Authored by Zac Moffatt via RealClear Wire,

The results of the 2022 midterms will be dissected endlessly. But among the political ramifications is a very important question for American business executives: With Big Business increasingly involved in political debates (and usually taking sides against Republicans), how will the relationship between the two change under a new GOP House majority?

One answer is that companies should be ready for a wake-up call. This Republican majority will be more populist and less deferential to massive corporations than any that has come to power in the past. Never has the disconnect between executives, employees, and customers been so apparent.

In the coming months, it’s vital for C-suite executives to eliminate their cultural and political blind spots by bringing new voices to their boardrooms – voices belonging to people who see the world differently than they do.

Until now, business has taken Republicans’ relative friendliness for granted. Too often they’ve given into pressure from outside liberal activists or their own left-of-center employees, and taken sides against conservatives, putting themselves at odds with half the country’s consumers – or more.

Republican politicians are now fighting back, using the levers of government to treat these companies as the political actors they become once they enter the arena. Companies should know this and prepare themselves for this new paradigm. They should understand that if they want to be in the political arena, that’s okay. But there’s now liable to be a cost. For one thing, if they behave like political adversaries, Republicans will increasingly treat them as such.

I’ve spent two decades in Republican politics, helping build the largest center-right digital advocacy firm in America that activates grassroots supporters for campaigns and corporations. I’ve seen companies deftly navigate political thickets. I’ve also seen them step on massive landmines.

Chick-fil-A and Patagonia are two brands that couldn’t be more opposite ideologically. Yet surveys show they’re both among the most respected companies in the country. Chick-fil-A’s Midtown Manhattan location is New York’s busiest lunchtime restaurant, while the iconic Patagonia vest is practically ubiquitous among conservative millennials.

How could this be? One answer is disarmingly simple: People don’t mind if you pick a side; they mind if you pick and choose sides depending on the prevailing winds. They mind if you’re craven about your firm’s politics. Conservative Chick-fil-A and progressive Patagonia are the opposite of cynical. They are sincere and quite clear about where they stand – and it shows in all they do. People may not agree with them, but they respect them.

It’s when companies are reactive and impulsive that they get into trouble and alienate their customers. The playbook is well-known. The left and its Twitter mobs spin up companies by claiming the debate of the day is really about “democracy itself,” “civil rights,” or some other rhetoric that raises the stakes, compelling corporate involvement in political fights that have little, if anything, to do with a company’s core business.

We saw this at play with Major League Baseball and Delta Airlines during the battle over Georgia’s election reform bill. Then, when the sky doesn’t fall – or, in that case, when voter turnout doubles after the law passes, Chicken Little becomes The Boy Who Cried Wolf.

I’m sympathetic to those in the C-suite. Imagine you’re sitting in your office one day and suddenly you’re thrust into the middle of a massive political debate. Whatever you need to do to stop the noise seems like the smartest and most rational thing to do. But the liberal online mob in your Twitter mentions doesn’t care about your company. You are a means to an end, a tool to achieve their political goals. If you fold, they’ll come after you again down the line.

Companies need to escape their own bubbles. Too many of them have a reinforcing feedback loop. They focus solely on physical diversity, but not enough on diversity of thought. Wouldn’t it give a CEO pause if they looked around the boardroom and found everyone agreeing with them on business decisions? Shouldn’t it be the same when it comes to wading into political or social debates?

Half the country voted Republican on Nov. 8. The same was true in 2020. C-suite executives need to ask themselves who they regularly talk to that can credibly speak for these voters. And are they doing this proactively, before a problem lands on their lap?

It’s good to stand for something, but a mission doesn’t have to be political. It can simply be making a better product or delivering the best value for shareholders. Decide on it, make it consistent with the business, then ensure it permeates the organization.

For instance, I took a stance that my company is better working together, in person and not solely from our couches. As we emerged from COVID, we committed ourselves to that mission. Today, all 400 of us are in the office working collaboratively once again.

Remember, the next political fight is almost never “the issue of our time.” And no, whatever is in a company’s Twitter mentions probably isn’t “a threat to democracy.” In the end, people want to know that a company does what it’s meant to do. It’s about your product, not your politics.

Director of National Intelligence Avril Haines has revealed the United States intel community’s current assessment that it expects the intensity of the Ukraine-Russia war to wane going into the winter months, only to ramp-up again during counteroffensives in the spring.

“Once you get past the winter, the sort of question is: What will the counteroffensive look like?” Haines said before the Reagan Defense Forum in Simi Valley, California on Saturday. “We expect that, frankly, both militaries are gonna be in a situation where they’re gonna be looking to try to refit, resupply, in a sense, reconstitute, so that they’re kind of prepared for that counteroffensive.”

“But we actually have a fair amount of skepticism as to whether or not the Russians will be, in fact, prepared to do that,” she continued. “And I think most optimistically for the Ukrainians in that time frame.”

Likely US intelligence’s “skepticism” over Russian forces’ capabilities at this point is related to being beat back in parts of the Donbas over the last two months, and particularly with last month’s recapturing of the city of Kherson after Moscow ordered a large-scale pullback. 

She further assessed that while the cold winter months will have a greater impact on Russians’ morale, she hasn’t seen the Ukrainian side lost their will, despite devastating missile attacks on the national energy grid meant to impose additional collective suffering.

“They’re doing this in order to undermine the Ukrainian will in effect, and I think we’re not seeing any evidence of that being undermined right now at this point,” she said.

Additionally she underscored that Putin is at this point more keenly aware of Russian forces’ “lack of performance and the fact that they did not accomplish more” but yet still may not be fully accepting of “just how challenged they are” – particularly the poor performance of ammo supply and logistics lines.

Speaking of Putin’s chief objectives in the Ukraine invasion, Haines posed, “The challenge is, what does that mean for his near term [and] are they going to be as expansive as they were at the beginning?”

