Below is our translation of an article from RIA Novosti with commentary and notes [in brackets] by Vince Dhimos.
It was disturbing enough to see how ideological conservatism promoted the extraction of shale oil and gas by a process that all but guarantees economic failure. But now we see more of the results of Trump’s radical anti-China policies that have put most soybean farmers out of business, sabotaged the LNG deal with China and cost world stocks $5 trillion so far, according to Deutsche Bank. The losses mount up with Trump’s demand that Apple stop making iPhones in China. What he doesn’t seem to realize is the Chinese customers were a major share of the buyers’ market for iPhones and Apple computers and gadgets, and ordinary Chinese citizens are now boycotting Apple. Chinese are very smart and probably will not be back for more backstabs. Ever. Does anyone still remember when traditional conservatives insisted that the government must stay out of business and allow entrepreneurs to make important business decisions that affected their bottom line? Keeping government out of business was a major pillar of conservative thinking. Politicians who tried to interfere with “free market” capitalism were branded commies or socialists. Now, however, that pillar has been removed and replaced by a new one, namely, allowing Trump to make such decisions for the entrepreneurs. The rational for this upheaval is that Trump – who had, however, filed for bankruptcy 6 times before he entered politics – was a successful business man and perfectly suited for the job of telling US business managers how to run their show. Who better to manage the US economy than a billionaire entertainer?
Trump's new victim: Apple kicked out of China
Aug 23, 2019
MOSCOW, Aug 23 - RIA Novosti, Natalya Dembinskaya. iPhone sales are falling around the world, and the company itself has lost value: $962 billion, compared to $1.2 trillion at the end of 2018 [my highlighting]. In the context of an aggressive trade war between the USA and China, Apple is rapidly losing ground in one of its key markets – the Chinese are buying less and less smartphones, tablets and computers. Trump, meanwhile, seems to have prepared a new assault: he wants Apple to leave China and cut production. RIA Novosti reports on how one of the largest IT companies in Silicon Valley risks becoming a bargaining chip in the trade dispute between Washington and Beijing.
In the third quarter, Apple's profits fell 13 percent. In terms of revenue — the company earned nearly $ 54 billion — that's just one percent more than a year earlier. However, analysts were alarmed by something else: the revenue from iPhone sales, which traditionally was its main income source, fell significantly. It amounted to 25 billion dollars against 29.47 billion dollars a year earlier. For the first time since 2012, smartphone sales have brought the Apple company less than half of its revenue. Their annual sales volume for the quarter decreased by 12 percent.
One of the key reasons apple smartphone sales are plummeting is a significant decline in demand in China. The corporation is actually losing this key market.
After the scandal with Huawei, ordinary Chinese began to boycott the Apple devices. In addition, in December, a Chinese court decided to ban the company from selling seven iPhone models in China [so far, American media have been reporting the losses in the trade war based solely on the value lost by tariffs on imports. However, this loss falls outside that calculation and is huge]. The fact that Apple in China is in serious trouble became clear by the end of 2018: in the fourth quarter, sales of its smartphones there fell immediately by 20 percent.
The aggravation of the trade war bodes problems for the company. But Donald Trump earlier promised Apple CEO Tim Cook that the new duties to be imposed on Chinese goods will not affect the devices and accessories assembled in China by order of Apple.
In general, he kept his word. In August, the United States imposed ten percent duties (and since September they threaten to raise them to 25 percent) on Chinese imports worth $300 billion. But US trade mission decided to postpone the introduction of tariffs on smartphones, tablets, laptops and other gadgets until December 15.
However, Apple's management is no longer sure of anything. The other day, the head of the company Tim Cook met with Donald Trump and tried to explain to him that the introduction of duties on Chinese goods would adversely affect Apple’s competition with Samsung. As a result, the main competitor will get an advantage, because, unlike Apple products, the products of the South Korean company will not be taxed upon import to the United States.
As noted by Business Insider, in an attempt to reason with the head of the White House and warn him against escalating the trade war, Cook met Trump “five times a year”. “And there are signs that Cook’s open dialogue with Trump has benefited Apple. The company has already received a temporary reprieve from ten percent tariffs,” the publication said.
But on August 20, Trump suddenly declared: if he hadn’t helped companies like Apple, "they would have big problems." By "help", the head of the White House clearly meant a deferral of duties. According to him, the "help" that he renders, in particular, to Apple, "will last a very short time," and therefore they must do what they must – leave China.
The American president recalled that due to the transfer of production of foreign companies from China to other countries, China lost two billion dollars and almost two million jobs, and will lose even more.
Trump was dissatisfied with the fact that the corporation, as the American media reported, transferred the production of its professional Mac Pro computer workstation from the USA to the PRC. Therefore, according to him, now the American authorities "are not going to make any exceptions for it."
