founding of the Asian Infrastructure Investment Bank (AIIB) with a registered capital of $50 billion and then doubling it to $100 billion in mid-2014. The financing of the infrastructure projects will lead China to play an extended role in regional economic growth and political influence. 21 countries including Pakistan, India, Bangladesh, Malaysia, Singapore, Mongolia, Myanmar, Uzbekistan and Kazakhstan signed up as founding members and recognizing AIIB.

On 8 November 2014, Chinese President Xi Jingping announced that China would contribute $40 billion towards a new Silk Road fund designed to improve trade and transport links in Asia. This is above and beyond the AIIB fund. In a meeting in Beijing with leaders from Pakistan, Bangladesh, Cambodia, Laos, Mongolia, Myanmar and Tajikistan, State media Xinhua reported Xi stating that the goal of the fund is to “break the connectivity bottleneck” in Asia.

In one of my previous articles titled “Middle East: The Regional Chessboard“, I’d mentioned about several strategic alliances and relations, one among which was regarding Pakistan and China. China has built the 1300 km Karakoram highway which together with the Indus highway provides a direct link to Gwadar port. The port would serve as a direct link for China to the warm waters of the Indian Ocean. Whereas major powers Britain, Soviet Union and the US have failed to gain access to the warm waters through military adventures, China has succeeded through friendship to gain access to the Indian Ocean.

Untitled28China is aspiring to build land and sea routes to facilitate trade and finance from Asia to the Mediterranean and Europe. The two key sea routes would be established through Myanamar and Pakistan. The map shows the land routes in red and the sea routes in blue. To achieve the sea route goal China plans to invest $20 billion on a BOT (Build, Operate, Transfer) basis to link Myanmar’s Kyauk Phyu port on the Bay of Bengal by 800 km high speed rail to Mu Se near China’s border connecting Beijing and other cities facilitating that ships will no longer need to sail through Malacca strait.

TRADE COMPETITION

The USA is the largest and most important economy in the world in terms of Gross Domestic Product (GDP). THE USA GDP accounted for US$ 16 trillion or 19% of the global GDP. In 2012, US imports and exports accounted for US$3,985 billion with imports of US$2,375 billion and exports of US$ 1,610 billion with trade deficit of US $765 billion.

China is the second largest and most important economy behind US in terms of GDP. China’s GDP accounted for US$ 12 trillion or 14% of the global GDP. In 2012, China’s import and export totaled US$ 4,200 billion. China’s import was US$ 2,000 billion, and its export was US$ 2,200 billion with trade surplus of US$ 259.75 billion. China is the world’s second largest trading nation behind the US – leading the world in exports and coming in second for imports.

China and S. Korea have recently agreed in principle for a free trade agreement (FTA). S. Korea is China’s second largest trading partner where trade between the two countries amount to $230 billion. The announcement came on the sidelines of the 2014 Asia Pacific Economic Conference in Beijing.

What is most interesting between the economies of the two giants is the share of the economic structures in terms of agriculture, industries and services. The US agriculture, industries and services comprises 1.2%, 19.1% and 79.7% respectively while that of China is 10.1%, 45.3% and 44.6%.

THE STRATEGIES FOR ECONOMIC DOMINANCE

China has clearly locked in upon strategic economic partnership with Asian countries, Australia and Canada similar to what the US has with its G-7 partners. Currently the G-7 countries dominate the global trade along with their respective global convertible currencies- the US$, C$, Yen and Euro.

In closing, I reiterate that Chinese currency manipulation and the clandestine gold purchases by China (and now Russia) are likely to aggravate the currency war looming on the horizon. This will certainly lead to the decay of the US economic and political domination and the emergence of new economies dominated by a basket of international currencies to purchase oil replacing the dominance of the Petrodollar. The combined policies of US Federal Reserve and the US Treasury are leading the nation towards an economic and national security precipice. Jim Rickards said in a US Treasury meeting that “The Fed and the Treasury are the greatest threats to national security, not Al- Qaeda.” Jim Rickards in his book The Death of Money: The Coming Collapse of the International Monetary System published in April 2014 wrote that: “our biggest economic competitors—China, Russia, and the oil producing nations of the Middle East—are doing everything possible to end U.S. monetary hegemony.”

