Russia: the most stable and healthy of all industrial economies
Vince Dhimos answered a question in German at Quora. Translation below.
Question: What are some wrong assessments about Russia?
Almost everything we think that we know about Russia in the Western world is false. This is because our “information” comes from the US and the US-led NATO. After the Soviet Union collapsed in 1991, NATO lost its raison d’etre and frantically sought to find another reason for amassing arms made in USA and holding a monstrous army. Otherwise a lot of warlike bureaucrats would have been out of a job. The dictum “war is good for the economy” makes sense. As long as the wars do not destroy infrastructure or kill people.
Since Russia had been the enemy before, Washington decided it could continue to be our enemy. But in order for that to happen, Russia had to be portrayed as a dangerous enemy but, in addition, as a weak state to provide a pretext for regime change actions and also to make Westerners think it could be easily defeated as long as NATO remained resolute and received massive injections of cash. But what fool would believe that the West has a dangerous but weak enemy? It turns out that the average bloke on both sides of the Atlantic swallowed this steaming pile of nonsense whole, without bothering to question it.
One of the most influential propagandists against Russia was Senator John McCain, who once said “Russia is just a big gas station.” He meant that the only source of revenues for the country was crude oil.
This suggests that Russia has a weak economy. However, a comparison with the US economy paints a different picture. The following is from wikepedia (not known to be a Russian troll factory):
agriculture: 4.7%, industry: 32.4%, services: 62.3%
agriculture: 0.9%, industry: 18.9%, services: 80.2%
It appears that the US economy is 80.2% services, ie, non-productive, while the Russian one is only 62.3% services but 32.4% industry, ie, more productive. The US economy is only 18.9% industry.
According to this site:
Russia’s debt to GDP ratio was only 11.793% in 2018, an amazingly low ratio indicating virtually no risk at all of default.
Compare this to Germany with a debt/GDP ratio of 63.9% (almost 6 times higher), France with 98.5%, almost ten times higher, UK with 87.4%, almost 8 times higher, and 105.4% for the US (well over GDP and growing like a cancer) at last count. Japan's debt was 236% of GDP at last count. And the trouble with these oversized debt piles is that the countries that have accrued them are no longer producer nations and their GDPs contain a high proportion of government spending that is mostly non-productive, such as military spending, which does not generate non-tax revenues.
In fact, Russia’s external debt in 2017 was $US 529.6 billion but its gold reserves were $US 487.8 billion and its cash (Forex) reserves were 490 billion, so that together, its gold and Forex more than cover the entire debt. From that perspective it could be said to have a negative debt. No other developed country can boast that kind of situation.
In fact, if we want to be perfectly honest, the Western economy has terminal cancer, beyond the shadow of any doubt.
From these important standpoints, no other developed country has such a healthy and secure economy in the world as Russia! Why would the Russians reject a president who had worked this miracle? They love Putin and he loves them right back!
Below is our translation of an article from rueconomics.ru generally concerning the most important financial movement of our time, namely, the de-dollarization of world trade, actively pursued by Russia, China and now Europe, all of which are plotting schemes to circumvent the US dollar in trade settlements to avoid sanctions and other restrictive measures by the US. The widespread use of sanctions and other punitive measures, including cutting states like N. Korea and Iran off from the SWIFT payment system, has contributed mightily to the quest for ways to avoid the US dollar, and to innovative mechanisms towards this end. Here comes another step in this movement. Commentary and notes in [brackets] are by Vince Dhimos.
Investors and financial experts are still catching up to the multipolar financial environment taking shape all around us. When I post at Quora on this subject, there is often a response from someone maintaining that the dollar will be the currency hegemon of world trade and reserves for many years to come. That could well be true, but these commentators are probably depending for their information on the Western press, which sees it as its mission first to assuage all fears of investors – or in other words, con them into continuing to buy and hold Treasuries and US stocks and bonds, and, secondly, or not at all, telling them the unvarnished truth about events that will impact world finance in the future.
Recently, however, we have seen three seemingly minor events that should serve as a warning to those who are counting on the perpetuation of US-dominated financial business as usual.
I am referring to
1) to Saudi oil minister Khalid al-Falih’s warning to the US against sanctions on Russia;
2) the fact that OPEC is considering a restructuring that would make Russia the head of a new OPEC-like organization. WSJ reports:
“Saudi Arabia and its Persian Gulf allies are backing a formal partnership with a 10-nation group led by Russia to try to manage the global oil market, according to OPEC officials, in an alliance that would transform the cartel.” [my highlighting];
3) a Reuters report based on confidential sources indicating that Saudi is prepared to drop the dollar in its oil trade in the event the House and Senate pass the NOPEC bill that would eliminate immunity of OPEC to lawsuits.
“They said the option [referred to as the nuclear option] had been discussed internally by senior Saudi energy officials in recent months. Two of the sources said the plan had been discussed with OPEC members and one source briefed on Saudi oil policy said Riyadh had also communicated the threat to senior U.S. energy officials.”
If at any time, Saudi decides to accept payments in yuan for its oil, this would stand global power politics on its head. Confidence in the US dollar would slide not because the dollar really needs Saudi (China and Japan each have twice the amount in Treasury holdings as Riadh), but because Saudi is seen as symbolic of the petrodollar’s reserve and world trade status and a sign of the trust investors have in the petrodollar. Investors would lose confidence in the USD and it would be even more difficult to find buyers for the Treasuries that support the utterly senseless US-instigated and initiated wars and regime changes that continue to erode trust in the US and heap on more unpayable US debt. All of that would change, hopefully in a non-destructive way.
The Western press is also becoming more open about the de-dollarization efforts of China and Russia, and more recently, Europe. The dam has burst in financial news and the cat is out of the bag.
Yale Global in fact uses the term multipolar (popularized by Putin) several times in its article and throws all caution to the winds saying when, not if in this key sentence:
“When Saudi Arabia decides to accept yuan for oil sold to China, the United States – already perceived as turning inward – will unintentionally make political room for Beijing in assuming a greater leadership role worldwide.”
This article is absolutely brazen compared to the milquetoast manners of the run-of-the-mill Western financial reporting which does its best to tone down, or ignore, unpleasant financial news that might spook investors.
De-dollarization discussions tend to appear more often in publications of think tanks (eg, the Atlantic Council) and official organizations like the EU, which are written by and for experts and hence somewhat insulated from the public. But the information is now out there and investors can read it and act accordingly.
Finally, I don’t see any other journalists out there putting together all the pertinent details on the threat to the petrodollar as I have with the 3 items listed above. Just saying.
The transition of banks to SWIFT analogues is the "anti-dollar response" of Russia and China to US sanctions
March 27, 2019
Russia and China are promoting the idea of settling reciprocal trade in national currencies. The next step in the “anti-dollar response” to US sanctions was the connection of Russian banks to the Chinese SWIFT analogue. According to Andrei Karneev, Deputy Director of the Institute of Asian and African Countries at Moscow State University, the decision to use SWIFT analogues makes it possible to protect trade and economic cooperation from political pressure from third countries.
Chinese and Russian SWIFT analogues
A number of Russian banks have already connected to the Chinese alternative to SWIFT to facilitate mutual settlements between the Russian Federation and China. The head of the department for relations with foreign regulators of the International Cooperation Department of the Russian Central Bank, Vladimir Shapovalov, announced this during the Russia-China international forum. This solution, he said, has already made it possible to simplify the procedure for routing payments.
As Shapovalov recalled, the Bank of Russia earlier unveiled its counterpart to SWIFT, the Financial Reporting System (Russian acronym: SPFS), and now the Russian regulator is actively promoting it around the world, including in China. The representative of the Russian Central Bank expressed the hope that Chinese banks will more actively consider the possibility of its use.
“When analogues of SWIFT are used, accounts in dollars, euros and other currencies of western countries are not handled. For the dollar, there are systems created in the United States. The transition of banks to SWIFT analogues should be seen as a kind of new experience for the Russian Federation and China. While both countries have the technological potential for the independent creation of such systems, although at first they will play only a supporting role.
