Theoretically, Russia could put the screws to Washington simply by controlling oil prices. If Russia started pumping oil as fast as it could, this would drive down the oil price to below the limit required by the US shale oil operators that Trump is counting on to make America great again for the zillionth time (I’ve lost count of all the times it was great again before). It could pretty much wreck the US economy.
Although this would be bad for the Russian economy as well, the difference is that the US shale drillers need a sale price in the range of $50 per barrel on average, taking new well exploration and drilling into account, whereas Russia can get by on much less. I have idly wondered if this is not the reason Russia has chosen to be the plus at the end of OPEC+ rather than a full-fledged member. At any rate, Russia has turned down an offer by Saudi Arabia to head the organization and has made it clear it does not want to be tied into decisions made by its Middle Eastern friends in OPEC.
Investopedia explains the situation that would give Russia the power to put the screws to the US oil companies:
“According to Reuters, estimates put the break-even point for fracking at around $50 per barrel, but other estimates put it as low as $30 per barrel.” The $30 figure applies only to wells that are already up and running but discounts the costs of exploration and drilling new wells. But shale drillers do a lot of exploration and drilling and that is what eats up their cash.
“At less than a price point around $50 per barrel, oil and gas companies are less likely to explore and drill for new oil accessible through fracking, but existing operations may still be cash-flow positive.”
A look at the costs of producing Russian oil vs US shale oil shows that Russia could afford, in the short term, to pump more and hence lower its price without seriously hurting its economy.
According to this chart for 2016, the cost of pumping Russian onshore crude (non-shale) is $19.21 vs US shale, which is listed as $23.35 but with exploration and drilling costs subtracted. However, the Russian price is almost one-half (43.9%) taxes while the US shale price is only about one-quarter taxes, so if Russia wanted to drop the price badly enough just to pressure the US (for example, to stop toying with war on Iran), there is plenty of wiggle room. For example, if the Russians dropped to one-quarter tax as against cost, it would be able to sell for less and thereby doom the US companies. In fact, since the Reuters estimate is a break-even point of $50 for shale on average, including new drilling and exploration costs, the Russians could easily put US oil out of business in short order and then go back to a higher price once the damage to the US was permanent.
However, back in the real world, Russia is actually trying to get the best possible prices and it would take a huge political crisis to induce it to lower the price enough to threaten US oil companies.
Of course, a world war is about the biggest crisis anyone can imagine, and that is what the US is toying with at this moment, so who knows what Russia might do to pressure the US into behaving more sanely?
It seems unlikely, however, that the Kremlin would need to do much more to hurt the US oil business than what the US is doing to itself.
I showed in Oct 2018 why shale oil probably will never be profitable from a scientific and technological standpoint. Namely, the wells are nearly depleted after 2-3 years and new ones need to be located by exploration and drilled. There is no way this expensive operation can be made anywhere near as cheap as oil and gas extraction from conventional fields that do not require fracking and last several times that long. However, science means nothing to Washington and Wall Street, which is why they have accrued an unpayable debt, keep blowing money on wars and arms they don’t need, and act as if nothing could possibly go wrong.
By January of the next year se were able to report on the fulfilment of our October foreshadowing of a bust in the shale oil industry.
In that article cum translation, the Russian author, based on US reports, had stated:
“Meanwhile, according to a study by The Wall Street Journal, shale drillers are still lagging in productivity. After analysing about 16,000 wells in Texas and North Dakota, the publication came to the conclusion: the largest American companies produce significantly less shale oil and gas than they promised investors. Thus, the profitability of developing hydrocarbon reserves using the method of hydraulic fracturing was very much in question.” [my highlighting]
I recently wrote on Quora, based on the alarming kind of reports cited above, that the economic figures touted by Trump as his crowning achievement are not really indicative of a lasting trend, not even close. I redacted the Quora piece into the article published here. The problem is, writing anything negative about Trump’s wonderfulness on Quora brings out angry blowback from some of his many acolytes. I was told by one zealous supporter that since I only had written negatives about Trump’s economy, I was definitely bought and paid for by someone who was out to get him. I wonder who that would be and when my check will arrive.
The trouble is that too many Americans want the news media to be a cheering section, not a sober and objective transmitter of actual news.
But let me explain in objective terms why his positive economic results are not an indication of a lasting trend, not even close.
Experts like the ones cited above, from mainstream sites like oilprice.com and WSJ, for example, are showing with statistics (and not with figures that I made up out of spite) why the “new jobs” that Trump claims to be creating are illusory.
Just a few years ago, not a few economists were saying that the new jobs in the Trump administration were due mostly to shale oil.
A fairly recent glowing report from Forbes:
“With all-time records being set for total Americans in the labour force, energy continues to outpace the other sectors in terms of new hires.”
“Our shale revolution is revitalizing the U.S. economy and making us more competitive in the global marketplace.”
Well, if shale is leading the way, then the US is in for trouble.
Almost no one (except perhaps Mr. Forbes) is seeing a rosy future for shale oil at this point. The expert group Institute for Energy Economics and Financial Analysis (IEEFA) (which has scientists, not politicians, on its staff) reported:
“Stock prices of all 29 shale producers fell in 2018, pressured by volatile crude prices and stronger returns in other sectors. Only one of the 29, Cabot Oil & Gas Corp, traded higher at the end of 2018 than it did two years earlier.
“An investor who put $100 into the S&P 500 Oil & Gas Exploration & Production Index in 2013 would have had $58.99 at the end of 2018. Similar $100 investments were worth just $9 in Whiting Petroleum Corp, $33.51 in Apache and $38.88 in Devon, according to financial filings. By contrast, $100 in the S&P 500 grew to $150.33 over the same period.”
There is another analysis based on a WSJ report showing that new shale wells were consistently yielding significantly less than the oil experts had predicted, costing major oil companies to haemorrhage money. This is what happens when investors, politicians and media base their expectations on irrational beliefs related to their feelings about their favourite politicians and ideologies, instead of looking at the facts through scientific eyeglasses. This is the mentality that make true believers angry at people who report the facts without the rose coloured glasses.
But after all, if the US is taking a course leading to hell, shouldn’t Americans have enough objective reliable facts to change course before they get there, rather than on arrival?
Vince Dhimos answered a question at the Spanish-language sector of Quora. The following is a translation of the question and the answer.
What is Trump’s secret for maintaining a healthy economy?
If Trump were maintaining a healthy economy, we could speak of a secret by which he is doing so. But is he?
The US is nothing but a gigantic Ponzi scheme, with no attempt at actually building a real economy. Selling Treasury bonds secured by nothing but an endless string of naive buyers – does not make America rich. In fact, if you or I sold unbacked paper promising yields but paying the yields only by selling more unbacked paper to investors foolish enough to fall for the ruse, we would be guilty of perpetrating an illegal Ponzi scheme. We’d wind up in jail.
In fact, despite the hyped “indicators,” Trump has made America even poorer than before because he spent an outlandish amount of money on arms. These arms were not necessary because the US already has several times as much defence weaponry as all the other countries combined. And it uses its arms NOT to defend its people but to fight pretend enemies abroad. But of course, he tells us that he is making America rich in part by keeping the arms manufacturers working and giving people jobs. But the long term results of all these wars is clearly illustrated by the results of the Arab Youth Survey, which shows that, whereas this group once trusted the US most among all non-Arab countries and trusted Russia least, these young Arabs now trust Russia most and America least. http://www.asianews.it/news-en/Arab-youth-are-less-optimistic,-drawn-to-Putin,-and-increasingly-distant-from-the-US-40645.html. This loss of trust makes the American people much less safe. It could make them targets of attacks.
When Trump stops spending tax money to “create jobs,” then you can ask this question again and we can discuss it as a serious matter. At this point in time, however, it is a cruel joke, not a serious question, because much of the salaries paid to workers doing these “jobs” is being paid by the tax payer. And you can’t get rich by selling to yourself any more than you can lift yourself up by grabbing the soles of your shoes and pulling upward.
Let me give you some examples of how Trump has spent money to “boost the economy.”