In the coming years, the world will most likely be divided into West and East – the Western hemisphere will continue to be influenced (not dominated) by the US economic and political policies and the East by China through a partnership with Muslim nations, BRICS and SCO countries. It will be the currencies, US Dollar and the Chinese Yuan that will play the dominant roles in the hemispherical division.

Gulam Asgar Mitha is a retired Techinal Safety Engineer. He has worked with several N. American and International oil and gas companies. He has worked in Libya, Qatar, Pakistan, France, Yemen and UAE. Currently Gulam lives in Calgary, Canada and enjoys reading and keeping in tune with current global political issues. Exclusive for ORIENTAL REVIEW. The views expressed do not necessarily coincide with the Editorial’ ones.

Russia Just Pulled Itself Out Of The Petrodollar

By Tyler Durden
January 16, 2015
Zero Hedge

 

The Libyan War, American Power and the Decline of the Petrodollar SystemBack in November, before most grasped just how serious the collapse in crude was (and would become, as well as its massive implications), we wrote “How The Petrodollar Quietly Died, And Nobody Noticed“, because for the first time in almost two decades, energy-exporting countries would pull their “petrodollars” out of world markets in 2015.

This empirical death of Petrodollar followed years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling.

We added that in 2014 “the oil producers will effectively import capital amounting to $7.6 billion. By comparison, they exported $60 billion in 2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations.”

 

The problem was compounded by its own positive feedback loop: as the last few weeks vividly demonstrated, plunging oil would lead to a further liquidation in foreign  reserves for the oil exporters who rushed to preserve their currencies, leading to even greater drops in oil as the viable producers rushed to pump out as much crude out of the ground as possible in a scramble to put the weakest producers out of business, and to crush marginal production. Call it Game Theory gone mad and on steroids.

Ironically, when the price of crude started its self-reinforcing plunge, such a death would happen whether the petrodollar participants wanted it, or, as the case may be, were dragged into the abattoir kicking and screaming.

It is the latter that seems to have taken place with the one country that many though initially would do everything in its power to have an amicable departure from the Petrodollar and yet whose divorce from the USD has quickly become a very messy affair, with lots of screaming and the occasional artillery shell.

As Bloomberg reports Russia may unseal its $88 billion Reserve Fund and convert some of its foreign-currency holdings into rubles, the latest government effort to prop up an economy veering into its worst slump since 2009.”

These are dollars which Russia would have otherwise recycled into US denominated assets. Instead, Russia will purchase even more Rubles and use the proceeds for FX and economic stabilization purposes.

“Together with the central bank, we are selling a part of our foreign-currency reserves,” Finance Minister Anton Siluanov said in Moscow today. “We’ll get rubles and place them in deposits for banks, giving liquidity to the economy.

Call it less than amicable divorce, call it what you will: what it is, is Russia violently leaving the ranks of countries that exchange crude for US paper.

More:

Russia may convert as much as 500 billion rubles from one of the government’s two sovereign wealth funds to support the national currency, Siluanov said, calling the ruble “undervalued.” The Finance Ministry last month started selling foreign currency remaining on the Treasury’s accounts.

The entire 500 billion rubles or part of the amount will be converted in January-February through the central bank, according to Deputy Finance Minister Alexey Moiseev. The Bank of Russia will determine the timing and method of the operation.

