Two Worlds Collide: The Financial/Political Elephant, May 19, 2014
Doug Wakefield
[Source – Seen
on the New Donetsk Republic Leader’s Wall…., Zero Hedge, May 12]
“In
politics, nothing happens by accident. If it happens, you can bet it was
planned that way.” Franklin Delano Roosevelt
Anyone
looking solely at the patterns of US and European stock indices in the last
three months since Ukraine became the center of escalating tensions inside the
nation and outside between Russia and Europe & the US, would come to the
conclusion none of this had anything to do with the lives of billions depending
on our global financial markets. When we consider the cracking of the largest
real estate bubble in history in China, as they strengthen their relationship
with Russia and Europe simultaneously, it seems surreal to watch western
markets give off the impression that none of these events could impact their
stock “nirvana” state.
Yet,
the juxtaposed worlds of calm US and European markets with escalating tensions
between Russia and the West – remember, first quarter growth (GDP) in the
US and Europe
was slightly above zero in both of these major engines of the global economy -
have created a cognitive dissonance between these two views of the current
financial landscape and the idea of risk.
What
are we to make of the “elephant” that entered our daily news in the last 3
months? Is it worthy of our attention, or a side issue in the larger global
picture?
This
article is laid out according to John Godfrey Saxe’s poem of an Indian legend, The Blind
Men and the Elephant. I have left my own comments until the end, since I
believe the collection of news sources is even more powerful.
I
hope that you will take time to investigate each of these themes, since they
reveal various aspects of “the elephant” we normally may never consider. How
much longer can global trading computers and individuals ignore its
presence?
Belly – Business
Impact Between Russia and Europe
Ukraine
Crisis: Why it Matters to the World Economy, CNN Money, Mar 3
Russia
supplies about 25% of Europe's gas needs, and half of that is pumped
via pipelines running through Ukraine.
Ukraine’s
Crisis: Economic Sanctions Could Trigger a Global Depression, News Junkie
Post, Mar 15
Sanctions
on Russian exports would greatly expose the EU. Europe imports 30 percents of
its gas from the Russian state-owned company Gazprom. Russia is also Europe’s
biggest customer. The EU is, by far, Russia’s leading trade partner and
accounts for about 50 percent of all Russian exports and imports. In 2014,
EU-Russia overall trade stands at around 360 billion Euros per year. The EU is
also the largest investor in the Russian economy and accounts for 75 percent of
all foreign investments in Russia.
Rosneft
is the largest listed oil company in the world and, as such, has partners
worldwide, including in the West. For example, the US-based company Exxon-Mobil
has a $500 million oil-exploration project with Rosneft in Siberia, and
Exxon-Mobil is already in partnership with the Russian giant oil company to
exploit Black Sea oil reserves.
German
Business Concerns Grow Over Russia Ties, Financial Times, Mar 27
Russian
president Vladimir Putin kept Joe Kaeser waiting for an
hour before their meeting this week at his residence outside Moscow.
That
gave Siemens’ chief executive a chance to ponder how he was going to explain to a
German TV audience that evening why he called on Mr Putin even as the US and
Europe were trying to further isolate Russia over its actions in Crimea.
The
German engineering company has pledged to invest €1 bn in Russia and sells
express trains, energy infrastructure and medical technology there.
Although Siemens’ boss gave every impression of conducting business as usual, German companies are
deeply concerned about their business ties with Russia and most oppose economic
sanctions.
German
entities have invested roughly €20bn in Russia and some 6,200 companies –
mostly small and medium-sized Mittelstand businesses – are active there. Last year
trade between the two countries totaled more than €76bn.
These
business links are a restraining hand on Berlin as it considers further action
against Russia; Berlin is well aware that restrictions that hurt the Russian
economy could also hurt Germany too.
European
Business Hit By Russian Slowdown, WSJ, May 7
A
swath of companies, from banks to brewers, are taking big hits to their bottom
lines caused by the political uncertainty surrounding Moscow's standoff with
the West over Ukraine and the dwindling Russian economy.
