Catching Up With Geopolitics With Tom Luongo

In recent weeks the Neocons, along with certain European allies, have attempted to score a major victory against Russia. In doing so, they found themselves at odds with other geopolitical players who are opposed to the drive to escalate the war on Russia even further. Tom Luongo engaged in a big picture discussion on these issues in the last day or two that I found illuminating. What I’ve done is listen to the podcast and take notes. These notes aren’t comprehensive—for example, a segment re Belarus is omitted—but I think they capture the essentials. This was a discussion, but I’m only including the Luongo portions, in summary/note form—with an insertion. It should prove largely self explanatory. Since these are notes taken from a verbal give and take there may be places where they are a bit sketchy, by overall it should hang together.

How a Global Reserve Currency Dies Part 1

The Chinese are no more interested in war than we are. What we have is Neocon state actors--Sullivan, Blinken, Nuland--who want war. But they are only one part of the political spectrum in the US. Jamie Dimon went to China and met with members of the Politburo. Jay Powell has gone to China. We're seeing move-countermove among US players. China has the smoking gun on Biden--$10 million in bribes. China can use that to stop the Neocon and Brit push toward more intense war with Russia.

By doing this, China also blunts the Neocon push for conflict with China, since the Neocon war on China cannot be initiated before there is a favorable resolution to the war on Russia.

Someone is clearly trying to stop WW3, despite the Neocons running around and trying to get us into WW3. This is a backdrop to most current world events. Somebody is trying to take down Biden. The Pentagon clearly doesn't want WW3, but there are factions trying to ratchet up the conflict, because otherwise they lose everything.

The world is going through deglobalization, supply chains are being restructured, relationships are being renegotiated--in a new multi-polar world.

Here is the insertion I referred to.

We Are Watching The Global Economy Being Re-Organized Before Our Eyes

We’re watching the global economy being re-organized before our eyes and, like Volcker in the 1970’s, policy-makers are prioritizing freedom of action for national policy. Increasingly, we are seeing financial markets and global trade being more clearly subordinated to national policy objectives. There are no atheists in a foxhole, and no free-market liberals in a multipolar world (at least not in the halls of power).

The latest illustration of this emerging truth comes in the form of further trade restrictions between the United States and China. Phillip Marey wrote of this yesterday, when he noted that the Chinese government had taken steps to restrict the export of gallium and germanium, which are critical for the production of semiconductors. Retaliation from the United States appears likely to come in the guise of new restrictions on US companies providing cloud computing services to Chinese entities. New rules would require government signoff before those services could be provided, with politically-sensitive AI products being of particular interest.

Politicians (especially in Europe) are quick to point out that what is happening here is not ‘de-coupling’ but a ‘de-risking’ of trade relationships. Some lessons appear to have been (belatedly) learned from the inability to source personal protective equipment, drugs and ventilators in the early days of the Covid19 pandemic, and the reliance of European industry on cheap Russian energy. The liberal worldview naively discounted the possibility of war in Ukraine. To borrow from Smith, this was not because of a wrongful view of the humanity of the Russian President, but from a mistaken regard to Russian [economic] self-interest. But Vladimir Putin does not subscribe to Western liberal ideas, and the material prosperity of Russia did not win out over nationalistic policy priorities. If we follow Volcker’s warning from the 1970s it won’t win in the West either, when push comes to shove.

Back to Luongo.

The US and Europe still need China stuff, but China also still needs our consumers and our innovation base. The death of the US as a vibrant economy is greatly overstated. So is the death of the dollar. Russia and China don't want the end of the dollar's role in international trade--they want an end to "dollar diplomacy" and hegemony--the end of the "weaponized" dollar. It's the Euros who want the end of the dollar.

At the same time as Prigozhin's one day farce was being acted out, Pepe Escobar points out that there was a big meeting in Copehagen (What Happens In Russia After 'The Longest Day'?). Nuland and Sullivan gathered the BRICS swing states--Brazil, India, and South Africa--along with Saudi Arabia, Turkey and a few others. They wanted to peel them off from BRICS. The meeting was called by the US Neocons but the policy part of it was actually being driven by the EU, which was announcing an 11th sanctions package that would sanction "third parties" that weren't on board with sanctions. This was a last ditch effort to use what economic clout remains to the EU. Their last gasp at hegemony is to try to make the Saudis and others knuckle under to help isolate Russia, using the Eurodollar system. This is why Escobar argues that Prigozhin's farce was a setup to help out. To convince those "swing states" that Putin was weak and Russia was unstable.

In other words, the meeting was timed to coincide with the Prigozhin farce. But the meeting was also called after the Neocons had suffered a serious setback.

But this meeting was called by the Neocons and the EU because Zhou had nixed the war monger candidate to head NATO--Ben Wallace. It's the Brits, Poles, and Balts who are pushing more war and thought they had Zhou under control. Luongo maintains that the Chinese and McCarthy were behind putting the kibosh on Wallace--threatening impeachment based on the Chinese bribe money if Zhou keeps following the Neocon path to war. The Pentagon was also behind this because they don't want to be exposed by having to fight a First World power--Russia. Zhou had to back down. The Brits, Poles, and Balts are trying to backdoor NATO membership for Ukraine by entering their own separate treaty with Ukraine. But Zhou was forced to tell them: No.

Putin has the Neocon strategy of fomenting unrest in former Soviet states totally figured out and has destroyed the Neocon ground game. He has successfully defended six out of seven attempted "color revolutions" in those states. Armenia is the exception, but the government is very weak. [Georgia is gravitating back toward Russia.] BRICS wants to bring Pakistan on board, but haven't succeeded yet.

This is where Saudi Arabia is so important, because the Saudis have so much leverage within the Pakistani military. Clearly the US is trying to triangulate the Saudis against the Russians in the oil markets, using the Strategic Petroleum Reserve (SPR) as leverage to put pressure on Saudi finances by crashing the price of oil. The Saudis understand this, so the question is: How long can the US keep this policy up? Luongo thinks it can't last much longer--with oil below $70/bbl and interest rates at 6% you don't have a lot of new drilling. The rig count has dropped 10% in recent months. Powell's insistence on pushing the cost of credit up plays into this--as well as making it profitable for the Chinese and others to hold onto US debt and recycle it. Japan and China have not been dumping treasuries in recent months. The EU is buying.

Who does time work for? The West or Russia/China?

The Neocons still think they can break Russia by collapsing oil prices. Russia believes that American electoral politics won't allow for a continuing and indefinite collapse of its standard of living in this war on Russia.

This conflict won't end soon, but the Russians have the upper hand. The West has one tool: high tariffs, but that requires a strong Euro. But the Russians and most of OPEC are making money. Only Saudi Arabia needs $80/bbl oil, but that's because they haven't yet broken the Riyal peg to the dollar. As soon as they end the peg or loosen it, they don't need $80/bbl oil. They're productions costs don't require that, only their budget needs. Depeg the Riyal and the budget quandry ends, too. If oil starts going toward $85/bbl Luongo thinks Saudi Arabia will loosen the peg.

The Prigozhin farce was intended to pressure the Saudis to come around rather than wait, but Prigozhin collapsed and the Saudis stiffed the Neocons again. Putin is stronger and the Neocons are crying in their beer. Russia continues to work toward a gold linked settlement system, just like in Dubai. Exchange volume will continue to shift from West to East, and that's why time is on Russia's side. Saudi Arabia is no longer in the CIA's pocket--MBS restored Saudi independence. Same as with Erdogan, we went after MBS and failed and now they know we're not their friends. Financial nuclear weapons, once they're used, you lose them if they don't work.