The ruble, the world’s second-worst performing currency last year, weakened for a fourth day, losing 1.3 percent to 66.0775 against the dollar by 3:21 p.m. in Moscow. It trimmed a drop of as much as 2 percent after Siluanov’s comments. The ruble’s continued slump this year underscores the fragility of coordinated measures by Russia’s government and central bank that steered the ruble’s rebound from a record-low intraday level of 80.10 on Dec. 16. OAO Gazprom and four other state-controlled exporters were ordered last month to cut foreign-currency holdings by March 1 to levels no higher than they were on Oct. 1. The central bank sought to make it easier for banks to access dollars and euros while raising its key rate to 17 percent, the emergency level it introduced last month to arrest the ruble collapse.

Today’s announcement “looks ruble-supportive, as together with state-driven selling from exporters it would support FX supply on the market,” Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow, said by e-mail. “Also, it will be helpful for banks, while there might be some negative effects related to extra money supply and risks of using some of the money on the FX market for short-term speculations.

Bloomberg’s dready summary of the US economy is generally spot on, and is to be expected when any nation finally leaves, voluntarily or otherwise, the stranglehold of a global reserve currency. What Bloomberg failed to account for is what happens to the remainder of the Petrodollar world. Here is what we said last time:

Outside from the domestic economic impact within EMs due to the downward oil price shock, we believe that the implications for financial market liquidity via the reduced recycling of petrodollars should not be underestimated. Because energy exporters do not fully invest their export receipts and effectively ‘save’ a considerable portion of their income, these surplus funds find their way back into bank deposits (fuelling the loan market) as well as into financial markets and other assets. This capital has helped fund debt among importers, helping to boost overall growth as well as other financial markets liquidity conditions.

[T]his year, we expect that incremental liquidity typically provided by such recycled flows will be markedly reduced, estimating that direct and other capital outflows from energy exporters will have declined by USD253bn YoY. Of course, these economies also receive inward capital, so on a net basis, the additional capital provided externally is much lower. This year, we expect that net capital flows will be negative for EM, representing the first net inflow of capital (USD8bn) for the first time in eighteen years. This compares with USD60bn last year, which itself was down from USD248bn in 2012. At its peak, recycled EM petro dollars amounted to USD511bn back in 2006. The declines seen since 2006 not only reflect the changed global environment, but also the propensity of underlying exporters to begin investing the money domestically rather than save. The implications for financial markets liquidity – not to mention related downward pressure on US Treasury yields – is negative.

Considering the wildly violent moves we have seen so far in the market confirming just how little liquidity is left in the market, and of course, the absolutely collapse in Treasury yields, with the 30 Year just hitting a record low, this prediction has been borne out precisely as expected.

And now, we await to see which other country will follow Russia out of the Petrodollar next, and what impact that will have not only on the world’s reserve currency, on US Treasury rates, and on the most financialized commodity as this chart demonstrates

 

… but on what is most important to developed world central planners everywhere: asset prices levels, and specifically what happens when the sellers emerge into what is rapidly shaping up as the most illiquid market in history.

Oil Price Crashes, Who Really Wins?

By Bill Holter
December 02, 2014
Global Research

 

1-Oil-Price-Gas-Low-priceI’d like to address the outright crash of the oil market this past week.  The hope was the Saudis would cut back on production to stabilize prices somewhere in the $80+ range.  This was not to be as Saudi Arabia announced no cutback whatsoever …oil then fell over 10% in one day on Friday and actually traded to a $65 handle.  First and most importantly, oil is THE biggest and most widely used commodity on the planet.  For a market of this importance to outright crash or rise over 10% in one day, unintended consequences not seen or anticipated can be expected at some point.   

I guess the initial question that should be asked is “why has oil been so weak in the first place”?

There are several answers to this but the two main drivers are “supply and demand”.  Demand has definitely dropped as the global economy has slowed.  There is no getting around this, less oil is being used now than say two or three years ago.  On the supply side, the U.S. shale industry which has been in an outright boom has actually made the U.S. a larger producer than Saudi Arabia.  I can remember two-three years back when the stories arose, “the U.S. was going to become energy independent”.  What the stories forgot to include is the fact that shale production has a very high cost to breakeven.  The current estimates for breakeven are $75 per barrel or higher.  Just as I wrote earlier regarding gold and silver, I believe “low prices will cure low prices” for oil.  I will get to this thought shortly.