Most payments in dollars, euros, yen, Swiss francs and British pounds will continue to go through SWIFT. Nevertheless, a positive movement is observed that may be useful in the current environment. It helps to protect trade and economic cooperation from the political pressure on third countries and helps step up cooperation in the area of trade,” explains the expert to FBA Economy Today.
Use of national currencies
Earlier, presidential adviser Sergei Glazyev drew attention to the need for Russia and China to have an interface of the payment systems to integrate the financial markets of the two countries. An active transition to accounts in national currencies of the Russian Federation and China, in his opinion, is possible by [some time in] 2019. Moreover, without this measure, it is unlikely that our reciprocal trade could be achieved.
A similar statement was made by representatives of the Chinese side. The rejection of the dollar by Russia and China will help reduce the negative impact of Western sanctions, which today cause a number of enterprises difficulties in making payments, said Zhou Liqun, head of the Union of Chinese Entrepreneurs.
“In the past, the volume of trade between the Russian Federation and China set a historical record, breaking the bar of $100 billion for the first time. Of course, our task is to increase direct payments in national currencies. It is clear that this will not happen immediately, but the movement towards wider use of the national currency is already happening. There has clearly been positive momentum. The more business and banking contacts between the representatives of the two countries, the more new opportunities are created, and the palette of tools expands,” adds Andrei Karneev.
Now it is the banking sector that is taking the most active steps towards the transition to national currencies. In the Far East since the end of last year, VTB Bank has been conducting up to 22% of trade operations with China in roubles, and another 8% in yuan. In the future, the volume of such operations should increase, but a lot depends on how much interest the Chinese side has in such transactions.
Experts associate another area of cooperation with the creation of a single payment space through agreements with China on the use of a co-badge system based on UnionPay and Mir cards.
Author: Andrey Petrov
Below we include details on the Russian-Chinese co-badged credit cards.
RRDB starts issuing co-badging cards UnionPay-Mir
Russian Regional Development Bank (RRDB) started issuing co-badging cards of “Mir” and UnionPay payment systems. The main feature of the cards is the possibility of their use in the entire acceptance network of UnionPay cards around the world. Operations on cards made in Russia are serviced as operations on cards of the “Mir” payment system, and operations performed abroad are serviced through the UnionPay payment system.
Cardholders will also be granted privileges from both payment systems: the cashback service of the “Mir” payment system with the possibility to return up to 20% of the funds spent on the card for purchases from service partners, as well as discounts and special offers from UnionPay.
The launch of the joint co-badging project of RRDB with the “Mir” and UnionPay payment systems allows to expand the capabilities of bank’s customers. They will be able to use the usual national payment card not only in Russia, but also when settling abroad.
UnionPay payment system, founded in China in 2002, is the fastest developing network in the world. In circulation there are more than 7 billion bank cards, which are accepted for payment in 169 countries. The UnionPay card service network exceeds 2.57 million ATMs and more than 51 million trade and service companies around the world.
“Mir” payment system - is the Russian national payment system. Its participants are 344 banks almost all of them are already accepting and servicing the “Mir” cards in their devices network. More than 150 banks are engaged in the issuance of “Mir” cards. Up to date, more than 37 million cards have been issued. Cards are accepted abroad due to co-badging programs with international payment systems.
China UnionPay kicks off European expansion with UK launch
World’s biggest payment card issuer challenges US rivals Visa and Mastercard
China UnionPay cards are accepted by more than 41m merchants and 2m ATMs in 170 countries © Reuters
Martin Arnold in London and Gabriel Wildau in Shanghai SEPTEMBER 16, 2018
China UnionPay, the world’s biggest payment card issuer, is preparing to launch branded cards in the UK, the first step in a wider European expansion plan to challenge its US rivals Visa and Mastercard in one of their key markets.
The move comes as UnionPay faces intense competition in its home market from digital payments groups Alipay and WeChat Pay. It is also likely to add to the frustration of its US rivals, which have spent years trying to enter the Chinese market.
The Chinese state-controlled group will team up with a UK company as early as next month to start issuing virtual pre-paid cards for British corporate clients to give to their staff for use via a mobile wallet when travelling in Asia.
This will be followed by more deals to issue UnionPay branded credit cards elsewhere in Europe as early as December. “In Europe we want to target local customers in the domestic market, not only people travelling to Asia” said Zhihong Wei, head of UnionPay in Europe.
Founded under a charter from the People’s Bank of China in 2002, UnionPay has a virtual monopoly on bank card payments in its domestic market, where it has issued 6bn cards — more than Visa and Mastercard combined.
The Chinese group has been expanding internationally in recent years, mostly in Asia, and its cards are accepted by more than 41m merchants and 2m ATMs in 170 countries.
It first moved into Europe a decade ago to provide access for Chinese tourists and its cards are now accepted by 60 per cent of merchants and ATMs in the region. It has offices in Paris, London, Madrid, Milan, Frankfurt and Budapest, with another set to open in Stockholm.
Mr Wei said it did not need a licence for its European expansion plan as its cards will be issued by third parties, such as banks, and its transactions will be handled by payment processing groups.
Six years after the World Trade Organization ruled that China discriminates against foreign payment groups, Visa and Mastercard have applied to Beijing for licences to clear renminbi payments but are awaiting approval.
UnionPay operates with a business model similar to Visa and Mastercard, earning a commission on each card swipe. The currency-printing unit of the PBoC is its largest shareholder, with the remaining equity mostly held by state-owned financial institutions.
But the rise of mobile payments in China — dominated by Ant Financial’s Alipay and Tencent’s WeChat Pay — has dislodged UnionPay from its dominant position in electronic payments. Beyond the loss of fee income, the group is also losing access to valuable transaction data from consumers who have switched from plastic to mobile phones.
However, Mr Wei said UnionPay was regaining ground on its digital rivals with its QuickPass system, which uses Near Field Communication (NFC) chips of the type used at subway turnstiles around the world and contactless card payments in the US and UK.
The move to issue UnionPay-branded cards in Europe comes seven years after London department store Harrods became one of the early UK retailers to install a UnionPay point-of-sale terminal, prompting a spike in sales from Chinese students and tourists who were able to spend directly from their Chinese bank accounts.
Below is our translation of an article from rueconomics.ru with commentary by Vince Dhimos.
This is just one of many commentaries in Russia on US hysteria. Let’s take a look at the Anglo-Saxon press on this topic (in EN):
U.S. military warns against Russian Arctic expansion
In statements made before the Armed Services Committee of the U.S. Senate, military commanders for the U.S. Pacific Command and the U.S. European Command warned about Russia’s growing influence in the Arctic, its military build-up, and the United States’ inability to counter Russia’s activities. Similarly, the Commandant of the U.S. Coast Guard, Admiral Zukunft, expressed concern about “a mounting Russian footprint” in his 2018 State of the Coast Guard address earlier this month.
So the message to Russia from the US military is: We are warning you to back down because we are impotent to counter you! This is getting to be the style of all US “warnings.” Like when Trump told Venezuela’s interim first lady “the Russians need to leave” and then quickly said “next question” for fear she would ask “how will you make them leave?”
I just want to say to Admiral Zukunft: why in heaven’s name does the US have to counter everything the Russians do? Why the obsession? Let the US military get a life of its own. You know, folks, the Russians didn’t go to the far north with its military to set up bases. They went with engineers, built ice breakers to help ships pass through the Arctic Ocean (something like the dream of the Northwest Passage) as part of a new potentially lucrative transportation project, and prepared to set up oil and gas extraction systems, and then sent the military to defend and protect their projects. The US has no projects there so the US military wants to go only to stop the Russians. US economic theory can be boiled down to: we can only prosper by making others poor. If we can stop the Russians and Chinese we will be prosperous again. Taking this to its logical end, the US would reach peak prosperity by nuking Russia and China! Do they have mush for brains?
