Byron King Keeps An Eye On The Real Prize.

I know Byron would hate me saying this, but this Harvard-trained geologist and a former cadre US naval officer with massive experience, when he speaks resources and money--you can take it to the bank. Yes, he is that good. Here is Byron's latest on the geopolitics of the resources and gold-based Ruble.  

If you follow war news from Ukraine, no doubt you’ve seen gruesome images of wrecked tanks, burnt trucks, demolished personnel carriers and more.  Whether it’s Russian or Ukrainian equipment, almost everything you see is based on old Soviet-era designs such as T-72/64 tanks, or boxy BMP armored vehicles, etc. And when a rocket or shell hits those things the internal fuel and ammunition cooks off, and the machines burn like a torch. Bad design, obviously. But there’s another Russian weapon that was also recently deployed, and it appears to be working very well. You won’t find this system on the battlefield, though. In fact this Russian device is an economic weapon, and it may prove to be one of the most impactful implements of war in the modern age.  That is, the government of Russia recently pegged that country’s currency – the ruble – to gold. And right now, Russia’s central bank will buy gold at 5,000 rubles per gram through June 28. (After that, we’ll see.)

It is an excellent piece, which you can read by following the link in the quote and it explains the larger framework of what Russia is doing in Ukraine and why this operation has a massive global impact. I stress it all the time, including in my videos, keep your eyes on the main prize and this prize is a demolition of the remnants of Pax Americana and establishment of a truly new world order where nations will be free to trade how they want and could be treated fairly instead of being bombed into stone age--that is the main prize. This is why such a level of neocon and American "exceptionalists" rage, impotent rage. I highly recommend this article.

About Dollar, Sort Of.

I am by far not the only one who saw this fate for US Dollar and, frankly, it wasn't that difficult to predict. Now there are some tangibles on this matter. 

After years of talking about abandoning the US dollar, Russia and China are doing it for real. In the first quarter of 2020, the share of the dollar in trade between the countries fell below 50 percent for the first time.To give an indication of the scale of the adjustment, just four years ago the greenback accounted for over 90 percent of their currency settlements.According to Moscow daily Izvestia, the share has dropped to 46 percent, tumbling from 75 percent in 2018. The 54 percent of non-dollar trade is made up of Chinese yuan (17 percent), the euro (30 percent), and the Russian ruble (7 percent).

Pretty much self-explanatory. Russia can afford to sell whatever she wants for whatever currency she wants. She can pump oil to China and get payments in Yans or Euros if she decides to do so. The answer is simple--Russia is a superpower and she behaves as such.  

Movement away from the dollar can also be seen in Russia's trade with other parts of the world, such as the European Union. Since 2016, trade between Moscow and the bloc has been mainly in Euros, with its current share sitting at 46 percent.

That brings us to this point Michael Hudson made recently when speaking on Western economic "science". Remember?

The gunboats don’t appear in your economics textbooks. I bet your price theory didn’t have gun boats in them, or the crime sector. And probably they didn’t have debt in it either.

Indeed, they don't. It is nearly impossible to explain to Wall Street banker what military-economic power balance is and how it influences prices and currencies.  For some dude with degree in "economics" from Western university, who is getting ready to plunge into the world of financial speculation, trading in figments of imagination and intangible myths that is, and who is brought up, in the words of General Latiff, on a steady diet of Hollywood portrayal of a war, connection between hyper-sonic missile technology and economic implosion of the United States is beyond his (her) sensory grasp. But the connection is there and it is very direct. The US can bomb Iraq into the stone age for Iraq's desire, same as Libya's Qaddafi, to sell their oil for currencies other than US Dollar, but Russia cannot be bombed. Well, she can be bombed, but the United States will also cease to exist--so here is a direct connection. Russia unloaded all of her US Treasuries and trades with anybody she wants in whatever currency she desires. 

