The most important and far reaching story out there today is naturally the one you're not hearing about. And it has the potential to affect you personally a great deal more than 90% of what's in the headlines.
Russian President Vladimir Putin has scored a major win.He has finally succeeded in making a large deal with China to supply the Chinese with natural gas and oil - in a non-dollar contract.
As part of the agreement, the Bank of China (BOC) just signed a non-dollar agreement with VTB, one of Russia’s largest commercial bank to allow VTB and BOC to pay each in their domestic currency, removing the need for energy trading to be conducted in US dollars and a big step towards undermining the dollar's status as the world's reserve currency, something that's been true since the post WWII Bretton-Woods Agreement.
Putin's deal with China was held up for a long time simply because of price haggling.Gazprom, Russia's nationally owned energy company is anticipating that its average export price on gas this year will be around $10.62 per million Btu. The Chinese will be getting it at a substantial discount, around $10 per million Btu. Since the gas China now imports from Myanmar and Central Asia costs the Chinese about $10.15 per million Btu,the deal makes sense for them. In fact, it makes so much sense for them that they're willing to invest an estimated $25 billion to finance infrastructure costs to take in the estimated 38 billion cubic meters per year the Chinese have contracted to import from Russia, 20% of Russia's total output.The pipelines involved are scheduled to be completed by 2018.
And they'll be dealing in rubles and renminbi, not dollars...which makes the deal sanctions-proof, gives Russia a badly needed dose of hard currency, and allows Putin to thumb his nose at any EU threats of finding other sources of energy as a result of the Situation in Ukraine. And when it goes through, it accomplishes something Putin has been working to accomplish for years, bypassing the U.S. dollar as the medium for energy trades.
How does this effect you? Let's look at what that last sentence really means.
Because the U.S. dollar is the medium in which energy trades are calculated, the price of these commodities is linked to the value of the dollar, and the oil producing countries in essence import our inflation...they simply raise their prices to cover it, which also affects the prices of other commodities they import, like foodstuffs and western manufactured goods. The secret behind our relationship with the Saudis and the Gulf Emirates is that for years, they have successfully fended off efforts by Russia, Venezuela and the Iranians to ditch this arrangement.
While it's not entirely ditched yet, this is a major breach, and a lot of other OPEC members and customers will probably gleefully walk through it, depending on the strength of their currency and their need to import energy.
Since the value of anything depends on demand, how much people want or need to own it, the potential loss of the dollar's status as the world's reserve currency weakens the dollar. As this trend continues, the inflation we've been importing will now start to come home to roost as foreign manufactured items like the cheap goods we've learned to love made in China are going to cost more. So will food, and interest rates.
Your paycheck and your retirement dollars will not stretch as far either, your savings and 401Ks will be negatively impacted and travel will be likely more expensive than it already is.
This was probably inevitable, given the ridiculous policy of 'quantitative easing' and the huge amount of the $18 trillion debt and climbing President Obama and his team have run up. There's a part of me that thinks this might have been deliberate on the Obama Regime's part, seeking to weaken our currency deliberately to pay back these funds in cheaper dollar. No nation in history has ever managed it, and the ones that have tried did damage to their economy and their standard of living it took decades to recover from,if they were able to recover at all. Ask the Argentinians some time about how well that worked out for them.
Finally, if more countries abandon the dollar as a reserve currency, the U.S. will have lost a huge weapon, one we used successfully on al-Qaeda during the Bush Administration. No longer will we be able to say to foreign countries that if they do business with terrorist groups or a country we wish to impose sanctions on that U.S. banks will be barred from doing business with them,honoring letters of credit or handing their transactions.
That will still mean something because of the size of the American market, but nowhere near as much as it does with the dollar as the world's reserve currency. And losing that strategic weapon could affect Americans in a negative way in the future as well.
maybe hussein can post a selfie holding a sign #bringbackourresevecurrency.
ReplyDeleteimo, hussein is laughing hisself silly over this.
and anon is moist reading about it.
and ff is correct about that not hearing anything about this.
goebbels would be proud.
