China’s Latest Strike Against Petrodollar is Another Shot to Kill US Hegemony in the Middle East

China Petrodollar

China took another major step towards the inevitable end of petrodollar dominance and the further internationalization of the yuan. Via this report:

‘China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry.
The contract could become the most important Asia-based crude oil benchmark, given that China is the world’s biggest oil importer. Crude oil is usually priced in relation to Brent or West Texas Intermediate futures, both denominated in U.S. dollars.
China’s move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong.’

Critical to this move is the decision by Saudi Arabia:

‘If Saudi Arabia accepts yuan settlement for oil, Gave said, “this would go down like a lead balloon in Washington, where the U.S. Treasury would see this as a threat to the dollar’s hegemony… and it is unlikely the U.S. would continue to approve modern weapon sales to Saudi and the embedded protection of the House of Saud [the kingdom’s ruling family] that comes with them.”
The alternative for Saudi Arabia is equally unappetizing. “Getting boxed out of the Chinese market will increasingly mean having to dump excess oil inventories on the global stage, thereby ensuring a sustained low price for oil,” said Gave.’

If Saudi Arabia feels that China can act as an effective shield against its Iranian adversary, it most likely will forgo this ‘embedded protection’ from the US and acquiesce to Chinese demands. It may feel greater pressure as Qatar recently restored diplomatic relations with Iran thereby strengthening the Iran-Turkey-Qatar alliance.

Chinese Relations with Pakistan / Afghanistan

China has made inroads with non-oil producing nations in the region. Primarily, it has a growing economic relationship with Pakistan. While challenges of political and economic isolation exist, the China-Pakistan Economic Corridor commonly known as CPEC has grown larger than its initially planned $46 billion investment plan announced in 2015. The investment is potentially crucial to China’s Belt and Road Initiative as it could provide a link from China through Europe and Africa. In addition, China has aggressively pushed development of a railway linking China and Afghanistan that is aimed to cut travel time between the two nations from six months to two weeks. Although the project has run into problems, the importance of this railway cannot be understated. Back in September, Chinese Ambassador to Afghanistan Yao Jing went so far to say, “Without Afghan connectivity, there is no way to connect China with the rest of the world.”




Gold Moves

Curiously, on August 21, US Treasury secretary Steve Mnuchin became the first government official to visit Fort Knox in 43 years. Just prior to his visit, he said to an audience (hopefully in humor) ‘I assume the gold is still there…It would really be quite a movie if we walked in and there was no gold.” After his visit, he tweeted ‘Glad gold is safe!’. Unfortunately, it would have been more reassuring to some if there had been a full audit (i.e. serial numbers per each gold bar).
In addition, Germany recently announced that its central bank completed the transfer of $27.9 billion worth of gold bars back to Frankfurt three years ahead of expectations. The gold was held by the Federal Reserve in New York and France’s central bank to hedge against political and currency risks.

China’s Strike Against Cryptocurrency Threat

Yesterday, China effectively banned all organizations and individuals from raising funds through ICO activities. Also, all banks and financial institutions in China will not be able do any business related to ICO trading. Cryptocurrency prices dropped sharply as a result. While intended to protect investors from fraud, the decision may have been timed to strike back at the US – Japan alliance to transition to a world reserve currency led by Bitcoin. It would not be in China’s interest to allow this transition to occur smoothly (if at all). It is unclear how committed China is to blockchain technology as its primary goal is to prevent any financial instability in its markets as it attempts to undermine US hegemony.

US – China Comparison

In spite of the numerous deficiencies of Chinese government behavior (especially towards its own people), its acumen in establishing relationships throughout the Middle East without using military force can be characterized as highly impressive. Contrast that with the US and its consistent failed policy of invasion in the name of ‘fighting terrorists’. Sixteen years of US occupation has left Afghanistan as a failed state where the Taliban control roughly 40% of the country and opium production has risen from 185 tons in 2001 to 3,300 tons in 2015 despite the US spending $8.4 billion in counter narcotics programs. Equally troubling is President Trump’s recent decision to break his campaign promise and raise troop levels in Afghanistan. His deference to the military industrial complex has garnered meaningless praise from many of the same people who have supported these failed policies.
As Democrats and their compliant media hyped the fake Russian hacking narrative (updated to Russian collusion), Russia has only become more unified with China to counter US power. While China has economic issues of debt and ghost cities, the US is gripped in a state of chaos as it has:

  • An illusion of a healthy economy (due to central bank manipulation) and in contrast to the reality of a failing economy with fake economic data published by a corrupt government (Even David Stockman, former Reagan administration budget director, asks ‘How can there be “full-employment” at 4.4% unemployment claimed by the BLS and the Fed’s monetary central planners, when there are 103 million adults without jobs?’)
  • Dire circumstances for many as anywhere from 49% of Americans to 78% of all American full-time workers live paycheck to paycheck
  • A likely cost of $150 to $180 billion from Hurricane Harvey that will be added to a national debt of approximately $20 trillion
  • Death threats made by ‘deep state’ members against its president on a regular basis
  • An Attorney General that is too scared or compromised to follow the rule of law and proceed with justice and who has no problem instituting a widely criticized a policy that abuses its citizens