Many people from "elites" still cannot recognize a simple fact that the MAIN pillar of US Dollar system, apart from "trust", is not even US manufacturing capacity, which is largely gone, but US military power on which US Dollar's primacy was based. Not anymore. US military is turning into a hollow force with an astonishing speed. It is somewhat reminiscent of the process of a decline of the former Soviet Armed Forces in 1990s Russia. While not at that level of decay yet, there is nothing realistically which can prevent US Armed Forces from hitting  such a level. This is yet to be seen if it goes there but the United States is in no position anymore to enforce anything militarily even against regional power such as Iran without sustaining huge losses, both material and reputational. Against China? Hm. Not within First Island Chain. Now consider the fact that Europe has Euro, Russia has Ruble, China has Yan and China and Russia begin to trade in mutual currencies, while US-China trade war accelerates and there you go--the "after-dollar" global picture emerges and... well, just look at this picture:

Isn't that cute how gold "suddenly" (within a year) decided to grow, despite all attempts to suppress its "price". And I am not even talking about the oil price. Somebody is laughing all the way to the bank. In related news, one of the reasons for the US to feel somewhat uneasy--here is a video of Russian Navy's incessant combat drills, this time with Frigate Admiral Essen facing off with two supersonic P-35 anti-shipping missiles fired from famous "sotka" (100), aka Utes, site at the Crimean shore. 

I have to admit--I love this new ship uniform. Seems elegant and easy on your skin. But the thing which conveyed profoundly what Russians think about current historic moment was this simple comment by some Russian person under this video by Russia's Defense Ministry:

Раньше, при советском союзе, я не смотрела программу время, потому как, всё было хорошо ... урожай хлеба высокий, строительство жилья идёт полным ходом, атомные и водородные бомбы есть, армия сильная ... а вот после распада СССР, до прихода Путина, в России был кошмар.Когда к власти пришёл Путин, жизнь в России стала налаживаться ... и вот сейчас, ко мне пришло спокойствие, как при советском союзе ... урожай хлеба высокий, строительство жилья ведётся, вооружение нашей армии идёт по всем направлениям ... это просто кайф👍Главное, больше никому НЕ позволить грабить нашу Россию, как было в проклятые 90-е ... и никаких майданов в России.Сейчас очень спокойно жить в России ... это кайф👍

Translation: It used to be that in Soviet times I didn't watch program "Vremya" (Time, main Soviet and Russian official news broadcast), because everything was good... the harvest was great, housing construction proceeded apace, we had atomic and hydrogen bombs, the army was strong... but after the collapse of the USSR, before Putin, it became a nightmare. Then Putin came, the life started to return to normalcy... and now my calmness returned to me as if back in the USSR... the harvest is great, the construction of housing goes ahead, the rearmament of our armed forces proceeds in all directions... this is bliss. Most important, not to allow anyone to rob our Russia as was happening in condemned 1990s... no any maidans in Russia. It is so peaceful to live now... it is a bliss.

This is a profoundly Russian observation. It is shared by majority of Russians and that is what, in the end, decides the issue. Russia can exist only as superpower or none at all. This lesson was learned well.  

Quoting Michael Hudson.

You all know my attitude towards Michael Hudson as one the brightest economic minds of our time. Here is a quote from one of his latest interviews, as always, loaded with insights and food for thought. 

Now Herman Kahn and I on another occasion went to the Treasury Department, and we talked about what the world would look like on a gold standard. I said, “Gold is a peaceful metal. If you have to pay in gold, no country with a gold standard can afford to go to war anymore. Because a war would entail a foreign exchange payment, and you’d have to pay this foreign exchange in gold, not IOUs, and you would end up going broke pretty quickly.” Needless to say, someone from the Defense Department said, “That’s why we’re not going to do it.”

How do we know that payments in gold bankrupt warring parties? Simple, really. Check where did British gold reserves go in the time span between September 1939 and the end of 1940. The whole mechanism of Great Britain becoming a financial lap dog of the United States throughout WW II is extremely well described  by Barnett. 

The last months of England's existence as a fully independent great power, able out of her own resources both to maintain her national existence and to wage war, passed away.  By the third quarter of 1940 the volume of British exports (including munitions for the empire) was down 37% on 1935. By the turn of the year 1940-1941, the dark mid-winter of the Blitz, England's stock of gold and dollars was near exhaustion... For obvious reasons the advent of "lend-Lease" was represented as an act of unparalleled generosity. In fact, it was clearly to America's advantage that American weapons should be carried into battle by fighting men of England and Empire rather than the sons of American mothers. Even after United States entered the war in December 1941--and not then by her own volition--it was still clearly to her advantage that England should be enabled to wage the war on far greater scale than would have been possible on English resources alone. 

