“The era of liberal globalization is over. Before our eyes, a new world economic order is being formed”

Wow! How rapidly the wheel of fortune turns. It seems like only yesterday that a French Finance minister was touting the imminent the collapse of the Russian economy, and President Biden celebrated the Rouble being “reduced to rubble” – the collective West having seized foreign exchange reserves of the Central Bank of Russia; threatened to seize any Russian gold it could lay its hands on; as well as imposing unprecedented sanctions on Russian individuals, companies and institutions. Total fin-war!

Well, it didn’t work out that way. It scared the bejesus out of Central Bankers around the world that their reserves might be up for seizing too if they strayed from ‘the line’. Nonetheless, Team Biden’s hubristic decision to try again to collapse of the Russian economy (first ‘go’ was 2014) may yet come to be viewed as a major geo-political inflection point.

Its’ salience in geo-political terms may even ultimately equate to Nixon’s closing of the U.S. ‘gold window’ in 1971 – albeit, this time, with events pointing completely in the converse direction.

The consequences to Nixon’s abandonment of gold were nuclear. The petrodollar based trading system that was birthed from it allowed America to ‘nuke’ the world with sanctions and secondary sanctions – giving the U.S. its unipolar financial hegemony (after U.S. militarism alone, as the global order’s main support pillar, became discredited in the wake of the 2006 Gulf War).

Now, barely a month on, we see articles in the financial press that it is the Western financial system and world reserve currency that is in open decline, and not Russia’s economic system.

So what is going on?

The post-1971 system quickly evolved from being underpinned by a commodity – crude oil – to a fiat currency which is a “promise” to repay a debt obligation, and nothing more. A hard asset-backed currency is a guarantee that repayment will occur. By contrast, a one dollar of reserve capital is backed by nothing tangible – just the “full faith and credit” of the issuing entity.

What happened is that the fiat system began its demise when the Russo-phobic Washington ‘hawks’ stupidly picked a fight with the one country – Russia – that has the commodities needed to run the world, and to trigger the shift to a different monetary system – to a system that is anchored in something other than fiat money.

Well, the first ‘strike’ on the system – the sequellae to western financial war on Russia – simply was mayhem in commodity markets as prices soared astronomically. Russia is a global commodity super supplier, and it was being ring-fenced by sanctions.

Then early in March, Zoltan Pozsar, who formerly worked at the NY Fed, and was formerly an advisor at the U.S. Treasury and currently a strategist at Credit Suisse, published a research report in which he made the case that the world is heading to a monetary system in which currencies are backed by commodities, as opposed to being backed solely by a sovereign issuer’s “full faith and credit.”

As one of Wall Street’s most respected voices, Pozsar argued that this present monetary system worked so long as commodity prices oscillated predictably within a narrow band – i.e. not under extreme stress (precisely because commodities are collateral for other debt instruments). However, when the entire commodity complex is under stress – as it is now – the berserk commodity prices drive a wider ‘no-confidence’ vote in the system. And that is what we are witnessing now.

In short, the financial war on Russia gave the West an unmistakable lesson from Moscow that the hardest currencies are not USD or EUR, but rather oil, gas, wheat, and gold. Yes, energy, food and strategic resources are currencies.

Then arrived the second strike on the system: On 28 March, Russia announced that it was putting a floor under the price of gold. Its Central Bank would buy gold at a fixed price of 5,000 roubles per gramme – until at least 30 June (the 2^nd quarter end).

A price of RUB 100: 1 dollar imputes a gold price of $1550 per ounce, and a RUB/USD rate of around 75, but today a rouble exchanges at approximately RUB 84:1 dollar – (i.e. more roubles than just 75 are required to buy one dollar). Tom Luongo has noted however, that with the Central Bank buying gold at a fixed rate, this commitment gives an arbitrage incentive to Russians to hold savings in roubles, because the rouble is being ‘fixed’ at an undervalued rate relative to an over-valued open gold price (at approximately $1,936 per ounce, at time of writing).

In short, Russia’s Central Bank commitment sets in motion a dynamic to bring the Rouble back into balance with the current dollar price of gold on the open market. And ‘hey presto’, contrary to the European-U.S. effort to crash the exchange value of the rouble and cause a crisis, the rouble is already back at its pre-war level – and it is the dollar which has crashed (vs. the rouble).

But note this: Should the value of the rouble rise further vs the dollar, (say from 100 to 96:1) – as a result of Russia’s commodity trade strength – then the imputed price of gold becomes $1610 per oz. Or, in other words the value of gold rises.

But there is another wrinkle to this: Europeans are loudly protesting that Putin has insisted that ‘unfriendly states’ pay for their gas imports in Roubles (rather than dollars or euros) from 31 March, but Putin added the rider that the Europeans alternatively could pay in gold. (And other states have a further option to pay in Bitcoin.)

And here is the point: If fewer than 75 roubles equate to one dollar, buyers are getting oil at a discount when paying in gold. Maybe the big European energy majors will not be interested, but Asian traders will be keen to arbitrage and profit from the implied price differentials. And that, in itself, is likely to force the physical gold markets into a supply shortage situation, which again will feed through into further increasing the price of physical gold.

One less evident component therefore to European cries of pain (‘We won’t pay in roubles’), is that Central Bankers try to keep gold trading in a tight pattern (through manipulating the paper gold market as so not to rock the foundation of the global financial system).

But what the Russian Central Bank has just done is to wrest the gold ‘price-maker’ role away from the West, and its price manipulation. Between them, Russia and China can therefore effectively control the gold and oil price. Luongo concludes: ‘They are about to change the denominator in the global foreign exchange markets from the USD to gold/oil (commodity currency)’.

“Putin let the world down easy with this announcement. He could have walked right in and said 8000 roubles to the gram or $2575/oz and that would have broken the markets Friday going into the weekend, by selling his oil and gas at a steep discount” – thus forcing a rise in the gold price.

Neat, hey?

Ok, ok: bring on the chorus with usual tropes: Oh no; not another ‘de-dollarisation narrative! TINA – “There is no alternative to the dollar as a reserve currency”.

Fine. We all know that all gold at current valuation is far too small in total value to underpin a fully gold-backed trading currency or global trade. And, by the way, this is not about ending the dollar as an instrument of trade. No, it is about signalling a new direction of travel.

Pozsar’s argument is more subtle: A crisis is unfolding. A crisis of commodities. Commodities are collateral, and collateral is money, and this crisis is about the rising allure of ‘commodity-linked currency’ over fiat money. In periods of banking crises, banks are reluctant to play the inside game because they don’t trust fiat currency as a real collateral. They then refuse to lend money to their banking peers. Every time this occurs, the Central Banks have to print more money to “lubricate” the system enough so that it functions. This in turn, further devalues the fiat money, on which the system is predicated.

But if currency issued by Governments and printed by Central Banks is backed by hard assets, this problem is avoided. In this system, the counter-party to trade or financing transactions would have the option of demanding payment in the hard asset or assets backing the currency – most likely gold or possibly a pre-agreed upon commodity asset. Recall, fiat currency is nothing more than an unsecured debt instrument of the issuing entity – one which we have seen can be ‘cancelled’ at whim by the issuer – the U.S. Treasury.

This makes the ‘pay in roubles’ scheme more understandable too: Any workable “pay in roubles” scheme will have gas buyers going to Russian banks to sell dollars or euros or sterling to the bank, to have it buy roubles to tender to Gazprom. This will have the effect both of increasing the value of the rouble as a means of trade but may mitigate exposure to further financial sanctions by making Russian institutions the locus for payment operations.

As for the ‘direction of travel’? “After the current history of confiscation of dollar reserves”, Sergei Glazyev – supervising Eurasian Economic Commission’s planning for the monetary future – has said  bluntly: “I don’t think any country will want to use another country’s currency as a reserve currency. So, we need some new tool”. “We (the EEC) are currently working on a such a tool, which can first become a weighted average component of these national currencies”, he said. “Well, to this we must add, from my point of view, exchange-traded commodities: not only gold, but also oil, metal, grain, and water: A sort of commodity bundle – with a payment system based on modern digital blockchain technologies”.

“In other words, the era of liberal globalization is over. Before our eyes, a new world economic order is being formed — an integral one, in which some states and private banks lose their private monopoly on the issue of money”.

By Pepe ESCOBAR

Saddam, Gaddafi, Iran, Venezuela – they all tried but couldn’t do it. But Russia is on a different level altogether.

The beauty of the game-changing, gas-for-rubles, geoeconomic jujitsu applied by Moscow is its stark simplicity.

Russian President Vladimir Putin’s presidential decree on new payment terms for energy products, predictably, was misunderstood by the collective west. The Russian government is not exactly demanding straightforward payment for gas in rubles. What Moscow wants is to be paid at Gazprombank in Russia, in its currency of choice, and not at a Gazprom account in any banking institution in western capitals.

That’s the essence of less-is-more sophistication. Gazprombank will sell the foreign currency – dollars or euros – deposited by their customers on the Moscow Stock Exchange and credit it to different accounts in rubles within Gazprombank.

What this means in practice is that foreign currency should be sent directly to Russia, and not accumulated in a foreign bank – where it can easily be held hostage, or frozen, for that matter.

All these transactions from now on should be transferred to a Russian jurisdiction – thus eliminating the risk of payments being interrupted or outright blocked.

It’s no wonder the subservient European Union (EU) apparatus – actively engaged in destroying their own national economies on behalf of Washington’s interests – is intellectually unequipped to understand the complex matter of exchanging euros into rubles.

Gazprom made things easier this Friday, sending official notifications to its counterparts in the west and Japan.

Putin himself was forced to explain in writing to German Chancellor Olaf Scholz how it all works.

Once again, very simple: Customers open an account with Gazprombank in Russia. Payments are made in foreign currency – dollars or euros – converted into rubles according to the current exchange rate, and transferred to different Gazprom accounts.

Thus it is 100 percent guaranteed that Gazprom will be paid.

That’s in stark contrast to what the United States was forcing the Europeans to do: pay for Russian gas in Gazprom accounts in Europe, which would then be instantly frozen. These accounts would only be unblocked with the end of Operation Z, Russia’s military ops in Ukraine.

Yet the Americans want the war to go on indefinitely, to “bog down” Moscow as if this was Afghanistan in the 1980s, and have strictly forbidden the Ukrainian Comedian in front of a green screen somewhere – certainly not Kiev – to accept any ceasefire or peace deal.

So Gazprom accounts in Europe would continue to be frozen.

As Scholz was still trying to understand the obvious, his economic minions went berserk, floating the idea of nationalizing Gazprom’s subsidiaries – Gazprom Germania and Wingas – in case Russia decides to halt the gas flow.

