Russia And China Have A Golden Opportunity

From the start of America’s war on Russia it was apparent that the economic aspect was key. This war was always intended to quickly bring Russia to its knees as a result of the sanctions onslaught, after which the Russian treasure chest of natural resources would be divvied up by the collective West—mostly meaning the Anglo-American partnership. The Eurasian challenge to the unipolar American rules-based order would be eliminated for good.

As we have by now come to expect, those well laid schemes of the Neocons have once more gone, er, agley. In fact, so far agley have their schemes gone that we now face the prospect of King Dollar being dethroned from its world hegemonic role as the one and only reserve currency. Not only are major power centers in international finance, like Saudi Arabia, bailing on the dollar, but Russia and China are now openly working on something that looks like a gold backed currency, or at least a gold backed settlement system. Sorry for my fuzzy understanding of monetary matters, but this is big, because it’s an existential threat to the collective West.

Alasdair MacLeod has written one of his lengthy analysis pieces on all this: A tale of two worlds. I’m going to quote MacLeod at length, because he does a masterful job of laying out just where we stand right now, and where things appear to be heading. His perspective may also help to understand the almost palpable sense of panic that we’re starting to see in the Imperial City on the Potomac—Rand, the architect of the regime change in Russia policy is now suggesting the US needs to get on the off ramp, the CIA seems to be making overtures to Russia for some sort of deal. And then there’s the campaign to remove the Zhou regime from power in DC. This is where the Neocons, with their invincible belief that they can outsmart one and all on the geopolitical playing field, have landed a gullible America. MacLeod believes NATO barely perceives the existential threat to their financial house of cards, but it may be that we’re starting to see signs that the enormity of the threat is making itself felt. As in the two previous World Wars, the epicenter could well turn out to be in Germany.

Well, let’s get started. While my excerpts are lengthy, they don’t cover even anything like half of the piece. To give you some idea, I’ve inserted a divider of asterisks. What comes before is from the first half, what follows is from the second half. I’ve eschewed the technical monetary parts in favor of the geostrategic Big Picture.

A tale of two worlds

In the war between the western alliance and the Asian axis, the media focus is on the Ukrainian battlefield. The real war is in currencies, with Russia capable of destroying the dollar.

... already, both Russia and China have accumulated enough gold to implement gold standards. It is now overwhelmingly in their interests to do so.

From Sergey Glazyev’s recent article in a Russian business newspaper, it is clear that settlement of trade balances between members, dialog partners, and associate members of the Shanghai Cooperation Organisation (SCO) optionally will be in gold. ...

To understand the consequences, in this article the comparison is made between the western alliance’s fiat currency and deficit spending regime and the Russian-Chinese axis’s planned industrial revolution for some 3.8 billion people in the SCO family. China has a remarkable savings rate, which will underscore the investment capital for a rapid increase in Asian industrialisation, without inflationary consequences.

With a new round of military action in Ukraine shortly to kick off, it will be in Putin’s interest to move from passivity to financial aggression. It will not take much for him to undermine the entire western fiat currency system — a danger barely recognised by a gung-ho NATO military complex.

... America’s finance and currency-based hegemony has outlasted its benefits to the world order. ... The tale of two worlds is about the governments of the established 1.2 billion souls in the so-called advanced economies, determined to contain the other 6.7 billion from challenging it. It is a clash between production-based economies, and economies increasingly based on services and finance. It is a clash between real values and ethereal values. …

I’m not sure what MacLeod means by “ethereal” values. But this clash of “values” has been, for many years, one of Putin’s favored themes. It’s a way that he attempts to reach out to some in the West.

The fear in Washington must be whether Germany will similarly pursue its very obvious commercial interests by aligning itself more with Russia and China, and less with her NATO masters.

[That] would lead to the death of the EU in its current form.

Which explains the Neocons very early move to sever Germany from Russia—by sabotaging the Nordstream 2 pipeline. This left no doubt that German subjugation is a key in this war.

Since her defeat in the Second World War, Germany has been central to NATO’s existence. As Lord Ismay, NATO’s first secretary general pithily put it, [NATO’s] purpose was to keep the Soviet Union out, the Americans in, and Germany down.

There were several claims as to who the Father of a United Europe was, but the version which triumphed was authorised by the American Committee on United Europe (ACUE), which was set up in 1948 by senior American intelligence figures from the CIA.[i] …

Germany ... has been forced to abandon its sound money principals, and to cut itself off from its natural markets in Asia. But a resumption of NATO backed hostilities will throw Germany’s suppression by the US political and military establishments into sharp relief.

Here is the problem facing the American Empire. The Neocons thought that their war on Russia could be easily won with little damage to American hegemony. Instead, the war has quickly evolved into an existential threat to the American Empire in which Russia holds most of the cards and has little incentive now to negotiate. Putin, we know, spent the last 8 years preparing for this moment. Our Neocons? Not so much. They spent their time ridiculing Vlad.

There is no obvious basis for a truce over Ukraine

There has been some hope expressed that before a new conflict escalates, a truce will be called leading to peace negotiations. ... There will have been some back-channel meetings as well, such as that between William Burns of the CIA, and Sergei Naryshkin, head of Russia’s foreign intelligence agency in Ankara last November.

