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THIS WEEK’S EDITORIAL
WESTERN EUROPE COMMITS ECONOMIC SUICIDE: Germany’s politicians appear to be intent on committing economic suicide. They continue to believe that they can replace Russian energy supplies easily with alternative sources. They also appear to believe that the cost of those new energy supplies will be as cheap as Russia provides. And they continue to support Ukraine with promises of heavy weapons and complex machinery which will clearly prolong the conflict with Russia. The Bundestag lower house voted overwhelmingly in favor of that last week.
The intent, presumably, is to turn Ukraine into a wasteland of battle while remaining safe and maybe not so warm, behind German borders. They are presuming too much and not listening to the Russian side of the argument. To BOOM, that is naïve and foolish but, as readers know, BOOM is never surprised by naïve and foolish behavior from our Western leadership.
Meanwhile, Russia has denied Poland and Bulgaria gas supplies because they will not pay for them in Russian Rubles. Russia has tried to make payments easy by requesting that all European buyers of gas establish Euro and Ruble bank accounts in Russia’s Gazprombank to deposit Euros for payment. Those Euros can then be transferred into Rubles in the separate Ruble account by Gazprombank to allow the settlement payment to be made in Rubles. This mechanism also allows payment directly in Rubles if the gas buyers choose to deposit Rubles.
Ignoring what appears to be a reasonable payment mechanism in present circumstances again appears to be some kind of expanded mutual economic suicide pact between Germany, Poland and Bulgaria. As a result, the price of natural gas in Europe has skyrocketed to yet more stratospheric heights. It is now 7 times the price it was a year ago.
Austria, Slovakia and Hungary have seen the light (quickly) and agreed to the payment terms laid out by Russia, immediately ensuring that their gas supplies will continue into the future and at a cheap, negotiated price. Mutual negotiation is clearly a superior strategy compared to prolonged conflict and they have pragmatically secured their nations economic survival in doing so. All three countries are landlocked and have no obvious source of alternative gas.
POOR WESTERN LEADERSHIP: Russia previously sold gas to Europe for many years and accepted US Dollars and Euros as settlement via the US dominated SWIFT interbank messaging system. But then, in a rush of blood following Russia’s incursion into Ukraine, European and US politicians unwisely decided that it would be a good idea to confiscate Russian external assets (including $ 300 Billion of Eurobonds and cash reserves of Euros and US Dollars) and to ban some Russian banks from SWIFT.
On Friday, in response to the Russian decision to stop the gas, Poland further decided to confiscate yet more Russian infrastructure assets situated in Poland but owned by a Polish subsidiary of Russia’s Novatek. It is yet another example by the West of abandonment of the capitalist commitment to the sanctity of private property ownership. The mechanics of these decisions by the West have left Russia effectively in the position of providing gas to Europe for no payment.
Think it through. If you were placed in such a position, would you continue to supply the gas and receive payments in Euros or Dollars just to see those consequent reserves of Euros and Dollars under threat of confiscation by your customer? The answer is no. And it is a quick and easy decision, especially if your infrastructure assets are also at risk of confiscation. Russia’s trust has now been broken, perhaps irrevocably, in the western financial system which is dominated by US Dollars and Euros. This is a Currency War.
So — as BOOM pointed out last week, Russia has decided to rapidly move towards diverting gas supplies from Western Europe to the nations South and East of Russia. It has no great need of western foreign currency which can be confiscated as it is very much self-sufficient in energy, water resources and food. And it has a huge manufacturing powerhouse next door to produce any goods it requires which it cannot produce itself. That powerhouse is China and the Chinese will gladly pay for their energy with Rubles while Russia will gladly pay with Chinese Yuan for manufactured goods from China.
Then there is the rest of the world to consider. Up to 70 – 90 % of the global population is arguably in the Chinese/Russian camp via their association with the Shanghai Cooperation Organization and other mutual arrangements and agreements that exclude the US and Western Europe. As far as BOOM can tell, our naive and foolish Western politicians never seem to grasp this key fact in Geo-political assessments. They prefer to think that they can threaten minor nations into submission if and when necessary. This has been illustrated clearly with the recent alarmed and aggressive responses from Australia and the US to the Solomon Island’s decision to move closer to China via mutual agreement.
TRUMPED: All of this has its roots in the ill-advised “trade war” that Trump decided to engage in with China when he was President. China won that “war” decisively but the Chinese government will never forget what Trump did. They are now wary of trading with the US and accepting US Dollars in return as payment, although they continue to do so for the time being. And they have a friendly Northern neighbor who can provide them with their energy, food and water requirements. Plus they have 70 – 90 % of the world’s population as customers for their manufactured goods.
So the outcome engineered by the Western leaders is that the US and Europe have possibly isolated themselves over NATO’s “right” to interfere in Ukraine. That rationale does not seem to justify the strategy. On Thursday, the architect of that strategy, Jens Stoltenberg, said that NATO is considering supporting Ukraine in the struggle for “months or years”. He never seems to learn.