Visa,
MasterCard to pay $3bn to stay in Russia - Morgan Stanley, RT, May 15
Under
Russia's new legislation, Visa and MasterCard will have to pay $3 billion in
‘security fees’ to continue operating in Russia, more than five times higher
than the companies combined revenues, a new Morgan Stanley report says.
Under
the new plan, Visa will be required to pay Russia’s Central bank $1.9 billion,
and MasterCard will have to fork out $1 billion, according to an estimate by
Morgan Stanley, Kommersant reported on Thursday.
Russian
President Vladimir Putin signed a law on foreign payment systems on May 5 that
requires foreign payment systems to be levied at 25 percent of an average
amount of transfers profit during one calendar day in Russia, to be paid each
quarter to the Central Bank. The law will be enacted on July 1.
Morgan
Stanley has calculated that it is unprofitable for both Visa and MasterCard to
continue to work in Russia.
Trunk –International Banking Centered Around Ukraine
Ukraine bond investors remain anxious despite
relief rally, Reuters, Feb 24
While
bond markets have reacted jubilantly to the possibility of Western aid for
Ukraine, big-name investors are worried about how fast Kiev can secure a rescue
and whether an IMF bailout may reschedule its debts.
Europe banks get downgrade warning amid
‘bail-in’ concerns, CNBC, Mar 5
Credit
ratings for European lenders could be slashed by one or two notches as the move
towards "bail-ins" away from government "bailouts"
continues to evolve, a leading credit agency [S&P] warned.
Following
similar moves in the U.S., European banks could lose top investment grade
ratings if regulators continue to look at ways to avoid taxpayers having to
prop up struggling banks, as they did at the height of the global financial crash
of 2008.
Crimea
Bank Runs Began As ‘Bail-In’ Risk Arise, Zero Hedge, Mar 13
While
the sight of Russian flags, pro-Russian troops, and Russian navy ships in
Crimea is now a day-to-day thing; this morning brings a new normal for the
eastern Ukraine region - long
lines at bank ATMs as the bank runs have begun…. it is
Deutsche Bank's comments this morning that raised many an eyebrow as they
suggest that Ukraine’s debt is pricing in a “burden-sharing” haircut for bondholders (which as we have seen in
the past - in Cyprus - can quickly ripple up the capital structure and become a
depositor haircut).
Ukraine
Troubles Europe's Banks: European and Russian Banks Exposed to Eastern Europe
See Shares Slide, WSJ, March 3
Escalating
tensions over Russian military intervention in Ukraine rippled through Europe's
banking sector Monday, hitting banks exposed to Eastern Europe.
The
prices of European bank stocks and bonds tumbled, some banks operating in
Ukraine imposed limits on withdrawals from their cash machines, and one bank
put on hold the process of selling its Ukrainian unit.
Russian
banks suffered the most, with London-listed shares of OAO Sberbank and OAO VTB,
the country's two largest lenders, fell more than 16% and 18% respectively.
Shares of UniCredit and Société Générale, which owns one of Russia's largest
retail and corporate banks, both fell about 5%.
The
Looting of Ukraine, Paul Craig Roberts, March 6
According to a report in Kommersant-Ukraine, the finance ministry of
Washington’s stooges in Kiev who are pretending to be a government has prepared
an economic austerity plan that will cut Ukrainian pensions from $160 to $80 so
that Western bankers who lent money to Ukraine can be repaid at the expense of
Ukraine’s poor….
The
corrupt Western media describes loans as “aid.” However, the 11 billion euros
that the EU is offering Kiev is not aid. It is a loan.
Moreover, it comes with many strings, including Kiev’s acceptance of an IMF
austerity plan.
Ukraine
To Get $17 bn in IMF Loans, AlJazzera, May 1
The
International Monetary Fund has approved a $17bn two-year loan programme for
Ukraine, as Kiev continues to fight pro-Moscow separatists in the east of the
country.