Conclusion

The repercussions of a Saudi move to side with China should not come as any surprise but will affect everyone in the world. For years, Dr. Ron Paul has warned about the end of the petrodollar system causing the US dollar to lose its world’s reserve currency status and to subsequently collapse. As a result, Russia would immediately demand the end of a US presence in Syria. This could be followed by the withdrawal of US troops from Iraq, Turkey and other countries. In the midst of great uncertainty, some may use the event to their advantage. The Kurdish population could feel emboldened and seize the opportunity to declare an independent state. In this case, Israel would be the beneficiary as a new Kurdish state would counter the looming threat from Iran.

Originally Published on News with Chai.

Global Currency Reset Happening Now as Bitcoin Price Explodes

A major risk to the solvency of the banking industry is the notional amount of financial instruments such as interest rate swaps known as derivatives. A recent report stated that US banks have over $200 trillion of derivatives exposure. This shouldn’t be a surprise as Forbes covered global derivatives exposure over four years ago: 

the risk that is still staring us in the face: the lack of transparency in derivative trading that now totals in notional amount more than $700 trillion. That is more than ten times the size of the entire world economy. Yet incredibly, we have little information about it or its implications for the financial strength of any of the big banks.

Moreover the derivatives market is steadily growing. “The total notional value, or face value, of the global derivatives market when the housing bubble popped in 2007 stood at around $500 trillion… The Over-The-Counter derivatives market alone had grown to a notional value of at least $648 trillion as of the end of 2011… the market is likely worth closer to $707 trillion and perhaps more,” writes analyst Jenny Walsh in The Paper Boat.

“The market has grown so unfathomably vast, the global economy is at risk of massive damage should even a small percentage of contracts go sour.  Its size and potential influence are difficult just to comprehend, let alone assess.”

To understand the risk of derivatives to the global economy, one should understand the history of fiat currencies and how money is created by central banks. Mike Maloney has a great series that I recommend:
Mike Maloney’s Hidden Secrets of Money

While there are real industries that make real products, one can nevertheless sense that global markets are rigged and current economic wealth is really an allusion created by the central banks. 

Recently, there has been a parabolic price move in Bitcoin (along with several other cryptocurrencies). As of this writing, Bitcoin is trading at over $2700!


According to investment manager Jeffrey Gundlach, China’s instability is one of the main drivers of this spike.

 

Bitcoin up 100% in under 2 months. Shanghai down almost 10% same timeframe, compared to most global stocks up. Probably not a coincidence!

A recent credit downgrade may have also had an impact according to The Telegraph and Bloomberg.

Forbes adds the following:

..it looks like Chinese money is going into bitcoin, global stocks and bonds. But not gold. Remember, the story of the latter 2016 and early 2017 period, out of China, has been the Chinese government’s efforts to restrict domestic capital from leaving China. It doesn’t appear that they are winning.

China has hinted at attempts to implement regulations to remedy the matter.

In a translated summary of his findings uploaded to Twitter by cnLedger, Xuedong stated, among other items, that “most Bitcoin investors are young people” and that exchange behavior such as faking trading volumes “should be examined and regulated.”

Bitcoin’s future in China “cannot work out without regulations,” he said, speaking in the wake of the US refusal of the first Bitcoin ETF.

The rise of bitcoin buying in China was simply a reaction to an inevitable currency devaluation. It was not the root cause of this devaluation. China is caught trying to balance competing interests: keep up with the latest technology to further grow its economy vs preventing a currency devaluation that could potentially lead to an economic catastrophe.

 

In addition, there is increasing implementation of Bitcoin recently on a global scale. Here are some examples:


The Japanese are Using Bitcoin More than Expected
Australia Will Recognize Bitcoin as Money and Protect Bitcoin Businesses, No Taxes
Bitcoin Coming To Russian E-Commerce Giant Ulmart Starting September 1 
India’s Zebpay Has More Mobile Users Than All Korean Bitcoin Apps Combined 
You Can Now Pay Bitcoin for Parking at 27 UK Airports 

 

Fidelity Investments is acknowledging the increased demand by allowing clients to see digital currencies on its website.

 

Incidentally, for years, rumors of China and Russia joining together to dump the US dollar have been discussed. If true, they could be holding up their economies until the right time to move towards a gold standard. This bombshell report from Zerohedge seems to confirm the idea.

 

Speaking on future ties with Russia, Chinese Premier Li Keqiang said in mid-March that Sino-Russian trade ties were affected by falling oil prices, but he added that he saw great potential in cooperation. Vladimir Shapovalov, a senior official at the Russian central bank, said the two central banks were drafting a memorandum of understanding to solve technical issues around China’s gold imports from Russia, and that details would be released soon.