For a contrasting take…

#Russian reinforcements on the way to confront #NATO in #Ukraine. Russia knows how to fight in winter. pic.twitter.com/YnOZOIMHfk

— tim anderson (@timand2037) December 2, 2022

…however, Ukraine’s Defense Ministry says:

If anyone thinks that war will “freeze” in the winter, they are mistaken. russia wants to destroy us.
We want to live freely.
No time for compromises. pic.twitter.com/ojCfLfGWmZ

— Defense of Ukraine (@DefenceU) December 2, 2022

Haines questioned further, “Or does he at some point recognize that he’s incapable of doing what it is he intended to originally and sort of downscale what it is that he’s willing to accept?”

Authored by MN Gordon via EconomicPrism.com,

Personal and political freedoms are inseparable from economic freedom.  To this end, economic freedom is contingent upon an economy that transacts using honest money that’s free from coercion.

Volumes have been written on America’s experience with money of varying veracity.  Here we’ll touch on a few key events.

Article I, Section 8, of the U.S. Constitution empowers Congress to coin money and regulate its value thereof.  Article I, Section 10, specifies that no state shall make anything but gold and silver coin a tender in payments of debts.

The Federal Reserve Act of 1913, passed by the 63rd Congress and signed into law by President Woodrow Wilson on December 23, 1913, established the Federal Reserve System, the central bank of the United States.  The Federal Reserve Act also delegated the right to issue money from Congress to the Federal Reserve.

In this regard, the current U.S. dollar, a Federal Reserve Note, is illegal money.  It is issued by the Federal Reserve – not Congress – in direct violation of the U.S. Constitution.  Moreover, when states collect tax dollars that are devoid of gold or silver coin, they violate the Constitution.

Economic freedom has been greatly undermined by Washington over the years.  Executive Order 6102 of 1933, for example, forced all American citizens to turn in gold coins and bars.  Gold ownership in the United States, with some small limitations, was illegal for the next 40 years.

Economic freedom was again undermined when President Nixon “temporarily” suspended the convertibility of the dollar into gold in 1971.  This action removed any remaining protection workers and savers had against their hard-earned dollars being inflated away.

But now, as the year 2022 nears its close, another extremely destructive event approaches…

Proof of Concept Project

Over the last 110 years economic freedom in the United States, as in the world, has been in decline.  Through a continuing process of debasement, the Fed has inflated away 96 percent of the dollar’s value.

In other words, today it takes $1 to buy the equivalent of what $0.04 could buy in 1913.  This is a downright disgrace.

Yet over this time, the paper dollar did preserve some modicum of economic freedom.  Payments in cash provide some level of privacy in what you’re buying and selling.  Specifically, the government is unable to readily trace and monitor transactions conducted using cash.

This soon may change…

Have you ever heard of something called the New York Innovation Center?  On November 15, the Federal Reserve Bank of New York published a very important press release.  Here’s a key excerpt:

“The Federal Reserve Bank of New York today announced that its New York Innovation Center (NYIC) will participate in a proof-of-concept project to explore the feasibility of an interoperable network of central bank wholesale digital money and commercial bank digital money operating on a shared multi-entity distributed ledger.

“This U.S. proof-of-concept project is experimenting with the concept of a regulated liability network.  It will test the technical feasibility, legal viability, and business applicability of distributed ledger technology to settle the liabilities of regulated financial institutions through the transfer of central bank liabilities.”

This, without question, marks a significant step in the Fed’s efforts to rollout a Central Bank Digital Currency (CBDC).  The project, as we understand it, will inform how the Fed intends to work with actual banks to introduce a digital dollar.  This digital dollar would ultimately replace the paper dollar and would eliminate the privacy of cash payments.

Traceable and Programmable

David Haggith, publisher and editor-in-chief of The Great Recession Blog, has been closely covering the rapidly approaching advent of CBDCs and digital dollars for several years.  Haggith recently offered the following perspective as to the significance of what’s at stake:

“We’re on the brink of a dramatic change where we’re about to — and I’ll say this boldly — we’re about to abandon the traditional system of money, and accounting, and introduce a new one….  The new accounting is what we call ‘blockchain.’  It means digital.  It means having an almost perfect record of every single transaction that happens in the economy, which will give us far greater clarity over what’s going on…. It also raises huge dangers in terms of the balance of power between states and citizens.”

What you must understand is the adoption of a digital dollar by the U.S. government would be one of the greatest expansions of federal power ever made.  You also must understand that a digital dollar would be much different than a cryptocurrency like bitcoin, which is decentralized and has limitations on its ultimate quantity.

The key distinction is that Fed issued digital dollars would be traceable and programmable and would be integrated with the Fed and private banking.  Specifically, digital dollars would be programmed to have various rules and restrictions governing how and when they are spent.

We know from the executive order released by the Biden administration on March 9, which required several federal agencies to study digital currencies and to identify ways to regulate them, that CBDCs and other policies governing digital assets must mitigate “climate change and pollution” and promote “financial inclusion and equity.”

What does this mean, exactly?

At the World Economic Forum (WEF) earlier this year, one zealous central planner clearly stated that the intent of traceable and programmable CBDCs is to monitor, “where you are traveling, how you are traveling, what you are eating, what you are consuming – individual carbon footprint tracker.”

Will Your State Reject the Fed’s Digital Dollar?

U.S. government debt is now over $31 trillion.  Tack on unfunded liabilities like social security, Medicare, federal debt held by the public, and federal employee and veterans’ benefits, and the government debt number jumps to over $172 trillion.

What’s more, trillion-dollar deficits year after year imply that the government is borrowing money to pay the interest on the debt.  At this point, there really is no honest way for Washington to ever repay all this debt.

The tracking features of CBDCs are very appealing to central planners and government control freaks.  But we believe what’s compelling the urgency of a Fed issued digital dollar is the elaborate cover its rollout will provide.  The introduction of a digital dollar can and will be used as a means to obscure an outright default.

Your account may get credited with digital dollars at rollout.  However, these new digital dollars will come at a price.  We’re not entirely clear on what that is.  But we think it’ll involve a loss of value that’s proportional to the insane levels of debt that Washington’s on the hook for.

