Friday, February 21, 2014

China, Russia Making Their Moves On The International Chessboard

The first two articles are enlightening. As we watch America progressing rapidly in its demise, the void must be filled. Russia and China are more than willing to accomplish this task:

China accounts for more global trade than anyone else on the planet(including the United States), and most of that trade is conducted in U.S. dollars.  This keeps demand for our dollars very high, and it ensures that we can import massive quantities of goods from overseas at very low cost.  As a major exporting nation, China ends up with gigantic piles of our dollars.  They lend many of those dollars back to us at ridiculously low interest rates.  At this point, China owns more of our national debt than any other country does.  But if China was to decide to quit playing our game and started moving away from U.S. dollars and U.S. debt, our economic prosperity could disappear very rapidly.  Demand for the U.S. dollar would fall and prices would go up.  And interest rates on our debt and everything else in our financial system would go up to crippling levels.  So it is absolutely critical to our financial future that China continues to play our game.

Unfortunately, there are signs that China has now decided to start looking for a smooth exit from the game.  In November, I wrote about how the central bank of China has announced that it is "no longer in China’s favor to accumulate foreign-exchange reserves".  That means that the pile of U.S. dollars that China is sitting on is not going to get any higher.

In addition, China has signed a whole host of international currency agreements with other nations during the past couple of years which are going to result in less U.S. dollars being used in international trade.  You can read about many of these agreements in this article.

This week, we learned that China started to dump U.S. debt during the month of December.  Many have imagined that China would try to dump a flood of our debt on to the market all of a sudden once they decided to exit, but that simply does not make sense.  Instead, it makes sense for China to dump a bit of debt at a time so that the market will not panic and so that they can get close to full value for the paper that they are holding.

As Bloomberg reported the other day, China dumped nearly 50 billion dollars of U.S. debt during the month of December...

This is how I would do it if I was China.  I would try to dump 30, 40 or 50 billion dollars a month.  I would try to make a smooth exit and try to get as much for my U.S. debt paper as I could.
So if China is not going to stockpile U.S. dollars or U.S. debt any longer, what is it going to stockpile?
It is going to stockpile gold of course.  In fact, China has been voraciously stockpiling gold for quite some time, and their hunger for gold appears to be growing.
According to Bloomberg, more than 80 percent of the gold that was exported from Switzerland last month went to Asia...

Switzerland sent more than 80 percent of its gold and silver bullion and coin exports to Asia last month, the Swiss Federal Customs Administration said today in an e-mailed report. It imported most from the U.K.

When China imports gold, most of it goes through Hong Kong.  We know that imports of gold from Hong Kong into China are at an all-time record high, but we don't know exactly how much gold China has accumulated at this point because they quit reporting that to the rest of the world a number of years ago.

When it comes to global finance, China is playing chess and the United States is playing checkers.  China knows that gold is a universal currency that will hold value over the long-term.  As the paper currencies of the world race toward collapse, China could end up holding most of the real money and that would be a huge game changer when they finally reveal that fact...

As China (and eventually the rest of the world) moves away from a U.S.-based financial system, the consequences are going to be dramatic.
For instance, right now the average rate of interest that the U.S. government pays on debt is just 2.477 percent.  That is ridiculously low and it is way below the real rate of inflation.  It is simply not rational for anyone to lend the U.S. government money so cheaply, and at some point we are going to see a dramatic shift.
When that day arrives, interest rates are going to rise dramatically.  And if the average rate of interest on U.S. government debt rises to just 6 percent (and it has been much higher than that in the past), we will be paying out more than a trillion dollars a year just in interest on the national debt.
Even more frightening is what a rapidly changing interest rate environment would mean for our banking system.  There are four large U.S. banks that each have exposure to derivatives in excess of 40trillion dollars.  You can find the identity of those banks right here.  Interest rate derivatives make up the biggest chunk of those derivatives contracts.  As John Embry told King World News just the other day, when that bubble bursts the carnage is going to be unprecedented...