Wednesday’s
action by the IMF’s 24-member executive board, which includes representatives
from Russia and the United States, opens the way for an immediate release of
$3.2bn to Ukraine, which faces deep fiscal problems in addition to months
of political crisis.
The
loans are subject to IMF demands that Ukraine cuts subsidies for fuel,
reduces its large deficit, controls pay rises, reduces corruption, and reforms
its banking system.
Russia
backed IMF Ukraine loan but thinks Kiev might slip, Reuter, May 13
Russia
supported an International Monetary Fund package for Ukraine last week but sees
risks of Kiev failing to meet the criteria, Deputy Finance Minister Sergei
Storchak said on Tuesday.
The
IMF signed off on a $17 billion bailout for Ukraine last week, with tough
conditions including steep gas tariff hikes, a floating exchange rate and
reducing the budget deficit by about 2 percent of GDP each year from 2014-2016….
He
(Storchak) added that "the success of the programme very strongly depends
on several risks which Ukraine, judging by everything, doesn't control
yet".
Meanwhile,
Ukraine has accused Russia of using gas as a political weapon, as Russia
demands prepayment of $1.66 billion for June gas deliveries.
Tusk – Financial Sanctions
Obama
Issues Executive Order on Ukraine Sanctions, CNN Politics, March 6
President Obama
signed an Executive Order Thursday allowing the U.S. government to impose a
host of sanctions on both individuals and entities deemed to be violating
Ukraine's sovereignty and territorial integrity.
In a phone call
with reporters, senior administration officials discussed the Executive Order
and said it is intended to, "send a strong message that we intend to
impose costs on Russia for this intervention." And will give the U.S.
government "powerful and flexible tools" to target those who are
believed to be violating international law.
G7
countries snub Putin and refuse to attend planned G8 summit in Russia,
The
Guardian, Mar 24
Western
countries and Japan have suspended their 16-year collaboration with Russia in
the G8 group in response to the annexation of Crimea and have threatened
sweeping sanctions in the event of any Russian military moves in the region.
The
move, a clear and deliberate break from the post-Soviet status quo, was
intended to underline Russian isolation….
The
G7 leaders issued a joint statement, under the title of the Hague Declaration,
saying they would not attend a planned G8 summit in Sochi in June but would
instead convene without Russia in Brussels
(on June 4-5).[Italics mine]
EU,
US sanctions on Russia: Big Oil stands with Moscow – for now, The Christian
Science, April 29
Undeterred
by a new round of Western sanctions on Russia over Ukraine early this week, the
world's leading energy firms are moving ahead with major oil and gas projects
in Russia. EU and US sanctions targeting individuals and ancillary companies
have given American and European firms little reason to change course on
ventures that could yield billions in new resource flows, largely in Russia's
coveted Arctic region.
Moscow,
in turn, has little reason to react. With the continued backing of BP,
ExxonMobil, Royal Dutch Shell, and others, the Kremlin can feel better about
its economic outlook. It's why some in Washington and Brussels have called for
more aggressive measures that target entire energy companies, or even the
industry as a whole, which makes up about half of the Russian government's
revenues.
Merkel,
Hollande ready for further sanctions against Russia, Reuters, May 10
Germany
and France are ready to agree more extensive sanctions against Russia if a
planned presidential election in Ukraine on May 25 is foiled, Chancellor Angela
Merkel and President Francois Hollande said on Saturday.
In
a joint statement, they agreed to support tougher sanctions against Russia -
affecting areas such as energy, defense, financial services and engineering -
than European Union leaders outlined at a meeting in Brussels on March 6….
The
May 25 election is to choose a successor to President Viktor Yanukovich the
pro-Russian president of Ukraine toppled by unrelenting protests. Russia then
seized and annexed Ukraine's Russian-majority Crimea region, citing threats
from what it called far-right extremists in the new Kiev government.