Both Trump and Biden have adopted policies that demand the continued dominance of the US Dollar in global trade settlements. This is standard US policy — NATO dominance aligned with US Dollar dominance and backed with 800 military bases worldwide. They call it “the rules based international order”. Some comedians call it “we make the rules and you follow the orders”.
In doing so belligerently, they are actually speeding the demise of that system which has given them such a privileged position ever since it began with the Bretton Woods Agreement (in 1944) that emerged during World War Two.
RUSSIA PROFITS: Meanwhile, Russia has profited enormously from the huge surges in oil and gas prices that have occurred since the Ukraine imbroglio began. Their Current Account balance is surging upwards. If you sell less energy but for much higher prices, you win. It is as simple as that.
In total, Europe is dependent upon Russia for 40% of its gas, 46% of its coal and 30% of its oil. Russia supplies gas via pipelines to 23 European countries. It can easily reduce that total supply by half if it receives 4 times the previous price from unfriendly nations. And at the same time, it can supply its energy to friendly nations at low prices if they agree to Russia’s payment terms. It appears to be a Win, Win situation for Russia.
The Russian Ruble has continued to strengthen against the US Dollar in the last week as per BOOM’s expectations. And, as expected, the US Dollar has continued to strengthen against most major currencies with a weekly gain of 2.33 % against the US Dollar Index. Such US Dollar strength will continue as long as this global geo-political uncertainty continues.
After all, it is still the great safe haven for western wealth in times of adversity and will remain so, in BOOM’s estimation, for at least another 50 – 100 years. The dismantling of US Dollar Global Dominance will not and cannot occur rapidly because huge offshore Eurodollar volumes provide the necessary buffering role for trade and capital settlements. That buffer cannot be replaced quickly.
And, by the way, US Dollar strength reduces CPI inflationary pressures inside the US economy so the Federal Reserve is happy to see that strength continue. The only mystery in all of this is in regard to the fact that US politicians appear so keen to accelerate the time frame. Much better leaders are needed urgently.
US ECONOMY CONTRACTS — STAGFLATION: As the Geo-political events dominate, we must not lose sight of the threat of Stagflation in the advanced economies of the world. The US economy contracted by 1.4% in the first Quarter of 2022, according to the US Bureau of Economic Analysis (BEA). This is ominous. A second quarter contraction would mean that an official recession is here for the US with CPI inflation surging.
US GDP growth has been relatively stagnant for 9 months and is now showing signs of further declines to come. BOOM expects it to continue to weaken. Combined with a trend towards a strengthening US Dollar that began in June 2021 and low wages growth, CPI inflation pressures should moderate in the second half of 2022. If that happens, interest rate pressures will also moderate and the “transient inflation” hypothesis will become reality.
ICELAND LEADS THE WAY TO DEATH: In regard to the Covid aftermath, Iceland has released Deaths from All Causes figures which show a 30 % increase in total national deaths from January to March this year. Only one third of those increased death numbers can be explained by “Covid deaths” (deaths that occurred with a positive PCR test for Covid). And we know from other nations’ experience that such Covid “positive” deaths are most likely below 10 % actually caused by Covid — in other words, the majority of the deaths were caused by other pre-existing diseases, not from Covid.
This leaves us with the fact that deaths overall in Iceland (not caused by Covid) have increased by about 27 % so far in 2022 and the question is why? And how?
This number seems to reflect what we have been told by some life insurance companies in the US where death numbers from all causes in the age groups 15 – 60 years have increased by 40% in the last quarter of 2021. Meanwhile, in Australia, the Deaths from all causes numbers for January have just been released and they are 22.1 % above expectations (historical average).
So total excess deaths are increasing since September 2021 in at least 3 nations and those increases cannot be explained (yet). This raises the suspicion that the excess deaths are being caused by the new variable — Covid vaccinations — which have been implicated in heart attacks, strokes and blood clots and which have been rolled out since December 2020.
If this hypothesis is true, then we may soon come to realize that Covid vaccinations have killed and maimed many millions of people in many nations. With many governments having branded these experimental Covid medical interventions as “safe and effective”, we could therefore see the situation where millions of excess deaths and illnesses worldwide may have been caused by negligent Governments. If so, it will be a huge scandal for the entire “public health” industry and the entire political class.
In economics, things work until they don’t. Until next week. Make your own conclusions, do your own research. BOOM does not offer investment advice. SUBSCRIBE – FREE AT BOOM: http://boomfinanceandeconomics.com/#/
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BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY: LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans). https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy
Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how global banking systems really work. https://www.youtube.com/watch?v=EnC1UlnFLyI
AND Watch for 4 minutes, this Bank of England explanation: Money is essential to the workings of a modern economy, but its nature has varied substantially over time. This video describes what money is today. https://www.youtube.com/watch?v=ziTE32hiWdk
Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models. EMAIL: gerry {at} boomfinanceandeconomics.com
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Isn’t there some Chinese proverb saying “in crisis there is opportunity”?
