The Almighty Dollar Is In Peril As The Global ‘De-Dollarization’ Trend Accelerates

50 Dollars - Public DomainAs the Obama administration continues to alienate almost everyone else around the entire planet, an increasing number of prominent international voices are starting to question why the U.S. dollar should be so overwhelmingly dominant in global trade.  In previous articles, I have discussed Russia’s “de-dollarization strategy” and the fact that Gazprom is now asking their large customers to start paying in currencies other than the dollar.  But this is not just a story about Russia any longer.  As you will read about below, China and South Korea have just signed a major agreement to facilitate trade with one another using their own national currencies, and even prominent French officials are now talking about the need to use the dollar less and the euro more.  John Williams of shadowstats.com recently said that things have never “been more negative” for the U.S. dollar, and he was right on the mark.  The power of the almighty dollar has allowed all of us living in the United States to enjoy an extremely high standard of living for decades, but as that power now fades it is going to have profound implications for the U.S. economy.  In future years the value of the dollar will go down substantially, all of the imported goods filling our stores will become much more expensive, and it is going to cost the federal government a lot more to borrow money.  Unfortunately, with the stock market hitting all-time record highs and with the mainstream media endlessly touting an “economic recovery”, most Americans are not paying any attention to these things.

French oil giant Total is one of the largest energy companies in the entire world.  On Saturday, Total’s CEO made an absolutely stunning statement.  According to Reuters, he told reporters that there “is no reason to pay for oil in dollars”…

“Doing without the (U.S.) dollar, that wouldn’t be realistic, but it would be good if the euro was used more,” he told reporters.

There is no reason to pay for oil in dollars,” he said. He said the fact that oil prices are quoted in dollars per barrel did not mean that payments actually had to be made in that currency.

If Gazprom’s CEO had made such a statement, it would not have really surprised anyone.  But this came from a high profile French CEO.  A decade ago, it would have been unthinkable for him to say such a thing.  Wars have been started over less.  Virtually all oil and natural gas around the planet has been bought and sold for U.S. dollars since the 1970s, and this is an arrangement that the U.S. government has traditionally guarded very zealously.  But now that Russia has broken the petrodollar monopoly, the fear of questioning the almighty dollar appears to be dissipating.

And at this point even French government officials are not afraid to publicly discuss moving away from the U.S. dollar.  Just check out what French finance minister Michel Sapin said to the press this weekend

French finance minister Michel Sapin says “now is the right time to bolster the use of the euro” adding, more ominously for the dollar, “we sell ourselves aircraft in dollars. Is that really necessary? I don’t think so.” Careful to avoid upsetting his ‘allies’ across the pond, Sapin followed up with the slam-dunk diplomacy, “This is not a fight against dollar imperialism,” except, of course – that’s exactly what it is… just as it was over 40 years ago when the French challenged Nixon.

So why are the French suddenly so upset?

Could it be the fact that we just slapped the largest bank in France with a nearly 9 billion dollar fine?

The remarks come a week after Paris-based bank BNP Paribas (BNP) SA was slapped with a $8.97 billion fine by U.S. authorities for transactions carried out in dollars in countries facing American sanctions. The fine spurred debate in France about the right of the U.S. in extending its regulatory reach beyond its borders.

This is yet another example of how the Obama administration is alienating friends all over the globe.

In fact, there doesn’t seem to be anyone that the Obama administration is afraid of crossing.  Just a couple of days ago, the German press exploded in outrage when Germany arrested a U.S. spy.  Why we feel the need to spy on our friends is something that I will never figure out.