This is ridiculous. It’s as if Berlin functionaries believe that Gazprom subsidiaries produce natural gas in centrally heated offices across Germany.

The new rubles-for-gas mechanism does not in any way violate existing contracts. Yet, as Putin warned, existing contracts may indeed be stopped: “If such [ruble] payments are not made, we will consider this to be the buyers’ failure to perform commitments with all ensuing implications.”

Kremlin spokesman Dmitri Peskov was adamant that the mechanism will not be reversed under the current, dire circumstances. Still that does not mean that the gas flow would be instantly cut off. Payment in rubles will be expected from ‘The Unfriendlies’ – a list of hostile states that includes mostly the US, Canada, Japan and the EU – in the second half of April and early May.

For the overwhelming majority of the Global South, the overarching Big Picture is crystal clear: an Atlanticist oligarchy is refusing to buy the Russian gas essential to the wellbeing of the population of Europe, while fully engaged in the weaponization of toxic inflation rates against the same population.

Beyond Rublegas

This gas-for-rubles mechanism – call it Rublegas – is just the first concrete building block in the construction of an alternative financial/monetary system, in tandem with many other mechanisms: ruble-rupee trade; the Saudi petroyuan; the Iran-Russia SWIFT- bypassing mechanism; and the most important of all, the China-Eurasia Economic Union (EAEU) design of a comprehensive financial/monetary system, with the first draft to be presented in the next few days.

And all of the above is directly linked to the stunning emergence of the ruble as a new, resource-based reserve currency.

After the predictable initial stages of denial, the EU – actually, Germany – must face reality. The EU depends on steady supplies of Russian gas (40 percent) and oil (25 percent). The sanction hysteria has already engineered certified blowback.

Natural gas accounts for 50 percent of the needs of Germany’s chemical and pharmaceutical industries. There’s no feasible replacement, be it from Algeria, Norway, Qatar or Turkmenistan. Germany is the EU’s industrial powerhouse. Only Russian gas is capable of keeping the German – and European – industrial base humming and at very affordable prices in case of long-term contracts.

Disrupt this set up and you have horrifying turbulence across the EU and beyond.

The inimitable Andrei Martyanov has summed it up this way: “Only two things define the world: the actual physical economy, and military power, which is its first derivative. Everything else are derivatives but you cannot live on derivatives.”

The American turbo-capitalist casino believes its own derivative “narrative” – which has nothing to do with the real economy. The EU will eventually be forced by reality to move from denial to acceptance. Meanwhile, the Global South will be fast adapting to the new paradigm: the Davos Great Reset has been shattered by the Russian Reset.

thecradle.co

I don’t think everyone has yet caught the significance of Russia announcing they are putting a floor under the price of gold.  But, to be clear, Russia just broke the paper gold suppression scheme.

On Friday the Bank of Russia announced:

RUB5000 to the gram at an exchange rate of 100 RUB/USD implies a $1550 per ounce gold price.

For a few days previous to this announcement, which they knew was coming, The West was running around with multiple bits of legislation to try and keep the Russians from selling their gold.

The G7 think the sanctions are hitting so hard that Putin will be forced to sell his gold to evade sanctions to pay for things.  They are literally running a script in their heads that is not actually playing out in the real world.

But, whatever, Neocons never met an ugly stick that they didn’t want to use to beat someone over the head with.  Too bad all they’re doing is hitting a rubber tire.

Boing!

Because here’s the gig, Russia won’t be selling any gold. They’re buying it.

These are supposed to be the architects of the global monetary system and you would think they are the ones that understand it the best.  But, clearly they do not.

What they think they understand is that they still control the flow of commodities around the world through price suppression schemes on the CRIMEX, LBMA and ICE.

They do not.

Ultimately, ‘outside money’ trumps ‘inside money.’  

Austrians, like myself, have always understood that eventually Inside Money [money that exists within the financial system] fails because it is ultimately nothing more than a Ponzi Scheme built on top of Outside Money — money that exists outside the financial system, like commodities and bitcoin.

Money, It’s a Hit!

Let’s start with the basics. Why do we create money? To act as a way to mitigate the time risk between selling what we have and buying what we want. So we sell our labor today to buy gasoline, printer paper or blow jobs tomorrow. In the meantime we hold money.

It is a way to turn thought and personal application of energy and time into a token which can procure for us real goods in the real world.

With that in mind, now think about the current financial system where all inside money is created by first selling a debt instrument to someone willing to hold it for a vig.

Back to the ruble and gold. Because once I lay out the new incentive structure it will be clear as to why the G7 has no friends in this fight anymore.

Davos’ power rests on the ability to create credit and sell it at a positive interest carry to commodity producers.  Since base commodity production in any kind of efficient market should be a very low margin enterprise, think 1-4% real annual return, selling them debt to extract oil or gold out of the ground at higher rates than that ultimately sucks all the profit out of the venture.

Free markets when allowed to function properly grind out profit through competitive arbitrage. It is both brutal and the spark of new innovations and efficiencies.

It is the desire for higher profits over baseline that does this.

In base commodities that is difficult, at best, to do. Why? Because they aren’t anything more than a second order good. First order would be the ore or timber harvested. Second order would be the ingot or lumber produced. The higher order the good, the more specialized it is and the higher opportunity for profit through product differentiation on something other than price emerges.

That’s most difficult to do in improving resource extraction because, it follows, most of the major gains in efficiency occurred in the past when the economy was less specialized.

Confusion Over ‘The System’

If the banks are on both sides of the trade setting the price of money, then they ultimately control who wins and who loses while this goes on. And let’s not mince words, it’s them. The profit rolls up to those that produce the highest order goods with the most complex supply chains.

The banks plough the profits from getting interest on the original debt into the very companies producing the higher order goods needed to ensure the lower order goods produce no wealth through the grinding out of profit via arbitrage throughout the supply chain.

Don’t believe me? Ask cattle farmers.

In this respect the current financing of these industries is nothing more than a virtualized version of the colonial economic model of the 15th through 19th centuries.

Instead of using physical men to subjugate the locals through superior weaponry and bribes to get them to extract the mineral wealth which the colonialists take back home, today we use the post-WWII institutions to run that same system through debt issuance for capex and the interest payments (in this case pure economic rent – unearned wealth).

The producer countries of all the mineral wealth in the world are nothing but debt slaves to the money masters in Brussels, City of London and New York.  That’s the gig.

Since we’ve reached the point of debt saturation where no more debt can be issued to extract mineral wealth and have the markets believe it could ever be paid back at these real yields, the system has to be reset.

The whole Great Reset is a way to crash the existing system but leave the same colonialists in power legally.

It’s not really more complicated than that.

When you understand that dynamic now you can understand why Russia, in particular, is the vanguard of the Global South’s desire to change the System of the World.

It is also the one country that has the commodity production power to expose the vulnerabilities of this System.

That’s Nice… #GotRubles?

And that’s where pegging the ruble to gold comes in.

The Bank of Russia is now a buyer of gold at 5000 rubles to the gram, or 155,500 rubles to the troy ounce.  At a Friday March 25th closing price of RUB96.62 vs. the USD that implies a gold price of $1610 per ounce.

The ruble is now freely strengthening versus the US dollar.

Now, that is not that remarkable on its own.

As I explained on Twitter that day:

• 1: At $1550 per ounce the first order effect here is that is implies a RUB/USD rate of around 75. Incentivizing those holding RUB to continue and those needing them to bid up the price from current levels.
• 2: This creates a positive incentive loop to bring the ruble back to pre-war levels.  Then after that market effects take over as ruble demand becomes structural, based on Russia’s trade balance.
• 3: Once that happens and the RUB/USD falls below 75, then the USD price of gold rises structurally draining the paper gold markets and collapsing the financial system based on leveraged/hypothecated gold.  Now we’re into the arb. phase @Lukegromen postulated w/ 1000bbls/oz.

So, this scheme incentivizes Russians to hold savings in rubles, because the ruble is undervalued.  It also incentivizes foreign traders to hold rubles because the ruble is undervalued relative to an overvalued open gold price.

Clearly currency speculators in Moscow, Shanghai, Singapore, Mumbai and Hong Kong are having a field day with this.

Coupled with Putin demanding ‘unfriendly countries’ paying for their Russian imports with either gold or the ruble, the natural choice is for them to buy rubles until such time as the price of gold and the ruble are in sync on international markets.

The howls of pain from the G-7 and Germany in particular are equal parts pathetic and hilarious as they complain that Putin is in ‘breach of contract’ for demanding a different payment currency for gas other than the euros stipulated in the contract.

Earlier Monday German Economy Minister Robert Habeck said from Berlin that the Kremlin demand for natural gas contracts to be paid in rubles is a “one-sided and clear breach of contracts” – saying the contracts must be honored under prior conditions, according to Bloomberg. “That means that a payment in rubles is not acceptable and we urge the relevant companies not to comply with Putin’s demand,” Habeck said. “Putin’s effort to drive a wedge between us is obvious but you can see that we won’t allow ourselves to be divided and the answer from the G-7 is clear: the contracts will be honored.”

The Kremlin’s quick shooting down of the German economy minister’s comments and the G-7’s stance on the ruble came Monday via a Russian lawmaker to state-run RIA Novosti: “Russian lawmaker Abramov says G7’s refusal to pay in Russian roubles for gas will definitely lead to a halt in supplies.”

Pissed off Russians certainly have a way with words, as a writer, I appreciate this greatly. According to TASS:

Moscow is handling the details of its gas delivery plans to unfriendly countries for payment in rubles, but it won’t engage in charity if Europe refuses to pay in the Russian currency, Kremlin Spokesman Dmitry Peskov told reporters on Monday.

…The Kremlin spokesman remained tight-lipped on what measures Russia might take if Europe refused to pay for gas in rubles, noting that these “issues should be sorted out as they develop.” “But we will definitely not supply gas for free, that’s for sure. It is hardly possible and reasonable to engage in charity in our situation,” he emphasized.

Do you hear that Davos? That’s the sound of the ticking clock.

The Trade’s the Thing…

The reason why this current scheme is already working is that Russia runs a positive trade balance mostly in base commodity exports. Davos doesn’t want them making any money selling those commodities to the world and will continue to put sanctions on to get people to not use rubles.

They are however fighting the invisible hand of Adam Smith’s market. The demand for the ruble will rise above the pre-war exchange rate of around 75:1 vs. the USD.

The price point for gold/ruble implies that exchange rate. Russia will revisit this at the end of Q2.  This also implies they expect the ruble/dollar rate to fall to 75 by the end of Q2, if not earlier.