In short, this is a last-ditch effort by Washington to mask a government default.  If you don’t own any physical gold and silver yet…, what are you waiting for?  Don’t overcomplicate things.  Go to your local coin shop and pick up a few coins today.

Meanwhile, as the NYIC figures out just how to go about introducing the digital dollar, some states are figuring things out too.  In fact, certain states may not be too keen on a Fed issued – traceable and programmable – digital dollar.

Utah, Nevada, Wyoming, and New Hampshire are already issuing “gold-backs.”  These are privately issued notes that contain actual gold.  They are accepted in these states under their respective legal tender laws, which provides for the adoption of gold and silver as legal tender by the state.

Here in the Volunteer State, Tennessee State Senator Frank Niceley has some ideas too.  He recently chatted with former U.S. Assistant Secretary of Housing and Urban Development, Catherine Ausin Fitts, about the strengths and benefits of a Sovereign State Bank modeled on North Dakota.

Niceley’s intent for a Tennessee Sovereign State Bank is to also include a state bullion depository and provide local banks and credit unions support to counter the threat of a Fed issued digital dollar.

There’s a lot to be worked out, of course.  Nonetheless, it’s about time state and local jurisdictions stood up to Washington and the Fed.  Developing gold-based local alternatives to the Fed’s digital dollar is a start.

Your economic, personal, and political freedoms depend on it.

*  *  *

The window to protect your wealth and financial privacy is closing.  And it’s closing quick.  I don’t like it one bit.  But I’m not going to stand around powerless as Washington’s control freak sociopaths destroy everything I’ve worked so hard for.  For this reason, I’ve dedicated the past 6-months to researching and identifying simple, practical steps everyday Americans can take to protect their wealth and financial privacy.  The findings of my work are documented in the Financial First Aid Kit.  If you’d like to find out more about this important and unique publication, and how to acquire a copy, stop by here today!

After much worrying about the effects of war on the country’s food production, Ukraine’s 2022 wheat harvest far exceeded forecasts — but Russia took a billion-dollar share in the occupied east — according to analysis of satellite imagery by NASA Harvest, an international consortium that uses satellite technology to advance food security. 

“Our satellite-based production numbers for the 2022 winter wheat crop in Ukraine make clear that farmers had a largely successful harvest,” said NASA Harvest program director Inbal Becker-Reshef.

Analysts calculated that farmers throughout Ukraine harvested 26.6 million tons of wheat this year, which is several million tons higher than forecasted. 

“That’s down from the previous year’s record harvest of 33 million tons, but it’s close to the five-year average of 27.9 million tons,” said Becker-Reshef.

When Russia launched its invasion, some observers warned that perhaps only 70 to 80% of the winter crop would be harvested by summer’s end. However, NASA Harvest concluded that 94% of the crop was reaped. 

With the war obscuring what’s happening on the ground, the satellite analysis offers a means of observing agricultural activity from a safe distance. “The risks on the ground during the war have made the NASA Harvest monitoring system one of the only safe and reliable ways for researchers to track what is happening to crops in Ukraine,” said NASA scientist Sergii Skakun.

NASA Harvest uses satellite observations and modeling to gauge the cultivation and harvesting of key crops. Crop status can be discerned by studying colors, with unharvested fields appearing dark brown and harvested fields appearing light brown. 

Unsurprisingly, analysts found that the unharvested wheat is concentrated along the principal battle lines. 

While the analysis is full of good news for the world’s agriculture consumers, it contains a sobering stat for the Ukraine government: A whopping 22% of the wheat was harvested in the Russian-occupied east. That’s about 5.8 million tons worth at least $1 billion, according to NASA Harvest partner Abdolreza Abbassian. 

HarvEast, a principal Ukraine agricultural firm, tells Bloomberg that all of the winter crops it planted in Donetsk were harvested and sold off. 

“This year, winter wheat gave a very high yield for this region due to favorable weather conditions,” says HarvEast Chief Executive Officer Dmitry Skornyakov.  “Everything that was harvested on our fields was stolen and exported from Ukraine.”

Bloomberg cites an unnamed prosecutor in Switzerland who cautions that selling looted grain may be considered a war crime.  

Two weeks ago, oil tumbled after the WSJ reported a fake news hit piece quoting “delegates” who “said” that Saudi Arabia was preparing for a 500K oil production hike. We quickly countered that this was ridiculous and if anything OPEC+ would seek further production cuts, a view which other media promptly quickly picked up. In the end, the report of an output hike (which some interpreted as a gesture of good will from Saudi crown prince MBS who had just received immunity from the Biden regime), proved to be indeed fake news, but likewise any expectations of further output cuts were dashed when earlier on Sunday OPEC+ agreed to stick to its oil-output targets just two days after G-7 nations agreed to a $60 price cap on Russian oil, despite mounting concerns about oil demand as the world in swept up by a global recession and as new Covid-related lockdowns in China and lingering uncertainty over Russia’s ability to export crude have sent the price of oil sliding.

During a virtual meeting, OPEC+ decided to rollover the production cuts of 2 million barrels a day initially agreed to in October, a move which will allow the group time to assess the market impact of the price cap on Russian oil, the delegates said.

Brent crude plunged to its lowest level since September on Nov. 28, but ended up posting its biggest weekly gain in a month.

“With massive and offsetting fundamental and geopolitical risks bearing down on the oil market, ministers understandably opted to hold steady and hunker down,” said Bob McNally, president of Rapidan Energy Advisers LLC.

Meanwhile, Brent crude closed at $85.42 on Friday, and West Texas Intermediate, the U.S. benchmark, was at $80.34, far below the $90-a-barrel level where some oil-market analysts say the group wants to see prices. Prices have come under downward pressure from Chinese Covid-19 lockdowns that have prompted concerns in OPEC of weakening oil demand.

Oil prices fell Friday after the EU agreed to the cap, as traders discounted fears the mechanism will force much Russian oil out of the market and cause a supply issue. In the end, however, it is all just posturing and the status quo remains as Russia will still sell oil to its traditional customers China and India, who will then resell some of this product to Europe and other nations.