To protect American consumers from higher prices for their products, Apple itself was going to withdraw production from China - but only partially. As reported in June by the Nikkei Asian Review, the company is exploring the possibility of withdrawing from China from 15 to 30 percent of production capacity. And even this step, according to analysts, will cost her dearly – up to 15 percent of its revenues.
Trump is obsessed with the idea that corporation generally should produce all of its devices, and first of all the iPhone, in the United States. “Do not forget that Apple makes its products in China,” he said back in January. “I told Tim Cook: my friend, let’s make it in the USA.”
Observers shrug helplessly: the idea may not be bad, but it just does not take into account a number of logistical considerations and economic realities. First, US production will significantly increase manufacturing costs. And besides - where to get so many components for assembly outside of China?
For the Silicon Valley giant, this attitude of Trump’s does not bode well. According to the most conservative estimates, the transfer of production to the United States would cost the company $40 billion. After an unexpected “tariff” threat, Apple immediately lost $42 billion in market value. And, apparently, this is only the beginning.
Weak smartphone sales are already pulling the corporation's business down. It is trying to offset the declining interest in the iPhone with the continued growth of its digital services business. But, as analysts note, here it falls into a vicious cycle. The service sector that Apple is counting on and the sales of its other devices are directly related to how many customers will remain in the Apple ecosystem, and the latter depends on iPhone sales.
END OF TRANSLATION
VINCE ON QUORA: WHY DID TRUMP START A WAR WITH CHINA?
HOW THE TARIFFS AND SANCTIONS CAME BACK TO BITE THEIR MASTER
IF CHINA IS DOMINANT WORLD ECONOMY, WHY NOT IMITATE IT?
TRUMP’S ASSAULT ON SCIENCE AND TECHNOLOGY
CHINESE ECONOMIST EXAMINES IMPACT OF TRUMP TRADE WAR ON US ECONOMY
US ATTEMPTS TO SABOTAGE CHINA ARE A BOON TO RUSSIA
CHINA DECLARES PEOPLE’S WAR ON US ECONOMY
US SANCTIONS ON RUSSIAN ALUMINIUM BACKFIRED BIG TIME
In the following you will find our translation of a column from RIA Novosti with commentary and notes [in brackets] by Vince Dhimos. In a previous column/translation, I had said that the belief that shale oil would make the US energy-independent and the world’s no. one oil producer is one of the mainstays of American ideological conservatism. I must add to this that ideological conservatism is radically different from plain vanilla conservatism, the best example of which is found in today’s Russia, whose president once said in an interview that he has no ideology at all, just solves problems as they come. And solving problems with common sense and reason is the essence of true conservatism – a dying way of life in the US, though ideological conservatism still calls itself conservatism, and therein lies the confusion afflicting Americans and the attendant failures in economics and foreign and domestic policy. Experience teaches that ideologies do not solve problems, they create them. But the lesson is lost on most Americans. Meanwhile, America is losing the shale oil effort even though it can claim the title of no. one oil producer! That is really quite extraordinary to say the least, especially since the US is losing the “oil race” to none other than the non-ideological conservative Russia, where no fracking is necessary in the oil production process and the product is profitable. You can bet your boots the pragmatic President Putin would never bet on shale oil in his country unless the non-shale oil in his country and the rest of the world were almost depleted. What the US ideologues forgot, of course, in their zeal to drive their round peg of shale production into the square hole of market economics, was the cost factor that makes shale oil unprofitable at this point in time. In the broader sense, it is this failure – or shall we say inability – to ponder the whole picture that causes the US elites to fail in all areas, ie, war, military arms acquisitions, foreign policy, diplomacy and general economics.
And you know the real crying shame of all this?
Some day in the not-too-distant future, oil in the Middle East, Russia and Venezuela could become scarce and the higher prices generated as a result could make US shale oil profitable. But with all the current haste to pump it all out at zero profit, it could be almost all gone by then! America could have been truly energy-independent at that future time, and could have been great again. But for politics and ideological conservatism in the early part of the century when the time was not yet right. A chance has been lost forever.
The Price of Independence: Bankruptcy Wave sweeps over US oil Sector
Aug 21, 2019
MOSCOW, Aug 21 - RIA Novosti, Natalya Dembinskaya. While the United States is breaking records for oil production - nearly 12 million barrels a day, an increasing number of producers are threatened by bankruptcy. We are talking primarily about shale drilling, to which the market owes such a rapid rise. Already, demand growth has seriously slowed down, and by 2020 a huge glut is expected in the oil market. The price the industry will pay for current record results is reported by RIA Novosti.
Extracting more and more
Global oil demand, increasing at about 1.2 percent per year, is not keeping pace with production. Unsurprisingly: black gold production in the United States increased almost 12% year over the (from 10.96 to 12.45 million barrels a day), and in 2020 another 7.5% is expected - up to 13.39 million.