After that if the ruble strengthens beyond that they can adjust the gold buying price.

If the ruble/dollar rate dips below their pegged price, buyers are getting oil at a discount when paying in gold. That will force the CRIMEX and LBMA into a supply shortage situation or they will have to end the expansion of paper gold versus real gold and allow real price discovery to the upside.

If the sanctions are successful in scaring everyone into not using rubles gold Russian commodities then the exchange rate will stay stubbornly above 75 and the boycotting world will lose competitive advantage versus those willing to brave the US’s ire by getting Russian commodities on the cheap.

As I talked about in previous articles, this sets up the opportunity to end the suppression of the price of gold through rehypothecation of physical gold in the paper markets which is the basis for the entire financial colonization system I described above.

FYI, this same scenario is going to play out in Bitcoin now that Russia has said ‘friendly countries’ can pay for imports with Bitcoin.  Has anyone noticed the current rally in the World’s Most Hated Cryptocurrency?

We now have a full gold/bitcoin/ruble (and soon Yuan) interconversion system that completely and utterly cuts out Davos and destroys their colonial debt model while also taking away their power to crash economies through hot money in and out flows.

Because the next step in all of this is for Russia to close their capital account and nationalizing the Bank of Russia making the only source of international rubles be the Russian government.

Internally, the ruble will be de facto backed by gold and can circulate freely.

The War Without End, Ended

The war is over folks.  Russia, China and the rest of the Global South have already won. As Luke Gromen replied to me., “in the end there’s nothing they can do about it.”

What scares me is the last thing I tweeted out in that thread:

“Other than widen the war on the ground.  That’s the part that scares me.”

And that’s exactly what I expect to happen next, sadly.  Biden is in Brussels saying the quiet parts out loud talking with the 82nd Airborne about going into Ukraine and calling for regime change in Moscow.

These people still believe their own bullshit to the point where they think this becomes a war the Russians can’t win.

Putin let the world down easy with this announcement.  He could have walked right in and said 8000 rubles to the gram or $2575/oz and that would have broken the markets Friday going into the weekend, by selling his oil and gas at a steep discount.

He waited until after OpEx last Friday and the Fed’s interest rate hike plan was announced.

Timing matters guys.

But, by doing this he has very subtly also supported the Fed and it’s plan to withdraw dollars from Europe, because this will keep the price of gold in check for a little while and keeping the ECB from offsetting spiking Eurobond yields with higher gold reserves on its balance sheet.

Putin on the left arm, Powell on the right and Lagarde is about to get pulled apart at the seams if Davos doesn’t play ball and give up.

The problem there is the unquenchable arrogance of these European elites who simply do not believe they could be bested by the “colonies” in the US and the “dirty slavs” in Russia.  I’ve told you for years now that it is their inherent racism that drives their actions.

So, do not be surprised if they empower the neocons in the UK and US to escalate from here. The signs are piling up that the Pentagon and the White House are at odds over the planned escalations. The State and Treasury Depts. are nests of vipers having usurped Congress to wage war without declaring it.

I can only hope that serious and adult people within the Pentagon will finally end this nonsense before we wind up in a war no one wants except a bunch of inbred Eurotrash well past their ‘use-by’ date.

I always say that spooks start civil wars but militaries end them. Let’s hope that we never get to the point of needing any other military than the Russians’ to end this war.

In the meantime, the message is clear, #GotGoldorRubles?

tomluongo.me

It was something to behold. Dmitri Medvedev, former Russian President, unrepentant Atlanticist, current deputy chairman of the Russian Security Council, decided to go totally unplugged in an outburst matching the combat star turn of Mr. Khinzal that delivered palpable shock and awe all across NATOstan.

Medvedev said “hellish” Western sanctions not only have failed to cripple Russia, but are instead “returning to the West like a boomerang.” Confidence in reserve currencies is “fading like the morning mist”, and ditching the US dollar and the euro is not unrealistic anymore: “The era of regional currencies is coming.”

After all, he added, “no matter if they want it or not, they’ll have to negotiate a new financial order (…) And the decisive voice will then be with those countries that have a strong and advanced economy, healthy public finances and a reliable monetary system.”

Medvedev relayed his succinct analysis even before D Day – as in the deadline this Thursday established by President Putin after which payments for Russian gas by “unfriendly nations” will only be accepted in rubles.

The G7, predictably, had struck a (collective) pose: we won’t pay. “We” means the 4 that are not large Russian gas importers. “We”, moreover, means the Empire of Lies dictating the rules. As for the 3 that will be in dire straits, not only they are major importers but also happen to be WWII losers – Germany, Italy and Japan, still de facto occupied territories. History does have a habit of playing perverted tricks.

Denial didn’t last long. Germany was the first to break – even before industrialists from Ruhr to Bavaria staged a mass revolt. Scholz, the puny Chancellor, called Putin, who had to explain the obvious:  payments are being converted into rubles because the EU froze Russia’s foreign exchange reserves – in a crass violation of international law.

With Taoist patience, Putin also expressed hope this would not represent a deterioration in contract terms for European importers. Russian and German experts should sit down together and discuss the new terms.

Moscow is working on a set of documents defining the new deal. Essentially, that spells out no rubles, no gas. Contracts become null and void once you violate trust. The US and the EU broke legally biding agreements with unilateral sanctions and on top of it confiscated foreign reserves of a – nuclear – G20 nation.

The unilateral sanctions made dollars and euros worthless to Russia. Hysteria fits won’t cut it: this will be resolved – but under Russia’s terms. Period. The Foreign Ministry had already warned that refusal to pay for gas in rubles would lead to a serious global crisis of non-payments and serial global-level bankruptcies, a hellish chain reaction of blocked transactions, freezing of collateral assets and closures of credit lines.

What will happen next is partially predictable. EU companies will receive the new set of rules. They will have time to examine the documents and make a decision. Those that say “no” will be automatically excluded from receiving direct Russian gas shipments – all politico-economic consequences included.

There will be some compromise, of course. For instance, quite a few EU nations will accept to use rubles and increase their gas acquisitions so they may resell the surplus to their neighbors and make a profit. And some may also decide to buy gas on the go on energy exchanges.

So Russia is not imposing an ultimatum on anybody. The whole thing will take time – a rolling process. With some sideway action as well. The Duma is contemplating the extension of payment in rubles to other essential products – such as oil, metals, timber, wheat. It will depend on the collective voracity of the EU chihuahuas. Everyone knows that their non-stop hysteria may translate into a colossal rupture of supply chains across the West.

Bye bye oligarchs

While the Atlanticist ruling classes have gone totally berserk but still remain focused on fighting to the last European to extract any remaining, palpable EU wealth, Russia is playing it cool. Moscow has been quite lenient in fact, brandishing the specter of no gas in Spring rather than Winter.

The Russian Central Bank nationalized foreign exchange earnings of all major exporters. There was no default. The ruble keeps rising – and is now back to roughly the same level before Operation Z.  Russia remains self-sufficient, food-wise. American hysteria over “isolated” Russia is laughable. Every actor that matters across Eurasia – not to mention the other 4 BRICS and virtually the whole Global South – did not demonize and/or sanction Russia.

As an extra bonus, arguably the last oligarch capable of influence in Moscow, Anatoly Chubais, is gone. Call it another momentous historical trickery: Western sanction hysteria de facto dismembered Russian oligarchy – Putin’s pet project since 2000. What that implies is the strengthening of the Russian state and the consolidation of Russian society.

We still don’t have all the facts, but a case can be made that after years of careful evaluation Putin opted to really go for broke and break the West’s back – using that trifecta (imminent blitzkrieg on Donbass; US bioweapon labs; Ukraine working on nuclear weapons)  as the casus belli.

The freezing of foreign reserves had to have been forecasted, especially because the Russian Central Bank had been increasing its reserves of US Treasuries since November last year. Then there’s the serious possibility of Moscow being able to access “secret” offshore foreign reserves – a complex matrix built with Chinese insider help.

The sudden switch from dollars/euros to rubles was hardcore, Olympic-level geoeconomic judo. Putin enticed the collective West to unleash its demented hysteria sanction attack – and turned it against the opponent with a single, swift move.

And here we all are now trying to absorb so many in-synch game-changing developments following the weaponization of dollar assets:  rupee-ruble with India, the Saudi petroyuan, co-badged Mir-UnionPay cards issued by Russian banks, the Russia-Iran SWIFT alternative, the EAEU-China project of an independent monetary/financial system.

Not to mention the master coup by the Russian Central Bank, pegging 1 gram of gold to 5,000 rubles – which is already around $60, and climbing.

Coupled with No Rubles No Gas, what we have here is energy de facto pegged to gold. The EU Chihuahuas and the Japanese colony will need to buy a lot of rubles in gold or buy a lot of gold to have their gas. And it gets better. Russia may re-peg the ruble to gold in the near future. Could go to 2,000 rubles, 1,000 rubles, even 500 rubles for a gram of gold.

Time to be sovereign

The Holy Grail in the evolving discussions about a multipolar world, since the BRICS summits in the 2000s featuring Putin, Hu Jintao and Lula, has always been how to bypass dollar hegemony. It’s now right in front of the whole Global South, as a benign apparition bearing a Cheshire cat’s smile: the golden ruble, or ruble backed by oil, gas, minerals, commodity exports.

The Russian Central Bank, unlike the Fed, does not practice QE and won’t export toxic inflation to the rest of the planet. The Russian Navy not only secures all Russian sea lines, but Russian nuclear-powered submarines are capable of popping up all over the planet unannounced.

Russia is far, far ahead already implementing the concept of “continental naval power”. December 2015, in the Syrian theater, was the strategic game-changer. The Black Sea-based submarine 4th division is the star of the show.

Russian naval fleets may now employ Kalibr missiles across a space comprehending Eastern Europe, West Asia and Central Asia. The Caspian Sea and the Black Sea, linked by the Don-Volga canal, offer a space of maneuver comparable to the Eastern Mediterranean and the Persian Gulf combined. 6,000 km-long. And you don’t even need to access warm waters.

That covers around 30 nations: the traditional Russian sphere of influence; historical borders of the Russian empire; and current political/energy rivalry spheres.

No wonder the Beltway is berserk.

Russia guarantees shipping across Asia, the Arctic and Europe, in tandem with the Eurasia-wide BRI railway network.

And last but not least, don’t mess with a Nuclear Bear.

Essentially, this is what hardcore power politics is all about. Medvedev was not bragging when he said the era of a single reserve currency is over. The advent of a resource-based global reserve currency means, in a nutshell, that 13% of the planet will not dominate the other 87% anymore.