He gave many very rich companies tax cuts. https://psmag.com/news/trumps-tax-plan-provided-massive-tax-breaks-to-the-oil-industry. In the case of oil companies, his tax breaks were given because most US companies were producing mostly shale oil, which entails higher production costs because: 1) shale contains much less oil than other types of petroliferous rock and therefore 2) the drill holes must be both vertical and horizontal to squeeze out the last drop, which requires hydraulic fracturing (fracking) to extract this scant amount of oil it contains. This implies that the oil will necessarily cost more than oil produced by conventional means, as it is in Saudi Arabia, Russia, Iran, etc. As a result, before the tax cuts went into effect, US oil companies were losing money or showing very low profits.
However, if we want the oil companies to earn profits from the sale of their shale oil, these tax cuts cannot be just temporary, as they might be in the event they were merely an extra cost due to start-up. They must be permanent because the oil fields are short-lived and each time a patch is depleted, a new one must be found by expensive exploration and drilling. Thus there are are frequent start-ups. Therefore the tax cuts are in fact a kind of permanent subsidy and they are paid for by the tax payers, who are saddled with this expense for life. The working people lose money in two ways:
1—they are forced to subsidize rich oil companies, and
2—they must pay more for their gasoline at the pump. Gasoline prices increased by about 20% since the tax cuts went into effect.
Thus, America is parasitizing itself and that is not sound economics, just stupidity.
In fact, incidentally, the WTO has a rule that limits or prohibits the subsidizing of exports, and much of the hydrocarbons produced in the US is exported. Trump constantly criticises China for subsidizing its exports, but he himself is subsidizing many US exports by providing these tax cuts, and even tax credits, to US producers as stated above. At some point in time, an oil-producing competitor country could file a complaint against the US for this practice.
Although the middle class is forced to pay for the tax cuts to big companies, according to a government report, the CEOs of major energy companies are earning astronomical salaries.
“Exxon Mobil $17,495,119
Phillips 66 $23,677,209
Valero Energy $22,532,260
Marathon Petroleum $19,670,807
QUOTE from the above-linked paper:
“This unnecessarily low tax rate gave multinational oil companies a huge tax break. If Republicans had taxed offshore income at their new 21 percent domestic corporate tax rate, they could have raised over $800 million more in revenue from Fortune 500 oil companies.”
“Worst of all, the tax cuts did not help. They just transferred billions of dollars from the middle class to the very rich.
Another outlet reported:
“If the individual cuts are made permanent, the cost will rise to $2.3 trillion.
“Tax cuts aren't effective at boosting economic growth when the economy is already expanding. They also don't work well when tax rates are below the 50% prohibitive range.”
The United States has several sources of credit to keep its economy afloat, but living on credit alone is not a viable practice. Each person or entity that buys US Treasury bonds is a source of credit, and several countries, such as China, Japan and Saudi Arabia, buy bonds from the American government. The problem is that America constantly uses its currency as a weapon, imposing sanctions on countries that to not bow to Washington, ie, do not behave like good vassals. As a result, an increasing number of countries are sick and tired of being kicked around and are selling off their US Treasury bonds so that there is less and less money coming into the US Treasury as a result. Countries that have ditched significant amounts in Treasuries are China, Russia and Japan, as well as Saudi Arabia and India. Eventually, if enough Treasury holders ditch their holdings, there will not be enough money for the government to operate. This will result in a rise in taxes and a devaluation of the dollar.
Thus, while the United States is “creating jobs,” these jobs will only last as long as they are profitable, but as long as they require subsidies (tax cuts), they will not be profitable in a way that helps the average American. They will cause ordinary Americans to bleed cash.
But this failed tax cut scheme is not Trump’s only economic misadventure.
According to Deutsche Bank, his trade wars have so far cost the stock market $5 trillion.
The trade war has prompted China to resort to countermeasures. As a result, American soybean farmers are going out of business. To compensate these farmers, Trump has begun subsidizing them. But here again, the money for these subsidies comes from the American taxpayer and simply costs the people more money. It does not positively affect the bottom line. Not only that, but the subsidies are insufficient to keep the farmers in business and some have already sold their farms.
But there’s much more to this story. Shortly after Trump entered office, he had a discussion with China (back before he made an enemy out of the nation) and signed a memorandum of understanding with China for the sale of a large amount of natural gas. He neglected to mention to the press that this was a MOU, not a binding contract and had no legal effect. Consequently, because they believed in Trump, US natural gas companies built expensive facilities to produce large quantities of liquefied natural gas (LNG), as well as shipping terminals to hold all of this gas. Note that producing and storing LNG is extremely costly because it requires compression and cryogenic treatment (deep freezing) of the gas. Further, this gas is usually shale gas that requires the expensive hydraulic fracturing outlined above. Not only that, the exportation of this gas also requires building specially equipped ships with domes that can hold the gas on its way to China.
Well, since Trump suddenly began to abuse China using tariffs and embargoes, and even tried to ban the Chinese company Huawei, China decided to penalize the United States by not buying its gas. Just imagine, all the expensive facilities for liquefying, storing and shipping the gas to China were built in vain and most likely will never be used! Now it just so happened that at the time China made the decision to stop buying American natural gas, the Russian company Power of Siberia was almost finished laying a huge gas pipeline to China and now China no longer needs the American gas anyway. Yet the US economy is being touted as the work of a genius!
And there is still more. The United States decided in April 2018 to ban the sale of Russian aluminium by the company Rusal to the US. This was a decision made not only by Trump but also by the Congress, which harbours an irrational hatred of Russia. The problem is that American secondary aluminium companies had relied heavily on this Russian aluminium, which provided them with ingots from which they made sheets, tubes, forgings and other products. The American aluminium companies warned Congress and the president that without the Russian aluminium, they would lose money. But the US government does not care about the real world. It only cares about politics and votes. So for almost a year, the American aluminium companies were losing money, and finally, when the situation had become critical, these companies showed their dismal balance sheets to Congress, which finally, quietly, rescinded this terrible law. Even so, some Democrats and Russophobic Republicans in Congress were unhappy and fought to keep the disastrous law.
There is so much more to tell about the total mismanagement of the American economy, and all of this reflects very badly not only on Trump but on the entire US government, which seems hell-bent on destroying not only the world economy but also the United States economy, not only with tariffs and embargoes but also with demeaning treatment and coarse discourse toward friends and non-aligned countries alike.
At any rate, regardless of any ephemeral positive indicators, as long as the United States has a sovereign debt of $22 trillion or more, which is far higher than the safe limit recommended by economists, no one is justified in saying that Trump is in any way improving the economy. Remember what they say about sleight-of-hand artists: keep your eye on the other hand.
Vince Dhimos answered a question at Quora.
How much harm can Iran cause for American interests?
Vince Dhimos, Editor-in-Chief at New Silk Strategies (2016-present)
Answered just now
Iran can cause a lot of harm to the world economy by closing off the Strait of Hormuz to the oil trade. And if the US decides to use its military to open the strait again, it risks, for example, losing an aircraft carrier valued at billions of dollars, plus all the valuable aircraft on said carrier. That would put Trump’s re-election in grave jeopardy. Iran has also threatened to move against Israel and against Saudi oil production assets. Of course, all of this would raise the price of oil, and although Trump claims he wants low oil prices, he most certainly does not. (I am not saying he is a LIAR, just that he is not telling the truth). The US shale oil producers need high oil prices to survive, which is why Trump is not risking much to cut off Venezuelan and Iranian oil supplies. It indirectly helps US oil companies — but for how long, we don’t know. Besides, if oil prices skyrocket too much, that too would reflect badly on Trump.
But the biggest problem is not what Iran can do, it is what the US is doing to itself without apparently realizing it. All the sanctions against different countries, especially Iran, are causing a major backlash against the US dollar. Europe, generally eager to continue trading with Iran, has, with help from allies, developed a special purpose vehicle called INSTEX, which will enable Iran’s trading partners to settle in non-dollar currencies, ie, mostly euros, and the amounts spent will be hard to trace because they circumvent SWIFT, the system located in Belgium but controlled by the US Treasury. In other words, it will be hard for the US to impose sanctions for these unreported transactions.