From the content of our translated article, it looks like the Europeans are using common sense in their relations with Russia, joining them instead of threatening them. They are no doubt motivated to cooperate with Russia to show the US they won’t be pushed around any more. You may recall that the US ambassador had the unmitigated gall to tell Germany not to complete the Russian gas pipeline Nord Stream 2 asserting it was a threat to European “energy security” because it gave Russia power to pressure Europe. But the Europeans are waking up to the fact that the only country pressuring Europe has been the US, and the Europeans are getting sick of it. Trump is making great changes in the world with his bullying, but not the kind he and his followers imagined. A recent poll shows that the US has lost respect in the eyes of the rest of the world, even as Americans vainly dream that, as another poll shows, they are loved now more than ever.
EU is interested in cooperation with Russia on Arctic projects
April 8, 2019
The European Union is interested in cooperation with Russia on Arctic projects. This was stated by the EU Ambassador at Large for Arctic Affairs Marie-Anne Coninsx during a meeting with St. Petersburg Vice Governor Eduard Batanov.
On Monday, April 8, in Smolny, there was a meeting of the EU Ambassador for Special Assignments for the Arctic, Marie-Anne Coninsx, with the Vice-Governor of St. Petersburg, Eduard Batanov. Representatives of the EU delegation were also present at the meeting.
Coninsx arrived in the Northern capital to participate in the International Arctic Forum "The Arctic: Territory of Dialogue," which will open at Expoforum on Tuesday, April 9.
In her opinion, St. Petersburg plays a special role in the development of the Arctic. At the same time, the EU Ambassador stated with confidence that the joint projects of the EU and Russia will continue their active development in this area.
The European Union understands how important the economic development of the Arctic region is.
In turn, the vice-governor of St. Petersburg Edward Batanov said that the city is now designing and creating unique energy equipment and marine equipment. In addition, they prepare personnel for specialized enterprises.
In this regard, St. Petersburg is now presenting itself as a kind of coordinator of Arctic research, and is also a platform for the promotion of Arctic projects.
Author: Irina Sintsova
Our translation of an article from gazeta.ru appears below. Commentary by Vince Dhimos.
Ok, Trump keeps saying he wants low oil prices, and certainly, high prices at the pump are not a good harbinger of re-election.
Yet, Trump has made all the right moves for raising oil prices, particularly with Iran and Venezuela, two countries that are essentially forbidden to do business because Trump wants to please the voters who want a president who, unlike Obama (or so they believe), knows how to put his foot down. But what good is acting like a bully when it screws up the economy so thoroughly that, as in the case of the Rusal sanctions (as I pointed out here), you wind up having to reverse course and wind up with egg on your face. A very elementary fact of economics is that when a commodity becomes scarce, its price rises. There is no better way to make oil scarce than preventing two major oil-producing countries from producing and selling their oil.
Gaddafi’s curse: the oil market is about to explode
Oil prices went up amid the crisis in Libya and US sanctions
Ekaterina Katkova 04-12-2019
The head of the National Oil Corporation of Libya warned of a possible cessation of production due to military aggravation in the country. Up to 300 thousand barrels per day may exit the market. Given the decline in deliveries from Venezuela and the sanctions risks for Iranian oil, quotes in the coming weeks could go to $75-80. OPEC is already preparing a plan to contain prices.
Every time oil prices skyrocket, analysts think about how the pendulum will swing and how fast it will head in the opposite direction. So far, however, the rapid decline of quotations foretells nothing.
According to the data at 22:00 Moscow time on April 12, the price of Brent crude for delivery in June rose in price almost one percent, to $71.54, since opening. For almost three and a half months, oil has shown positive dynamics with varying success, adding almost 40% since the beginning of the year, following a slight decline.
The balance of supply and demand is already beginning to shift towards a shortage of supplies, and world reserves of raw materials are declining, notes the main analyst at BCS Premier, Anton Pokatovich. According to the analyst, this suggests that by this summer a full-fledged supply shortage may develop in the oil market.
It is possible that the deficit will occur earlier: the head of the National Oil Corporation of Libya (NOC), Mustafa Sanalla, warned that the escalation of the conflict in the country could lead to a complete halt in oil and gas production. It may be necessary to evacuate workers from the country's largest oil fields, he said in an interview with the Financial Times (FT).
The civil war in Libya has been going on since 2011, when after the overthrow and murder of the former leader of the country, Muammar Gaddafi, the opposing forces failed to form a unified government. Libya is still divided into several warring clans that govern different parts of the country. Periodically there is an escalation of the conflict between the parties, including near the zones of oil production.
Thus, in early April, Field Marshal Khalifa Haftar, head of the Libyan National Army, announced an attack on Tripoli. The first clashes of his army with the troops of Fayez al-Sarraj - the head of the Libyan Government of national unity – began almost immediately. Sarraj responded by announcing the start of a military operation against the Libyan National Army.
At that point, the country's energy sector faced the most serious threat since the beginning of the civil war, points out Mustafa Sanalla.
“I am afraid the situation may be much worse than in 2011 due to the number of forces that are involved today,” he said. Sanalla has repeatedly stressed that it is important to keep production independent of the different groups.
Experts believe that this time the escalation of the conflict in Libya could cause significant damage to the country and actually destroy oil production.
Last year, oil production in Libya was about 900 thousand barrels per day (b/d), but now during the period of military operations, this figure may be reduced by half, said Gaydar Hasanov, an expert at the International Financial Centre.
Libyan oil deliveries mainly go to Europe, to countries such as Italy, France, and Germany, Denis Lisitsyn, director of the asset management department of ERARIUM Group.
According to Lisitsyn, theoretically, Libya can be covered by Saudi Arabia - one of the few countries with the technological ability to quickly increase production.
However, Riyadh itself is now more than ever interested in high oil prices and to achieve them even over-fulfils the plan to reduce production within OPEC+. According to the cartel, in March, production of Saudi Arabia decreased by 324 thousand b/d - to 9.8 million b/d.
Sanctions, electricity, cartels
Not everything is going smoothly with Iran. The country, and with it the entire world community, is anxiously awaiting May, when Washington may tighten the sanctions pressure on Tehran and impose those very restrictions on Persian oil, the anticipation of which kept the market in suspense throughout the third quarter of last year.
Recall that at that time only a few, not the largest buyers, refused to buy Iranian oil, and a number of countries, including China, India, South Korea, and Japan, received an exemption for the purchase of Iranian oil for 180 days. According to the latest OPEC report, oil production in Iran in March averaged 2.7 million b/d.
It is difficult to say how many “sanctions” will be removed from the market: it is not known how the restrictions will be tightened and whether there will be exceptions this time. In any case, this market situation is now viewed as another uncertainty factor.
Here you can add Venezuela, where the crisis - economic, political, humanitarian, and for some time even energy - is only aggravated. According to OPEC, in March alone, production in the country fell by 289,000 b/d, to 0.73 million b/d. Recall that in January Washington imposed sanctions on Venezuelan oil, while the United States itself temporarily stopped purchasing hydrocarbons from the Bolivarian Republic.
They add fuel to the fire and technical problems with electricity outages in Venezuela, which affects not only the lives of citizens, but also the ability to ship oil.
In addition, the OPEC+ cut-off agreement continues in effect. At the end of last year, the OPEC and non-OPEC countries agreed to reduce production by 1.2 million b/d from the level of October 2018. According to the International Energy Agency (IEA), only OPEC countries in March reduced production by 1.24 million b/d (against the promised 812 thousand b/d), meeting their obligations by 153%.
World oil demand may be increased by another 10 million b/d, with more than half coming to China, said Gaidar Hasanov. Whereas supply in the market is declining, and therefore oil prices will continue to grow, and in the second half of the year we can already see $75-79 per barrel, the expert believes.
Anton Pokatovich is confident that the fundamental basis and geopolitics in the coming weeks will contribute to the formation of oil prices in the range of $70-75.
Meanwhile, according to Reuters, citing sources in OPEC, the cartel may begin to increase production since July. Highly inflated oil prices threaten a new round of speculation and a downturn in the market, as had occurred several years ago, and therefore in the long run a high-amplitude “swing” is not beneficial to anyone.
