U.S. Sanctions Erode Its Foreign Influence

August 6, 2014

A few days ago the Leveretts looked at the effects of U.S. financial sanctions and the other ways the U.S. pisses off major countries. They find that the current path of U.S. foreign policy will erode the U.S. dollar hegemony and lead to a destruction of the “extraordinary privilege” (de Gaulle) the U.S. has had with the ability to print the world’s reserve currency. The political erosion of the dollar will be felt in the commodity markets and especially in energy deals which will then have further effects in foreign relations: Petrodollars, Petroyuan, and the Ongoing Erosion of American Hegemony

Looking ahead, use of renminbi to settle international hydrocarbon sales will surely increase, accelerating the decline of American influence in key energy-producing regions. It will also make it marginally harder for Washington to finance what China and other rising powers consider overly interventionist foreign policies—a prospect America’s political class has hardly begun to ponder.

Sadly, only few will listen to the Leveretts but now Bloomberg picked up the theme: Russia Sanctions Accelerate Risk to Dollar Dominance

While no one’s suggesting the dollar will lose its status as the main currency of business any time soon, its dominance is ebbing. The greenback’s share of global reserves has already shrunk to under 61 percent from more than 72 percent in 2001. The drumbeat has only gotten louder since the financial crisis in 2008, an event that began in the U.S. when subprime-mortgage loans soured, and the largest emerging-market nations including Russia have vowed to conduct more business in their currencies.

“The crisis created a rethink of the dollar-denominated world that we live in,” said Joseph Quinlan, chief market strategist at Bank of America Corp.’s U.S. Trust, which oversees about $380 billion. “This nasty turn between Russia and the West related to sanctions, that can be an accelerator toward a more multicurrency world.”

Some five years ago we already looked at this decline of the U.S. dollar as reserve currency and its effects:

So far the U.S. could borrow cheaply and pay back less in real value than the original loan. That privilege is now going away. The trillions the U.S. currently needs to borrow from abroad will have to be payed back in full. That is a major change in its global power status and will seriously decrease its influence in international policy questions.

The European Union which stupidly followed the U.S. sanctions on Russia with its own is also hurting itself:

Financial interdependence offers a powerful opportunity for coercive diplomacy.

But the unintended message Europe’s leaders sent is that financial interdependence is a source of vulnerability that countries like Russia, but also China, Iran and others, would be wise to avoid.
…
Europe’s financial sanctions against Russia likewise add incentives for countries to look for alternative arrangements that reduce financial interdependence.

Moreover, those incentives will only increase if the sanctions are successful. Even if Europe encourages the Russian government to change its policy toward Ukraine, the Russian government will respond over the longer term by seeking financial arrangements that leave it less exposed to such coercion.

It will take years until the dollar will lose its reserve status but the decline is already visible. More and more deals are now made bilateral between partners in their own currencies and get settled outside of the financial channels the U.S. tries to sanction, block, spy on or to criminalize.

The U.S. foreign policy reliance on sanctions, pressure and war is sawing off the high branch the U.S. is sitting on.

Posted by b on August 6, 2014 at 16:12 UTC | Permalink

Comments

MRW@69,
There’s a growing sense that the petro-dollar’s days are numbered. And when the dollar is no longer the global reserve currency, that’s when major austerity begins at home. Most of the people will react by demanding an end to the Empire. Most people already want an end to the military interventionism, but when the dollar suddenly loses 1/3 to 2/3 of its value overnight, they’ll become more vehement in their dislike of millionaire (mis)leaders squandering our tax dollars on wars. That and not to mention a global surveillance system servicing the “Deep State.”

Posted by: Cynthia | Aug 7 2014 13:21 utc | 101

Adding:
And I can only imagine the scene at the fanboy clubhouse, when your other hero – Edward “Hunka Hunka” Snowden – released HIS stale warmed over info through gatekeeper Greenwald about Israel glomming off of US intelligence!
Did someone spill tea on Mr. Wittles the Teddy Bear amidst the excitement?
See, see!!!!Lick their heroism, JSore, lick it up!!!
So, to summarize the Fake Left Hero News for July/August for 2014:
Palestinian murders are ignored by the Zionist MSM.
Israel has access to raw US intelligence.
Mind….Fucking….Blown….
More tea, Mr. Wittles?

Posted by: JSorrentine | Aug 7 2014 13:30 utc | 102

@Cold N. Holefield #94

[That quantitative easing is printing money] is false — a lie spread around by gold bugs just as this potential loss of the dollar as the global reserve currency is.

You are wrong, and I will let the others judge which of us is lying. According to Wikipedia, the goal of quantitative easing is to increase the money supply. In other words, to print money.
The U.S. has been able to do this with impunity because the dollar is the primary global reserve currency. But all that money printing is basically stealing wealth from the rest of the world, and other countries are sick of being robbed. Which is why de-dollarization is gathering huge momentum.
The sanctions are really speeding up the process.

Posted by: Cyril | Aug 7 2014 13:32 utc | 103

@97
What a load of drivel, Sorrentine! Clearly your definition of the “real left” is that its members denounce those better known than themselves, though what such “girl school” cattiness has to do with left and right is obscure.
It is perfectly possible for large numbers of people opposed to imperialism to disagree with one another without thereby aligning themselves with the imperialists. In fact it is a very good thing that, on the left, there is a rigorous and vigorous debate about policies and principles.
What is unhealthy is the weird sectarian habit of short circuiting a healthy and honest discussion of important matters by insisting that any disagreement with one narrow set of ideas-most of which seem to consist of little more than lynch mob moralising and abuse, given added emphasis by the use of language forbidden in children- is treachery.
What is really treachery is putting the childish desire to score debating points and bully less hysterical souls, above the important work of comparing ideas and subjecting the world to critical analysis.
I disagree with Chomsky over lots of issues, one of them being his soggy views on Palestine but it doesn’t occur to me that it is likely that he is anything but sincere and honestly motivated. Nor does it advance any thorough critique of his, influential, ideas to dismiss him out of hand as a fake.
The same is generally true. I will add that there is a remarkable coincidence between the list of people that you denounce as either fake left, gatekeepers, zionists or agents of the US government and the enemies that the US government goes to considerable lengths to persecute and intimidate. And that is worth thinking about as you scatter your accusations and slanders like confetti at a fat girl’s wedding.

Posted by: bevin | Aug 7 2014 13:33 utc | 104

@91
“As MRW was saying, USA is a currency sovereign, it cannot go broke because it can print its way out of any problem. So the bonds get paid no matter what…”
What MRW says is both interesting and instructive but it misses an important point which is that, however convenient and profitable it may be to continue to use the financial system centred on the US Treasury, the fact is that the accompanying inconveniences, not least that of ceding national sovereignty to Washington, have become, for several large trading nations, too threatening not to take countervailing action.
This is a matter of politics not simple economics: the USA by its escalating resort to sanctions (which now seem to have progressed from a last resort to the first option considered) and its refusal to respect the property of others, whether in bank accounts or in the form of sovereign territories, is forcing its victims to come together to protect themselves from its depredations.
When they do so, whether they wish it or not, they threaten to pull down the whole House of Cards.
(Incidentally MRW is wrong to say that Bretton Woods ended in 1971. In fact much of the raft of agreements made there survives yet the IMF and World Bank being examples.
@96
“…There is a good opinion piece in Itar-Tass about the bans Russia might introduce. For example, a Russian analyst said that replacing Microsoft software, which is being used in government structures, is one possibility. Banning fast food chains and creating their own, more healthful chain, is another….”
Again, this is something being forced on very reluctant parties, such as Oligarchical Russia, by the US government, which seems to have concluded that the Cold War was not just fun, and a great way to justify repression everywhere, but a US victory.
In fact the Soviet Union collapsed because the Communist Party, which had long since cut itself off from the possibility of regeneration and growth by depriving its members of the right to express themselves openly. It had lost its raison d’etre (to build communism in the world). Empty of ideas its collapse left the Soviet ruled countries with an intellectual vacuum which was soon filled with the idiotic certainties of criminal capitalism.
Now the US is forcing societies like Russia to re-trace their steps: unless they wish to be composed wholly of compradors and peons they must take charge of their economies and cultures; declare their independence from Hollywood as well as Wall St and Silicon Valley, once more develop their own industries and build their own enterprises.
Socialists in Russia have been calling for such policies for years now, seeing them as the basis for a much higher standard of living as well as a renewal of state power internationally. And the oligarchy have been resisting them, much preferring the soft life of milking Russia, investing abroad and fucking around in London, New York and Paris.
Thanks to the US government the socialist programme now seems to be back on the agenda. Were Washington not such a well of ignorance and clearing house for stupidities it would be concerned at the prospect of a revival of the spirit of 1917 in Russia. But they have been reading their own ideology, and drooling over their own importance, for so long that they have no knowledge of the vast energies that the Russian Revolution released and the enormous effort it took capitalism to cram the genie of workers power back into the bottle.