On top of this, we find Russia off-loading almost all of its Treasuries, and other countries like Japan and China, as well as others cutting back on their holdings. (It is the sale of Treasuries that keeps the dollar afloat). Further, Russia and China have just inked a deal to stop using dollars in bilateral trade. One of the things floating the dollar has been its use in world trade settlements, but this Russia-China deal, the creation of INSTEX and many other factors are reducing this use in world settlements, which seems to be gradually causing various countries, including US allies, to shun Treasuries, expecting a drop in the value of the dollar.
Since the future of the USD is uncertain to say the least, the issue of how to pay down the US sovereign debt is becoming urgent. This is why both Democrats (eg, Elizabeth Warren) and Republicans are now floating the idea of deliberately devaluing the dollar – although they are using the excuse that this will supposedly boost US exports by making US products more affordable. (See our analysis of this strange turn of events here.)
Of course, no one is mentioning the very real possibility that the Chinese might also follow suit and adjust the value of the yuan accordingly, making this US policy futile.
What’s interesting is that no one asked the US public if they thought living solely on credit was a good idea for the American government. But of course, as we showed here, while Washington and a lot of NGOs are frantically promoting “democracy” abroad, there is absolutely no government of the people, by the people and for the people in America. And the Russians are by no means the culprits.
Below is our translation of an article from RIA Novosti with commentary and notes [in brackets] by Vince Dhimos.
Dmitry Orlov at the blog Club Orlov posted an insightful column reminding that empires eventually destroy themselves from within by incompetence, becoming corrupted by their own power, and their actions become less and less effective.
The US did a decent job of rebuilding Europe after WW II, where Germany and Japan eventually emerged as booming economies under US tutelage.
But then by the 50s, it was no longer feeling generous or helpful and did nothing for North Korea except bomb what was left of it into oblivion. In the 60s, the US was still simply grinding its foes into the dust, never helping Vietnam recover, for example. Of course, we must recall that the US did not win the Korean or Vietnam war. It was already becoming a decrepit empire at that early stage but only a few noticed that this was irreversible. Reagan floated his version of Make America Great Again to divert attention from the inevitable loss of US power and prestige. Nonetheless, the world now notices and MAGA II is not convincing any grown-ups.
We can take this a step further and apply this incompetence and corruption to efforts to remake the world through sanctions and embargoes, which were an even greater failure than military adventures because the US made the gargantuan mistake of using its precious dollar as a weapon. The lesson America never learned is that you can use a currency as a means of payment or you can use it as a weapon but you can’t do both for very long because the world will fight back, as it is doing now, with a worldwide dedollarization campaign. As we showed here, the US elites already see the dollar crash coming and are preparing an artificial devaluation, claiming that the aim is to boost US exports with a cheaper dollar. But that is not the real motivation. The elites know that the US debt has long reached a point of no return and is no longer manageable, so they want to devalue the dollar to enable repayment of the debt with cheap dollars – in other words, with a soft default, hoping investors won’t notice and will keep investing in Treasuries. The problem is, once the world sees this self-immolation of the currency, they will lose even more of the faith they once had in the USD and will buy even less US Treasuries. As our translated article shows, even old faithful allies and trading partners are reluctant to buy US bonds and the bond market reflects this, showing a low point in Treasuries sales. It is just a matter of time.
Day of reckoning: even US allies are ditching dollar assets
June 20, 2019
MOSCOW, June 20 - RIA Novosti, Natalia Dembinskaya. The share of the dollar in global currency reserves has fallen to a minimum since the beginning of the century. American government bonds on the balance sheets of the central banks of the world - the lowest amount in history. In April, amongst the record holders in the sale of treasuries was the closest ally of the United States - the United Kingdom. Why the world embraced dedollarization – from RIA Novosti.
To a minimum
In 2018, the dollar accounted for 61.7 percent of foreign exchange reserves of different countries. This is the lowest level in the last 20 years. As the European Central Bank notes in its June review, the dollar still remains the world's reserve currency, but its leadership has been significantly shaken.
Since the global financial crisis of 2008, when central banks held the maximum amounts of US currency in reserves, the share of the dollar has decreased by seven percentage points.
In 2018, US dollars were especially actively sold to developing countries. Argentina, China, Hong Kong, India, Indonesia, Thailand and Turkey jettisoned nearly 200 billion dollars’ worth of Treasuries. Some urgently needed cash dollars to stabilize their own currencies, others abandon US assets because of conflicts with Washington.
"The goal of many countries is to reduce dependence on the dollar in response to the American threat of sanctions," said the leading Turkish newspaper Sabah. “In Turkey, the US Treasury bond portfolio fell to a record low. Almost everything was sold off."
But the emergence of developed countries, including traditional allies of the United States, from dollar assets is a fundamentally new trend. For example, the United Kingdom in April cut US government bonds to 16.3 billion dollars all at once.
In general, China – the largest foreign holder of US debt (1.1 trillion dollars) – is taking the lead. Because of the trade war, Beijing got rid of 60 billion dollars’ worth of treasuries during the year, and sold another 20 billion in April, cutting stocks to a two-year low. Japan, the second largest lender to the United States, is not far behind: in April, Tokyo dropped its treasury notes by 11.07 billion.
Why China is preparing for the sale of US government debt and what will it lead to
The fear that China may withdraw from amongst America’s main creditors is growing. Analysts claim this scenario is unlikely. Inevitable in this case, a sharp devaluation of the bonds will cause more harm to the Chinese than to the Americans – and in general to the entire world economy.
However, as Bloomberg points out, Beijing can at any time reduce investment in these assets by several tens of billions for the sake of maintaining the yuan.
“If China starts selling US Treasury bonds, this will have less to do with new tariffs and much more with the regulation of its own currency,” Bloomberg quotes Columbia Threadneedle Investments analyst Gina Tannuzzo. When the capital drain becomes more intense, Beijing will have to protect the yuan and sell treasuries. "
Russia is considered one of the most active sellers of American assets. Back in 2010, Bank of Russia’s investments in US government bonds exceeded $ 176 billion. Since 2014, as Washington’s sanctions pressure increased, the Central Bank reduced its portfolio of treasuries, and by the beginning of 2019 only $ 14 billion dollars’ worth of these securities remained on the balance sheet.
According to the US Treasury, in April, Russia ditched another 1.6 billion dollars’ worth of US government bonds. Now the Central Bank has treasuries worth 12.13 billion dollars – at least since 2007. The Bank of Russia spent almost all the proceeds from the sale of dollar-denominated assets, on assets in euros and yuan.
"The share of the euro in Russia's foreign exchange reserves rose to 39 percent, the dollar fell to 27 percent, and the yuan jumped to 17 percent," a recent report by the European Central Bank says.
The same is happening in central banks of other countries. The International Monetary Fund recently pointed to a gradual decrease in the share of the dollar, along with an increase in the share of the euro, the yen and the Chinese yuan in the reserves of global central banks.
"Banks around the world continue to diversify reserves and divert them from the dollar," the IMF stated in a review of global trends.
As they jettison dollars, states are stocking up on gold. According to estimates of the World Gold Council (WGC), the volume of precious metals on the balance sheets of central banks increased by 651 tons over the past year - the highest figure since 1971, when the United States abandoned the gold standard. Almost half of this gold was bought by the Bank of Russia.
"Russia is quickly achieving results in an attempt to diversify the structure of gold and foreign exchange reserves, reducing the share of US assets," notes Bloomberg.
Now the gold reserve of the Russian Central Bank is estimated at 2,112 tons worth about $87 billion. This is a record for the entire post-Soviet history. Over the past ten years, the share of gold in the country's foreign exchange reserves increased from 3.5 to 18.6 percent.
“Gold is the hardest currency in the world, subject to only minimal natural inflation, and is good insurance against dollar fluctuations. It is a highly liquid resource, and large gold reserves strengthen investor confidence in the rouble,” points out the Neue Zürcher Zeitung.
The second largest buyer of precious metals is China, with a gold reserve of 1,853 tons worth 76 billion dollars. At the end of last year, Beijing, after a more than two-year break, sharply increased purchases, which led to a rise in price of gold to a semi-annual maximum of $1,300 per ounce.