It’s unclear to what extent those measures will curtail Russian exports. The price cap is comfortably above the $50 that the country’s flagship Urals grade of crude currently trades at, according to data from Argus Media. Yet Moscow has said it would rather cut production than sell oil to anyone that adopts the price cap. Speaking on Russian TV, Deputy Prime Minister Alexander Novak said the country will operate strictly in line with market conditions: “We will sell oil and oil products to the countries that will work with us based on market conditions, even if that means we’ll have to somewhat reduce output.” Russia is “not going to use tools linked to the price cap” and is “working on a mechanism banning adoption of the price cap tools, irrespective of what level will be set.”

Russian crude has traded at a steep discount this year, with Argus Media, which assesses commodity prices, pegging the price at about $48 a barrel.

The US and its G7 allies designed the price to cut into Moscow’s oil revenues while keeping Russian oil, a key part of global supply, available on the market, which of course is ridiculous, and is just an attempt by Europe at virtue signaling optics while eating its Russian oil cake too. It aims to take advantage of the concentration of key maritime services in the West to try to curb Moscow’s ability to wage war in Ukraine.

As Bloomberg notes, with these powerful forces poised to push oil markets in unpredictable directions, OPEC watchers said the group’s decision was understandable.

“OPEC+ rolled over the existing quotas as expected amid uncertainty around Russian flows following the price cap, and a weaker China,” said Amrita Sen, chief oil analyst and co-founder at consultant Energy Aspects Ltd. “The group will continue to monitor markets and should fundamentals deteriorate they will meet prior to June — currently the scheduled next ministerial meeting.”

The decision by OPEC+ should hold for at least a few months. The group’s Joint Ministerial Monitoring Committee, led by Saudi Arabia and Russia, will meet again in June. The outlook could be clearer by then, and the panel has the power to call extraordinary meetings if it thinks output policy may need to change; OPEC said it was ready “to meet at any time and take immediate additional measures to address market developments” if needed. Until then three major forces will determine the future path of oil prices: a global economic slowdown which will seek to keep a lid on oil demand, and speculation about the date of China’s reopening which many believe will send oil prices sharply higher. Indeed, as Bloomberg notes, as OPEC+ ministers convened their video conference, officials in Shanghai had just eased some of their Covid restrictions, joining other top-tier Chinese cities as authorities accelerate a shift toward reopening the economy after thousands of demonstrators took to the streets.

A far bigger, and longer-term driver, however is the continued lack of capital spending to boost an aging E&P infrastructure which means that over the next 5 to 10 years, oil will become increasingly scarce in a world where western government are openly hostile toward legacy energy companies.

It turns out it isn’t just Jefferies, as we noted days ago…

In fact, all major banks across Wall Street look ready to “slash” bonuses for the upcoming holiday season, marking a direct pivot from the lavish bonuses they offered up last year, according to multiple sources. 

Bonus pools could be cut as much as 30% at banks like JP Morgan and Bank of America this year due to a slowdown in dealmaking and a tightening economic picture. 

Blooomberg noted this week that investment bankers could wind up getting hit the hardest: revenues for banks could be lower by 50% in 2023. Lower tier employees may see no bonuses at all, follow up reporting by the NY Post noted. 

At Goldman, the Post says traders are also facing cuts to their bonus pools despite the global markets division of the bank raking in $25 billion in 2022. Traders were informed their bonus pool would be cut by “a low double digit percentage” last week.

Some bankers could see bonuses cut as much as 45%, the report speculates. Many are just thankful to be keeping their jobs, it adds. 

Recall, days ago we noted that bankers at Jefferies are also being told to expect smaller bonuses. The firm has warned its staff that 2022 is going to be a “difficult compensation season”.

Jefferies chief executive Rich Handler and president Brian Friedman penned a memo that went out to employees last week, claiming that due to the bank’s aggressive hiring over the last 3 years, in combination with slumping deals, that bonuses would come in lighter than normal.

The letter says: “As always, we will do the right thing for the long-term success of everyone at Jefferies and to continuously invest in our people and our firm, so we can continue to build and prosper. Let’s just spell it out here: ‘This is going to be a more difficult compensation season at Jefferies, just like it will be for every firm in our industry.'”

It continues: “2019 was a decent year for Jefferies and our industry. Despite Covid, 2020 was a very good year and we all know 2021 was the type of year that comes along very rarely in a finance professional’s career.”

Authored by by Kyle Anzalone via The Libertarian Institute,

Ukrainian President Volodymyr Zelensky announced he is seeking to ban all religions with ties to Russia. He claims the move is needed to “guarantee spiritual independence to Ukraine.” This law will target millions of Ukrainians who identify as Russian Orthodox.

During his nightly address on Thursday, Zelensky announced he was introducing legislation that would eliminate religious organizations affiliated with Russia from operating in Ukraine. He said this will make “it impossible for religious organizations affiliated with centers of influence in the Russian Federation to operate in Ukraine.”

The Ukrainian leader said it was necessary to purge the church to preserve the country’s spiritual independence. Adding, “We will never allow anyone to build an empire inside the Ukrainian soul.” Zelensky denounced Ukrainians continuing to attend the parishes as failing to overcome “the temptation of evil.”

He claimed a series of recent raids by Kiev’s intelligence found orthodox churches which remain connected with the Moscow Patriarchate have been acting as operatives for the Kremlin. In his address, Zelensky instructed his security forces to further target Russian Orthodox parishes.

At least two-thirds of Ukrainians identify as Eastern Orthodox Christians. At one point, the majority of Ukrainians attended parishes that followed the Moscow Patriarchate.

Some recent polls say that number has dwindled to under 15%. However, the polling was only conducted in territory that was controlled by Ukrainian forces. Zelensky has vowed to return those regions to Kiev’s authority.

Dmitry Medvedev, deputy chairman of the Russian Security Council, responded by slamming Zelensky’s move as authoritarian. “The current Ukrainian authorities have openly become enemies of Christ and the Orthodox faith,” he said.

