De-Dollarization: Russia Is On The Verge Of Dealing A Massive Blow To The Petrodollar

The U.S. Dollar - Photo by Pen WaggenerIs the petrodollar monopoly about to be shattered?  When U.S. politicians started slapping economic sanctions on Russia, they probably never even imagined that there might be serious consequences for the United States.  But now the Russian media is reporting that the Russian Ministry of Finance is getting ready to pull the trigger on a “de-dollarization” plan.  For decades, virtually all oil and natural gas around the world has been bought and sold for U.S. dollars.  As I will explain below, this has been a massive advantage for the U.S. economy.  In recent years, there have been rumblings by nations such as Russia and China about the need to change to a new system, but nobody has really had a big reason to upset the status quo.  However, that has now changed.  The struggle over Ukraine has caused Russia to completely reevaluate the financial relationship that it has with the United States.  If it starts trading a lot of oil and natural gas for currencies other than the U.S. dollar, that will be a massive blow for the petrodollar, and it could end up dramatically changing the global economic landscape.

The fact that the Russian government has held a meeting to discuss “getting rid of the US dollar in Russian export operations” should be front page news on every mainstream news website in the United States.  That is how big this is.  But instead, we have heard nothing from the big mainstream news networks about this so far.  Instead, we have only heard about this from Russian news sources such as the Voice of Russia

Russian press reports that the country’s Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is “ready to handle the increased number of ruble-denominated transactions”.

According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.

The “de-dollarization meeting” was chaired by First Deputy Prime Minister of the Russian Federation Igor Shuvalov, proving that Moscow is very serious in its intention to stop using the dollar.

So will Russia go through with this?

After all, this wouldn’t just be a slap in the face.  This would essentially be like slamming an economic fist into our nose.

You see, Russia is not just a small player when it comes to trading oil and natural gas.  The truth is that Russia is the largest exporter of natural gas and the second largest exporter of oil in the world.

If Russia starts asking for payment in currencies other than the U.S. dollar, that will essentially end the monopoly of the petrodollar.

In order to do this, Russia will need trading partners willing to go along.  In the article quoted above, the Voice of Russia listed Iran and China as two nations that would potentially be willing to make the switch…

Of course, the success of Moscow’s campaign to switch its trading to rubles or other regional currencies will depend on the willingness of its trading partners to get rid of the dollar. Sources cited by Politonline.ru mentioned two countries who would be willing to support Russia: Iran and China. Given that Vladimir Putin will visit Beijing on May 20, it can be speculated that the gas and oil contracts that are going to be signed between Russia and China will be denominated in rubles and yuan, not dollars.

And the reality of the matter is that China has seemed ready to move away from the U.S. dollar for quite some time.  In a previous article, I included a quote from a French news source that discussed how China’s official news agency has even called for a “new international reserve currency… to replace the dominant US dollar”…

For decades the US has benefited to the tune of trillions of dollars-worth of free credit from the greenback’s role as the default global reserve unit.

But as the global economy trembled before the prospect of a US default last month, only averted when Washington reached a deal to raise its debt ceiling, China’s official Xinhua news agency called for a “de-Americanised” world.

It also urged the creation of a “new international reserve currency… to replace the dominant US dollar”.

For much more on what China is thinking, please see my previous article entitled “9 Signs That China Is Making A Move Against The U.S. Dollar“.

So why is the petrodollar so important?

Well, it creates a tremendous amount of demand for the U.S. dollar all over the globe.  Since everyone has needed it to trade with one another, that has created an endless global appetite for the currency.  That has kept the value of the dollar artificially high, and it has enabled us to import trillions of dollars of super cheap products from other countries.  If other nations stopped using the dollar to trade with one another, the value of the dollar would plummet dramatically and we would have to pay much, much more for the trinkets that we buy at the dollar store and Wal-Mart.

In addition, since the U.S. dollar is essentially the de facto global currency, this has also increased demand for our debt.  Major exporting nations such as China and Saudi Arabia end up with giant piles of our dollars.  Instead of just letting them sit there and do nothing, those nations often reinvest their dollars into securities that can rapidly be changed back into dollars if needed.  One of the most popular ways to do this has been to invest those dollars in U.S. Treasuries.  This has driven down interest rates on U.S. debt over the years and has enabled the U.S. government to borrow trillions upon trillions of dollars for next to nothing.

But if the rest of the world starts moving away from the U.S. dollar, all of this could change.

In order for our current standard of living to continue, it is absolutely imperative that everyone else around the globe continues to use our currency.

So if Russia really does pull the trigger on a “de-dollarization” strategy, that would be huge – especially if the rest of the planet started following their lead.

The U.S. economy is already teetering on the brink of another major downturn, and there are a whole host of indications that big trouble is on the horizon.  For much more on this, please see the article that I posted on Monday entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“.

