Petrodollar watch

[snow hope]

Don't think I can use part of my pension pot to buy physical gold.... anyway I think it is more useful to buy physical silver - more affordable and can be used to pay for things more easily. One gold coin costs a lot! You can't really use it to buy small things like food.

[raspberry-blower]

Today's Keiser Report

Snow - buying physical gold and silver will be very useful as a pension measure - be aware that silver is subject to VAT. having said that, the market fundamentals would point to silver being the better option!
Also there is the strong possibility of bail-ins that could raid your pension pot - possibly worth another thread on its own.

WRT the demise of the Petrodollar (the end of the US Dollar as the World's trading currency) Max makes the prediction of that coming to an end in the next 12 months
While I do not share that timeline of events it is the way the tide is turning - and has been for a long time now.

[3rdRock]

Don't think I can use part of my pension pot to buy physical gold.... anyway I think it is more useful to buy physical silver - more affordable and can be used to pay for things more easily. One gold coin costs a lot! You can't really use it to buy small things like food.

Agreed. Anything is better than a 'paper' account though. If TSHTF, it would be worthless.

[raspberry-blower]

The process of de-dollarization is beginning to gather momentum and the strategy employed becomes clearer:

F. William Engdahl: Russia gets very serious on De-Dolarizing

Last year Russia and China signed enormous 30-year energy deals for delivery of Russian oil and gas to China. The payments will be in local currencies not in dollars. Already in 2014 settlement in national currencies between China and Russia in bilateral trade increased nine times over 2013. Lin Zhi, head of the Europe and Central Asia Department of the Chinese Ministry of Economic Development announced last November that, “About 100 Russian commercial banks are now opening corresponding accounts for settlements in yuan. The list of commercial banks where ordinary depositors can open an account in yuan is also growing.” Last November 18 Russia’s largest bank, Sberbank became the first Russian bank to begin financing letters of credit in Chinese yuan

Meanwhile, The Saker had a very revealing discussion with Michael Hudson:

"Do What We Say - Or We Will Destroy you Like We Did Libya, Iraq, Syria etc"

This covers the whole gambit including Greece, Ukraine, the failure of Neoliberal economic policies, current oil price and the Russia/China relationship as well as the decline of the US dollar as the world's reserve currency.

The Saker: Russia and China have embarked on what I believe is something unique in history: two ex empires which have taken the political decision to become mutually dependent on each other, in fact creating symbiotic relationship. For example, China has basically decided to become fully dependent on Russia for energy and for military equipment. Russia, in turn, is hoping that the Chinese economy will allow Russia to diversify and grow. I would argue that they are in many ways perfectly complementary to each other. Do you agree with this assessment and how would you evaluate the potential of the economic/financial collaboration of these two super-powers? Could Russia and China together, along with the BRICS and SCO create a new, dollar-free and independent economy and market?

Michaek Hudson: Two main dynamics are paramount. First of all, in making trade, investment and monetary arrangements, it’s important to be secure that they will be long-term. America has provided this long-term security for Russia and China, by making clear that it is opposing the rising power both of Russia and China (as well as Iran or any other potential player).

That is the second dynamic: America’s “divide and conquer” strategy seeks to pick off one potential rival after another. By joining forces with each other – and by extending the Shanghai Cooperation Organization to include Iran and other countries – this obliges the United States to wage a war on at least two fronts if it moves against either Russia or China. So their long-term relationship is mutual security against the only likely aggressor.

Capital investment in pipelines requires a long pay-off period, so it can’t be made subject to foreign diplomatic interference, as Russian gas sales to Europe are prone to. Europe seems quite willing to be left out in the cold, by electing politicians that simply are bought off by U.S. money.

That’s the unspoken key to U.S. diplomacy: simply bribe politicians, journalists, publishers and others. As long as the U.S. Treasury can print money without limit, as long as the world’s central banks are willing to absorb these dollarized IOUs by buying U.S. Treasury bonds to finance American military spending to encircle them, America is free of the balance-of-payments and foreign debt constraint that limits other countries’ military spending.

To counter this, Russia, China and other countries should develop an alternative monetary and payments system to the U.S. dollar, a financial system to replace U.S. banks, and ultimately their own bank clearing through an alternative to SWIFT.

If they succeed in this, U.S. neoconservatives will have overplayed their hand – and ironically will have become a force for world peace, by uniting the rest of the world’s economies, trade, financial and even defensive military systems to protect themselves from the U.S. threat. If they succeed, this threat will recede – but the U.S. withdrawal probably will not be a pretty sight, nor will the collapse of its financial system. The rest of the world will have to protect itself from the backwash, blaming foreigners.