Authored by Caitlin Johnstone via caitlinjohnstone.com,

NATO has doubled down on its determination to eventually add Ukraine to its membership, renewing its 2008 commitment to that goal in a meeting between the foreign ministers of the alliance in Bucharest, Romania this past Tuesday.

Antiwar’s Dave DeCamp writes:

The Romanian city was where NATO initially made the promise to Ukraine back in 2008, and at the time, US officials acknowledged that attempting to bring the country into the alliance could spark a war in the region.

“We made the decision in Bucharest in 2008 at the summit,” NATO Secretary-General Jens Stoltenberg said on Tuesday. “I was there … representing Norway as Prime Minister. I remember very well the decisions. We stand by those decisions. NATO’s door is open.”

In a joint statement, the NATO foreign ministers, including Secretary of State Antony Blinken, said that they “reaffirm” the decisions that were made at the 2008 Bucharest summit.

NATO Doubles Down on Pledge to Eventually Admit Ukraine
NATO foreign ministers are holding a summit in Bucharest, where the alliance first made the promise in 2008
by Dave DeCamp@DecampDave #NATO #Ukraine #Russia https://t.co/mYqG1JHCQM pic.twitter.com/pU0uTHbv9u

— Antiwar.com (@Antiwarcom) November 29, 2022

It has become fashionable among the mainstream western commentariat to claim that Russia’s invasion of Ukraine had nothing to do with NATO expansion, but as recently explained by Philippe Lemoine for the Center for the Study of Partisanship and Ideology, that’s a completely false narrative that requires snipping past comments made by Putin out of the context in which they were made. Many western experts warned for years in advance that NATO expansion would lead to a conflict like the one we’re seeing today, and they were of course correct.

The recent push to expand NATO in Ukraine along with nations like Finland and Sweden as justified by “Russian aggression” is a good example of what professor Richard Sakwa has called the “fateful geographical paradox: that NATO exists to manage the risks created by its existence.” As the late scholar on US-Russia relations Stephen Cohen explained years before the Ukraine crisis erupted in 2014, Moscow sees NATO as an “American sphere of influence,” and the expansion of NATO and NATO influence as expansion of that sphere. It reacts to this with hostility just as the US would react to China or Russia building up aggressive military alliances on its borders, and arguably with vastly more restraint than the US would.

Other future examples of Sakwa’s fateful geographical paradox are likely to include the push to reconfigure NATO into an alliance dedicated to “restraining” China, which of course means halting China’s rise on the world stage and working to constrict, balkanize and usurp it. A recent Financial Times article titled “Washington steps up pressure on European allies to harden China stance” gives new detail to this agenda:

The US is pushing European allies to take a harder stance towards Beijing as it tries to leverage its leadership on Ukraine to gain more support from Nato countries for its efforts to counter China in the Indo-Pacific.

According to people briefed on conversations between the US and its Nato allies, Washington has in recent weeks lobbied members of the transatlantic alliance to toughen up their language on China and to start working on concrete action to restrain Beijing.

US president Joe Biden identified countering China as his main foreign policy goal at the start of his administration, but his efforts have been complicated by the focus on Russia’s invasion of Ukraine in February.

But with Russian president Vladimir Putin’s invasion in its 10th month, Washington was making a concerted effort to push China back up Nato’s agenda, the people said.

A defensive alliance doesn’t look to pick fights with a country on a different continent. This is some classic mission creep from NATO – or, more accurately, Washington.https://t.co/UWNsPuSXlD

— Branko Marcetic (@BMarchetich) November 29, 2022

The “North Atlantic” Treaty Organization added China to its security concerns for the very first time this past June, and ever since it’s seen a mad push from Washington to ramp up aggressions against Beijing. Another Financial Times article titled “Nato holds first dedicated talks on China threat to Taiwan” details a meeting between alliance members this past September:

They also discussed how Nato should make Beijing aware of the potential ramifications of any military action — a debate that has gained significance following Russia’s invasion of Ukraine amid questions about whether the west was tough enough in its warnings to Moscow.

The US has been urging allies, particularly in Europe, to focus more on the threat to Taiwan, as concerns mount that Chinese president Xi Jinping may order the use of force against the island.

Senior US military officers and officials have floated several possible timelines for military action, with some eager to increase the sense of urgency to ensure Washington and its allies are prepared.

Some are noticing that Washington’s eagerness to “increase the sense of urgency” on this front can easily wind up having a provocative effect which serves as a self-fulfilling prophecy.

Bonnie Glaser, director of the Asia program at the German Marshall Fund of the United States, told Bloomberg a month ago that Washington’s haste to prepare everyone for another major conflict could “end up provoking the war that we seek to deter.”

“NATO should be renamed ASFP: the Alliance for Self Fulfilling Prophecies,” tweeted commentator Arnaud Bertrand of the alliance’s discussions about Taiwan.

“A defensive alliance doesn’t look to pick fights with a country on a different continent,” tweeted Jacobin’s Branko Marcetic. “This is some classic mission creep from NATO – or, more accurately, Washington.”

“Nato holds first dedicated talks on China threat to Taiwan”

NATO should be renamed ASFP: the Alliance for Self Fulfilling Prophecies…https://t.co/yU6OSiRhuu

— Arnaud Bertrand (@RnaudBertrand) November 30, 2022

When you ignore all the empty narrative fluff and really boil it down to the raw language of actual behavior, NATO’s existence really does seem to be premised on the circular reasoning that without NATO there’d be nobody to protect the world from the consequences of NATO’s actions. It goes out of its way to threaten powerful nations and then justifies its existence by their responses to those threats. It’s a self-licking ice cream cone, or, if you prefer, a self-licking boot.

And this is all happening as news comes out that European nations are beginning to notice they’re bearing a lot more of the cost of Washington’s proxy warfare in Ukraine than the US is, while the US reaps all the profits. In an article titled “Europe accuses US of profiting from war,” Politico reports:

Top European officials are furious with Joe Biden’s administration and now accuse the Americans of making a fortune from the war, while EU countries suffer.

