Ucrania (3)

Nos impactó una nota escrita por un tal "Dr. D" en el sitio web theautomaticearth.com. No se la pierdan: 

Título: The West Is at War with Itself

Texto: Coverage of the war in Ukraine is very spotty and polarized. The news has been shut off, universally censored in the West, and expelled within Russia and Ukraine. Nevertheless there has been much commentary on it, from The Atlantic, “Foreign Affairs”, CNN, BBC, as well as Wall Street and London traders, geopolitical historians and commentators, and others, but like birds, all following a similar flock with a similar turn. Robert Gore is one such article, and better than most, covering Alistair MacLeod’s “Inside and Outside Money”, the mentally-ill childishness of the West, and that regardless of events right now, the outcome is certainly more chaos. https://straightlinelogic.com/2022/03/16/bonfire-of-the-governments-by-robert-gore/

What’s interesting to me with even smart writers like Gore is that they can’t see the most fundamental background shift. To me, this takes some reading, but these authors have all done the reading and are better informed than myself. It’s not like they’re older or younger, and it’s not that they don’t know it. I’m sure in other articles they describe the fragility of Western Banking, debt-printing system. He does so to some extent within the article. Yet somehow Gore – and all the other articles I’ve read these last 4 weeks – miss the most basic item. They believe “Putin made a mistake” and this is not just knee-jerk propaganda, it’s “Our War”, “Ukraine is the 51st State” “Putin is bad M’kay” stuff. They really believe it. Either because of the West’s response, or because they see the West promising to Mujaheddin Ukraine with unlimited weapons and rubbing their fists in glee.

That certainly is the plan, and a good one. It worked in Afghanistan 40 years ago, even as it never worked at all in Syria last year. These NeoCons behind Nuland and Kagan are now all so old they probably didn’t notice and are proceeding anyway. However, none of their plans in Ukraine will happen for very simple reasons. In addition, Putin knows that was their plan for 10-20 years, as well as to take Ukraine and use it to attack and crush Russia going back to the CARTER administration, i.e. Brzezinski. I mean, really? For the love of Christmas, here? That is to say, Putin and the Russian thinkers happily take the West’s open, public, transparent, unchanging plan and figure out what items must be in place to successfully and safely respond to it. And although they are winning in Ukraine (what else? They have an army 3x their size) that’s not the Russian true field of battle. Nor the tactics the West expected. I don’t know why this is so hard to understand.

Normally, I’d say Russia thinks differently. They are half Eastern, half Western they say, and when interacting with Europe LOOK like a Europeans, but then respond softly and go around. This makes them appear weak to us even as they talk tough. Maybe that’s why we constantly think they’re bluffing, the way we would, when really Russia could hardly be more straightforward if they tried. Indeed Lavrov’s top complaint in Turkey last week, but going back years now is that he’s telling them directly how things are and what will happen and like goldfish the West, the media, forget a second later and cannot hear, reporting a different, unrelated thing they fabricated, writing what “he thinks” and “what he meant to do” using their Putin-telepathy.

It’s like this: Russia is going to crush the whole West. But that’s not Russia’s fault: the entire West is so rotten it’s barely been standing for decades now, and certainly since ’08. If not; well, Russia dies. They know this. But Russia will not die because they have been patient and careful and picked a time where the West is badly over leveraged and incredibly past their time. So yes, the West spent billions, possibly trillions at this point to subvert Ukraine and Russia had to respond to them, the West’s armed invasion and takeover of Ukraine, and that’s fine. It’s a ship you can see coming a mile away.

“Russia responds” means the West’s propaganda will kick in and they will want to start WWIII on them, a total war which Russia probably cannot survive the combined forces of all NATO countries worldwide. So that’s a consideration, and unlike the West, who wants war anyway? Like Britain, Russia essentially has one city, Moscow, and a war will erase it, so there is no reason to take that path.

Russia is not fighting a “war” they are not “fighting” in Ukraine, it’s merely a minor police action, and that’s the first of things the West doesn’t understand. They think all Russian attention is on Kiev. They wanted all Russian attention and invasion locked in Kiev, and the West was depending on all the camera shots of destruction and dead civilians. I don’t think Russia even wants Kiev, or they would make at least some attempt to approach it. 500 civilians killed I’m hearing? THAT’S NOT A WAR. It’s hardly a police action. Maybe they don’t understand war material in the 21st century, but Russia could have leveled Kiev an the other cities in under 30 minutes including all their 5 million people if they wanted. Russia’s attention is on the real war.

As the WHOLE WEST, that is, the Anglos running NATO, are fully engaged in attacking Russia and economically conquering it, as Joe Biden and Nancy Pelosi say daily “Our War”, to safely stop the war Russia can only attack and disable the WHOLE WEST and NATO in return. Nothing else will do. It’s possible to detente at some point, freeze the conflict, but if the West does not fall, Russia is in danger and will be overrun. So they have to attack the West, a combined UK, Germany, Europe, and America. It appears they do not intend to do this using sabotage, attacks on rails and substations, EMPs. That would merely anger the U.S. for instance and galvanize a deeply reluctant population to support the war no one wants. It’s off the table. Instead, they are merely going around the whole West, in Eastern style.

What is the West? As Gore says, it’s a CONSUMER. Of everything. They print debt and consume things, net producing nothing. So Russia is passively embargoing them. That’s it. And with some help from China, that’s the whole plan. And it’s worse than that, Russia isn’t even trying to embargo the West. There is no need; the West is using the war to embargo themselves. This is the highest moral good, as Russia can remain completely clean of the matter, being the good guys, offering and having tried everything they could. When wheat, fertilizer, oil, metals, electric, are all shut off across Europe, citizens will ask their governments what happened. Those governments will point to Russia, but it will be no use: it will be plain to see that Russia was selling these life-giving goods to Europeans, and is still trying to sell them to Europe now. It was the European LEADERS, the bankers, billionaires, who refused to BUY them. This will not wash with a cold, hungry public.