The opportunity to crash Western govts and usher in the desired NWO.
The actions of Western Govt seem intent on burning it all down.
Yes Steve, it’s part of the plan which they have not been shy in offering it up, if you know where to look. Out of chaos – Order. Order exists within chaos, as chaos exists within order. You create order through a never-ending struggle to find balance with chaos. You cannot completely remove chaos from your life so don’t waste time trying. Rather, aim for the middle path of balance between order and chaos.
People desirous of freedom can begin by recognizing the cause of their enslavement. When they see the cause, the true remedy also will become obvious. They should also try to acquire God’s view of this matter of oppression by searching through his Word the Bible and by ordering their lives in harmony with his will. (Proverbs 3:5-7). Also they should endeavour to see that there can be no true freedom apart from God, that any course contrary to God’s law can lead only to oppression and enslavement. It is well that they observe also that doing anything and everything without restrictions or limitations does not result in freedom but chaos. For this is the lesson of history.
Too bad I had to learn all that the hard way.
Ha Ha, me too. I had to live a long time to learn the essence of wisdom which was there all the time if only I had the gumption to look, read and see.
As regards Iceland, I just checked on their 2022 suicide statistics, and for a country with a population (2021 est.) of 371,580, which ranks it 79th in the world, its rate is 11.9/100k, which is just slightly more than Sweden (11.8). Iceland is also 75% Christian. The Nordic lands have traditionally had high suicide rates, which is why I thought to check this.
So, 11.9/100k in a population of 371,580; that is much less than the US, at 16.1/100k (with a 350m population), but much more than the UK at only 7.9 per (@68.5m); but its men-to-women rate is 19.8 vs. 3.9, a pretty massive 6x difference (the US rate is only 3x different between male and female) in such a small place. I would imagine the CONVID lockdowns and restrictions have had a direct effect on the already fragile psyches of Icelanders; every country has been under the same pressures and had their suicide rates jump, so I doubt Iceland is any different.
Given this as a background, I find it unsurprising that Iceland has one of the highest CONVID gene-therapy shots (I refuse to call them vaccines) administered, allegedly 79% of the entire population. These people seem to want to kill themselves.
Excellent stats, thanks Captain. I see the reasons for suicide are many and various but depression appears to be high on the list often caused by a sense of helplessness through perhaps oppressive governments, economic insecurity, social isolation and unemployment – in short – lockdowns?
While the US seems to be committing economic suicide at an alarming rate what Europe is doing, can only be described as self destruction. Today, due to massive overpopulation, and just in time supply lines, every country is dependent upon trade for at least some of its needs. Some countries and continents much more so than others. Europe, with twice the population of the US, and having depleted most of its natural assets long ago is in an extremely vulnerable position.
Any misconception that the US and Middle East can replace the energy and agricultural imports that have been provided by Russia and Ukraine in the past without massive price increases and long delays, is simply naive.
There are certain laws of nature that mankind ignores at his own peril. Two of the most important, are the laws of action and reaction, and the law of unintended circumstances. In addition, there is a little understood, but well known law, known as Murphy’s law.
Murphy’s law dictates that if something can go wrong… it will…often at the worst possible time. Murphy’s law has an undeniable attraction to people and circumstances in which they choose to place themselves in stupidly vulnerable positions.
US actions in both World Wars, were purposely designed to weaken Europe and replace it as the worlds primary power. The current actions are designed to isolate Europe from BRICS and to increase it’s dependence and loyalty to the US.
Europe’s future will either be one of increasing poverty and lower living standards, or as the front lines for WW3 .
All agreed Jdog, as someone said the other day – this is all about resources, as has always been the case I guess, which you have pinpointed. When I was in Belarus in 1994 they were trying to adjust from generations of communist dumbing down. They asked me where they might get the initial capital to kickstart their new ‘capitalist society’. I replied that we stole it from everyone else over the centuries but I wouldn’t recommend it this time.
Now, from the viewpoint of the 21st century, they didn’t get it after all. But they still have massive untapped resources as do the BRICS and China is going with the BRI and this is the challenge to the West’s domination. “The BRI is an ambitious plan to develop two new trade routes connecting China with the rest of the world. But the initiative is about far more than infrastructure. It is an effort to develop an expanded, interdependent market for China, grow China’s economic and political power, and create the right conditions for China to build a high technology economy.”
https://www.chathamhouse.org/2021/09/what-chinas-belt-and-road-initiative-bri
Europe’s approach might include some humility, negotiate with the BRICS, and secure the resources it clearly needs. Their economic strategy today has to fail with Britain leading the pack of arrogant support for Ukraine, risking WW3. Will they ever learn? I am writing about it this week.