It’s been a generation or so since Russians were in the business of shaping the destiny of the world, and most of us have forgotten how good they used to be at it. For much of the last century Moscow fuelled — and often won — the West’s ideological and culture wars. In the 1930s, brilliant operatives like Willi Muenzenberg convinced ‘useful idiots’ to join anti-fascist organisations that were in reality fronts for the Soviet-backed Communist International. Even in the twilight years of the Soviet Union the KGB was highly successful at orchestrating nuclear disarmament movements and trade unionism across the West.

Now, after two decades in the economic basket, Russia is decisively back as an ideological force in the world — this time as a champion of conservative values. In his annual state of the nation speech to Russia’s parliament in December, Vladimir Putin assured conservatives around the world that Russia was ready and willing to stand up for ‘family values’ against a tide of liberal, western, pro-gay propaganda ‘that asks us to accept without question the equality of good and evil’. Russia, he promised, will ‘defend traditional values that have made up the spiritual and moral foundation of civilisation in every nation for thousands of years’. Crucially, Putin made it clear that his message was directed not only at Russians — who have already been protected from ‘promotion of non-traditional relationships’ by recent legislation — but for ‘more and more people across the world who support our position’.

He’s on to something. Ukraine’s near-revolutionary turmoil this week pits East versus West — but it’s also a culture war between social conservatives and social liberals. The forces against the government in Kiev tend to be aligned with the EU and modern ‘democratic values’, including gay rights; whereas government supporters tend to be more Russophile and their banners include ones that say ‘EURO = HOMO’. These are precisely the battle lines on which Putin has raised his conservative ideological standard.

A recent report by the Centre for Strategic Communications, a Kremlin-connected think tank, neatly summarised Putin’s ambition: it’s entitled ‘Putin: World Conservatism’s New Leader’. The report argues that large, silent majorities around the world favour traditional family values over feminism and gay rights — and that Putin is their natural leader. ‘The Kremlin apparently believes it has found the ultimate wedge issue to unite its supporters and divide its opponents, both in Russia and the West, and garner support in the developing world,’ says Radio Free Europe’s Brian Whitmore. ‘They seem to believe they have found the ideology that will return Russia to its rightful place as a great power with a messianic mission and the ability to win hearts and minds globally.’

But the Kremlin’s true target audience is not on the right-wing fringes of western politics but people in what was once called the Soviet sphere of influence in the former Soviet Union, Middle East and Africa. Russian diplomats and academics have taken a leading role in promoting an anti-gay-rights resolution in the United Nations’ Human Rights Council in Geneva, building a coalition of conservative nations behind a resolution declaring that human rights had to be subordinate to ‘traditional values and cultural sovereignty’. (In 2011 the US backed a resolution explicitly protecting sexual minorities under the UN’s Universal Declaration of Human Rights — but Russia stepped in to lead the counteroffensive.) ‘Russia has been using this issue to develop a constituency in Muslim and African countries,’ says Mark Gevisser, an Open Society Fellow who is writing a book on the global debate on gay rights. ‘This brand of ideological moral conservatism was originally minted in the US. It is highly ironic that these countries are mounting an anti-western crusade using a western tool.’ Moscow plays on opposition to gay rights most effectively closer to home. Last November, when it looked like the Ukrainian President Viktor Yanukovych was close to signing an Association Agreement with the European Union, billboards appeared across the country warning that the ‘EU means legalising same-sex marriage’. The campaign was paid for by Ukraine’s Choice, a group associated with the Kremlin-connected politician and businessman Viktor Medvedchuk.

Putin is pitching for moral leadership of all conservatives who dislike liberal values. And again, like the Comintern, Putin appears convinced that he is embarking on a world-historical mission. It’s certainly true that such a moral mission has deep roots in Russian history. Many previous occupants of the Kremlin have set themselves up as defenders of orthodoxy and autocracy — notably Nicholas I, the ‘gendarme of Europe’, and the arch-conservative Alexander III. Putin quoted the 19th-century conservative thinker Nikolai Berdyaev in his Duma speech. ‘The point of conservatism is not that it prevents movement forward and upward,’ Putin said, ‘but that it prevents movement backward and downward, into chaotic darkness and a return to a primitive state.’