The West is also LEVERAGED. In fact that is the key takeaway from the West, their power, and their Central Banks. They can win wars because they can produce more “gold”, that is, more “money” to throw at an ongoing conflict. But leverage goes both ways. On the way up, 10:1 gets you ten wins for a single ante, a golden goose. On the way down however, the removal of a single ante, one underlying asset, leads to a 10-fold loss. And the West is leveraged not 10:1 but 300:1 and more as Jeffrey Christian points out in a single market such as gold. But this is true as mortgages become MBS as in ‘08, in bond derivatives, in stock market margin levels, in credit cards, car loans, and everywhere else, right down to borrowing, that is, “leveraging,” to buy a cheeseburger and fries in Muncie, Indiana.

What is leverage? To borrow more than the value of your collateral. What is collateral? Real Stuff. But the West doesn’t make Real Stuff. The Real Stuff comes from others, and to an outsized level, from Russia. To a great extent, Russia is the collateral for the West. The prosperity of Germany, France, BP, Tesla’s Gigafactories, rest on Russian oil, gas, and aluminum. No gas or aluminum, no Gigafactory. No Gigafactory, no $1 Trillion dollar market cap. No $1T market cap, no 36,000 Dow. Poof. And that’s true of Volkswagen, Bosch, Bayer, Jaguar, and the banks that rest on them: DeutscheBank, Credit Suisse, HSBC, Lloyd’s. And the loss of those markets, companies, banks, would not leave New York standing. Morgan can hardly prosper if London, Hamburg and the commodity exchanges fail and stop trading as the LME did this week. They cannot make margins on the Russian banks and Russian trade they are no longer facilitating. They too will fall into a spiral of counter-leverage.

What is leverage? Let’s say the leverage at 300:1 makes NY and London appear 300x stronger than they actually are. So the end of that leverage makes them 300x weaker than they appear at present. And as we’ve said the bank leverage is what makes them able to field armies and pay for wars. So the end of leverage makes them UNable to field armies and pay for wars. Especially when they themselves refuse to receive all the raw commodity supplies that let them do so. In this structure they are planning to maintain a conflict with no coal, oil, gas, steel, aluminum, titanium, uranium, palladium, neon, and so on.

So what is Russia doing? Like all colonies, they are the raw material producer to the Imperium; the Empire, and the Empire’s Army. If, like America, they wish to rebel against that Empire, they will shut off the raw materials to the Empire, who then cannot run an effective army. This is why they behave as they do. They must go to Ukraine as Biden said in 1994, and as Biden insured with arms, arranged with his policy, and permitted in his words, saying as they did in Kuwait, a small incursion would not be met with force. And should the world remain as it does today, indeed the West would keep the conflict running indefinitely, bleed all of Russia, and kill all the Slavs, of which there are already too few.

But the world will NOT remain as it does today. In withdrawing, Russia has erased the collateral for the entire West and their banking system. As that echoes through the Western financial system there will be great disorder and disruptive bank and corporate failures. Likewise, they will not have commodities to re-build their own structure as they once did in 1930, or not for a long time. The West has positioned themselves to refuse to buy from Russia, come what may. For their part, and being a small country, Russia could not have withstood this lack of commerce, or at the least would have grown a lot weaker, too weak to resist more Western forays into their territory and sphere of influence. That is what took so long. But now, they will not have such a loss of commerce, as they merely sell all the same goods to China, weakening the West even more.

You see, if Europe doesn’t want, won’t accept raw goods, they get weaker of course. And also the opposite, where if China DOES get them, and at an enormous discount to today’s disruptive prices, obviously China will grow far stronger. How can Europe compete with $3,000 aluminum – or having no aluminum – when aluminum in China is $2,000? They already couldn’t compete before. How can Germany fill their factories with employees eating $20 wheat when China is well-fed and eating wheat at $9?

It’s the West that is going to bleed with the Mujaheddin, not Russia.

Going back to Ukraine, if the West wins, all is lost, nothing matters. However, if the West weakens due to worldwide shortages, hardships, banking failures, corporate bankruptcies, currency collapses, then they cannot arm Ukraine as they believe. They won’t have the time, money, or attention to do so. American soldiers will have to return home on a city bus, and not from palatial airfields. In any case, the 100,000 men America has there will be of little use with no food, no supplies, and no supply chain to back them. And if this is so, Ukraine will become Russian, or at least solidly within the Russian sphere of influence again, because will Ukrainians wish to eat, grow crops, have aluminum? Yes, and Russia will look prosperous compared to London at that time, with access to all Chinese goods while the West will not.

So why would you destroy Ukraine? Or even their people? It’s your own country, and your own people.

This is what the West doesn’t understand, as we are required to have a blitzkrieg, a Schwarzkopf rush to the great capital, a surrounding army destroying radio, electric, roads, water. Why would Russia ever do that? To win, they will have to “own” Ukraine or be merged with them in some way and would simply have to rebuild it. Same with the people. You need Ukrainians to be for Russia, not against it. So killing civilians – or even the valuable army – is strictly counter-productive. If it were possible, they would be best to harm nothing and kill no one, “The Art of War” writ large, but of course in war that is not possible. However, 500 civilian deaths in 4 weeks of modern war is as close as possible to killing no one, and demonstrates their goals and values.

This is the cause for the West to say Russia is “bogged down”, they’re losing. They’re not losing, they’re winning. They are saving the lives of fellow Russians, brother Slavs, while nevertheless gaining control of the country. And this without hardship, as the power is on in Kiev and elsewhere, and people are driving, shopping, and going to work. No unnecessary Ukrainians have been inconvenienced. The trains are running on time to Poland and elsewhere. Why would taking a fully intact country be considered a “loss”?

This is the situation we find ourselves in, and the Russians have been very clear about it. About their needs, their goals, their approach.

The West is being boycotted. They have embargoed themselves. They are a stark minority on planet earth, taking too much and making too little. The embargo they have placed on themselves will collapse their banking and financial system even as their manufacturers cannot function when lacking raw materials. They cannot rebuild for many years and will go hungry. They cannot prosecute a war in this state, and in any case the people are not in favor of it and will not let them. But there is good news! The West can behave honestly, buy from Russia again, and end their unnecessary war and their own hardship at any time. Both the realization, and the reversal may take some years however, and we’ve only just begun.

