Geopolitical Roundup, Mostly Economic/Monetary Front

There are several articles out today that work well together. What they illustrate is that this World War that the US forced on the rest of the world is ultimately about economic power. Watching the attrition “meatgrinder” ongoing in Ukraine may give the impression that the war is moving at a snail’s pace. On the other hand, watching the counter offensive against King Dollar leaves many observers almost breathless at the relative rapidity of events.

Let’s start with M. K. Bhadrakumar:

Who gains from a forever war in Ukraine?

MKB draws on the example of the Czech Republic to illustrate the way in which the US has come to rely—in a completely disproportionate way—for support of the war on Russia on countries in Eastern Europe, the former “satellite” countries of the Warsaw Pact or former parts of the Soviet Union itself (the Baltics). But those countries only make up about 10% of the EU economy. The major countries of the EU in terms of economic clout are Germany, France, and Italy, and they all have extensive economic ties to China which are now being threatened by the war on Russia, which has drawn Russia and China together into what amounts to an alliance.

The new president of Czechia, Petr Pavel, appears to have been called upon to enter the lists against France’s Macron, who recently and publicly voiced EU concerns about what the war is doing to relations with China—that’s my take on what Macron was up to on his visit to Xi. Pavel came up with a novel way of trying to exclude China from involvement in Ukraine—China benefits from a long war, so they must be excluded from any peace mediation:

The newly elected president of the Czech Republic Petr Pavel ...

...

… has hit the road running when barely 7 weeks into his new job as head of state, Pavel threw a curve ball claiming China cannot be a reliable mediator between Russia and Ukraine due to Beijing’s secret craving for “more war.”

Pavel assessed that China gets cheap oil, gas, and other resources from Moscow in exchange for promises of “partnership” and its interest lies in prolonging the status quo [i.e., war] “because it can push Russia to a number of concessions.”

As usual, MKB has a lot of interesting observations on offer. However, his conclusion focuses on US fears that the EU’s economic ties to China could in the not so long run work to lead to a split of the EU from the US. This—Chinese leverage with the EU—is the reason that the US wants no part of Chinese peace brokering, and why Pavel was called upon to denigrate China’s intentions as, essentially, a devious waste of time:

On the other hand, the spectre that haunts the Biden administration is that Europe cannot easily extricate itself from its relationship with China and it is the interests of Old Europe’s economic heartlands that will ultimately determine EU policy.

Any rumblings suggesting that EU and US interests are divergent in any way, such as those that emanated from Macron after his trip, are cause for alarm in DC.

Make no mistake, just 3 countries of Old Europe — France, Italy and Germany — account for more than a half of EU’s GDP and they also happen to be China’s largest trading partners in the EU. Amidst the brouhaha over French President Emmanuel Macron’s recent endorsement of a close industrial relationship with China, what has gone unnoticed is that German Chancellor Olaf Scholz is on the same page as Macron. Equally so with Italian Prime Minister Giorgia Meloni. The European industry is also loathe to lose China as a privileged trading partner, after having lost Britain and Russia.

…

Suffice to say, there is trepidation in the American mind as to whether the EU will follow the US into a confrontational position with China in the coming months, or would strive to become more independent of the US, with all the consequences that would ensue. Equally, from the viewpoint of Old Europe, the gnawing doubt is whether a future US administration would want to align with Europe even if Europe were to align with the US.

Yes, that’s bound to be on the mind of Old Europe: How far can we trust the US to take our interests to heart? Judging from the sanctions war and the US terror attack on the Nordstream pipeline, the answer would have to be: Not very far.

On balance, it is difficult to visualise the EU fully aligning with the US in an all-out conflict with China over Taiwan, agree to freeze Chinese official reserves as it did last year with Russia, and stop investing in China.

The EU economy is simply not built for cold-war style relations, as it has become too dependent on global supply chains. All things taken into account, therefore, the strong likelihood is that the pro-China lobby in Germany will win this debate. In fact, in the process, the Franco-German alliance may be rekindled, too.