“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.

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.

“Is Washington still our ally or not?”

The “geopolitical Commission” and official Brussels as a whole is apparently only learning now what critics have been saying since the beginning: America has no permanent friends or enemies, only interests.https://t.co/WFEBTdq9r2

— Clare Daly (@ClareDalyMEP) November 30, 2022

Washington is taking extreme risks and angering allies at this time because it’s getting to do-or-die time as far as preserving US unipolar hegemony is concerned. As Antiwar’s Ted Snider explains in a recent article, the US proxy war in Ukraine has never really been about Ukraine, and hasn’t even ultimately been about Russia. In the long run this standoff has always been about China, and about the desperate campaign of the US empire to preserve its unrivaled domination of this planet.

“The war in Ukraine has always been about larger US goals,” writes Snider. “It has always been about the American ambition to maintain a unipolar world in which they were the sole polar power at the center and top of the world.”

“Events in Ukraine in 2014 marked the end of the unipolar world of American hegemony,” Snider says. “Russia drew the line and asserted itself as a new pole in a multipolar world order. That is why the war is ‘bigger than Ukraine,’ in the words of the State Department. It is bigger than Ukraine because, in the eyes of Washington, it is the battle for US hegemony.”

“If Ukraine is about Russia, Russia is about China,” Snider writes. “The ‘Russia Problem’ has always been that it is impossible to confront China if China has Russia: it is not desirable to fight both superpowers at once. So, if the long-term goal is to prevent a challenge to the US led unipolar world from China, Russia first needs to be weakened.”

Snider quotes Lyle Goldstein, a visiting professor at Brown University, who says that “In order to maintain its hegemonic position, the US supports Ukraine to wage hybrid warfare against Russia…The purpose is to hit Russia, contain Europe, kidnap ‘allies,’ and threaten China.”

It Was Never About Ukraine
by Ted Sniderhttps://t.co/I8Khc5AGEA pic.twitter.com/VE3Ha6I9hG

— Antiwar.com (@Antiwarcom) November 23, 2022

As the world becomes more multipolar and securing total control looks less and less likely, the empire is fighting more and more like a boxer in the later rounds who’s been down on the scorecards the entire fight: taking more risks, throwing wild haymakers, preferring the possibility of a knockout loss over the certainty of losing a decision.

We’re at the most dangerous point in humanity’s abusive relationship with US unipolar domination, for the same reason the most dangerous point in a battered wife’s life is right when she’s trying to escape. The empire is willing to do terrible and risky things to retain control. “If I can’t have you no one can” is a line that can be said to a wife, or to the world.

The importance of opposing these megalomaniacs, and their games of nuclear chicken, has never been higher.

Hungarian Prime Minister Victor Orbán warned on Friday that European policies advocating for mass joint borrowing among EU member states to continue funding Ukraine’s resistance to the Russian invasion will have devastating consequences.

The Hungarian leader told “Good morning, Hungary!” that EU sanctions on Russian energy are bound to fail, and that “not only our children, but also our grandchildren will suffer the consequences” of a mass borrowing scheme proposed by the EU, adding that potentially insolvent states will require support as well.

Orban reiterated Hungary’s opposition, and suggested that agreements to support Ukraine should be at the national level via bilateral agreements between individual countries, ReMix reports.

He highlighted that Ukraine has now found itself in a situation whereby it is incapable of functioning as an independent nation because of the ongoing conflict, and while it needs help from its neighbors and allies in the short-term, it is not for Brussels to speak on behalf of all member states.

What’s more, Orban believes that any further sanctions on Russian gas or nuclear energy would have “tragic consequences,” and argued that Hungary should be exempt from such a decision. 

“We are facing a difficult winter, Ukraine is in an increasingly difficult situation, Russia is suffering difficulties, but its revenues from energy carriers are at their peak, so the policy of sanctions has not achieved its goal,” he said, explaining that while Hungary won’t be subject to an upcoming ban on European imports of Russian oil, it will still be affected by the “price-inflating effect of the sanctions.”

“We have always achieved our own national goals in the negotiations on sanctions, so we are participating in the discussion of the ninth package with good hopes,” Orban concluded, while noting that the “pressure is constant,” and that Hungary must “constantly fight to protect our interests.”

Authored by Alasdair MacLeod via 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.

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.

But it is not just in the EU that these pressures have arisen. The new global trend of rising prices is affecting the EU more than most, the European Central Bank having held its deposit rates in negative territory for a considerable period of time. Like other central bankers, ECB officials failed to plan for an exit route from interest rate suppression and are more badly wrong-footed than most central banks. It was a policy which encouraged commercial banks into risky territory.

Compressed lending margins forced major commercial banks to maintain profits by leveraging their balance sheets to record levels. The dead hand of negative rates, amounting to a tax on reserves held within the euro system was a burden on banks’ performance. While the increase in rates has initially been a profit bonanza for the banks, they are now exposed to losses from declining asset values and non-performing loans. And with the ECB’s deposit rate still only 1.5% when official price inflation is running at over 10%, far higher interest rates are inevitable. Unless somehow price inflation can be brought down significantly, the consequences will be to create huge losses for the banks from financial assets both on-balance sheet and in the form of collateral — losses that will wipe out shareholders’ capital.

The inflation problem is now manifest in an energy crisis arising from sanctions against Russia. To prevent the entire euro system being destabilised, the obvious short-term solution is to treaty with Russia. The removal of this source of rising prices would in turn reduce the outlook for euro interest rates, stabilising the entire euro system. We can be sure that the ECB and its network of national central banks will be pointing this out to their politicians.

Indeed, an ending of the sanctions would give stock markets and bond prices an almighty boost, at a time of growing concerns over a global recession. Let there be no doubt: the west’s policies against Russia are nothing short of suicidal. And politicians in Brussels would be blind not to see it.

The conflict between the US and the two Asian hegemons is escalating

From Russia’s point of view, America’s precipitative withdrawal from Afghanistan and the replacement of an unpredictable President Trump with an aging Biden, known to the Russians through his background in US foreign affairs, confirmed that America’s global influence was failing. For Russia, with Britain out of the EU it was a good time to escalate tensions between America and Western Europe to side-line America from Europe.