This is what Russia is doing, and why they aren’t worried about Ukraine.

 

Ucrania (2)

Continuando con la nota anterior sobre el contexto económico-político en que se desarrolla el drama de Ucrania en estos días, posteamos hoy una lúcida nota de Michael Hudson que apareció en el sitio web The Vineyard of the Saker. El final es muy sombrío, y teme lo peor.

Título: America Defeats Germany for the Third Time in a Century: The MIC, OGAM and FIRE Sectors Conquer NATO

Texto: My old boss Herman Kahn, with whom I worked at the Hudson Institute in the 1970s, had a set speech that he would give at public meetings. He said that back in high school in Los Angeles, his teachers would say what most liberals were saying in the 1940s and 50s: “Wars never solved anything.” It was as if they never changed anything – and therefore shouldn’t be fought.

Herman disagreed, and made lists of all sorts of things that wars had solved in world history, or at least changed. He was right, and of course that is the aim of both sides in today’s New Cold War confrontation in Ukraine.

The question to ask is what today’s New Cold War is trying to change or “solve.” To answer this question, it helps to ask who initiates the war. There always are two sides – the attacker and the attacked. The attacker intends certain consequences, and the attacked looks for unintended consequences of which they can take advantage. In this case, both sides have their dueling sets of intended consequences and special interests.

The active military force and aggression since 1991 has been the United States. Rejecting mutual disarmament of the Warsaw Pact countries and NATO, there was no “peace dividend.” Instead, the U.S. policy executed by the Clinton and subsequent administrations to wage a new military expansion via NATO has paid a 30-year dividend in the form of shifting the foreign policy of Western Europe and other American allies out of their domestic political sphere into their own U.S.-oriented “national security” blob (the word for special interests that must not be named). NATO has become Europe’s foreign-policy-making body, even to the point of dominating domestic economic interests.

The recent prodding of Russia by expanding Ukrainian anti-Russian ethnic violence by Ukraine’s neo-Nazi post-2014 Maiden regime was aimed at (and has succeeded in forcing a showdown in response the fear by U.S. interests that they are losing their economic and political hold on their NATO allies and other Dollar Area satellites as these countries have seen their major opportunities for gain to lie in increasing trade and investment with China and Russia.

To understand just what U.S. aims and interests are threatened, it is necessary to understand U.S. politics and “the blob,” that is, the government central planning that cannot be explained by looking at ostensibly democratic politics. This is not the politics of U.S. senators and representatives representing their congressional voting districts or states.

America’s three oligarchies in control of U.S. foreign policy

It is more realistic to view U.S. economic and foreign policy in terms of the military-industrial complex, the oil and gas (and mining) complex, and the banking and real estate complex than in terms of the political policy of Republicans and Democrats. The key senators and congressional representatives do not represent their states and districts as much as the economic and financial interests of their major political campaign contributors. A Venn diagram would show that in today’s post-Citizens United world, U.S. politicians represent their campaign contributors, not voters. And these contributors fall basically into three main blocs.

Three main oligarchic groups that have bought control of the Senate and Congress to put their own policy makers in the State Department and Defense Department. First is the Military-Industrial Complex (MIC) – arms manufacturers such as Raytheon, Boeing and Lockheed-Martin, have broadly diversified their factories and employment in nearly every state, and especially in the Congressional districts where key Congressional committee heads are elected. Their economic base is monopoly rent, obtained above all from their arms sales to NATO, to Near Eastern oil exporters and to other countries with a balance-of-payments surplus. Stocks for these companies soared immediately upon news of the Russian attack, leading a two-day stock-market surge as investors recognized that war in a world of cost-plus “Pentagon capitalism” (as Seymour Melman described it) will provide a guaranteed national-security umbrella for monopoly profits for war industries. Senators and Congressional representatives from California and Washington traditionally have represented the MIC, along with the solid pro-military South. The past week’s military escalation promises soaring arms sales to NATO and other U.S. allies, enriching the actual constituents of these politicians. Germany quickly agreed to raise is arms spending to over 2% of GDP.

The second major oligarchic bloc is the rent-extracting oil and gas sector, joined by mining (OGAM), riding America’s special tax favoritism granted to companies emptying natural resources out of the ground and putting them mostly into the atmosphere, oceans and water supply. Like the banking and real estate sector seeking to maximize economic rent and maximizing capital gains for housing and other assets,, the aim of this OGAM sector is to maximize the price of its energy and raw materials so as to maximize its natural-resource rent. Monopolizing the Dollar Area’s oil market and isolating it from Russian oil and gas has been a major U.S. priority for over a year now, as the Nord Stream 2 pipeline threatened to link the Western European and Russian economies more tightly together.

If oil, gas and mining operations are not situated in every U.S. voting district, at least their investors are. Senators from Texas and other Western oil-producing and mining states are the leading OGAM lobbyists, and the State Department has a heavy oil-sector influence providing a national-security umbrella for the sector’s special tax breaks. The ancillary political aim is to ignore and reject environmental drives to replace oil, gas and coal with alternative sources of energy. The Biden administration accordingly has backed the expansion of offshore drilling, supported the Canadian pipeline to the world’s dirtiest petroleum source in the Athabasca tar sands, and celebrated the revival of U.S. fracking.

The foreign-policy extension is to prevent foreign countries not leaving control of their oil, gas and mining to U.S. OGAM companies from competing in world markets with U.S. suppliers. Isolating Russia (and Iran) from Western markets will reduce the supply of oil and gas, pushing up prices and corporate profits accordingly.

The third major oligarchic group is the symbiotic Finance, Insurance and Real Estate (FIRE) sector, which is the modern finance-capitalist successor to Europe’s old post-feudal landed aristocracy living by land rents. With most housing in today’s world having become owner-occupied (although with sharply rising rates of absentee landlordship since the post-2008 wave of Obama Evictions), land rent is paid largely to the banking sector in the form of mortgage interest and debt amortization (on rising debt/equity ratios as bank lending inflates housing prices). About 80 percent of U.S. and British bank loans are to the real estate sector, inflating land prices to create capital gains – which are effectively tax-exempt for absentee owners.