It is true that sanctioning countries via the use of the dollar as reserve currency has certainly helped against a largely state-less enemy like Al Qaeda as such sanctions cost the states who support Al Qaeda more than they can benefit by supporting it and it can work well against small countries with few allies. Such actions do not work well against large powerful countries like Russia.
ReplyDeleteAny use of the dollar as a weapon only serves to limit its use which only hastens its decline as reserve currency which has been inevitable for quite some time as I've already pointed out. It's essentially short-term gain for long-term pain. While it likely save many US lives in the short-term, the long-term situation will likely be to mean many more American lives are in jeopardy because of the decision to use the dollar in this manner.
Sanctions also create resentment which only fuels the fire of already rampant anti-American resentment. A better approach would have been to develop all of our own oil and gas reserves while building the necessary refining capacity to handle this. This would have the approach of cutting off funds to states who support Islamic terrorists and would give us much more leverage when dealing these countries in any negotiations. As it is now, they likely make it enormously costly to us in order for them to do us the privilege of trading oil in our currency.
I've been predicting the dollar's loss in this role since at least 2003. For the most part I've been ridiculed or ignored. Now that it is coming to fruition I find no satisfaction in being proven correct.
Poster:
ReplyDelete1)The countries that were affected by the use of Bush's bank sanctions against al-Qaeda included 'small countries with few allies' like France, the UK, Germany, Japan, Switzerland, Pakistan, Brazil, and yes,Russia.They all cooperated,rather than being frozen out of oil trades and the U.S. market..
As a matter of fact,it would still badly affect Russia if we did it today (remember,the pipelines won't be in until 2018), not to mention bringing Iran's illegal nuclear program to a screeching halt if we applied it to them.
As to why we haven't,the answer's quite simple - President Obama is perfectly fine with a nuclear Iran, and what sanctions we di use were a mere pinprick by comparison. Why this president feels that way is a tale for another time.
We didn't 'lose' the ability to keep the dollar as the world's reserve currency - Putin has been trying to pull this off unsuccessfully for years.There was nothing 'inevitable' about it.
Thanks to the kind of weak,
debt happy spendaholic leadership we elected, America is in the process of simply throwing that advantage away.
Rob,
ReplyDeleteThe countries you mention clearly made an economic decision that it would be easier and more beneficial to cooperate with the US on this one than to go to the expense and trouble of setting up a new currency system. With this sort of thing, if we push to hard we are seen as "bullies
and it leads these nations to consider moving away from the dollar. Push to soft and we are seen as weak. The trick is to get it just right. I think we would agree that this one of the few things Bush got right, however, the ways in which this was used has created resentment that we is negatively affecting us today. I discussed previously what would have been a better approach.
Dollar sanctions against Iran's nuclear program and against Russia of the type you seem to wish for will only hasten the loss of the dollar's role. That is unless we can get more support from other nations for a "get tough" approach. Right now that support does not seem to be there.
If President Obama is "fine" with Iran having nuclear weapons, then he is fine with the lives of millions and perhaps tens of millions of American lives being placed in even greater danger than they already are. Certainly possible perhaps he has a secret escape somewhere himself. He'd have to as DC and Chicago would likely be targets.
What seems more likely to me is he has simply concluded there is no way America can prevent Iran from acquiring nuclear weapons. The Israelis and the Gulf Arab states might be able to do it as they have the intelligence assets, the leadership, and the trained personnel to have a fighting chance of doing it. Also, they are not as likely to be as heavily infiltrated by enemy agents as America is.
In the case of the Gulf Arab states, they are likely okay with a nuclear armed Iran since America would be the main target. Also, having Iran on the loose so to speak serves to America more compliant to their wishes than it otherwise would be.
The loss of the dollar in its current role was inevitable since at least 2003 and probably sooner. You are correct that the spendaholic leadership you mention played a big role. This did not start with Mr. Obama though. While their is nothing that Mr. Obama or his team could have done to preserve the dollar in its current role, there policies served to speed up the process.