When looking at the new, low oil prices, one must ask the questions “who, what and why”?  Why would Saudi Arabia not want to cut back on production to stabilize the price of their product?  If Saudi Arabia has budgeted a price of $95 for their own production, why would they allow the price to drop unabated (or in Friday’s case “helped”)?  What’s in it for them?  Before digging any deeper, I want to remind you how the U.S. broke the Soviet Union in the late 1980′s.  The U.S. baited the USSR into an arms race and then with the help of the Saudis, broke the price of oil down to $10 per barrel …the rest is history as the USSR bankrupted from the starvation of oil revenues.

Fast forward to current day, are we seeing the same sort of operation?  Some say that the target is Iran who is a religious enemy of Saudi Arabia and also happens to have the highest cost of production in the Middle East, I’m not buying this theory.  I would rather look at Saudi Arabia’s latest business deals and go from there.  They just a few months ago signed long term energy contracts with non other than China

http://www.theaustralian.com.au/business/mining-energy/china-saudi-arabia-sign-new-energy-agreement/story-e6frg9df-1227025276198?nk=d5fc75cee3fcc71d3ce5ef9ce4f38ac3 .

Taking this one step further, “who” would benefit the very most from cheap oil prices?

The answer of course is China as they are THE biggest importer of oil in the world!

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/why-the-collapse-in-oil-prices-is-such-a-huge-win-for-china/article21824558/

Can you see where this exercise may be going?  Most everyone in the West believes Saudi Arabia was engaged with the U.S. to hurt Russia’s energy revenues, what if this is not the case …or maybe our leaders believe this to be the case?  What if Saudi Arabia, who has definitely been in serious talks with China is obliging them while wiping out one their most recent competitors?

Who is this new competitor you ask?

Why the shale industry in the U.S. which was supposed to make us energy independent and a bigger producer than even Saudi Arabia?  The cost of production for shale is estimated at $75 per barrel.  $100′s of billions have been borrowed (and lent) in order to get this production up and running.  As of this past Friday there may be a little, previously unforeseen problem.  You see, the debt issued is almost entirely “high yield” (understand “risky”) and makes up somewhere near 20% of this entire market.  Also please understand many of these bonds are used as collateral and then re hypothecated for further borrowings.  This is not yet a disaster but a “margin call” to such a leveraged industry could turn the lights out VERY QUICKLY.

Of course, you can add the rest of the financial system to this as leverage has never ever been higher systemically than it is right now.

I would also like to add the comment “someone, somewhere, got hurt and hurt very badly this past Friday”.  I am talking about speculators, OTC derivatives between banks and financial institutions, institutions which issue CDS, etc..  We don’t know who, what, how much or even “if” this 10% drop in one day has caused a chain reaction but the odds are pretty good this will not pass without someone important being financially killed.

Before putting this all together, mention must be made of Russia.  Yes, Russia is being hurt financially and economically.  Their currency the ruble has been hammered as well as their sovereign bond market but …it is important to understand they only carry $200 billion worth of debt.  Will these low oil prices bust Russia?  No, it will however make life very hard as the economy slows and their social programs do not get fully funded.  In my opinion this is a huge blow to Russia but not a fatal one.

Putting this all together I will ask some questions, however, there are no firm answers yet.

Who is really behind this?

Would the U.S. cut the legs out from under their own shale industry or is it more likely the Chinese wooed Saudi Arabia into aiding them in filling their reserves?

If it is China rather than the U.S., what does this say about Saudi Arabia?