This Wall Street-centered banking and real estate bloc is even more broadly based on a district-by-district basis than the MIC. Its New York senator from Wall Street, Chuck Schumer, heads the Senate, long supported by Delaware’s former Senator from the credit-card industry Joe Biden, and Connecticut’s senators from the insurance sector centered in that state. Domestically, the aim of this sector is to maximize land rent and the “capital’ gains resulting from rising land rent. Internationally, the FIRE sector’s aim is to privatize foreign economies (above all to secure the privilege of credit creation in U.S. hands), so as to turn government infrastructure and public utilities into rent-seeking monopolies to provide basic services (such as health care, education, transportation, communications and information technology) at maximum prices instead of at subsidized prices to reduce the cost of living and doing business. And Wall Street always has been closely merged with the oil and gas industry (viz. the Rockefeller-dominated Citigroup and Chase Manhattan banking conglomerates).

The FIRE, MIC and OGAM sectors are the three rentier sectors that dominate today’s post-industrial finance capitalism. Their mutual fortunes have soared as MIC and OGAM stocks have increased. And moves to exclude Russia from the Western financial system (and partially now from SWIFT), coupled with the adverse effects of isolating European economies from Russian energy, promise to spur an inflow into dollarized financial securities

As mentioned at the outset, it is more helpful to view U.S. economic and foreign policy in terms of the complexes based on these three rentier sectors than in terms of the political policy of Republicans and Democrats. The key senators and congressional representatives are not representing their states and districts as much as the economic and financial interests of their major donors. That is why neither manufacturing nor agriculture play the dominant role in U.S. foreign policy today. The convergence of the policy aims of America’s three dominant rentier groups overwhelms the interests of labor and even of industrial capital beyond the MIC. That convergence is the defining characteristic of today’s post-industrial finance capitalism. It is basically a reversion to economic rent-seeking, which is independent of the politics of labor and industrial capital.

The dynamic that needs to be traced today is why this oligarchic blob has found its interest in prodding Russia into what Russia evidently viewed as a do-or-die stance to resist the increasingly violent attacks on Ukraine’s eastern Russian-speaking provinces of Luhansk and Donetsk, along with the broader Western threats against Russia.

The rentier “blob’s” expected consequences of the New Cold War

As President Biden explained, the current U.S.-orchestrated military escalation (“Prodding the Bear”) is not really about Ukraine. Biden promised at the outset that no U.S. troops would be involved. But he has been demanding for over a year that Germany prevent the Nord Stream 2 pipeline from supplying its industry and housing with low-priced gas and turn to the much higher-priced U.S. suppliers.

U.S. officials first tried to stop construction of the pipeline from being completed. Firms aiding in its construction were sanctioned, but finally Russia itself completed the pipeline. U.S. pressure then turned on the traditionally pliant German politicians, claiming that Germany and the rest of Europe faced a National Security threat from Russia turning off the gas, presumably to extract some political or economic concessions. No specific Russian demands could be thought up, and so their nature was left obscure and blob-like. Germany refused to authorize Nord Stream 2 from officially going into operation.

A major aim of today’s New Cold War is to monopolize the market for U.S. shipments of liquified natural gas (LNG). Already under Donald Trump’s administration, Angela Merkel was bullied into promising to spend $1 billion building new port facilities for U.S. tanker ships to unload natural gas for German use. The Democratic election victory in November 2020, followed by Ms. Merkel’s retirement from Germany’s political scene, led to cancellation of this port investment, leaving Germany really without much alternative to importing Russian gas to heat its homes, power its electric utilities, and to provide raw material for its fertilizer industry and hence the maintenance of its farm productivity.

So the most pressing U.S. strategic aim of NATO confrontation with Russia is soaring oil and gas prices, above all to the detriment of Germany. In addition to creating profits and stock-market gains for U.S. oil companies, higher energy prices will take much of the steam out of the German economy. That looms as the third time in a century that the United States has defeated Germany – each time increasing its control over a German economy increasingly dependent on the United States for imports and policy leadership, with NATO being the effective check against any domestic nationalist resistance.

Higher gasoline, heating and other energy prices also will hurt U.S. consumers and those of other nations (especially Global South energy-deficit economies) and leave less of the U.S. family budget for spending on domestic goods and services. This could squeeze marginalized homeowners and investors, leading to further concentration of absentee ownership of housing and commercial property in the United States, along with buyouts of distressed real estate owners in other countries faced with soaring heating and energy costs. But that is deemed collateral damage by the post-industrial blob.

Food prices also will rise, headed by wheat. (Russia and Ukraine account for 25 percent of world wheat exports.) This will squeeze many Near Eastern and Global South food-deficit countries, worsening their balance of payments and threatening foreign debt defaults.

Russian raw-materials exports may be blocked by Russia in response to the currency and SWIFT sanctions. This threatens to cause breaks in supply chains for key materials, including cobalt, palladium, nickel and aluminum (the production of which consumes much electricity as its major cost – which will make that metal more expensive). If China decides to see itself as the next nation being threatened and joins Russia in a common protest against the U.S. trade and financial warfare, the Western economies are in for a serious shock.

The long-term dream of U.S. New Cold Warriors is to break up Russia, or at least to restore its Yeltsin/Harvard Boys managerial kleptocracy, with oligarchs seeking to cash in their privatizations in Western stock markets. OGAM still dreams of buying majority control of Yukos and Gazprom. Wall Street would love to recreate a Russian stock market boom. And MIC investors are happily anticipating the prospect of selling more weapons to help bring all this about.

Russia’s intentions to benefit from America’s unintended consequences

What does Russia want? Most immediately, to remove the neo-Nazi anti-Russian core that the Maidan massacre and coup put in place in 2014. Ukraine is to be neutralized, which to Russia means basically pro-Russian, dominated by Donetsk, Luhansk and Crimea. The aim is to prevent Ukraine from becoming a staging ground of U.S.-orchestrated anti-Russian moves a la Chechnya and Georgia.