Twenty years ago, oil demand grew about three times faster than today. But increasing fuel efficiency and the slow-down in China's economic development have changed the situation. [Need I interject here that Trump’s own trade wars are the biggest factor in the slowdown in China that threatens his pet oil dream. Neither Trump nor the rest of the US government seem capable of looking at the whole picture and foreseeing the long-term consequences of their policies] Trump’s current desire to escalate the trade war with the PRC, the largest energy consumer, points to even further slowing.
This is especially critical for small shale companies. Shale wells are rapidly depleted. The people in the business say it is necessary to conduct it as if on the run: constantly drilling new wells in order to maintain production and maintain profitability. Because of this race, the shale industry sorely lacks money both for aggressive growth and for dividends to shareholders. The matter is complicated by the fact that oil prices fluctuate around $60 per barrel, while in the past it was over $75.
As the International Energy Agency (IEA) warned in May, despite the record shale activity, a new market shock awaits them. According to IEA estimates, by the beginning of 2020, the world oil market will face an excess of supply, comparable to that observed in 2014-2015: production will exceed demand by almost two million barrels a day.
OPEC efforts to contain production are not enough, IEA analysts say. That is, prices will continue to go down. This is bad news for shale projects, which are cost-effective, as a rule, at quotes of over $50 per barrel.
As John Hess, the head of one of the largest American shale companies Hess, said in March, with WTI oil prices around $57 per barrel, even a slight increase in the cost of borrowed funds would deprive many companies of their profits. To launch new projects, WTI quotes must be stable at around $60.
In 2010-2014, the development of technology and high oil prices led to an explosive increase in investment in oil production in shale fields. But in 2015, oil fell sharply and shale drillers had to fight for survival. In just one year, about a hundred manufacturers went bankrupt, owing a total of more than $70 billion.
According to the calculations of the American law firm Haynes and Boone, since 2015, 192 bankruptcies of oil producers with debts of more than 106 billion dollars and another 185 bankruptcies of oilfield services companies owed 65 billion have been registered. The reason is low energy prices amid a cyclical downturn in the economy, analysts said. [Not a good time for a trade war!]
Something similar is happening now. From April to June, the price of WTI fell by 23%. And the result was not long in coming: in May, Weatherford, one of the main providers of well drilling services, filed for bankruptcy. California Resources, an oil and natural gas exploration and production company, also had problems. Further, a number of small players, Bristow Group, PHI, Jones Energy and Rex Energy, also went bankrupt, burdened with debt.
However, what is happening on the market suggests that expensive oil from shale oil will not save the day. Despite waves of correction, since the beginning of the year, oil nevertheless added 20.7% in price. But the problems have not disappeared. In early August, a bankruptcy petition was filed by shale driller Halcon Resources. Concho Resources' profit fell 25 percent. Another shale producer, Whiting Petroleum, in an effort to deal with financial problems, announced a 30 percent layoff.
Investments could save the situation, but investors, it seems, have already turned their backs on shale projects.
"Investors from a number of producers with financial problems who suffered as a result of the price crisis of 2015 most likely lost hope that a rise in sale prices would be of help and improve the situation," Haynes and Boone said.
In ten years, the 40 largest industry representatives spent nearly 200 billion more than they earned. Thousands of wells in shale deposits pump much less oil and gas than investors promised. Last year, Wall Street invested half as much in the industry as in 2017. And the leading American investment bank Goldman Sachs warned that by 2025 shale will lose its economic significance: we are seeing "all the signs of depletion."
This is a constant problem. Production in shale deposits is rapidly declining, and the initial productivity is a thing of the past. Therefore, companies have to constantly drill new wells. And this is a huge additional cost.
Another reason for the decline in investment is environmental restrictions on drilling or on the switch to alternative fuels.
“Investors are worried that oil companies are spending money on things that are facing decline. And this is inevitable as electric cars and hybrid cars grow in popularity,” said David Katz, president of Matrix Asset Advisors, a New York-based investment company.
Over the past six years, the proportion of US oil and gas company shares in terms of value in the S&P 500 has declined from 8.7% to 4.6%. “Whenever they start drilling, billions go into the pipe. It's no wonder shale stocks are falling,” comments Steve Schlotterbeck, former CEO of EQT, the largest producer of natural gas.
In the context of a global glut, which is putting pressure on prices, shale is constantly losing money – it stays afloat only from the sale of assets and new borrowing.
For decades, the United States has dreamed of independence from foreign oil producers. This goal was achieved: oil companies are producing record volumes of crude oil and natural gas, and have taken the lead among exporters. However, as The New York Times notes, the price paid for it turns out to be too high.