Putin has shown high level skills as a political operator — he had to have them in order to successfully navigate his way through the mess left by Yeltsin to a position of ultimate power. Before escalating the Ukraine situation, we can be certain he anticipated both American-led sanctions and calculated his response. That the Americans have tentatively signalled that they are now prepared to negotiate confirms the success of Putin’s Ukraine strategy. Now, with the onset of winter he can afford to wait. And the longer he waits, the greater the squeeze on Ukraine and the EU.

America is fighting this power game on two fronts: Russia and China. She cannot be too aggressive against China because the US is still mightily dependent on its economy. The US is resorting to selective technology bans and not much else. Having exported manufacturing supply chains to China and Southeast Asia, large US corporations cannot afford to see their supply chains undermined by aggressive foreign policies. Already, intentionally or not China is putting the squeeze on US corporates with its covid lockdown policy.

We can never be entirely sure of Chinese intensions, particularly with the enigmatic President Xi. With protests at lockdowns, western media portrays Xi’s administration as reverting almost to Maoist policies, a reversal of China’s recent march into capitalism. The treatment of Uyghurs offends us. But reform of covid policies was known to be on its way, and on Tuesday the announcement was made by China’s National Health Commission, giving new guidance to local administrations, which should ease lockdowns. 

The underlying problem for China’s government is that its economy is suffering a debt hangover from decades of overinvestment in domestic construction, secured by an exceptionally high savings rate. If the economy was left to its own devices, according to classical theory a debt crisis would destroy malinvestments and reallocate capital to more productive use. But with the large commercial banks under state control the policy will be more likely to ride through the transition of capital reallocation, whatever the cost.

The effect of a credit crunch is to heighten the urgency for state directed investment into other areas, particularly integration with other Asian nations. While we must not forget that there are significant political and cultural differences between China and Russia, American hegemony and trade policies have only served to tighten the bonds between them, so cross-border investment is an obvious priority.

The immediate economic consequences are damaging for China, with an economy which has become ex-growth. While this is a negative factor for the whole region, it could hasten pan-Asian integration to limit economic damage, and to take nations such as India, the Africans and now the entire Middle East further away from US hegemonic control. American allies in Southeast Asia will also be re-examining their foreign policies.

Looking through the immediate prospects for a global recession, we can see that the old world of stagnating economies is being separated from a new world of industrialisation. Independent developing nations are being drawn into the progressive camp, leaving a rump of failing nations living in the past.

So far, a confirmation of the end of US hegemony has been seen in the change of Saudi Arabia’s trade policy, whereby it has realigned itself to Russia and China, confirming its intention to join the BRICS organisation. With other Arab states following the Saudi lead, this confirms that the Gulf states see their future being bound up with the Russian and Chinese partnership. This is likely to be followed by nations in South-East Asia, which at the moment are sitting on the fence. But Indonesia’s recent hosting of the G20 meeting showed that the hosts appeared to be more worried about upsetting the Russians and Chinese than the US-led western alliance.

Member states of the European Union are beginning to face the same dilemma. They have gone along blindly with NATO policies without questioning them. The failure of NATO’s wars in the Middle East and Afghanistan, and the consequences of the overthrow of Libya’s Ghaddafi have all led to Europe’s refugee problems. Now, the economic sacrifice of NATO alignment is plain to see. EU leaders are muttering darkly about how the Americans are profiting from Ukraine while Europe is paying the price. 

The dollar’s hegemony is under threat as well

We know from official announcements that the Russian Chinese partnership, specifically through their membership of the Eurasian Economic Union, is planning to cobble together a new trade settlement currency. Due to currency sanctions against Russia, a sense of urgency has been imparted to the project, with other nations in Asia realising that retaining western currencies in their central bank reserves carries risk of sanctions. These risks are not merely restricted to the immobilisation of reserves in western currencies, but also restrict trade. The consequences of sanctions policy have been to force Asian governments to rethink about trade security as well.

At this stage, all we can do is to draw together some threads to determine the likely form of the new trade settlement currency Sergei Glazyev, the senior Russian official tasked with the project has proposed. An official statement dated 16 June from the committee which he chairs included the following statement:

“Sergei Glazyev informed about presenting in the near future the concept for forming the common EAEU exchange market, which, in particular, would involve the unification of exchanges’ information systems and the nomination of prices in national currencies. “The agenda includes the transition to a new stable settlement currency based on a basket of national currencies and exchange-traded products, as well as the creation of our own stable pricing system. Such principles should be applied in work not only within the EAEU but also throughout the SCO,” the EEC Minister concluded.”[iii]

The objective is for the dollar to be replaced as the settlement medium of intra-national trade. And the idea is that this new trade settlement currency will be open to be joined by other nations. If this project is successful, then the dollar will lose its status as the reserve currency for participating nations. 

As described above, the project is impractical, appearing to be a political statement designed to gain early support for the project. Elsewhere, we see proposals to set up a new Moscow gold exchange, purportedly to replace access to the London bullion market now denied to Russia and its refiners. But again, we see that the moving light is the same Sergei Galzyev, this time telling us that the demand comes from Russia’s bullion industry.

If it is to work, Glazyev’s original proposal to Eurasian states cannot proceed. The inclusion of national currencies in some sort of daily fixing does n0t guarantee stability, and every time another SCO member decides to join a whole rebalancing exercise would have to take place. The same considerations apply to “exchange traded products”, which from other statements we can take to refer to commodities traded between members of the scheme.

From being an inherently defensive move against US dollar hegemony, subsequent confirmation of Saudi intentions to switch payments from dollars to unspecified Asian currencies changes priorities. From convincing a coterie of Eurasian states, Glazyev’s prize is to persuade the Saudis and other gulf energy suppliers as well to accept the new trade settlement medium. Only a gold-based currency fits the bill. With their Bedouin roots in physical coin, a gold-based trade settlement currency acceptable to the Saudis would have the added advantage of dealing a significant blow against the dollar. 