Analysts explain: gold is also insurance against default of a US default. China and Russia are well aware that it will be very difficult for the States to pay off their debt obligations and, ultimately, the purchase of treasuries will be useless. The collapse of the American debt market is very likely, so Moscow and Beijing prefer to invest in gold.
Donald Trump and Elizabeth Warren agree to devalue the dollar, but not to worry, poverty is good for America
Presented below is our translation of an article by Ivan Danilov on the looming devaluation of the dollar. Commentary and notes [in brackets] are by Vince Dhimos.
Russian, Chinese and, even US, analysts have been talking about this possibility for years, but their conviction was that the dollar would drop spontaneously under the weight of the sovereign debt. But now politicians and Establishment-connected economists are finally getting around to softening up the public to accept a government-induced devaluation and are telling them everything will be just fine. Prominent influencers, writing, for example, in NYT, are batting around a figure of 27% for the devaluation. This will definitely make living even more expensive for the struggling little guy. It could push gas prices up by about that percentage, although domestically operating oil companies could possibly lower that a tiny bit (but not by much because shale producers need higher prices to offset their overhead). Part of the narrative is that a cheaper dollar will drive US exports, but the ulterior motive is certainly to achieve a soft default on the debt. You won’t hear Elizabeth Warren or Donald Trump mention that though! The coming devaluation is designed for the rich.
In case you missed the news of this bipartisan push for dollar devaluation in the US press, here is a pertinent article in CNN.
Further, a Fox Business article linked here explains how the US government and Fed can benefit by devaluing the dollar in order to resolve the sovereign debt issue. BTW, this article is certainly part of the msm’s sales campaign to soften you up to accept this idea. I don’t recommend swallowing this article’s view whole. The author, whose target audience is rich investors, is focused on cutting entitlements (which may be necessary, of course) but never mentions military spending, which is catastrophically high and unjustified because only the Pentagon and NATO think the Russkies are coming to invade your home and raid your fridge, and Congress doesn’t dare cut spending on arms procurement because they are wedded to arms peddlers, who are among their biggest donors (a marriage that undermines national security and ought to be punishable under criminal law!). That unwholesome lawmaker-arms dealer relationship is a structural defect in our body politic that won’t go away on its own, so in the final analysis, the US is wedded to profligate spending, even if the currency is devalued. In fact, barring a miracle, this marriage between Congress and arms sellers (and with Israel and Saudi as well, of course) will drive further currency devaluations ad infinitum until the middle class moves down to join the legally poor. This is why the US, barring a miracle, is ultimately doomed to fall off the cliff. Of course, if the US is forced to close most of its foreign bases and stop playing world cop, it could join the rest of the world and become a responsible productive economy. Then Washington and Wall Street could stop playing these reckless games with your currency.
The Fox News article linked above explains the mechanism of the soft default:
“A hard default, where the government simply refuses to pay its debts, would cause a global economic meltdown. Dollar-denominated Treasuries and federal reserve notes are the lifeblood of the global financial system. But a soft default – a one-time devaluation of the dollar which enables the government to pay back its debts in full, albeit at a lower intrinsic value – needn't be catastrophic.”
But Fox Business is part of the media campaign Ivanov tells us about, and is selling fiction here because the enterprising US Congress will always find a way to overcome the “one-time” restriction. Once the dollar is devalued, nothing will prevent a second, third, and on up to umpteenth devaluation any more than the Fed could have pulled off a one-time qualitative easing. Free money is too big a temptation.
At any rate, Danilov, based on his reading of the US economic press, warns that this is no longer a dress rehearsal. The devaluation, according to the US financial and economics press, is on the way, sometime during Trump’s tenure, but not to worry. The economic experts, for example, at NYT and Bloomberg, will make you feel good about paying considerably more for necessities and becoming even poorer than you are now.
“Save the US – devalue the dollar!”: New ideas on American restructuring
June 22, 2019
A ghost haunts American media, the ghost of restructuring. This is the only way to explain the general interest in the idea of the need for radical reforms of the fundamental principles of the American economy and politics. And this fad is affecting all parties to the intra-American political conflict, that is, both Trump supporters, and supporters of the Democratic Party.
Moreover, judging by the latest news releases in the most authoritative American media, both sides even offer similar radical solutions, and the only difference between them often comes down to the difference in colour and the tone of the ideological package in which they are inserted by prominent media propagandists. This similarity is noticed not only abroad, but even in the USA itself. And now The New York Times - the main political publication of the country - writes that the proposals for rescuing the American economy, which are being put forward by President Donald Trump and one of his main opponents from the Democratic Party, US presidential candidate Senator Elizabeth Warren, miraculously coincide. [sorry to interrupt this excellent analysis by Danilov, but I was wondering if you have noticed the subtle trick of the pols and their pals in the msm, namely, selling an idea or plan as “bipartisan,” suggesting that both left and right are for it. This is invariably a con because it is Congress’ way of pulling the wool over your eyes to do something that the people don’t need or want. “Bipartisan” means that the political class and msm are ganging up on you the people.] Since The New York Times is a publication with an unequivocally leftward ideological tinge, the ideological packaging for this coincidence is chosen so that readers can see the struggle for social justice in the radical measures that President Trump and his opponents are both promoting in their own way. This is a logical approach, because it is the only way to “sell” to (or to call a spade a spade, “foist” on) voters the idea of the need for a radical devaluation of the American currency.
"(Senator. - Ed.) Warren and Donald Trump agree, at least on one thing: American currency problems are detrimental to American workers," the influential economist (associated with the Democratic Party) said in The New York Times "think tank" Economic Policy Institute Policy Centre, Robert Scott (Robert E. Scott).
The so-called currency problems are such an elegant euphemism coined to describe harsh reality. The problem resides in the fact that both political forces in Washington believe the US dollar is too expensive, and for the sake of common (American) prosperity it urgently needs to be devalued. Mr. Scott immediately tries to reassure the reader, stating: “The new idea that the United States can achieve greater domestic prosperity by revaluing the dollar sounds unclear and a bit risky. Who would want to interfere with the workings of our currency? But the reality is that China and about 20 other countries are already doing this."
And then on the pages of the premier print publication of the United States there appears, just for reference, a recap of the theory on the world conspiracy against American workers, in which China and other 20 countries - "currency manipulators" – participate. Here we must make an important clarification: the list of potential manipulator countries (to which the author of The New York Times refers), compiled by the US Treasury, in addition to China also includes Russia, and several times in the American media, such as Bloomberg, there were inserts about high-ranking officials who threatened to give Russia the official status of a" currency manipulator,” which opens up the possibility to subsequently slap sanctions on our country.
The essence of the very "conspiracy" in which the non-Establishment Republican Trump and ardent Establishment democrat Warren (and also the author of The New York Times who sided with her) believe (surprisingly) is that foreign exchange manipulation by foreign governments has made American exports more expensive all over the world. And this made products made in China and other countries cheaper (than American ones. - Ed.). This is the main reason that America’s trade deficit has increased dramatically over the past 20 years, destroying almost five million production jobs, about 90 thousand factories and the livelihood of thousands of farmers in the country, Wall Street did not object to the appreciation of the dollar. This led to a flow of cheap imports and huge profits for companies that sell them, especially Walmart, Amazon, Nike and Apple. It also led to lower wages for 80 million American workers competing with countries, whose workforce was cheapened by these undervalued currencies. "
The leading economist of the Economic Policy Institute thinks (or pretends) that the decision is obvious: “devalue the dollar,” and he even mentions the specific dollar devaluation figure relative to all other currencies of the “manipulator countries”: 27 percent. But such a devaluation it will only work if the governments of other countries do not take retaliatory measures and start a so-called currency war – which will require repeatedly renewed US dollar devaluation measures.
As additional or alternative measures, sanctions are also proposed in the form of tariffs and attempts to force the main US trading partners to sign the new version of the Plaza Accord agreement, through which the Reagan administration solved a similar problem in the late 1980s. The problem is that Trump is not Reagan (although he wants to be like him), but China, the European Union (including Germany) and Japan clearly do not want a repetition of the situation 40 years ago, when the Reagan administration saved the American economy through crises in the rest of the world.
