A tale of two worlds

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    by Alasdair Macleod, GoldMoney:

    In the war between the western alliance and the Asian axis, the media focus is on the Ukrainian battlefield. The real war is in currencies, with Russia capable of destroying the dollar.

    So far, Putin’s actions have been relatively passive. But already, both Russia and China have accumulated enough gold to implement gold standards. It is now overwhelmingly in their interests to do so.

    From Sergey Glazyev’s recent article in a Russian business newspaper, it is clear that settlement of trade balances between members, dialog partners, and associate members of the Shanghai Cooperation Organisation (SCO) optionally will be in gold. Furthermore, the Russian economy would benefit enormously from a decline in borrowing rates from current levels of over 13% to a level more consistent with sound money.

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    To understand the consequences, in this article the comparison is made between the western alliance’s fiat currency and deficit spending regime and the Russian-Chinese axis’s planned industrial revolution for some 3.8 billion people in the SCO family. China has a remarkable savings rate, which will underscore the investment capital for a rapid increase in Asian industrialisation, without inflationary consequences.

    With a new round of military action in Ukraine shortly to kick off, it will be in Putin’s interest to move from passivity to financial aggression. It will not take much for him to undermine the entire western fiat currency system — a danger barely recognised by a gung-ho NATO military complex.

    Introduction

    In the geopolitical tussle between the old and new hegemons, we see the best of strategies and the worst of strategies, where belief is pitted against credulity. It is the season of light and the season of darkness, the spring of hope and the winter of despair…

    Recalling some of Charles Dickens’ famous opening lines from his Tale of Two Cities to describe the current state of global politics sums up the potential of a new industrial revolution throughout Asia and much of the rest of the under-developed world (the best of times), compared with the western alliance abetted by its military arm, NATO, which is determined to suppress the plans for the new hegemons at its own peoples’ expense (the worst of times). Ironically, the nations which will benefit most from the western alliance’s proxy war are those which align themselves with its enemies. 

    Plus ça change. But we must leave Dickens and look more closely at our modern situation — whereby America’s finance and currency-based hegemony has outlasted its benefits to the world order. We must recognise that a new order has been emerging since the Russian counter-revolution of 1989 when the Berlin Wall fell and in China following the death of Mao. For over thirty years, there has been the prospect of a new economic liberation for not just Russia and China, but almost the entire underdeveloped world. The tale of two worlds is about the governments of the established 1.2 billion souls in the so-called advanced economies, determined to contain the other 6.7 billion from challenging it. It is a clash between production-based economies, and economies increasingly based on services and finance. It is a clash between real values and ethereal values. It is evolving into a clash between fiat currencies and sound money.

    Ukraine, and the role of Germany

    Today, the clash of the hegemons is focused on Ukraine. It has already shifted from Afghanistan, and before that, Syria. Every time, America which runs NATO and the five-eyes intelligence network has failed to defeat the Asian axis because of their refusal to be drawn into outright conflict. Apart from defending their direct interests, Russia and China have watched NATO gently fall apart. First, it was the British refusing to support an all-out conflict in Syria. Then, it was Turkey, a NATO member which has understandably seen its interests to lie more in line with the Asian hegemons. Will Germany be next?

    The fear in Washington must be whether Germany will similarly pursue its very obvious commercial interests by aligning itself more with Russia and China, and less with her NATO masters. We saw this conflict of interests in the undercurrent over Germany’s reluctance to permit NATO to deploy Leopard tanks in Ukraine. This has been sold to us as a reluctance to send German weapons into a theatre of war last invaded by the Nazis. Undoubtedly, it did stir up some unpleasant memories, but the whole ethos of post-Berlin-Wall Germany has been the peaceful development of its own commercial interests to the east.

    For the Russian and Chinese axis, the restoration of commercial relations with Germany’s manufacturing-based economy would be of obvious mutual benefits. Equally, it would lead to the death of the EU in its current form. Perhaps it is Germany’s position in all this which is driving America and its NATO establishment towards do-or-die conflicts over Ukraine.

    We should take a step back and look at this from Germany’s point of view. Since her defeat in the Second World War, Germany has been central to NATO’s existence. As Lord Ismay, NATO’s first secretary general pithily put it, its purpose was to keep the Soviet Union out, the Americans in, and Germany down. And with the history of the Ribbentrop-Molotov pact still in the back of everyone’s mind, it still summarises the situation today. From America’s point of view, while NATO was the military solution to Europe, the political situation could only be resolved by ensuring Germany was tied into Western Europe.