Since its founding, New Silk Strategies has sought to show how ideologies are the downfall of the US and its allies. We pointed this out in our earliest columns, eg, here and here, because we saw the lack of common sense and rationality in both Washington and Wall Street as America’s most urgent problem, yet one that no politician or journalist has ever mentioned and that is therefore never raised as an issue in political campaigns. Meanwhile the evidence of how ideologies trump common sense in the US and the countries it infects with them is mounting up and the consequences promise to be catastrophic, including the imminent dethroning of the dollar.
So what do I mean by “ideology”?
For our purposes, an ideology is simply any intellectual template that starts with an unproven premise and eventually attempts to implement a scheme based on said template in the real world with slick propaganda as though it were in fact proven settled science. Generally speaking, ideologies are belief systems, like religions, and they are deeply held by groups of people for whom they are the blest tie that binds. Anyone in the group who questions a tenet of the beliefs in question is typically smeared, shouted down, or otherwise punished for stepping out of line. The ideology (generally either left-wing or right-wing but sometimes religion-based) usually is supported by pseudo-intellectual arguments, which are held sacred by the group members. For example, conservatives will typically reject the idea of government-supported health care or attempts to narrow the income gap by declaring that such ideas were pursued in the Soviet Union and in Mao’s China, which were communist tyrannies where innocent citizens were often dragged out of their beds in the middle of the night by jack-booted soldiers and police and murdered or sent to rot in concentration camps. The implication was that if the US adopted a system of socialized health care or tried to eliminate poverty, America would certainly also become tyrannical and begin to persecute its own people – as if it did not already jail people like Assange and Manning on trumped up charges for telling the truth. Of course, these ideologues never explain the mechanism by which socialized health care or attempts to achieve social justice automatically usher in tyranny because, as stated, American conservatism (and also Neoliberalism) is a belief system rather than a rational set of ideas that might solve the pressing problems confronting the citizenry. The most famous failed ideologies have been Nazism and communism, which dominated world conflicts for the better part of the 20th Century, but today the dominant ones are (ultra)conservatism, (ultra)nationalism, Neoliberalism, corporatism (overlapping with libertarianism), which is in fact predatory capitalism controlled by a small clique but is presented as “free market” economics), Neonazism, White supremism, corporatism, American exceptionalism, “Christian” Zionism (which has virtually supplanted traditional Christianity), militarism, sexual orientationism, feminism, foreign interventionism, and others. The traditional Left is now virtually absent and there are no meaningful anti-war or anti-imperialist groups. Ron Paul was an exception but he was smeared as a nut by the Establishment. Tulsi Gabard is similarly being targeted for opposing the senseless wars. A constant feature is that ideologies are invariably taken as means of solving problems when in fact they do just the opposite, namely, create problems. No one ever seems to catch on to this key fact and its implications. Politicians and journalists are loathe to raise this issue because their jobs hinge on the defence of pet American ideologies. So nothing meaningful ever gets done.
Understanding the unique brand of US conservatism (as distinct from that of Europe, for example) – and the liberalism that slavishly copies it but pretends to be superior – is the key to understanding why the US has an unpayable $22 trillion debt and has spent most of the last 70 years at war with countries that have posed absolutely no threat to the American people, racking up this dizzying debt level to pay for extravagantly priced arms (as we showed here) and for foreign bases all over the globe. Indeed, a pillar of American conservatism has been the notion that America is exceptional and that US leaders are guided by the Almighty and must do God’s will in keeping peace by waging war after horrific war for opaque reasons no one can articulate. Another pillar of their faith, at least among Evangelicals, is that Israel, as the Holy Land, is at least as important to the American people as the Americans themselves, and that unless the US and Israel constantly harass and provoke Palestinians, and Shia Muslim countries, while of course blindly supporting the bloody Sunni Saudi dictatorship that supports them, then their security is threatened. The supporting slogan for this madness is freedom isn’t free. For this reason, America has so far always willingly fought leaders that the Israelis (in tandem with the Saudis) have designated as their enemies. Iran is now in the crosshairs but few have noticed that the same old pattern of patently contrived propaganda is being pursued to initiate yet another genocidal war. The fact that Trump keeps up a constant anti-Iran drumbeat makes the situation all the more dangerous because, by criticising the media as purveyors of “fake news,” he has diverted attention away from his own false pronouncements. After all, how could the campaigner against fake news be a fake himself?
Our translation below of a column from RIA Novosti is another example of how the US vainly attempts to solve economic problems with ideology.
Shortly after the 9-11 attacks in 2001, American pols sought ways to restore Americans’ confidence in their country. One of the focal points in this effort was the narrative that the Bakken basin in Montana and N. Dakota was a potential bonanza that could make the US energy independent and the world’s no. one oil producer. The narrative was hyped, particularly in the conservative media. When it was pointed out that this oil could only be extracted by an environmentally harmful fracking process, the cooler heads who warned about this were shouted down and condemned as “socialists” and “America haters.” Back then it occurred to no one that, in addition to being environmentally hostile, shale oil production may also be unprofitable.
