Russia & China Declare All Out War on US Petrodollar — Prepare for Exclusive Trade in Gold
BY IWB · PUBLISHED JULY 16, 2017 · UPDATED JULY 16, 2017
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The formation of a BRICS gold marketplace, which could bypass the U.S. Petrodollar in bilateral trade, continues to take shape as Russia’s largest bank, state-owned Sberbank, announced this week that its Swiss subsidiary had begun trading in gold on the Shanghai Gold Exchange.
Russian officials have repeatedly signaled that they plan to conduct transactions with China using gold as a means of marginalizing the power of the dollar in bilateral trade between the geopolitically powerful nations. This latest movement is quite simply the manifestation of a larger geopolitical game afoot between great powers.
According to a report published by Reuters:
Sberbank was granted international membership of the Shanghai exchange in September last year and in July completed a pilot transaction with 200 kg of gold kilobars sold to local financial institutions, the bank said.
Sberbank plans to expand its presence on the Chinese precious metals market and anticipates total delivery of 5-6 tonnes of gold to China in the remaining months of 2017.
Gold bars will be delivered directly to the official importers in China as well as through the exchange, Sberbank said.
Russia’s second-largest bank VTB is also a member of the Shanghai Gold Exchange.
To be clear, there is a revolutionary transformation of the entire global monetary system currently underway, being driven by an almost perfect storm. The implications of this transformation are extremely profound for U.S. policy in the Middle East, which for nearly the past half century has been underpinned by its strategic relationship with Saudi Arabia.
THE RISE & FALL OF THE PETRODOLLAR
The dollar was established as the global reserve currency in 1944 with the Bretton Woods agreement, commonly referred to as the gold standard. The U.S. leveraged itself into this power position by holding the largest reserve of gold in the world. The dollar was pegged at $35 an ounce — and freely exchangeable into gold.
By the 1960s, a surplus of U.S. dollars caused by foreign aid, military spending, and foreign investment threatened this system, as the U.S. did not have enough gold to cover the volume of dollars in worldwide circulation at the rate of $35 per ounce; as a result, the dollar was overvalued.
America temporarily embraced a new paradigm in 1971, as the dollar became a pure fiat currency (decoupled from any physical store of value), until the petrodollar agreement was concluded by President Nixon in 1973.
The quid pro quo was that Saudi Arabia would denominate all oil trades in U.S. dollars, and in return, the U.S. would agree to sell Saudi Arabia military hardware and guarantee the defense of the Kingdom.
A report by the Centre for Research on Globalalization clarifies the implications of these most recent moves by the Russians and the Chinese in an ongoing drive to replace the US petrodollar as the global reserve currency:
Fast forward to March 2017; the Russian Central Bank opened its first overseas office in Beijing as an early step in phasing in a gold-backed standard of trade. This would be done by finalizing the issuance of the first federal loan bonds denominated in Chinese yuan and to allow gold imports from Russia.
The Chinese government wishes to internationalize the yuan, and conduct trade in yuan as it has been doing, and is beginning to increase trade with Russia. They’ve been taking these steps with bilateral trading, native trading systems and so on. However, when Russia and China agreed on their bilateral US$400 billion pipeline deal, China wished to, and did, pay for the pipeline with yuan treasury bonds, and then later for Russian oil in yuan.
This evasion of, and unprecedented breakaway from, the reign of the US dollar monetary system is taking many forms, but one of the most threatening is the Russians trading Chinese yuan for gold. The Russians are already taking Chinese yuan, made from the sales of their oil to China, back to the Shanghai Gold Exchange to then buy gold with yuan-denominated gold futures contracts – basically a barter system or trade.
The Chinese are hoping that by starting to assimilate the yuan futures contract for oil, facilitating the payment of oil in yuan, the hedging of which will be done in Shanghai, it will allow the yuan to be perceived as a primary currency for trading oil. The world’s top importer (China) and exporter (Russia) are taking steps to convert payments into gold. This is known. So, who would be the greatest asset to lure into trading oil for yuan? The Saudis, of course.
All the Chinese need is for the Saudis to sell China oil in exchange for yuan. If the House of Saud decides to pursue that exchange, the Gulf petro-monarchies will follow suit, and then Nigeria, and so on. This will fundamentally threaten the petrodollar.
According to a report by the Russian government media, significant progress has been made in promoting bilateral trade in yuan, between the two nations, as the first step towards an even more aambitiousplan—using gold to make transactions:
One measure under consideration is the joint organization of trade in gold. In recent years, China and Russia have been the world’s most active buyers of the precious metal.
On a visit to China last year, deputy head of the Russian Central Bank Sergey Shvetsov said that the two countries want to facilitate more transactions in gold between the two countries.
In April, Sberbank expressed interest in financing the direct import of gold to India—also a BRICS member. Make no mistake that a BRICS gold marketplace could be used to bypass the dollar in bilateral trade, and undermine the hegemonic control enjoyed by the US petrodollar as the global reserve currency.
READ MORE: Country Singer With Most Famous 9/11 Song, Now Playing for Country that was Behind 9/11“In 2014 Russia and China signed two mammoth 30-year contracts for Russian gas to China. The contracts specified that the exchange would be done in Renminbi [yuan] and Russian rubles, not in dollars. That was the beginning of an accelerating process of de-dollarization that is underway today,” according to strategic risk consultant F. William Engdahl.
Russia and China are now creating a new paradigm for the world economy and paving the way for a global de-dollarization.
“A Russian-Chinese alternative to the dollar in the form of a gold-backed ruble and gold-backed Renminbi or yuan, could start a snowball exit from the US dollar, and with it, a severe decline in America’s ability to use the reserve dollar role to finance her wars with other peoples’ money,” Engdahl concludes.
Martin Armstrong-Economic Downturn Will Take World to War
Former hedge fund manager Martin Armstrong, who is an expert on economic and political cycles, says, “You have to understand what makes war even take place? It does not unfold when everybody is fat and happy. Simple as that. You turn the economy down, and that’s when you get war. It’s the way politics works.”
Join Greg Hunter as he goes One-on-One with renowned economist Martin Armstrong of ArmstrongEconomics.com.
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BREAKING – Major Employer Takes Stand Against Anti-Trump California, LEAVES State
California has led the way in the attacks against Trump, with several of its representatives openly defying the president… and major companies are starting to take notice.
After several other companies already left the state, Nestle USA has announced it is packing its bags and moving its headquarters and roughly 1,200 jobs across the country to Rosslyn, Virginia, via Investors.
This means more jobs are leaving an already fiscally challenged state, and there will likely be many more.
Big business is finally realizing California is not exactly business-friendly.
Two of the last three governors of the state are Democrats, and now the state is paying the price for liberal rule, especially under Governor Jerry Brown.
He has openly supported the far-left policies supporting illegal immigrants and refugees, and it is costing the state big time.
Even with all of its glitz and glamour, the state has a long history of struggling financially, and many experts blame the tax system Brown is using.
Christopher Thornberg, the founding partner of Beacon Economics, stated, “We have an enormous budget problem, and that’s because of the structure of our revenue system, not because of the fundamentals of the California economy,” via CNBC.
Add the mismanagement of the budget with the cost of supporting illegals and refugees, and you have a recipe for disaster. The money has to come from somewhere, and it does in the form of some of the highest taxes in the country, with more increases expected.
The result of this is businesses closing their doors in California and moving to greener pastures even if they have to go all the way across the country to do it. California’s loss, however, has been a boom for states like Texas, Arkansas, and Virginia, which offer much friendlier financial benefits for business owners.
If you look across the map, with few exceptions, blue states are not exactly booming these days. We can expect to see a lot more business defections in the coming months, especially if these Democrats continue to take hardline stances against Trump.
This, of course, bodes well for Trump and the Republicans as liberal business owners will be forced to realize their bottom line is being affected by the horrible mismanagement of their chosen representatives.
When they see how businesses in red states are booming and what Trump does for the economy overall, I think we will see more defections not only in businesses moving, but also in people leaving the Democrat party and going to a party that actually looks after their well-being rather than that of people who should not even be in this country.
Thank You Kent Lamberson
June 2, 2017
CFTC Finds Former Trader David Liew Engaged in Spoofing and Manipulation of the Gold and Silver Futures Markets and Permanently Bans Him from Trading and Other Activities in CFTC-Regulated Markets
CFTC Recognizes Liew’s Cooperation and Substantial Assistance in the Investigation, which Included Entering into a Cooperation Agreement with the Division of EnforcementWashington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against David Liew for engaging in numerous acts of spoofing, attempted manipulation, and, at times, manipulation of the gold and silver futures markets. Liew engaged in this unlawful conduct for more than two years while he was employed as a junior trader on the precious metals desk for a large financial institution (Financial Institution 1). The CFTC Order finds that Liew acted individually and in coordination with traders at Financial Institution 1 and with a trader at another large financial institution.
In the Order, Liew admits the facts of his manipulation and spoofing activity and acknowledges that his conduct violated the Commodity Exchange Act (CEA) and Commission Regulations.
The Order permanently bans Liew from trading commodity interests and requires him to comply with undertakings never to engage in other commodity-interest related activities, including seeking registration, acting in a capacity requiring registration, or acting as a principal, agent, officer or employee of any person registered, required to be registered or exempt from registration.
In accepting Liew’s offer of settlement, the CFTC recognizes Liew’s cooperation during the Division of Enforcement’s (Division) investigation of this matter, including his entry into a formal Cooperation Agreement with the Division, his provision of substantial assistance to the investigation, and his undertaking to continue to cooperate with the Commission, the Division and any other governmental agency in connection with the subject matter of this Order.
CFTC’s Director of Enforcement Comments
James McDonald, the CFTC’s Director of Enforcement, commented: “Today’s enforcement action demonstrates that the Commission will aggressively pursue individuals who manipulate and spoof in our markets. Today’s action also shows that while holding individuals accountable for their conduct, the Commission will give meaningful cooperation credit to those who acknowledge their own wrongdoing, enter into a Cooperation Agreement and provide substantial assistance to the Division in its investigations and enforcement actions against others who have engaged in illegal conduct.”
The Order specifically finds that from at least December 2009 through February 2012, Liew, on numerous occasions, acting individually and in coordination with other traders on the precious metals trading desk of Financial Institution 1, placed orders to buy or sell gold or silver futures contracts that he did not intend to execute at the time the orders were placed (spoof orders). Generally, Liew’s spoof orders were placed in the futures market after another bid or offer was placed on the opposite side of the same market. Liew placed his spoof orders with the intent to create the false appearance that the market interest in buying or selling was greater than the actual market interest. Liew placed such spoof orders with the intent to induce other market participants to fill Liew’s resting orders on the opposite side of the market from his spoof orders. In engaging in the spoofing conduct, Liew also intended to manipulate, and at times succeeded in manipulating the price of the relevant futures contract.
Separately, on certain occasions, Liew placed orders and executed trades with the intent of manipulating the market price of gold and silver futures contracts for the purpose of triggering customers’ stop-loss orders. Liew coordinated this trading with another precious metals trader at another large financial institution. The intent of triggering the customer stop-loss orders was to allow the traders to buy precious metals futures contracts at artificially low prices or sell precious metals futures contracts at artificially high prices.
In addition, on June 1, 2017, Liew pleaded guilty to one count of conspiracy to commit wire fraud and spoofing. (U.S. v. Liew, Case No. 17-CR-1 (N.D. Ill.).
The CFTC Division of Enforcement staff members responsible for this case are Katie Rasor, Neel Chopra, Lara Turcik, Sam Wasserman, Bryan Bughman, Brandon Wozniak, Alben Weinstein, Patryk J. Chudy, Lenel Hickson, Jr., and Manal M. Sultan.
Last Updated: June 2, 2017
Italy’s newest bank bailout cost as much as its annual defense budget
June 26, 2017
Lake Como, Italy
Two more Italian banks failed over the weekend– Banco Popolare di Vicenza and Veneto Banca.
(In other news, the sky is blue.)
The Italian Prime Minister himself stated that depositors’ funds were at risk, so the government stepped in with a bailout and guarantee package that could cost taxpayers as much as 17 billion euros.
That’s a lot of money in Italy– around 1% of GDP. In fact it’s basically as much as the 17.1 billion euros they spent on national defense last year (according to an estimate by Italian think tank IAI).
You don’t have to have a PhD in economics to figure out that NO government can afford to spend its entire defense budget every time a couple of medium-sized banks need a bailout.
That goes especially for Italy, whose public debt level is already 132% of GDP… and rising. They simply don’t have the money.
Moreover, the European Union actually has a series of new rules collectively known as the “Bank Recovery and Resolution Directive” which is supposed to prevent failing banks from being bailed out with taxpayer funds.
Here’s the thing– Italy has LOTS of banks that are on the ropes.
So with taxpayer resources exhausted (and technically prohibited), who’s going to be on the hook next time a bank goes under?
Easy. By process of elimination, the only other party left to fleece is the depositor.
Here’s how it works:
Let’s say a bank takes in $1 billion in deposits.
Naturally the bank doesn’t just keep $1 billion in cash sitting in its vault. They invest the money. They make loans. They buy assets.
So the bank’s balance sheet shows $1 billion worth of assets, and $1 billion worth of deposits that they owe to their customers.
But sometimes banks screw up when they invest their customers’ funds. Loans go bad. Borrowers default.
For example, if a bank invested $200 million in Greek government bonds, and then the government of Greece defaults, the bank would only have $800 million in assets remaining.
But they’d still owe their depositors the full $1 billion.
How can a bank with only $800 million in assets possibly honor the $1 billion worth of deposits they owe to their customers?
They can’t. And there’s a word for this: insolvency.
This is the problem with so many banks across Italy (and many other countries around the world). They owe their depositors more than their assets are worth.
Again, the taxpayers are ultimately on the hook from this weekend’s bailouts, along with some subordinated bondholders who got wiped out.
But Italy’s banking problems go far beyond two little banks. This is a systemic issue across the country’s ENTIRE banking sector. And the solution goes far beyond what the taxpayers can afford.
So next time around it could very well be the depositors who end up losing money.
Even if not, it hardly seems worth taking the chance.
By the way, I’m not just talking about Italy here.
You know how they say “time heals all wounds?” Well, not in banking. Some wounds never heal.
And there are countless banks and banking systems around the world that never fully recovered from the 2008 crisis.
This raises the question– why hold money at a shaky bank in a country where the government is in debt up to its eyeballs? Especially when there are so many better options.
Most people never think twice about where they hold their savings, typically opening accounts based on some irrelevant anachronism like geography.
It’s 2017. Why trust all of your savings to a financial institution simply because it’s across the street?
If you run a website, you wouldn’t necessarily choose a web hosting company because it’s located in your home town. You’d find the best company with the best service and best uptime.
If you want to buy a new mobile phone, you wouldn’t just go to a local retailer. You’d probably shop online and find the best deal, even if it’s from a company across the planet.
Why should money be any different?
The world is a big place with LOTS of options and opportunities.
And there are plenty of places where the banks might have MUCH stronger fundamentals, located in jurisdictions with minimal debt.
But if this is too exotic, you could also consider physical cash.
With an at-home safe, you effectively become your own banker, eliminating the middle man and eliminating the risk to your savings.
This is all part of a great Plan B.
Clearly there are risks in a number of banking systems, including most of the West where the majority of governments are themselves insolvent.
Perhaps those risks are never realized.
But it’s hard to imagine you’ll be worse off for holding a little bit of physical cash… or to consider the option of holding a portion of your savings in a bank that’s conservative, well-capitalized, and located in a country with zero debt.
Even if nothing bad ever happens, there’s no downside in having taken these steps.
But if these risks do pan out, your Plan B will end up being the best insurance policy you’ve ever had.
Believe it or not, for every minute that goes by, our federal government’s financial sinkhole grows deeper by about $10 million! The U.S. public needs to know the current and future issues concerning the U.S.’s finances.
Almost all bankrupt governments eventually realize this. And it’s great for us.
July 27, 2017
Eighteen centuries ago in the year 212 AD, the Roman Empire was in dire financial straits.
Emperor Caracalla had nearly bankrupted the treasury spending lavishly on his personal proclivities, waging pointless wars, and executing some of Rome’s most productive citizens.
We’re talking about a guy who murdered his brother (Geta) in order to become Emperor, and then had Geta’s name stricken from every official record.
Caracalla made it a capital crime for anyone to even mention his brother’s name.
Then he killed Geta’s friends and business partners. He killed Geta’s advisors and generals. He even killed Geta’s concubines.
He also killed anyone he suspected of being disloyal.
As Edward Gibbon describes in his seminal work, Decline and Fall of the Roman Empire:
“[Under Caracalla,] it was a sufficient crime. . . to be descended from a family in which the love of liberty seemed a hereditary quality.”
The only people who prospered under Caracalla were soldiers.
The emperor paid them extremely well to buy their loyalty, and he happily looked the other way as the army pillaged and plundered everywhere they pleased.
This drained Rome’s finances.
Ancient Roman historian Lucius Cassius Dio recounts a famous conversation between Caracalla and his mother Julia, in which Julia says…
“There is no longer any source of revenue, either just or unjust, left to us.”
The emperor responded, “Be of good cheer, mother. For as long as we have this [pointing to his sword], we shall not run short of money.”
Caracalla doubled Rome’s already debilitating taxes. He debased the currency, slashing the silver content of the Roman denarius coin.
He even introduced a new coin called the antoninianus, which was legally worth two denarius coins despite containing only 50% more silver.
Yet despite trying nearly every dirty trick in the book to restore the treasury, Caracalla was still driving Rome to bankruptcy.
So in 212 AD the Emperor issued an edict called the Consitutio Antoninana, effectively granting universal citizenship to all free men living within the Roman Empire.
This was a big deal– Roman citizenship had once been a highly coveted prize that was rarely granted.
For Caracalla, citizenship was merely another tool to enlarge his tax base.
This was one of the first instances in history of a desperate, bankrupt government using residency or citizenship to boost the economy and tax revenue.
We see many more examples of this today.
Here in Europe, both Malta and Cyprus now have ‘citizenship by investment’ programs, whereby a foreigner (quite often wealthy Chinese) can invest a sum of money in exchange for citizenship.
In Malta the required investment is 650,000 euros, plus fees. In Cyprus it’s 2 million euros, plus fees.
Cyprus and Malta really need the money.
Cyprus is so broke that its entire banking system went bust in 2013, and the government had to resort to freezing EVERYONE’S bank account.
And Malta has racked up severe, unsustainable budget deficits for 19 out of the last 20 years.
In fact, last year was the FIRST year in two decades that Malta’s government ran a budget surplus, totaling 101 million euros.
Given that the Maltese government approved 214 citizenship-by-investment applications last year at 650,000 euros each, they collected at least 139 million euros from the program.
In other words, Malta’s citizenship-by-investment program is the ONLY reason its government ran a budget surplus last year.
A number of other bankrupt European countries have “Golden Residency” programs, whereby foreign investors receive residency in exchange for purchasing real estate.
Spain and Portugal are two of the more popular golden residency destinations, and those programs have both been very successful in attracting affluent foreigners.
[Sovereign Man: Confidential members: see our Black Paper from earlier this month on Golden Residency programs.]
And a few months ago here in Italy, the government created a “non-domicile” tax regime to attract wealthy foreigners.
Under these new rules, foreigners can earn unlimited income worldwide (subject to a few conditions), yet pay a flat tax to the Italian government of just 100,000 euros.
100,000 euros might sound like a lot of tax to pay.
But if you’re earning, say, 1 million per year, this amounts to an effective tax rate just 10%… as opposed to the 50% tax rate that someone might be paying in Germany or California.
Plus you get to live la dolce vita on Lake Como.
(Italy also created easy paths to residency for startup entrepreneurs, investors, etc.)
US citizens have an even better option: Puerto Rico.
You’ve probably heard that Puerto Rico is miserably, hopelessly broke.
And a few years ago amid rapidly deteriorating economic conditions, Puerto Rico’s government passed some exciting tax incentive laws to attract affluent foreigners (primarily from the US mainland).
The two most famous incentive laws are Act 20 and Act 22.
Act 20 allows certain businesses to pay just 4% corporate tax, while Act 22 gives investors 100% tax relief on investment income (like dividends, interest, and capital gains) subject to a few conditions.
These tax incentives are incredible deals, especially for US citizens, due to the way that the IRS exempts certain Americans from paying US tax.
In other words you can legally escape the IRS by becoming a Puerto Rican tax resident. And under current rules you don’t even have to live on the island full time.
What’s really interesting is that, even though Puerto Rico has now effectively declared bankruptcy, the government is doubling down on these incentive programs.
They know the only way out is to attract talented, productive people.
This is the bright side of record debt and government insolvency.
Eventually, a desperate, bankrupt government has no choice but to roll out the red carpet for energetic value creators.
Plenty of great options already exist. And we’ll probably see more to follow.
Do you have a Plan B?
Nine years later, Greece is still in a debt crisis…
March 22, 2017
Sometimes you have to marvel at the absurdity of the financial universe in which we live.
On one side of the Atlantic, we have the United States of America, which triggered yet another debt ceiling disaster last Thursday when the US government’s maximum allowable debt reset to just over $20 trillion.
Of course, the US national debt is pretty much already at $20 trillion.
(That’s roughly $166,000 per taxpayer in the Land of the Free.)
This means that Uncle Sam is legally prohibited from ‘officially’ borrowing any more money.
But far be it from the US government to start living within its means. Sacrilege!
These guys have zero chance of making ends meet without going into debt.
Just last year, according to the government’s own financial report, their annual net loss totaled $1 TRILLION, and the national debt increased by $1.4 trillion.
And that was in a relatively stable year. There was no major war or financial crisis to fight. It was just business as usual.
This year isn’t going to be any different.
So, cut off from their normal debt supply (the bond market), the Treasury Department is resorting to what they call “extraordinary measures.”
They’re basically pillaging government employee retirement funds, and will continue to do so until Congress raises the debt ceiling.
It’s a repeat of what happened in 2015. And 2013. And 2011.
Pretty amazing to consider that the “richest” country in the world has to plunder retirement funds in order to keep the lights on.
Former US Treasury Secretary Larry Summers said it perfectly when he quipped “How long can the world’s biggest borrower remain the world’s biggest power?”
Then, of course, on the other side of the Atlantic, we have Greece, which is now in its NINTH YEAR of a major debt crisis.
Greece has had nine different governments since 2009. At least thirteen austerity measures. Multiple bailouts. Severe capital controls. And a full-out debt restructuring in which creditors accepted a 50% loss.
Yet despite all these measures GREECE IS STILL IN A DEBT CRISIS.
Right now, in fact, Greece is careening towards another major chapter in its never-ending debt drama.
Just like the United States, the Greek government is set to run out of money (yet again) in a few months and is in need of a fresh bailout from the IMF and EU.
(The EU is code for “Germany”…)
Without another bailout, Greece will go bust in July– this is basic arithmetic, not some wild theory.
And this matters.
If Greece defaults, everyone dumb enough to have loaned them money will take a BIG hit.
This includes a multitude of banks across Germany, Austria, France, and the rest of Europe.
Many of those banks already have extremely low levels of capital and simply cannot afford a major loss.
(Last year, for example, the IMF specifically singled out Germany’s Deutsche Bank as being the top contributor to systemic risk in the global financial system.)
So a Greek default poses as major risk to a number of those banks.
More importantly, due to the interconnectedness of the financial system, a Greek default poses a major risk to anyone with exposure to those banks.
Think about it like this: if Greece defaults and Bank A goes down, then Bank A will no longer be able to meet its obligations to Bank B. Bank B will suffer a loss as well.
A single event can set off a chain reaction, what’s called ‘contagion’ in finance.
And it’s possible that Greece could be that event.
This is what European officials have been so desperate to prevent for the last nine years, and why they’ve always come to the rescue with a bailout.
It has nothing to do with community or generosity. They’re hopelessly trying to prevent another 2008-style meltdown of the financial system.
But their measures have limits.
How much longer do Greek citizens accept being vassals of Germany, suffering through debilitating capital controls and austerity measures?
How much longer do German taxpayers continue forking over their hard-earned wages to bail out Greek retirees?
After all, they’ve spent nine years trying to ‘fix’ Greece, and the situation has only become worse.
For a continent that has been at war with itself for 10 centuries and only managed to play nice for the last 30 or so years, it’s foolish to expect these bailouts to last forever.
And whether it’s this July or some date in the future, Greece could end up being the catalyst which sets off a chain reaction on both sides of the Atlantic.
Do you have a Plan B?
The Economic Collapse: Are You Prepared For The Coming Economic Collapse And The Next Great Depression?