If Russia – the world’s fourth largest gold producer after China, Japan and the US – is indeed set to become a major supplier of gold to China, the probability of a scenario hinted by many over the years, namely that Beijing is preparing to eventually unroll a gold-backed currency, increases by orders of magnitude.

“We discussed the question of trade in gold. BRICS countries are large economies with large reserves of gold and an impressive volume of production and consumption of this precious metal. In China, the gold trade is conducted in Shanghai, in Russia it is in Moscow. Our idea is to create a link between the two cities in order to increase trade between the two markets,” First Deputy Governor of the Russian Central Bank Sergey Shvetsov told Russia’s TASS news agency.

In other words, China and Russia are shifting away from dollar-based trade, to commerce which will eventually be backstopped by gold, or what is gradually emerging as an Eastern gold standard, one shared between Russia and China, and which may day backstop their respective currencies.

I suggested in a prior post that Bitcoin would be the best alternative for the US to counter the economic alliance between China and Russia. If there is a move toward some form of a gold standard (i.e. gold backed trade note), virtually all fiat currencies (those not backed by gold, silver, oil, etc.) will hyper-inflate. In that case, people will lose confidence in central banks and the only viable alternative will be cryptocurrencies like bitcoin.

There are small hints that the Trump administration is pro-Bitcoin: 

CNNMoney reported:

His budget director, former US House member Mick Mulvaney, had been dubbed the “Bitcoin Congressman” by some of the currency’s backers.

And vice president Mike Pence’s chief economist Mark Calabria has given speeches in support of bitcoin as well. Calabria was formerly the director of financial regulation studies at the libertarian-leaning Cato Institute before joining the administration.

In addition, there was a mysterious Sean Spicer tweet – Did Sean Spicer actually tweet a Bitcoin transaction?

But, there have been some like blogger Michael Krieger who think that President Trump is completely controlled by Wall Street. Maybe he has a point. Just look at the number of Goldman Sachs alumni in his administration. Also, the manipulation of markets (stock, commodities, bond, etc.) continues unabated. Others, like Brandon Smith, are adamant in spreading a completely bogus theory that President Trump has been selected by the central bankers to be a scapegoat for future economic calamity. No one with even a primitive understanding of economics can possibly blame President Trump for some future economic collapse. In that case, blame will be placed squarely on the FED. I easily refute Mr. Smith’s assertion and lay out the Trump strategy to end the FED in my prior post.

So, what is the solution? One approach, suggested by Dr. Ron Paul (back in 2011) would be to declare bankruptcy and return to a gold standard. The market manipulation could end with a new system in place. That would be an incredibly dangerous approach in my opinion. Imagine the 10-year bond moving up 300 basis points (i.e. from 3% to 6%) over a short period of time. With banks completely leveraged and holding trillions in derivatives, they would become effectively insolvent. The whole economy would then implode.

I think a better approach, which is maybe what the Trump administration has settled on, is to try to stave off bankruptcy (via Plunge Protection Team) until an alternate system (like Bitcoin) is in place. Ultimately, Bitcoin is an enemy to all central banks including the FED. As individuals opt to use cryptocurrencies (i.e. wire transfers, payments) and move away from using fiat currencies, the central banks lose their control over people. The central bank will effectively be irrelevant. This alternate system which is being implemented right now is part of the global currency reset that has been discussed for years.

The president of the Federal Reserve of Minneapolis, Neel Kashkari, made some interesting comments about Bitcoin recently:

“This is a topic a lot of people across the Fed are paying attention to and watching how it evolves.”

“The problem I have [with bitcoin] is while it says, by design, you’re limiting the number of bitcoins that can be created, it doesn’t stop me from creating NeelCoin or somebody from creating Bobcoin or Marycoin or Susiecoin.”

 

Perhaps Mr. Kashkari didn’t realize he was actually making an endorsement for Bitcoin with his statements. Central bankers shouldn’t be the only ones allowed to create money.

In fact, anyone can should be able to create their own cryptocurrency. You can get essential instructions from one of these articles:

How To Create Your Own Cryptocurrency
How Anyone Can Make Their Own Digital Currency


(Wow, maybe this can convince some unfortunate, misguided individuals that the Jews really don’t run the world and control all the banks.)

Back in 1980, as the price of gold and silver exploded higher, the FED raised interest rates several times. They also stopped the Hunt brothers from cornering the silver market. Today, a similar interest rate increase is not possible as the national debt (as % of GDP) is much higher than it was back then.

Although the precious metals markets are rigged, as evidenced by the Deutsche Bank settlement, highlighted in this Bloomberg article, Wall Street has limited resources for manipulating cryptocurrencies. There are no ETFs (Exchange Traded Funds) approved by the SEC that directly track cryptocurrencies like Bitcoin. So, there is limited potential of selling short Bitcoins. There could be future raids on one of the exchanges (i.e. Mt. Gox) but this will only be temporary setback and not stop the momentum of cryptocurrencies.

We can only hope that the transition is smooth. I wouldn’t count on it.

An earlier version of this article was posted on 5/25/15 at the Newswithchai blog.