Pavel’s demonisation of China as an evil spirit stalking Europe can be put in perspective. His is a surrogate voice mouthing Biden’s angst that as the Ukrainian military is comprehensively ground down in the battlefields by the Russian forces in the months ahead, Europe may join hands with China to bring the war to an end.

If anything like this develops, the reality will be—as the US surely understands—that Russia and China will hold all the cards in any negotiations with the EU. The US could wind up on the outside looking in. What are we supposed to do—sanction the EU? We can’t sanction the entire world.

In a similar vein, Ted Snider argues:

The World Is Changing. Is the US Finally Noticing?

As evidence that the US is finally taking notice, Snider writes:

On April 11, CIA Director William Burns spoke at Rice University’s Baker Institute for Public Policy. In a somewhat stunning statement that has, perhaps, not been so clearly and publicly articulated before, Burns said that we are in one of "those times of transition that come along a couple of times a century. Today the United States still has a better hand to play than any of our rivals, but it is no longer the only big kid on the geopolitical bloc. And our position at the head of the table isn’t guaranteed."

Once again, the focus is almost totally on the economic/monetary front, not the military events. Sooner or later, these concerns will force a change in policy.

Jim Rickards, naturally, is also focused on economics. Rickards makes no attempt to hide his concern over the incompetence of the Zhou regime that the DC Establishment put in charge of the nation when they dumped Trump:

Rickards: We’re Our Own Worst Enemy

It’s a fact of life that in any group of students, some are likely to be smarter and quicker than others while some just can’t keep up.

It’s unfortunate that Treasury Secretary Janet Yellen has turned out to be the slow kid in the class when it comes to economic sanctions and financial warfare.

Here is Rickards’ case, in brief:

… recently, I taught a seminar at the U.S. Army War College on financial warfare in which I explained that U.S. financial sanctions would not have a material impact on Russia, that Russia would not change its behavior in Ukraine based on the sanctions and that the U.S. would suffer more from its own sanctions than Russia because adversaries and neutral countries would create alternative payment platforms that did not use dollars.

…

Russia saw all this coming, and has been preparing accordingly.

In 2009. Russia’s gold reserves were about 600 tons. By the time the sanctions were imposed in 2022, Russia’s gold reserves were close to 3,000 tons. They had spent that 13-year period acquiring 2,400 metric tons of gold.

…

That was not a complete answer to the sanctions they were facing, but it was a very substantial move in the direction of insulating themselves from being kicked out of the dollar system.

Who can imagine the US acting in such a prudent manner to get its financial house in order?

Now, the failure of U.S. dollar-based sanctions has become too obvious to ignore. The failure is so obvious that even Janet Yellen admits that sanctions are not working.

Then Rickards gets to the nub of things—is there any way too slow the train of events, or has the train left the station and gone round the bend?

Why the Dollar Hasn’t Tanked — Yet

The issue is whether it’s already too late to undo the damage. Once new trading currencies and new payment channels are put in place (which is happening quickly), there’s little incentive to go back to a dollar system where the U.S. can threaten your economy.

I should add that there are reasons why the dollar is strong today that have nothing to do with what I’ve been discussing. It has to do with the banking crisis (that’s far from over, by the way). There’s high demand for dollar-denominated collateral, particularly short-term Treasury bills. That’ll break at some point, but not yet.

And so, the dollar is being propped up by the demand for dollar-denominated collateral, even though it’s under attack from all sides based on these new payment currency alternatives that are rapidly emerging.

Yellen is once again putting her incompetence on full display. She’s a textbook neo-Keynesian with little understanding of monetary policy, fiscal policy, or the international monetary system.

I’ve consistently said that the greatest threat to the dollar comes not from abroad but from the U.S. Treasury because they take confidence in the dollar for granted. We’re doing this to ourselves.

Yellen is proving my point.