It is easy to see that discussions about the need to drastically devalue the dollar, at least by 27 percent to begin with, look rather strange in terms of real incentives for American re-industrialization – for only naiveté verging on stupidity could make anyone believe that after “balancing” the exchange rate of the dollar, production plants exported from the United States, would suddenly return to America on their own, especially if we consider that the purchasing power of American consumers will receive a rather sensitive “currency” impact.
By and large, devaluation (as well as accompanying or subsequent inflation) is beneficial not to the American workers, who are allegedly baked by Trump, Warren and The New York Times, but rather to American business and the government. Let's look at the situation from the outside, that is, through the eyes of competent, but unbiased observers from the Japanese business agency Nikkei: "Growing US business debt, already at a historical level, represents a potentially huge risk for the global financial system and the global economy, causing concern among market participants and politicians. Experts are becoming increasingly concerned about both the quality and quantity of debt in the US corporate sector, because loans to borrowers with lower credit ratings and already high debt levels are increasing."
In modern realities, such debts (corporate plus government) can only be resolved in three ways: through explosive economic growth (located somewhere in the sphere of unscientific fantasy), through mass defaults (possible, but very painfully, especially for the economic elite) and by devaluing the currency in which the debts are collected (to make it a little less disturbing, you can present it to the voter as a concern for social justice).
Conclusion: incontrovertible economic logic and political calculation indicate that the stars favour devaluation, although there are still chances for other scenarios.
Judging by the fact that the proposition “devalue the dollar, and Americans will be just fine” is being promoted openly through the mainstream left-wing media, and Donald Trump is publicly pressuring the management of the Federal Reserve to lower interest rates (which also reduces the dollar exchange rate), the idea is out there. True, this approach will have a major side effect, namely, it is unlikely the dollar will be able to retain the much-needed US status of a world currency.
But it may well be that Donald Trump has his own opinion on this matter, and the White House will try to make (yes, even by force) the whole world continue to use green paper even after a sharp drop in its value. It will be much better for the whole world if this fails.
We present below our translation of an analysis from gazeta.ru with commentary by Vince Dhimos.
As I was editing this translation, I received a push notice from Haaretz to an article on Trump's speech in Orlando yesterday pointing out the untruths and exaggerations in the speech. It fits in nicely with today’s translation.
However, this is not about Trump. It is about a US economy that is less and less equitable and social problems that signal deep trouble.
Here is the saddest detail:
“A survey conducted by the World Economic Forum at the beginning of this year showed that poor Americans no longer believe in the opportunity to get out of poverty on their own – only 10% of respondents believe that they will be able to realize their “American dream” if they work hard. More than two thirds of the respondents are sure that it doesn’t matter whether you work well or poorly, because you still cannot achieve a high degree of well-being.”
Poverty and drugs: how Americans actually live
Americans do not have enough money, education and equality
Olga Timirchinskaya June 16, 2019
The US economy has demonstrated steady growth in recent years, overcoming external and internal difficulties without visible losses. However, impressive macroeconomic indicators do not mean that the country's population is booming – in this case, just the opposite is happening. According to official statistics, about 45 million Americans live in poverty, despite record-breaking low unemployment. And they also have other problems.
The US economy continues to show steady growth – the latest review of the International Monetary Fund (IMF) shows that according to the results of 2019, the real GDP of the United States will increase by 2.6%. Analysts say that the effect of fiscal actions taken in 2017-2018 (tax cuts and increased costs) will then pass, after which the US economy will stabilizes to about 2% per year, but even this figure exceeds the achievements of most countries of the world.
US President Donald Trump said at the end of May that he would pick up 70-75% of the votes in the next elections thanks to economic success alone (for example, “victory over poverty”) and would easily remain in the White House. However, these triumphant reports and vociferous statements also have a flip side, which people prefer not to speak about from high tribunes. In addition, politicians are prone to beautiful speeches that only partially reflect the reality that exists – for example, after Trump's February speech to Congress, the Washington Post found in his speech 26 false statements and exaggerations in various figures.
Then Trump said: “Salaries are rising, and blue-collar wages are growing faster than expected, and 5 million Americans have stopped receiving food stamps. The economy is growing twice as fast, unemployment has reached a low level since a quarter of a century. ”
And according to the same IMF survey, the US macroeconomic achievements over the past 10 years have not had a significant impact on the lives of ordinary Americans – on the contrary, a number of social indicators look depressing, and positive changes in this direction are not expected.
Life expectancy in the United States is falling and this indicator is significantly lower than other G7 countries, although in the 1980s the USA occupied a middle position among the largest economies in the world.
A significant contribution to the drop in this social indicator was made by the increased suicide and death from drug overdose.
As analysts of the IMF calculated, the income of the average American family, taking into account inflation since the 1990s, has increased by only 2.2% - and this despite the fact that over the same period, real GDP per capita increased 23%.
There is another problem: the distribution of incomes in the country is becoming increasingly polarized.
According to statistics, the net assets of 40% of the poorest households are now lower than they were in 1983, and a growing share of the population earns less than half of the average income in the country. As a result, the level of poverty remains close to what was observed immediately before the onset of the financial crisis.
Recent studies show that nearly 45 million Americans are currently living in poverty.
Similar data in April of this year were given by one of Donald Trump’s main competitors in the 2020 presidential election, Senator Bernie Sanders. “Some politicians say that the minimum wage of $ 15 per hour is “too radical.” Here's what's really radical: in the richest country in the world, 40 million people live in poverty, and 40% of our citizens cannot afford even the most necessary things,” the politician wrote on Twitter.
A survey conducted by the World Economic Forum at the beginning of this year showed that poor Americans no longer believe in the opportunity to get out of poverty on their own – only 10% of respondents believe that they will be able to realize their “American dream” if they work hard. More than two thirds of the respondents are sure that it doesn’t matter whether you work well or poorly, because you still cannot achieve a high degree of well-being.
As the IMF notes, over the past decades, socio-economic mobility has been destroyed in the USA – in particular, half of young professionals now earn less than their parents at the same age (40 years ago, this figure was only 10%).
Moreover, despite the fact that a substantial part of the state’s revenues is spent on education, this did not help to reverse the situation with the knowledge level of Americans - American students consistently receive a lower score in math and reading than their peers from other G7 countries, the report says. Many US residents drop out of college without having completed their studies, and as a result, less than half of Americans aged 25-34 have a bachelor's degree. In addition, due to a significant increase in the price of education, the amount of student loan debt also jumped.
Existing problems in late March were also acknowledged by US Secretary of Education Betsy Devos. The official said that spending on education over the past 40 years increased by 180%, reaching $ 1.2 trillion, but no progress in terms of its quality is observed.
“We are still 24th in reading, 25th in science and 40th in mathematics compared to the rest of the world. I am sure that new investments will not bring results either,” said the secretary.
Devos proposed to reduce the total amount of funding for educational programs by 10% ($7.1 billion), but at the same time allocate additional funds for the development of schools.
Experts note that a lot of effort will be required to bridge the growing gap between the achievements of the real US economy and the life style of the majority of Americans. In particular, the political tools that can help solve the problem are paid family leave, helping families in need care for children and patients, increasing the minimum wage and the availability of social support programs. In addition, according to the IMF report, it is necessary to develop the health care system, especially for the poor, by financing those programs that showed the best results at the federal or state level. A more targeted approach is to support education, in particular, to pay special attention to the early education of children, and to the development of programs in the field of science, technology and mathematics. Experts believe that these measures will help cope with the current situation in society that are of serious concern.
The following is our translation of an article from rueconomics.ru with commentary by Vince Dhimos.
The discussion below arose in the context of the Saint Petersburg International Economic Forum, which is a huge assembly of investors from a large number of countries. The 2018 SPIEF had over 7000 attendees from 143 countries. With the American stock market in an obvious fragile bubble and with a loss of $5 trillion thanks to Trump’s trade wars, it is natural that some folks would like to escape to a more tranquil and stable investing environment in the country that, as I have shown here, has the healthiest and most stable economy in the world. But don’t be surprised that SPIEF gets short shrift in the West. For instance, if you look it up on Google, you find on the first page of results, ten mentions, only 2 of which are to articles published in the Western world. We often hear Russia accused of being isolated, but no country anywhere does a better job of isolating itself than the USA.