Posted by: bevin | Aug 7 2014 14:12 utc | 105

From b’s intial topic post:
..Sadly, only few will listen to the Leveretts but now Bloomberg picked up the theme: Russia Sanctions Accelerate Risk to Dollar Dominance While no one’s suggesting the dollar will lose its status as the main currency of business any time soon, its dominance is ebbing. The greenback’s share of global reserves has already shrunk to under 61 percent from more than 72 percent in 2001. The drumbeat has only gotten louder since the financial crisis in 2008, an event that began in the U.S. when subprime-mortgage loans soured, and the largest emerging market nations including Russia have vowed to conduct more business in their currencies“…
—————————————————–
“…All the elite (WWON) of other countries know this, and therefore all this bluster about the declining dollar and the potential loss of it as the world’s reserve currency is so much wishful-thinking bullshit spun by gold bug con artists and those who have an eternal ax to grind.”
Posted by: Cold N. Holefield | Aug 7, 2014 6:53:51 AM | 94
—————————————————————-
Did you read the bloomberg news report posted by b? You actually think bloomberg news is a bunch of gold bug con artists with an external ax to grind? Amazing…

Posted by: really | Aug 7 2014 14:22 utc | 106

MRW @69

But until China offers the kind of trillion dollar equiv. bond market that our treasury securities do, there’s not much chance of us losing reserve status just yet.

The USD reserve status rests on two pillars. Firstly, apart from global oil and gas markets requiring USD to transact, many other industries use the USD as standard currency for international billing. Secondly the fact that due to the immense quantity of USD available, foreign states and large investors can park their billions in USD without causing noticeable exchange fluctuations.
The first pillar is corroding with every new bilateral currency swap agreement that doesn’t include the US, which are increasingly coming into fashion these days. Not just amongst the BRICS nations but as of late also a substantial number of anglo sphere countries, including the EU.
China and Switzerland sign bilateral currency swap line
http://www.ft.com/intl/cms/s/0/d79001d8-10b8-11e4-812b-00144feabdc0.html
ECB and the People’s Bank of China establish a bilateral currency swap agreement
http://www.ecb.europa.eu/press/pr/date/2013/html/pr131010.en.html
China Takes Another Stab At The Dollar, Launches Currency Swap Line With France
http://www.zerohedge.com/news/2013-04-13/china-takes-another-stab-dollar-launches-currency-swap-line-france
Australian Bilateral Local Currency Swap Agreement with the People’s Bank of China
http://www.auskingvisa.com/en/show.asp?id=166
This from Forbes:

China Busy Signing Currency Deals
China took one more step last week towards internationalizing the yuan, ultimately leading to the day when the Chinese currency will be a substitute for the U.S. dollar in all of China’s trade with other countries.
Last Friday, China and Brazil agreed on a currency swap deal that will allow the central banks of each country to exchange local currencies worth up to 60 billion reals, or 190 billion yuan ($30 billion). The amount can be used to shore up reserves in times of crisis or to boost bilateral trade. China is Brazil’s largest trading partner, with bilateral trade of approximately $100 billion.
China’s currency deal with Brazil follows a similar deal with Australia that was struck in March and allows for an exchange of local currencies between the Australian and Chinese central banks, worth up to 30 billion Australian dollars ($31 billion) over three years. Again, the motivation behind the deal is to support bilateral trade between the two countries which already exceeds $100 billion, reduce transaction costs and reduce reliance on the greenback.
Also this year, China and the United Arab Emirates (UAE) signed a three-year currency swap agreement worth 35 billion yuan ($5.54 billion) in January, and a $1.6 billion deal with Turkey in February. China’s bilateral trade is approximately $35 billion with the UAE and $24 billion with Turkey.
China began the process of internationalizing its currency in November 2010 when then-Russian Prime Minister Vladimir Putin and Chinese Premier Wen Jiabao announced that Russia and China had decided to use their own national currencies for bilateral trade, instead of the U.S. dollar. The yuan started trading against the ruble in the Chinese bank market in Shanghai immediately, and in December 2010, began trading on the Moscow Interbank Currency Exchange. This was the first time that the yuan had traded outside of China and Hong Kong. Bilateral trade between China and Russia is currently about $70 billion, with the two countries having a common goal of increasing trade to $200 billion by 2020. […]

Some more links on this topic
cassiopaea.org/forum/index.php?topic=21138.5;wap2
London, Frankfurt, Switzerland, you name them, every major financial district wants to become a trading hub for the Chinese currency.
Now to the second pillar, as b correctly points out, with Washington abusing the USD reserve currency power, the mechanization of which you very well described, it is also starting to wobble.
Due to the USA’s increasingly belligerent approach to foreign policy, more and more foreign entities holding USD reserves, including now western banks, run the risk of having their cash assets frozen or confiscated by US authorities and courts. Prudent risk management policies will have to allow for this circumstance and as a consequence over time a substantial reduction in foreign USD holdings can be expected.
Crest @91

For what it’s worth, China invests in U.S. bonds because they’re the safest investments one can make. […] USA is a currency sovereign, it cannot go broke because it can print its way out of any problem. So the bonds get paid no matter what.

Zimbabwe was also a currency sovereign between 1980 and 2009. You can get a ZWL$100 Trillion note now for about US$20 on ebay.
And like Zimbabwe, the US gov is year after year running huge budget deficits and thus needs to constantly take on debt. By monetising its debt via quantitative easing, or printing its way out of the problem as you call it, it devalues the USD’s already in existence through inflation whilst at the same time holding down interest rates with artificial demand for its bonds.
Let us look at the official US Debt Clock and do some math. As of right now the US National Debt stands at $17.6 trillion, whilst the amount of Net Interest on Debt is shown as $226 billion. That equates to a 1.28% interest rate. As an investor wondering if it is a smart idea to buy US treasury bonds, what conclusions could I draw?
a, If the return on investment is a skinny 1.28%, at a time when inflation is guaranteed to exceed that rate, why would I want to hold US bonds?
b, If interest rates on US bonds were allowed to rise again to pre-GFC levels of about 4% or more, which is also around the historic average, the budget item ‘Interest payable on the National Debt’ would triple to at least $700 billion a year, about as large a chunk as the Defense/War budget. Let it be 5% and its gonna be almost $1 trillion a year on interest!
The US gov is essentially bankrupt, on a federal level as well as numerous cities and counties in which the lights are being turned off. To make the point, let me quote Charles Hugh Smith:

About That $20 Trillion in Public Debt….
[…] Here’s how rising Federal debt creates a death spiral in the economy. As Federal debt skyrockets, the cost of debt service rises, even at super-low rates of interest. That means taxes must rise, because no constituency will allow its share of the Federal budget to decline by more than a symbolic amount. Higher taxes means there will be less money available for new investment, and the enormous sums of Federal debt that have to be sold crowds out other investment.
Interest rates have been manipulated lower for a few years via the Fed buying Treasuries with freshly printed money and a perceived “flight to safety,” but eventually the Treasury will have to compete for investors’ cash, and rates will rise.
The Federal government already borrows more per year than most country’s gross national product: about $1.5 trillion a year. You can look it up here: Public Debt of the U.S. That’s roughly 10% of the U.S. GDP, added to public debt each and every year.
Public debt on March 21, 2008, four years ago, was $9.39 trillion. Today it is $15.57 trillion. The difference is $6.18 trillion. Divide by four and voila, $1.5 trillion has been added to the debt annually.
Ignoring the politicos’ shuck and jive about “balancing the budget” as tiresome political theater, let’s multiply 3 X $1.5 trillion = $4.5 trillion, and add that to $15.57 trillion: in three years, Public Debt will top $20 trillion, on the way to $30 trillion.
As I proved in Can We Please Stop Pretending the GDP Is “Growing”? (June 2, 2011), GDP in constant 2005 dollars is essentially unchanged since 2007.
In constant (2005) dollars:
GDP in 2007 (pre-recession): $13.23 trillion
GDP in 2008 (recession starts): $13.31 trillion
GDP in 2009 (recession officially ends in mid-2009): $12.88 trillion
GDP in 2010: 13.04 trillion
GDP in 2011: $13.3 trillion
In constant (2005) dollars, the economy actually shrank in the three year span of 2008-2010 and is back to 2007 levels. That’s what we bought with $6.1 trillion in additional debt and Federal spending. […]

Even though the article is 2 years old and it might take another 3 years to reach the $20 trillion CHS is foreseeing, he imo pretty much perfectly describes the US fiscal landscape today.
Concerning China’s position within the forex market, the yuan/renminbi has been going up for nearly a decade. The USD/CNY has been steadily dropping over the past 9 years from 8.2 to now 6.1, a 25% reduction. Any foreign entity holding USD long term will have to ask itself the question if it makes sense to save in a currency that as a trend is losing buying power compared to one that is gaining strength.
It is true, as the yen gets stronger, Chinese export goods will get more expensive but that is largely offset by Chinese imports of raw materials at the same time becoming cheaper. As the domestic purchasing power grows, China will rely less and less on exports, particularly to the US. The country’s need to keep the yuan relatively weak to maintain exports will gradually turn into a policy of letting the yuan appreciate and increasingly take on the role of competing with the USD for international reserve status.
A good indicator for which way the wind blows is the share of global GDP, where figures show that the
* US has dropped in the last 10 years from 23% to 19%
* all European countries also recorded falls in global trade importance, eg Germany from 4.5% to 3.7%
* Russia and India stayed roughly unchanged
* while China’s has risen from 9% to 16%.
These are the global macro trends that anyone forecasting developments in the currency markets will have to factor in sooner or later.

Posted by: Juan Moment | Aug 7 2014 14:27 utc | 107

@bevin
The reason that people like Sorrentine are on your case is because you are so obviously a dilettante, an arty farty, unskilled wordsmith and pompous charlatan.
Yep, you sure come over like a class act wanker.
It seems the only reason you have for posting your laborious rants is self aggrandization.
From your writing, it is obvious that you have no passion.
If you really cared, you would, like Mr Sorrentine, exhibit rage and indignation; not write wimpy little critiques for your oh-so-clever “healthy and honest discussions”.
Yep. You are a fake. As is Chomsky.

Posted by: DM | Aug 7 2014 14:31 utc | 108

What certain global elites are discovering about the US federal reserve monetary system is that it is becoming very extortionist. It has historically used extortion against the commons but recently it is starting to be very punitive against certain global elites and it is those elites who are beginning to push back against all the fines and punitive rules the fed reserve is currently implementing. The idea that the dollar currecy reserves have decreased by 11% since 2001 is indication. Those affected by the punitive fed reserve system know that can’t just pop the balloon, they are releasing the air gradually.

Posted by: really | Aug 7 2014 14:41 utc | 109

@96
‘ There is a good opinion piece in Itar-Tass about the bans Russia might introduce. ‘
Have a gander at Telesur, Russia Confirms Agricultural Import Ban
@98
‘ Most people already want an end to the military interventionism, but when the dollar suddenly loses 1/3 to 2/3 of its value overnight, they’ll become more vehement in their dislike of millionaire (mis)leaders squandering our tax dollars on wars. That and not to mention a global surveillance system servicing the “Deep State.” ‘
Have a gander at “Ensuring a Strong Defense for the Future,” pdf
@102
I think most of us find reading your comments much more informative and thought provoking than the ad-hominen rants of the trolls or mentally deranged who just must have their emotional water at a boil at all times. I can understand you’re occasionally provoked enough to retort as @101, but it’s really unneccessary. There are getting to be whole great patches of the comment section here at the moon that are the equivalent of ads in newspapers. We just read around them.

Posted by: john francis lee | Aug 7 2014 15:25 utc | 110

OT. But ouch I am not alone. Anyway.
I totally missed this, apologies if it was posted before.
Evgeny Fedorov, see wiki
http://en.wikipedia.org/wiki/Yevgeny_Alexeyevich_Fyodorov
is saying that there will be a “Maidan” in St. Petersburg in Sept.
youtube, May 31, 2014, quote: A coup d´état under the guise of an ‘Orange Revolution’ is being prepared in Russia. The big picture and the details are given by Evgeny Fedorov, a deputy in the Russian parliament, and coordinator of the People’s Liberation Movement. The coup facilitator is the fifth column, which dominates the mass-media and public servants all the way up to government ministers, a point barely known within Russia, never mind outside. However, the people’s insurrection in Ukraine could wake up enough people in Russia to restore national sovereignty. In the next few years it will come to a head, with only two possible outcomes : the destruction of Russian civilization or the collapse of the American empire. 
19 mins. eng subs
http://tinyurl.com/plx4cok
Longer, 2 hours, same upload date. eng subs
https://www.youtube.com/watch?v=x0zRD-Ulv2s
I recommend.

Posted by: Noirette | Aug 7 2014 15:39 utc | 111

@97 jsore quote : “james: (teehee) Now what do you have to say about my idol, JSore? (munchmunch)”
i knew i would strike a raw nerve pointing that out jsore, but try not to exaggerate things like you always do! fwiw i agree with bevin’s views @ 101..
the msm has painted out the start of the conflict as the 3 kidnapped israeli boys who were murdered. i appreciate the fact chomsky points out the previous event of the murder of a couple of palestinians as this is indeed always overlooked in the msm.. chomsky is unwilling to contemplate many other relevant issues, but at least he got that right. i think you work hard to demonize people like snowden, greenwald and chomsky in spite of the work they have done. that strikes me as some kind of deep insecurity on your part.
@98 cythnia.. thanks for articulating that. i agree.
@102 bevin. thanks for addressing MRW’s comments, specifically the bretton woods agreement and his idea that it ended with the usa came off the gold standard.. i did respond to this comment earlier as well. it would be nice to hear his response to our comments, but he is an infrequent poster here.. i agree with most of all your post here.
@104 Juan Moment.. excellent post. thank you for articulating what i am unable to articulate, but aware of..
@105 DM.. do you really have nothing to provide moa except personal attacks? that is all i see from you!
@108 Noirette.. thanks for those links. i will take a look.

