In a stunning move, the Sleepy Joe administration woke up, stumbled out of bed, and in what is unfortunately now characteristic they promptly froze the central bank’s assets of one of the world’s foremost military and nuclear-armed powers.
This is how it was described in the WSJ article:
Many economists have long equated this money to savings in a piggy bank, which in turn correspond to investments made abroad in the real economy. Recent events highlight the error in this thinking: Barring gold, these assets are someone else’s liability—someone who can just decide they are worth nothing. Last year, the IMF suspended Taliban-controlled Afghanistan’s access to funds and SDR. Sanctions on Iran have confirmed that holding reserves offshore doesn’t stop the U.S. Treasury from taking action. As New England Law Professor Christine Abely points out, the 2017 settlement with Singapore’s CSE TransTel shows that the mere use of the dollar abroad can violate sanctions on the premise that some payment clearing ultimately happens on U.S. soil.
Shocking is too mild a word to describe what’s just happened here. If you wanted to polarize the entire global economy and force your enemies to combine forces against you then this is PRECISELY what you’d do. It is either an act of stupidity of the highest order or it is intentional. Regardless, the outcome will be the same. A West and East that is more and more distinct. As I write this you can be assured that the countries of Russia, China, the Middle East (Saudi and UAE) to name a few are all strengthening their military and economic alliances with one another.
You know what else they’re doing? Looking very closely at their respective reserves, in what they’re held and especially where they’re held, this a step further and realise that when, not if, these countries turn from the USD, we’re looking at easily $30 odd trillion in GDP that shifts. That is gonna be in the pantheon of macro moves. Seriously, I mean , if your reserves can be frozen overnight, are they really yours?
So how to hedge that?
Well, we’re about to find out as that $30 trillion in global GDP just got put on notice.
The Biden administration is weighing whether to impose sanctions against India over its stockpile of and reliance on Russian military equipment as part of the wide-ranging consequences the West is seeking to impose on Moscow over its invasion of Ukraine.
Donald Lu, the assistant secretary of State for South Asian affairs, on Thursday told lawmakers in a hearing that the administration is weighing how threatening India’s historically close military relationship with Russia is to U.S. security.
So there you go. Add India to this. I mean, it’s not like India matters in the global economy.
Oh, shit… wait. Here’s India’s GDP growth over the last decade.
Hint: they’re not small any longer. Isolating just India would be catastrophic in itself. But they’re pushing all the aforementioned countries too. Mammoth and stupid beyond words.
Following on from the above…
We at Insider and Glenorchy Capital work on the maxim “follow the money”. It hasn’t been hard to correctly (lucky us)
guess forecast where Russia may turn to. Or indeed where China may turn to when/if the need for them arises.
We’ve been chewing your ears off on the divestment of USD reserves by the Russian central bank for years now. Still, a picture paints a thousand words.
Of course, divestment of dollars is one thing, but where are they putting those reserves if not in dollars? Mostly yuan, of course.
As mentioned last week, Sino-Russian trade has been accelerating for the last decade, with this trade being conducted outside of the petro-dollar system and utilizing CIPS instead of SWIFT. Russia is the world foremost energy producer and a massive agricultural powerhouse and China… well, they’re the world’s factory.
On a macro scale this decision to force 3 billion people (Russia, India, and China) towards forming a trading, financial, and military alliance which will by necessity be conducted in currencies that are NOT the dollar will go down in history as one of the most myopic and downright idiotic policies in the history of the US and an accelerant to the demise of the hegemony of the USD.
In terms of trade it is no surprise seeing this:
The Russian gas giant signed a contract to design the Soyuz Vostok pipeline across Mongolia toward China, Gazprom said in a statement. If Russia reaches a new supply agreement with China, Soyuz Vostok will carry as much as 50 billion cubic meters of natural gas per year to the Asian nation.
A new supply deal with China would also enable Gazprom to build an interconnector between its west- and eastbound pipeline systems, effectively allowing Russia to redirect gas toward China from fields that now only feed Europe. That could ease Gazprom’s reliance on the European continent, currently the single-largest buyer of Russian gas.
Lyn Alden recently penned the following on the topic and she nailed it:
China is the largest trading partner for the majority of countries in the world, more so than the US now, and is a natural ally with Russia against the US and NATO, and can give Russia a monetary export outlet for their oil, gas, and other commodities (at a discount that benefits China). China has the most installed industrial capacity, and the most electricity generation and consumption to support that industrial capacity, but they need to import commodities. China could buy up the various Russian joint ventures that European oil majors recently exited from in Russia, including mainly large energy deposits worth tens of billions of dollars. China, then, would have more exposure to commodity reserves (purchased at a discount) to alleviate its inherent need to import commodities.
Western companies sell long-term commodity deposits to Chinese companies at a steep discount” is not the headline most of us want to hear, but is what may happen in this scenario.
But what we’re focussing on today is something more tangible and potentially useful to us mere mortals. Unsurprisingly we see this:
On Sunday, several Russian banks announced plans to start issuing cards using the Chinese UnionPay card operator system.
The step, which came shortly after Mastercard and Visa pledged to cease operations in Russia and disconnect all the country’s banks from their payment systems, will enable the holders of new cards to use them for paying and withdrawing cash abroad.
Russia has been preparing for such actions for several years (since the annexation of Crimea). I know I’ve hammered on about this in the last few years, but now it’s becoming really, really important. Remember, in 2014 Russia introduced the National Payment Cards System (NPCS). The Mir cards, along with the System for Transfer of Financial Messages (STFS, which is an alternative to SWIFT), were launched to minimize the impact of possible economic sanctions. Well, they are now here. So we’ve avenues or escape routes that have been created by the fiendish Chinese as well as Ivan the terrible.
In a minute, I’ll come to my thinking on why this may be valuable information for us minions. First, let’s briefly cover UnionPay.
How big is UnionPay? UnionPay truly deserves more attention as it’s the biggest card payment organization (combining credit cards and debit cards) in the world and outperforming both MasterCard and Visa.
It is available now in 180 countries.
This got me thinking some crazy thoughts.
We just had Borris just telling the press they’ve “new laws to take people’s assets,” and then, of course, we had Trudeau freezing bank accounts. It’s not like they’re not telling you what they are going to do. They are.
What they’re doing to Russian oligarchs will likely come to many of us. At the very least we should have some level of preparedness.
Now, as mentioned before, Russia and China, despicable as they are, really (no lovers of freedom) are actually less likely to benefit from theft.
Does it sound crazy to have an onramp/offramp into and out of the financialised world that sits under a non-Western domicile?
I think it’s not entirely foolish.
Below therefore are some very easy solutions for you to go about it.
This decade is going to be all about having options available to us. This is one.