That last sentence accurately sums up the UK at the moment

[Little John]

Nice find RB. I find myself pretty much in agreement with Michael Hudson's analysis in that piece you have quoted

[Snail]

Maybe in the future, the world'll end up with two largely self-contained trading blocs. North America+Europe+Japan etc and China+Russia+others.

[raspberry-blower]

Maybe in the future, the world'll end up with two largely self-contained trading blocs. North America+Europe+Japan etc and China+Russia+others.

Trouble is, Snail, these trading blocks won't be self-containing

[raspberry-blower]

Interesting developments that are just as relevant to this and this

Firstly the PBOC has been dumping US Treasuries at an increasing rate: around $100 billion in the last two weeks

So in effect, China's UST dumping is QE in reverse - and on a massive scale. Facing this kind of pressure the FOMC will at the very least need to exercise an exorbitant amount of caution before tightening policy and at the most, embark on another round of asset purchases lest China's devaluation and attendant FX interventions should be allowed to decimate whatever part of the US "recovery" is actually real

This appears to be a distressed, fire sale of Treasuries rather than a part of a concerted plan
However, it now transpires that KSA has trimmed its holdings
Whilst the current rate of trade can be regarded as "trimming" its holdings, remember KSA's finances are in a bad shape. Mainly due to prosecuting an illegal war in Yemen and giving support to the wahabbist thugs in Syria.
These sales could escalate dramatically.

Finally it has been reported that the actual cost of the Petrodollar unwind could be under estimated by $2.5 trillion

The demise of that system meant that the flow of exported petrodollar capital (i.e. USD recycling) suddenly turned negative for the first time in decades, as countries like Saudi Arabia looked to their stash of FX reserves to shore up their finances in the face of plunging crude. Of course the sustained downturn in oil prices did nothing to help the commodities complex more broadly and as commodity currencies plunged, the yuan’s dollar peg meant China’s export-driven economy was becoming less and less competitive. Cue the devaluation and subsequent FX market interventions.

In short, China’s FX management means that Beijing has joined the global USD asset liquidation party which was already gathering pace thanks to the unwind of the petrodollar system.

Even taking into account an element of hyperbole that surrounds Zero Hedge the take home message here is clear.
The Fed is in a real bind now - it seems fairly certain that they will initiate QE4 at some point in the near future. However, the effectiveness of such a policy will be highly questionable at best - QE is clearly suffering from diminishing returns.

[raspberry-blower]

Michael Hudson: Financing Our Own Oppression

[raspberry-blower]

Interesting article from F. William Engdahl: Russia Breaking Wall Street Oil Price Monopoly

Later in November the Russian Energy Ministry has announced that it will begin test-trading of a new Russian oil benchmark. While this might sound like small beer to many, it’s huge. If successful, and there is no reason why it won’t be, the Russian crude oil benchmark futures contract traded on Russian exchanges, will price oil in rubles and no longer in US dollars. It is part of a de-dollarization move that Russia, China and a growing number of other countries have quietly begun.

The setting of an oil benchmark price is at the heart of the method used by major Wall Street banks to control world oil prices. Oil is the world’s largest commodity in dollar terms. Today, the price of Russian crude oil is referenced to what is called the Brent price. The problem is that the Brent field, along with other major North Sea oil fields is in major decline, meaning that Wall Street can use a vanishing benchmark to leverage control over vastly larger oil volumes. The other problem is that the Brent contract is controlled essentially by Wall Street and the derivatives manipulations of banks like Goldman Sachs, Morgan Stanley, JP MorganChase and Citibank.

Trading oil outside of the US$ was something that Saddam Hussein was planning. Look what happened there.

We're seeing an economic version of this towards Russia - which hasn't been effective thus far

[emordnilap]

And Gaddafi.

[raspberry-blower]

And Gaddafi.

Which reminds me:

Washington's Blog: Clinton Emails show that Gold and Oil were behind regime change in Libya

Robert Parry: What Hilary knew about Libya

Hilary Clinton is the front runner for the next POTUS which is a scary proposition in itself.

No wonder Putin decided to kick out US NGOs

[emordnilap]

And the Iranian oil bourse.

[raspberry-blower]

And the Iranian oil bourse.

What is Iranian water doing underneath our ships?

[emordnilap]

When Russia and China go the whole hog we'll see some fun.