Russia’s longer-term aim is to pry Europe away from NATO and U.S. dominance – and in the process, create with China a new multipolar world order centered on an economically integrated Eurasia. The aim is to dissolve NATO altogether, and then to promote the broad disarmament and denuclearization policies that Russia has been pushing for. Not only will this cut back foreign purchases of U.S. arms, but it may end up leading to sanctions against future U.S. military adventurism. That would leave America with less ability to fund its military operations as de-dollarization accelerates.

Now that it should be obvious to any informed observer that (1) NATO’s purpose is aggression, not defense, and (2) there is no further territory for it to conquer from the remains of the old Soviet Union, what does Europe get out of continued membership? It is obvious that Russia never again will invade Europe. It has nothing to gain – and had nothing to gain by fighting Ukraine, except to roll back NATO’s proxy expansion into that country and the NATO-backed attacks on Novorossiya.

Will European nationalist leaders (the left is largely pro-US) ask why their countries should pay for U.S. arms that only put them in danger, pay higher prices for U.S. LNG and energy, pay more for grain and Russian-produced raw materials, all while losing the option of making export sales and profits on peaceful investment in Russia – and perhaps losing China as well?

The U.S. confiscation of Russian monetary reserves, following the recent theft of Afghanistan’s reserves (and England’s seizure of Venezuela’s gold stocks held there) threatens every country’s adherence to the Dollar Standard, and hence the dollar’s role as the vehicle for foreign-exchange savings by the world’s central banks. This will accelerate the international de-dollarization process already started by Russia and China relying on mutual holdings of each other’s currencies.

Over the longer term, Russia is likely to join China in forming an alternative to the U.S.-dominated IMF and World Bank. Russia’s announcement that it wants to arrest the Ukrainian Nazis and hold a war crimes trial seems to imply an alternative to the Hague court will be established following Russia’s military victory in Ukraine. Only a new international court could try war criminals extending from Ukraine’s neo-Nazi leadership all the way up to U.S. officials responsible for crimes against humanity as defined by the Nuremberg laws.

Did the American blob actually think through the consequences of NATO’s war?

It is almost black humor to look at U.S. attempts to convince China that it should join the United States in denouncing Russia’s moves into Ukraine. The most enormous unintended consequence of U.S. foreign policy has been to drive Russia and China together, along with Iran, Central Asia and other countries along the Belt and Road initiative.

Russia dreamed of creating a new world order, but it was U.S. adventurism that has driven the world into an entirely new order – one that looks to be dominated by China as the default winner now that the European economy is essentially torn apart and America is left with what it has grabbed from Russia and Afghanistan, but without the ability to gain future support.

And everything that I have written above may already be obsolete as Russia and the U.S. have gone on atomic alert. My only hope is that Putin and Biden can agree that if Russia hydrogen bombs Britain and Brussels, that there will be a devil’s (not gentleman’s) agreement not to bomb each other.

With such talk I’m brought back to my discussions with Herman Kahn 50 years ago. He became quite unpopular for writing Thinking about the Unthinkable, meaning atomic war. As he was parodied in Dr. Strangelove, he did indeed say that there would indeed be survivors. But he added that for himself, he hoped to be right under the atom bomb, because it was not a world in which he wanted to survive.

Ucrania

Habrán notado que escribimos poco últimamente. Tratamos de decir algo cada vez que pasa algo grosso. Algunos datan en el día de ayer el inicio de un nuevo orden mundial, multipolar. De las muchas notas que hemos leído en las últimas horas, nos llamó la atención la que posteamos hoy, que hace hincapié no tanto en la historia sino en los contextos económico y financiero en que se desenvuelve el drama ucraniano en estos días. La nota que sigue, fechada ayer, es de Alasdair Macleod para el sitio web Goldmoney Insights. Acá va:

Título: How Ukraine fits into the global jigsaw

Texto:

* Ukraine is part of a far bigger geopolitical picture. Russia and China want US hegemonic influence in the Eurasian continent marginalised. Following defeats for US foreign policy in Syria and Afghanistan and following Brexit, Putin is driving a wedge between America and the non-Anglo-Saxon EU.

* Due to global monetary expansion, rising energy prices are benefiting Russia, which can afford to squeeze Germany and other EU states dependent on Russian natural gas. The squeeze will only stop when America backs off.

* Being keenly aware that its dominant role in NATO is under threat, America has been trying to escalate the Ukraine crisis to suck Russia into an untenable occupation. Putin won’t fall for it.

* The danger for us all is not a boots-on-the-ground war — that’s likely to only involve the pre-emptive attacks on military installations Putin initiated last night — but a financial war for which Russia is fully prepared.

* Both sides probably do not know how fragile the Eurozone banking system is, with both the ECB and its national central bank shareholders already having liabilities greater than their assets. In other words, rising interest rates have broken the euro system and an economic and financial catastrophe on its eastern flank will probably trigger its collapse.

The bigger picture is Mackinder’s World Island

The developing tension over Ukraine is part of a bigger picture — a struggle between America and the two Eurasian hegemons, Russia and China. The prize is ultimate control over Mackinder’s World Island.

Halford Mackinder is acknowledged as the founder of geopolitics: the study of factors such as geography, geology, economics, demography, politics, and foreign policy and their interaction. His original paper was entitled “The Geographical Pivot of History”, presented at the Royal Geographical Society in 1905 in which he first formulated his Heartland Theory, which extended geopolitical analysis to encompass the entire globe.

In this and a subsequent paper (Democratic Ideals and Reality: A study in the Politics of Reconstruction, 1919) he built on his Heartland Theory, and from which his famous quote has been passed down to us: “Who rules East Europe commands the World Island [Eurasia]; Who rules the World Island rules the World”. Stalin was said to have been interested in this theory, and while it is not generally admitted, the leaders and administrations of Russia, China and America are almost certainly aware of Mackinder’s theory and its implications.

