What Washington Truly Fears

Last week the Trump Administration announced that it was boosting the Marine Corps Expeditionary Units in East Asia to counter Chinese aggression.
What aggression was that? To find the answer to that you would have to look in the financial section of the newspaper.

In a move that could upend the pricing and trading of one of the world’s most actively traded commodities, China plans to finally launch its long-awaited and delayed yuan-denominated oil futures contract on March 26, Reuters reported on Friday, quoting two sources familiar with the latest developments.

OK. I have no proof that Trump's move, that came about 12 hours after China's announcement, was related.
Nor do I have proof that Saddam Hussein's decision to leave the petrodollar led directly to an American invasion and his gruesome death six years later.
Nor do I have proof that Gaddafi’s decision to leave the petrodollar led directly to American bombing and his gruesome death shortly after.
Iran started selling oil in Euros two years ago.
I'm sure that it's just a coincidence that some in Washington are pushing for war with Iran.

These are all just coincidences that repeatedly happen. Sort of like someone who works at the lottery repeatedly winning the lottery.

Which brings us to the primary threat to the petrodollar today - Russia.
Russia has gone waayyyy past the "crimes" of Iraq, Libya, and Iran.

I was informed at a White House meeting that U.S. diplomats had let Saudi Arabia and other Arab countries know that they could charge as much as they wanted for their oil, but that the United States would treat it as an act of war not to keep their oil proceeds in U.S. dollar assets.
This was the point at which the international financial system became explicitly extractive. But it took until 2009, for the first attempt to withdraw from this system to occur. A conference was convened at Yekaterinburg, Russia, by the Shanghai Cooperation Organization (SCO). The alliance comprised Russia, China, Kazakhstan, Tajikistan, Kirghizstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. U.S. officials asked to attend as observers, but their request was rejected.
The U.S. response has been to extend the new Cold War into the financial sector, rewriting the rules of international finance to benefit the United States and its satellites – and to deter countries from seeking to break free from America’s financial free ride.
...The U.S. plan was to hurt Russia’s economy so much that it would be ripe for regime change (“color revolution”). But the effect was to drive it eastward, away from Western Europe to consolidate its long-term relations with China and Central Asia.

Repeated rounds of international sanctions have failed to cow Russia, and the reason is China.

In a symbolic blow to U.S. global financial hegemony, Russia and China took a small step toward undercutting the domination of the U.S. dollar as the international reserve currency on Tuesday when Russia’s second biggest financial institution, VTB, signed a deal with the Bank of China to bypass the dollar and pay each other in domestic currencies.

We didn't arrive at this point suddenly in 2014 or 2016.
Russia began making plans to be independent of the combined power of Washington and Wall Street years before we started hitting them with sanctions. They've spent the past decade cutting non-dollar trade and financial deals with China, India, and Iran.

China has been busy too. Russia, Iraq, Indonesia and other countries have joined in non-dollar trades.

When the White House suspended US aid to Pakistan, Islamabad announced that the Chinese yuan can be used for bilateral trade and investment activities.

Two days ago Russia announced they had a parallel system to SWIFT.
Put all that dry timber together, and then add a spark - the 2016 election - and you have the real reason for the Russia hysteria.

The petrodollar has lasted for over 41 years, and has been the driving force behind America’s economic, political and military power. It would be ironic, indeed, were the tensions with Russia inadvertently to become the driver of America finally losing its petrodollar card.

But I'm getting ahead of myself.
Does any of this even matter? Is there any evidence that this is causing any harm to the US dollar?
usd4year.jpg
People are so infatuated with the stock market, which is the domain of the 1%, that they've forgotten to watch the MUCH more important currency and bond markets.
Speaking of bond markets.
tnx.PNG
If you don't need dollars to buy oil, then you don't need to buy treasuries (note: treasuries = dollars in finance).

The yield on the benchmark 10-year Treasury note TMUBMUSD10Y, +0.00% has an effect on all parts of the economy, as it influences everything from borrowing costs for the smallest and biggest companies, to rates for fixed and adjustable mortgages, car loans and credit cards. For three decades, one thing everyone could count on was if you were patient enough, rates would eventually be lower.

Not anymore.

The yield broke above the downtrend line last week, and extended gains to close at 2.91% on Feb. 14, up from 2.40% at the end of 2017, according to U.S. Treasury data.

China and Russia aren't exactly selling Treasuries yet, but it's doubtful that sending troops to their borders will inspire them to resume buying.

For now the petrodollar is not in danger. Less than 2% of cross-border payments processed in December were denominated in yuan. China has a very long ways to go before its currency is a threat.
OTOH, since China is the biggest importer of oil in the world, cross-border payments in Yuan should jump next month. Plus the Yuan doesn't need to go to 100%, or even 50%, to bring an end to dollar hegemony.