According to one of the spokespersons of the agency, OPEC will increase production if prices reach $85 per barrel, the other does not exclude such a development of events at $80 per barrel. The next OPEC meeting will take place on June 25 and 26.
How much faster could the United States develop infrastructure-wise if it followed the Chinese model?
Vince Dhimos, Editor-in-Chief at New Silk Strategies (2016-present)
Answered just now
No one can say how much faster it would develop but it would develop better. Democracy and economics don’t mix. The Chinese system is geared to get results, not votes. That is the difference in a nutshell.
Trump’s efforts are not aimed at developing the economy but only to satisfy voters who, like Trump, have zero understanding of macroeconomics. And without that understanding, no country can survive indefinitely.
Example: Trump naively thought he could improve the trade deficit by slapping tariffs on China and most of US trading partners, even friendly ones like Europe. His constituents loved that he was "tough on China."
The result? After a year of this ham-handed approach, the trade deficit grew to a record level in 2018!
On top of that, US soybean farmers are sliding into bankruptcy because, surprise (!), the Chinese can play this game too, and they stopped buying US beans. Also stopped buying US pork. Trump screwed up US agriculture big time.
US tariffs on Russian aluminium (from Rusal) also nearly ruined the US aluminium industry. You see, US politicians know nothing about the industries they mess with. It turns out that US secondary aluminium manufacturers rely on primary aluminium (ingots for the most part), and those who bought this from Russia lost their ability to produce. US Al manufacturers almost went bankrupt until Congress woke up from its opiate sleep and restored US trade with Rusal
Trump also supports US shale oil production, but US investors in shale oil are learning that the expensive fracking process used in this oil extraction is too expensive to be profitable and they are paring back their investments.
The kind of errors described above occur a lot less in countries like Russia and China because these countries don’t have to worry as much about getting votes and can therefore actually have people with technical knowledge manage the economy.
Finally, the biggest business in America is arms manufacture, which is controlled by the myth that more spending makes you more secure. This factor alone accounts for much of the excessive debt that threatens to destroy the US economy. China and Russia spend only what they need to and they spend wisely. The US often spends on boondoggles to repay arms makers for their generous donations to politicians.
In the following we present a translation containing facts that touch upon, and will most likely impact, the lives of every human being on planet earth. Commentary and [bracketed notes] are by Vince Dhimos.
If you read our analysis and translation entitled “Uh oh! Saudis side with Putin against US sanctions,” you are prepared for this next chapter in the same saga of a Saudi uprising against their masters in Washington.
I daresay that many readers will not understand what the author is talking about. Because very few people actually know what the word “petrodollar” actually means. The media rarely discussed the deal between Nixon and King Faisal and most have been unaware of its existence and its far-reaching implications for US foreign policy, not to mention its moral implications.
I will be as clear as I can possibly be for those who don’t understand the petrodollar concept.
After WW II, as most Westerners know, the US dollar became the world’s reserve currency and, at the same time, the legal tender for virtually all international trade settlements. If you were an American residing in the US, and wanted to buy a chess set from Italy by mail order, you paid the Italian merchant in US dollars using a draft of some sort made out to the merchant. At first that might have been a cashier’s check or something of that sort sent by mail. Later, credit cards were internationalized for such purposes. But at any rate, you paid in dollars.
This was due to the fact that representatives from the 44 allied nations got together in June 1944 at a monetary conference at the Mount Washington Hotel in the village of Bretton Woods, New Hampshire, and decided to adopt the US dollar as the currency for international trade settlement. The US agreed that the dollar would be backed by gold at the rate of $35/oz. Most readers will already know this part as well. Then in 1971, President Richard Nixon was forced to abandon the gold standard for the dollar because too many foreigners were demanding physical gold for their dollars and the US could no longer keep up with the demand. This left the dollar unbacked by anything of value and the economy was suffering as a result. Added to this was the Saudi cutback in oil sales to the US in retribution for US support of Israel against the Arabs. After much deliberation and at the advice of his advisers, Nixon, in desperation, decided to enter into a deal with the devil, almost literally, signing an agreement with King Faisal, the head of the brutal dictatorship Saudi Arabia whereby the US agreed to “defend” this dictatorship (euphemistically called a “kingdom,” both then and now) governed according to the precepts of the world’s most intolerant and violent death cult, Wahhabism, in exchange for the Saudis propping up the declining dollar by accepting only US dollars in payment for their oil and also keeping their cash reserves only in dollars. (The mechanism by which this works is somewhat complex but economists generally agree that the exclusive use of a currency in international trade bolsters its value). The petrodollar is therefore a currency backed by the oil of the Saudis and the Gulf statelets but literally at the price of America’s soul and the blood of innocents, both American and foreign.
The US military went far beyond just defending this kingdom and the tyrants who ruled it, as is plainly evident from the outcomes of all the wars waged by the US (not counting the ones in Latin America) since the deal was signed. Each war benefitted the Saudis and aided them in the spread of their bloody religion and its principles that make a mockery of all things decent and civilized, to say nothing of a nation of people who hypocritically claim to accept Christian principles but who never questioned the motives of wars that killed hundreds of thousands on incomprehensible pretexts that no president could adequately articulate. And here is direct evidence that Saudi has long dominated the US:
QUOTE from the below translation:
“...the country that leads the Arab world is not only threatening senior US officials, but also preparing actions that will cause enormous damage to the US economy.”
It calls to mind the proverb: he who goes to bed with dogs wakes up with fleas.
If you wonder what I mean when I say the US has been helping Saudi spread its violent and intolerant death cult, I have plainly spelled it out in this analysis:
Remember that every member of ISIS and al-Qaeda, and of its rebrandings that the US has cynically funded, armed, assisted with air cover, and called “moderates,” is an adherent of the death cult of Wahhabism. None of them are ordinary Muslims and of course, none claim to be Christians like the people who support their mischief.
For half a century, Americans calling themselves Christians failed to stand up and denounce this barbarism on the part of their government and repent of their immoral indifference to this supremely immoral petrodollar deal all in the name of vile money. As our translated article shows, it is probably too late for repentance in any case now and they will almost certainly pay the price.
Romans 6:23 – the wages of sin is death.
Finally, this Saudi nuclear option also softens the impact of media war mongers like Fareed Zacharias and politicians who try to goad Trump into being more warlike with Russia. They ought to know that the power shift we are discussing herein has not only been US vs Russia. It also includes the Middle East, which is no longer the ally that backed the US dollar. It is now threatening to destroy the dollar. And the US can’t fight a war without dollars. Further, if the dollar collapse, watch the allies abandon the US like rats deserting a sinking ship.
"The nuclear option": they’re threatening to kill the petrodollar
The British Reuters news agency reported that a serious threat was looming over the dollar financial system. Senior officials in Riyadh are discussing the possibility of using the so-called “nuclear option” against Washington — not charging dollars as payment for Saudi oil if the US adopts a law to eliminate OPEC.
The Saudi threat has not yet been voiced and is not confirmed at the official level. However, high-level Reuters sources state it as reality, and Saudi diplomats have refused to issue an official refutation, which can be considered an indirect, but very strong argument that such a scheme of influence on the American authorities and the US financial system is really being weighed.
It is worth emphasizing: we have repeatedly written that the main factor that will stop the adoption of the so-called NOPEC bill, which allows the US government to file anti-monopoly lawsuits against OPEC + Russia member countries in US courts, is the response measures of "affected" countries that will begin to have their dollar-denominated assets and assets under American jurisdiction expropriated.
As the most serious and effective response, we mentioned the attack (or rather, total dismantling) of the petrodollar system, which is crucial for the international status of the US dollar: "The fact is that if this bill is passed and the judicial process starts, which will obviously end with the confiscation of the property of oil-exporting countries, the exporting countries themselves will immediately “kill” the petrodollar system. Just because it’s the only way for them to survive. For the US authorities, who ultimately demand that they are provided with a politically comfortable price level of $30 per barrel (as Trump does), the only possible response is the immediate rejection of oil supplies to the US and use of the dollar [the Saudis refused to sell oil to the US under Nixon, leading to the so-called “oil crisis”]. Such a radical financial restructuring will require effort and will involve serious organizational difficulties, but in this scenario it is better for exporting countries to lose five percent or even 15% of the profits in other currencies compared to losing 100% of the dollar profits when the US bailiffs freeze their accounts."