To be sure, this year's SPIEF is being boycotted by some US investors in protest of the arrest of a US investor on fraud charges. Which may be trumped up. Or not. But then, have we forgotten about poor Maria Butina, who has been jailed for joining and promoting the NRA? Oh, wait. Maria is Russian. So that would be inflitrating, not joining. When ordinary people join the NRA, they are joining. But when Russians do that, they are infiltrating. We can come up with a whole host of sinister sounding words for Russians, can't we? After all, Russians are born of bad seed. All of them. Yeah. They must all be jailed for being from a country that is not a country, but a gas station. After all, John McCain was a war hero. Failure to hate Russians sufficiently is disrespectful of his memory.
It is natural to wonder how the Venezuelan people are doing these days, with all the sanctions intended to hurt them by starvation and denial of medical care. Of course, Western msm rarely talk about the pain inflicted by their governments on the people they falsely portray as enemies. Due to the constant propaganda, we need to be reminded that these are people just like us and that the pain inflicted by the US is real pain and not an abstraction as it relates to their everyday lives. The Washington Establishment would like to have us think they deserve the pain for electing officials who are not dyed-in-the-wool American style predatory capitalists, or for not allowing the US vulture and its puppet Juan Guaidó to swoop in and grab their resources. But their political systems are like ours in that the little guy has no control whatsoever over the list of candidates available to them and they, like Americans, are generally confronted with a lot of bad choices come election time. Thus they don’t deserve punishment for choosing the lesser of an array of evils.
That’s one of the many reasons why sanctions are immoral, as I reminded you here. Another is that the US Establishment simply has no moral authority to demand that other nations comply with its wishes.
The author of our translated article is no doubt writing for the political base back home, which is naturally concerned that their tax money may be wasted on charity, an accusation that surfaces at times with relation to Russia’s relationship with Venezuela. So the author’s interlocutor reminds us that there is money to be made by Russia from Venezuelan oil because it is discounted due to sanctions and to the associated risks to the investor.
Ideally the Russians will be able to help Venezuela earn income from its oil while also making a profit for its efforts. That’s the way it always was, back when free trade was legal. Oh, that’s right. It’s still legal, just not allowed.
Finally, here we have just another example of the impotence of US sanctions. As the saying goes: the dog barks and the caravan moves on.
Russia will play the role of mediator in Venezuela’s oil exports
June 06, 2019
Cooperation between Russia and Venezuela in the oil sector, from an economic standpoint, is associated with a certain risk, says Vyacheslav Kulagin, director of the Center for the Study of World Energy Markets at the Institute for Energy Research, Russian Academy of Sciences.
Venezuelan Oil Minister Manuel Quevedo at the St. Petersburg International Economic Forum (SPIEF) said that Caracas is going to replace the American oil market with the Russian one, and noted that this is the main line of Venezuelan policy.
At the same time, Russia is one of the largest oil exporters in the world and does not need supplies of Venezuelan energy resources, if only because of the territorial remoteness of this country. Such deliveries, of course, are technically possible, but they will cost dearly.
“As for Russia, we have certain economic interests in Venezuela. So, only on this basis is our country interested in stability in this Latin American state. If we take the issue of direct deliveries, then Russia is naturally not the country that needs to import energy resources, not to mention deliveries from Venezuela,” Kulagin sums up.
Russia has enough of its raw materials, but the oil market leaves us with options for cooperation. After all, if one of the suppliers of oil is experiencing difficulties with sales, then, as the expert observes, he begins to sell his goods at a discount, and this really arouses interest.
“In this situation, those companies that play on the difference between discounts and market prices can make money on such a deal. This gives some potential for oil deals with Venezuela, but this is not a matter of theory, but of practice,” states Kulagin.
Moreover, this is not about Russia, as a state, but about individual Russian companies - whether they want to participate in Venezuelan projects, or whether they have no interest in such undertakings. And so, oil traders may well earn on such oil operations.
“On the other hand, all of these preferences, which Venezuela can give to the Russian entities, are an opportunity to make money but carry specific risks. It is necessary to soberly weigh the situation and understand who is ready to go and for what. And here we must not forget that a number of Russian companies have long-term agreements with Venezuela,” concludes Kulagin.
Accordingly, the return of Venezuelan debts, and they are quite large - for example, to Rosneft itself, can take place in the form of supplies of Venezuelan oil, which will immediately be resold on the world market, and not go to our country.
“By the way, such deliveries do not fall under the sanctions impact from the United States and its allies, so there is a prospect here, even though this does not mean physical deliveries of oil from Venezuela to the Russian market,” Kulagin summarizes.
Russian entities may receive oil payments from Venezuela, which will then be resold by them on the world market, but this is a deeper issue, and it cannot be said that such operations are simple - there are a number of nuances.
Venezuela may change the direction of its exports
Notably, Quevedo also stated that Venezuela wants to diversify the direction of its oil exports and place bets on such states as Russia, India and China. This is not surprising, since these countries will not comply with US sanctions against Venezuela, and India and China are the largest importers of oil in the world, which need more and more raw materials every year.
Only India and China are very far from Venezuela, and the nearest sea route to them passes through the Panama Canal, the "neutrality" of which is vigilantly guarded by the United States. Accordingly, there is a question whether there will be problems with such exports.
“In fact, oil can be delivered by sea anywhere that someone is ready to receive it, and there are no transport restrictions per se. Oil is transported in liquid form and the cost of its transportation in the final price is rather small. So, all the leading global companies freely trade in crude on the global oil market,” states Kulagin.
According to Vyacheslav Alexandrovich, oil transfer occurs between regions without any special problems, although there is a US factor here, but they are unlikely to deal with the detention of such goods from Venezuela, because the interests of third countries are also involved.
“The main issue is the quality of the oil, because refineries in different regions of the world are tuned to certain brands and grades, and if the parameters of the crude deviates, then it requires the application of technical operations,” concludes Kulagin.
For example, by mixing Venezuelan raw materials with fuel from the United States, American importers managed to achieve a product that is optimally suited for their national refineries. This is logical, because the Venezuelan oil is very dense.
“Accordingly, in the current situation, Venezuelans will have to trade according to special schemes. These schemes may not imply a situation where American sanctions could be imposed on companies that participate in them,” Kulagin said.
However, in any case, despite all the enthusiasm of the Venezuelans, selling oil is now much more difficult for them.
Author: Dmitry Sikorsky
In the following is our translation of an article from RIA Novosti with commentary by Vince Dhimos.
Years ago, I heard President Putin say, in a Kremlin recording of a speech at the Valdai Club, that Russia wants a “strong Europe.” Now that came as a shock to me because in Europe, a “strong Europe” means a united European Union and I had always assumed that Putin, as a believer in national sovereignty, would have to oppose the dictatorial system of the EU. But then I started to realize that an overarching goal of Russia and China was the dedollarization of world trade settlements that would reduce dollar hegemony and make it more difficult for the US to wage its constant wars and bully other countries. I guessed that he was in fact talking about a strong euro to challenge the dollar.
My analysis of July 4, 2017 shows, based on the EU’s own charts, that the euro is indeed the best candidate by far for edging out the US dollar in international trade settlements. It is clear from these statistics that the euro is not far behind the US dollar in world trade and is becoming a viable replacement for the USD.
The article below (as well as other Russian analyses) shows that I was right. The author shows that Europe has been quietly striving to replace the dollar with the euro in world trade to diminish the “bludgeon” power of the US.
Analyst Ivan Danilov writes:
“The struggle for financial sovereignty is particularly acute in the European Union, where applicants for the position of the next head of the European Central Bank are swearing allegiance to the idea of internationalizing the euro and protecting the European Union from dollar pressure.”
Not at all surprising considering Trump’s threats to sanction all countries trading with Iran. Europe is the region that wants and needs potentially lucrative Iran trade more than any other.