According to Pepe Escobar, ..., only this week the Americans ... made “an offer the Russians cannot refuse”[ii]. It was spelled out in a Washington Post Op-Ed, bypassing Kiev entirely, offering to partition Ukraine along with a deal for a post-war military balance. The trouble with this approach is that the Americans have a track record of making promises to Russia only to be broken later. ...

Not only does Russia mistrust the Americans, but in the chess board of international diplomacy, moves being initiated by the Americans puts Russia in the stronger position. Peace talks initiated by the Americans would almost certainly require them to bend to Russian demands, ... Whether America is prepared to concede its control over Western Europe will become the central issue. The Russians are likely to insist on it. It would be the end of NATO, and a new European defence alliance without American involvement would have to take its place.

Furthermore, in the absence of an agreement Russia would be comfortable letting NATO continue to tie itself in knots. To the independent observer, the western alliance’s commitment to defeat Russia in a Ukrainian proxy war was a strategic blunder, pregnant with unintended consequences. ...

This is what happens when you try to negotiate from a position of weakness. Time is on Russia’s side, from all the most important standpoints.

From his statements, we can be sure that Putin and his advisers understand not only the military position, but the relative economic consequences of a renewed escalation of the Ukrainian conflict. This is in contrast with American-led NATO policies, where so far, the economic costs have been ignored. The potentially disastrous consequences for European economies do not appear to have been thought through.

It is the consequences for the euro of a renewed battle over Ukraine that threaten to finally undo American influence in Europe, ... Anticipating the uncertainty that follows, energy prices are bound to rise again. On 24 February 2021, when Russia commenced its “special operations” the price of gold was $1902. By 9 March, it had risen to $2070. All other commodity prices from base metals to raw materials and food soared. ...

The consequences for the alliance’s financial markets are potentially devastating. Kiss goodbye to transient inflation and interest rate moderation. Say hello to soaring bond yields, collapsing equity markets, bankrupt banking systems including the central banks themselves, and debt traps for both governments and overleveraged businesses. Fiat currencies will teeter on the precipice of collapse. A new phase in this war will threaten to destabilise the western alliance, but not Russia and China whose economies are not beholden to deflating financial sector bubbles.

There’s little doubt that the euro is particularly vulnerable to the consequences of a new military escalation in Ukraine and the effects it is bound to have on producer and consumer prices in the Eurozone. ...

The ECB will be torn between the need to respond with yet higher interest rates for fear of losing control over them to market forces, and the consequences of permitting higher interest rates and bond yields for government finances. Not least, there is the threat to the solvency of the entire euro system.

The only solution, and even that is likely to be short-term, is for America to step back from the battle for Western Europe and recognise Russia’s right to protect the integrity of her borders. Negotiations leading to a settlement would have to be offered to Russia immediately if the euro is to be saved. ...

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The Asian axis has the gold

China has been accumulating gold ever since the Peoples Bank was appointed to manage the nation’s gold and silver accumulation in 1983. Bearing in mind that gold was in a massive bear market until 2002, large quantities of bullion became available at low prices. ... By [late 2001], I estimated China had secretly built up holdings of about 20,000 tonnes, and the state has continued to add to its holdings ever since. The Shanghai Gold Exchange was set up in 2002, and to date 23,000 tonnes have been withdrawn into public ownership. To this day, China follows a strict policy of not allowing any gold which has entered the country to be exported.

... Russia entered into a policy of gold accumulation much later. But so far, ... it is believed Russia has some 12,000 tonnes at its disposal, exceeding America’s official reserves of 8,134 tonnes. Furthermore, Russia is planning to increase mine output from over 300 tonnes to 500 tonnes annually, and the Gosfund is still buying from domestic sources.[v]

The contrast with the western alliance’s fiat currencies couldn’t be greater. The consequences are clear: other nations in the SCO and BRICS grouping are selling dollars for gold, which is why central banks are estimated by the World Gold Council to have accumulated over 1,100 tonnes in 2022. ...

The consequences for US Government funding are dire. For decades, the US Government has relied on foreigners accumulating dollars and reinvesting them in US Treasury stock. The liquidation of these holdings, at a time when entering a recession budget deficits are set to rise steeply, is likely to propel dollar bond yields sharply higher.

We are already seeing dollar holdings and financial assets in foreign hands beginning to be sold down, which according to the US Treasury’s TIC figures have declined from a peak of $34 trillion to about $30 trillion currently. ...

At the St Petersburg International Forum last June attended by 81 official delegations, President Putin made it clear that dollars and euro reserves should be sold for fear of confiscation and due to their losing purchasing power. Not only has Putin primed foreign governments to dump their dollar and euro reserves, but NATO’s aggression over Ukraine is bound to drive up commodity and energy values in fiat currencies, and therefore the natural level of interest rates and bond yields. In short, by his response to NATO aggression, he has the power to destroy the alliance’s currency and financial systems. And given that Russia, China, and the entire SCO membership would benefit from a gold standard, there is every reason for him to take the nuclear option, not of the warhead variety, but the financial.