United States, obviously, learned her lessons from British WW II experience and recognized that to fight the real war one needs a lot of gold, or, as it turned out in 1970s when Nixon took the United States, which by then lost Vietnam War, from gold--IOUs. Yes, IOUs which are built around, well... let Michael Hudson speak:

The gunboats don’t appear in your economics textbooks. I bet your price theory didn’t have gun boats in them, or the crime sector. And probably they didn’t have debt in it either.

Modern Western "economists" do not operate with power element at all--it is beyond their grasp because unlike some financial theories, military power requires a much higher level of education and knowledge. Economists do not study physics, systems' integration, chemistry or weapons' design, not to mention operations, in the West they also do not study real economics. Yet, all this IOU (or T-Bills and other paper) alternative universe collapses the moment American IOUs lose the main factor behind their forceful "validity"--US military power, or, rather, myth of it and the threat to use it in case some renegades decide not to "trust" IOUs. Do not believe me, even as early as 2015 there were numerous calls from inside US "analytic" community to consider military operations against Russia. I recently wrote about one such ignoramus, George Fridman, who described in 2014 how Russia will be defeated in Ukraine by combined NATO forces. Yes, they ARE that dumb. 

I am not saying anything new here, once the myth of the US military power began to be destroyed in public space, everything else started to follow. By 2018 it was clear that United States cannot win conventional conflict with Russia not only in her vicinity, which was the case since 2010, but even in Europe. I am not talking about nuclear one, because this kills all other reasonable outcomes and expectations. Once you cannot win the war, what's your next step, what's you next default position, so to speak? Right, money, currency and financial "instruments" manipulation. Indeed, China buys Russian oil and gas and pays for it in Yuan or Euro, what can the United States  do about it? Attack Russia or China? Well, we know what's going to happen. So, the only instrument left are sanctions and financial sabotage. But that doesn't change the fact that China and Russia trade, at least significant part of their trade, in Rubles and Yuans. China is  much more vulnerable to intimidation and  blackmail than Russia, but still, this doesn't change the fact that China is not Venezuela or Iraq and she cannot be invaded without the United States sustaining catastrophic losses. 

The fact that US "elite" is incompetent across the board is not a secret anymore to those who matter, and those are China, Russia and, to a degree, Iran as an emerging regional superpower. So, as Hudson states, and I subscribe to his every word here:

By waging this economic warfare against China to protect America monopolies, America is integrating China and Russia. And probably the leading Chinese nationalist in the world, the leading Russian nationalist, is Donald Trump. He’s saying, “Look boys, I know that you’re influenced by American neoliberals. I’m gonna help you. I believe that you should be independent. I’m gonna help you Chinese, Russians and Iranians to be independent. I’m going to keep pushing sanctions on agriculture to make sure that you’re able to feed yourself. I’m gonna push sanctions on technology, to make sure that you can defend yourself.” So he obviously is a Chinese and Russian agent, just like MSNBC says.  

Ability to integrate a complex interaction between military and economic factors  into systemic and easily grasped picture is not there in the US. The whole generation (or two) of the economic ignoramuses who can operate only in the world of neo-liberal voodoo and reign of financial capital has emerged since the collapse of the Soviet Union and it is incompetent, not able to face the realities, especially military realities of the 21st century, which define the catastrophic departure of the United States from her real, and perceived, greatness. "Economy" built on speculation and selling the snake oil of IOUs, or which depends on such news as this:

The explosion on the tanker in the northern Syrian city of Afrin killed at least 10 people, Reuters reported, citing initial reports from Turkey's state-run Anadolu news agency Tuesday. News of the bomb detonation led to a rise in oil's “risk premium, even in a market with a glut of crude,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch. Against that backdrop, the front-month June West Texas Intermediate crude (CLM20) briefly traded as high of $13.69 a barrel before turning lower again to settle down by 44 cents, or 3.4%, at $12.34 a barrel on the New York Mercantile Exchange.