Knee – Military
Escalation
Russia
Launches ICBM Despite Rising Tensions, ABC News, March 4
Russia
test fired an intercontinental ballistic missile today amid growing tensions
between Moscow and Washington, but a U.S. official said the launch was planned
in advance of the current crisis in Crimea….
A
U.S. official confirmed the ICBM launch and said it was carried out through
protocols of the START Treaty.
Dutch
Fighter Jets Intercept 2 Russian Bombers in Their Airspace, CNN, Apr 23
Dutch
fighter jets scrambled Wednesday to intercept a pair of Russian military
aircraft that entered their airspace, a fairly routine action that comes amid
heightened tensions between Russia and NATO, a Dutch official said.
Maj.
Wilko Ter Horst said that the military learned around 3:50 p.m. (9:50 a.m. ET)
that two Russian TU-95 bombers, known as Bears, had come a half-mile inside its
airspace.
NATO
Boosts Presence in Eastern Europe as Turmoil Continues in Ukraine, Voice of
America, Apr 30
Turmoil
in eastern Ukraine continued Tuesday, a day after the United States and Europe
announced new sanctions against Russia for failing to take steps to de-escalate
the crisis in its neighbor to the west….NATO is boosting defense in member
nations bordering Russia to allay their growing concerns about Moscow's
territorial ambitions….
NATO
already has increased its air policing and naval presence in the Baltics. Last
week, 450 U.S. paratroopers were deployed in Latvia, Lithuania and Estonia, and
another 150 in Poland. NATO military exercises are taking place across the
region.
China,
Russia Military Ties Deepen With Naval Drill in East China Sea, The
Diplomat, May 2
On
Wednesday, China announced that it plans to hold joint naval drills with Russia
in the East China Sea later this month.
“These
drills are regular exercises held by China and Russia’s navies, and the purpose
is to deepen practical cooperation between the two militaries, to raise the
ability to jointly deal with maritime security
threats,” China’s Defense Ministry said in a statement published on its website…
“This
shows unprecedented good relations between China and Russia,” Professor Wang
Ning, director of the Center for Russian Studies at the Shanghai International
Studies University, told the New York Times about last year’s
drill. “It shows that the two countries will support each other on the global
stage.
Similarly,
numerous signs suggest that after a decade of ongoing talks, Russia and China
are in the final stages of negotiating a massive 30-year natural gas supply
deal.
Once
the deal is completed, according to Bloomberg News, Russia’s “Gazprom
plans to supply as much as 38 billion cubic meters of gas to China, about
24 percent of the company’s deliveries to Europe last year.”…
The two sides are hoping that the deal will be ready in time for Putin’s
trip to China on May 20, which will take place immediately prior to the joint
naval drills. [Italics and underline my own]
Russian
Strategic Bombers Flying Along California Coast, Breitbart, May 5
The
Associated Press reported Monday that Gen. Herbert Carlisle,
Commander of United States Air Forces in the Pacific, acknowledged a
significant increase in the activities by Russian long-range strategic aircraft
flying along the California coast.
There
was no comment about whether the aircraft were nuclear capable, but it has not
been since the Cold War ended in the early 1990s that Russian patrols have skirted
the West Coast and California.
US starts
countrywide nuclear drill after similar war games in Russia, RT, May 12
The
US Strategic Command, the agency responsible for country’s nuclear arsenal,
will hold large-scale war games this week that will include 10 B-52
Stratofortresses and up to six B-2 Spirit bombers, along with other military
and government agencies.
The
Boeing B-52 Stratofortress is a long-range, subsonic, jet-powered strategic
bomber built to carry nuclear weapons….
The
exercise will be conducted from May 12-16 and is set “to deter and detect
strategic attacks against the US and its allies,” the Strategic Command
said in a statement….