Posted by: james | Aug 7 2014 15:57 utc | 112

Today’s Guardian has an article by an Israeli criminal who says that the world focuses on Israel while ignoring all the other wars in the region and world.Well,has anyone seen the atrocities in the MSM by ISIS?How about our Iraq disaster?The photos were suppressed of our military madness,from Abu Ghraib to Fallujah.And Afghanistan,do they put our victims faces in the news?The Israelis are outraged that some intrepid reporting was finally done to expose their evil,which we mimic but have been able to get our media to not cover,in collusion.
It’s obvious that ISIS are our boys,hence the lack of concern and total lack of response to,as our attempt to reestablish the Sunnis in Iraq to combat Iran and the Shia.
Evangelicals aint Christians,but a bastardized OT racist bunch of moonie loonie small minded dweebs,who reject Jesus Christ and what he stood for.
Has anyone ever met evangelicals of color?

Posted by: dahoit | Aug 7 2014 16:28 utc | 113

thanks for those links. i will take a look. james at 109 posted.
I’m not in habit of recommending one or another trivial link, usually post them as just ‘reference’ to show that or that ‘fact’ or opinion from one quarter or another. So I hope you and others do. From Russia, with love, so to speak.
The 2 hr. long one is a long watch. (I don’t agree with all, so no need to blast the linker.)
Getting caught up in trivial quarrels between posters is … is dismaying.
Who are some of you fighting? Some anonymous person on the intertubes?
Or – choose – the capitalist system – US hegemony – fake leftists, that is mostly creepy social democrats – fiat money – Obama and the US Gvmt – Chomsky – Russia .. what?
This is exactly the kind of quarrels that the PTB Loooove.

Posted by: Noirette | Aug 7 2014 16:31 utc | 114

Isn’t Vladimir William in Russian?I heard that somewhere,could be mistaken.

Posted by: dahoit | Aug 7 2014 16:34 utc | 115

Obama weighs airstrikes in Iraq…
http://www.nytimes.com/2014/08/08/world/middleeast/obama-weighs-military-strikes-to-aid-trapped-iraqis-officials-say.html?_r=0
“The administration had been delaying taking any military action against ISIS until there is a new Iraqi government. Both White House and Pentagon officials have said privately that the United States would not intervene militarily until Prime Minister Nuri Kamal al-Maliki stepped down.
But administration officials said on Thursday that the crisis on Mount Sinjar may be forcing their hand. About 40 children have already died from the heat and dehydration, according to Unicef, while as many as 40,000 people have been sheltering in the bare mountains without food, water or access to supplies.”

Posted by: dh | Aug 7 2014 17:28 utc | 116

You are wrong, and I will let the others judge which of us is lying. According to Wikipedia, the goal of quantitative easing is to increase the money supply. In other words, to print money.
This shows what little understanding, if any, you have. It’s not worth arguing with you about it, I’ve covered it all numerous times before. I’ll let you revel in your willful ignorance.

Posted by: Cold N. Holefield | Aug 7 2014 18:03 utc | 117

The US is ratching up tensions in Asia:
http://fpif.org/parsing-east-asian-powder-keg/
http://scotthorton.org/interviews/2014/07/31/073114-conn-hallinan/
Regarding the future of the USD payment system:
The key is in the hands of the US consumers. If they decide to reduce their spending then the Current Account Deficit will go down again and the US budget deficit goes through the roof. A VERY toxic mixture (rising interest rates anyone ?)

Posted by: Willy2 | Aug 7 2014 18:03 utc | 118

Bibi asks US lawmakers to help fend off war crimes charges.
Just another day in fucking Zionist shithole America!!

Posted by: JSorrentine | Aug 7 2014 18:06 utc | 119

So to get back to the title, US Sanctions erode it’s foreign influence.
Russian sanctions will erode it’s foreign influence, such as it is, close to nil.
From the US pov, their sanctions are calculated and effective.
Cutting off some banking *etc.* in Russia is just the usual ‘sanctions’ thing though it is sharper, more deadly, broader, than before (compared to Iraq for ex., remember oil for food.)
So Russia retaliates with sanctions on agri produce, tomatoes, turnips, and chicken wings or what not, terrible move.
Putin supporters or hopeful recipients of aid, arms, largesse (Novorossia, for ex.) were screaming at him to invade the Dombass, many arguments against were put forward, which had a lot of merit. Along the Putin – chess player, long calculations- etc. line.
To make a riposte that affects food and large or small agri cos. anywhere in the world plus the Russian consumer?
Russia bans agricultural products from EU, USA, Australia, Norway, Canada
Aug. 7 from RT.
http://rt.com/business/178636-russia-bans-products-medvedev/
What a heart-sinking mistake. It might not even be exact as the media muddles all and hypes, but the damage is done.
Pathetic move on the part of Russia. This will go down in history as a supreme sign of weakness.
heh. I can think of so many better moves, some are borderline criminal. Or dead sneaky anyway.
Putin has lost the plot.

Posted by: Noirette | Aug 7 2014 18:06 utc | 120

Regarding the future of the USD payment system The key is in the hands of the US consumers. If they decide to reduce their spending then the Current Account Deficit will go down again and the US budget deficit goes through the roof. A VERY toxic mixture (rising interest rates anyone ?
Posted by: Willy2 | Aug 7, 2014 2:03:20 PM | 118
The top 1% will never let that happen luxury goods, luxury travel and luxury housing are driving the spending numbers.

Posted by: really | Aug 7 2014 18:53 utc | 121

@#121:
Nope. In 2006 the Current Account Deficit (CAD) was $880 bln. and the budget deficit (BD) some $ 200 billion. Currently the CAD is only $ 400 bln. and the BD some $ 700 billion. Quite a change for the worse for the US.
Nope. The top 1% does not determine the size of the BD & CAD. That’s determined by ALL US consumers.

Posted by: Willy2 | Aug 7 2014 19:04 utc | 122

Posted by: Noirette | Aug 7, 2014 2:06:33 PM | 120

Pathetic move on the part of Russia. This will go down in history as a supreme sign of weakness.
…
Putin has lost the plot.

What palpable ignorance you’ve produced. If anything, that sanction removes foreign food supply from being used as an economic weapon against Russian interests. Now that is off the table, what easy economic weapons are left? What is Russia vulnerable to now outside major economic warfare? The black hole of Duhmerican stupidity strikes again for empire. DoG! give it a rest.

Posted by: Formerly T-Bear | Aug 7 2014 19:15 utc | 123

Posted by: Willy2 | Aug 7, 2014 3:04:41 PM | 122
Your point is duly noted. I just don’t see the average US consumer decreasing spending to cause the change in the usd payment system.

Posted by: really | Aug 7 2014 19:21 utc | 124

Well I expected some reactions after my “Putin has lost the plot.” Bring it on. 🙂

Posted by: Noirette | Aug 7 2014 19:29 utc | 125

What is Putin supposed to do, escalate the proxy war?
For Europeans who cannot, or will not, come around to elementary common sense, long term self interest, moral clarity and lucidity, facts on the ground, or won’t throw off their apparent fondness for kinky kinds of imperial bondage, the contraction of their economy–the consequence of their insensibility– is inevitable. So what in the hell are they waiting on? They pretend they are associates in NATO; but the Octopus that occupies them is stronger than they are.
The Russians have incredible patience. They won’t make the same mistake twice. At least they did offer Europeans fair trade. European governments, not the people, are rejecting what is left of sovereignty and dignity. But Uncle Sam will sell Europe more expensive energy. But why not pay a little more for the security of living inside the NSA Panopticon?
Putin may have miscalculated when it comes to European governments, the expectations he had for them. Are they going to be led by the nose, like a heifer garlanded, on its way again, to slaughter? Dmitry Orlov has written about The Last World War, which we have to head off, and which can only be prevented by a solemn appreciation of things as they are. The US is using a satrap in Kiev, to prepare the battlefield for an attack against Russia, because its aggression against Assad’s Syria failed; and it is that same strategy, for a more desperate and foolhardy way to pursue the same end.
Time would be better spent cleaning out the stables, than saddling up for Armageddon.