Are they in the process of switching allegiances?  Is this a case where they are abandoning the petrodollar?  I obviously do not have the answer but I will ask another question or two.  Is it possible China has swayed Saudi Arabia by promising to pay them with something real?  Like gold?  Could this even be possible?  It is already rumored that Russia is trading oil for gold, maybe the Saudis have seen this and a light bulb went on for them?

Financially, yes I believe it is possible but not probable.  Much more likely would be payment in yuan.  Would Saudi Arabia accept the paper of another sovereign in the place of dollars?  In my opinion they would …if they are able to see the writing on the wall.  Has China let the Saudis in on their future plans for their currency?  Maybe a gold backed yuan?  A gold backed yuan which is backed by or one that is ratio pegged to gold?  Does China have enough gold to do this?  Let me say this, China very probably has as much gold (or much more) as the U.S. “claims to have”.  Would this be enough gold?  The answer of course depends entirely on what “price” they value or peg gold at.  At “some price”, China can go to a 100% gold backed yuan, any country can …if they have gold and the international price is high enough.

This is much speculation on my part but it does make common sense.  The U.S. may believe we can bankrupt Russia with low oil prices …and this is “our” plan, I don’t believe it is “the” plan.  In fact, the argument can be made that not only does this hurt (destroy) our shale industry, crashing oil prices actually endangers our financial system.  After six years of trying to reflate the system via outright monetization, would we really risk a wildfire of deflation?  I don’t think so.  I believe it is much more likely this is a Chinese/Saudi partnership play where they both “win” and the U.S. is left out in the cold.  This would also be a terminal event for the U.S. petrodollar and a “polite” way for the Chinese to move center stage.  If this is so, we will be watching the formation of a “new world order”, just not the one the Rockefellers had in mind!

Bill Holter, Miles Franklin associate writer

BRICS and the SCO challenge U.S. global dominance

 

 

United States military aggression globally is stimulating the creation of a new international economic order that could serve as a viable alternative to the present Western-dominated version. Washington’s surrounding of both Russia and China with military bases and warships, its severe economic sanctions against Russia and Iran (a close Russian ally), and its attacks on Syria (a Russian and Iranian ally) are accelerating the consolidation of the BRICS country alliance (Brazil, Russia, India, China and South Africa), as well as the expansion of the Shanghai Cooperation Organization (SCO) that now includes about half of the world’s population.

In May, BRICS members Russia (the world’s biggest energy producer) and China (the world’s biggest energy consumer) signed a $400 billion energy agreement in which Gazprom, the large Russian state energy company, agreed to supply China National Petroleum Corporation (CNPC) with 3.75 billion cubic feet of liquefied natural gas a day for 30 years. That equals a quarter of Russia’s huge gas exports to Europe.

Crucially, the gas deal was sealed in yuan and rubles, which worries the U.S. Most oil and gas trade happens in U.S. dollars and the requirement for countries to stock U.S. currency to pay for energy gives the U.S. enormous economic power. The Russia–China energy deal is a significant—and very intentional—step away from this setup. As Pepe Escobar, correspondent for Asia Times, put it in one article, “Russian President Vladimir Putin and [Chinese President Xi Jinping]… are scaring the hell out of the ‘Empire of Chaos.’ No wonder; their number one shared priority is to dent the hegemony of the U.S. dollar—and especially the petrodollar—in the global financial system.”

Escobar remarked the deal creates a “tectonic shift,” with Asia’s vast pipeline network, “intersecting with a growing Sino-Russian political-economic-energy partnership. Along with it goes the future possibility of a push, led again by China and Russia, toward a new international reserve currency—actually a basket of currencies—that would supersede the dollar.”

Peter Koenig, an economist and former employee (of 30 years) of the U.S.-dominated World Bank, told me the Russia–China energy deal is: “symbolic, because Russia’s total hydrocarbon trading per year alone amounts to about US$1 trillion. It is also a demonstration to the world that Russia and China are morphing into a strong alliance in trade, politics and defence. In that sense yes, the gas deal is clearly undermining the dollar.”

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