By New Silk Strategies staff
None of this US manipulation was, of course, based on anything resembling sound economic principles or natural market forces. In the past, even the US would probably not have stooped so low as to hold a proverbial gun to the customer’s head to force a sale. The government was at least somewhat constrained by a semblance of ethical principles.
There are two glaring examples of how the US resisted growing its economy on sound principles, blocked from doing so by a failed ideology.
First, in the Obama administration, China offered to all interested parties a chance to enter its Asian Infrastructure Investment Bank (AIIB) from the ground floor, as the vast majority of US allies did (despite Obama’s dire warning not to). This was based on the Chinese principle of fairness to all involved – the disarmingly simple essence of Chinese business policies since the dawn of time. Call it Confucianism, call it Chineseness, but whatever, this policy is part and policy of Chinese culture and the secret of Chinese business success. It is the diametric opposite of the now typical Western approach of cheating and lying one’s way to success – a formula that can be called financialisation of the economy. Economy and finance used to be two separate realms. Not any more, not in the West. This is the approach that gave the world the real estate bubble and the attendant Great Recession. Today it has degenerated further into the casino-isation of Wall Street, where economic growth is based on a gross overvaluation of stocks. There is no way this manipulation can be called economic growth, put bread on US tables or generate jobs. The resulting deflation of the dollar has only succeeded in creating more millionaires holding rapidly deflating portfolios.
If the US had joined the AIIB, it would have been able to cash in on the Chinese bank’s inestimable future profits, but this would have required adhering to Chinese rules of fairness, and the US financial elites, by now thoroughly addicted to the old method of cheating and bankrupting its customers (as chillingly detailed by John Perkins, CEO of strategic-consulting firm Chas. T. Main, in his book “Confessions of an Economic Hit Man”), just could not kick the habit. The ideas of the radical school of the Enlightenment were approaching their logical end. (We refer here not to the Enlightenment per se but specifically to the more radical school, as detailed in our three part resource: Part 1, Part 2, Part 3. To understand the Western world, we believe it is vital to keep in mind this ideological context in which the Western elites operate. Otherwise it all seems random. Indeed it is absurd, but not random).
It is no exaggeration to say that the US financial system is a full-fledged mental disease in its terminal stages.
The second example was the US’ refusal to join the BRI (Belt and Road Initiative, once called the One-Belt One-Road, or OBOR), even though many US allies joined. But it was worse than that. There is an irrational desire in the US to sabotage the project, to the detriment of the Chinese and the Third World, particularly the Africans, who are counting on this project to help lift them out of poverty (as detailed in our article on Xi Jinping). No less than Steve Bannon, former presidential strategist, said in an interview to The Economist: “Let’s screw up the Belt and Road.” This was a direct attack on the Third World poor and Americans didn’t bat an eyelash. It mattered not that the US was on a path toward the destruction of economics per se, ie, toward a post-economic world where even they would eventually be living below the poverty line!
After all, why should this matter to Americans who had sat in their armchairs for decades as their bombers blew up millions of innocent men, women and children in their homes. Just as long as their pay-checks or pensions kept rolling in, they would never protest government-sanctioned mass murder. The US had developed a culture of murder for hire, to the benefit of the Saudis and their allies, including Israel. (As detailed in this NSS resource: Part 1, Part 2, Part 3).
This mind set was now part of the culture of planned destruction. After all, the more losers were created, the more gloriously the Americans were winning.
Nonetheless, however richly the US might deserve to have its currency implode à la Weimarer Republik, there are a number of reasons why the dollar is probably not facing imminent doom.
Let us consider the possibility of China’s persuading the Saudis to back out of the petrodollar deal and start accepting RMB or other currencies in settlement for their oil. This is a real possibility considering that the kinsmen arrested and held by Crown Prince Mohammed bin Salman include two loyal friends of the US regime, ie, Mohammed bin Nayef, a CIA favourite (they awarded him a prize for “counter-terrorism”) and Bandar bin Sultan, an old family friend of GW Bush. When the FBI tried to investigate the Bandar-headed Saudi embassy in Washington for complicity in the 9-11 attacks, it was Bush himself who, according to the NY Post, blocked the investigation on the grounds of diplomatic immunity – despite the deaths of 3,000 Americans. (Imagine if the embassy of Iran had been implicated.)
In other words, the future king was taking unprecedented steps that ran counter to US government interests. Breaking off the petrodollar deal would not be incompatible with this behaviour.
By New Silk Strategies staff
Those rare news outlets that dare report the details of Russian and Chinese economic infrastructure projects are now exploding with news that the Chinese are about to force the Saudis into using the Chinese yuan (RMB) to settle their debts for oil sold to China. At the time of this writing, no one knows if the reports are true. Many of them are coming from gold sellers.