Posted by: Copeland | Aug 7 2014 20:07 utc | 126

notice how democracies select bad governments…be it in US or canada or australia or UK or france or…..

Posted by: brian | Aug 7 2014 23:31 utc | 127

Posted by: brian | Aug 7, 2014 7:31:59 PM | 127

notice how democracies select bad governments…be it in US or canada or australia or UK or france or…..

Notice how bad governments are foisted on democracies or those pretending to be democracies? The more authoritarian dependent the population is, the easier this becomes. Funny that.

Posted by: Formerly T-Bear | Aug 7 2014 23:49 utc | 128

@120
‘ heh. I can think of so many better moves, some are borderline criminal. Or dead sneaky anyway. ‘
You have a secret plan to end the war? Tricky Dick was sneaky, in no way borderline criminal.
I guess we have to wait for your book.

Posted by: john francis lee | Aug 7 2014 23:58 utc | 129

“Democracies” became the favored form of elite governance form – actually any non-autocratic form – because with “democracies” – in name only once gutted/co-opted by the elite – autocrats could no longer wipe out debts/obligations to financiers who were now free to openly subvert said non-autocratic governance forms.
Michael Hudson piece from a few years back:

Matters changed with the Dutch democracy, seeking to win and secure its liberty from Habsburg Spain. The fact that their parliament was to contract permanent public debts on behalf of the state enabled the Low Countries to raise loans to employ mercenaries in an epoch when money and credit were the sinews of war. Access to credit “was accordingly their most powerful weapon in the struggle for their freedom,” notes Ehrenberg: “Anyone who gave credit to a prince knew that the repayment of the debt depended only on his debtor’s capacity and will to pay. The case was very different for the cities, which had power as overlords, but were also corporations, associations of individuals held in common bond. According to the generally accepted law each individual burgher was liable for the debts of the city both with his person and his property.”[2]
The financial achievement of parliamentary government was thus to establish debts that were not merely the personal obligations of princes, but were truly public and binding regardless of who occupied the throne. This is why the first two democratic nations, the Netherlands and Britain after its 1688 revolution, developed the most active capital markets and proceeded to become leading military powers. What is ironic is that it was the need for war financing that promoted democracy, forming a symbiotic trinity between war making, credit and parliamentary democracy in an epoch when money was still the sinews of war.
snip
To put matters bluntly, the result has been junk economics. Its aim is to disable public checks and balances, shifting planning power into the hands of high finance on the claim that this is more efficient than public regulation. Government planning and taxation is accused of being “the road to serfdom,” as if “free markets” controlled by bankers given leeway to act recklessly is not planned by special interests in ways that are oligarchic, not democratic. Governments are told to pay bailout debts taken on not to defend countries in military warfare as in times past, but to benefit the wealthiest layer of the population by shifting its losses onto taxpayers.
The failure to take the wishes of voters into consideration leaves the resulting national debts on shaky ground politically and even legally. Debts imposed by fiat, by governments or foreign financial agencies in the face of strong popular opposition may be as tenuous as those of the Habsburgs and other despots in past epochs. Lacking popular validation, they may die with the regime that contracted them. New governments may act democratically to subordinate the banking and financial sector to serve the economy, not the other way around.

Posted by: JSorrentine | Aug 8 2014 0:18 utc | 130

@126 copeland..
@130 jsore..re hudsons comments..
that is how i see/read all that too..

Posted by: james | Aug 8 2014 0:41 utc | 131

The currencies used in trade is largely irrelevant. What’s important is the demand and liquidity for bonds. In this realm, no one is even close to the US. There are hardly any yuan bonds even out there, forget about demand.
As long as US bonds are the world’s gold, Wall Street will have a lot of financial power, because they can shut any bank out. And no, gold is not going to replace the US bond, the market isn’t deep enough.

Posted by: jeff | Aug 8 2014 2:42 utc | 132

Copeland @126

[…] European governments, not the people, are rejecting what is left of sovereignty and dignity. […]

If that were so, then the people would reject their governments. But they don’t, they time and time again reelect the same known war criminals and sell outs.
Deep down many people love following and obeying a Fuehrer, always have. From tribal chieftains to kings to presidents and chancellors, hail the leaders. Saves them the hassle of having to read, think and judge for themselves.
Take Germany for example. Helmut Kohl, voted in 4 consecutive times, ran the country for nearly two decades. Angela Merkel, in her third chancellorship and, unless she is abducted by aliens, most likely to be reelected for another 4 years after that. Most Germans would call that a positive sign of political stability, I’d brand it either ‘leader cult’, ‘intellectual sloth’ or ‘money can buy you love’.
Or the Brits, Spaniards, Belgians, Dutch etc. with their beloved monarchs. The King is dead, long live the King! Pathetic people.
Anyhow, my point is that in order to understand the fundamentals of politics one has to remember the old adage that at the end of the day people will have the leadership they deserve. In democracies, leaders who reflect the opinions held by a vast majority of its citizens.
Hyena does what hyenas do, same with politicians. Don’t blame them for what they are. The root of the problem lies with the people who’ve put them into positions of power in the first place.

Posted by: Juan Moment | Aug 8 2014 3:29 utc | 133

That’s true and its not. That it is true is self-evident. That’s it is not true is, of course, because there is a carefully crafted facade in place called ‘democracy’ that enables people to ‘choose’ one or the other of vetted, ‘safe’ candidates actually pre-chosen by the ‘elite’ to run things.
The problem is that democracy requires the people to brush all that aside and to restructure the system to insure popular sovereignty. And the people are just not yet up to it. Mike Gravel used to compare the American electorate, for instance, to adolescents who complain bitterly (some do) about the sorry state of the country/the world but take no steps to assume responsibility for the state of same.
It’s clear that nothing will change – except for the worse – without ‘the people’ bending down, picking up the tools, and straightening out the machinery, but … as you say … the people stand still and scream at ‘daddy’ to fix things. Poor adolescent bastards that we are.
But time is running out. It’s an evolutionary step which, if not taken, surely will lead to the extinction of life … as we knew it and loved it anyway … on this earth.