Just about the last thing that we need right now is for our petrodollar monopoly to be threatened.

It would be nice if things would calm down in Ukraine and the relationship between the United States and Russia could go back to normal.

Sadly, that does not appear likely any time soon.

In fact, the Ukrainian government has already admitted that “we are essentially at war“, and on Tuesday six Ukrainian soldiers were killed and eight were wounded in a convoy attack in eastern Ukraine.

The regions in eastern Ukraine that have just declared independence have given the government in Kiev until Wednesday to pull their forces out of eastern Ukraine or else face war.

If a full blown civil war does erupt in Ukraine, it is going to take this crisis to a completely new level.

Unfortunately, most Americans are incredibly apathetic at this point and know very little about what is going on.

But in the end, this could have dramatic implications for all of us.

Obama And Putin Are Trapped In A Macho Game Of “Chicken” And The Whole World Could Pay The Price

Barack Obama Vladimir PutinThe U.S. government and the Russian government have both been forced into positions where neither one of them can afford to back down.  If Barack Obama backs down, he will be greatly criticized for being “weak” and for having been beaten by Vladimir Putin once again.  If Putin backs down, he will be greatly criticized for being “weak” and for abandoning the Russians that live in Crimea.  In essence, Obama and Putin find themselves trapped in a macho game of “chicken” and critics on both sides stand ready to pounce on the one who backs down.  But this is not just an innocent game of “chicken” from a fifties movie.  This is the real deal, and if nobody backs down the entire world will pay the price.

Leaving aside who is to blame for a moment, it is really frightening to think that we may be approaching the tensest moment in U.S.-Russian relations since the Cuban missile crisis.

There has been much talk about Obama’s “red lines”, but the truth is that Crimea (and in particular the naval base at Sevastopol) is a “red line” for Russia.

There is nothing that Obama could ever do that could force the Russians out of Sevastopol.  They will never, ever willingly give up that naval base.

So what in the world does Obama expect to accomplish by imposing sanctions on Russia?  By treaty, Russia is allowed to have 25,000 troops in Crimea and Russia has not sent troops into the rest of Ukraine.

Economic sanctions are not going to cause Putin to back down.  Instead, they will just cause the Russians to retaliate.

In a letter that he sent to Congress this week, Obama claimed that the Ukrainian crisis is an “unusual and extraordinary threat to the national security and foreign policy of the United States.”

Language like that is going to make it even more difficult for Obama to back down.

On Thursday, Obama announced “visa restrictions” on “those Russians and Ukrainians responsible for the Russian move into Ukraine’s Crimean Peninsula”, and a House panel passed a “symbolic resolution” that condemned Russia for its “occupation” of Crimea.

But those moves are fairly meaningless.  Leaders from both political parties are now pushing for very strong economic sanctions against Russia, and there does not appear to be many members of Congress that intend to stand in the way.

If the U.S. does hit Russia with harsh economic sanctions, what is going to happen?

Is Russia going to back down?

No way.

So let’s just play out the coming moves like a game of chess for a moment…

-The U.S. slaps economic sanctions on Russia.

-Russia seizes the assets of U.S. companies that are doing business in Russia.

-The U.S. seizes Russian assets.

-The Russians refuse to pay their debts to U.S. banks.

-The U.S. government hits Russia with even stronger sanctions.

-Russia starts dumping U.S. debt and encourages other nations to start doing the same.

-The U.S. gets Europe to also hit Russia with economic sanctions.

-Russia cuts off the natural gas to Europe.  As I noted the other day, Russia supplies more than half the natural gas to a bunch of countries in Europe.

-The United States moves troops into western Ukraine.

-Russia starts selling oil for gold or for Russian rubles and encourages other nations to start abandoning the U.S. dollar in international trade.

Of course the order of many of these moves could ultimately turn out to be different, but I think that you can see the nightmare that this game of “chicken” could turn out to be.

And what would be the final result?

Nothing would be resolved, but the global economy would greatly suffer.

What makes all of this even more complicated is that about 60 percent of the people living in Crimea are actually ethnic Russians, and a majority of the population appears to want to leave Ukraine and be reunited with Russia.  The following comes from a Reuters article

Crimea’s parliament voted to join Russia on Thursday and its Moscow-backed government set a referendum on the decision in 10 days’ time in a dramatic escalation of the crisis over the Ukrainian Black Sea peninsula.

The sudden acceleration of moves to bring Crimea, which has an ethnic Russian majority and has effectively been seized by Russian forces, formally under Moscow’s rule came as European Union leaders held an emergency summit groping for ways to pressure Russia to back down and accept mediation.

The Obama administration is calling the upcoming referendum “illegal” and says that it will not respect the will of the Crimean people no matter how the vote turns out.