The notion that Bakken would make America great became a rallying cry, so much so that the idea that shale oil might not be feasible never arose in the public discourse and investors were encouraged to sink their bottom dollars into US shale. “Drill baby, drill” became a rallying cry.
Shale oil thus became a pillar of conservative ideology, which drowned out rational discourse on the economics of shale plays. The hype drowned out common sense and billions have been lost so far as a result.
Now comes Donald Trump and takes this rallying point to its logical end. Again, those opposed are bad Americans and should look for another country. Even American dissidents born in Detroit should go “back where they came from.” But as is always the case everywhere, the rubber of ideology eventually meets the road of reality.
Donald is either a true believer or he is being driven by his own true-believing acolytes, who he knows are expecting him to keep going down the road of shale oil. Either way, shale oil production is being supported not by feasibility studies, as one might reasonably expect, but by the hyperpatriotic ideology of MAGA, which is looking more and more like a dry well.
Contrast this with Russia, where investments are made by experts on the basis of feasibility studies and voters have little or no influence on the technical decisions, because ordinary people don’t understand complex technology, and the Russians know they can trust their leaders to make the right decisions on their behalf. Putin was once asked what his ideology was and he answered that he had no ideology, just worked to solve problems as they arose.
What a concept!
Empty wells: when US oil fields run dry
MOSCOW, Aug 14 - RIA Novosti, Alexander Lesnykh. US oil production in early autumn will increase by 85 thousand barrels per day, predicts the Energy Information Administration (EIA). Moreover, the Permian basin, the largest shale field in the country, will account for most of the growth. Experts have calculated that at this rate the Americans will exhaust their oil reserves in ten years.
Pump to the last drop
The EIA expects that in September the US will produce 8.7 million barrels of oil per day. The Permian basin alone will provide 75 thousand additional barrels a day.
To achieve this result, the oil industry is counting on drilled, but not yet developed wells. This conclusion can be made based on the fact that in July the number of derricks at the country's fields decreased by ten percent – from 1078 to 969.
"American oil operators react quite quickly to price signals: the decline in oil quotes from October 2018 to January 2019 probably stimulated companies to save more, including on drilling leases," explains Vygon Cousulting consultant Ekaterina Kolobkova to RIA Novosti.
Indeed, there are still enough undeveloped oil wells in the United States to quickly increase production. Although, according to the oil and gas service company Baker Hughes, in July they decreased – from 8.6 to 8.2 thousand.
One of the factors holding back the increase in shale oil production in the Permian basin is the pipelines loaded to capacity. Next year, new oil pipelines to the coastal terminals should be operational. This will significantly increase exports, while OPEC countries will continue to artificially limit their own production, analysts at Citi Group say.
However, other experts, including those at Bank of America, doubt that the shale industry will be able to fully utilize the new oil transport capacities.
Wood Mackenzie, a consulting company, notes that for the long term, oil production in the Permian basin raises concerns: there is a marked increase in the volume of water pumped up with the oil. These are the first signs of depletion of deposits.
A recent report from the BP Statistical Review indicates that proven oil reserves in the United States have remained at 61.2 billion barrels over the past two years. For comparison, Russia has 106.2 billion, Iran has 155.6 billion, Saudi Arabia has 297.7 billion, and Venezuela has 303.3 billion.
If all reserves of American oil are recovered at once, they will satisfy global demand (36.5 billion barrels, according to the BP report) for only two years. And for its own needs the United States has enough - 7.5 billion barrels annually - for only eight years.
At the same time, the Americans are rapidly increasing production – by 16.6% last year alone (by 1.6% in Russia, by 3.3% in Saudi Arabia).
Goehring & Rozencwajg analysts say that peak oil production at three major US fields - ten million barrels per day - will be reached in eight years, after which production will quickly decline.
Billions to the wind
Moreover, this is only on condition that investor interest in shale oil suddenly increases. After all, the industry is developing primarily because American oil giants, such as Chevron and Exxon Mobil, are investing billions of dollars. So far, there are only losses from this, but investors have been promised that profits are about to materialize.
Alas, the promises are not coming true. According to Reuters, Quarterly Exxon earnings fell 21% year-on-year, net income in the second quarter fell to $0.73 per share ($3.13 billion), whereas in the same period in 2018 it was $0.92 per share (3.95 billion).
For ten years, the 40 largest representatives of the shale industry have invested $200 billion more in relevant projects than they have earned. Investors are refusing to finance the industry – last year shale workers received half the amount of funds compared to 2017.
“The industry has completely shattered investor confidence over the past ten years,” said Lee Tillman, general manager of the US oil and gas company Marathon Oil, the fourth largest oil producer in the country.
Shale assets are being disposed of. Thus, in February last year, the Australian BHP Billiton called the $20 billion investment in US shale plays “a big mistake” and announced the sale of assets, including in the Permian field.