Also see:

MOSCOW, February 20 (RIA Novosti) – The combat capability of Russia’s naval task force in the Mediterranean will increase significantly following the first deliveries of Varshavyanka-class submarines to the Black Sea Fleet in 2015, Navy Commander Adm. Viktor Chirkov said Thursday.
Russia formed a permanent naval task force in the Mediterranean last year to defend its interests in the region. The move was widely seen, however, as a response to calls for international intervention in the worsening civil war in Syria, Russia’s longtime ally.
The task force currently consists of 12 warships and auxiliary vessels, including the nuclear-powered missile cruiser Pyotr Veliky and aircraft carrier Admiral Kuznetsov.

 It is only a matter of time before the stock market plunges by 50% or more, according to several reputable experts.

“We have no right to be surprised by a severe and imminent stock market crash,” explains Mark Spitznagel, a hedge fund manager who is notorious for his hugely profitable billion-dollar bet on the 2008 crisis. “In fact, we must absolutely expect it."

Unfortunately Spitznagel isn’t alone.

“We are in a gigantic financial asset bubble,” warns Swiss adviser and fund manager Marc Faber. “It could burst any day.” 

Faber doesn’t hesitate to put the blame squarely on President Obama’s big government policies and the Federal Reserve’s risky low-rate policies, which, he says, “penalize the income earners, the savers who save, your parents — why should your parents be forced to speculate in stocks and in real estate and everything under the sun?” 

Billion-dollar investor Warren Buffett is rumored to be preparing for a crash as well. The “Warren Buffett Indicator,” also known as the “Total-Market-Cap to GDP Ratio,” is breaching sell-alert status and a collapse may happen at any moment. 

The right wing MKs in Prime Minister Binyamin Netanyahu's coalition are concerned over rumors that Israel will be asked to freeze settlement construction in the West Bank as part of the continued peace talks with the Palestinians. But Coalition chairman Yariv Levin (Likud) said Friday, that he did not think  Prime Minister Binyamin Netanyahu would impose such a building freeze.
In the wake of a report that US of Secretary of State John Kerry's framework proposal for the continuation of peace talks with the Palestinians calls for a freeze, Levin was one of 21 MKs from the Land of Israel caucus in the Knesset who signed a letter to Netanyahu stating the position that any cessation of building in Israel would be unacceptable.

The coalition chairman said that there was a "solid bloc of MKs in the Knesset that were determined to preserve the settlement enterprise." He added that only when it is clear to the whole world that Israel is not prepared to give up settlements will it be possible to reach a peace deal.
The letter that the Land of Israel Caucus sent Netanyahu on Thursday,  warned that any freezing of settlement construction in the West Bank of any kind would be seen by the caucus as crossing a red line.

Bloodshed on Independence Square (Maidan) and rumors of worst yet to come have prompted panic among Ukrainians, with many fleeing the country and those who stay emptying shop shelves, queuing for gasoline and making big cash withdrawals from banks.
The mood is a pre-war one in most Ukrainian cities, where people, afraid of the country falling deeper into economic paralysis, are trying to buy up as many essential foods and goods as they can. Fearing stampedes, some Kiev shops have started limiting the amount of shoppers at any one time.
Some shop-owners confess they are running out of stocks to refill the fast-emptying shelves, and new deliveries are not expected anytime soon amid the current turmoil.
Social media is swarming with pictures of over-crowded stores and scarce supplies.
This is not a joke. No bread, no eggs, only expensive imported spaghetti left, huge lines and this is in a small local village shop,” Instagram user @iartemka says, adding up a #PrayForUkraine hashtag.
People in the shops have gone mad. Huge queues, empty shelves,” Twitter user ‏@Helen_Marlen writes.

1 comment:

harnessandleash said...

Today's overview of world finances helped put it in a clear, easy to understand perspective. Scott, though I've been to college-- it's helpful to have some of the prophetic "peripheral" topics to be explained like it's, "Prophecy Issues for Dummies, 101." (Speaking only for myself of course). Appreciate your clarity.

Regarding your article, yesterday, on the FCC - maybe you better give us some kind of code word now so we'll know when you have a representative from the FCC standing over your shoulder as you type up your blog(?) Hopefully we'll be "out of here" before that happens!