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this morning about China "attacking" the US. Years ago my Tea Bag mother signed some petition against Obamacare in my name and from then on I get emails from something called SRN Insider? I cannot unsubscribe from them but usually block them from sending, a few are getting through again.

I know the only reason I even noticed it today was the word "attack" thinking oh God, what happened today. Yup, our owners are worried about the BRICS. I hope it happens soon I guess, although what comes with it here will surely suck. But I see no other way these psycho's will be stopped.

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@lizzyh7

Left to themselves, The Psychopaths and Parasites That Be will suck the 99% dry before starting on each other - what happens when they are stymied might be awful to us relative Poors and may polish off a lot of us actual Poors, but they were going to dispose of us anyway, as 'useless eaters which are no longer required', and at least will presumably no longer be able to do this to people in other countries outside of North America and in their effective colonies, who might well break away from the US during this process.

On the other hand, if the rest of the world stands up to them and the American people do as well, TPTB may become more conciliatory as they weaken and discover that they are only considered exceptionally sick and a hazard which must be contained. Depends if they decide to go down in nuclear flames or not, because surrendering to psychopaths intent on global domination is unthinkable, and the world is now finally realizing what they're dealing with - and that it's rapidly fatal to planetary life if not stopped now. Where there's life, there's hope, and we can't cooperatively let them kill both just because crazy infects our governments and warps law against its public-protective purpose to harm us for short-term profits out of pathological greed.

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Psychopathy is not a political position, whether labeled 'conservatism', 'centrism' or 'left'.

A tin labeled 'coffee' may be a can of worms or pathology identified by a lack of empathy/willingness to harm others to achieve personal desires.

divineorder's picture

Thanks, Obama. /s

From a climate change perspective who knows...

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A truth of the nuclear age/climate change: we can no longer have endless war and survive on this planet. Oh sh*t.

Song of the lark's picture

@divineorder is still a NET importer of oil. The belt and road tweet is full of it.

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Song of the lark's picture

@Song of the lark the frackers are partially responsible for the glut although their production curves are murder and they aren't profitable at 25 dollars a barrel. They have borrowed massively just to produce and frackers far from shutting down are ramped up. There are many other reasons frackers may shut down but not because of the glut. See Art Berman or Gail Tverberg. US fracking fields are peaking.

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Pricknick's picture

the end of the petrodollar.
It will be rough for the u.s., but it's a win win for all other nations.

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Regardless of the path in life I chose, I realize it's always forward, never straight.

CB's picture

@Pricknick
The Petrodollar is the one world currency that is, in it's entirety, backed by US bombs.

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Pluto's Republic's picture

@CB

And they will. And OPEC will follow.

There will be tears.

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If it is a monopoly, then it IS your government.

Meteor Man's picture

So our 1,000 kiloton nuke is an effective deterrent against the rise of foreign Petro dollars! Yeah. I see the logic in that. Mutual Assured Destruction on steroids. What could possibly go wrong?

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"They'll say we're disturbing the peace, but there is no peace. What really bothers them is that we are disturbing the war." Howard Zinn

Yes! This EXACTLY!great analysis

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Song of the lark's picture

And that the petro yuan presents some problems to American dollar hegemony. However I would argue that ostensibly this move outside SWIFT and the petro yuan seem imnical to the dollar it has as Taleb would say certain antifragile qualities. Making the whole global monetary system stronger not weaker. Remember China joined the SDR in 2016.
"The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one US dollar. After the collapse of the Bretton Woods system in 1973, the SDR was redefined as a basket of currencies. Effective October 1, 2016 the SDR basket consists of the US dollar, euro, the Chinese renminbi, Japanese yen, and British pound sterling."
You will note no Russian rubles.
Currencies are the war of all against all, but we have just been thru a period of massive attempts a devaluation of many of the major currencies. How is the sinking dollar not making our products more attractive against massive trade deficits. Central banks have just spent the last decade fighting a deflation monster with on going QE taken up in turn by region. Europe and Japan still on going. China debt creation recently massive. Still the yen strengthens! WTF? As I said there is a lot going on and we are thru the looking glass in monetary terms. With 9 trillion in NIRP bonds etc. it's not different this time and this will end badly however it may crash the whole system not just the dollar.

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The best thing that could ever happen would be for the dollar to stop being the reserve currency. Having the reserve currency makes it easier for other currencies to be manipulated against it. Not having the reserve currency makes it easier to defend against currency manipulation, by (if necessary) doing what everybody else does, manipulating their currencies against the dollar (because it has the helpless 'status' of being the reserve currency).
This is yet another example where it looks like foreign interests are controlling US policy.
I vote for the yuan to be the reserve currency. That would do more to prevent currency manipulation than anything else.
I think we can rest assured that China has no real interest in having their yuan become the reserve currency.

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Mike Taylor

CB's picture

@Mike Taylor
if the US$ was not the world's major reserve currency. In fact, it could never have got to that level in the first place without massive inflation. The use of the US$ as the world's reserve currency has allowed the US to export it's inflation.

The Petrodollar is also another scheme that allows the US to overspend it's income without penalty. It functions in two ways. The first is that it ensures that excess earnings by major oil producing countries is recycled back into US treasuries. The second way is by functioning like a kited cheque. All nations require energy for their economies to operate. The Petrodollar scheme forces all oil purchases to be paid with US$'s. This means that consumer countries must have some way of not only attaining US$'s but also keeping millions on hand for continuing purchases. The only way to get more US$'s is to trade something of intrinsic value, from avocados to zinc, in exchange for this paper. As foreign economies grow, their US$ reserves must also grow so this keeps the 'cheques' from being cashed in. This is, in effect, loaning money to the US interest free.

If nations no longer need this paper to buy energy or other world traded items, they would want to send them back to the US and exchange them for something of real value - like land or US goods. The trick is to exit slowly without causing a stampede for the doors. The US$ is so ubiquitous in world markets, a complete collapse would destroy the world's economy. The best way is to slowly bleed the beast to death.

China and Russia have long called for a global world currency that is disconnected from individual nations which gave them inordinate control over the world's finances and economies such as the US currently has.

The following is a graphical representation of the US originated financial 'derivatives' scheme which WILL destroy the world's finances and economies as we know them if it ever pops.

All of the World’s Money and Markets in One Visualization

I wonder how many people will die worldwide if this financial WMD ever explodes?

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@CB

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Psychopathy is not a political position, whether labeled 'conservatism', 'centrism' or 'left'.

A tin labeled 'coffee' may be a can of worms or pathology identified by a lack of empathy/willingness to harm others to achieve personal desires.

Lookout's picture

we've been in the hole a long time. Really since we got off the gold standard.

US trade deficit.jpg

....and who do we owe? You guessed it....mainly China.

coutries we owe.png

The Fed is a rigged game designed by bankers to profit the banks.

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“Until justice rolls down like water and righteousness like a mighty stream.”

CB's picture

the US$. The second pillar is the primacy of the US military. Other pillars are the World Bank and the IMF. All of these pillars are now being undermined by the Russian/Chinese partnership and their associated financial, trade and security agreements - Petroyuan, BRICS, SCO, CIS, EAEU and the massive BRI.

China and Russia are poised to directly contribute/share in the largest and fastest growing consumer trade block the world has ever seen. Chi-Rus investment in infrastructure projects and trade agreements in Central Asia, the Middle East, Africa and South America now far exceeds new US investment. Only a few short decades ago, the US was the dominant economic player in all these regions. It now mainly dominates militarily. But, without the traditional accompanying economic gains the US enjoyed in the past century, this policy will continue to drain American coffers rather then enhance them.

The US, along with it's European NATO satraps, current response to the Chi-Rus win-win strategies such as BRI is by doing what it has always done since WWII - increase it's military might in a desperate attempt to save it's position as world hegemon. Unfortunately for America, the Russian Bear and the Chinese Dragon are slowly and inexorably neutering the Eagle by skillful cut and parry wherever they come in contact. All China and Russia have to do is be agile enough to stay out of reach of the Eagle's claws while the ailing bird flails about.

Trump's neocon controlled State Department will ensure that the American militarized foreign policy will continue to be self-defeating. China is only too happy to finance the US military while profiting from the American economy. Chinese investment in US Treasuries is up over 10% year-on-year while US trade deficit with China was a record $375 billion last year. The US trade deficit with Russia was a tidy $10 billion and growing.

As I have remarked for the last decade and a half, the US continues to fill coffins while China (and now Russia) continue to fill coffers.

We may now be witnessing the fall of the American Empire.

Budget Woes Sign of a Dysfunctional Empire
February 13, 2018

Exclusive: The bloated military budget is justified on the assumption that the United States can and should police the entire world, but this approach is fundamentally unsustainable, warns Jonathan Marshall.
...
The Coming Fall?

The fundamental problem with the military budget is the underlying assumption that the United States can and should police the entire world – a view powerfully reinforced in the Trump administration’s recent National Defense Strategy document, with its hegemonic yearning for “dominant superiority in every operating domain.”
...
In his famous 1987 book The Rise and Fall of the Great Powers, Yale historian Paul Kennedy demonstrated a consistent link between economic and military strength. The link goes one way: a nation with robust resources can afford to build a strong military, but a nation with an oversized and overcommitted military may cripple its economy, undermining the very source of its strength. That’s what happens when empires get stretched too thin, like Great Britain’s after two world wars.

As Kennedy predicted, and the Trump era is confirming, the American empire cannot last in its current form. The faster we cut it loose, the more chance we have of a soft landing that preserves our security and prosperity.

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Creosote.'s picture

@CB
and forecasting. Strong thanks to you and yellow eyes . . .

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