We cannot know if the Russian and Chinese leaders and administrations are avid Mackinder fans, but their partnership in the Shanghai Cooperation Organisation is consistent with his World Island Theory. Since commencing as a post-Soviet, post-Mao security agreement between Russia and China founded in 2001 to suppress Islamic fundamentalism, the SCO has evolved into a political and economic intergovernmental organisation, which with its members, observer states, and dialog partners accounts for over 3.5 billion people, half the world’s population.

The symbiotic relationship between resource rich Russia and the industrial Chinese ties the whole SCO together. China’s development of the Asian land mass holds the promise of dramatic improvements in everyone’s living conditions. And consistent with the World Island Theory, Chinese money now dominates the whole of sub-Saharan Africa, the Middle East and South-East Asian nations, particularly those controlled and influenced by the Chinese diaspora. China’s influence also spreads to South America through organisations such as BRICS (B is for Brazil) and Chile for copper and other metals.

While the Sino-Russian partnership dominates the World Island economically, America has only gradually been expelled from Asian affairs. Its post 9/11 campaigns in the Middle East destabilised that region, creating fuel for America’s enemies and appalling refugee calamities for her European allies to this day. Her withdrawal from resource-rich Afghanistan was merely the last domino to fall. She retains political influence in Western Europe and South-East Asia only, though her military and intelligence presence is still widespread.

Today, America’s actions are those of a hegemon whose time is passing. By the UK opting for Brexit, American influence over the European Union through its security and political partnership with the UK has been diminished. Its grip on European affairs through NATO is being undermined by both Turkey’s determination to shift its interests into the Turkic regions of Central Asia, and the EU’s determination to establish its own defence arrangements. The irrelevance of NATO for the future defence of Western Europe is now becoming apparent to the Russians, and it must be hard for them to resist speeding its decline.

The cold war in the Pacific is all about containing China. While Taiwan’s future and China’s attempts to establish naval bases in the South China Seas hog the headlines, China’s trade influence in the region continues to increase. After President Trump withdrew America from the planned Trans-Pacific Partnership, the TTP was replaced by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership which came into force in December 2018, whose eleven signatories have combined economies representing 13.4% of world GDP. This makes it one of the largest free trade areas by GDP and includes Australia and New Zealand. Even the UK has formally applied to join (it qualifies as a Pacific nation through its dependencies in the region), so that three of the US security “five eyes” members will be part of the CPTPP.

China also applied to join the CPTPP last September. For now, China’s membership of the CPTPP is in doubt. US allies in the partnership, including Japan, are insisting on various obstructive provisions. But in that well-worn hackneyed metaphor, China is the elephant in the room, and it is hard to see the CPTPP holding out against her membership for ever. For now, China can chip away at it by separate free trade agreements with selected CPTPP members, with whom it is already in bilateral trade.

Whatever America’s desire to retain political and military control over the Pacific may be, the economics of trade will eventually diminish that influence. And while sabres are being rattled over Taiwan and Pacific atolls, Russia is putting pressure on Europe to put an end to American dominated defence arrangements at the other end of the World Island.

Observers of the greatest of the great games would be right to look at current developments over Ukraine in the context of Mackinder’s heartland theory. Understand that, and you have a grasp of Putin’s reasoning. Driving American influence out of the Eurasian continent has been his objective ever since America reneged on her agreement not to advance NATO any closer to Russia following the ending of the old USSR.

Ukraine is caught in the middle

Both Russia and the Anglo-Saxons are ramping up the rhetoric over Ukraine. Until recently, Ukraine itself had seen little evidence of any truth in Western propaganda, asking for it to be toned down because all this war talk is increasing its likelihood and ruining the economy. Meanwhile the EU mainstream just wants peace and natural gas.

Concern is being expressed in some quarters that all this talk of war might become self-fulfilling — like the first World War. In this case, it is generally agreed by military strategists that Putin would be mad to take over Ukraine. He certainly has the fire power, and Ukraine is cast like a Belgium on the Steppes, with two ethnic groups and whose main purpose seems to be to allow foreign occupation and passage for foreign troops. But holding on to Ukraine against the peoples’ will, when there is an immensely long border over which dissidents can be provided with arms and anti-Russian propaganda is another matter.

Russian occupation is likely to be limited to defending Donbas and Luhansk now that Russia has formally recognised their right to self-determination. Without firing a shot, the Russian military has moved the border a hundred miles into formally Ukrainian territory. But that is where an occupying invasion is likely to stop and is not to be confused with the pre-emptive strikes against military bases and airfields today.

These moves are there to apply increasing pressure for a diplomatic settlement. So, what is it that Putin wants? Basically, he wants America to get out of Eastern Europe. And following Brexit, as America’s poodle he sees no reason why Britain should be there either. And having his thumb over various gas pipes into Europe, he is squeezing Germany and the other EU NATO members into his way of thinking.

Ukraine comes in the wake of America’s disastrous evacuation of Afghanistan, which followed the failure of her attempt to remove Syria’s Assad. It is rumoured that US intelligence services organised the failed coup in Kazakhstan, which was quickly subdued by Russian troops. So, from Putin’s point of view, American policy with respect to the Eurasian land mass has failed, he has America on the run, and he will want to capitalise on its retreat.

Meanwhile America, which has ruled western Europe through NATO following WW2, finds it hard to come to terms with its setbacks and needs to get back on the front foot. Presumably, by ramping up fears of a Russian invasion, the Biden administration hoped that either Putin would back down or be tricked into attacking Ukraine. If he had backed down, that would be a diplomatic victory and allow America to rebuild its presence in Kiev. If Putin invades and occupies Ukraine, America can help make life extremely difficult for an occupying force. Either way, it would mark the end of American policy failures on the Eurasian continent. Britain, as always, merely toes the American line.

But Putin is no fool. He is destroying Ukraine’s economy. He has his thumb on Nord Stream 1 and 2. And Germany has too many commercial and financial interests in both Russia and Eastern Europe for this not to hurt. Germany also hosts the main railhead for China’s silk road. If Germany kowtows to America, will America then put pressure on her to cut ties with China?

This is the geopolitical reality Germany and all mainland Europeans must now face. The new German Chancellor must decide: does he back America, sacrifice Germany’s economic potential and see energy costs soar, or does he recognise the economic realities of the Russia—China partnership and the enormous opportunities it provides for the long run?