And of course our relations with Russia are probably the worst that they have been since the end of the Cold War at this point.  And as the Russians now rapidly move away from the U.S. dollar, they seem intent on bringing the rest of “the BRICS” with them.  The following is a short excerpt from a recent Voice of Russia article entitled “BRICS morphing into anti-dollar alliance“…

However, in her discussion with Vladimir Putin, the head of the Russian central bank unveiled an elegant technical solution for this problem and left a clear hint regarding the members of the anti-dollar alliance that is being created by the efforts of Moscow and Beijing:

“We’ve done a lot of work on the ruble-yuan swap deal in order to facilitate trade financing. I have a meeting next week in Beijing,” she said casually and then dropped the bomb: We are discussing with China and our BRICS parters the establishment of a system of multilateral swaps that will allow to transfer resources to one or another country, if needed. A part of the currency reserves can be directed to [the new system].” (source of the quote: Prime news agency)

It seems that the Kremlin chose the all-in-one approach for establishing its anti-dollar alliance. Currency swaps between the BRICS central banks will facilitate trade financing while completely bypassing the dollar. At the same time, the new system will also act as a de facto replacement of the IMF, because it will allow the members of the alliance to direct resources to finance the weaker countries. As an important bonus, derived from this “quasi-IMF” system, the BRICS will use a part (most likely the “dollar part”) of their currency reserves to support it, thus drastically reducing the amount of dollar-based instruments bought by some of the biggest foreign creditors of the US.

Of course the key economic player in the BRICS alliance is China.

So will China actually go along with a “de-dollarization” strategy?

Well, the truth is that China has been making moves to become more independent of the dollar for a long time, and it has just been announced that China and South Korea have signed an agreement which will mean more direct trade between the two nations using their own national currencies

China’s central bank has authorized the Bank of Communications, the country’s fifth largest lender, to undertake yuan clearing business in the South Korean capital, the People’s Bank of China (PBoC) said in a statement.

The announcement came as Chinese President Xi Jinping wrapped up a state visit to South Korea on Friday. China is seeking to make the yuan – also known as the renminbi – used more internationally in keeping with the country’s status as the world’s second biggest economy behind the United States.

Unfortunately, most Americans don’t care about any of this at all.

They don’t understand that more U.S. dollars are actually used outside the United States than are used inside the United States.  Because most of the rest of the world uses U.S. dollars to trade with one another, this has created a tremendous amount of artificial demand for our currency.  In other words, the value of the U.S. dollar is much higher than it otherwise would be, and this has enabled us to import trillions of dollars of products at ridiculously low prices.  The standard of living that we enjoy today is highly dependent on this arrangement continuing.

And our ability to fund the federal government and our state and local governments is heavily dependent on the rest of the planet loaning our dollars back to us for next to nothing.  If we actually had to pay realistic market rates to borrow money, the finances of the federal government would have already collapsed long ago.

So it is absolutely imperative for our own economic well-being that this “de-dollarization” trend not accelerate any further.  The rest of the world could actually severely hurt us by deciding to stop using the almighty dollar, and the more that the Obama administration antagonizes both our friends and our foes around the globe the more likely that is to happen.

We live in very perilous times, and the almighty dollar is more vulnerable now than it has been in decades.

If it starts collapsing, it will take down the entire U.S. financial system with it.

Let us hope that we still have a bit more time before that happens, because once the U.S. dollar collapses it will be exceedingly painful for all of us.

Russia Is Doing It – Russia Is Actually Abandoning The Dollar

Vladimir PutinThe Russians are actually making a move against the petrodollar.  It appears that they are quite serious about their de-dollarization strategy.  The largest natural gas producer on the planet, Gazprom, has signed agreements with some of their biggest customers to switch payments for natural gas from U.S. dollars to euros.  And Gazprom would have never done this without the full approval of the Russian government, because the Russian government holds a majority stake in Gazprom.  There hasn’t been a word about this from the big mainstream news networks in the United States, but this is huge.  When you are talking about Gazprom, you are talking about a company that is absolutely massive.  It is one of the largest companies in the entire world and it makes up 8 percent of Russian GDP all by itself.  It holds 18 percent of the natural gas reserves of the entire planet, and it is also a very large oil producer.  So for Gazprom to make a move like this is extremely significant.