Below is our translation of an analysis from RIA Novosti. Our translation indicates that an unwieldy debt bomb could explode at any moment and send the world economy into a tailspin. On the other hand, some expect the US monetary system to implode at any moment, although a thoughtful analysis at Southfront seems to indicate that the Fed can postpone a US-side economic crisis long enough for Trump to be re-elected in 2020 but after that, all bets are off.
The Southfront analysis does say that the trade war could trigger an event that even the Fed with its bag of tricks would be hard put to manage, but it also says that China and the EU probably have the means to deal with such “US-induced shocks.”
We shall see.
The bomb is about to explode: global debt has reached $ 246 trillion
Aug 2, 2019
MOSCOW, August 2 - RIA Novosti, Natalia Dembinskaya. World debt has reached $246 trillion. This is an absolute record, more than three times global GDP - the cost of all products and services on the planet. Economists have warned that when a multi-trillion bomb, planted under the global economy, explodes, the crisis will break out worse than in 2008. RIA Novosti reports why the situation under which the fuses have already been lit is close to critical and whether it will be possible to avoid a general collapse.
Where does so much debt come from?
As follows from a report published by the Institute of International Finance (IIF), in the first quarter, global debt increased by three trillion dollars compared to the same period last year and set another record: 246 trillion. This is almost 320% of global GDP.
In developed countries, the volume of liabilities increased by 1.6 trillion – to 177 trillion. The main contribution has traditionally been made by the United States, where debt reached 69 trillion. Of these, 22 trillion are government loans that continue to accumulate thanks to the irrepressible appetites of the federal government.
In July, the US Bipartisan Policy Centre (BPC) recalled that the United States faces default in September if congressmen once again do not raise the national debt ceiling. It was increased. And they delayed the following restrictions for two years - until July 31, 2021. That is, they allowed the government to easily acquire more debt. According to the calculations of the US Treasury Department, current borrowings will exceed a trillion for the second year in a row.
IIF analysts state that huge and uncontrollable debt is the result of irresponsible policies of central banks, addicted to printing money and the distribution of loans. Governments, companies and individuals borrow for economic development. And when growth does not occur, they borrow even more, aided by the low interest rates of the largest central banks. Even before the Fed eased monetary policy, some central banks of developing countries reduced interest rates.
Take it while it’s available
According to IIF, it was the countries with emerging markets that made the largest contribution to the increase in global debt – their debt load exceeded 69 trillion dollars, or 216.4% of GDP. The highest relative growth was recorded in Chile, South Korea, Brazil, South Africa, and Pakistan. Moreover, a significant part is accounted for by the corporate sector, which almost reached the aggregate GDP of 30 developing countries in terms of their debts – 92.6%.
Having obtained unhindered access to capital markets, over two decades, developing countries have increased their corporate debt by 50 percent.
"The problem is that this group of borrowers does not have sufficient experience in managing debts over several economic cycles. As the recession begins, companies are overwhelmed by obligations that are difficult for them to pay off," explain the Institute of International Finance.
The greatest concern is China, where the economy has been developing for more than a decade via new loans. As a result, debt has increased fourfold – to almost 300% of GDP. The corporate sector, dominated by state-owned companies, borrowed $ 21 trillion – 155% of GDP. This is almost two-thirds of total debt. For comparison, corporate debt is 100% of GDP in Japan, and 74% in the United States.
To assess the scale of the problem, just look at the corporate bond market. In 2018 in China, these securities were at 1.72 trillion dollars – an indicator second only to the US (5.81 trillion). This year, 42% of the emerging corporate debt of emerging economies was provided by Chinese companies, which dramatically increases the risk of default in the near future.
Already, many companies are defaulting on bonds, declaring themselves bankrupt. Last year, 18,000 firms went bankrupt in the PRC, and the level of defaults on bonds was five times higher than in 2015. In 2019, another record is expected.
The fact that China’s high and volatile debt level is threatening with massive corporate defaults was previously indicated by the Organization for Economic Cooperation and Development (OECD).
"The slowdown in growth and increasing financing costs complicate debt servicing and are fraught with defaults. This will negatively affect banks' profitability and lead to liquidity problems," the OECD said.
Economists are sure that the current state of affairs clearly indicates that the debt bomb under the Chinese economy has already begun to smoke. Excessive debt load amidst an economic slowdown is a clear precursor to recession. A similar picture, for example, was observed on the eve of the global financial crisis of 2008. At some point, the global economy simply will not be able to digest huge and uncontrollable debt. And the coming crisis, as the financiers predict, will be much more severe and will result in massive impoverishment, powerful geopolitical instability, social unrest and wars.
In the following is our translation of an analysis by Ivan Danilov from RIA Novosti.
Danilov, as well as other Russian analysts, focuses on the issues that Americans should also focus on but don’t.
