Tightening Fists Around Sand

September 7, 2015

By: Kelly Diamond, Publisher

There are a few things happening right now, and the balance is delicate to say the least.

First, you have China’s ailing manufacturing market and volatile yuan. This, naturally affects her neighbors as well.

Second, you have Iranian sanctions set to be lifted by spring of 2016.

Third, you have economic turbulence in the EU.

These factors make it really difficult for the United States to throw the full and righteous tantrum it wants to. Not that the US won’t slam a few doors and throw a few toys against the walls, but in the end, she won’t go shattered-glass and peeled-paint on the world.

What’s the latest bug up America’s ass? The Nonproliferation Act. And it’s imposing sanctions like it was Christmas on Oprah: Russia gets a sanction! Syria gets a sanction! Turkey gets a sanction! Sudan gets a sanction! China gets a sanction! The countries themselves aren’t receiving sanctions… yet … just some of their major corporations.

The west insists that Russia is inciting and irritating the situation between Ukraine and Crimea, and has imposed myriad sanctions as a result. Russia maintains her innocence, and is getting a little fed up with the US telling her her business.

There’s been a considerable amount of back and forth. Russia is denying all imports from western countries; and extended that embargo to summer of 2016. Now Russia wants to dump the US dollar and the Euro between CIS (Commonwealth of Independent States) countries. It’s a win-win for Russia. After all, it’s a proud middle finger to the west with some economic benefits:

“This means the creation of a single financial market between Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and other countries of the former Soviet Union.

“’This would help expand the use of national currencies in foreign trade payments and financial services and thus create preconditions for greater liquidity of domestic currency markets’, said a statement from Kremlin.

“The bill would also help to facilitate trade in the region and help to achieve macro-economic stability.”

With nearly 50% of their turnover in that region in USD and Euros, it makes sense that they would want to cut their dependency on those currencies and reduce western influence.

Just last month, in an effort to replace the USD, PBC (People’s Bank of China) launched a pilot two-currency (ruble and yuan) program by putting the Russian ruble into circulation in Suifenhe City, Heilongjiang Province.

In 2014, the Russian Central Bank and the People’s Bank of China signed a three-year currency swap agreement, worth 150 billion yuan (around $23.5 billion), thus boosting financial cooperation between the two countries.

Also in 2014, Russia struck a $20 Billion oil deal with Iran: 500,000 barrels a day, or 1/3 of Iran’s oil exports, in exchange for “Russian equipment and goods”. This was a monumental work-around of not only western sanctions, but the US dollar. Western sanctions against these countries

Countries around the world are finding ways around the west.  I’ve written about this several times: “Global Response to USD” and “Working Around the US”.  It’s not about whether these are deserved “evil doers”. It’s not about whether we like their policies. It’s about the inevitability of alternative markets cropping up when the demand is denied its supply. It’s also about the frustration with US policies as a whole. The USD is perceived to be – and let’s face it IS – volatile.   US strong arming and foreign policy is only irritating relationships with other countries.

Primevalues.org itemized some ways in which countries are avoiding or eliminating the USD:

• Avoidance of the petrodollar system by purchasing/selling oil and/or related products in exchange for other currencies or, through barter

• Selling US dollars from the forex reserves in order to build up other reserves (for instance: building up gold reserves by purchasing gold with US dollars)

• US dollar-avoiding bilateral trade agreements – countries agree to avoid the dollar in trade with each other (they naturally tend to favor their own currencies)

• Phasing out dollar-denominated assets – eventually the US treasuries and bonds will become less desirable (less bought and those already owning them will try to sell them)

 

The Eurasian Economic Union (EEU) is expanding through trade as well. Earlier this year in May, they shook hands with Vietnam over a free trade deal that will save all countries involved tens of billions in tariffs.

Iran, Russia, China, Vietnam avoiding the US isn’t surprising, right? I mean, level sanctions and what do you expect? India, Venezuela, and Brazil still aren’t totally unexpected, since our relationships with them are rockier than what they have with Russia and China. But what about Japan, Australia, and Germany? Did we really see THAT coming?

If this were a reality TV show, such a revelation would be a: “Oh no she didn’t!” moment to be sure.

Iran is suffering economically due largely to sanctions against it, but monetarily, they are far sounder than the US. They totally avoid the petrodollar by trading in Euros, gold, and barter. Gold and barter. Sounds arcane and yet they are the tried and true value-for-value methods of exchange. It’s also eliminated the USD from trade entirely… not just the petrodollar.

Venezuela and Russia have an agreement to trade in their own national currencies. Japan, Australia, and Brazil have similar agreements with China, as they have agreed to trade in their own national currencies. That combined amount of trade is in the hundreds of BILLIONS per year.

Reserve currencies are not forever. Just ask any number of western European countries like Portugal, Spain, or France. How are they doing these days? Oh right, two of them have already received bailouts. Pride comes before the fall, I guess. As technology becomes more sophisticated, people and countries are far more connected, and new options and alternatives to the status quo emerge.

The US wants to throw a fit over Russia’s behavior and Iran’s rhetoric and Syria’s rebels and China’s cheap labor and currency manipulations. It does! But the tighter she clasps her fists, the more the sand escapes from her grasp.