This forecast was written in July 2018 and at that time seemed to some commentators and experts to be absolutely incredible and too optimistic, because any religious fanatic would envy the level of faith of some of their fellow citizens in the omnipotence of America and the "great dollar."
Nine months have passed - and now even extremely pro-American media outlets like Reuters, have reported that the threat to the petrodollar as a fait accompli: "(Reuters sources) said that this option was discussed domestically by high-ranking Saudi officials in recent months. Two sources confirmed that the plan was discussed with OPEC members, and one of the sources, well informed about the oil policy of Saudi Arabia, stated that Riyadh also reported a threat to senior US officials from the energy sector. "
We are witnessing a situation that a few years ago seemed impossible: the country that leads the Arab world is not only threatening senior US officials, but also preparing actions that will cause enormous damage to the US economy. The thesis of colossal damage is not the “fantasy of Russian propaganda” but a dry statement of the facts presented by mainstream British journalists and their sources: “In the unlikely event that the Saudis really drop the dollar, it will undermine its status as the main global reserve currency, reduce Washington’s influence and reduce its ability to impose sanctions on nation states. "The Saudis know that they have the dollar as a ‘nuclear option,’ said one of the sources familiar with this issue. "The Saudis are saying: Let the Americans accept the NOPEC bill, and the US economy will collapse," said another source.
We can agree with Reuters journalists in their assessment of the low probability of such an event, but not because Riyadh is not brave enough (for Saudi Arabia, the refusal of the dollar will become a matter of survival), but because after the negotiation table option,” it is unlikely that US senators and congressmen will find the courage to accept the NOPEC bill that would plunder the oil-exporting countries.
However, on the other hand, it is hardly possible to rely on the prudence of US lawmakers, who are often guided solely by internal political logic, the desire to get good public relations and ideas about unlimited American greatness and omnipotence. So there is, albeit not very big, but the chance that Riyadh will have to fulfill its threat if the American lawmakers and the Trump administration do not heed the voice of reason and the demands of American oil companies opposing the scandalous bill.
From the point of view of Russian interests, both options are good. If the NOPEC bill is quietly (or even with a scandal) buried somewhere in the halls of Congress, the Senate or the White House, oil prices will receive an additional factor of support, and the whole world will see that “keeping the petrodollar hostage” is a good pressure point tactic against the decrepit world hegemon. If Washington passes the bill (which also cannot be ruled out), then in the event the Saudis make good their threat, the damage inflicted on the American economy and the dollar financial system more than compensates for any discomfort that will have to be experienced in the process of transferring the entire oil trade to alternative currencies. And this is not to mention the fact that the collapse of the petrodollar will be a unique chance to expand the role of the rouble in the energy trade.
Already, this raises an important question: where did Saudi Arabia find such courage in relations with the United States? What makes it possible to ignore Trump's tweets, which demand an immediate reduction in the price of oil, and at the same time threaten the United States with the elimination of the petrodollar? In recent years, by and large, only one key factor has changed in the world which makes it possible to perfectly explain these events: Russia has established the export of services to protect against Washington's aggression, clearly demonstrating its effectiveness and inflexibility in Syria. Now, everyone who wants to do something that will provoke the anger of the White House, knows that they (if there is really benefit in it to Russia) can find effective protection from furious American politicians.
The process has just begun, but Russia is already bringing tangible benefits, such as the five trillion roubles earned on the OPEC + Russia deal. Further, there will definitely be more. And if suddenly news about urgent deliveries of, for example, Russian air defence systems to Saudi Arabia begins to appear in the news, it can be assumed that not only are the days of the petrodollar numbered, but the entire petrodollar system may collapse in just one day.
Below is our translation of an article from rueconomics.ru showing how the sanctions thoughtlessly slapped on Russian aluminium producer Rusal cost the US aluminium industry big time. Commentary is by Vince Dhimos.
Trumponomics is the economic doctrine teaching that the US economy depends on destroying the competitor, not on surpassing it as in classical economics. This is generally done by dirty tricks, such as pretending that the competitor did something unfair or illegal and then pretending to have legal jurisdiction to impose draconian measures against it. Take China, for example. The US accuses China of stealing technology and uses this allegation to harass Huawei, eg, by illegally arresting its chief financial officer. I say illegally because Meng Wanzhou was never accused of a crime. Yet China is the first country in the world to introduce 5G technology. So if they are the only ones who have it, whom did they steal if from, pray tell? Trump didn't invent Trumponomics, he just took it to a higher level of sleaze. I say if the US economy can't succeed by playing fair, then it is just a matter of time before the US becomes a banana republic. Arresting Chinese citizens or sanctioning Russian aluminium companies doesn't add to GDP. The below translation shows it can even seriously hurt US companies.
A week after the sanctions were slapped on Russian primary aluminium producer Rusal, industry experts at Rusal warned that they would hurt the US aluminium industry. There may be an underlying reason for this that even the producers – let alone the US government – are loath to talk about.
You see, like all primary Al, the Russian-made primary aluminium is produced by a process known as the Hall–Héroult process, which uses a high electric power source to electrolyze aluminium oxide (alumina) into pure aluminium in pots, ie, carbon-lined steel containers. This is generally referred to as smelting. For many years this process has been used, often in rural areas, in various parts of the world. It was discovered in the 1930s in India that due to the fluoride released in this production process, workers as well as people and animals outside the plant for miles around were contracting fluorosis, with effects ranging from mild to extremely severe and crippling, particularly on the bones. In one country where the people suffered extreme ill effects, the authorities actually levelled criminal charges against the foreign CEO of the smelter.
Perhaps it is because of this health hazard inherent in primary Al production that much of the aluminium ingots used in secondary production (rolling, extrusion, forging, casting, machining, fabrication, etc) are not made in the US or Europe. This list of Al smelters is intriguing. As we see, there are well over 100 Al smelters in China, which has the most by far. Five have outputs of roughly a million tonnes or more annually. I counted 18 in Russia, at least 4 of which produce over a million tonnes/yr and one other puts out 750,000 tonnes. Rusal has several in remotest Siberia (eg, Krasnoyarsk and Novokuznetsk). The biggest producers on US soil do not exceed 280,000 tonnes, probably to minimize the health impact of the exhaust gases. Al smelters now have tall stacks that carry away the toxic vapours high into the atmosphere. The stacks are provided with so-called scrubbers, which use trickling water to adsorb the toxic fluorine contained therein. This removes the toxin to relative safe levels for the plant workers and surrounding residents and livestock. The fluoride accumulating as a by-product is sold to toothpaste manufacturers and to municipalities that use the toxin in micro-amounts in a controversial measure to “protect” the teeth of the users. But the liability from fluorine exposure is still an issue in the smelters and this could explain their location in far-flung regions and the fact that the US cannot produce enough for secondary production needs.
The aluminium industry warned the public just a week after the sanctions on Rusal went into effect that they would hurt the US industry. Sure enough.
I don’t know if I can agree with the expert in American area studies quoted herein, who blames the Rusal sanctions solely on the US Congress, exonerating President Trump and claiming Trump knows more about sanctions effects than Congress. Given Trump’s penchant for punishing competitors of US businesses in ways that backfire spectacularly, I find it hard to believe that he was opposed to the Rusal sanctions. (His tariffs on Chinese imports, intended to lower the trade deficit, in fact led to the highest trade deficit in US history).
Rusal demonstrated to the world the failure of US sanctions policy
1 April 2019
Rusal’s resumption of aluminium supplies to the United States and Europe is a logical consequence of Washington’s ill-conceived sanctions initiative. Vladimir Vasiliev, Chief Researcher at the Institute of USA and Canada Studies, Russian Academy of Sciences, commented on this to FBA Ekonomika Segodnya.