The more one considers the situation, one can only conclude that gold is the logical basis for such as scheme, and Glazyev’s involvement in the new Moscow gold exchange suggests he has reached a similar conclusion. If that’s the case, then it will be necessary to back a gold fixing scheme in such a way that participants can confidently retain balances in the new currency, even though it will almost certainly be digital in form.

Assuming that the scheme progresses towards fruition with gold representing commodity-based transactions generally, the requirement for retaining dollar balances will fall away. The impact on the dollar has to be our next topic.

Foreign dollar balances are simply enormous

As illustrated by the chart above, foreign ownership of financial assets including bank deposits totals nearly $30 trillion, down over $4 trillion since last December. Some of this is due to fluctuations in portfolio valuations, but clearly the foreign appetite for holding dollars is waning. If the Russia/China Asian bloc comes up with a viable trade settlement currency, both official ownership and private sector ownership of dollars will be less required, and ownership by foreigners will diminish further. 

Dollars will be sold for other currencies, to purchase bullion, or to build stocks of durable commodities. The global desire to sell dollars for other major fiat currencies was knocked on the head by currency sanctions against Russia. And we can be sure that the message about holding yen, euros, or sterling is widely received in all Asian nations. 

Therefore, US-led currency sanctions against Russia will probably backfire badly. With the dollar being sold for bullion and commodities, the value of dollars relative to bullion and commodities will obviously decline. It will be a trend readily understood by foreign holders, likely to drive the dollar down more rapidly than might be expected. 

It may be that the process has already started. So far this year, the dollar has gained against other major currencies due to the Fed having led other central banks into higher interest rates in an attempt to contain price inflation. Other central banks are now responding belatedly with their revised interest rate policies, and consequently the rising trend in the dollar’s trade weighted index has broken down from its previous uptrend. The chart below illustrates the dollar’s move so far.

Compounding the dollar’s problems are market suspicions that the Fed will be forced into a policy pivot as evidence of a recession mounts. While softening its line slightly the Fed still denies it, presumably for fear of encouraging yet higher consumer prices. Markets are betting that it is only a matter of time before the Fed is forced to call a halt to interest rate rises and reintroduce quantitative easing. The yield on the 10-year US Treasury note has fallen from 4.4% to 3.63%, while the CPI ‘sincrease slowed to 7.7% in October. 

Sanction-induced commodity and energy price rises have obscured a wider trend emerging from the end of the forty years of the financialisation of major western economies — the end of a prolonged everything bubble. Intractable government deficits are driving the debasement of currencies relative to the values of commodities. A new financial cold war between the hegemons is undermining the logic of supply chains across multiple jurisdictions. Just-in-time inventory management has become riskier. And while supply chain difficulties have lessened recently, the trade outlook has deteriorated, supply chain reform is on the cards, and commercial bank credit is long overdue its 10-year cyclical downturn. 

Managing foreign dollar liquidation

Assuming that foreigners act as outright sellers on a net basis rather than merely hedging existing positions, the buyers will be either the Fed in the case of official institutions selling, or commercial banks. 

When the Fed buys dollars, it reduces the liability side of its balance sheet, or redeploys repatriated dollars by buying assets. And since we are considering net selling by foreigners, those assets will be dollar-denominated assets in the domestic US economy. Whether the Fed reduces its balance sheet or buys domestic assets is a matter for economic and monetary policy.

Commercial banks will be acting principally for domestic US buyers, in which case there is no reduction in their aggregate deposit liabilities because the ownership of deposits merely changes. However, if they are not acting for domestic buyers but for themselves and deposits are being withdrawn, then they must reduce their balance sheet assets to match. They can do this by selling financial assets if they have them on their balance sheet, or by calling in loans. However, we know from US Treasury TIC figures that commercial banks have limited foreign currency loan exposure (i.e. balance sheet assets —in June, it was $687bn[iv]) and with other currencies having been weak they are unlikely to have unhedged on-balance sheet foreign currency financial asset liabilities in any quantity. Therefore, the bulk of private sector involvement is off-balance sheet and therefore the effect on outstanding commercial bank credit will be limited.

It would therefore appear to be mainly a problem for the Fed, and the impact on the dollar of foreign selling will only be lessened through the expansion of the Fed’s balance sheet. The chart below gives a clue of what the relevant impacts are likely to be.

We have ascertained that commercial banks will not be buying dollars from foreigners in sufficient amounts to affect their balance sheets materially. Instead, if foreigners decide the world is moving away from the dollar, the Fed’s balance sheet currently standing at $8.6 trillion will be exposed to a contracting foreign dollar mountain of up to $30 trillion. There is a leverage factor in this which could be substantial.

A further problem for the monetary authorities is that they increasingly expect a recession, even though it appears to be slow in arriving. A recession is a contraction in commercial bank credit, against which the Fed would expect to compensate by the combination of an expansion of its balance sheet and the government increasing its budget deficit. In other words, after fifty-one years of the dollar being totally fiat, and the dollar seeing demand on the basis that it is the only reserve currency, the ending of that period at a time when the US economy is entering a recession is the worst combination of events possible.

This is probably the most compelling reason for the US Government to seek to de-escalate tensions over Ukraine and dismantle sanctions against Russia. It would or should have been on the CIA’s William Burns’s mind when he met his opposite Russian number in Ankara a fortnight ago.

[i] See https://www.reuters.com/world/russian-us-officials-holding-talks-turkey-kommersant-2022-11-14/

[ii] See https://www.politico.eu/article/vladimir-putin-war-europe-ukraine-gas-inflation-reduction-act-ira-joe-biden-rift-west-eu-accuses-us-of-profiting-from-war/

[iii] See https://eec.eaeunion.org/en/news/sergey-glazev-imeyushchiesya-rezervy-rosta-neobkhodimo-konvertirovat-v-narashchivanie-vnutrisoyuznoy/

[iv] Line 1 minus line 2 at https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/bctype.txt