But the people of Crimea are very serious about this, and of course they never would be pushing for reunification with Russia if they had not gotten approval from Putin…

The decision, which diplomats said could not have been made without Putin’s approval, raised the stakes in the most serious east-west confrontation since the end of the Cold War.

The vice premier of Crimea, home to Russia’s Black Sea Fleet in Sevastopol, said a referendum on the status would take place on March 16. All state property would be “nationalized”, the Russian ruble adopted and Ukrainian troops treated as occupiers and forced to surrender or leave, he said.

There is no way that the U.S. government is going to accept Crimea becoming part of Russia, and there is no way in the world that Russia is going to back down at this point.  Just consider what geopolitical expert Ian Bremmer of the Eurasia Group recently had to say

“Russia is not going to back down from Crimea, irrespective of U.S. pressure. Which means if the U.S. wants to find any resolution here, they’re going to have to find a way to come to terms with that. Now that the Crimean parliament has voted — clearly with Russian assent — we’ll have a referendum … and then further militarization of the peninsula by the Russians.”

What we need is someone with extraordinary diplomatic skills to defuse this situation before it spirals out of control.

Unfortunately, we have Barack Obama, Valerie Jarrett and John Kerry running things.

What a mess.

So why is Ukraine such a big deal anyway?

In a recent article, Peter Farmer explained succinctly why Ukraine is so incredibly important…

The Ukraine is strategically-important for a number of reasons. It sits astride enormous petroleum and natural gas deposits found in the Black Sea region. The nation is also home to an extensive network of liquid natural gas pipelines which crisscross it; control the Ukraine and you control its pipelines – and thus the flow of energy into the hugely-lucrative European market. Western energy firms such as Exxon-Mobil, BP-Amoco and Chevron are locked in competition with the Russian energy giant Gazprom – for control/exploitation of as-yet-undeveloped petroleum deposits not only in the Ukraine, but in neighboring Poland and Romania. Fracking technologies and other new extraction methods have only added urgency to the competition. Income from fossil fuels development is the lifeblood of the new Russian economy. Threats to the regional hegemony of Gazprom are likely to be treated by Putin and Russia with the utmost urgency and seriousness.

The Crimean Peninsula is also home to the Black Sea fleet of the Russian navy, which leases its base at Sevastopol from the Ukrainian government. Since the Black Sea – via the Dardanelles – provides the only warm-water base with access to the Mediterranean Sea – it is of enormous importance to Russia. Its loss would be a crippling blow to the Russian fleet.

Finally, the Ukraine – once known as the “bread basket of Europe” – is home to arguably the finest temperate agricultural region in the world. Its topsoil is widely-acknowledged by agronomists to be among the world’s best. Control the Ukraine and you control the grainery of Europe – and can exert tremendous leverage upon worldwide grain agricultural commodities prices.

If the U.S. insists on playing a game of brinksmanship over Ukraine, the consequences could be disastrous.

For one thing, as I mentioned above, the status of the petrodollar could be greatly threatened.  The following is how Jim Willie is analyzing the situation…

If the Kremlin demands Gold bullion (or even Russian Rubles) for oil payments, then the interventions to subvert the Ruble currency by the London and Wall Street houses will backfire and blow up in the bankster faces. Expect any surplus Rubles would be converted quickly to Gold bullion. If the Chinese demand that they are permitted to pay for oil shipments in Yuan currency, then the entire Petro-Dollar platform will be subjected to sledge hammers and wrecking balls. The new Petro-Yuan defacto standard will have been launched from the Shanghai outpost. If the Saudis curry favor to the Russians and Chinese by accepting non-USDollar payments for oil shipments, then the Petro-Dollar is dead and buried.

In addition, if Russia starts dumping U.S. debt and gets other nations (such as China) to start doing the same, that could create a nightmare scenario for the U.S. financial system very rapidly.

So let us hope and pray that cooler heads prevail.

In my recent article entitled “The Top 12 Signs That The U.S. Economy Is Heading Toward Another Recession“, I discussed how the U.S. economy appears to be hurtling toward another major downturn.

And on Thursday, we learned that office supplies giant Staples has just announced that it is going to close 225 stores.

Even without this major international crisis, the U.S. economy would still be deeply troubled.

But if the United States and Russia do declare “economic war” on each other, all hell could start breaking loose.

Unfortunately, there does not appear to be much hope of anyone backing down at this point.  In an editorial for the Washington Post, Henry Kissinger stated that it “is incompatible with the rules of the existing world order for Russia to annex Crimea.”

Very interesting word choice.

So this is the situation we are facing…

-The U.S. government seems absolutely determined to “punish” Russia until it leaves Crimea.

-Russia is never going to leave Crimea, and has promised to “respond” harshly to any sanctions.