Though
the timing of the exercise was declared as “unrelated to real-world
events,” it does come on the heels of
the recent war games in Russia. Announced in November 2013,
military drills on countering nuclear strikes were overseen by President
Vladimir Putin ahead of the May 9 celebrations dedicated to victory in World
War II…
Last
week, NATO said it may permanently station additional troops in Eastern Europe
as a defensive measure against Moscow. Russia views this recent buildup of NATO
forces as a provocation and counterproductive in the struggle to deescalate
tensions in Ukraine.
NATO
Benefit to Ukraine in Question, Voice of America, May 15
The
crisis in eastern Ukraine has forced NATO for the first time since the collapse
of the Berlin Wall to increase its ability to defend the territorial integrity
of its 28-member states.
The measures taken include sending 600 American troops for military exercises
in the Baltic States and Poland.
In addition, the United States has dispatched 12 F-16 fighter jets to Poland….
Ear - Ukrainian
Leadership: Pro Neo-Nazi or Pro- Russian: Which Side?
Ukraine
Slides Deeper Toward War as Russia Warns on Vote, Bloomberg, May 15
Russia’s
foreign minister said Ukraine is sliding into a civil war that could make it
impossible to hold legitimate elections, as Ukrainian leaders and their
international allies
blamed Russia for the violence.
The
Kiev government and its U.S. and European Union allies blame Russia for the
unrest in Ukraine’s easternmost regions. Pro-Russian separatists there were excluded
from national unity talks that began yesterday in the capital to ease tensions
as a May 25 presidential vote looms. U.S. and EU leaders say they’ll
tighten sanctions on Russia if the ballot is disrupted. Lavrov said it’s
“ridiculous” to hold Russia responsible. [Italics mine]
John
McCain Went To Ukraine And Stood On Stage With A Man Accused Of Being An
Anti-Semitic Neo-Nazi, Business Insider, Dec 16 ‘13
If
you want a good picture of how complicated the situation in Ukraine is, look no
further than Senator John McCain's recent trip to Kyiv….
You
see, while the former presidential hopeful's weekend
trip was full of pro-Europe sound bites — "Ukraine will make Europe
better and Europe will make Ukraine better,” he told
a crowd in Kyiv's central Maidan square on Saturday — and warnings of stern
reactions from the U.S. should Ukraine use violence against the protesters,
there's another detail to it that might cause McCain fans at home some concern.
As
the
U.K.'s Channel 4 news points out, McCain was repeatedly photographed with
Oleh Tyahnybok, the leader of the right wing nationalist party Svoboda….
However,
the party's past is seriously murky. When it was founded in 1995, the party
called itself the Social-National Party of Ukraine (SNPU), and it had
a swastika-like logo. While it eventually split from its more right wing
members, the party remained focused on celebrating Ukrainian ethnic identity in
opposition to Russia and Communism.
Kerry: We
Stand With Ukraine’s People, Time, Feb 1 ‘14
Secretary
of State John Kerry met with Ukrainian government officials and opposition
leaders Saturday, voicing the United States’ support for the opposition’s goals
even as protests raged in Kiev and across the country.
On
the sidelines of the Munich Security Conference, Kerry told Ukrainian
opposition leaders Vitali Klychko, Arseniy Yatsenyuk, and Petro Poroschenko
that they have the backing of the United States.
The
United States supports the “democratic, European aspirations” of Ukrainians,
Kerry said, according to a senior State Department official, and endorses the
opposition leaders’ efforts “to defend democracy and choice for the people of
Ukraine.”
Neo-Nazi Threat in New
Ukraine, BBC Newsnight, Feb 28
BBC
Newsnight's Gabriel Gatehouse investigates the links between the new Ukrainian
government and Neo-Nazis.
The
U.S. Has Installed a Neo-Nazi Government in Ukraine, Global Research
Report, Chossudovsky, March 4
The
Western media has casually avoided to analyze the composition and ideological
underpinnings of the government coalition. The word “Neo-Nazi” is a taboo….