Posted by: john francis lee | Aug 8 2014 5:34 utc | 134

Michael Hudson???????
Your actually quoting Michael Hudson?
But he’s obviously just a left gatekeeper, just like Chomsky.
Google Michael Judson + 9/11 and what do you get? Nothing!
Google Michael Judson + Zionism and what do you get? Nothing!
But those are the two things you never stop ranting about in every post you have ever assaulted us with here. You never stop saying that that is the core of the matter, and anyone who attempts to elide speaking about those two little matters is a gatekeeper or disinformation specialist.
So, what pray tell about Professor Hudson?
~~~~~By the way, I like Michael Hudson and his analyses, but I find you incredibly hypocritical and limited — the proverbial one-trick pony.

Posted by: JSorryTime | Aug 8 2014 9:25 utc | 135

@134
I suspected that ‘democracy’ was just an illusion about 20 years ago. I voted for Ross Perot with his wack-a-doodle vp pick, and looking back it was the most responsible vote I casted. Would have Perot made a difference probaly not but, I liked his straight forward rhetoric.
I voted for democrats after that because I figured they were the lesser of two bad choices. Boy was I wrong in that regard, I have become to dislike repubs a little less because at least they tell you to your face that they are tools of the elite. The dems hide behind the ‘i am for the little guy’ smoke screen all the while advancing the well being of the elite through inaction or all out capitulation to the repubs.
The main stream media, the fourth estate, the constitutionally required and essential guardians of democracy is dead. Rendered useless and maleable by our elite selected ‘democratically elected’ officials. No need to expand on that sorry manifestation.
Yeah, democracy in the US and just about everywhere else is an illusion. Will the masses figure it out? Without an effective mass uncensored media presence I doubt it will happen any time soon. But we do have the innerwebs….. for how long is the question.

Posted by: really | Aug 8 2014 11:40 utc | 136

@135
1) Hey, fuckface, at the very least the others I spar with on this site have the dignity to not be pussy-ass lurkers who make up incredibly lame-ass names – JSorrytime? Really? Like Sore/Loserman? It’s 2000 all over again!!! – and then post driveby shit. Weak ass. No really, that’s fucking weak and sad.
2) You obviously don’t understand what the fuck “gatekeeping” as a term means or you wouldn’t be surprised that Hudson DOESN’T really speak to 9/11 or the Zionists. Gatekeeping NECESSARILY involves addressing those issues but – now pay attention – deflecting attention AWAY from the significant aspects of said issues. Thus, the thrust of your argument is a #fucking#fail. Note: I purposefully used Twitter-ese because judging by your attempts at “heightened vocabulary” – wow, “elide”, amazing – you’re still an undergrad. It’s ok, once school starts you and your girl will almost certainly pick up again. No, really. I’m sure she’s waited for you. All summer long.
3) Paul Craig Roberts – a man who also consistently addresses Zionist and 9/11 – recently allowed Hudson a guest column on his site so I don’t think it very odd that I – a person who also consistently addresses Zionism and 9/11 – shouldn’t do also mention Hudson’s work. Hudson is an economist who usually spends his time addressing the economic side of events but – chortle – since you like his analyses so much you probably all ready know all that. I’m sure you’ve been into the Dead for years, too, man! No really, you were there when Jerry died I bet.
Note: if you’re a European youngster some of this humor will miss you.
Now, get back to the books, your HuffPo and whatever it is that keeps you kids busy these days. Enjoy the rest of your break!

Posted by: JSorrentine | Aug 8 2014 11:51 utc | 137

Yes the sanctions erode US influence. But the alarm bells sound[ing] louder over danger of financial collapse, might be calling attention to a bigger problem than the erosion of US influence on the horizon.
If it takes the collapse of western/worldwide economies to end this perpetual state of warfare, I’m for it. Having everyone’s feet on the ground will be better than having their heads up in the clouds … or up nether regions elsewhere.

Posted by: john francis lee | Aug 8 2014 12:00 utc | 138

https://archive.org/details/TheSecretsOfTheFederalReserve_294
The words of Woodrow Wilson, the president who did not listen to Jefferson when he signed this country over to the federal reserve.
If there are men in this country big enough to own the government of the United States, they are going to own it what we have to determine now is whether we are big enough, whether we are men enough, whether we are free enough, to take possession again of the government which is our own.”
A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men…”Since I entered politics, I have chiefly had men’s views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of somebody, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, tha they had better not speak above their breath when they speak in condemnation of it.”I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is now controlled by it system of credit.
We are no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it.” Sion (He

Posted by: really | Aug 8 2014 13:30 utc | 139

@79 james
Sorry to have taken so long to get back to you. I’m traveling these days, and time to respond is restricted.
The Bretton-Woods system of the late 40s created the international fixed exchange rate system among nations based on the value of gold. That’s what disappeared on August 15, 1971. And because we Americans do not understand how our currency works without dumping every political theory and Federal Reserve assumption on it, we don’t realize the extraordinary import of what that could have meant for us. Still could. What Nixon did paved the way for untold prosperity in this country, ey we continue to think like gold-buggers.
The institutions of the IMF and World Bank did not go away. Europe appoints the head of the IMF. The US appoints the head of the World Bank. I happen to think they are corrupt institutions—institutionalized hit men orgs–but that’s my opinion.

Posted by: MRW | Aug 8 2014 15:03 utc | 140

@90 Cyril

@MRW 69:
But until China offers the kind of trillion dollar equiv. bond market that our treasury securities do, there’s not much chance of us losing reserve status just yet.
That won’t take long. When the Russians and/or Chinese put up a few satellites to set up a global communications network far beyond the U.S.’s reach, the bond market will be up and running.
Posted by: Cyril | Aug 6, 2014 11:32:04 PM | 90

There’s the issue of trust. Mounting satellites isn’t the issue. It’s investor trust.

Posted by: MRW | Aug 8 2014 15:05 utc | 141

@101 Cynthia

There’s a growing sense that the petro-dollar’s days are numbered. And when the dollar is no longer the global reserve currency, that’s when major austerity begins at home.

Cynthia, there is absolutely no relationship between being the global reserve currency and austerity at home. None. As long as the US has its own sovereign non-convertible currency with a floating exchange rate, there isn’t a chance in hell that we can’t pay for the wages and resources within our borders. None. Zero. Zip.
Being the “reserve currency” only means that every other country in the world wants to do trade in our currency. We forced that after the 1973 oil embargo when Kissinger got the Saudis to accept USD in return for its oil, and promised that if the Saudis would buy our treasury securities, we—the US as a country would ensure that the price of oil would stay high so they could get rich. When I write as a country, I am speaking geopolitically. It cost us exactly $0.07 (if using the paper cost) for every $100 we printed. We wanted oil for our military. By making that deal with Saudi Arabia, we got our oil for nothing. Basically.

Posted by: MRW | Aug 8 2014 15:17 utc | 142

@103 Cyril
Actually, Cold N. Holefield is right.

@Cold N. Holefield #94
[That quantitative easing is printing money] is false — a lie spread around by gold bugs just as this potential loss of the dollar as the global reserve currency is.
You are wrong, and I will let the others judge which of us is lying. According to Wikipedia, the goal of quantitative easing is to increase the money supply. In other words, to print money.
The U.S. has been able to do this with impunity because the dollar is the primary global reserve currency. But all that money printing is basically stealing wealth from the rest of the world, and other countries are sick of being robbed. Which is why de-dollarization is gathering huge momentum. . . .
Posted by: Cyril | Aug 7, 2014 9:32:16 AM | 103

Wikipedia, true to form, knows shit.
This is how quantitative easing works: The Federal Reserve only buys treasury securities on the open market, treasury securities that are in the private sector’s savings accounts. That means when your alma mater wants to unload some of its treasury securities to pay for a new chem lab, it sells them on the open market through approved treasury securities dealers. Ditto, grandma and her savings bonds.
Your alma mater has no clue who it’s selling to. The Federal Reserve buys them. So what does that mean? it means that the yearly interest no longer goes to your alma mater, it goes to the guy or institution that bought them.
In this case, the interest goes to the Federal Reserve. So now the Federal Reserve is earning the interest on the bonds.