It’s NATOstan vs. Eurasia redux. Cold War 2.0, 3.0, 4.0 and even 5.0. It doesn’t matter. All the previous Non-Aligned Movement (NAM) nations see which way the geopolitical and geo-economic winds are blowing: the time to assert their real sovereignty is at hand as the “rules-based international order” bites the dust.

Welcome to the birth of the new world system. Foreign Minister Sergei Lavrov, in China, after meeting several counterparts from across Eurasia, could not have outlined it better:

“A new reality is being formed: the unipolar world is irrevocably becoming a thing of the past, a multipolar one is taking shape. It’s an objective process. It’s unstoppable. In this reality, more than one power will “rule” – it will be necessary to negotiate between all the key states that today have a decisive influence on the world economy and politics. At the same time, realizing their special situation, these countries ensure compliance with the basic principles of the UN Charter, including the fundamental one – the sovereign equality of states. No one on this Earth should be seen as a minor player. Everyone is equal and sovereign.”

It was some twenty years after the end of the Vietnam war that a security conference was held between leading military figures from both America and Vietnam. Following the conference a U.S. Air Force General approached a Vietnamese General. The American had been a fighter pilot captain during the conflict, the Vietnamese general had been a Colonel in the N.V.A. The American asked (paraphrasing): “You have to tell me, we knew your Army was continually crossing the Mekong, we flew sorties up and down the river and could never find your bridges.” “I know,” said the Vietnamese, “we built them three feet under water.”

In that instant the American understood why America lost the war. His “Road to Damascus” moment was informed by how the different combatants approached problems. Had that been an American problem, how an Army crosses a wide, deep and fast flowing river, they would have solved the problem differently. They would have built a suspension bridge, they would have had bases on either side to protect it. They would have had Bowling alleys and Burger Kings and would have been flying in Bob Hope to entertain the troops. Why? Because they could, when you have resources they become the answer to every problem. The Vietnamese didn’t have resources, so they were resourceful.

And that, as the American realized, was why the Vietnamese won, and America lost.

The general may have learned a lesson, but if he told anyone, no one listened. Many of the same mistakes were repeated in Afghanistan, with the same results. Resources are not the answer to every problem. As with Americas war on drugs, war on crime, war on poverty, all resources do is obscure the underlying problem and present false, ineffective solutions.

War, and the threat of war is America’s solution to everything. To the man with the hammer, every problem is a nail. America does indeed have a formidable war machine. However, as with all machines it requires fuel to run it, that fuel is the U.S. dollar. Since the Bretton Woods accord at the end of WWII, America has had the privilege of possessing the world’s reserve currency. This enabled America to dictate to all countries outside the Soviet bloc how the global financial system would work. The so-called “free world” was anything but free, it was handcuffed by a system that effectively exercised control over their domestic economies.

In 1973 Richard Nixon took the dollar off the gold standard, much to the chagrin of the rest of the world. Despite protests no country was in a position to do much about it. Under its proxies, the IMF and World Bank, it enslaved much of the developing world and prevented it from post-colonial development. The resentment towards America and the weaponisation of its dollar resource should not be underestimated.

Iraq had resources, mainly oil, but what should have been a blessing for the country turned into a curse. Saddam Hussein decided to break from the petrodollar system and sell his oil in other currencies, we all know how that turned out. Similarly, when Ghadafi decided to sell his oil in the newly launched gold-backed dinar, it turned out badly for him and the Libyan people too. Both countries were deliberately destroyed, Tripoli, the once vibrant capital city of Africa’s most prosperous country, now has open slave markets. None should doubt how seriously America takes the subject of the dollar. These were lessons learned by national leaders everywhere. For those curious as to why America needs 1000 foreign military bases in more than 100 countries, that’s why, so no country attempts to stray from the dollar plantation.

The trillions of foreign debt owed by America was never intended to be repaid, just rolled over indefinitely. Fair to say, most countries understand that the monies they were compelled to invest in U.S. treasuries is a sunk cost, and they are not getting it back. With every turn of the printing press the dollar further loses credibility and the asset value of their holdings diminishes further. Every country is looking for alternative ways of doing business that don’t involve the dollar. China and Russia, China and Iran and China with many of its Asian neighbours have been using reciprocal currencies for several years. This amounts to trillions in trade that the Dollar is no longer a party too. Once this is understood it can help provide a context for current events.

Russia has complete control over its central bank and minimal foreign debt. It also possesses immense gold reserves. President Putin has wisely made Russia virtually “sanction proof”. Sure, the West can sanction a few overseas oligarchs, but who cares? Not the Russian people. Removing Russia from the SWIFT payment system will result in come short-term inconvenience, but alternatives are available. Both Russia and China have developed their own interbank payment systems and are now making them available to other countries who wish to by-pass the dollar altogether.

The use of the dollar as a weapon of war has worked well for America, until now. But when a country becomes overly reliant on its resources, it becomes a “one trick pony”, see Saudi Arabia. Stripped of oil, what kind of economy would the Saudis have? They wouldn’t have one at all. America stripped of its unique resource will be in the same position.

The dollar could crash any day, the government has long known this. A government-issued digital currency is planned to replace it. That may work in America, but few countries will want to entangle themselves in another American-dominated financial system. The resource is running dry, and American leadership shows no sign of any resourcefulness.

Interesting times…

Qiao Liang is a former People’s Liberation Army Air Force major general that became famous in 1999 with the book “Unrestricted Warfare” co-authored with his colleague Wang Xiangsui. Western media immediately presented the study as the herald of a new kind of war waged by China against America. The authors tackled the concept of asymmetrical war against a stronger enemy, foreshadowing future events like the attack of 9-11. A few years ago, Qiao wrote a new book, “The Arc of Empire”, translated now into Italian for the first time outside China. The study is edited by retired Italian lieutenant general Fabio Mini, Commander of the NATO-led KFOR in Kosovo from 2002 to 2003. Mini also introduced in Italy “Unrestricted Warfare”, his Italian foreword is now translated in the last Chinese edition. Qiao’s new work is a study of the American superpower. It explains its incredible success and the reasons for its unavoidable decline. According to Qiao, the United States has overcome the colonialist imperial logic of the 19th century British Empire by adopting a revolutionary system of economic domination, which has reached its peak with the end of Bretton Woods agreements in 1971. The power of the dollar as a universal currency supports the first financial empire in history. The Pilgrims Fathers’ City upon a Hill loved by Reagan, the image of American exceptionalism is, in reality, The Mint upon the Hill. With this “colonial financial economy”, American wealth is paid for by the rest of the world. Qiao writes that Pentagon’s “endless wars” are designed to ensure “that not only do dollars flow smoothly out of the country but also that capital moving around the world returns to the United States”. We have asked general Mini to introduce Qiao’s conception of the U.S. Empire and its decline.

During a video conference in early December, Chinese President Xi Jinping and Russian President Vladimir Putin stressed the need “of accelerating efforts to form an independent financial infrastructure for servicing trading operations between Russia and China”. Do you think this is the beginning of the end of the dollar system?

I don’t rule it out. Considering that Qiao Liang wrote the book in 2015, he must be credited with great foresight and political influence. The two leaders are concretely interested in ending the hegemony of the dollar. As Qiao says, the dollar’s waning may mark the beginning of the end of U.S. economic and geopolitical hegemony. However, this does not mean that the attempt will succeed. The Americans could threaten or implement retaliation, not necessarily only commercially. For now, the common intention of Putin and Xi is to bypass the dollar’s brokerage in their bilateral trade only. But China and Russia rely heavily on exports, and their currencies credibility is not so strong. Despite U.S. threats and penalties imposed on its commerce, China is not in a hurry. It aims to pursue an international agreement that recognises at least two other currencies as reference for trade in addition to the dollar: euro and yuan. Russia is in a different situation: it realises that the U.S. counters any attempt to safeguard its sovereignty and regional interests. Therefore, it suffers a triple penalty: two in the economic field and one in the political field. The export resources are depleted in quantity and price (due to demand contraction). Its imports are penalised by prices (increasing due to the lower supply) and payments in dollars. The third, and most important, is the political penalty: submitting to external blackmail causes a loss of credibility and influence. Russia has had to bite the U.S.-NATO bullet in continental Europe for years now. Detachment from the dollar has become a question of political survival for Moscow. However, Russia knows that this measure is necessary but not sufficient. The country faces a U.S.-NATO offensive made of provocations, erosion of territories, border destabilisation and support to internal subversion that requires to be managed on the level of security and military power. While China believes it has time to act on the economic and financial level, Russia must demonstrate that it can oppose serious provocations also militarily. The different Russian and Chinese attitudes find a concordance of territorial, economic and geopolitical interests in Central Asia, the energy sector and military-industrial cooperation. The EU might be the balancing power in this situation, even for Russia and China. The euro could become the new equivalent currency in the world. But currently, the Union’s internal political weakness, its subservience to the Americans and the permanent delegation of its security to NATO are making this scenario impossible.

The return of industries moved abroad, first evoked by President Obama, appears structurally impossible. Qiao sees it as another aspect of American decay. Even if U.S. experiences new recoveries, they will be “jobless”. Technological innovation and finance have reached “their energetic limit”; there will only be a decline from now on. Is it a realistic judgment?

It seems reasonable to me, especially for the period in which it was formulated. Today it would perhaps be revisited but not completely rejected. The U.S. is experiencing one crisis after another, yet it is not holding back ambition or adventurism. Indeed, much of manufacturing is lost forever, but IT and technology dominance is still strong, and the financial dominance is huge. The U.S. trade deficit has two aspects: it favours the Chinese and, at the same time, induces Washington to contain China. The manufacturing deficit can be balanced by exports of technologies and the energy sector. Since the American stranglehold on Russia and its resources began, the United States has multiplied gas exports to Europe. The observation that any economic recovery will be “jobless” is correct to those who think of work and employment as tools for growth and prosperity. Almost the entire world agrees. But the U.S. is an exception in this as well. They have long abandoned the idea of giving work to increase production and have never said that the wealth should be better distributed. On the contrary, the concentration of wealth in a few hands facilitates its control and use. They have long replaced employment benefits with those of exploitation and speculation. Work is now a social safety net, just like the layoff funds. Few people’s wealth and success are illusorily experienced as collective goods that the whole country should be proud of.