The forum participants at Russia Insider and RT, for example, are almost all jubilant at such news because they believe that if the dollar collapses, the US will be hard put to wage more wars.
Firstly, what are these reports based on? Is there a risk of collapse at all?
Yes, the risk is there and most analysts believe it hinges on the Saudis, who have never been less stable.
Crown Prince Mohammed bin Salman has jailed hundreds of his kinsman and seized most of their assets. He has also recently agreed to purchase not only American air defence systems of the Patriot type but also the Russian S-400 system.
This was wise because the Patriot system is said to be designed so as not to permit the targeting of US-made missiles or planes, while the Russian system has no such qualms.
Likewise, the Russian system is said to be designed so as not to shoot down Russian missiles and planes.
These assumptions may or may not be accurate. But it is safer for the Saudis not to take any chances, and therefore they apparently will be installing both systems.
But what worries the West the most is the Saudis’ rapprochement with China and Russia in the military and economic spheres, respectively, leading to a strong suspicion that China may be effectively pressuring the Kingdom to accept RMB (renminbi, or yuan) in payment for its oil. China has successfully pressured, or persuaded, other countries, such as Venezuela and Iran, to accept non-dollar settlements for international trade. Venezuela obstinately refuses the US dollar. If the Saudis succumb to this kind of pressure, many economists and investors believe the petrodollar could be in trouble.
Some believe without the support that the Saudis have been providing both by demanding only US dollars in settlement for their oil trade and by keeping their cash reserves in the form of dollar-denominated treasuries, the USD would collapse. But we have investigated the accuracy of this belief and have arrived at some surprising findings.
So if the Saudis turn against the US and drop the dollar prop, will the dollar truly just wither and die?
Well, remember that the main effect of the Saudi “prop” is psychological. Ever since the 1974 when Richard Nixon signed the first petrodollar deal with King Faisal, there has been a strong belief among Western observers that without this prop, and absent the gold standard, which was abolished in the early 70s, the dollar will enter free fall.
However, it was not the Saudi prop but rather investors’ and economists’ faith in said prop that held the USD aloft. The US and many of its trading partners will not give up their beloved buck without a fight. Their faith will not wither overnight.
Further, what currency could supplant the dollar?
The Russians and Chinese have both been on a gold buying spree for years and it is clear they are seeking a gold prop in analogy to the Saudi oil prop.
But remember that the now-defunct US gold standard, which Russia and China may be emulating, was based on a promise that the buck would be backed by gold. That is, if a holder of a certain amount of US dollars (above a legal threshold) so desired, he could demand the equivalent amount of gold in exchange for his dollars. This system, eventually failed because too many users were demanding their physical gold and the supply got dangerously low. Now if the Chinese, for example, should decide to offer a similar deal to users of the RMB, that would no doubt work for a while, just like the US Bretton Woods system did. But such a Chinese-implemented system could suffer from the same problem – though it is important to note that, under the Bretton Woods system, the dollar was overvalued with gold pegged at $35 per ounce. Or to state it differently, gold was undervalued at that level. The Chinese should be able to avoid this pitfall with proper pricing.
However, Chinese monetary experts believe that it is not so much an external backing but a strong economy and especially, the use of a given currency in international settlements that lends said currency its value. As China’s economy grows stronger, the US economy is declining. In fact, there seems to be no interest in Washington or Wall Street in growing the US economy on sound honest principles. For example, Trump and the US Congress seemed to be working in tandem on a plan to use Russian sanctions as a way to build the US economy. This ties in with the US’s zero-sum philosophy, ie, the notion that there is a specific amount of wealth in the world, and there can only be loser and winners – no such thing as a win-win situation, the kind targeted by the Chinese. Specifically, the US hoped to use sanctions against individuals who were invested in the Russian Nord Stream II gas pipeline so as to stop the project and force Europe to buy grossly overpriced fractionally distilled (fracked) liquefied natural gas delivered by ship, inherently costly processes that, to say nothing of the up-front costs of fractional distillation, required special liquefaction and re-gasification and storage systems paid for by the suckers who bought the gas in Europe. Trump’s speech in Poland, where a weak-minded government was sold this white elephant, was designed to set the stage for the sanctions to take effect. (We had shown here that the US gas would be at least 15% more expensive than gas piped from Russia. However, that was computed based on US LNG heavily discounted because of over-extraction. It’s probably worse than that in the long run).
Fortunately, the EU Commission grew a pair and stood up to the US in a historic move and the US wound up not selling its gas to a captive customer as it had hoped to. Further, attempts to punish the investors did not stop the Nord Stream II project.