Most Americans are not paying much attention to what is going on in Ukraine, but this is a very, very big deal.

In the end, it could potentially affect the lives of virtually every man, woman and child on the planet.

Russia And China Stand In Agreement On Ukraine – And That Is Very Bad News For The United States

Vladimir_Putin_with_Zhang_DeguangSo much for “isolating” Russia.  The Chinese government is publicly siding with Russia on the crisis in Ukraine, and that is very bad news for the United States.  Not only does it mean that the U.S. is essentially powerless to do anything about the situation in Ukraine, it also means that Russia and China are starting to understand how much economic leverage that they really have.  Yes, the Obama administration can threaten to slap “sanctions” on Russia or threaten to kick Russia “out of the G8“, but those actions would not actually hurt too much.  On the other hand, Russia and China hold approximately 25 percent of all foreign-owned U.S. debt, and if they started massively dumping U.S. debt it could rapidly create a nightmare scenario.  In addition, it is important to remember that Russia is the largest exporter of natural gas and the second largest exporter of oil in the world.  And China now imports more oil than anyone else on the planet does, including the United States.  If Russia and China got together and decided to kill the petrodollar, they could do it almost overnight.  So when it comes to Ukraine, it is definitely not the United States that has the leverage.

If China and the rest of the world abandoned Russia over Ukraine, that would be one thing.  But that is not happening at all.  In fact, China has chosen to publicly stand with Russia on this issue.  The following is from a Sky News article entitled “Russia And China ‘In Agreement’ Over Ukraine“…

Russian foreign minister Sergei Lavrov discussed Ukraine by telephone with his Chinese counterpart, Wang Yi, on Monday, and claimed they had “broadly coinciding points of view” on the situation there, according to a ministry statement.

And Chinese state news agency Xinhua is publicly rebuking the West for their handling of the Ukrainian crisis…

China’s state news agency Xinhua accused western powers of adopting a Cold War- like mindset towards Russia, trying to isolate Moscow at a time when much needed mediation is need to reach a diplomatic solution to the crisis in Crimea.

“Based on the fact that Russia and Ukraine have deep cultural, historical and economic connections, it is time for Western powers to abandon their Cold War thinking. Stop trying to exclude Russia from the political crisis they failed to mediate, and respect Russia’s unique role in mapping out the future of Ukraine,” Xinhua wrote in an opinion piece.

Apparently clueless as to how the geopolitical chips are falling, the Obama administration is busy planning all sorts of ways that it can punish Russia

Behind the scenes, Obama administration officials are preparing a series of possible battle plans for a potential economic assault on Russia in response to its invasion of Ukraine, an administration source close to the issue told The Daily Beast. Among the possible targets for these financial attacks: everyone from high-ranking Russian military officials to government leaders to top businessmen to Russian-speaking separatists in Ukraine. It’s all part of the work to prepare an executive order now under consideration at the Obama administration’s highest levels.

Does the Obama administration really want to start an “economic war” with Russia and potentially against China as well?

Considering how much money we owe them, and considering the fact that we desperately need them to continue to use the petrodollar, we stand to lose far more than they do.

This is one of the reasons why I have always insisted that the national debt was a national security issue.  By going into so much debt, we have given other nations such as Russia and China a tremendous amount of leverage over us.

Unfortunately, the debtmongers in Washington D.C. never have listened to common sense.

When it comes to Ukraine, there are other economic considerations as well.

For example, about 25 percent of the natural gas that Europe uses comes from Russia, and Ukraine only has about four months of natural gas supplies stockpiled.

If Russia cut off the natural gas, that would create some huge problems.  Fortunately, winter is just about over or the Russians would have even more leverage.

In addition, Ukraine is one of the leading exporters of wheat and corn on the planet, and a disruption in the growing of those crops could make the emerging global food crisis even worse.

But of course the biggest concern is that the Ukraine crisis could ultimately spark a global war.

Unfortunately, there is a treaty that requires the United States to defend Ukraine if it is attacked…

President Bill Clinton, along with the British, signed in 1994 a nearly forgotten agreement to protect Ukraine’s borders. Ukraine now is appealing to the countries that signed the agreement.

As the British Daily Mail points out, it means that, technically, if Russia were to invade Ukraine, it would be difficult for the U.S. and Britain to avoid going to war.

Given that the late Russian president, Boris Yeltsin also signed it, it was apparent that it wasn’t expected that the Russians would take the action that Putin now is undertaking.

And top Ukrainian politicians are now asking western nations to come to the aid of Ukraine militarily

Ukraine’s former prime minister Yulia Tymoshenko has appealed for the West to adopt ‘strongest means’ to intervene in Russia’s occupation of Crimea if diplomacy fails.