One of the most surprising thesis in the book is that Washington is more interested in destroying the euro’s Europe than China. From the NATO war on Yugoslavia in the aftermath of the birth of the European currency in 1991 to today’s confrontation with Moscow in Ukraine, Washington is simultaneously pursuing the goal of encircling Russia and damaging the EU with the help of the Europeans themselves. The prospect of an economic relationship between Russia and Europe, naturally favoured by geopolitics, is thus destroyed. Is this a conspiracy theory?

No, it is a theorem proven by the facts. In the wake of Trump’s tariffs offensive against Europe, some European analysts claimed that the Union was an Americans’ idea. Hence the U.S. cannot want its destruction. It is a historical falsehood and a clumsy attempt to reassure Europeans when doubts are growing about the loyalty of their bigger ally. The idea of supporting the formation of a kind of European Union came to the Americans when they decided to launch the Marshall Plan’s aid program after WWII. It was a purpose of convenience: they needed a united counterpart to manage the aid. Furthermore, the fear that the USSR would take control of Europe was the reason for the initial support for the European Union. Washington made sure to stop any European initiative that wasn’t to its benefit. The contrast remained all along with the Cold War but under the radar. It was clear when the NATO blockade transformed the possible Soviet threat of nuclear retaliation against the U.S. in a nuclear and conventional war in Europe. After the implosion of the USSR, the contrast increased when NATO assumed the double task of expanding to the East and preventing Europe from acquiring an autonomous defence capability. NATO’s ploy was the Partnership for Peace program (PFP), which offered non-NATO countries the possibility of military cooperation. For a few years, Russia, an observer inside NATO, followed the program with suspicion. Countries formerly part of the Warsaw Pact entered into the Alliance, while others were offered to be part of the EU as a first step towards admission. On the other side of the border, Moscow found new Europeans that opposed Russia and strictly followed the anti-Russian U.S. directives even to the detriment of the rest of the Union. For the last ten years, the U.S. has prevented any European autonomy. Above all, they averted the possibility that the euro could challenge the dollar. For this reason, America will not miss any opportunity to force Europe to cut both political and economic relations with Moscow and Beijing. Such manoeuvres are forcing Russia and China to increase their military power to shift the confrontation to the geopolitical and strategic level, where military deterrence may contain the economic threat.

Italy has a strong dependence on Washington and hosts U.S. atomic weapons on its territory. Now an American fund wants to buy TIM’s network, the most important telecommunications company in the country. It seems an excellent example of the looting of the family jewels that, according to Qiao, the Dollar’s Empire cyclically carries out at the expense of the rest of the world. Is it so?

He is right in saying that the dollar sucks up the wealth produced by people’s sweat in exchange for a piece of bread. He argues that the dollar does not fluctuate only concerning the economic or geopolitical situation but follows a cyclical pattern that affects the economy and geopolitics. This Qiao’s brilliant insight is now a phenomenon verified by Japanese and Chinese researchers. These studies have found that the dollar index varies downward for thirty-two months and upward for an equivalent period. The first interval begins with large amounts of money entering the financial market. It causes interest rates to fall, greater access to credit and increased productivity by those in the world who have taken advantage of the liquidity. So the wealth increases, and there are significant “economic booms”. But this wealth cannot be left in the hands of the beneficiaries. So it begins the interval in which the dollar must return to the U.S. The monetary flow decreases, interest rates increase, American securities become profitable, and new investments flow to U.S. companies. The “dollar cycle” is completed in 65 months, during which the U.S. profits both from the “roller coaster” imposed on global finance and from speculation based on the return of capital. But we should have no illusions, the appropriation of other people’s wealth is not an exclusive feature of the American dollar. Large Chinese corporations are following closely behind or perhaps have already surpassed U.S. multinationals in hoarding the resources and labour of others. But, even accepting Qiao Liang’s proposal to establish a global regime based on three reference currencies: dollar, euro and yuan, the economic pillage would not be reduced or eliminated. So the real nature of the problem is not the currency but who guarantees its convertibility and stability. According to Qiao Liang and many others, providing these guarantees for the dollar is a country that lives beyond its capabilities, does not allow competition, exercises political absolutism. To maintain its lifestyle, the U.S. has no qualms in prevaricating, preventing the development of others, waging war against everyone, enemies and friends, allies and opponents. Qiao identifies in the dollar’s hegemony the key to dismantling this power with the means of finance and the potential of the Internet. The Chinese general is stunned by how the U.S. exercises its global hegemony: convincing the world that the threatening and warmongering countries are Russia and China and not them.

Since the first assault on Turkey’s finances in 2018, which I wrote about multiple times (here, here, and here), I’ve been the lone voice telling everyone that President Recep Tayyip Erdogan is a lunatic but he’s a lunatic with a plan.

That plan is to de-dollarize the economy of a valuable member of NATO geostrategically.  Since the first shots across the bow by the Trump administration at Erdogan’s toying with those powers east of the Bosporus (Russia, China and Iran) the Turkish lira has been the primary mode of attack against Erdogan.

Erdogan has pursued what has been deemed unorthodox monetary policy since firing his Central Bank during the lira’s 2018 crisis. Then the Bank of Turkey wanted to raise interest rates to 30% to tame inflation. Erdogan, rightfully, in my opinion, stepped in and said no.

Earlier this year he went after Bitcoin exchanges to stem the tide against the lira and buddy back up to Davos a little, but they are more than wise to his game and Erdogan’s reckoning with them was always on the horizon. Today we’ve reached the horizon and the attack on the lira has him in his weakest state politically in all the years he’s been in power.

And with the lira blowing out to 18(!!) versus the dollar this week, Erdogan’s monetary policy has been all the news, especially with him promising to cut interest rates rather than raise them which is the conventional wisdom.

This blowout finally pushed Erodgan to unveil a new package of interventions to stabilize the lira.

The idea that monetary policy should only be conducted on the basis of creating ‘low inflation’ is nonsense, but that is what everyone focuses on with respect to interest rate policy.

It is certainly one factor, and as a committed Austrian in my thinking, I’d rather not even be talking about such things as central banks, monetary policy and what’s a sustainable rate of inflation, since that last part just sounds like a sustainable rate of theft.

But, I digress.

Erdogan was right to lower rates with the Fed raising rates in 2018 and 2019.  His central bank threatened to push rates to 30% and that would have broken the country.  He fired them and lowered rates, defying conventional wisdom.

Stop and think for a second. There is no reason why any currency should carry a 30% risk factor unless the the goal is to destroy it. Because nothing says you have no confidence in your own currency than someone paying 30% to borrow it.

At rational risk levels, where investment returns govern interest rates, yes there can be a somewhat linear relationship between central bank lending rates and price inflation. But to project that linearity, if it exists at all, out to positive and negative infinity is asinine.

I’d rather you think of the efficacy of interest rates vs. inflation as a sigmoid curve rather than a straight line.

If that wasn’t the case then the negative rates in Europe would have produced massive inflation by now and 20% rates in Turkey massive deflation by now.

But neither thing has come to pass because Keynesians, in their obsessions with aggregate demand, ignore both supply issues and marginal demand effects of policy.

In short, there comes a point where models break and the theory proves incorrect. So, with rates at 24% in 2018 not stemming inflation or the slide in the lira, what would be the point of going to 30%? If 30% didn’t work then 40%? 50%?

It’s this strict adherence to dogma which is the problem, as opposed to saying, “Hey, maybe at these rates other factors are more dominant than central bank lending?” That never enters into the thinking of even the most savvy analysts, preferring instead to parrot clearly broken models because it’s easier to throw shade at a lunatic with power (who may actually be right) than think through what’s actually happening.

There comes a point where one has to ask a series of important questions:

1. How did this crisis start?
2. Who benefits from it?
3. What would be the geostrategic goals of collapsing Turkey’s economy?

Because even the smartest, most savvy analysts always seem miss the bigger picture. Zerohedge has missed the boat in multiple articles, focusing on whether Erdogan’s new package of interventions will work or not, given the state of things.

But no one asked the question, “How does a country like Turkey see its currency with some of the highest interest rates in the world already, collapse over a five month period?”

How does something like this start? Without considering what prompted the slide you’re ignoring what causes it to end. Who has the motive to attack Erdogan through his currency?

Frankly everyone. Is there a limit to creating panic? And if that limit is reached what would it take to reverse it?

How to Lose Friends and Alienate People

The key thing to remember about Erdogan is the following. Everything he’s done, including taking control of the Bank of Turkey, has been to call out the IMF and the banking institutions of Europe as ravagers of emerging markets like the one he runs.

He categorically ruled out ever taking another dollar in aid from the IMF during the last time the lira was attacked (2019). Remember, as well, he’s convinced (and I have no reason to disbelieve him) that the coup in 2016 against him was orchestrated by the U.S. and NATO, his nominal security partners.

So, there are a lot of powerful people who have a history of wanting Erdogan gone. Now, at the same time he’s done very little to secure friends. But, then again there are no friends in geopolitics, only temporarily aligned interests.

So, after that first attack on the lira which took it from around 1.8 to over 7.0 versus the US dollar and he made nice with Trump, goin on a rampage across the eastern Mediterranean acting as NATO’s spear to undermine Russia’s efforts to stabilize North Africa, most notably his excursions in Libya and continued betrayals of the Russians in Idlib province of Syria.

Last year he backed Azerbaijan in the Nagorno-Karabakh conflict while selling drones to the UAF in Ukraine which he was then likely framed for encouraging the use of to escalate the conflict there to drive a further wedge between him and Russian President Vladimir Putin.

Putin, for his part, doesn’t care who rules Turkey as long as it isn’t a NATO satrap.  It’s why he’s put up with Erdogan’s nonsense.  He knows the situation on the ground would result in a Davos-backed ghoul coming to power.

With that in mind, the whys of getting rid of Erdogan are clear. Now let’s go one step further. What does getting control of Turkey mean geostrategically?

Clearly the 1936 treaty of Montreaux, which gives Turkey full control over what ships can pass through the Bosporus and Dardenelles, is the prize here.  Getting rid of Montreaux will allow NATO to bring ships into the Black Sea to ostensibly pressure Russia into giving up Sevastopol.

Good luck with that.

So, with the full court press on against Russia diplomatically by the U.S. with the EU doing its typical “Oh, woe are we, we have to go along with the evil Americans…” bullshit, it’s no surprise to me that Erdogan is under extreme pressure through Turkey’s biggest weakness, its currency, at the same time.

There are no coincidences in geopolitics.

Challenging the Orthodoxy

The collapse of the lira has been epic to behold.  And none of this is a defense of Erdogan per se. He’s a lunatic to be sure.

To create a collapse in a currency as weak as the lira was already takes a small net drop in marginal dollar inflow. Erdogan worked to reduce Turkey’s foreign-currency debt situation, but this was complicated by easy money from the Fed post Coronapocalypse.