If the US finally comes to the realization that it can no longer deal from a position of raw power, it will desperately need real deal making skills, because sanctions will be out of the question. I think Washington will find that the only deal maker capable of soothing an angry Tehran in this new game is President Putin, who so far has shown remarkable skill and restraint in keeping Israel and Iran/Syria from launching a full-scale war despite the increasingly frequent Israeli missile attacks on Iranian bases in Syria.
US media: the planet is slipping the leash of dollar power, what to do
June 6, 2019
One of the most striking changes in the official foreign policy discourse of the United States in recent years is that the American media, diplomats, officials and experts no longer hesitate to say openly that the dollar is a financial weapon used by Washington to oppress its geopolitical rivals. A few years ago, a Russian columnist was accused of spreading conspiracy and of “writing Kremlin propaganda” for voicing the obvious thesis “the dollar is not so much a currency as an instrument of American hegemony.” Now the statement "The dollar lies at the heart of American power. Rivals create workarounds," has become the headline of a Wall Street Journal long read. The Americans have not only stripped away the mask of the imperial grin from their own financial system, but are also demonstrating a rather serious concern over their opponents (and even allies) trying to shake off dollar dependence.
Nowadays, defenders (including Russian ones) of Pax Americana have moved from the position "there is no problem with the dollar system" to the position "yes, the dollar system is Uncle Sam's whip, but you can’t dodge it, so everyone had better get right down to licking the American boots.” Actually, this simple message is read in numerous articles of both the world and Russian press, which periodically use international trade or statistics on transactions through the SWIFT system to demonstrate that neither the euro, nor the yuan, nor gold could “bite off” any significant part of the market in the US currency. This technique is very good in terms of propaganda, but is completely untenable in terms of economic theory.
The situation with alternative dollar currencies for international trade and interbank information exchange systems that can replace SWIFT is not an example of normal market competition. And it cannot be estimated on the basis of such parameters as “market share” or “consumer preference.” The situation can be explained with the help of a metaphor: imagine a country that is dependent on food supplies from an unfriendly state. In the absence of alternatives, the food supplier may blackmail customers any way he chooses, because hunger is the only alternative to subordination. Now imagine that the situation has changed and another importing country has appeared in the importing country, but the whole assortment it offers is reduced to buckwheat "with smoke" and canned stew, and is not very cheap.
Obviously, under the conditions of free competition, this second supplier has no chance to take a significant market share, but by the very fact of its existence it eliminates the possibility of blackmailing by hunger and breaks the entire system of relations between the victim and the blackmailer that existed before. With the dollar system – a similar situation – in order to “defang the dollar,” it is not at all necessary to create a full-fledged replacement. The emergence of enough currencies and trading systems will allow countries threatened by Washington to continue (albeit not in the most convenient form) foreign trade and financial activities, even with the introduction of total financial sanctions from the United States.
It is because of these risks that American experts and journalists of the Wall Street Journal find cause for concern in the attempts of the European Union, China, Russia and even India (!) To create their own foreign trade systems without the use of the dollar:
"US allies, seeking to weaken US control over international trade, are developing alternative systems that are independent of the US currency. The UK, Germany and France did not support sanctions, including a ban on dollar operations with Iranian banks. Thus, they set up a system to allow companies to trade with Iran without using dollars.
<...> Iran is a trading partner of long standing (of India. - Ed.), and India wants Iranian oil. India began using a similar alternative system in November, and, according to delivery reports, international companies are already using it to trade with sanctioned Iranian companies. China and Russia, also seeking to break away from US control, are promoting their own alternatives to the global bank transfer system, which the United States actually controls, and settles trade transactions in yuan and roubles instead of dollars. "
The dedollarization movement is gradually “grinding down” its administrative opponents in various countries that have suffered to some degree from American sanctions or diplomatic pressure. European, Chinese, Russian officials and captains of business are gradually getting used to the idea that it is necessary to build by-passes around the dollar system and there is simply no alternative strategy. The struggle for financial sovereignty is particularly acute in the European Union, where applicants for the position of the next head of the European Central Bank swear allegiance to the idea of internationalizing the euro and protecting the European Union from dollar pressure.
If the current ECB leadership sabotaged the efforts of the European Commission (and specifically Jean-Claude Juncker) to increase the use of the euro in the EU and insisted that "the market must decide everything," the next head of the ECB may well become a "Euro-nationalist." The Financial Times, with some surprise, reports that one of the likely candidates for the post of the head of the European Central Bank, the current head of the Bank of France, François Villeroy de Galhau, said: “we can expect the ECB to shift from its past neutrality a more positive tone (in the matter. - Ed.) of the international expansion of the euro. "
[I want to remind the reader here that France was the country hardest hit by US dollar sanctions when the Obama administration brought “criminal” charges against one of its banks in 2014. Allow me to quote from my analysis of 2017:
“Of course, no one in EU officialdom mentions this but the US absolutely shot itself in the foot by levying a fine of almost $9 billion against the French bank BNP Paribas for settling a payment to Iran in US dollars. It was a settlement that was declared “illegal” by the US even though it was lawful in France. They were fined for using dollars. In other words, it not only was seen as gouging but also as blatant disrespect for France’s sovereignty. The US was usurping the role of the UN and the International Court, but on whose authority? This was the epitome of heavy-footed monopolar behaviour and it was undoubtedly perceived as a slap in the face to all of Europe. Though no one dares to suggest this, it was quite likely the turning point in US-European relations that encouraged Europe to use euros as much as possible in dealing with non-EU countries.” If Galhau is named as head of the ECB, I think we can expect all-out war on the USD.]
His position suggests quite pragmatic measures: “The practical agenda for the development of the international role of the euro strongly converges in order to create a real (European. - Ed.) unification of capital markets - with the development of fully unified European instant payment systems, integrated capital markets and possible creation of a euro-denominated safe asset.” A safe asset is an analogue of US government dollar bonds, only in European performance - that is, it must be bonds of the entire European Union, and they must become a kind of safe haven for capital, which in the case of crises traditionally seeks refuge in US dollar government bonds.
The ability of the United States to use the dollar as a "sanctions bludgeon" is now lower than in the past, and will decline further. Washington is facing an unenviable choice: use the “bludgeon” to the fullest at last, or, conversely, show restraint and hold on the most stringent measures for the most extreme cases. Just because fear is often the most powerful weapon. If the first few years of Trump’s presidency have taught us at least something, then we can safely bet that the White House will choose the most aggressive option with the maximum short-term effect. The irony of fate: as American journalists rightly point out, these are the kind of actions that stimulate the rest of the world to get rid of dollar dependence as soon as possible.
Below is our translation of an analysis from RIA Novosti with commentary and notes [in brackets] by Vince Dhimos.
“In this context, two seemingly unrelated stories paradoxically fit together: sanctions against the European clearinghouse [INSTEX, explained here] created to continue buying oil from Iran, and [protect from] future sanctions against Gazprom’s European partners participating in the Nord Stream-2 project. In the Iranian case, the US is trying to control what oil EU countries can buy, and in the case of sanctions against Nord Stream 2, Washington will seek to establish control over what gas the European Union can buy.”
Remember I had said in my remarks on the war on Huwei that the US is acting just like a colonial master toward its colonial subjects:
“I recalled learning during my stay in Taiwan that that country had once been occupied by Japan and that it once served its colonial masters as a source of agricultural products but that the Japanese had made sure, by discouraging higher education, that the Taiwanese colony would not be allowed to develop industry. These examples from Israel and Japan embody the very essence of Neo-Colonialism.”
“There is an analogy here [in the context of the war on Huawei] with China and its colonial relationship with the US, which was quite happy to have China manufacture low-tech products with cheap labour and later even allowed the country to assemble high-tech instruments and information technology as long as the US masters were in charge of the technology and the Chinese refrained from learning the tricks of the trade. And herein lies the ulterior motive behind the trade wars.”
In fact, we also know from American history that the British forbade the American colonists to make their own iron, and again, this was to ensure that the Americans would keep buying all their iron from England. This is the very essence of colonialism and Trump is reviving this tradition in relation to its trading partners, even its allies.
