Post by elizabeth on Mar 8, 2014 7:28:54 GMT
Russian Economic Blackmail
March 07, 2014 | Tom Olago
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Is Russia adamant on returning to the dark days of the cold war between the U.S and former U.S.S.R? After breaching territorial rights and sovereign integrity in the Ukraine, Russia still expects to enjoy full impunity from International sanctions in what seems to be a “ stop me if you can” attitude. This now includes threats to “crash” the U.S financial system should Washington agree to sanctions against Moscow.
Moscow (AFP) quotes Kremlin economic aide Sergei Glazyev: "We would find a way not just to reduce our dependency on the United States to zero but to emerge from those sanctions with great benefits for ourselves.”
He also reportedly told the RIA Novosti news agency that Russia could stop using dollars for international transactions and create its own payment system using its "wonderful trade and economic relations with our partners in the East and South." Russian firms and banks would also not return loans from American financial institutions.
"An attempt to announce sanctions would end in a crash for the financial system of the United States, which would cause the end of the domination of the United States in the global financial system," he added. He said that economic sanctions imposed by the European Union would be a "catastrophe" for Europe, saying that Russia could halt gas supplies "which would be beneficial for the Americans" and give the Russian economy a useful "impulse".
Is this just a blast of hot air from someone keen to draw attention to himself, or could it be a reflection of Putin’s intentions to actually carry through with bullish control strategies in the name of safeguarding Russia’s interests in the Ukraine and Crimea, while resisting opposition at all costs?
Moscow (AFP) describes Glazyev as having long been seen as among the most hawkish of the advisors to President Vladimir Putin, but many observers have seen his hand in the apparent radicalization of policy on Ukraine since the overthrow of President Viktor Yanukovych.
Economists have long mocked his apocalyptic and confrontational vision of global economics but also expressed concern that he appears to have grown in authority in recent months. RIA Novosti however reports a high ranking Kremlin source saying that Glazyev was speaking in the capacity of an "academic" and his personal opinion did not reflect the official Kremlin policy.
So what exactly is the “official Kremlin policy” here? That doesn’t seem to have been clarified. Glazyev wants Russia to abandon the U.S dollar as a reserve currency and depend on what they consider possible alternatives. Is it possible that Russia could actually execute this, or other economic reactions that could seriously hurt or even crash the U.S economy?
After all, Putin is not known to be easily intimidated - and it could not have been lost on him that the world wasn’t exactly going to praise and cheer Russia’s aggressive and bullish tactics against the Ukraine and Crimea- yet that didn’t stop him.
Jeremy Warner, in a recent report for the Telegraph, thinks that an attempt by Russia to crash the U.S economy or use economic blackmail against the U.S wouldn’t be very smart and is far more likely to instead backfire on Russia.
However the plan to initiate sanctions against Russia isn’t a very good one in the first place. Says Jeremy: “… everyone would lose from such action. Europe would be pushed back into recession, Russia into financial meltdown. This is not the sort of self harm Europe is prepared to contemplate right now”.
However, regarding Russia’s proposed economic retaliation he states: “…I've written before about the inevitability of decline for the dollar as the world's major reserve currency, but this process is on a very long fuse and basically depends on China eventually displacing the US as the world's largest economy. That's not going to happen any time soon.
In the meantime, the dollar remains overwhelmingly the currency of choice for international transactions, and is the middle currency in virtually all transactions. ..The US dollar is also the pricing currency for virtually all commodity transactions, including crucially, oil.
Repeated attempts to set up alternative pricing arrangements have all come to nothing. Then finally, more than 60 per cent of the world's central bank foreign currency reserves are held in dollars. The euro, the next biggest reserve currency, comes nowhere close. This is not about to change. In other words, Russian threats are as vacuous as Western ones.”
Well said, but the U.S shouldn’t breathe that great sigh of relief just yet. Even if any Russian economic backlash is nothing for the U.S to worry about, there is still another source of even greater concern: China.
Tyler Durden of zerohedge.com expounds: “Chinese Treasury holdings plunged by the most in two years, after China offloaded some $48 billion in paper, bringing its total to only $1268.9 billion, down from $1316.7 billion, and back to a level last seen in March 2013…This was the second largest dump by China in history with the sole exception of December 2011.
That this happened at a time when Chinese FX reserves soared to all time highs, and when China had gobs of spare cash lying around and not investing in US paper should be quite troubling to anyone who follows the nuanced game theory between the US and its largest external creditor, and the signals China sends to the world when it comes to its confidence in the US.
Yet what was truly surprising is that despite the plunge in Chinese holdings, and Japanese holdings which also dropped by $4 billion in December, is that total foreign holdings of US Treasury’s increased in December, from $5716.9 billion to 5794.9 billion.