Now, I want the reader to consider something absolutely vital to the West’s survival. It’s not the threat of communism or socialism because the Western economy is firmly in the grip of the predatory capitalists who control our minds with the msm and our pocketbooks with their Federal Reserve and its willing agents in Washington and Wall Street. It’s not immigration, though that is an important secondary issue. It is not abortion, because the most vocal pro-life activists are hypocritically oblivious to the routine murder of children by the IDF, which they support believing God wants them to (though the Bible does not contain a single passage to that effect). It’s not the Deep State and its persecution of their wonderful saviour Donald Trump (because the Deep State is the Israel-controlled warmongering Establishment, of which Donald is the ringleader). It’s not personal freedom because the US is not sovereign and without national sovereignty there is no freedom. It’s not the mythical “Russian threat” or “Chinese threat” because these two countries are the only ones based on sound economic principles and, ironically, will probably be the only fall-back allies when the dollar collapses (though US pols will, of course, blame them, not their own irresponsible policies, for the collapse).
No. It’s a set of issues no one in America wants to mention because every politician knows that honestly addressing these would be poison to his/her career because a coterie of agents, some of them even foreign, and not the voters, is in full control of US policies and msm. These issues include:
the eternal US wars and interventions (such as regime changes),
government overspending – particularly on arms the US does not need,
the debt-based US economy with no real backing, and
the unwieldy US debt that increasingly threatens to bring down America.
And yet, what is really crucial is not these issues themselves but the fact that that presidential and congressional campaigns come and go and yet no candidate (with few exceptions, such as Ron Paul, and recently, Tulsi Gabbard) dares to broach any of these subjects. Of course, on the campaign trail, Trump pretended to care about war but out of the other side of his mouth he was preparing us for war by telling us that Iran is the “biggest state sponsor of terror,” which was and is the biggest lie of our era because sentient Americans know that Saudi is the breeding ground of Wahhabist terror groups like ISIS and Al-Qaeda. The West has a serious case of cognitive dissonance. We know but we also know we don’t dare to know. America is a gulag without jail keepers. The people themselves are the prison guards.
So given the fact that voters are constantly distracted away from the most vital issues by far, it is absurd to speak of “American democracy.” The US and its vassals are the farthest thing from democracies imaginable and we need to stop pretending that the West is the free world. It is in fact a gulag. If you wonder whether that is so, then ask yourself why Julian Assange is in jail.
QUOTE from the article below:
“It is terrible to imagine what will happen to the currency reserves of those countries that are oriented solely toward the dollar if Dalio’s forecast of America’s future comes true.”
The issue addressed by Danilov below is one we reported on here. I had said that both left and right agree that the dollar should be devalued and that the excuses were:
on the right:
that this would enhance the US trade surplus.
on the left:
That this would somehow help the poor.
But these excuses were a diversion from the real issue, namely, that the Fed had run out of tricks to keep the unbacked dollar afloat and enable the US to pay down the debt, but that devaluing the dollar would also further impoverish the struggling American worker.
It is almost amusing to hear Americans complain that their country is becoming communistic or socialistic when in fact the name of the enemy is predatory capitalism. If the West were becoming more socialist, why pray tell, is the gap between rich and poor growing like a cancer?
Danilov does not mention it, but we need to consider the possibility that this coming initial devaluation, the concept of which has just recently been floated by the msm, may not be the last one. After all, there were 3 rounds of quantitative easing, whereby the Fed bought back its assets (for which no buyers could be found), so why not several devaluations? If devaluation of the USD became a trend rather than a one-off policy, the poor could multiply exponentially and at some point, the US could join the Third World. It may sound absurd, but then, at one time, people would have scoffed at the notion that the US debt could explode to well over GDP and US Treasuries would be hard to unload on the market.
American billionaire predicts dollar devaluation
July 20, 2019
American billionaires are usually big optimists in matters related to the US economy and the US currency. Perhaps the cause of this professional bias is associated with the presence of billions of dollars in personal accounts. Maybe this is due to an informal "social burden" in the sense that it is not seemly for a billionaire to create panic among the population and investors in American assets. However, rules are made to be broken, and Ray Dalio – a well-known financier, billionaire and founder of the large investment fund Bridgewater Associates (which manages assets of more than $ 124 billion) – published an op-ed in which he made several unpleasant predictions about the future of American economy, the dollar and world financial markets. The article evoked quite an emotional reaction from the business media, ranging from the American agency Bloomberg to the Australian Sydney Morning Herald. To reduce the position of the billionaire to several theses, Mr. Dalio’s forecast can be expressed as follows: the dollar will undergo a serious devaluation, the Western system of social guarantees (including pensions and medical care) will be glutted with depreciated money, social conflicts will sharply increase, and against the backdrop of all these crises gold will be a great investment.