Is not sustainable, especially when it lost its power to coerce anyone who matters into believing that Wall Street IS the economy, which it is not. But we all are yet to face unfolding reckoning of REAL valuation and that will shake the global economy to its foundation. Just some thoughts for today.   

Didn't Take Long.

Recall smug face expressions of all those financial "analysts" waxing economic when talking about prices and US Dollar, Bit Coin and other worthless papers. Where are they now, all those "analysts"? 

It’s an honest-to-God doomsday scenario and the ultimate doomsday-prepper market is a mess. As the coronavirus pandemic takes hold, investors and bankers are encountering severe shortages of gold bars and coins. Dealers are sold out or closed for the duration. Credit Suisse Group AG, which has minted its own bars since 1856, told clients this week not to bother asking. In London, bankers are chartering private jets and trying to finagle military cargo planes to get their bullion to New York exchanges. It’s getting so bad that Wall Street bankers are asking Canada for help. The Royal Canadian Mint has been swamped with requests to ramp up production of gold bars that could be taken down to New York. 

I don't understand, weren't all those "financial instruments" and "financial engineering" the wave of the future recently? Hm, why does gold suddenly look so "attractive". Of course such explanations:

“When people think they can’t get something, they want it even more,” says George Gero, 83, who’s been trading gold for more than 50 years, now at RBC Wealth Management in New York. “Look at toilet paper.”

same as the rest of the WSJ article with statements like these:

Gold is popular with survivalists and conspiracy theorists but it is also a sensible addition to investment portfolios because its price tends to be relatively stable. It is especially in-demand during economic crises as a shield against inflation. When the Federal Reserve floods the economy with cash, like it is doing now, dollars can get less valuable. 

Can only inspire a smile, especially the phrase highlighted in yellow. For al those "financial specialists", who cannot bring themselves to say it, I will say it for them--the "dollars getting less valuable" is called INFLATION. "Dollars" getting less valuable really fast and continuing to do so non-stop is called HYPERINFLATION. And this is precisely the scenario which unfolds in a front of our very own eyes. It is, of course, worth mentioning, you know, a teeny-weeny fact, that for years now the price of gold was deliberately depressed while US inflation was exported globally, but, as you can see, the game is up. In the scenario where the real value of the US Dollar, world's reserve currency (not for long, methinks), is known to be way below of what it is being presented to the "investors", one stable commodity stands out--gold. It has been around for millennia and will continue to be a safe "financial" haven. Here is some spread on the gold reserves as of December 2019. 

Today 1 ton of gold goes for roughly $52.3 million, so do your own calculations. Granted, one deals with actual, physical, gold, not some certificates which give an impression that one has any. You can look up a full list of gold reserves here. While looking at it, note the size of gold reserves of Kingdom of Saudi Arabia. Right: 323 tons. Compare this to Russia's gold reserves of 2,242 tons (7 times more than in KSA) and, against recent news on gold futures rising 9%, one can make a rough estimates of how well can either country weather oil prices collapse when Russia's gold reserves of roughly $120 billion worth of of physical gold provide (again roughly) increase of monetary value (it will grow even more soon) of 120 x 0.09= $10.8 billion of "free" money which, accidentally, is more than 10% of all value of Russia's oil (unrefined) export. Just like that. Saudi Arabia, meanwhile, having its unrefined oil export valued at $110 billion, will have about $10.8/7= 1.5 billion "gain" on its gold reserves, which also is merely 1.4% of "coverage" of its oil exports. See the pattern? I do not say that this is exactly how gold price affects things directly, but ratios presented here DO matter. They show why Saudis already lost heir oil war just on the gold price alone. Russia can afford to both accumulate and sell her gold, Saudi Arabia cannot.

Of course, we also have to keep in mind that Saudi gold, large part of it anyway, is most likely not even physically in the country. It is stored in the US and, as rumor has it, nobody knows actual amount of physical gold in the US. But my point is different here. It is about REAL valuation of gold and the fact that this shiny metal was and is real value, and will outlive US Dollar easily. It will also grow in value over the time since it is a very good cushion against economic upheavals of the scale we all are going through now. On the level of the state, the government, it is certainly true. I don't know how it affects individual "investors" (I am not in financial "advice" business) and it is not my job to know. But always remember:

Collapse?