“The whole story of American sanctions against Rusal, which lasted for almost a year, became a vivid example of an extremely ill-conceived US policy. On the day the restrictions on the Russian company were introduced, the share prices of American aluminium companies collapsed. The sanctions on the supplier from the Russian Federation dealt a powerful blow to the entire branch of the US economy. But the administration of Donald Trump did not recognize this as its mistake at once, and decided to keep an eye on the situation.
By fall, it became clear that the market situation was only getting worse, and the US Department of Commerce, in unison with the US Treasury, said the sanctions should be lifted. Thus they realized that what the owner of the sanctioned companies had been doing, corresponded to the arrangements made by Washington and the interests of America. At that time, companies restructured management as required by the White House. However, these were only attempts by the Americans to save face when the sanctions were lifted - they were removed by necessity,” said the specialist in American studies.
The general director of Rusal, Yevgeny Nikitin, said that the company had fully restored supplies of primary aluminium to the markets of the United States and Europe. "We have not yet restored (volume of shipments) for the alloys, but we are working on it," he said. And he added: Rusal continues to restore supplies to all export markets in the same volumes that were supplied before the introduction of US sanctions. In addition, the company is starting deliveries under new contracts with Japanese and American contractors.
“The decision on the final lifting of restrictions on Rusal was made by the end of 2018, and today's full-fledged return of the company to the world market is a result of the fact that the US realized its failure. The Russian company provides an acceptable competitive price level for raw material, including in the US market – something the Trump administration did not take into account when imposing sanctions. In the US, market equilibrium is ensured, in part by supplies from the Russian Federation.
And the manufacturers of the US aluminium industry were facing the prospect of bankruptcy - due to a sharp rise in prices for raw materials and a decrease in stocks. Demand for their products ceased. For the US economy, the loss of a whole manufacturing industry is a powerful blow. Also note that all of this happened in the context of accelerating inflation in the USA, which also failed to show a positive trend. The White House realized that it is impossible to take the situation to the extreme, because the sanctions backfired,” the political scientist notes.
Oleg Deripaska’s Rusal, En+ and Eurosibenergo were blacklisted by the United States in April 2018. This meant freezing of assets in the States and a ban on US citizens doing any business with the companies. At the same time, Rusal exports more than 80% of production. In January 2019, the sanctions from the companies were lifted in exchange for Deripaska’s forfeiting control over the companies, and restrictions on the businessman himself continue to apply.
Rusal is the largest aluminium producer outside of China and the only primary aluminium producer in Russia. At the end of 2018, the company produced 3.753 million tons of aluminium, which is 1.3% more than a year earlier. At the same time, the company's sales decreased by 7.2%, to 3.671 million tons. With the loss of the market, US companies alone predicted a loss of $ 1.8 billion annually, or up to $10 billion annually with a full embargo.
"The Trump administration overestimates the capabilities of the American economy - the White House seeks to grow by 3%, but it is impossible to provide such a GDP without comprehensive measures. They need to use a variety of factors, including the supply of raw materials from abroad. Russian products to a certain extent support high economic growth in the United States, and in the case of the Rusal sanctions, the US immediately saw the opposite effect of its sanctions.
Recently, we have seen that in Washington new sanctions projects have been stalled in Congress, with all bills, including the famous one announced last August calling for “restrictions from hell,” have been lying motionless in the US Congress since last summer. Everything points to the fact that since the failure of Muller’s investigation of Trump’s ties with Russia, the White House wants to rein in the sanctions race.
Probably, the Trump administration is showing Congress that he is better versed in economics and intends to initiate sanctions restrictions himself. The overall political picture shows that there is an attempt to slow down the activity of US lawmakers. And in terms of sanctions policy, Trump intends to get complete freedom from any pressure from the American elite,” concludes Vladimir Vasilyev.
Author: Maxim But
"Вся история американских санкций к "Русалу", длившаяся почти год, стала наглядным примером крайне непродуманной политики США
“The whole history of American sanctions against Rusal, which lasted for almost a year, became a vivid example of an extremely ill-conceived policy of the US branches of the US economy.
Human translator (DH):
“The whole story of the American sanctions against Rusal, which lasted almost a year, became a vivid example of an extremely ill-conceived US policy. [I don’t know what Google was “thinking.” The words “branches” and “economy” weren’t even in there. Maybe it confused Rusal with отрасль (otrasl’), meaning branch. But then why would it correctly render it as Rusal near the beginning?]
Below is our translation of an article by Ivan Danilov in RIA Novosti.
You can’t call Danilov’s stuff Russian propaganda. Most of it is analyses of material from the US msm.
“When leading American newspapers and magazines begin to write about the prospects of the American economy and the actions of the US central bank (FRB) in terms commonly used by Russian loyalists, the reader involuntarily becomes perplexed, gradually beginning to suspect that this is no accident.”
And the following paragraph from our translation illustrates the fundamental difference between the Russian and US economies:
“Paul Krugman, putting the disappointing verdict in the title: ‘Paul Krugman expects a global recession this year (or in 2020) and warns: ‘We have no effective response.’”
The problem is not in what Krugman said, it’s in what he implied: you see “we” means the Fed and geniuses like Krugman who believe the only response could possibly be provided by bankers and financiers. We lowered interest on mortgages, we created a bubble, we crashed, we printed money, we lowered interest rates, we want to raise the rates to earn interest on our Treasuries but if we do we won’t be able to pay the interest. But now no one wants our Treasuries any more because the rates are too low. We have reached the last step in our march to recession.
What has never occurred to Krugman and his pals in the Fed is that all of these steps to fix an ailing economy are financial, not economic. It’s kind of like a carpenter trying to fix a flaw in the wood by painting it. The US is failing because it has ignored the economy in the steadfast belief that economy and finance are one and the same and that pulling a few levers in finance will fix the economy. It is akin to Trump’s belief that since he is president, he can say to Russia “leave Venezuela” and it will leave. American leaders believe they are invincible and can fix everything by commanding the problem to go away. They have gone to Ivy League colleges where they were taught they were gods in command of planet earth. And now suddenly, earth is not listening any more and their whipping boy Russia has the lowest debt and most stable economy anywhere and is doing just fine without them. (See this Awara report for details).
The Russians, since the Yeltsin era, have never once conflated economics with finance and that is why they are a strong and healthy people and on their way to economic independence. The US and its satellites are moving in the opposite direction.
“But there is an important nuance. Dollars can be printed just like the euro, yen and any other "paper" assets. Actually, it is precisely with this method that our Western partners will once again try to save the world economy. However, it is impossible to “print” oil, gas, grain, metals, diamonds and everything else that the Russian economy trades with the world. So, in the conditions of total monetary incentives in the United States (or in general throughout the West), all Russian exports will go up.”
Federal Reserve "running out of ammunition"
When leading American newspapers and magazines begin to write about the prospects of the American economy and the actions of the US central bank (FRB) in terms commonly used by Russian loyalists, the reader involuntarily becomes perplexed, eventually suspecting that this is no accident.
Judge for yourself. Greg Yip, a leading economic columnist at the premier business publication the Wall Street Journal, writes about the policy of the American monetary authorities: "The Federal Reserve now believes its monetary policy is returning to normal. This should worry you: if it is normal, then The Fed has very little ammo left for a situation where economic conditions will again become abnormal." The Bloomberg agency writes: "Various indicators of recession (of the American economy. - Approx. Ed.) are sending alarming signals."
"The US bond market smells of recession," echoed the New York Times.
Leading publications in the rest of the Western world also show no optimism. "These are not the parameters (of monetary policy. - Ed.) That would reflect supercharged goals (of economic. - Ed.) growth that Trump promised. Instead, the sudden shift in the Fed’s vision and policy should make him worry about his the prospects for re-election, and we all need to start worrying about an even more significant slowdown in the global economy,” writes the leading economic columnist Sydney Morning Herald.
