WW3: Money Front Update (Part Two)

The first part of the Money Front Update concentrated on getting up to date with some of the specific developments that signal the global shifts that are clearly underway. This second part will return to the big picture and, specifically, how it affects the United States. Recall the intro to the first part:

Avoiding an EMP attack doesn’t mean we’re out of the woods. In fact, you could, in a sense, liken the impending dethroning of King Dollar to something like a monetary EMP attack.

There’s a lot going on on this front and, short of a for real EMP attack, this is likely the Real War. The military aspect is proceeding toward its conclusion, but the Money War is still involved with preliminary skirmishing, as world players engage in a sort of Chinese Fire Drill.

Karl Denninger has an important post today. I take it that he wants people to read it because he eschews his typically juvenile vulgarities. The good news, if you can call it that, is that he suggests a possible escape from disaster for the US. The bad news, of course, is that the US has to accept that escape, which will prove a bitter pill for our rulers. Then again, can a country that seems entirely focused on changing the sexual appearance of its children actually act in a rational way when it comes to the hard realities of life on planet Earth? Consider: While Americans focus on queerness in Congress, in their schools, in the military, and at Disney World, Vladimir Vladimirovich Putin is focused on things like oil, natural gas, wheat, fertilizer, gold—and hypersonic missiles.

Americans seem to think that reality can be altered by magic incantations—that’s the way Neo-Gnostics think. KD is here to tell you that that’s not how the world works. Our lavish lifestyle and delusional decadence in America—by world standards—has been largely financed by predatory monetary policies (inflation) that, in turn, were enabled by an energy (oil) based protection racket: We’ll protect you oil producers but you have to accept our constantly inflating money. The imperial King Dollar system.

Europe Is Hosed. We Just Got The 'Final Warning'

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Medvedev, Russia's deputy chairman of their Security Council, has specifically pointed out that our inflationary credit policies -- in the US and Europe -- will no longer be tolerated by either Russia or China.

'No matter if they want it or not, they'll have to negotiate a new financial order,' Medvedev said. 'And the decisive voice will then be with those countries that have a strong and advanced economy, healthy public finances and a reliable monetary system. And not with those who endlessly inflate their public debt, issuing more and more pieces of paper into circulation which aren't backed by national wealth.'

Medvedev is reminding us that our rulers’ smart idea of outsourcing our actual productive capacity—”outside money,” as Tom Luongo would call it—in order to enrich themselves and the financial speculators who deal in “inside money” was a bad idea. Middle America will pay the price—the consumer goods for inflated dollars gig is going to get modified. Who else holds the bag in the future remains to be seen.

The United States and, to a large degree Europe as well, have run monstrous deficits for the last two decades.  Europe did it to "rescue" the PIIGS, if you recall during the time of the "great financial crisis", and that "stimulus" has never been withdrawn.  The United States did the same sort of thing during the time of the housing blowup, which followed the tech wreck and again, that was never withdrawn.

Europe, as with the United States, thought they could add to their fiscal insanity without consequence by importing a whole bunch of lower-skilled people who couldn't pull their own weight at or above median per-capita GDP in the name of "diversity", never mind the cultural divide brought by such immigration that further exacerbated the fiscal cost of doing so beyond bare economics.

And a reminder: Zhou wants to throw our borders wide open in a month or two when Trump admin controls expire.

Every time a move to cut back wildly-profligate credit emission was made, even a bit, the markets had a hissy fit and the various players in European and US governments, including Parliaments, Congress and the central banks not only backed off they increased credit emission beyond previous levels.

The “markets”. Speculators in “inside money”.

Our federal spending in fiscal 2007 was $2.7 trillion.  Biden has just asked for more than a clean double, at $5.8 trillion.

We've gotten away with this profligacy for decades by shoving our inflation "over there", specifically, as a result of deliberately enabling the abuse of human resource (slave-like working conditions) and natural resource (pollution of various sorts, all in the name of being "green" here.)

Were you expecting sympathy for our plight from the rest of the world? Get over that.

The reckoning for Europe is happening right now. Today Vladimir Vladimirovich demanded payment for Russian resources in Russian money: the ruble. You can buy rubles to make your payments, but Russia will tell you what the price will be. Russia has no particular reason, beyond general benevolence, to drive any bargain other than one that is strictly aligned with its own interests:

Unfortunately what this means in real terms is that Europe is screwed. We seem to think we could do all of this, build those dependencies, including with Russia when it comes to Europe and Russian natural gas and then participate in fomenting the Maidan revolution in Ukraine, keep poking Russia and eventually, as occurred late last year and early this, threaten to expand NATO into Ukraine directly and nothing would happen -- or if Putin and the Russian Federal Assembly decided to act we could simply sanction Russia and literally break their social and political structure.