De-dollarizing is hard if the country’s accounts are open and the Fed is at the zero-bound.

Once the Fed pulled back on foreign dollar liquidity in June the situation in Turkey was going to deteriorate.

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So, is the right response raising interest rates when they are already 1) stifling domestic investment in local currency and 2) retarding savings in that currency because of inflation?

NO. Raising interest rates is a statement by the Central Bank that it has lost the confidence of the market and it has low confidence in its ability to get things under control. Raising rates further only makes that perception that much more ingrained.

Truthfully, when has the IMF ever been right about ANYTHING!?

So, now let’s look at what Erdogan has done over the past three years, he’s run monetary policy exactly opposite of the Rest of the World (RoW).  He cut while the Fed was tightening. Then tightened while the Fed was easing and is now easing while the Fed is tightening (see Chart Above).

During all of this Turkey’s inflation has been crazy. But this is a consequence of zero-bound policies by the major central banks, flooding the world with dollars, euros, yen, etc. Remember, for us to not have inflation at home while printing trillions, the inflation has to be sent overseas.

Money printing leads to inflation always and without fail (Martin Armstrong’s lame protestations to the contrary). The question is where the inflation shows up and does the government include it in the CPI? Lies, damn lies, British Polling and Government Statistics, is how I think the saying goes.

But, back to Erdogan’s unorthodox methods. He actually rebuilt Turkey’s foreign exchange reserves, which no one gives him credit for and brought in more than 300 net tonnes of gold into the Turkish banking system.

Turkey’s current account deficit disappeared and by allowing the lira to properly fall because it was a mess in 2018, it improved Turkey’s trade balance.

Now, one could argue my embedded point above, that Turkey’s currency woes are a function of outside hot money flows pushing and pulling on the lira based on the geopolitics of the moment and say that once Erdogan was a good US lapdog, the pressure abated and nothing he did in 2019-2020 actually mattered.

Fair enough. But, then that begs the question what is he doing now?

And he’s made it clear that the goal is to de-dollarize the Turkish economy. That he’s going to take Turkey on the same path forced onto Russia and Iran in the last ten years — finding ways to be members of the global economic system of trade while using as few US dollars as possible.

Turkey has to do the same thing. And to do that you have to tell people you believe in both the lira and your ability to get things under control.

No Exit?

Erdogan has been fully cut loose by the West and they want him gone.  The polls in Turkey have moved against him and it’s now time for him to put up or shut up.

I said in 2019 there was no easy way out of Turkey’s predicament, that it would not be allowed to leave NATO without a major cost.  That cost will be a short-term hyperinflation of the lira and a radical reorganization of the country’s finances, trade partners and everything else.

European banks are still net short a lot of Turkish debt, blowing up the lira and potentially a bunch of Turkish banks would have big blowback effects on banks like Unicredit, BBVA and others.

That’s all the background stuff. Now let’s talk about what he’s actually doing. And the proof is in the details, which we only got on Wednesday.

The centerpiece of Erdogan’s de-dollarization strategy is a pledge to Turks that it was time to end their reliance on the U.S. dollar as the place to go in times of stress.  He would guarantee their savings in lira if it depreciates versus the rate of inflation.

Through the program, the government will compensate lira deposit holders if the currency’s value depreciates by more than the interest rate offered by banks on these deposits. The objective of the scheme is to stop retail demand for hard currencies like USD and EUR.

Now, many think this is just MMT(no!) or unbacked money printing (yes, but who cares in this world today?).

This is a bluff, ultimately, but given that all fiat currencies are bluffs then, again, so what? Turkish lira deposits are running double digit rates of return and U.S. rates are zero-bound, the question now is will this bluff be called?

Remember, the Fed is draining the world of dollars and has pledged to do so radically.

Erdogan has to do something to put reserves into Turkish banks, i.e. savings, and have that savings begin forming the pool of real capital for lending. And that pool of capital can’t come in from those hostile to Turkey. It has to come from Turks and those that still want to do honest business with them not subjugate them to the mercantilist machination of Malthusian fascists.

The conventional wisdom is that Turkey should be raising rates here to attract foreign capital.  But it is foreign capital that is the source of the lira’s weakness.  Why does a currency halve in 3 months?  Because foreign money pulls out en masse. 

Remember Question #2 above? Cui Bono?

The very people pulling their money out are the ones who run the IMF who then say, “Hey, we’ll give you a loan at reasonable rates to fix your short-term problems.” This is the standard Economic Hitman Playbook. Erdogan refuses to play that game.

The right move is to stiff-arm any foreign creditors dumb enough to think Erdogan won’t punish them, like what China is doing via Evergrande. Expect targeted defaults here by Turkish corporates. Expect favorable treatment by Erdogan for those that no longer have exposure to his enemies.

Because of Turkey’s importance, i.e. access to the Black Sea, he’ll be able to ask for help from Russia and China, who should be happy to help backstop Turkey in their quest to de-dollarize… for a price, of course.

And that price will be doing all trade between the three of them in lira, yuan and rubles… not dollars.  You wean the Turks off easy dollars by backstopping their savings, and cutting taxes on savings as well as investment taxes, which is also part of Erdogan’s package.

Here’s the full package thanks to Zerohedge:

1. A new Lira deposit instrument that will compensate depositors for losses from Lira depreciation. If the loss from Lira depreciation is higher than the interest gain on the deposit, the difference will be transferred to the depositor and will not be subject to withholding tax.

2. The TCMB will offer Lira forward rates to exporters having pricing difficulties due to the exchange rate volatility.

3. The withholding tax on returns from domestic government bonds will be removed. The withholding tax on corporate dividends will be reduced to 10%.

4. Exporters and industrialists will be given a corporate tax discount of 1pp.

5. The state contribution to the personal retirement system will be increased to 30%.

Yes, there are a lot of risks in this plan but only if there is more foreign money to pull out of the country. The reality is that people don’t run on the banks unless there has been an inciting incident to run the bank’s deposits.

And at some point you’ve pulled all the money out, at some point you reach peak panic and all it takes is someone having the confidence to put their ‘tuppence’ back in the bank’s hands. (You had to know I’d work a Mary Poppins reference in here somewhere.)

A Road to Somewhere New?

So, what if we’ve already seen the worst of the situation and the epic collapse both ZH and Goldman are betting on doesn’t materialize? Will someone finally figure out that central bank interest rates and inflation are something other than a linear relationship?

I heard this same crap in 2014-15 when Russia was going through the same blowup of the ruble. It fell alongside oil prices from 28 to 80 versus the dollar. The assault on oil prices was revenge on Putin for stopping the invasion of Syria by NATO. Russia was sanctioned to the point of forcing corporate debt re-denominations because there were corporate bond rollovers due.

This was the same issue that began the run on the Turkish lira in 2018.

Putin allowed the ruble to float freely, Nabullina at the Bank of Russia raised rates aggressively (to 15.5%), they liberalized a lot of the economy spurring new investment and accepted a yuan/ruble swap arrangement to get dollars into the country to assist in the paying out of the corporate debt.

It worked for Russia and I expect you’ll see the next pieces to the puzzle unveiled in due course as Turkey becomes the next node on the Asian anti-dollar currency bloc that’s forming.

Turkey’s debt to GDP ratio is low (39% in 2020). The government has plenty of room to take on the FX risk here and revalue a lot of the foreign currency debt which is the source of the trouble.

That Turkish banks can hold gold as a reserve asset directly means that as we move into a gold bull market thanks to the Fed finally admitting its lost control over inflation Turkish bank balance sheets will offset any lira weakness with gold now that the government has backstopped savings.

You’ll see more investment by both Russia and China in Turkey thanks to the devaluation, increasing tourism and local investment by their people.

There comes a point where you can only hurt a currency so much by pulling out foreign capital.  And once it’s all been pulled out all that’s left is people making do with what’s available.

Turkey is too valuable a piece of real estate and too valuable a partner geostrategically to let fall here. China needs it for OBOR; Russia for holding onto control of the Black Sea and Iran as a conduit through which it conducts trade while under extreme sanctions.

The West is taking a major shot at he Turks here. But the numbers we are talking to backstop the banking system there are peanuts versus the potential long-term benefits of cleaving Turkey from NATO for Russia and China.

I expect some of that newly-freed up capital within the Chinese banking system thanks to the PBoC easing will make its way through swaps into the Turkish system.

The thing is, with a strategy like this, you have to let things get so bad that the currency goes bidless.  Stocks go bidless etc.  It’s only then that you can attract the maximum amount of speculative money into the market as well as give your potential partners the best return on investment if they come to bail you out.

When there’s blood in the streets betting that it’ll become a river of blood is a bad bet. The better bet is that the madness of crowds is in the past and the immense opportunity to clean things up arrives.

This is what China did when they came in to stabilize the ruble in December 2014.  The announcement of a currency swap line arrangement between China and Russia is what marked the end of the ruble crisis.  Any Chinese money that flowed into Russian banks in 2015 did very very well as bond yields fell steadily until 2020 and the Coronapocalypse.

The same thing is going to happen here with Turkey.  And conventional wisdom will be wrong…. as always.

tomluongo.me

During the past weeks, the world saw Eurasian nations take great strides towards the inevitable creation of an alternative financial system capable of withstanding the effects of the onrushing blowout of the $1.5 quadrillion bubble that some still wish to call the “western banking system”.

Contrasted with those ideologues committed to preserving the unipolar hegemon propels in a bid towards hyperinflationary (and possibly thermonuclear) hell, the BRICS nations have announced three new members (UAE, Bangladesh and Uruguay) to the membership roster of the New Development Bank. Additionally Russian ambitions for a new Arctic development vision that entails a multi-generational grand design for the far east and northern-most regions of Eurasia has also created a climate of long term thinking that is in total synergy with China’s 130-nation strong Belt and Road Initiative.

The Roots of the Oncoming Collapse

While many a myopic economist treat the oncoming collapse of the western banking system as a non-event (or the unavoidable effects of a pandemic), the reality is that this blowout has been a long time coming. Events associated with the Coronavirus-induced economic shutdown may prove to be the pin prick that blows the bubble, COVID-19 cannot be said by any honest person to be the actual “cause”.

It is difficult to pin-point the exact “moment” in time that the trajectory of the system found itself on a path towards a self-implosion… but it wasn’t a virus.

Months before anyone had heard the name “COVID-19”, former Bank of England Governor Mervyn King was already looking at the newly revamped bailouts begun in September 2019 and screamed of a “financial Armageddon” ahead.