In an interview with CNN’s Christiane Amanpour, Tymoshenko, freed last week after the riots throughout the nation, said if Russia is allowed to ‘take away’ Crimea, life will change ‘practically everywhere in the world.’

She added: ‘Then we have to accept… an aggressor, can violate all the international agreements, take away territories, whenever she likes.’

On the other side, deposed Ukrainian President Viktor Yanukovych has formally requested that Russia militarily intervene in his nation…

Russia’s U.N. envoy said Monday that ousted Ukrainian President Viktor Yanukovych asked Russia to send troops to “establish legitimacy, peace, law and order, stability, and defending the people of Ukraine.” Russian Ambassador Vitaly Churkin read a letter from Yanukovych at the U.N. Security Council meeting.

“Ukraine is on the brink of civil war. In the country, there is chaos and anarchy. The life, the security and the rights of people, particularly in the southeast part in Crimea are being threatened. So under the influence of Western countries, there are open acts of terrorism and violence. People are being persecuted for language and political reasons,” the letter said. “So in this regard, I would call on the President of Russia, Mr. Putin, asking him to use the armed forces of the Russian Federation to establish legitimacy, peace, law and order, stability, and defending the people of Ukraine.”

And it is very important to note that Yanukovych would have never issued this letter if the Russian government has not asked him to.

So the stage is set.

Russia has already grabbed Crimea, and it is eyeing other territories in eastern Ukraine.

China is publicly backing Russia, and collectively they have a tremendous amount of economic leverage.

The Obama administration is barking loudly about what Russia has done, but the reality is that the U.S. has very little economic leverage at this point.

What the U.S. does have is the strongest military on the entire planet, but let us hope and pray that Obama does not decide to get the U.S. military involved in Ukraine.  That would be absolutely disastrous.

In the end, the U.S. has no good options in Ukraine.  The Obama administration helped aid and organize the violent revolution that overthrew the Ukrainian government, and now we have a giant mess.

Nobody is quite sure what comes next, but one thing is certain…

The relationship between the United States and Russia will never, ever be the same again.

12 Signs That Russia Is Ready To Fight A War Over Crimea

Russian Military VehiclesRussia will never, ever give up Crimea without a fight.  Anyone that thinks otherwise is just being delusional.  The Russian Black Sea fleet’s main base at Sevastopol is far too strategically important.  In addition, ethnic Russians make up approximately 60 percent of the population of Crimea, and most of the population is rabidly pro-Russian.  In fact, many prominent Crimean politicians are already calling for reunification with Russia.  So if you have been thinking that Russia is just going to fold up shop and go home now that pro-European protesters have violently seized power in Kiev, you can quit holding your breath.  The truth is that Russia is more than willing to fight a war over Crimea.  And considering the fact that vitally important pipelines that pump natural gas from Russia to the rest of Europe go right through Ukraine, it is not likely that Russia will just willingly hand the rest of Ukraine over to the U.S. and the EU either.  If the U.S. and the EU push too hard in Ukraine, a major regional war may erupt which could ultimately lead to something much larger.

Russia and Ukraine have very deep historical ties.  Most Americans may not think that Ukraine is very important, but the Russians consider Ukraine to be of the utmost strategic importance.

As an American, how would you feel if another nation funded and organized the violent overthrow of the democratically-elected Canadian government and replaced it with a government that was virulently anti-American?

By doing this to Ukraine, the United States and the EU are essentially sticking a pin in Russia’s eye.  Needless to say, Russia is extremely angry at this point and they are gearing up for war.

The following are 12 signs that Russia is ready to fight a war over Crimea…

#1 More Russian military vehicles continue to pour into Crimea.  Just check out this video.

#2 Russian military vehicles have been photographed in the main square of Sevastopol.

#3 Russian military jets near the border with Ukraine have been put on combat alert.

#4 Russia has ordered “surprise military exercises” along the Ukrainian border.

#5 In connection with those “exercises”, it is being reported that Russia has deployed 150,000 troops along the border with Ukraine.

#6 Russia already has approximately 26,000 troops stationed at their naval base in Sevastopol.

#7 Russian ships carrying additional soldiers have been spotted off the coast of Crimea…

Russia’s large landing ship Nikolai Filchenkov has arrived near the Russia Black Sea Fleet’s base at Sevastopol, which Russia has leased from Ukraine since the fall of the Soviet Union in 1991.

The ship is reported to be carrying as many as 200 soldiers and has joined four additional ships carrying an unknown amount of Special Forces troops. Flot.com also reported over the weekend that personnel from the 45th Airborne Special Forces unit and additional divisions had been airlifted into Anapa, a city on Russia’s Black Sea coastline.

#8 Russian Defense Minister Sergei Shoigu made the following statement to reporters on Wednesday…

“Measures are taken to guarantee the security of our facilities.”