How did the US pull off this “Houdini” type survival trick? “Belgium” seems to have come to Uncle Sam’s rescue. Certain observers speculate that Belgium seems to have been the codename used for Europe, which seems to have secretly made some kind of deal to accommodate bailing out the U.S in this instance, despite Europe’s own current financial distresses.
On this issue, Koinonia House reports that despite these developments, “… it isn’t the end of the world, just a portent of what can happen when the biggest buyer of America’s biggest export — its IOUs denominated in dollars — stops buying…while China was dumping U.S. debt, Belgium (read that the European Union) was buying it.
Did the EU see a good deal when dollars came on the market or was the decision made to prop up the dollar to prevent a panic?
If a deal was made, it would be interesting to know what the quid pro quo was to seal the deal. It was a good thing that the EU did buy the debt because if it hadn’t, the Federal Reserve would have had to buy the dollars, printing up more fiat currency, Zimbabwe-style.”
China’s concern has been the $800 billion gap between the $1.1 trillion the Treasury is borrowing to cover the budget gap and the roughly $300 billion overseas investors are buying. The gap has to be filled by printing more paper money, called debt monetization, or in politician-speak “quantitative easing.”
Koinonia further quotes economist Kimberly Amadeo: “Having pushed interest rates to zero, launched QE1 and QE2 (QE being quantitative easing), there’s no reason to believe that the Fed is going to allow free-market forces to destroy the fragile recovery it has worked so hard to coax forth now.
And make no mistake, at $800 billion, allowing the markets to resolve the shortfall in demand would send rates to levels that would absolutely quash this recovery…if not send the economy in a real depression.” Kimberly sees the solution to this mess as the Fed’s putting an end to the 40-year-old party of unrestrained U.S. spending since the Bretton Woods Agreement.
How likely is this to happen? Koinonia’s view is pessimistic but largely expected if history is any indication: “As far as the United States is concerned, the printing presses will keep humming. Fiscal reforms such as the Simpson-Bowles are ignored.
At the same time, fiscal policy is heading for a cliff of excessive, haphazard belt-tightening beginning in 2013, including the end of the Bush-era tax cuts. That will throttle growth — and make the deficit worse. QE3, QE4, QE5, etc. will follow. It won’t be the end of the world, but it just could be the end of the dollar’s preeminence and a substantial change in life for the United States.”
Just how substantial remains to be seen, but if the state of the current economy is any indication, things will only get a lot worse before they ever start to get better.
Source: click here
“Fair Use For Educational or Discussion Purposes”
March 07, 2014 | Tom Olago
Share this article
Is Russia adamant on returning to the dark days of the cold war between the U.S and former U.S.S.R? After breaching territorial rights and sovereign integrity in the Ukraine, Russia still expects to enjoy full impunity from International sanctions in what seems to be a “ stop me if you can” attitude. This now includes threats to “crash” the U.S financial system should Washington agree to sanctions against Moscow.
Moscow (AFP) quotes Kremlin economic aide Sergei Glazyev: "We would find a way not just to reduce our dependency on the United States to zero but to emerge from those sanctions with great benefits for ourselves.”
He also reportedly told the RIA Novosti news agency that Russia could stop using dollars for international transactions and create its own payment system using its "wonderful trade and economic relations with our partners in the East and South." Russian firms and banks would also not return loans from American financial institutions.
"An attempt to announce sanctions would end in a crash for the financial system of the United States, which would cause the end of the domination of the United States in the global financial system," he added. He said that economic sanctions imposed by the European Union would be a "catastrophe" for Europe, saying that Russia could halt gas supplies "which would be beneficial for the Americans" and give the Russian economy a useful "impulse".
Is this just a blast of hot air from someone keen to draw attention to himself, or could it be a reflection of Putin’s intentions to actually carry through with bullish control strategies in the name of safeguarding Russia’s interests in the Ukraine and Crimea, while resisting opposition at all costs?
Moscow (AFP) describes Glazyev as having long been seen as among the most hawkish of the advisors to President Vladimir Putin, but many observers have seen his hand in the apparent radicalization of policy on Ukraine since the overthrow of President Viktor Yanukovych.
Economists have long mocked his apocalyptic and confrontational vision of global economics but also expressed concern that he appears to have grown in authority in recent months. RIA Novosti however reports a high ranking Kremlin source saying that Glazyev was speaking in the capacity of an "academic" and his personal opinion did not reflect the official Kremlin policy.
So what exactly is the “official Kremlin policy” here? That doesn’t seem to have been clarified. Glazyev wants Russia to abandon the U.S dollar as a reserve currency and depend on what they consider possible alternatives. Is it possible that Russia could actually execute this, or other economic reactions that could seriously hurt or even crash the U.S economy?
After all, Putin is not known to be easily intimidated - and it could not have been lost on him that the world wasn’t exactly going to praise and cheer Russia’s aggressive and bullish tactics against the Ukraine and Crimea- yet that didn’t stop him.