But was this the beginning of the end of the financial system?

Not at all.

Case Studies in Folly #1: 2008

Some have argued that the 2008 blowout of an over-extended speculative bubble in the subprime housing market was in truth never resolved, but merely papered over with a new regime of bailouts of private gamblers and loop-hole-filled regulation like Dodd-Frank that only protected the derivatives assets which had already ballooned to 10 times the world GDP in less than two decades.

While this would certainly be a valid thing to observe, it wouldn’t be the full truth.

Case Studies in Folly #2: 2000

Others might point to the meltdown of the dotcom/Y2K bubble in 2000 when the new millennium hit and the world kept spinning. The burst of the dotcom bubble at this time sent markets into a potential tailspin… although it didn’t trigger the systemic chain reaction that many had been afraid of at that time.

Those choosing to point to this moment as the “start” of the collapse might also note that it was only the 1999 repeal of Glass-Steagall that allowed for the merger of commercial and investment banking activities into new Universal ‘Too Big To Fail’ structures which created a new dynamic of fictitious growth of economic value that allowed the world to avoid the abyss in 2000. The ensuing deregulation of ‘over-the-counter’ derivatives under the Commodities Futures Modernization Act of December 20, 2000 are after all what allowed for a new sub-prime housing bubble to grow under Greenspan’s watch. From 1999 to 2008 when the new bubble began to collapse, derivatives had inflated from $70 trillion to $708 trillion which is no small thing.

But that wouldn’t be the full truth either.

Case Studies in Folly #3: 1987

Others looking at more subtle systemic shifts might look to the Black Tuesday of October 1987, when stock markets collapse by 25%, and the world watched with bated breath as a new bank panic threatened to replicate the devastation of the 1929 meltdown that ushered in the Great Depression.

These people might take note that the only “fix” in 1987 was caused by Alan Greenspan’s normalization of “creative financial instruments” which took junk bonds, and derivative speculation from the slimy illegal gutters that had sent scam artists like Michael Milken to prison earlier, and rehabilitated the practice in perverse ways which some credulous tools still believed to this day “saved” the economy.

What did he do? In short, Greenspan accomplished this Herculean task by bringing derivative bets (aka: forms of gambling on infinitely divisible types of insurance on securitized debts including junk bonds) into the mainstream economy giving supercomputers and quantum mechanists new roles to play in creating “value” without producing anything at all. While this could be said to be the “starting point” for the now-impending collapse, even that wouldn’t be the full truth.

Case Studies in Folly #4: 1971

One could easily go back in time to the systemic changes that were introduced by the floating of the U.S. dollar and destruction of the gold reserve system in 1971 under the careful guidance of Henry Kissinger and George Schultz.

It was after all this destruction of the foundations of the Bretton Woods system that ended the 25 year post-war “industrial growth” model that defined economic value between 1945-1971.

This shift from a fixed exchange to floating exchange system thrust society into a new paradigm of consumerism, post-industrialism and deregulation which increasingly detached the individual members of western society from having any involvement in long term goals of the societies they were parts of.

Basic concepts like “value”, and “productivity” were increasingly turned inside-out as monetarism began to grip the minds of economists who increasingly lost their capacity to recognize the underlying PHYSICAL economic processes of industrial, scientific and infrastructure growth that former generations recognized must always infuse genuine value into currencies. The loss of that productive ethic, driven as it once was by large scale, long-term thinking and planning, not only turned the western economies into self-destructive basket cases floating from moment to moment in the pursuit of maximising shareholder profit, but also encouraged the cancerous growth of private oligarchical supranational interests above the jurisdictions of any sovereign nation state. The plunge into cultural decay associated with a loss of national goals, priorities and values should not be lost on any thinking being. As the old parable goes: Where there is no vision, the people perish.

But even this couldn’t be said to be the absolute cause of our current crisis.

Dynamics vs Mechanics: A Lesson Which Must Now Be Learned

The fact is that there really is no singular “moment” that one can say “caused” the oncoming economic collapse. Reality just doesn’t seem to work like that.

What we have are decisions to move society into directions that either 1) bring our species into greater alignment with the laws of the universe or 2) decisions to move society in another direction with a growth or loss of potential to do good in either case.

Each of the moments stated above (1971, 1987, 2000, 2008, 2021) were crisis points which carried the opportunities for systemic corrections in alignment with Natural Law.

While each “moment” contained a great potential for self-examination and self-criticism of foolish behavior and assumptions which generated those crises, many who stood up as consciences calling forth our better natures and offering alternative pathways out of the ever deepening abyss were ridiculed, slandered, shunned, or worse as Deutschebank head Alfred Herrhausen discovered when his car blew up on November 30, 1989.)

The Multipolar Alliance Breaks the Rules of the Rigged Game

The Multipolar Alliance which has taken on a vigorous life in recent years has demonstrated a profound understanding of this oncoming collapse and has made many maneuvers to establish a new financial, security, economic architecture premised on the lessons the west SHOULD have learned at each of those “pregnant moments” have punctuated the last half century.

Many mechanisms have been brought online in recent years by this grouping of civilizations which could be considered a “survivors club of the 21^st century” unwilling to sacrifice themselves on the altar of a New World Order.

When the USA became too aggressive with their sanctions and threats to block Russia from the Wall Street dominated SWIFT system after the 2014 Ukraine coup, Russia took the initiative to create their own international payment system with MIR and the SPFS (System for Transactions of Financial Messages) in 2015 and China soon followed suite with the China International Payment System (CIPS) that same year.

When it became obvious that the private central banking system of the west under the helm of the Bank of International Settlements and associated World Bank/IMF structures were not going to cooperate with the China-led growth ambitions showcased by the New Silk Road (announced in 2013), China and 57 other founding members lost no time creating the Asian Industrial Investment Bank which went online in 2016. Today this bank has 103 members.

The AIIB joined the BRICS-led New Development Bank which had come online in 2015 and was associated with a $100 billion Contingency Reserve Agreement that created a buffer from speculative attacks and alternative lending mechanism from IMF special drawing rights.

China itself had never given up their national controls over a central banking system (unlike nearly ever other country on Earth) and also never gave up Glass-Steagall separation of investment from commercial banking activities despite the years of pressure and manipulation from western sociopaths like Soros and his minions embedded within the Chinese establishment like Zhao Ziyang. This successful defense of its sovereign controls over finance has given China the power to defend itself against western oligarchs and chart out its developmental pathways successfully in the face of countless forms of economic and asymmetric warfare.

By now, anyone reading these words must recognize that China’s $3 trillion Belt and Road Initiative is more than just a monetary program or macro-economic business model.

Like the better traditions that once animated western nations, China’s BRI has re-united politics, economics, security and cultural policy in a transformative program that has pulled 800 billion souls out of poverty and introduced new productive, educational and cognitive powers among all nations participating in this innovated win-win system.

Increasingly both Russia and China which set the bedrock of the multipolar alliance have de-dollarized at breakneck speeds with the U.S. dollar now accounting for only 46% of Russian-Chinese trade compared to 90% in 2015. The Bank of Russia has slashed U.S. dollar holdings by $101 billion dollars (and nearly 50% since 2013) while growing its renminbi reserves from 5 to 15% in two years, with gold reserves now making up 23% of its reserves leaping ahead of U.S. dollars for the first time in three decades. While 95% of Russian exports to BRICS states occurred in U.S. dollars only 7 years ago, today it accounts for only 10%.

In July 2021, Russia’s sovereign wealth fund purged all U.S. dollar denominated assets from its $186 billion portfolio and on September 3, Gazprom arranged to de-dollarize all jet fuel payments with China. China has become a global frontrunner in digital currencies, massively reigning in western-dominated Bitcoin transactions and expanding their own digital currency via the Chinese Central Bank. The small array of companies authorized to distribute the digital renminbi (like Alibaba and Tencent) have been firmly regulated and are now largely obedient to national priorities rather than the whimsy of the global markets. As of July 2021, the Russian Central bank announced that it too, would follow suit.

In March 2021, Sergei Lavrov stated to his Chinese counterparts that “we must consolidate our independence… we must reduce our exposure to sanctions by strengthening our technological independence and switching to settlements in national and international currencies other than the dollar. We need to move away from using western-controlled international payment systems”.

Is this system perfect? Not at all.

Are mechanisms like the New Development Bank or AIIB immune from foreign manipulation?

That would be a stretch, since a British knight (Sir Danny Alexander) sits as Vice President for AIIB Policy and Strategy indicates that there are problems. The fact that only $30 billion in investments have been issued among BRICS nations by the New Development Bank since it’s creation 6 years ago also demonstrates a lack of vision or capacity within that institution. Constant foreign destabilization of the weakest members of the BRICS (Brazil, South Africa and India) with regime change operations and economic warfare certainly hasn’t helped improve the situation.

Although the Russian economy has moved far from the dark days of the 1990s, the sad fact remains that the central banking system is still a nest replete with liberal technocrats who emerged into power positions under perestroika and have little will or capacity to think in terms of the bold vision for either multigenerational planning which Putin’s Far East Development vision requires, let alone Russia’s larger integration into an evolving belt and road initiative.

Despite these problems, the Multipolar Alliance has demonstrated a drive towards: 1) scientific and technological progress driven by 2) constant industrial growth in order to 3) empower sovereign nation states to develop full spectrum economies and 4) encourage the increase of quantity and quality of population growth rates both on the surface of the earth even into space.

What gives this paradigm its vitality is not to be found in those mechanical predicates enumerated above. Among the top down considerations and priorities of this paradigm is to be found the sacredness of the cognitive power of participating people of diverse cultures and a defense of the deeper cultural traditions that unite our present moment with the forces of history. These dynamics bring us to the essence of what makes an economy function and imbues a society with the Mandate of Heaven (Tian Ming).

This paradigm, once dominant in the west during saner times long past, is now a driving feature of the Greater Eurasian Partnership and its foundation in natural law, basic morality and common sense has made it an ever more attractive alternative to the burning Hindenburg which nations of the world have increasingly come to realize is the western, rules based neo liberal order.

The author can be reached at matt.ehret@tutamail.com

And it’s been no secret that the elite of the world want us to stop transacting in cash because it is something they can’t track. Sweden has flirted with the cashless society while the European Union did away with large denomination bills the same way the U.S. has been phasing them out.

A few years ago, India created a huge stir removing the 500 and 1000 rupee note from circulation. All of these moves have been, nominally, in service of stamping out corruption. They are sold to the public as a way to punish criminals and money launderers.