Russia, America, and Germany are the principal actors whose decisions will decide the outcome of the Ukrainian situation. An escalation into a non-nuclear conflict and Russian occupation of Ukraine will only suit the Americans, confirming that their presence is the guarantee of national security.

Ukraine has become a virtual battleground

Ukraine’s geographical position, between the liberated central European states and Russia ensured that it would become central to the continuing rivalry between Russia and America. Since the fall of the Soviet Union, Ukraine has been determined to forge its path independent of Russia as a sovereign nation. But its starting point was difficult, with its eastern provinces predominantly Russian, while the western regions were more central European.

The Orange and Maidan Revolutions in 2004 and 2014 respectively were proxy struggles between America and Russia. While America allegedly chucked billions into its Ukrainian interests, in 2014 Russia responded by taking over Crimea and fomented rebellions in Luhansk and Donetsk. By capturing Crimea and fostering two breakaway provinces, Putin had won this territorial battle in an ongoing war.

Other than these eastern provinces, most Ukrainians have desperately tried to avoid their country becoming a Russian colony. They wanted to apply for EU membership, which was rejected by Russian-backed President Yanukovych in 2013, leading to the Maidan Revolution and Yanukovych fleeing the country to Russia. Ukraine has also sought the protection of NATO, which has provoked Putin to put a stop to American influences marching eastwards.

While Ukraine never left the headlines, the US moved its focus to Syria later in 2014.The eventual failure to oust Assad, who drew on Russian help, was followed by Afghanistan. Ukraine is now back in the headlines, this time at the behest of Russia. Putin is now proactively leading this conflict instead of quietly letting America make all the mistakes and rolling with the punches, representing a major change in Russian strategy. It implies that Putin perceives America to be off balance, and he sees it as the time for a winning move.

Putin has prepared his defences carefully. US politicians called for Russia to be cut out of SWIFT after the Crimean invasion. Since then, Russia has developed Mir, a payment system for electronic fund transfers, and a SWIFT equivalent known as SPFS — System for transfer of Financial Messages, with agreements linking SPFS to other payment systems in China, India, Iran, and member nations of the Eurasian Economic Union. The Central Bank of Russia has strengthened the commercial banking network. And it has also reduced its dollar exposure as much as possible by investing in gold and euros instead, which means less reserves are held as deposits in the US banking system and invested in US bonds.

From these actions, Putin has signalled that he is aware that the danger to Russia is more likely to be a financial war, rather than a physical one. As President Biden said, to have American troops on the ground fighting the Russians is a world war and will not happen. In that sense the Ukraine, over which Russia retains an energy stranglehold, is a virtual battleground for a proxy war.

Financial considerations

In examining the strengths and weakness of the principal parties, we must first confirm who they are: Russia, America, and the EU. And in the EU, principally it is Germany, but all member states will be affected.

As argued above, Russia’s real objective is to get America out of Europe, and Putin’s strategy is to drive a wedge between America and the EU, and in particular its industrial powerhouse, Germany. Plans to split America from Europe go back to Putin’s earlier days, with the construction of Nord Stream to bypass Ukraine with which Russia’s Gazprom was in dispute. Delivering 55bn billion cubic meters of natural gas annually, the first Nord Stream was completed in 2012. A second pipeline. Nord Stream 2, which is ready to go online, doubles this capacity.

American pressure on Germany to delay the operation of Nord Stream 2 follows the dollar’s debasement from March 2020 in particular, when the Fed reduced interest rates to zero and instituted QE of $120bn every month. The effect has been to undermine the dollar’s purchasing power for nearly all commodities, including energy. Consequently, a combination of dollar debasement, winter demand and the absence of extra supply from Russia has created an energy crisis not just for Germany, but all EU members.

Germany is particularly hard hit, with its producer prices index up 25% year-on-year at the end of January. Germany cannot go along with an escalation of financial sanctions against Russia at a time when its industry is struggling with other rising production costs. Not only is her trade with Russia substantial, but she has banking and financial interests in Central Europe, Eastern Europe, and Russia, which could be destabilised by American-led attempts to restrict payments.

Despite Chancellor Scholz’s initial support for EU sanctions Germany is likely to be indecisive, torn between competing demands from a collapsing economy and pressure from NATO. By withholding regulatory permission for Nord Stream 2 he has demonstrated that instead of regarding his electors’ interests as paramount, he has given in to NATO pressure. This weakness on Olaf Scholz’s part is consistent with the indecisive socialism of his Social Democratic Party and Germany’s continuing guilt trip following two world wars.

Recognising the importance of Germany and its likely indecision, President Macron of France seized the political opportunity to mediate between Russia and the EU, which suits the Russian cause. Macron simply provided another channel for Putin’s message about NATO: get the US out of Europe and the EU should be responsible for its own defence. And given Macron’s ambitions for France in Europe he is likely to see it as an opportunity to enable France to take the lead in the EU’s future defence arrangements after the Ukraine situation has blown over. That will be down the road, but for now the EU is standing firm behind US and UK sanction proposals.

Sanctions rarely work. They merely encourage the sanctioned to dig deeper into their own intellectual and entrepreneurial resources and work hard to find ways round them. Russia will merely sell its gas elsewhere: at these high prices harm is minimal, and they can afford to restrict supplies through Ukraine, the Yamal-Europe and Turk-stream pipeline supplies. It might be sensible for Russia to allow flows through Nord Stream 1 to continue for now, holding its restriction as a backup threat. European gas prices will likely rise even further, providing a price windfall for Russia. The tweet below, from Russian President Medvedev implies European gas prices will double from here.