Danilov describes this US attitude toward Europe (but without direct reference to neo-colonialism):
“...the administration of Donald Trump is not just trying to deprive the European Union of at least some chance of its own energy and financial policy. At the same time, it is seeking to de-industrialize Europe, as well as opening its market for American food products, which, firstly, do not meet European environmental requirements, and secondly, will bring European farmers to mass bankruptcy with their artificial low prices.”
Danilov’s mention of de-industrialization refers to Trump’s restrictions on European auto makers under the goofy pretext that foreign cars are a “security threat” and his attempts to thwart Airbus sales in favour of Boeing. Further, Danilov’s comment about Trump forcing US food imports on Europe are in reference to the latest trade talks between Trump and European Commission president Jean-Claude Juncker, where the latter insisted that US food exports did not meet European standards.
Further, with regard to Iran, according to a European Commission report,
“The EU exported over €10.8 billion worth of goods to Iran in 2017. EU exports to Iran are mainly machinery and transport equipment (€5.5 billion, 50.9%), chemicals (€1.9 billion, 18.1%), and manufactured goods (€0.9 billion, 8.9%).”
Thus Trump’s abandonment of the Iran deal was also part of this effort to de-industrialize Europe.
The following could be a sign of things to come:
“Even if Trump loses in 2020, (German officials. - Ed.) say that the trust that has buoyed transatlantic friendship for seven decades, may be lost forever. Germany has already started to create new alliances that will protect its interests in a world where the US won’t do this. And some of them don’t like Washington. "In the future, we must take our destiny into our own hands to a much greater degree if we want to be strong," Merkel said at a political rally on Friday in Munich. "
In other words, the most powerful person in Europe is exhorting Germany to stop being a US vassal and start acting like a sovereign country for a change. This is revolutionary! Remember that Trump’s ambassador to her country had tried to strong-arm the Germans to stop importing cheap pipeline-delivered Russian gas from Russia (under the transparent pretext of “energy security”) and start buying the extravagantly priced US LNG instead. It was absurd because the Nord Stream 2 pipeline was almost completed when this haranguing started and there could be no turning back. Trump crossed a line at that point and Germany was forced to say nein. Again, we must wonder if Trump is deliberately forcing Europe to break its alliance with the US or if he is really the knuckle-dragging caricature he appears to be. It is virtually inconceivable that Europe would stop all its major manufacturing activities and stop growing its own food just to please a crazed megalomaniac.
BTW, just today I saw a report on how the US is trying to force Europe to allow cooperation with US arms manufacturers, clearly as a way to make another buck off of Europe, but again under the excuse of “security” to get around WTO rules.
At any rate, wittingly or not, Trump is pushing Europe into the arms or China and Russia and far far away from the American sphere of influence. If these allies abandon ship, there is little chance they will ever come back.
The United States threatens Europe with sanctions. Europe is preparing for the last battle
May 31, 2019
The administration of Donald Trump openly threatens to impose sanctions on the European Union for interfering with US foreign policy. On the one hand, one can admire how tough official Washington is to defend its foreign policy interests. On the other hand, there are reasonable doubts that such a policy will be beneficial to the United States in the long term.
Relations between Washington and Brussels are far from ideal, and if it comes to real sanctions, then they may well pass the point of no return. Potential anti-European sanctions, which, judging by the statements of officials of the US Treasury Department, include a “disconnect from the American financial system,” may well lead to undesirable diplomatic consequences for the United States. Sooner or later, countries that are under various US sanctions will simply have to cooperate with each other in order to withstand American pressure. The Trump administration works on the principle of "look at successful predecessors and do the opposite." The "divide and conquer" principle is proven by historical experience (from ancient Romans to Machiavelli, Bacon and Napoleon), but the US sanctions policy is now based on the "unite all against us" scheme, which horrifies those mastodons of American diplomacy who still remember how masterfully the United States pitted its opponents against each other in the twentieth century.
This view may seem biased due to the fact that the shattering of the once “united West” is very beneficial to Russia, but analysts of influential American media are arriving at similar conclusions, looking at the situation not with delight, but with deep spiritual pain. Bloomberg Business Information Agency informs readers:
“Even if Trump loses in 2020, (German officials. - Ed.) say that the trust that has buoyed transatlantic friendship for seven decades, may be lost forever. Germany has already started to create new alliances that will protect its interests in a world where the US won’t do this. And some of them don’t like Washington. "In the future, we must take our destiny into our own hands to a much greater degree if we want to be strong," Merkel said at a political rally on Friday in Munich. "
It is in this political context that the consequences of the US Treasury’s intentions to impose sanctions against a special structure that the European Union is trying to launch to circumvent the US sanctions against Iran should be considered.
The Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker sent a letter threatening the leadership of INSTEX, a European clearinghouse created jointly by Germany, France and the UK [as a by-pass to SWIFT]. As noted by The Washington Post, “the idea of creating INSTEX is that a company supported by three major US allies can tie the hands of the American administration, since any step towards sanctions against INSTEX or companies trading through it will create a conflict between Washington and (the group) Berlin - London - Paris." The Europeans have not placed the bet, and the Washington Post has a logical explanation: “The experiment (ie, the mechanism for circumventing the Iran sanctions. Author’s note) Is being watched closely. If expanded, it could jeopardize the global dominance of the US dollar, which is the [currency] most frequently used for international transactions and allows the United States to have some control over the global economy. <...> If INSTEX or other alternatives are successful, international trading systems that bypass the US currency can limit the ability of future US (presidential -.. ed.) administrations to use sanctions as a foreign policy tool.”
The leaders of the European Union are squarely confronted by the question: what level of conflict with the US are they ready to go to pursue their own foreign and energy policy? In this context, two seemingly unrelated stories paradoxically fit together: sanctions against the European clearinghouse created to continue buying oil from Iran, and future sanctions against Gazprom’s European partners participating in the Nord Stream 2 project. In the Iranian case, the US is trying to control which oil EU countries can buy, and in the case of sanctions against Nord Stream 2, Washington will seek to establish control over what gas the European Union can buy.
Indirectly, both of these attempts to throw an energy noose around the neck of the European Union are connected with another key question (as relates to the future of the USA as a world hegemon): is the euro a regional European currency or is it a full-fledged competitor of the dollar in world trade?
It is worth noting that if the problem were confined to the sphere of energy and currency regulation, the chances of forcing Europe to preserve and deepen its status as an American colony would be much greater. However, the administration of Donald Trump is not just trying to deprive the European Union of at least some chance of its own energy and financial policy. At the same time, it is seeking to de-industrialize Europe, as well as opening its market for American food products, which, firstly, do not meet European environmental requirements, and secondly, will bring European farmers to mass bankruptcy with their artificial low prices. In this context, the threat of Trump himself to impose sanctions on German auto makers, as well as punish the European Union as a whole for state support of the Airbus concern, that is, the main competitor of the American company Boeing, which is now experiencing far from the best times [Danilov is referring to the 2 disastrous crashes of Boeing 737s that have grounded these aircraft indefinitely due to charges of negligence] - these are just pin-points of large American operations to transform the European Union into a kind of analogue of Ukraine. That is, to make it a territory that is rapidly losing any signs of belonging to a developed and high-tech world.
The leaders of the European Union, even if they are only interested in political self-preservation, and not a place in history, have only one rational way out of the situation: to move closer to those who are under similar pressure from Washington. Fortunately for Berlin and Paris, almost all potential geopolitical partners and possible situational allies are in a similar situation. Moreover, those geopolitical players who have not yet been thrown under Trump’s bus, such as Japan and India, have every chance of finding themselves in his crosshairs soon [India has, for example, weighed the possibility of buying the S-400 air defence system from Russia, against the warnings of Washington]. Judging by the fact that Angela Merkel cancelled her departure from politics, and her government continues to defend Germany’s right to cooperate with Gazprom (on Nord Stream - 2) and Huawei (on building 5G networks in Europe), at least the main central EU forces are preparing to fight the final battle against American geopolitical ambitions. And in this case, any success of Berlin will be very good for Moscow.