I want to forestall any speculations from the start--US Dollar-based system IS IN the state of collapse. We are just within this process which has some less acute or more acute phases, but it is ongoing. I will repeat myself--the main pillar on which US Dollar based system rests, US military might, turned out to be made from rotten wood, not hardest granite. Latest events with Iran merely marked yet another key point in this pillar's slow collapse. Once "power element" behind US Dollar is completely discredited, the more acute phase will start with world as a whole dropping US Dollar as a currency of choice. So, RT's report on that caught my eye today in terms of the time frame for such a collapse. Judge for yourself:

Central banks have been buying massive amounts of gold over the last 50 years, purchasing a historic high of 374.1 tons in 2019. The unprecedented shift has been seen by many as a move away from the US dollar. The interesting thing, according to Egon von Greyerz of GoldSwitzerland.com, is that not every country is buying gold. He told RT’s Keiser Report that mainly Eastern central banks have been piling up the shiny metal. “We are talking about Russia and China, Turkey, Poland, and Hungary.”Russia and China are the ones that are “really seeing what’s happening,” he says. “They know that the dollar is going to collapse.”  According to Greyerz, China, which didn’t reveal its true position of gold holdings, “might… have 20,000 tons that they have gathered over a long period of time.”“Russia and China see that the dollar days are counted, and I agree with that totally. At some point it [dollar collapse] should happen this year and I think it will. We are going to see the dollar collapse and that would be very serious for the world and of course very serious for the United States,” he says.

I write about it non-stop: Russian intelligence and analytical institutions are arguably the best in the world, and Putin's (as head of Russia), and Xi's, I may add, actions and words can be better understood when one considers to what degree Putin is aware of the global processes. I think he has arguably the best picture of the shifting geopolitical balance in the world. I have all reasons to believe so and he is extremely well aware on the future fate of the US political, financial and military institutions. To a very large degree an insane tempo of Russia's political, economic and military re-institutionalizing ( I hate this tired stale term "reform") varies directly with the tempo of US internal political, economic and military degradation. 

There is very little doubt about the fact Iran's response to the murder of General Soleimani sent a shock to the system and, undeniably, changed the mood on the streets of Middle East. Another factor, which testifies to a rather poor situation is the fact that some reports talk about severe lack of the American resources to deal with China and concentrating those limited resources back on the Middle East. In the end, it is not just the lack of the resources, increasingly visible with the passage of time, it is gross ineffectiveness of those since, as recent Conference on Libya in Berlin demonstrated, it used to be that if one wanted something done in the Middle East, one called Washington, today one must call Moscow. Something to this effect. This is not an environment which is conducive to maintaining the reputation of main reserve currency, when the main pillar of military might (from which all other "mights" derive) on which this reputation rested is not exactly what it was thought before, politely speaking. The question is not even in financial institutions that the United States maintains still around the globe, as Phil Giraldi noted today, it is the fact that even smaller regional players, such as Iran, not to speak of superpowers such as China or Russia, can play around the system without the danger of the American "rules-based order" being forcefully imposed on them. 

I warned about this for years. Now, it seems, US Dollar's departure is not even a subject for discussion, it is a cold hard fact of life, fait accompli, but merely a subject for speculation on WHEN this departure will be finally formalized, be that through the internal economic collapse in the United States, the event similar to Suez Crisis (and Moment), or through combination of both. Difficult to say. Remarkably, nobody (I underscore it) wants US economic and financial collapse--in the end, everyone gets hurt one way or another, it is just the matter of economic strength--but current American political class is completely incapable to right the ship of the American statehood, not to mention stopping avalanche processes within American economy, so we are all treated to a mad circus of Impeachment which will finish US statehood off for good, unless, in the last moment (yeah, good luck with that) AG Barr decides to indict a bunch of treasonous lowlifes thus giving us at least some hope. So far, doesn't look like it is going to happen. But, I guess, as long as the stock market is doing great, we all should be fine, right?