The apparent lack of understanding of economic and financial consequences for the EU by the EU leadership is a wild card danger. The economic and financial exposure of Germany to its eastern neighbours has already been mentioned, but other EU members are similarly exposed. Furthermore, the reckless inflationary policies of the ECB have undermined the financial health of the entire euro system to the point where even on the current rise in bond yields, the ECB and all the national central banks (with only three minor exceptions) have liabilities greater than their assets. The whole eurozone is a mountain of financial disasters balanced on an apex over which it is set to topple.[i]

We cannot say for sure that Ukraine will be the last straw for the euro system, but we can point to political ignorance of this instability. Any dissenting central banker (and there could be some, particularly at the Bundesbank) has no influence at the political level. We must assume that none of the major political players in this tragedy are aware of the financial and economic crisis in Europe waiting to be triggered. And if the Russians have made a mistake, it will be in their accumulation of euro reserves, which will turn out to be worthless when the euro system collapses.

Financial sanctions against individual oligarchs have probably already been anticipated and avoiding action been taken by them: oligarchs are not dumb. Sanctions against Russian banks will have also been anticipated and will probably inflict less damage on them than on their counterparties in the EU banking system, particularly if SWIFT comes under pressure to suspend Russian banking access.

Not only Ukraine, but the whole of the EU, for which Russia supplies over 40% of its natural gas, is being squeezed. We can be reasonably sure that the Russian government has war-gamed this situation in advance.

Inflation, gold, and unintended consequences

The situation today is very different from that of 2014 at the time of the Maidan revolution, with the world massively increasing government debt and currency in circulation since then. At the time of the Crimean take-over, commodity prices were declining from their peak in 2011, and following Crimea, they fell sharply with negative consequences for the Russian economy. The expansion of world currencies is now driving commodity and energy prices higher due to their purchasing power is declining.

Figure 2 shows how a basket of commodities has increased in price since the Fed reduced its funds rate to the zero bound and instituted QE at $120bn per month. In those 22 months commodity prices have risen by 127% by this measure.

When all commodity prices rise at the same time it is due to currency debasement, which is what has happened here. Within the broader commodity context, energy price increases have been particularly acute, with Russia being a major beneficiary, leading to a substantial surplus on its balance of trade.

It has been a long-term ambition of the Sino-Russian partnership not just to expel America from the World Island but to reduce dependency on dollars as well. While trade between Russia and China is increasingly settled in their own currencies, so long as the dollar has credibility for settling international transactions it will still dominate trade for the other nations in the Eurasian landmass.

The fiat alternative for Russia has been the euro, which partly explains why Russia has accumulated them in her foreign currency reserves. But since 2014, the stability of the euro system has deteriorated to the point where the currency is no longer a credible alternative to the US dollar. We cannot be sure if this is understood in the Kremlin. But there has always been a Plan B, which is the accumulation of physical gold.

There is evidence that official reserves in China and Russia understate the true position. Following the enactment of regulations in 1983 whereby the Peoples Bank was appointed sole responsibility for the acquisition of China’s gold and silver reserves, I have estimated that the State accumulated as much as 20,000 tonnes of gold before permitting the public to own gold, for which purpose the Shanghai Gold Exchange was established in 2002. Since then, the SGE has delivered a further 20,000 tonnes from its vaults into public hands, though some of this will have been returned as scrap.

The Chinese state has retained the exclusive right to mine and refine gold, even importing doré from abroad. China is now the largest gold mine producer in the world by far, continuing to add over tonnes annually to total above ground stocks (last year’s dip to 350 tonnes was due to covid), which are all ringfenced in China. These policies, as well as anecdotal evidence suggests that my earlier estimate of state-owned gold of 20,000 tonnes was realistic.

Russia has been relatively late in adding to her gold reserves, having officially accumulated 2,298 tonnes. But being only second to China as a gold mine producer at 330 tonnes, it is likely that following earlier financial sanctions that Russia has accumulated undeclared gold reserves as well. Additionally, we can see that all the SCO members and their associates have increased their declared gold reserves by 75% since 2014. Plan B therefore appears to be to back fiat roubles and renminbi with gold in the event of a Western fiat currency meltdown.

The West has no such plan. America’s fifty-one-year denial of and attempted demotion of gold as the ultimate money appears to have left it short: otherwise it could have returned Germany’s gold on demand instead of trying to spin it out over a number of years. Furthermore, Western central banks routinely lease and swap their gold, leading to double counting of reserves and lack of clarity over ownership. We can be sure that neither Russia nor China indulge in these practices.

The consequence of these disparities is to weaponize gold’s monetary status, turning it into a nuclear weapon in a financial war. If, say, during NATO-led attempts to destabilise the rouble Russia was to declare another 6,000 tonnes to match America’s unaudited figure and for China to revise its reserves to stabilise the renminbi, it would probably result in a run against the dollar. It would be a sure-fire way for the Asian hegemons to destroy US economic and military power.

Therefore, ultimately, the US and its five-eyes allies cannot win a financial war. When China and Russia planned their financial defences, this golden umbrella made sense, and the security services in America would have been aware of it, if not the full implications. But things have changed, particularly the debasement of all major currencies, including the renminbi. China has an old-fashioned cyclical property crisis on her hands and can only think to print her way out of trouble. Together with the Fed, the ECB, and the Bank of Japan, the Peoples Bank has expanded its balance sheet recklessly, and all together they have increased from $5 trillion equivalent in 2007 to over $31 trillion today, with their rate of expansion being particularly high from March 2020.

The consequences for their currencies’ purchasing power are becoming obvious now, turbocharging Russia’s strategy with respect to European energy supply. What few politicians appear to be aware of, and we should include Putin in this, is the fragile state of the major central banks. Having loaded their balance sheets up with fixed-interest government debt, falling market values for these bonds are eliminating central banks’ margin of assets over liabilities. While the Fed, the Bank of Japan and the Bank of England can turn to their governments for recapitalisation, embarrassing though that may be, the ECB has no such recourse.

The ECB’s shareholders are the national central banks in the euro system. And they in turn, except for Ireland’s, Malta’s, and Slovenia’s central banks, all have liabilities easily exceeding their assets. The euro system is already insolvent, and Russian action on energy supplies could tip the whole currency system over the edge.

Given the Russian Central Bank’s reserve holding of euros, we can call that an unintended consequence.

Nota: [i] See the section on the ECB at https://www.goldmoney.com/research/goldmoney-insights/central-banks-are-now-insolvent