    There were several claims as to who the Father of a United Europe was, but the version which triumphed was authorised by the American Committee on United Europe (ACUE), which was set up in 1948 by senior American intelligence figures from the CIA.[i] Germany is still kowtowing to US intelligence seventy-five years later.

    But as the recent episode over Leopard tanks has shown, there is some resistance to this status quo. We also know that other Germans at high levels have been unhappy with the ECB’s monetary regime. Jens Weidmann, who resigned as President of the Bundesbank in October 2021, is not the only critic of monetary policy, though the Bundesbank now appears to have been purged of critics of the ECB.

    Therefore, there are two issues holding back Germany. It has been forced to abandon its sound money principals, and to cut itself off from its natural markets in Asia. But a resumption of NATO backed hostilities will throw Germany’s suppression by the US political and military establishments into sharp relief. Chancellor Scholtz will know that Russia is highly unlikely to be easily defeated. If anything, this forthcoming NATO venture is the western alliance’s final desperate throw of the dice. And despite NATO, Scholtz must keep his options open.

    If against all alliance propaganda NATO fails to win in Ukraine, Russia consolidates its position, and Putin remains as a strong Russian leader, Germany must be prepared for a political accommodation with Russia. It is not only a question of geographical proximity, but Germany has a strong manufacturing ethos, benefitting from access to Russian resources, markets for its products, and through Russia renewed access and cooperation with China.

    Clearly, Germany’s commercial ethos has more in common with the industrial revolution being planned by the Asian axis and their emerging plans for sound money than it has with most of her EU partners. If only Germany was free of US political control, in time she could establish a new Hanseatic League, a trade corridor from Eastern Europe encompassing the Baltics and Netherlands. It is considerations of this sort that must make the US establishment determined to not release its grip over Germany and the wider EU.

    There is no obvious basis for a truce over Ukraine

    There has been some hope expressed that before a new conflict escalates, a truce will be called leading to peace negotiations. Less gung-ho voices have called for negotiations, notably that of Henry Kissinger. There will have been some back-channel meetings as well, such as that between William Burns of the CIA, and Sergei Naryshkin, head of Russia’s foreign intelligence agency in Ankara last November. 

    According to Pepe Escobar, who is probably the most seasoned reporter on these matters not employed in western mainstream media, only this week the Americans have made “an offer the Russians cannot refuse”[ii]. It was spelled out in a Washington Post Op-Ed, bypassing Kiev entirely, offering to partition Ukraine along with a deal for a post-war military balance. The trouble with this approach is that the Americans have a track record of making promises to Russia only to be broken later. Most notably, in February 1990 US Secretary of State James Baker promised Mikhail Gorbachev that NATO’s expansion would not be “one inch eastwards”, and was one of “a cascade of similar promises”[iii].

    Not only does Russia mistrust the Americans, but in the chess board of international diplomacy, moves being initiated by the Americans puts Russia is in the stronger position. Peace talks initiated by the Americans would almost certainly require them to bend to Russian demands, just as if Russia initiated peace talks, she would be in the weaker position. Whether America is prepared to concede its control over Western Europe will become the central issue. The Russians are likely to insist on it. It would be the end of NATO, and a new European defence alliance without American involvement would have to take its place. 

    Furthermore, in the absence of an agreement Russia would be comfortable letting NATO continue to tie itself in knots. To the independent observer, the western alliance’s commitment to defeat Russia in a Ukrainian proxy war was a strategic blunder, pregnant with unintended consequences. It was a failure on the scale of the US’s intelligence failings over Iraq’s weapons of mass destruction. This time, the mistake was to underestimate the strength of Russia’s economy and her financial position.

    Sanctioning her was meant to cripple Russia, instead it crippled the western alliance while the rouble turned in the strongest currency performance in 2022. And western media still claims that Russia is suffering unaffordable losses of trade revenue, at a time of exceptional military expenditure.

    Obviously, there is some truth in this. But Russia’s underlying economy is far healthier than we have been led to believe. And despite massive military spending commitments, last year Russia’s budget deficit was only 2.3% of GDP, compared with the US’s 5.4%. The economic consequences of war has benefited Russia through higher energy prices, while it has cost the western alliance in price inflation and higher interest rates. Russia should have no trouble financing a 2023 deficit of 2.3% or more by borrowing in domestic markets, without undermining the rouble, while the financial consequences for the alliance of a new conflict are potentially catastrophic.

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