#9 An unidentified Russian official has told the Financial Times that Russia is willing to use military force to protect Crimea…

Moscow earlier revealed that it would be ready to go for war over the Crimea region in order to protect the large population and army installations.

“If Ukraine breaks apart, it will trigger a war. They will lose Crimea first [because] we will go in and protect [it], just as we did in Georgia,” an unidentified Russian official told the Financial Times.

#10 Officials in Sevastopol have “installed” a Russian citizen as mayor of the city.

#11 Approximately 120 pro-Russian gunmen have seized the Crimean parliament building and have raised the Russian flag.

#12 There are rumors that Russian authorities have offered protection to ousted Ukrainian president Viktor Yanukovych…

Viktor F. Yanukovych, the ousted president of Ukraine, declared on Thursday that he remained the lawful president of the country and appealed to Russia to “secure my personal safety from the actions of extremists.” Russian news agencies reported that he had already arrived in Russia, but officials did not immediately confirm that.

No matter what the “new government” in Kiev says, and no matter how hard the U.S. and the EU push, Russia will never give up Crimea.  The following is what a recent Debka article had to say about the matter…

There is no way that President Vladimir Putin will relinquish Russian control of the Crimean peninsula and its military bases there – or more particularly the big Black Sea naval base at Sevastopol. This military stronghold is the key to Russia’s Middle East policy. If it is imperiled, so too are Russia’s military posture in Syria and its strategic understandings with Iran.

And you know what?

The people of Crimea do not want Russia to leave either.  In fact, they overwhelmingly want Russia to help defend them against the “new government” in Kiev.

As you read this, militia groups are being formed in Crimea to fight back against the “nationalist invasion” that they are anticipating.  Just check out the following excerpt from a recent Time Magazine article

Many of the people at the rally in Sevastopol were not just ready to believe. They were convinced of the imminent nationalist invasion. What scared them most were the right-wing political parties and militant groups that have played a role in Ukraine’s revolution. “What do you think they’re going to do with all those weapons they seized from police in Kiev? They’re going to come here and make war,” said Sergei Bochenko, who identified himself as the commander of a local militia group in Sevastopol called the Southern Russian Cossack Battalion.

In preparation, he said, his group of several hundred men had armed themselves with assault rifles and begun to train for battle. “There’s not a chance in hell we’re going to accept the rule of that fascist scum running around in Kiev with swastikas,” he said. That may be overstating the case. Nowhere in Ukraine has the uprising involved neo-Nazi groups, and no swastikas have appeared on the revolution’s insignia. But every one of the dozen or so people TIME spoke to in Sevastopol was certain that the revolt was run by fascists, most likely on the payroll of the U.S. State Department.

And just remember what happened back in 2008 in South Ossetia and Abkhazia.  The Russians have already shown that they are not afraid to militarily intervene in order to protect Russian citizens.

So what would the U.S. and the EU do if a war erupts between Russia and Ukraine?

Would they risk a direct military confrontation with Russia in order to help Ukraine?

I am very concerned about where all of this could be heading.

What about you?

What do you think?

Please feel free to share your thoughts by posting a comment below…

Are We On The Verge Of A Massive Emerging Markets Currency Collapse?

Currency CollapseThis time, the Federal Reserve has created a truly global problem.  A big chunk of the trillions of dollars that it pumped into the financial system over the past several years has flowed into emerging markets.  But now that the Fed has decided to begin “the taper”, investors see it as a sign to pull the “hot money” out of emerging markets as rapidly as possible.  This is causing currencies to collapse and interest rates to soar all over the planet.  Argentina, Turkey, South Africa, Ukraine, Chile, Indonesia, Venezuela, India, Brazil, Taiwan and Malaysia are just some of the emerging markets that have been hit hard so far.  In fact, last week emerging market currencies experienced the biggest decline that we have seen since the financial crisis of 2008.  And all of this chaos in emerging markets is seriously spooking Wall Street as well.  The Dow has fallen nearly 500 points over the last two trading sessions alone.  If the Federal Reserve opts to taper even more in the coming days, this currency crisis could rapidly turn into a complete and total currency collapse.

A lot of Americans have always assumed that the U.S. dollar would be the first currency to collapse when the next great financial crisis happens.  But actually, right now just the opposite is happening and it is causing chaos all over the planet.

For instance, just check out what is happening in Turkey according to a recent report in the New York Times

Turkey’s currency fell to a record low against the dollar on Friday, a drop that will hit the purchasing power of everyone in the country.

On a street corner in Istanbul, Yilmaz Gok, 51, said, “I’m a retiree making ends meet on a small pension and all I care about is a possible increase in prices.”

“I will need to cut further,” he said. “Maybe I should use my natural gas heater less.”