Reading Ray Dalio’s article on the “changing paradigms” of financial markets, it’s hard to shake the sensation that it was not written by the influential American billionaire, but by a Russian or Chinese financial columnist, for Dalio rather unceremoniously points out those vulnerabilities of the US financial system and the Federal Reserve’s monetary policy about which opponents of the USA have been writing for many years, and supporters of more sane economic policy in the States themselves.
According to the founder of Bridegewater Associates, the reason for the US transition to the actual devaluation of its own currency is that all the methods of stimulating the American (and generally Western) economy have already been exhausted or nearly exhausted, and so much debt has been accrued that without devaluation, it can’t be eliminagted: “Since these forms of mitigation (monetary policy. - Note auth.) (that is, lower interest rates and QE [QE - the purchase by central banks of government and mortgage bonds]) stop working and there remains the problem of too many debt and non-debt obligations (for example, pension and medical obligations), other forms of mitigation (most obviously, currency depreciation and monetization of the [government] financial deficit) will become increasingly likely."
It is probably worth translating into a colloquial Russian technical term that Ray Dalio uses: “monetization of the deficit” is, in fact, a Venezuelan or Zimbabwean solution to the government’s financial problems, which assumes that the government does not pay pensions, benefits and salaries to state employees, or earn money (for example, by collecting taxes or dividends from public corporations), but simply prints money. And in very large quantities, which inevitably leads to the devaluation of the printed currency, because the money loses its purchasing power.
The future, in which the central banks of the western world (and above all the United States) transition to radical measures to support the economy (and in fact to efforts to contain a systemic crisis), such as negative interest rates, looks completely unattractive. The social sphere will suffer (since pensions and benefits will be paid with devalued money), and inflation will simply “burn” the savings of those who have them. The forecast of the American billionaire is unlikely to appeal to the next American president – regardless of whether it is Trump (who hopes to be re-elected in 2020) or one of the candidates of the Democratic Party. Ray Dalio predicts the American future for the next few years: “I think it’s very likely that sometime in the next few years 1) central banks will exhaust opportunities to stimulate markets in a weak economy and 2) there will be a huge amount of debt and other obligations (such as pensions and health care), which will have to be paid out and which will not be financed by (government) assets. In other words, I think that the paradigm we are in will most likely end when a) the real interest rate will be reduced so low that investors holding debt obligations will not want to hold them and will start to move on to something that they consider better, and b) at the same time a greater need for money to finance [government] obligations will contribute to [the so-called] “great contraction.” At this point, there will not be enough money to meet the needs, so some combination of large monetized deficits, a depreciation of the currency and a significant increase in taxes. These circumstances are likely to increase the conflicts between wealthy capitalists and poor socialists. Most likely, during this time, debt holders will receive very low or negative nominal and real yields in devalued currencies, which will effectively be a wealth tax."
The problem is this: Ray Dalio’s forecast emphasizes that the devaluation of the dollar will be a “wealth tax,” but this is only part of the consequences of the scenario he describes, and far from the most important. The fact is that a sharp devaluation of the currency (which, from the consumers’ point of view, looks like a sharp increase in prices compared to their income) is always primarily a “tax on the poor.” That is, for those who do not have real assets, for those who do not have passive income, there are no stocks, and there is only a salary and a hope of retirement.
There is a high likelihood that will be the Western social sphere will be sacrificed at the altar of the interests of the American and European governments, and the interests of the western banking sector as a whole, since the social obligations gained by Western governments in the era of economic stability will be paid by monetization. That is, by the payment of depreciated money. Consequently, formally, everything will be fair, but in fact the state will simply throw off the shackles of social obligations to the citizens.
As the main way to rescue savings and the best tool for investment in this black economic period, the founder of Bridgewater Associates offers the oldest tool for capital accumulation, ie, gold. The benefits of gold are obvious: it cannot be printed, it cannot be devalued by government decree, negative interest rates on bank deposits (which are already in some European countries and most likely in the whole Western world in the future) are not dominant, and against the background of negative yields on government bonds and other debt instruments (which Dalio writes about in his forecast) gold looks not only like a good savings tool, but also a high-return investment.
The American billionaire’s advice is equally applicable to both ordinary investors and to large investment funds. And is is even more applicable to government currency reserves. It is terrible to imagine what will happen to the currency reserves of those countries that are oriented solely toward the dollar if Dalio’s forecast of America’s future comes true. Against this background, the actions of the Russian Central Bank appear quite prudent and timely, increasing the amount of gold in Russian foreign exchange reserves at an accelerated pace. Each month, news agencies appear on the tapes of the Central Bank buying gold, and even the Western media (which often showed some scepticism about Russia's increasing gold reserves to the detriment of the US dollar) admit that, by and large, this strategy has already justified itself. In the sense that the price of gold (and hence the value of Russian reserves) is growing. as reported by the US agency Bloomberg.
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.