The
Cabinet is not only integrated by the Svoboda and Right Sector (not to mention
former members of defunct fascist UNA-UNSO), the two main Neo-Nazi entities
have been entrusted with key positions which grant them de facto control over
the Armed Forces, Police, Justice and National Security.
Andriy Parubiy is the
co-founder of the Neo-Nazi Social-National Party of Ukraine (subsequently
renamed Svoboda) was appointed Secretary of the National Security and
National Defense Committee (RNBOU)….
Parubiy was one of
the main leaders behind the Orange Revolution in 2004. His organization was
funded by the West. He is referred to by the Western media as the “kommandant”
of the EuroMaidan movement. Andriy Parubiy together with party leader Oleh
Tyahnybok is a follower of Ukrainian Nazi Stepan Bandera, who collaborated in
the mass murderer of Jews and Poles during World War II…
The World is at a dangerous crossroads: The structures and composition of this proxy government installed by the West do not favor dialogue with the Russian government and military. A scenario of military escalation leading to confrontation of Russia and NATO is a distinct possibility.
White
House: will not recognize 'illegal' Ukraine referendums, Reuters, May 12
The
United States does not recognize "illegal" referendums in eastern
Ukraine on self-rule and views them as a transparent attempt to create further
division and disorder in the country, the White House said on Monday.
"We
do not recognize the results," White House spokesman Jay Carney told
reporters.
"We're
disappointed that the Russian government did not use its influence to forestall
these referenda," Carney said.
Ukraine
separatists ask Russia to annex 'sovereign' area, USA Today, May 12
The
self-styled Donetsk People's Republic declared eastern Ukraine a
"sovereign state" Monday and called on Russia to annex the territory
following controversial referendums, RT.com reports.
The
referendums Sunday in the Donetsk and Luhansk provinces have been denounced by
the U.S., European Union and Kiev government.
"We
will try to cope with it on our own; we don't want this confrontation to
increase, especially on our territory," he said. "If the situation
deteriorates, we reserve the right to ask for a peacekeeping contingent."…
In
Brussels, the European Union council on Monday refused to recognize the
referendums in eastern Ukraine and broadened its sanctions list against Russia
to include 13 more people and two businesses, officials said.
Tail – China Holds
Both East & West, Aligns with Russia in Trade w/out Dollar
Bank
of England and People’s Bank of China Agree on London Yuan Clearing Hub,
International Business Times, April 1
Britain
and China have signed a deal to set up a yuan clearing service in London,
marrying future financial transactions between the Bank of England and
People's Bank of China….
"London
is already recognized, along with New York, as one of the biggest financial
centres globally. It has made a lot of progress positioning itself as a
renminbi hub. Frankfurt and Paris are following suit," Reuters quoted
Spencer Lake, global head of capital financing at HSBC, as saying.
Chancellor
George Osborne has been focusing on the world's second largest economy and has
been keen to open a yuan-trading hub in the capital city as the currency poses
stiff competition to the US dollar as a global medium of exchange.
Bundesbank,
PBOC in Pact to Turn Frankfurt into Renminbi Hub, Bloomberg Businessweek,
Mar 28 ‘14
Germany’s
Bundesbank and the Peoples Bank of China agreed to cooperate in the clearing
and settling of payments in renminbi, paving the way for Frankfurt to corner a
share of the offshore market.
Germany’s
financial capital prevailed over Paris and Luxembourg in a euro-area race to
win trade in renminbi, which overtook the euro to become the second-most used
currency in global trade finance in October, according to the Society for
Worldwide Interbank Financial Telecommunication.
“Frankfurt
is one of Europe’s foremost financial centers and home to two central banks,
making it a particularly suitable location,” said Joachim Nagel, a member of
the Bundesbank’s executive board. “Renminbi clearing will strengthen the close
economic and financial ties between Germany and the People’s Republic of
China.”
China
was Germany’s third-biggest foreign trade partner last year, with 140 billion
euros in turnover passing between the two countries, according to the Federal
Statistics Office in Wiesbaden. China ranks fifth among importers of German
goods and is the second-biggest exporter to Germany.