As inflation escalates and interest rates soar in these countries, ordinary citizens are going to feel the squeeze.  Just having enough money to purchase the basics is going to become more difficult.

And this is not just limited to a few countries.  What we are watching right now is truly a global phenomenon

“You’ve had a massive selloff in these emerging-market currencies,” Nick Xanders, a London-based equity strategist at BTIG Ltd., said by telephone. “Ruble, rupee, real, rand: they’ve all fallen and the main cause has been tapering. A lot of companies that have benefited from emerging-markets growth are now seeing it go the other way.”

So why is this happening?  Well, there are a number of factors involved of course.  However, as with so many of our other problems, the actions of the Federal Reserve are at the very heart of this crisis.  A recent USA Today article described how the Fed helped create this massive bubble in the emerging markets…

Emerging markets are the future growth engine of the global economy and an important source of profits for U.S. companies. These developing economies were both recipients and beneficiaries of massive cash inflows the past few years as investors sought out bigger returns fostered by injections of cheap cash from the Federal Reserve and other central bankers.

But now that the Fed has started to dial back its stimulus, many investors are yanking their cash out of emerging markets and bringing the cash back to more stable markets and economies, such as the U.S., hurting the developing nations in the process, explains Russ Koesterich, chief investment strategist at BlackRock.

“Emerging markets need the hot money but capital is exiting now,” says Koesterich. “What you have is people saying, ‘I don’t want to own emerging markets.'”

What we are potentially facing is the bursting of a financial bubble on a global scale.  Just check out what Egon von Greyerz, the founder of Matterhorn Asset Management in Switzerland, recently had to say…

If you take the Turkish lira, that plunged to new lows this week, and the Russian ruble is at the lowest level in 5 years. In South Africa, the rand is at the weakest since 2008. The currencies are also weak in Brazil and Mexico. But there are many other countries whose situation is extremely dire, like India, Indonesia, Hungary, Poland, the Ukraine, and Venezuela.

I’m mentioning these countries individually just to stress that this situation is extremely serious. It is also on a massive scale. In virtually all of these countries currencies are plunging and so are bonds, which is leading to much higher interest rates. And the cost of credit-default swaps in these countries is surging due to the increased credit risks.

And many smaller nations are being deeply affected already as well.

For example, most Americans cannot even find Liberia on a map, but right now the actions of our Federal Reserve have pushed the currency of that small nation to the verge of collapse

Liberia’s finance minister warned against panic today after being summoned to parliament to explain a crash in the value of Liberia’s currency against the US dollar.

“Let’s be careful about what we say about the economy. Inflation, ladies and gentlemen, is not out of control,” Amara Konneh told lawmakers, while adding that the government was “concerned” about the trend.

Closer to home, the Mexican peso tumbled quite a bit last week and is now beginning to show significant weakness.  If Mexico experiences a currency collapse, that would be a huge blow to the U.S. economy.

Like I said, this is something that is happening on a global scale.

If this continues, we will eventually see looting, violence, blackouts, shortages of basic supplies, and runs on the banks in emerging markets all over the planet just like we are already witnessing in Argentina and Venezuela.

Hopefully something can be done to stop this from happening.  But once a bubble starts to burst, it is really difficult to try to hold it together.

Meanwhile, I find it to be very “interesting” that last week we witnessed the largest withdrawal from JPMorgan’s gold vault ever recorded.

Was someone anticipating something?

Once again, hopefully this crisis will be contained shortly.  But if the Fed announces that it has decided to taper some more, that is going to be a signal to investors that they should race for the exits and the crisis in the emerging markets will get a whole lot worse.

And if you listen carefully, global officials are telling us that is precisely what we should expect.  For example, consider the following statement from the finance minister of Mexico

“We expected this year to be a volatile year for EM as the Fed tapers,” Mexican Finance Minister Luis Videgaray said, adding that volatility “will happen throughout the year as tapering goes on”.

Yes indeed – it is looking like this is going to be a very volatile year.

I hope that you are ready for what is coming next.

Wheelbarrow of Money

20 Early Warning Signs That We Are Approaching A Global Economic Meltdown

Earth From SpaceHave you been paying attention to what has been happening in Argentina, Venezuela, Brazil, Ukraine, Turkey and China?  If you are like most Americans, you have not been.  Most Americans don’t seem to really care too much about what is happening in the rest of the world, but they should.  In major cities all over the globe right now, there is looting, violence, shortages of basic supplies, and runs on the banks.  We are not at a “global crisis” stage yet, but things are getting worse with each passing day.  For a while, I have felt that 2014 would turn out to be a major “turning point” for the global economy, and so far that is exactly what it is turning out to be.  The following are 20 early warning signs that we are rapidly approaching a global economic meltdown…

#1 The looting, violence and economic chaos that is happening in Argentina right now is a perfect example of what can happen when you print too much money

For Dominga Kanaza, it wasn’t just the soaring inflation or the weeklong blackouts or even the looting that frayed her nerves.