But the reality is that the push for removing cash from society is to put all of our financial dealings in databases which gives authorities a record of everything you do. As governments around the world become increasingly bankrupt they naturally look for ways to improve tax compliance as well as create profiles of anyone they deem a threat to their continued existence.

That’s the real reason for why ‘cash is trash’ to authorities. And the moves towards digital only versions of national currencies is an extension of the power grab currently underway as a response to the crisis of COVID-19.

But, more than that, the reason for this demonization of cash has as much to do with the understanding that the current global financial system is broken and will need a global coordinated bailout.

The easiest way to effect that is to be able to create digital money at the stroke of a keyboard.

The crisis of 2008 was bigger than the Federal Reserve. To survive it required the coordinated effort of all the major central banks along with support from the International Monetary Fund (IMF).

So, color me not shocked when I see this report from Sputnik that the head of the Shanghai Gold Exchange publicly make the case in favor of a transnational digital currency to replace the U.S. dollar as the world’s trade settlement currency.

According to Wang Zhenying, quoted by Reuters, the dollar, as a weapon of US pressure and a source of vulnerability for other countries, can no longer be the standard global currency. He admits that gold is also not an ideal means of exchange, as its quantity is limited and it cannot meet the needs of growing international trade. Therefore, a supranational currency for settlements independent of any country is needed.

This idea is not something new and was already promoted by China during the last financial crisis of 2008-2009. Then Chinese central bank chief Zhou Xiaochuan proposed to reform the system of international settlements through special drawing rights (SDR).

Author and commentator Jim Rickards has been making this point for more than a decade. He’s talked openly in his previous books The Death of Money and Currency Wars about the plans for the IMF to assume the role as the world’s central bank because the crisis in process will be greater than all the central banks.

I agree with Jim on this and have for years. The world’s elite have discussed these things openly. They’ve written white papers on this.

But what is interesting now is that Mr. Wang is modifying this idea slightly, talking in terms of a hard currency of some form to replace the U.S. dollar. But, look at his argument closely and you’ll see the bait and switch for while he doesn’t believe we’ll get consensus on using IMF Special Drawing Rights (SDR) as a way to settle accounts he doesn’t believe gold is viable either.

So what will it be, then?

Countries, like China, are already working on digital versions of their national currencies. The U.S. Congress tried to slip this language into the recently-passed first CARES Act authorizing trillions in bailouts and stimulus money.

Russia has been working on a digital as well as a cryptocurrency version of the ruble. The EU desperately wants member states to agree to debt mutualization and fiscal integration under the auspice of the European Central Bank to create digital only euros and end physical euros once and for all.

Gold ownership in Germany is now highly suspect with the German government openly tracking all gold sales greater than 1000 euros, less than one ounce.

Financial privacy is, effectively, already a thing of the past. Even the cryptocurrency markets in the so-called first world have to be AML (Anti-Money Laundering) and KYC (Know Your Customer) compliant to get the ability to operate with the existing financial infrastructure.

The push for the end of cash is a real thing. It’s a dangerous and worrying trend because it assumes all taxes and fees demanded by governments are legitimate. It assumes that if you want to remain private you are a money launderer and a cheat.

And what’s most worrying is that opposition to U.S. hegemonic behavior, weaponizing the dollar the way the Trump administration has, will be used as the rallying cry for an even worse system of social and financial control.

I’m all for the multi-polar world but we don’t need a global trade settlement currency as administered by governments. Do you really think that any other country wouldn’t eventually come to look like the U.S. after nearly a century of dominating the world’s financial landscape?

If you do then I assert you are either terminally naïve or a shill.

That’s what this story is really all about. The Davos Crowd never sets up a dynamic like this which leaves people with anything other than a Hobson’s Choice. You can either suffer under the tyranny of the U.S.’s rapacious banking oligarchy or you can choose an equally bad one administered as a global one.

But that isn’t the only choice. Mr. Wang isn’t wrong that something new is needed but it needs to be a real hard currency based on antecedent value, not birthed out of thin air or backed by future labor (debt).

The dollar reserve standard is in the process of dying. The great financialization of the world and the multiple levels of credit bubbles its engendered are bursting. People are open to alternatives. And in the great game of global capital a country only has to be slightly better than the current dominant player to attract the lion’s share once the outflows begin.

China is positioning itself to be a bigger player here but the IMF, governed and controlled by the U.S., is not the solution. That’s a ‘meet the new boss, same as the old boss’ scenario.

Right now gold is seeing a strong bid the world over and Bitcoin is rising into the halving of its reward pool which occurs every four years. There has never been a better opportunity for people to reject the pronouncements and solutions of the very people who have so thoroughly destroyed our ability to assess risk and value.

And it will be the discipline of cash tied to real assets, birthed from human toil but free from human manipulation that will return sanity to our markets and local economies. That’s what a hard currency is. That’s what Mr. Wang administers at the SGE and that’s what needs to come back.

The protests continue to escalate and show no signs of slowing down. The goal has explicitly become attacking the legitimacy of the Hong Kong government and bringing down an economy vulnerable to a falling property market.

The attack vector here is not directly political, Hong Kong is being attacked by the West via student proxies through its currency peg.

The Hong Kong dollar is tightly pegged to the US dollar and defending that peg by the Hong Kong Monetary Authority has left the city-state vulnerable to a massive property collapse if commerce continues to plummet as protestors keep targeting vital centers like the airport and hotel districts.

A collapse of the Hong Kong dollar peg, like all price floors/ceilings, is inevitable. Pegging one currency to another will always create an unsustainable imbalance of payments that the central bank can only cover for so long.

In Hong Kong’s case the peg has fueled, alongside China’s spectacular growth, a property market that is insanely over-valued. So, attacking the value of said property is how you attack the peg. The longer these protests go on, fueled and organized by outside elements (read US and British intelligence actors), the higher the probability that capital will flee Hong Kong and undermine the peg, creating a massive market dislocation overnight.

Think back to 2015 when the Swiss National Bank finally broke its peg to the euro after having turned itself into a hedge fund trying to stop the appreciation of the franc versus the euro. The bottom fell out of the euro/franc pair overnight, adjusting 30% in a matter of minutes.

When a major peg like that breaks, systems break. Societies break as well. Part of the pressure the West is applying to China is for open its capital account and submit to western control via hot money inflows. The Hong Kong dollar peg is the key weakness to the current arrangement.

It goes hand in hand with Trump’s moronic tariffs and the Treasury Department’s sanctions on Chinese firms doing business with Iran. It’s a multi-layered strategy.

Speaking of Iran…

Now that you have some idea of the stakes in Hong Kong, let’s talk about what’s happening in Saudi Arabia.

While Trump tries to pull his Middle East policy decisions from the brink of war, making deals with Turkey’s Erdogan and Russia’s Putin (through Erdogan) to unlock the stalemate in Syria, his allies in Riyadh and Tel Aviv are fuming and finally rightfully scared for their futures.

Iran and its proxies have gained the upper hand not only in Syria but in Yemen and the Persian Gulf. China is no longer playing games with Trump over buying Iranian oil, announcing that they are ready to invest up to $280 billion in Iran’s oil and gas industry.

The attacks on Saudi Armaco assets by the Houthis in Yemen have put Crown Prince Mohammed bin Salman behind the eight ball and his only options are to sue for peace. The same can be said for Trump now that he’s been revealed for having half a brain and not willing to risk World War III over a drone and some oil tankers.

Speaking of oil tankers, the Saudis and/or the Israelis, who have the most to lose by Trump paying peacenik, are likely the ones responsible for the attack on the Iranian oil tanker in the Red Sea. If they can’t get the US to start the war, maybe they can goad the Iranians.

Not likely.

Trump and the embattled and likely out-of-power Benjamin Netanyahu tried vainly to frame the conflict with Iran solely about nuclear weapons. But it’s never been about that. It’s been about continuing the policy of chaos to blunt the rise of China and Russia as the new lords of Eurasia.

Nothing more, nothing less.

And destabilizing the region to split off Iran from Russia and China has failed completely. Iran was never going to back down. Putin told the world that North Korea would rather eat dirt than give up its nuclear weapons. Iran is in the same frame of mind. They would rather be annihilated than give the US an inch after seventy years of egregious intervention and starvation.

So, here we are. The Saudis are the weak link in the US’s Mideast Alliance. Hong Kong is China’s soft financial underbelly. It comes as no surprise to me to see classic color revolution behavior in Hong Kong spring up within weeks of a failed attempt to get Trump to start a war with Iran – when they shot down the US drone over its airspace.

Because once Trump refused to jump off the edge of the Abyss, everything that has happened since then has been predictable. Increased threats to Saudi assets, further instability of the world’s oil infrastructure against the backdrop of political paralysis in Israel.

Netanyahu went off the reservation making attacks on Iraqi Shi’ite militias and likely ginning up protests against an Iraqi government no longer a satrap of D.C. and Tel Aviv.

The end result is now the Saudi government is in very serious trouble. Oil prices cannot rally and will likely crash in the coming weeks as the global slowdown grips traders by the hind brain. At that point I will be shocked if the Houthis do not attack the Saudis again, this time more boldly.

What’s at stake in that attack is no different than that in Hong Kong, the peg of the Saudi Riyal to the US dollar. MbS cannot finance his country’s future without the Aramco IPO, which is now off the table until 2020 at the earliest. And he can’t fund his current spending at $55 oil.

Something has to give.

And that’s why the reporting on the Hong Kong protests have focused on the economic damage the city is experiencing.

It’s a simple bit of blackmail. A peg for a peg.

The Hong Kong dollar for the Saudi Riyal. China needs Hong Kong to return to normalcy. British banks do not want Hong Kong under Chinese control. So many of their traders are targets for extradition for questioning.

This was never about twenty-somethings twerking in a public park. This was about wresting control of the offshore yuan market from the British banks laundering money through Hong Kong to fund intelligence and military operations across Asia.

Saudi Arabia needs to survive to keep the petrodollar somewhat intact and the outflow of dollars continuing while Trump runs the biggest deficits the world has ever seen.

If the Saudis give up the peg, the dollar transmission system begins to collapse. Global trade is the base money of global economy. It is the source of the direction of the flow of capital, from there it is levered up in the shadow banking markets.

Did you ever wonder why the Fed had to switch on the lights at its overnight Repo window? Now it’s open permanently. And that’s most likely about troubles coming from Europe. Add Hong Kong and Saudi Arabia into that mix and we have a hot time in the old house.

Trump is okay with ending some parts of the US empire while maintaining other parts of it. But he’s been fighting for it to happen on his schedule, not Iran’s, not Russia’s and not China’s.

Time’s run out. And now the world is beginning to burn.