BUT. Because of laws enacted in 1947, the Federal Reserve must return all profits to the US Treasury every year. Last year that was over $100 billion in interest payments from treasury securities, per their annual report.
That $100 billion earned interest is now removed from the active economy of the USA. The economy is less $100 billion.
What does this do? Well, supposedly these extra reserves were supposed to induce banks to lend more, but guess what? Businesses are not going to invest or hire more people unless there are people who want to buy their stuff. But people aren’t buying. They are paying down debt, or saving (hoarding, also called “demand leakage”). Until there are new jobs created by congressional spending–the only entity on the planet that can increase new financial assets by spending interest-free money into the economy provisioning itself–nothing is going to happen.
Those extra dollars the Federal Reserve is taking out of the economy are increasing the value of the US dollar, not depleting it, because there are fewer dollars now circulating in the system.
Quantitative easing REMOVES dollars from the US economy. You might ask why is the Federal Reserve doing that? Because it is jumping though hoops to do something because Congress is NOT DOING ITS JOB and increasing spending and lowering taxes in a bad economy. The Federal Reserve is using the only tools at its disposal to jiggle what it can do. However, the Federal Reserve should be reading the riot act to congress, the prez, and the treas sec about the nature of the monetary system. They are all to blame.

Posted by: MRW | Aug 8 2014 15:53 utc | 143

“The words of Woodrow Wilson, the president who did not listen to Jefferson when he signed this country over to the federal reserve.
…
Posted by: really | Aug 8, 2014 9:30:20 AM | 139”
The contents are true (whoever wrote it is right) but the quote/source, nope. That is a proven disinfo, a somewhat similar piece did exist, it was something misquoted from a few years prior to the FED birth and appeared in the book released in 1913.
http://en.wikiquote.org/wiki/Talk:Woodrow_Wilson
http://www.salon.com/2007/12/21/woodrow_wilson_federal_reserve/

Posted by: T2012 | Aug 8 2014 16:07 utc | 144

@107 Juan Moment

Due to the USA’s increasingly belligerent approach to foreign policy, more and more foreign entities holding USD reserves, including now western banks, run the risk of having their cash assets frozen or confiscated by US authorities and courts. Prudent risk management policies will have to allow for this circumstance and as a consequence over time a substantial reduction in foreign USD holdings can be expected.

Dead right, IMO, which your currency swap links showed, and which Bloomberg is warning.

By monetising its debt via quantitative easing

The US does not monetize its debt, doesn’t have to.

Let us look at the official US Debt Clock and do some math. As of right now the US National Debt stands at $17.6 trillion, whilst the amount of Net Interest on Debt is shown as $226 billion. That equates to a 1.28% interest rate. As an investor wondering if it is a smart idea to buy US treasury bonds, what conclusions could I draw?

The $17.6 trillion National Debt, or Debt Held by the Public as the US Treasury site calls it, is what Americans OWN, not what they owe. You’ve got to get this through your head. This money is in the bank accounts of pension funds, university trusts, corporations, banks, businesses and richer households. These are the treasury securities (stupidly called “debt”) held by the public. The $17+ trillion figure is a record of all the currency (treasury securities, cash, coin) created by the US government since 1791 MINUS the currency destroyed—called taxes.
Zimbabwe and the USA are not remotely comparable.

Posted by: MRW | Aug 8 2014 16:10 utc | 145

@105 bevin

the USA by its escalating resort to sanctions (which now seem to have progressed from a last resort to the first option considered) and its refusal to respect the property of others, whether in bank accounts or in the form of sovereign territories, is forcing its victims to come together to protect themselves from its depredations.

Exactly.

(Incidentally MRW is wrong to say that Bretton Woods ended in 1971. In fact much of the raft of agreements made there survives yet the IMF and World Bank being examples.

The Bretton-Woods system of the late 40s created the international fixed exchange rate system among nations based on the value of gold. That’s what disappeared on August 15, 1971. The institutions remain, but not the economic structure.

Posted by: MRW | Aug 8 2014 16:14 utc | 146

MRW: “This is how quantitative easing works: …”
Let me correct you:
The FED (fully owned by the US government) “loans” (= invents out of thin air) money to the government itself. That money is written down as debt of the subjects in the US (= the little people). Then that money is taken via taxes, social/medical “optimizations” etc., to “pay back the debt” (debt = serving the interests only, of course). That makes twice the sum taken from the “citizen”, plus the interest.
I say the government gives that money to the government, because most banks/funds etc. and their incestual ownerships do belong to the government. Which you can see black on white when you go through the CAFR of the FED, the Congress, major funds like say Calpers etc. Oh and by the way they own most of China too, you know, that China which “owns 3 bazillion hoolaa US debts” (in shape of american companies and funds/banks based in China) and so on.
Yes, I actually did the research and read dozens of official documents and financial statements, not talking out of my arse or recycling internet chatter.

Posted by: T2012 | Aug 8 2014 16:17 utc | 147

“That $100 billion earned interest is now removed from the active economy of the USA. The economy is less $100 billion.”
It is removed from the US subjects to the US government itself. They book that as growth by the way.

Posted by: T2012 | Aug 8 2014 16:18 utc | 148

@140 MRW.. thanks for getting back to me.. well we have a similar view on the imf and world bank.. it is much the same with the bank of settlements and how it works giving favour to the usa over russia for example.. all 3 are an extension of the supremacy of the us$ as the main currency for trading oil and etc… it favours american based banks thru the loans from the imf and world bank. it is an unfair and unbalanced system from a wider global perspective as i understand it.
@141 MRW quote: “It’s investor trust.” that is true, but i think it is an issue of taking an ongoing conservative approach which implies continuing to trust what you have trusted in the past.. the us$ always goes up during world crisis as it is treated like the de-facto world currency.. this will eventually change and predicting when is a fools game. BRICS is essentially a direct challenge to us$ supremacy as i understand it. the financial tools of the bretton woods agreement – imf, world bank and bank of international settlements continue to favour the us$ and this is also how i understand it.

Posted by: james | Aug 8 2014 16:33 utc | 149

@147 T2012

The FED (fully owned by the US government) “loans” (= invents out of thin air) money to the government itself. That money is written down as debt of the subjects in the US (= the little people). Then that money is taken via taxes, social/medical “optimizations” etc., to “pay back the debt” (debt = serving the interests only, of course). That makes twice the sum taken from the “citizen”, plus the interest.

No, T2012, that is not how it works. If you want to read about it, written by a former Deputy Secretary of the US Treasury, read Frank N Newman’s book, Freedom From National Debt, published in April, 2013.
This is how it works.
(1) Congress appropriates spending, per the Constitution. Let’s be really ridick and use $100 of spending as an example.
(2) US Treasury notifies the Federal Reserve to mark up its General Account at the Fed by $100.
(3) US Treasury also notifies the Fed at the same time who that $100 has to go to.
(4) The Federal Reserve distributes the $100 to the vendors’ bank accounts at the Fed for onward forwarding by the bank to their clients. (FEDWIRE)
(5) THEN, the US Treasury issues $100 in treasury securities–the amount Congress appropriated in spending–at auction. This was established during the gold standard days (1914-1933) by law because Congress determined that it did not want its General Account at the Fed to show an overdraft. Just as Congress imposed a debt limit in 1917 to keep a pair of suspenders and a belt around the counry’s gold supply. [These treasury securities are snapped up as soon as they are issued; people/orgs/state, local, foreign govts with more than $250,000 (FDIC limit) in a commercial bank account want them for safety.]
(6) The Federal Reserve is prohibited by law from purchasing these newly-issued US Treasury treasury securities at auction. Why? The effect would be completely circular; the people would never get any new financial assets (new money/currency) added to the economy because after expenses, the Federal Reserve must return all profits to the Treasury every year. As explained above.
(7) All interest due on the $100 of US Treasury-issued treasury securities are computed annually (think late August) and new treasury securities are issued to pay the interest. There is a spectacular business done daily in treasury securities and new issues are snapped up by the private and foreign sector.