When Barack Obama decided to slap some meaningless economic sanctions on Russia a while back, he probably figured that the world would forget about them after a few news cycles.

But the Russians do not forget, and they certainly do not forgive.

At this point the Russians are turning their back on the United States, and that includes the U.S. dollar.

What you are about to read is absolutely stunning, and yet you have not heard about it from any major U.S. news source.  But what Gazprom is now doing has the potential to really shake up the global financial landscape.  The following is an excerpt from a news report by the ITAR-TASS news agency

Gazprom Neft had signed additional agreements with consumers on a possible switch from dollars to euros for payments under contracts, the oil company’s head Alexander Dyukov told a press conference.

Additional agreements of Gazprom Neft on the possibility to switch contracts from dollars to euros are signed. With Belarus, payments in roubles are agreed on,” he said.

Dyukov said nine of ten consumers had agreed to switch to euros.

And Gazprom is not the only big company in Russia that is moving away from the U.S. dollar.

According to RT, other large Russian corporations are moving to other currencies as well…

Russia will start settling more contracts in Asian currencies, especially the yuan, in order to lessen its dependence on the dollar market, and because of Western-led sanctions that could freeze funds at any moment.

Over the last few weeks there has been a significant interest in the market from large Russian corporations to start using various products in renminbi and other Asian currencies, and to set up accounts in Asian locations,” Pavel Teplukhin, head of Deutsche Bank in Russia, told the Financial Times, which was published in an article on Sunday.

Diversifying trade accounts from dollars to the Chinese yuan and other Asian currencies such as the Hong Kong dollar and Singapore dollar has been a part of Russia’s pivot towards Asian as tension with Europe and the US remain strained over Russia’s action in Ukraine.

And according to Zero Hedge, “expanding the use of non-dollar currencies” is one of the main things that major Russian banks are working on right now…

Andrei Kostin, chief executive of state bank VTB, said that expanding the use of non-dollar currencies was one of the bank’s “main tasks”. “Given the extent of our bilateral trade with China, developing the use of settlements in roubles and yuan [renminbi] is a priority on the agenda, and so we are working on it now,” he told Russia’s President Vladimir Putin during a briefing. “Since May, we have been carrying out this work.”

“There is nothing wrong with Russia trying to reduce its dependency on the dollar, actually it is an entirely reasonable thing to do,” said the Russia head of another large European bank. He added that Russia’s large exposure to the dollar subjects it to more market volatility in times of crisis. “There is no reason why you have to settle trade you do with Japan in dollars,” he said.

The entire country is undergoing a major financial conversion.

This is just staggering.

Meanwhile, Russians have been pulling money out of U.S. banks at an unprecedented pace

So in March, without waiting for the sanction spiral to kick in, Russians yanked their moolah out of US banks. Deposits by Russians in US banks suddenly plunged from $21.6 billion to $8.4 billion. They yanked out 61% of their deposits in just one month! They’d learned their lesson in Cyprus the hard way: get your money out while you still can before it gets confiscated.

For those that don’t think that all of this could hurt the U.S. economy or the U.S. financial system, you really need to go back and read my previous article entitled “De-Dollarization: Russia Is On The Verge Of Dealing A Massive Blow To The Petrodollar“.  The truth is that the U.S. economic system is extremely dependent on the financial behavior of the rest of the globe.

Because nearly everyone else around the rest of the planet uses our currency to trade with one another, that keeps the value of the U.S. dollar artificially high and it keeps our borrowing costs artificially low.

As Russia abandons the U.S. dollar that will hurt, but if other nations start following suit that could eventually cause a financial avalanche.

What we are witnessing right now is just a turning point.

The effects won’t be felt right away.  So don’t expect this to cause financial disaster next week or next month.

But this is definitely another element in the “perfect storm” that is starting to brew for the U.S. economy.

