Winter in Central Europe and for the dollar

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    by Alasdair Macleod, GoldMoney:

    In this article I examine the current state of the fight for hegemonic control between America on the one side, and Russia and China on the other. It is being fought on two fronts. Ukraine, the one in plain sight, is about to endure a winter without power and adequate food potentially leading to a humanitarian crisis.

    The other front is financial with America facing a coordinated attack by Russia and China on its dollar hegemony. The Russians are planning a replacement trade settlement currency, which if it succeeds, could unleash a flood of foreign-owned dollars onto the foreign exchanges.

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    We have no way of knowing how advanced this plan is, but the indications point perhaps to a gold-based digital currency. Moscow establishing a new gold exchange, Asian central banks accumulating additional gold reserves, and Saudi Arabia seeking non-dollar payments for oil sales are all circumstantial evidence.

    As well as these plans, there has been an underlying shift away from a long-term everything financial bubble, with the prospect of higher interest rate levels in time. The reasons for foreign ownership of fiat dollars are diminishing, and a successful new Asian trade currency will only add to the dollar’s woes.

    Could this pressure compel America de-escalate Ukraine and sanctions against Russia? The argument to do so has become compelling. It is also a way to lower energy prices, giving central banks needed room for interest rate manoeuvre. 

    Russia is making the most of winter

    The evidence that Russia is intent on breaking the will of the Ukrainian people is mounting. As the snow begins to settle, Russia is knocking out the power generation necessary to keep people warm and alive. It is a modern variation on the medieval siege. But instead of surrounding a city or castle and starving the residents into submission, by making conditions impossible they expect the Ukrainians to leave.

    Nearly eighty per cent of that unfortunate country’s population is Ukrainian, as opposed to Russian. But that is based on officially recognised national boundaries and is not adjusted for the regions Russia gained in the East, including Crimea, in 2014 and subsequently. That leaves a potential refugee problem of 34 million Ukrainians fleeing impossible energy-starved living conditions with scarce food as the cruel winter grinds on.

    It takes two sides to make a proxy war. You wouldn’t believe it from the western media, but Putin has been careful to not escalate the situation into an official war and drawing NATO into direct confrontation. Instead, he is using the Ukrainian constitution which protects ethnic Ukrainians, but not minorities including Russian speakers. Effectively, they are denied human rights and gives Putin the excuse to rescue them.

    This legal ethnicity in Ukraine’s constitution is unusual today, a feature shared with Nazi Germany. It allows the Russian propaganda machine to accuse the Ukrainian regime of being a Nazi state. Russia’s “special operations” were to rescue ethnic Russians in accordance with international law and explains why they have offered them Russian passports and safe passage from the Donbas and Kherson. Following acts such as the car bomb in Moscow which killed Darya Dugina, the daughter of a prominent Putin ally, and the bombing of the Kerch bridge Putin has accused Ukraine of terrorist acts for which Russia seeks retribution. Again, anti-terrorist activity is a device to avoid a declaration of war while justifying further action.

    As the winter progresses, 34 million Ukrainians will therefore face the choice of becoming refuges or dying of cold and starvation. Now that the snow has arrived, the Russians have started targeting Ukraine’s energy supplies. The timing is no accident and the EU’s leaders can now envisage the likely consequences. But in relying on NATO for their ultimate protection, the Brussels establishment does not see Nato’s policy changes as its responsibility and so by going along with American’s leadership they have neglected their own interests.

    But the Americans now appear to understand the looming danger of winter with no power. Doubtless, this is what led William Burns, the CIA’s director to meet his opposite Russian intelligence chief in Ankara two weeks ago. The official story was that Burns was there to warn the Russians not to resort to nuclear weapons and to raise the issue of US prisoners.[i] But there is little doubt that this back-channel meeting was to explore compromises before America finds itself a party to the cruel sacrifice of the Ukrainian population in a proxy war.

    Negotiations will not be a slam dunk

    In the great game of geopolitical strategy, bringing the Americans to the negotiating table can be chalked up as a win for the Russians. But it is not just about a proxy war on Ukrainian soil. Both Russia and America have overriding objectives. The Russians want to secure their western borders, which means American military withdrawal from all border nations at the least — Lavrov has mentioned 300 miles being the missile range. The US will undoubtedly resist these demands, because to give up effectively on its post-war role as the protector of Europe through NATO would be an open admission of defeat on the world stage. It would mean the end of US global hegemony, which the Americans are desperately clinging on to. Furthermore, it is a defeat that would enhance Russia’s power not just in the Western European arena, but through its partnership with China over the entire Eurasian continent.

    From the US’s point of view, negotiations with Russia will probably turn out to be an exercise in damage limitation — like the withdrawal from Afghanistan. She needs to get to the table before the situation deteriorates much further. And other than the Ukraine situation they have three pressing problems to consider:

    • There is little doubt that the EU’s troubles will escalate this winter, with energy shortages, exorbitant food prices, and rocketing production cost likely to be the most severe test the EU has ever had to deal with. It comes at a time when the euro system faces instability which could take down major banks and expose the euro system itself as insolvent. Systemic risk would then almost certainly translate into an existential threat to the US banking system.
    • The US is fighting not one but two new hegemons in Russia and China which have teamed up to form a new Asian-based world order with commodity and raw material suppliers worldwide. Purely on a population basis, a rapidly industrialising Asia with its associated interests in the Shanghai Cooperation Organisation, the Eurasian Economic Union, BRICS, the whole of Africa and large swathes of South America outnumber the North Americans, NATO members, Japan, South Korea, and some less certain US allies by at least six to one.
    • The core of this Chinese-Russian partnership is determined to dispose of the dollar for trade settlement as far as possible. As one of the two parties behind the creation of the petrodollar, the Saudis are realigning themselves with the Asian trade bloc. Further moves in this direction are sure to undermine the dollar’s hegemony, the principal source of America’s power over other nations.

    The EU dimension

    You can tell that dissention is now evident in the EU, with the EU accusing the Americans of profiteering from the Ukraine war. This was from Politico earlier this week:

    The fact is, if you look at it soberly, the country that is most profiting from this war is the U.S. because they are selling more gas and at higher prices, and because they are selling more weapons,” one senior official told POLITICO.[ii]

    The article goes on:

    “The explosive comments — backed in public and private by officials, diplomats, and ministers elsewhere — follow mounting anger in Europe over American subsidies that threaten to wreck European industry. The Kremlin is likely to welcome the poisoning of the atmosphere among Western allies. We are really at a historic juncture,’ the senior EU official said, arguing that the double hit of trade disruption from U.S. subsidies and high energy prices risks turning public opinion against both the war effort and the transatlantic alliance. ‘America needs to realize that public opinion is shifting in many EU countries.’”

    Realistically, America can only keep its principal EU allies on side if it addresses these concerns. Attributed almost entirely to sanctions against Russia at America’s behest and to Putin’s reactions to them, rising prices are creating political pressures on the ground likely to force politicians to seek an early end to sanctions. In this respect, time is on Russia’s side.

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