Russia knows the West isn’t its friend—they’ve been reminded of that fact of life over and over, and that’s a lesson they’re not likely to forget soon. So the energy transactions will be conducted at arms length. See how you like that, Euros. It’s a big world out there, and an energy hungry one. If Europe doesn’t want to pay the price set by Russia, Russia has alternatives. On top of that, Europe has its own profligacy problem. There really is no foreseeable happy ending here.

But our turn is coming—it’s just a bit further down the road. The good news for America is that it’s an inherently very rich land. If we can drag ourselves out of our moral and intellectual swamp there’s still hope for getting our house in order, but that will require an exercise of character that we’re not used to. That will require growing out of our childish libertarian excuse for a civic philosophy.

This is where KD tells us the good news—and the bad news. The worse news, of course, is that the happy ending of the good news isn’t guaranteed to ever happen. As stated above, that depends on the moral character of the American people. Which, I guess, is more bad news—if you disagree, take a look around you first. The consolation is that the bad news for the US doesn’t need to be as bad as for Europe:

We're next in the United States. Congress may not recognize it yet, and Biden certainly doesn't, but you can bet The Fed does. ...

There is no way to force China to put up with this any longer and we, along with Europe, just demonstrated that we will tamper with international payment flows any time someone does something we don't like. China is not our friend in that endeavor and never was -- that absorption channel, which is all we have had for the last two decades that has enabled the credit emission our government has abused, is about to be cut off and there is exactly nothing we can do about it.

The only answer is for the government to cut the deficit spending to an effective zero. To put real numbers on this Biden is forecasting $1.5 trillion in deficits under his budget for the next fiscal year.  ...

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The only place to get that sort of money in the budget is to whack Medicare and Medicaid.  Literally whack it -- with an axe, cutting it off entirely. Don't believe me -- go look it up yourself in the last (ending September) fiscal year.  CMS (Medicare and Medicaid) spent $1.859 trillion and there is literally nowhere else you can get that sort of money.

That won't happen for obvious political reasons, which means the only other sane path forward is to break the medical monopolies, and you know that is wildly unlikely to happen either.  If we did that would cut medical spend by 80%, roughly -- which is just about enough.

What other potential paths forward that don't include a market collapse and possible literal failure of our society and government are there?

If you've got some I'd love you to point them out because I can't find them.

Now, a hat tip to E-correspondent Mark.

If you doubt that the world is immersed in a major redo of its controlling systems, check this out. The Jerusalem Post has run an op-ed by a Saudi journalist that “blisters” the United States.

OK, you’ve probably already guessed that this is about Iran, right? Yes, right:

Saudi Op-Ed Warns America "Dismantling Pillars Of Own Empire"

An almost unprecedented op-ed in The Jerusalem Post lashed out at both America and Iran, while implicitly praising Israel's steadfastness against Tehran, and it was authored by a Saudi... more precisely the former editor of the kingdom's Al Arabiya English, Mohammed Alyahya. The op-ed blasts Washington efforts to restore the Iran nuclear deal by the Biden administration, questioning: If the Americans won’t side with Israel against Iran, what’s the chance they will side with us?

So far, so predictable. But there’s a kicker at the end—one that shouldn’t be unexpected. After all, it was only a few weeks ago at most that the Saudis were refusing phone calls from Zhou:

"Chinese policy is simple & straightforward"

"While American policy is beset by baffling contradictions, Chinese policy is simple and straightforward. Beijing is offering Riyadh a simple deal: Sell us your oil and choose whatever military equipment you want from our catalogue; in return, help us to stabilize global energy markets. In other words, the Chinese are offering what increasingly appears modeled on the American-Saudi deal that stabilized the Middle East for 70 years."

"What is not yet clear is whether the Chinese can be helpful in deterring Iran, or whether they share the American belief in 'balance.' But Xi Jinping will visit Riyadh in May. It is a certainty that Saudi leaders will ask him if Iran’s rocketing of the oil facilities of the world’s most reliable oil producer is in the interest of China and, if not, can Beijing make it stop?"

Oh!

Interesting times.