Yes, we have been living in a temporary bubble of false stability for a few years.  However, the long-term outlook has not gotten any better.  In fact, the long-term trends that are destroying our economic and financial foundations just continue to get even worse.

So enjoy the “good times” while you still can.

They certainly will not last too much longer.

Is The United States Going To Go To War With Syria Over A Natural Gas Pipeline?

PipelineWhy has the little nation of Qatar spent 3 billion dollars to support the rebels in Syria?  Could it be because Qatar is the largest exporter of liquid natural gas in the world and Assad won’t let them build a natural gas pipeline through Syria?  Of course.  Qatar wants to install a puppet regime in Syria that will allow them to build a pipeline which will enable them to sell lots and lots of natural gas to Europe.  Why is Saudi Arabia spending huge amounts of money to help the rebels and why has Saudi Prince Bandar bin Sultan been “jetting from covert command centers near the Syrian front lines to the Élysée Palace in Paris and the Kremlin in Moscow, seeking to undermine the Assad regime”?  Well, it turns out that Saudi Arabia intends to install their own puppet government in Syria which will allow the Saudis to control the flow of energy through the region.  On the other side, Russia very much prefers the Assad regime for a whole bunch of reasons.  One of those reasons is that Assad is helping to block the flow of natural gas out of the Persian Gulf into Europe, thus ensuring higher profits for Gazprom.  Now the United States is getting directly involved in the conflict.  If the U.S. is successful in getting rid of the Assad regime, it will be good for either the Saudis or Qatar (and possibly for both), and it will be really bad for Russia.  This is a strategic geopolitical conflict about natural resources, religion and money, and it really has nothing to do with chemical weapons at all.

It has been common knowledge that Qatar has desperately wanted to construct a natural gas pipeline that will enable it to get natural gas to Europe for a very long time.  The following is an excerpt from an article from 2009

Qatar has proposed a gas pipeline from the Gulf to Turkey in a sign the emirate is considering a further expansion of exports from the world’s biggest gasfield after it finishes an ambitious programme to more than double its capacity to produce liquefied natural gas (LNG).

“We are eager to have a gas pipeline from Qatar to Turkey,” Sheikh Hamad bin Khalifa Al Thani, the ruler of Qatar, said last week, following talks with the Turkish president Abdullah Gul and the prime minister Recep Tayyip Erdogan in the western Turkish resort town of Bodrum. “We discussed this matter in the framework of co-operation in the field of energy. In this regard, a working group will be set up that will come up with concrete results in the shortest possible time,” he said, according to Turkey’s Anatolia news agency.

Other reports in the Turkish press said the two states were exploring the possibility of Qatar supplying gas to the strategic Nabucco pipeline project, which would transport Central Asian and Middle Eastern gas to Europe, bypassing Russia. A Qatar-to-Turkey pipeline might hook up with Nabucco at its proposed starting point in eastern Turkey. Last month, Mr Erdogan and the prime ministers of four European countries signed a transit agreement for Nabucco, clearing the way for a final investment decision next year on the EU-backed project to reduce European dependence on Russian gas.

“For this aim, I think a gas pipeline between Turkey and Qatar would solve the issue once and for all,” Mr Erdogan added, according to reports in several newspapers. The reports said two different routes for such a pipeline were possible. One would lead from Qatar through Saudi Arabia, Kuwait and Iraq to Turkey. The other would go through Saudi Arabia, Jordan, Syria and on to Turkey. It was not clear whether the second option would be connected to the Pan-Arab pipeline, carrying Egyptian gas through Jordan to Syria. That pipeline, which is due to be extended to Turkey, has also been proposed as a source of gas for Nabucco.

Based on production from the massive North Field in the Gulf, Qatar has established a commanding position as the world’s leading LNG exporter. It is consolidating that through a construction programme aimed at increasing its annual LNG production capacity to 77 million tonnes by the end of next year, from 31 million tonnes last year. However, in 2005, the emirate placed a moratorium on plans for further development of the North Field in order to conduct a reservoir study.