Jeremy Warner, in a recent report for the Telegraph, thinks that an attempt by Russia to crash the U.S economy or use economic blackmail against the U.S wouldn’t be very smart and is far more likely to instead backfire on Russia.
However the plan to initiate sanctions against Russia isn’t a very good one in the first place. Says Jeremy: “… everyone would lose from such action. Europe would be pushed back into recession, Russia into financial meltdown. This is not the sort of self harm Europe is prepared to contemplate right now”.
However, regarding Russia’s proposed economic retaliation he states: “…I've written before about the inevitability of decline for the dollar as the world's major reserve currency, but this process is on a very long fuse and basically depends on China eventually displacing the US as the world's largest economy. That's not going to happen any time soon.
In the meantime, the dollar remains overwhelmingly the currency of choice for international transactions, and is the middle currency in virtually all transactions. ..The US dollar is also the pricing currency for virtually all commodity transactions, including crucially, oil.
Repeated attempts to set up alternative pricing arrangements have all come to nothing. Then finally, more than 60 per cent of the world's central bank foreign currency reserves are held in dollars. The euro, the next biggest reserve currency, comes nowhere close. This is not about to change. In other words, Russian threats are as vacuous as Western ones.”
Well said, but the U.S shouldn’t breathe that great sigh of relief just yet. Even if any Russian economic backlash is nothing for the U.S to worry about, there is still another source of even greater concern: China.
Tyler Durden of zerohedge.com expounds: “Chinese Treasury holdings plunged by the most in two years, after China offloaded some $48 billion in paper, bringing its total to only $1268.9 billion, down from $1316.7 billion, and back to a level last seen in March 2013…This was the second largest dump by China in history with the sole exception of December 2011.
That this happened at a time when Chinese FX reserves soared to all time highs, and when China had gobs of spare cash lying around and not investing in US paper should be quite troubling to anyone who follows the nuanced game theory between the US and its largest external creditor, and the signals China sends to the world when it comes to its confidence in the US.
Yet what was truly surprising is that despite the plunge in Chinese holdings, and Japanese holdings which also dropped by $4 billion in December, is that total foreign holdings of US Treasury’s increased in December, from $5716.9 billion to 5794.9 billion.
How did the US pull off this “Houdini” type survival trick? “Belgium” seems to have come to Uncle Sam’s rescue. Certain observers speculate that Belgium seems to have been the codename used for Europe, which seems to have secretly made some kind of deal to accommodate bailing out the U.S in this instance, despite Europe’s own current financial distresses.
On this issue, Koinonia House reports that despite these developments, “… it isn’t the end of the world, just a portent of what can happen when the biggest buyer of America’s biggest export — its IOUs denominated in dollars — stops buying…while China was dumping U.S. debt, Belgium (read that the European Union) was buying it.
Did the EU see a good deal when dollars came on the market or was the decision made to prop up the dollar to prevent a panic?
If a deal was made, it would be interesting to know what the quid pro quo was to seal the deal. It was a good thing that the EU did buy the debt because if it hadn’t, the Federal Reserve would have had to buy the dollars, printing up more fiat currency, Zimbabwe-style.”
China’s concern has been the $800 billion gap between the $1.1 trillion the Treasury is borrowing to cover the budget gap and the roughly $300 billion overseas investors are buying. The gap has to be filled by printing more paper money, called debt monetization, or in politician-speak “quantitative easing.”
Koinonia further quotes economist Kimberly Amadeo: “Having pushed interest rates to zero, launched QE1 and QE2 (QE being quantitative easing), there’s no reason to believe that the Fed is going to allow free-market forces to destroy the fragile recovery it has worked so hard to coax forth now.
And make no mistake, at $800 billion, allowing the markets to resolve the shortfall in demand would send rates to levels that would absolutely quash this recovery…if not send the economy in a real depression.” Kimberly sees the solution to this mess as the Fed’s putting an end to the 40-year-old party of unrestrained U.S. spending since the Bretton Woods Agreement.
How likely is this to happen? Koinonia’s view is pessimistic but largely expected if history is any indication: “As far as the United States is concerned, the printing presses will keep humming. Fiscal reforms such as the Simpson-Bowles are ignored.
At the same time, fiscal policy is heading for a cliff of excessive, haphazard belt-tightening beginning in 2013, including the end of the Bush-era tax cuts. That will throttle growth — and make the deficit worse. QE3, QE4, QE5, etc. will follow. It won’t be the end of the world, but it just could be the end of the dollar’s preeminence and a substantial change in life for the United States.”
Just how substantial remains to be seen, but if the state of the current economy is any indication, things will only get a lot worse before they ever start to get better.
Source: click here
“Fair Use For Educational or Discussion Purposes”