What happened? Where does such pessimism come from and why, against the background of this total pessimism in the global information field, is the rouble exchange rate rising, and not falling, against the dollar (which is known for its slightly hysterical behaviour)? Here it is worth remembering the well-known saying “what is good for the Russian, is death to the German,” but in this case it is worth rephrasing it to “what is trouble for the US Federal Reserve is joy to the rouble.”
Last week, on March 20, the American central bank made the decision (unexpected for many) to keep interest rates on the dollar unchanged, and also stated that the rate increase in 2019 is no longer planned. Moreover, they announced a shortening of the schedules and the termination of the sale of the portfolio accumulated on the Fed balance sheet since the 2008 crisis.
And now the translation "from economics to Russian": the US Federal Reserve has concluded that the American economy and corporate sector are so weak that raising rates to a level slightly higher than the current 2.5 percent will lead to serious economic problems. Moreover, the US bond market is so weak that it will not sustain the sale of those $ 2.1 trillion US Treasury bonds that the Fed bought in the past to stimulate the US economy. American (and not only American) economic journalists and experts immediately understood everything and began to write that the US was facing an economic crisis. Moreover, the American central bank already has a “shortage of cartridges” in terms of its ability to combat it.
The upcoming recession in the United States and in the global economy as a whole is likely to again be “flooded with money” (in the sense of freshly printed dollars), and this always leads to interesting consequences.
It is important to understand the historical context. In 2009, on prime time American TV, the head of the United States Federal Reserve, Benjamin Shalom Bernanke, explained that “printing money” and the Fed’s redemption of American government bonds, as well as “toxic” mortgage bonds, is a temporary measure. When asked whether the Fed is printing dollars, he replied: “Well, in fact, yes. And we have to do it because our economy is very weak and inflation is very low. When the economy starts to recover, it will be time we need to curtail these programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that is not related to inflation.”
The problem (and the main reason for pessimism) of American journalists today is that it became finally clear on March 20 that no one is going to fulfil Bernanke’s promise. The rate will not be raised, the money supply will not be compressed, and the bonds bought with "printed money" will not be sold off. You can make a comparison with medicine: if the doctor suddenly declares that you need to take medicines again (expensive and with serious side effects), this means that the patient has not recovered, despite all the positive predictions that were made before.
Moreover, this change in attitude means that treatment is not effective enough and is unlikely to be effective in the future. The American financial channel CNBC reports on the reaction and forecast of the Nobel laureate on economics Paul Krugman, putting the disappointing verdict in the title: "Paul Krugman expects a global recession this year (or in 2020) and warns: “We have no effective response.”
Of course, a global recession is bad, and if the forecast made by Krugman and other economists, who see no particular reason for optimism in the future, comes true, the Russian economy will also be under pressure.
But there is an important nuance. Dollars can be printed just like the euro, yen and any other "paper" assets. Actually, it is precisely with this method that our Western partners will once again try to save the world economy. However, it is impossible to “print” oil, gas, grain, metals, diamonds and everything else that the Russian economy trades with the world. So, in the conditions of total monetary incentives in the United States (or in general throughout the West), all Russian exports will go up.
The only serious risk in this situation is that the United States has a bad tradition: solving economic problems by force. On the one hand, “war will write off everything,” and on the other, a successful war can really (as has happened twice in the 20th century) turn it into ruins any country that can compete with American economic power. If the Fed is “running out of ammunition,” then the Pentagon has enough real ammunition, and the CIA has enough money for “colour revolutions.”
But if this time the power methods of destroying competitors do not work, then Washington will have to say goodbye to world hegemony and economic power.
Here’s one that Danilov missed:
Google vs human translator:
Original by Russian human:
Конечно, глобальная рецессия — это плохо, и в случае реализации прогноза Кругмана и других экономистов, которые не видят в будущем особых причин для оптимизма, российская экономика тоже окажется под давлением.
Of course, the global recession is bad, and if the forecast is implemented by Krugman and other economists, who do not see any particular reason for optimism in the future, the Russian economy will also be under pressure.
Of course, a global recession is bad, and if the forecast made by Krugman and other economists, who see no particular reason for optimism in the future, comes true, the Russian economy will also be under pressure.
Below is our translation of an article from RIA Novosti about a worrisome economic pathology that the US has been diagnosed with. Commentary and bracketed notes are by Vince Dhimos.
Any country that discovers a large amount of a natural resource within its borders is susceptible to the “Dutch disease,” an economically pathological dependence on the export of that resource that makes diversification of the economy difficult because suddenly no one is interested in investing in manufacturing or any other activity that is more complicated than just extracting something from the ground that is just there for the taking. A mixture of a curse and a blessing. In the past, Russia was seen with symptoms of this ailment, until it began to seriously diversify as a result of US sanctions — the best thing that could have happened to it. As a result of the sanctions threat, Russia now is almost completely food independent. In fact, shockingly, the country that once was obliged to import wheat now is, according to Bloomberg, the biggest wheat exporter in the world. To say nothing of its booming arms exports and exports of nuclear power plants, both areas in which it poses a serious challenge to the US. And that is just the beginning.
And sadly for the US, there is no other country capable of slapping it with sanctions and hence back to its senses.
"The United States certainly has rich vein of a highly valued commodity.
America creates about a quarter of global GDP, but well over half of the currency reserves of the world's central banks is socked away in dollars — $6.6tn of $11.4tn. The dollar is by far the dominant currency for international credit. Dollars are so important as an invoice currency for global trade that shifts in the value of the dollar are an effective predictor for international trade volumes. So many currencies are either explicitly pegged to the dollar, or tied to it through trade, that 50-60 per cent of global GDP swings with the dollar, making it part of a "dollar zone."<...> The Netherlands struck natural gas, the United States struck dollars. It found a gusher.. <...> Basically, around 1980 the United States discovered that it was the Saudi Arabia of money.
British experts found "Dutch disease" in the USA
The reporters of the Financial Times, a respectable financial publication, conducted an interesting experiment and discovered a disease in the USA, the outbreak of which usually occurs in third world countries, especially in Africa and South America. The result was amazing, and the diagnosis is disappointing: America is sick, and the disease is acute and chronic. Despite the fact that this disease is usually found in poor countries, it was first described in Holland and is therefore called the "Dutch disease." This economic disease is known for the fact that in the case of missing or improper treatment it leads to a national catastrophe, which is accompanied by the degradation of state institutions, an increase in social inequality and an obvious decline in industrial production. Financial Times journalists advise the United States to be treated for the "Dutch disease" right now, because its negative effects are already visible even with the naked eye.
It is believed that underdeveloped countries suffer from the Dutch disease when they suddenly find some major reserves of important raw materials or mineral resources: usually oil, diamonds, gas, gold or copper, although there are also quite exotic variants of the disease associated with agroclimatic resources, such as climate and soils which are ideal for growing coffee or cocoa.
In the case of Holland, the ailment was associated with the discovery of one of the largest natural gas fields [the largest in Europe, 10th largest in the world].
The essence of the phenomenon is the negative impact on the country's economy of available resources. Paradoxically, for most countries with significant natural resources, the possibility of their export becomes a serious economic problem: all sectors of the economy, except for the extraction and sale of natural resources, begin to die off, because investing in them is not very profitable compared to investments in the development of the mining sector. Moreover, the influx of cheap imports (which is paid for through the export of extracted resources) leads to de-industrialization, which can be enhanced by exporting jobs to other countries. Almost always, the money received from the export of resources is concentrated in the hands of a narrow circle of politicians and businessmen, which intensifies the stratification of society, especially in an environment where politicians and business people lack even minimal motivation in terms of maintaining the standard of living and education of those citizens who do not participate in the extraction of resources for export. Attempts to spend the money on social programs often lead to citizens getting used to living on subsidies, and the slightest change in the price level of the exported resource leads to economic shock and deep social upheavals.