As you just read, there were two proposed routes for the pipeline.  Unfortunately for Qatar, Saudi Arabia said no to the first route and Syria said no to the second route.  The following is from an absolutely outstanding article in the Guardian

In 2009 – the same year former French foreign minister Dumas alleges the British began planning operations in Syria – Assad refused to sign a proposed agreement with Qatar that would run a pipeline from the latter’s North field, contiguous with Iran’s South Pars field, through Saudi Arabia, Jordan, Syria and on to Turkey, with a view to supply European markets – albeit crucially bypassing Russia. Assad’s rationale was “to protect the interests of [his] Russian ally, which is Europe’s top supplier of natural gas.”

Instead, the following year, Assad pursued negotiations for an alternative $10 billion pipeline plan with Iran, across Iraq to Syria, that would also potentially allow Iran to supply gas to Europe from its South Pars field shared with Qatar. The Memorandum of Understanding (MoU) for the project was signed in July 2012 – just as Syria’s civil war was spreading to Damascus and Aleppo – and earlier this year Iraq signed a framework agreement for construction of the gas pipelines.

The Iran-Iraq-Syria pipeline plan was a “direct slap in the face” to Qatar’s plans. No wonder Saudi Prince Bandar bin Sultan, in a failed attempt to bribe Russia to switch sides, told President Vladmir Putin that “whatever regime comes after” Assad, it will be “completely” in Saudi Arabia’s hands and will “not sign any agreement allowing any Gulf country to transport its gas across Syria to Europe and compete with Russian gas exports”, according to diplomatic sources. When Putin refused, the Prince vowed military action.

If Qatar is able to get natural gas flowing into Europe, that will be a significant blow to Russia.  So the conflict in Syria is actually much more about a pipeline than it is about the future of the Syrian people.  In a recent article, Paul McGuire summarized things quite nicely…

The Nabucco Agreement was signed by a handful of European nations and Turkey back in 2009. It was an agreement to run a natural gas pipeline across Turkey into Austria, bypassing Russia again with Qatar in the mix as a supplier to a feeder pipeline via the proposed Arab pipeline from Libya to Egypt to Nabucco (is the picture getting clearer?). The problem with all of this is that a Russian backed Syria stands in the way.

Qatar would love to sell its LNG to the EU and the hot Mediterranean markets. The problem for Qatar in achieving this is Saudi Arabia. The Saudis have already said “NO” to an overland pipe cutting across the Land of Saud. The only solution for Qatar if it wants to sell its oil is to cut a deal with the U.S.

Recently Exxon Mobile and Qatar Petroleum International have made a $10 Billion deal that allows Exxon Mobile to sell natural gas through a port in Texas to the UK and Mediterranean markets. Qatar stands to make a lot of money and the only thing standing in the way of their aspirations is Syria.

The US plays into this in that it has vast wells of natural gas, in fact the largest known supply in the world. There is a reason why natural gas prices have been suppressed for so long in the US. This is to set the stage for US involvement in the Natural Gas market in Europe while smashing the monopoly that the Russians have enjoyed for so long. What appears to be a conflict with Syria is really a conflict between the U.S. and Russia!

The main cities of turmoil and conflict in Syria right now are Damascus, Homs, and Aleppo. These are the same cities that the proposed gas pipelines happen to run through. Qatar is the biggest financier of the Syrian uprising, having spent over $3 billion so far on the conflict. The other side of the story is Saudi Arabia, which finances anti-Assad groups in Syria. The Saudis do not want to be marginalized by Qatar; thus they too want to topple Assad and implant their own puppet government, one that would sign off on a pipeline deal and charge Qatar for running their pipes through to Nabucco.

Yes, I know that this is all very complicated.

But no matter how you slice it, there is absolutely no reason for the United States to be getting involved in this conflict.

If the U.S. does get involved, we will actually be helping al-Qaeda terrorists that behead mothers and their infants

Al-Qaeda linked terrorists in Syria have beheaded all 24 Syrian passengers traveling from Tartus to Ras al-Ain in northeast of Syria, among them a mother and a 40-days old infant.

Gunmen from the terrorist Islamic State of Iraq and Levant stopped the bus on the road in Talkalakh and killed everyone before setting the bus on fire.

Is this really who we want to be “allied” with?

And of course once we strike Syria, the war could escalate into a full-blown conflict very easily.

If you believe that the Obama administration would never send U.S. troops into Syria, you are just being naive.  In fact, according to Jack Goldsmith, a professor at Harvard Law School, the proposed authorization to use military force that has been sent to Congress would leave the door wide open for American “boots on the ground”

The proposed AUMF focuses on Syrian WMD but is otherwise very broad.  It authorizes the President to use any element of the U.S. Armed Forces and any method of force.  It does not contain specific limits on targets – either in terms of the identity of the targets (e.g. the Syrian government, Syrian rebels, Hezbollah, Iran) or the geography of the targets.  Its main limit comes on the purposes for which force can be used.  Four points are worth making about these purposes.  First, the proposed AUMF authorizes the President to use force “in connection with” the use of WMD in the Syrian civil war. (It does not limit the President’s use force to the territory of Syria, but rather says that the use of force must have a connection to the use of WMD in the Syrian conflict.  Activities outside Syria can and certainly do have a connection to the use of WMD in the Syrian civil war.).  Second, the use of force must be designed to “prevent or deter the use or proliferation” of WMDs “within, to or from Syria” or (broader yet) to “protect the United States and its allies and partners against the threat posed by such weapons.”  Third, the proposed AUMF gives the President final interpretive authority to determine when these criteria are satisfied (“as he determines to be necessary and appropriate”).  Fourth, the proposed AUMF contemplates no procedural restrictions on the President’s powers (such as a time limit).

I think this AUMF has much broader implications than Ilya Somin described.  Some questions for Congress to ponder:

(1) Does the proposed AUMF authorize the President to take sides in the Syrian Civil War, or to attack Syrian rebels associated with al Qaeda, or to remove Assad from power?  Yes, as long as the President determines that any of these entities has a (mere) connection to the use of WMD in the Syrian civil war, and that the use of force against one of them would prevent or deter the use or proliferation of WMD within, or to and from, Syria, or protect the U.S. or its allies (e.g. Israel) against the (mere) threat posed by those weapons.  It is very easy to imagine the President making such determinations with regard to Assad or one or more of the rebel groups.

(2) Does the proposed AUMF authorize the President to use force against Iran or Hezbollah, in Iran or Lebanon?  Again, yes, as long as the President determines that Iran or Hezbollah has a (mere) a connection to the use of WMD in the Syrian civil war, and the use of force against Iran or Hezbollah would prevent or deter the use or proliferation of WMD within, or to and from, Syria, or protect the U.S. or its allies (e.g. Israel) against the (mere) threat posed by those weapons.

Would you like to send your own son or your own daughter to fight in Syria just so that a natural gas pipeline can be built?

What the United States should be doing in this situation is so obvious that even the five-year-old grandson of Nancy Pelosi can figure it out…

I’ll tell you this story and then I really do have to go. My five-year-old grandson, as I was leaving San Francisco yesterday, he said to me, Mimi, my name, Mimi, war with Syria, are you yes war with Syria, no, war with Syria. And he’s five years old. We’re not talking about war; we’re talking about action. Yes war with Syria, no with war in Syria. I said, ‘Well, what do you think?’ He said, ‘I think no war.’

Unfortunately, his grandmother and most of our other insane “leaders” in Washington D.C. seem absolutely determined to take us to war.

In the end, how much American blood will be spilled over a stupid natural gas pipeline?

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