Russia’s
Gazprom, China Close to Gas Agreement, Hope To Sign in May-Report, Reuters,
April 9 ‘14
Russia's
Gazprom and China are close to reaching a landmark gas deal and Moscow hopes
the agreement will be signed next month, Itar-Tass news agency quoted Deputy
Prime Minister Arkady Dvorkovich as saying on Wednesday.
"Regarding
Gazprom's gas contract, the sides are close to agreement ... The only issue
remaining is ... the price," he said during a trip to China, adding that
Gazprom planned to discuss contract details with its partners on Wednesday.
"We
really hope that the contract will be signed in May."
40
Central Banks Are Betting This Will Be The Next Currency, Zero Hedge, April
8
As
we have discussed numerous times, nothing
lasts forever - especially reserve currencies - no matter
how much one hopes that the status-quo remains so, in the end the exuberant
previlege is extorted just one too many times. Headline after headlines shows
nations declaring 'interest' or direct discussions in diversifying away from
the US dollar... and as
SCMP reports, Standard Chartered notes that at least 40
central banks have invested in the Yuan and several more are preparing to do so.
Perhaps
most ominously, for king dollar, is the former-IMF manager's warning that
"The Yuan may become a de facto reserve currency before it is fully
convertible." [bold is authors]
Russia
Holds “De-Dollarization Meeting”: China, Iran Willing to Drop USD from
Bilateral Trade, Zero Hedge,
May
14
Voice of Russia reports citing Russian press sources that the country's Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is "ready to handle the increased number of ruble-denominated transactions".
According
to the Prime news agency, on April 24th the government organized a
special meeting dedicated to finding a solution for getting rid of the US
dollar in Russian export operations. Top level experts from
the energy sector, banks and governmental agencies were summoned and a number
of measures were proposed as a response for American sanctions against Russia…
None
of what Russia is contemplating would have any practical chance of
implementation if it weren't for other nations who would engage in USD-free
bilateral trade relations. Such countries, however, do exist and it should come
as a surprise to nobody that the two which have already stepped up are none
other than China and Iran….
In
other words, in one week's time look for not only the announcement of the
Russia-China "holy grail" gas agreement described previously
here, but its financial terms, which now appears virtually certain will be
settled exclusively in RUB and CNY. Not USD.
And as we have explained repeatedly in the past, the further the west antagonizes Russia, and the more economic sanctions it lobs at it, the more Russia will be forced away from a USD-denominated trading system and into one which faces China and India. Which is why next week's announcement, as groundbreaking as it most certainly will be, is just the beginning. [referring to Putin’s visits Beijing on May 20th surrounding the annual joint naval exercises between Russia and China in the South China Sea, and speculating that oil and gas contracts could be signed between the two nations, and the contracts will be denominated in rubles and yuan, not US dollars.]
Summary of “The Elephant”
I
know that this brief look across various media sources from the last 3 months
is overwhelming. It should be, especially in light of financial markets that
continue to yawn at all of this information, as though systemic risk at the
geopolitical, global banking, and economic levels have nothing to do with our
lives. In the words of Chairman Bernanke in September 2012, “if people feel
that their financial situation is better because their 401(k) looks better or
for whatever reason — their house is worth more — they're more willing to go
out and spend.”
And
when a society is driven by feelings and the desire to keep up an illusion,
even if for years we are told that it will take unlimited debt and market
intervention, it is always easier to believe that the longer manipulation goes
on, the longer it can go on.
We
can read and see signs of the dam cracking in front of us, and yet take no
action. Why should we? We have been
told “this time” the dam will not break, and our recent experience has only
reinforced this belief….until it doesn’t.
“As early as three
hundred years ago, the mathematician Pascal wrote, “ordinary people have the
ability not to think about things they do not want to think about.” [The
Journal of Behavioral Finance, Vol 6, Number 1, 2005, pg 28]
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