At first glance it may seem that the United States cannot be considered an example of a country with “Dutch disease,” but this is only at first glance. Let us give the floor to British experts:
“The United States has certainly found a rich vein of valuable goods. America creates about a quarter of global GDP, but more than half of the world's central banks' foreign exchange reserves go to dollars - 6.6 trillion dollars out of 11.4 trillion dollars. The dollar is undoubtedly the dominant currency for international credits. It is so important as a currency of settlement for world trade that the change in its value serves as an effective predictor of trade volumes. So many currencies are either clearly tied to the dollar, or tied to it through trade, that 50-60 percent of world GDP fluctuates depending on it and becomes part of the “dollar zone.” <...> Just as the Netherlands found natural gas, the United States found dollars. They found a a gusher. <...> Basically, around 1980, they discovered that the United States is the Saudi Arabia of money."
It should be pointed out that Financial Times journalists are not alone in their assessments. Just a few days ago, the New York Times published an article which directly states that "the key export commodity of the United States is dollars" and even mentions that the collapse of the USSR became a tremendous stimulus for the demand for the American currency. The American edition proudly shows, based on the example of a $100 bill, how profitable dollar exports are: “Exporting money is much more profitable than exporting petroleum products. The federal government needs to spend about 14 cents to make a $100 bill, and a few cents to send this banknote abroad.”
It may seem that the US has found a kind of "financial perpetual motion machine" that works as long as the whole world (often under the threat of sanctions, military interventions and "colour revolutions") uses the dollar in trade and lending. However, the “Dutch disease” (which the Americans are not even about to recognize, let alone treat it), causes obvious damage to the US economy: the US is turning into a printer country that does not make sense, and it only makes sense to print dollars. The most vivid example: even in such a sensitive and strategically important area as the military industry, America depends on Chinese (and other foreign) suppliers, with US Department of Defence experts openly writing in their reports on the risks facing the national military industrial complex. We have already written about this: “The essence of the problem in the retelling of Reuters’s columnist Andy Home, who received the September report of the US Department of Defence on the key supply situation for the army, boils down to one important figure. More than 300 (!) key items needed for the normal functioning of the US Armed Forces and the defence industry, are at risk: American manufacturers are either on the verge of bankruptcy or have already been replaced by suppliers from China or other countries because of the de-industrialization of the national economy and export industries in the countries of Southeast Asia. "
Deindustrialization is not the only symptom of "Dutch disease" in the United States, pointed out by the authors of the Financial Times. There is still growing inequality, insufficient investment in education, political corruption in the distribution of income from "dollar exports" and problems in the pension system. British journalists are quite seriously begging the United States to begin a painful course of treatment of their economy and to draw, for example, from the Norwegian experience, because the situation is very serious. However, if we read their diagnosis through the prism of Russian interests, then everything is turned on its head: the stubborn unwillingness of Americans to take bitter economic pills is good news. If the American economy continues to be completely dependent on "exporting dollars,” then the joint efforts of China, the European Union, Russia, Iran, Venezuela and all other countries that are striving for a gradual de-dollarization of world trade will bring the global hegemonic economy to a severe crisis. In Washington, they understand this in principle, but they still hope that sanctions, aircraft carriers and the threat of "colour revolutions" will be enough to protect the "dollar zone." However, it is already clear that its end is only a matter of time.
This assessment could be attributed to “patriotic propaganda,” but there is a nuance: even the head of the Bank of England, Mark Carney, believes that the current status of the dollar as the main world currency is not eternal: “I think that eventually we will have reserve currencies other than the US dollar,” he said at a recent press conference. The forecast of the main British banker is very positive for everyone who is tired of Washington’s claims to eternal world hegemony.
Unintended consequences of a short-sighted move: Sanctions boost Russian oil sales to the US
Below is our translation of an article from rueconomics.ru on the fate of the Venezuelan oil business after the US sanctions on the oil company PDVSA and the price the US is paying, ironically, for those sanctions. Commentary and notes in brackets are by Vince Dhimos.
“The reason for this [the increase in sales of Russian oil in the US] was the shortfall caused by the sanctions against Venezuela and the drop in oil production in that country. "Because it’s not there. Venezuela is not producing…”
And this in turn was due to the short-sighted idea to force all oil revenues into accounts controlled by Juan Guaidó, giving the duly elected president no incentive to sell any oil to the US and its satellites, eg, in Europe.
I had already shown here how the US sanctions were boomeranging, putting those US refineries specialized in the unique variety of Venezuelan oil out of business.
Despite the veritable ban on sales to the US due to the short-sighted US policy, Maduro does, however, have every reason to keep selling to China and Russia, for example, particularly since these countries have signed contracts worth $5 billion (China) and $6 billion (Russia) and expect the loans to be paid in oil and petroleum products.
Now, Satanovsky forgot to explain why the US is reliant on Russia and not on Saudi Arabia or the Gulf statelets to make up the shortfall.
To find clues to this riddle, you need to go back and look what oil experts have been saying about the Saudis’ ability to pump extra oil to make up for new demand – to make up for the Iranian shortfall, for example. The consensus, according to a Bloomberg analysis of last September, is that Saudi, while still flush for the time being, simply doesn’t have enough oil left – or at least available pumping capacity – to manage emergency demand. So why wouldn’t Satanovsky tell us that? Because in Russia, it is not kosher to say negative things about Saudi Arabia. Putin sees Saudi as a close OPEC partner and sees potential in MBS to enter the Russian-Chinese orbit (in fact, it is almost there), and particularly, to wean itself off the dollar. Remember how Putin high-fived MBS during the G20 summit in Argentina even as other Western leaders shrank back from MSB, still shocked at the accusation that he had ordered the gruesome murder of Jamal Kashoggi (forgetting that Saudi had been financing terror with US complicity at least since the onset of the Syrian war). The obtuse explanations of clueless Western journos for the high-five – highlighting the meaningless narrative that both Putin and MBS share a bond because both are supposedly ruthless killers – showcased the mentality that makes America mediocre in economic, political, intellectual and other terms when compared to countries aligned with China and Russia. Since most Western journos haven’t a clue as to how close Saudi is to ditching the dollar and what this implies for the US economy.
This abandonment of the USD by Saudi would be a tragedy for the USD but a great day for world peace.
Satanovsky spoke about the US oil fiasco with Venezuela, plunging the US into dependence on Russia
March 12, 2019, Moscow
The situation provoked by the USA in Venezuela caused a shortage of oil in America, and Washington had to buy it from Russia. This was revealed by political scientist Yevgeny Satanovsky.
According to the expert, Russian "oil refining" paradoxically benefited from the situation in Venezuela, where the US is trying to overthrow the Nicolas Maduro regime. America, according to Satanovsky, overplayed its hand in Venezuela to such an extent that Russia sharply increased the volume of deliveries of oil and oil products to the United States.
The reason for this was the volume that went missing because of the sanctions against Venezuela and the drop in oil production in that country. "Because it’s not there. Venezuela is not producing! They have brought down its production to such a state that it turned out: the king is naked, and the market is bye-bye," the political scientist described the situation.
For the USA, the only country with sufficient volumes of oil of adequate quality was the RF. "It turned out that there is no available products. One country has it. The country is Russia. They could, of course, lift the sanctions against Iran, but then Trump might as well go hang himself. Very funny. The guys shot themselves in the leg," Satanovsky said.
The situation with oil caused a serious scandal in the States, the expert said. Washington has gradually realized the consequences of pressure on leading exporters of oil, as well as the advantages it gives to the nominal geopolitical opponent of the United States - Russia.
“They suddenly realized that by strangling Venezuela and talking about strangling Iran (the purchase of Iranian oil was reduced by sanctions by 25%), now they have only Russia left for hope and support. The “Regional” economy, as it is known, is “shredded,”and let’s add a lot of smileys at the end of that sentence,” Satanovsky said ironically on the air of Vesti radio.
Earlier, US Secretary of State Mike Pompeo accused Rosneft of buying oil from Venezuela in violation of US sanctions. Russian Foreign Minister Sergei Lavrov described this market dictate of Washington as unacceptable and stressed that such behaviour by the US "will not lead to anything good."
Author: Grigory Egorov
US imports from Russia of crude oil and petroleum products
Translated article confirmed by this report
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So why is the US reliant on Russian oil? Why not Saudi? Here are some big clues: