March 29, 2024
Anti-Russia and anti-China rhetoric is driving the western alliance towards all-out war against them. Increasingly, the only way an ultimate nuclear conflict can be avoided is either for the dollar-based fiat currency regime to destroy itself, or to be given a helping hand by its enemies. Either way, gold is certain to be central to the evolution of these rapidly evolving events and their outcome.
Gearing up for a wider conflict
While it hasn't been officially declared, to all intents the US with her NATO allies is at war with Russia. This war is not yet an all-out military confrontation. It is being fought through Ukraine as proxy, but that conflict is being badly lost by American-led NATO.
With the Ukraine project visibly failing, rhetoric denouncing Russia and China is now increasing. President Macron of France is seemingly keen to put NATO troops on the ground, but that would be a direct confrontation, which under NATO's treaty would drag in every member. It would then become officially World War Three, fought under a nuclear umbrella. How long nuclear weapons would not become deployed in these circumstances is anyone's guess, but probably not for long.
From the American side, the thought of backing down from the Ukrainian mess is currently inconceivable. It is a presidential election year. Domestic spending is ratcheted up to buy votes. But even without this extra spending, the US budget deficit is already heading for 12% of GDP - not that it seems to be deterring the politicians.
In an election year, attention is often diverted from obvious domestic failures by increasing military ventures abroad, in theory stimulating American jingoism in favour of the incumbent president. But with the increasingly obvious failure in Ukraine, major foreign ventures have become little more than tilting at windmills. Increasingly, the American public is becoming sceptical. Consequently, propaganda and rhetoric against Russia and China are on the rise, both in America and the UK particularly, but also in all Western European nations facing plebiscites this year. This is the background to Macron's belligerence.
As is vividly demonstrated by America's handling of the Israeli-Gaza situation, foreign policy is coming up against hard realities. The cover for America's foreign policy failures is to divert attention from the Middle East by increasing the rhetoric against Russia and China even further, to the point where the propaganda convinces even its inventors. Any objective observer sees this reflected in the mainstream media, which is promoting a moral cause determined officially against our enemies to the exclusion of pragmatism. But we tend to forget that we are talking about escalating conflicts between nuclear powers.
Increasingly, there is only one way in which this can end without destroying humanity, and that is for the battleground to become financial. Logically, it leads to the destruction of the dollar and the reintroduction of gold standards by America's rivals in hegemony to protect themselves from the twilight of the post-Bretton Woods fiat currency era. But getting there will likely involve a chain of unintended consequences.
The starting point appears to be an escalation of hostility over seized Russian assets, including central bank reserves, valued at about $280 billion. In effect, the US and the Eurozone have defaulted on their credit obligations to Russia. In response Russia froze the investment assets of foreigners in "C" accounts, said to add up to a similar value. However, Russia's frozen assets held in Euroclear amounting to $210bn of the total also equate to the amount spent by the Europeans in the western alliance on Ukraine. How to redeploy these frozen funds in compensation has become an obvious topic.
The freezing of Russian funds by America caused considerable alarm among neutral countries, some of which have begun selling dollars, euros, and pounds for gold. But further moves to confiscate them have been resisted by an alarmed US Treasury, pointing out that it needs congressional approval to do so in peacetime. Furthermore, national reserves have the strongest immunity protection in international law, making such a move by America extremely dangerous for the dollar's international credibility.
On the $210 billion frozen Russian assets held in Euroclear, interest is due. The EU has proposed mobilising both the principal and/or the interest but has not achieved agreement to do so. Furthermore, on behalf of its creditors Euroclear has significant exposure to Russia giving her the opportunity to undermine Euroclear and the entire EU financial structure. This is causing alarm among some observers.
They fear that Russia will sue Euroclear or seize Euroclear's custodial assets in Russia: either course is likely. But it is what follows that will do the real damage. In law, Euroclear can deploy all customer assets as they see fit, because in common with other security depositories in the US and elsewhere, the EU's Euroclear possesses the property in all bonds, equities, and derivatives on its books against which it has issued certificates of entitlement to the beneficial owners. These arrangements have been introduced in major financial markets to give global authorities the flexibility to manage financial crises, with the potential to deploy all financial property under their control as collateral to underwrite the entire financial system.
Commentators generally miss this point, thinking that the threat is that Euroclear would be rendered insolvent. It would not be insolvent because of legal position allows it to deploy all assets on its books as it sees fit. But the deployment of its property in the widest sense is intended as a backstop to a future financial crisis ex post facto.
If Russia acted against Euroclear, the problem is that collateral crisis measures would be triggered as a preventative measure to prevent a widespread systemic failure before it happens. Everyone has already been duped into being happy to own nothing without the cover of a massive systemic crisis demanding emergency measures. And worse still, it could cause all nations in the Russia-China axis and the neutrals in the Global South to stampede for the fiat currency exit.
The non-nuclear war alternative is to deliberately collapse the dollar
Hopefully, a more likely scenario to an increasingly probably WW3 becomes financial and not nuclear, being the lesser of two evils.
The position on Euroclear has been outlined above. But there are probably subtler actions which can be taken to destabilise the European banking systems, from which Russia now has minimal exposure and can move freely. The mildest would be to quietly encourage its allies and non-aligned nations to get out of the dollar and the US financial system before they collapse. A flight out of dollars into commodity assets for the relative benefit of Russia would be the intention.
Arguably, this is already happening. China is stockpiling copper, which amounts to dumping dollars in favour of a key commodity. China has also been dumping dollars in favour of gold. We know that she has cornered the silver market, so presumably has already accumulated significant physical reserves of silver bullion. It makes sense for China to accumulate all the commodities she requires for her trans-Asian expansion plans while the dollar still has its current value in terms of purchasing power for commodities.
Undoubtedly, America's officials at the Treasury and the Fed already feel cornered. Recent missions by Janet Yellen and US Treasury officials to Beijing reflect deep concern over China's anti-dollar policies. But for politicians, including Trump, ratcheting up anti-Chinese rhetoric is only likely to accelerate China's plans to turn dollars into commodities.
While Putin's rhetoric is anti-dollar, it would be hard for America to blame the Russians for a run against it: after all, they have been cut out of the dollar-based financial system. But whether it is Russia or China, anti-dollar rhetoric and action will end up driving US Government borrowing costs higher, making it extremely difficult for the Americans to fund their rapidly escalating budget deficit. Inevitably, overvalued bond markets will crash taking down equities with them, bringing on a mother-of-all dollar crisis. The Russians would hope that America would be forced by a magnitudinous dollar crisis to fatally harm America's international standing and curtail her ability to pursue aggressive foreign policies.
If that is not sufficient to drive America out of Western Europe, then there is still the financial equivalent of a nuclear conflict: Russia would put its rouble on a gold standard, forcing China's hand into doing the same. Both nations have substantial undeclared bullion in their possession so are in a position to do so. And for Russia, the economic benefits of stabilising the rouble with gold-like interest rates replacing current 16% deposit rates are obvious.
Their ownership of declared and undeclared bullion is in contrast with America's declared but unverified position of 8,133 tonnes. And by a process of elimination, we can say that gold which has been leased and swapped out of total central bank reserves has depleted not just the US's own reserves, but those held by the New York Fed earmarked for other nations. It is the only credible explanation as to why Germany had so much difficulty getting just some of its gold returned by the New York Fed.
That the US, doubtless with other nations in the western alliance, have gold that only exists as fictitious ledger entries will become apparent as the dollar-based fiat currency system finally collapses.
At least the ultimate horror of discovery over missing gold reserves is not as bad as the true nuclear alternative.
Reprinted with permission from MacleodFinance Substack.