Like a global reality show, with winners, losers, alliances, and betrayals. The West and its allies are losing ground.
April 25, 2022
By: Bobby Casey, Managing Director GWP
Cooperation is an important thing in a free society. It’s what a free market economy looks like. I can’t grow blueberries, but this guy can get them, so he brings them in and I pay in kind for those blueberries.
This sort of distribution of labor eliminates redundancies and works well.
What makes it more accountable is when you have multiple purveyors competing against one another. Should one prove to be a bad actor, or have bad service or product, you can go to another.
This is not the same as what is now being referred to as “globalization”: large national cartels or monopolies that control how or if individuals can access commodities.
The issue with globalization, in that context, is the centralization of power and control. It’s a weird phenomenon. There’s a part of human nature that wants a single solution to everything because it’s easy. But there is a part of humanity that knows on a primal level, that is a bad idea.
The issue is the vulnerability that comes when cooperation becomes codependency. The United States put its faith in a lot of really unreliable players and used its taxpayers as collateral. It also put its faith and money into players they thought were allies.
It seems rather obvious the prospect of a solid and reliable relationship between the US and Saudi Arabia was not viable in the long term. Given the US penchant for intervention in that region and its moral proselytizing, the odds were never in the US’s favor.
The US-China relationship has always been contentious. While the US appeared not to trust China politically, they still put a lot of trust into them economically. The US outsourced much of its factory labor there and even worse it kept selling its debt to China, to where the US is now beholden to some degree to China.
The US taxpayer is the largest holder of US debt, but China is the largest foreign holder of US debt. Japan comes in second.
The United States has borrowed $18 trillion from foreigners since the Great Financial Crisis of 2008, a staggering sum that is nearly equal to America’s annual Gross Domestic Product.
China meanwhile is paying for oil imports both from Russia and Saudi Arabia in its own currency. The RMB has appreciated against the U.S. dollar by more than 12 percent since September 2019, and continues to offer higher real yields than the dollar, as well as a range of investment opportunities, despite China’s exchange controls.
While the value of the US dollar continues to fall, so too does Japan’s yen, and the US is in no position to help. The Euro will likely soon follow.
Meanwhile, the supposed ally and major financial dependent of the US, Israel dumped a bunch of US dollars in favor of RMB.
Israel’s central bank has made the biggest changes to its allocation of reserves in over a decade, adding the Chinese yuan alongside three other currencies to a stockpile that last year exceeded $200 billion for the first time ever.
Starting this year, the currency mix will expand from the trio of the U.S. dollar, the euro and the British pound to include the Canadian and Australian dollars as well as the yen and the yuan.
Latin American countries have invested close to $30 billion in yuan assets over the last five years, according to Goldman Sachs Group Inc. In a March report, analysts at the Wall Street bank said Israel has also “made some key diversification shifts” and added more than $1 billion of yuan reserves in February alone.
This is not unto itself a threat, but if enough countries do this or continue to do this, the US will feel its effects.
The US does need to end its codependency on countries that aren’t cooperative. Likewise, the US needs to learn a bit about how to be cooperative.
It’s bad enough the US can’t really trust any of the global players, but it seems it has no reason to trust itself… which means there’s really no reason for anyone else to trust the US.
These findings were part of a larger data source out of the New York Federal Reserve:
Following the controversial bank bailouts and Troubled Asset Relief Program (TARP) in 2008, reports show in late 2019 and 2020, the U.S. Federal Reserve participated in providing trillions of dollars in secret repo loans to megabanks. At the end of March, investigative journalists, Pam and Russ Martens from Wall Street on Parade, uncovered $3.84 trillion in stealth repo loans from the Fed to the French financial institution, BNP Paribas in Q1 2020. Additional data indicates that the U.S. central bank leveraged secret repo loans to provide a whopping $48 trillion to megabanks in late 2019 and into 2020.
The $48 trillion went to only six trading houses: Nomura Securities International ($3.7 trillion); J.P. Morgan Securities ($2.59 trillion); Goldman Sachs ($1.67 trillion); Barclays Capital ($1.48 trillion); Citigroup Global Markets ($1.43 trillion); and Deutsche Bank Securities ($1.39 trillion).
So the US Federal Reserve is still bailing out large financial institutions, despite the passing of the Dodd-Frank bill which was theoretically supposed to prevent these things from happening. Janet Yellen apparently redefined what a “liquidity crisis” means when the law was being redrafted, making all this possible.
This is the cluster of terrible choices, cronyism, and covering up the US is mired with. It’s the American paradox: it didn’t have to be this way, yet it was inevitable at the same time.
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