You are correct that Putin has been trying to pull this off for years. Unfortunately the stupidest foreign policy move in world history handed him this on a gold platter so to speak. Additionally pro-Russian sources have salivated for a long time about the possibility of a close Russo-Sino relationship. Our involvement in Ukraine has served to drive these nations together in a much closer manner than they were previously which is yet another bad outcome from all of this.
Had we have been planning for the inevitable end to the dollar in its current role since 2003 when I first recognized the problem we would likely be in a better situation to position our nation for this. Not only did the leadership fail to do this but they only undertook policies that would only speed things up and would likely contribute to a so called "hard landing" as opposed to a preferred "soft landing."
With proper planning we probably had until sometime between 2018-2023 to get ready for the change. As recently as two years ago an article in the Christian Science Monitor predicted we had until 2016 before the dollar would face serious challenges. Due to current spending habits and foreign policy mistakes the change will likely happen much sooner than those authors predicted it could. Even if we somehow can get competent leadership in place this does not give us much time to plan and prepare properly. Nation states and people have likely come back from deeper holes then we've currently dug for ourselves before. I pray America can too.
Poster, they all went along with it because none of them could afford to be frozen out of oil trades or lose the ability to do business in America. 'Bullies' wasn't a factor.
ReplyDeleteIf we had used this sanction against Iran before Obama watered down the sanctions and then put them aside entirely a year before the announcement of the agreement that wasn't an agreement while Valerie Jarrett negotiated a secret deal with the Ayatollahs.
Finally, if you think that the Sunni Arab countries 'are likely okay with a nuclear armed' Shi'ite Iran, I'm afraid you simply haven't been paying attention.
It's a chief reason why the Saudis and other GCE countries have no respect or trust in Obama.
So many here blame Obama and say he does nothing to prevent Iran from having nukes...OK: ball in your court. WHAT WILL YOU DO IF IN WHITE HOUSE TODAY? Nuke Iran, invade like Biush in Iraq?
ReplyDeleteTell us what and not spewing venom
'spewing venom'? The last time I checked, it was the Iranians chanting 'Death to America', not us chanting death to Iran.
ReplyDeletePerhaps you'd prefer to wait until they actually have nuclear weapons, Fred? I hope not.
At this point, thanks to the inaction of both Bush and Obama, there is a lot less choice than there used to be. And a lot more blood is liable to be shed.I'd prefer it not be ours.
The Iranians have been in a state of war with us since 1979.and were complicit in 9/11. I have a feeling you weren't aware of that.Most people aren't.
There is no way they are going to give up their nuclear program, because they see it as insurance for preserving their poisonous fascist regime.
Also, because of the weakness with which they have been treated by the West, they are not going to take seriously any language warning them that America will not allow them to obtain nuclear weapons.
At this point, unfortunately,the only way to deal with Iran is a preemptive strike on their nuclear facilities,including the infrastructure connected to them. In places like Fordow, yes, that might probably involve tactical nukes.
In addition, we will have to take out their land based missile bases and destroy their navy and their ports to make sure the Persian Gulf stays open. That isn't outside our capabilities by any means.
I would also destroy their refineries and probably their oil fields and pipelines, in order to preclude Iran's ability to simply buy new toys or continue to fund terrorism.That would also pretty much end China and Russia's interest in Iran.
I would live with the brief oil price spike... the Saudis and other GEC countries would almost certainly agree to increase production upon the demise of their mortal enemy Shi'ite Iran, and getting rid of our current president's ridiculous EPA regs and restrictions would allow U.S. production to make up any shortfall rather quickly.
I would also make it quite clear to the Iranians publicly that they would be held responsible for any future terrorism or attacks on America, its assets, allies or facilities.
Finally, I would leave Iran to clean up its own mess. I would not occupy the country, I would send no aid, do no 'nation building ' or make any apologies for the carnage. I would want to send a message to the world that you do not f*ck with America except at your peril. You would be amazed at the effect this would have diplomatically, especially in the ME. I would not attempt to make a regime change, but would leave it to the Iranian people.
As I said, this could have been handled much easier and with a lot less bloodshed before, but one mediocre president and another abysmal president dropped the ball. A mess like this deferred only gets worse with time.
I trust this answers your question.