It was all of them combined.

At one point last month, the 37-year-old shop owner refused to open the metal shutters protecting her corner grocery in downtown Buenos Aires more than a few inches — just enough to sell soda to passersby on a sweltering summer day.

#2 The value of the Argentine Peso is absolutely collapsing.

#3 Widespread shortages, looting and accelerating inflation are also causing huge problems in Venezuela

Economic mismanagement in Venezuela has reached such a level that it risks inciting a violent popular reaction. Venezuela is experiencing declining export revenues, accelerating inflation and widespread shortages of basic consumer goods. At the same time, the Maduro administration has foreclosed peaceful options for Venezuelans to bring about a change in its current policies.

President Maduro, who came to power in a highly-contested election last April, has reacted to the economic crisis with interventionist and increasingly authoritarian measures. His recent orders to slash prices of goods sold in private businesses resulted in episodes of looting, which suggests a latent potential for violence. He has put the armed forces on the street to enforce his economic decrees, exposing them to popular discontent.

#4 In a stunning decision, the Venezuelan government has just announced that it has devalued the Bolivar by more than 40 percent.

#5 Brazilian stocks declined sharply on Thursday.  There is a tremendous amount of concern that the economic meltdown that is happening in Argentina is going to spill over into Brazil.

#6 Ukraine is rapidly coming apart at the seams

A tense ceasefire was announced in Kiev on the fifth day of violence, with radical protesters and riot police holding their position. Opposition leaders are negotiating with the government, but doubts remain that they will be able to stop the rioters.

#7 It appears that a bank run has begun in China

As China’s CNR reports, depositors in some of Yancheng City’s largest farmers’ co-operative mutual fund societies (“banks”) have been unable to withdraw “hundreds of millions” in deposits in the last few weeks. “Everyone wants to borrow and no one wants to save,” warned one ‘salesperson’, “and loan repayments are difficult to recover.” There is “no money” and the doors are locked.

#8 Art Cashin of UBS is warning that credit markets in China “may be broken“.  For much more on this, please see my recent article entitled “The $23 Trillion Credit Bubble In China Is Starting To Collapse – Global Financial Crisis Next?

#9 News that China’s manufacturing sector is contracting shook up financial markets on Thursday…

Wall Street was rattled by a key reading on China’s manufacturing which dropped below the key 50 level in January, according to HSBC. A reading below 50 on the HSBC flash manufacturing PMI suggests economic contraction.

#10 Japanese stocks experienced their biggest drop in 7 months on Thursday.

#11 The value of the Turkish Lira is absolutely collapsing.

#12 The unemployment rate in France has risen for 9 quarters in a row and recently soared to a new 16 year high.

#13 In Italy, the unemployment rate has soared to a brand new all-time record high of 12.7 percent.

#14 The unemployment rate in Spain is sitting at an all-time record high of 26.7 percent.

#15 This year, the Baltic Dry Index experienced the largest two week post-holiday decline that we have ever seen.

#16 Chipmaker Intel recently announced that it plans to eliminate 5,000 jobs over the coming year.

#17 CNBC is reporting that U.S. retailers just experienced “the worst holiday season since 2008“.

#18 A recent CNBC article stated that U.S. consumers should expect a “tsunami” of store closings in the retail industry…

Get ready for the next era in retail—one that will be characterized by far fewer shops and smaller stores.

On Tuesday, Sears said that it will shutter its flagship store in downtown Chicago in April. It’s the latest of about 300 store closures in the U.S. that Sears has made since 2010. The news follows announcements earlier this month of multiple store closings from major department stores J.C. Penney and Macy’s.

Further signs of cuts in the industry came Wednesday, when Target said that it will eliminate 475 jobs worldwide, including some at its Minnesota headquarters, and not fill 700 empty positions.

#19 The U.S. Congress is facing another deadline to raise the debt ceiling in February.

#20 The Dow fell by more than 170 points on Thursday.  It is becoming increasingly likely that “the peak of the market” is now in the rear view mirror.

And I have not even mentioned the extreme drought that has caused the U.S. cattle herd to drop to a 61 year low or the nuclear radiation from Fukushima that is washing up on the west coast.

In light of everything above, is there anyone out there that still wants to claim that “everything is going to be okay” for the global economy?

Sadly, most Americans are not even aware of most of these things.

All over the country today, the number one news headline is about Justin Bieber.  The mainstream media is absolutely obsessed with celebrity scandals, and so is a very large percentage of the U.S. population.

A great economic storm is rapidly approaching, and most people don’t even seem to notice the storm clouds that are gathering on the horizon.

In the end, perhaps we will get what we deserve as a nation.

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