(8) Taxes absolutely do not act as revenue and have not since 1934. Read this 1946 article, “TAXES FOR REVENUE ARE OBSOLETE by Beardsley Ruml, Chairman of the Federal Reserve Bank of New York.” This is what no one can seem to get through their heads.
(9) Taxes are a thermostat. When the economy is ice cold, congress should drop taxes and increase spending; when there is full employment and the economy can overheat as a result of too many dollars chasing too few goods, then taxes are increased. It’s what happened in 1944 when they realized that after the war, workers had full savings account because of the inability to buy things during the war, so they imposed hefty taxes on the rich to keep prices down and allow the workers to enrich themselves. That created the middle class.
(10) The deficit is simply the accounting record of the difference between government spending and taxes. It is not a debt to be repaid by the public. The deficit should be high during a bad economy, and low or non-existent when there is full-employment.

Posted by: MRW | Aug 8 2014 19:28 utc | 150

I have to travel to another city now. Will check in later.

Posted by: MRW | Aug 8 2014 19:30 utc | 151

You sound like an economist, kinda trapped in the professional box.
Simple fact: all those entities involved are owned by the US government with overwhelming majority. The rest is just left hand, right hand, while all the time the taxpayer has to come up for everything, while the “economy” gets “saved” etc. nonsense. My description above was perfectly correct.
Please don’t mention “laws” in connection with the US government, that is a bad joke in my book. They make the laws up as they go since decades.
And you know what the saddest thing is? It’s all perfectly “legal”, since US is in the state of national emergency ever since 1933, prolonged every year by te president himself (emergency is limited to one year max, thus the yearly recycling). Here’s the proof from the very source:
http://www.whitehouse.gov/the-press-office/2014/06/19/notice-congress-continuation-national-emergency-russian-fissile-material
Go through the archives, it’s a huge fun if you like black humor.

Posted by: T2010 | Aug 8 2014 21:23 utc | 152

Sorry, wrong link. Here: http://search.whitehouse.gov/search?affiliate=wh&query=national+emergency&form_id=usasearch_box&submit.x=0&submit.y=0

Posted by: T2010 | Aug 8 2014 21:29 utc | 153

Recommending reading: http://realitybloger.wordpress.com/2013/08/05/cracking-the-cult-of-the-constitution-part-i/

Posted by: T2010 | Aug 8 2014 21:33 utc | 154

Posted by: T2010 | Aug 8, 2014 5:23:37 PM | 152

My description above was perfectly correct.

No, it’s not.

Posted by: MRW | Aug 8 2014 21:49 utc | 155

B you should write about the kiev demonstrations going on now.

Posted by: Anonymous | Aug 8 2014 22:04 utc | 156

Posted by: MRW | Aug 8, 2014 3:28:05 PM | 150
(10) The deficit is simply the accounting record of the difference between government spending and taxes. It is not a debt to be repaid by the public. The deficit should be high during a bad economy, and low or non-existent when there is full-employment.
Some of the public pay for it, if not by tax, then by financial crash or inflation.

Posted by: somebody | Aug 9 2014 0:36 utc | 157

@144
Thanks for the correction. I have located the original quote by Woodrow Wilson…
Woodrow Wilson signed the 1913 Federal Reserve Act. A few years later he wrote: I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men. -Woodrow Wilson Years later, reflecting on the major banks’ control in Washinginton
http://www.themoneymasters.com/the-money-masters/famous-quotations-on-banking/
One century later and this old quote has been distilled to its purest essence by the financial malfeasance currently taking place.

Posted by: really | Aug 9 2014 1:06 utc | 158

@158
I forgot to add political malfeasance to my final sentence. sorry.

Posted by: really | Aug 9 2014 1:12 utc | 159

so your the one bonin’ my girlfriend… I shoulda known it. Thought it was bevin at first when she stopped returning my calls.
and no, I have never read the tibetan book of the dead.

Posted by: JSorryTime | Aug 9 2014 1:18 utc | 160

MRW | Aug 8, 2014 12:10:32 PM | 145

The US does not monetize its debt, doesn’t have to.

May I suggest you check out the following links.
From Zero Hedge

Time For Bernanke To Retract His Sworn Testimony To Congress
Three months ago, as part of our ongoing explanation of what happens next to the Fed’s balance sheet (which is now established as official canon in advance of the December 12th FOMC, when Bernanke will effectively announce QE4 consisting of $40 billion in MBS and $45 billion in unsterilized TSY purchases as we predicted the day QE3 was announced), we said that “the Fed will continue increasing its 10 Yr equivalents by roughly 12% (of the total market) per year, for at least the next 3 years, at which point it will own 60% of the entire Treasury market. It means that the Fed will monetize all gross long-term issuance every year for the next 3 years.” Most looked at the bold sentence without it registering just what it means. Perhaps, now that the “serious” media has finally taken on the topic of applying a calculator to the one driver of all marginal risk demand, it will register a little better.
In a Bloomberg story titled, appropriately enough “Treasury Scarcity to Grow as Fed Buys 90% of New Bonds” we read that “the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co.” Actually that’s incorrect and it is more like 100%. What is however 100% correct is what the bolded means in plain language: it is now accepted that the Fed will outright monetize all gross US issuance. Let us repeat this sentence for those who just had flashbacks to Adam Fergusson’s “When money dies.” The Fed is now monetizing practically all net new debt. […]
Another way of visualizing this is how many assets as a percentage of US GDP the Fed will hold on its books. Currently, this number is 18%. By the end of 2013, the Fed’s historical flow operations will be accountable for 24% of US GDP.
Why is this important? Simple: when the time comes for the Fed to unwind its balance sheet, if ever, the reverse Flow process will be responsible for deducting at least 24% of US GDP at the time when said tightening happens. If ever. […]

Of course, if Zero Hedge is not conventional enough for you as a source, lets see what the Fed itself says about monetizing debt.

Is the Fed Monetizing Government Debt?
[…]
Conclusion
So, is the Fed monetizing debt—using money creation as a permanent source of financing for government spending? The answer is no, according to the Fed’s stated intent. In a November 2010 speech, St. Louis Fed President James Bullard said: “The (FOMC) has often stated its intention to return the Fed balance sheet to normal, pre-crisis levels over time. Once that occurs, the Treasury will be left with just as much debt held by the public as before the Fed took any of these actions.”4 When that happens, it will be clear that the Fed has not been using money creation as a permanent source for financing government spending. […]

Alrighty then, according to the FED itself the main feature required for its QE programs to not be monetizing debt would be that it is of temporary nature and that the Fed can and will unwind its now gigantic balance sheet rather sooner than later.
Now the reality check. Via Bloomberg:

Fed Prepares to Maintain Record Balance Sheet for Years
Jun 12, 2014
Federal Reserve officials, concerned that selling bonds from their $4.3 trillion portfolio could crush the U.S. recovery, are preparing to keep their balance sheet close to record levels for years.
Central bankers are stepping back from a three-year-old strategy for an exit from the unprecedented easing they deployed to battle the worst recession since the Great Depression. Minutes of their last meeting in April made no mention of asset sales.
Officials worry that such sales would spark an abrupt increase in long-term interest rates, making it more expensive for consumers to buy goods on credit and companies to invest, according to James Bullard, president of the Federal Reserve Bank of St. Louis. […]

How about that! Who could have guessed 😉

Posted by: Juan Moment | Aug 9 2014 5:54 utc | 161

Posted by: MRW | Aug 8, 2014 3:28:05 PM | 150
addition to 157)
inflation adjusted US wages
US males earn 100 Dollar less per week in 2012 than in 1973.
No coincidence.

Posted by: somebody | Aug 9 2014 6:05 utc | 162

@ MRW

[…] The $17.6 trillion National Debt, or Debt Held by the Public as the US Treasury site calls it, is what Americans OWN, not what they owe. You’ve got to get this through your head. This money is in the bank accounts of pension funds, university trusts, corporations, banks, businesses and richer households. […]

Our discussion is not if pension funds, university trusts, corporations, banks, businesses and richer households are bankrupt, but the US government.
The US gov owes those 17.6 trillion, who to is irrelevant. It has to pay interest, who to is irrelevant.

Zimbabwe and the USA are not remotely comparable.

I mentioned Zimbabwe as an example to demonstrate that being a currency sovereign does not mean you can print your way to prosperity. Thats a fact. The difference between the USD and the Zimbabwean Dollar is demand, and in my earlier post @107 I argue that this demand for USD is dropping and increasingly so.

Posted by: Juan Moment | Aug 9 2014 6:41 utc | 163

This here is a good explainer how government debt “that does not have to be repaid by the public” gets converted in personal debt that has to be repaid. From 2011

The crisis of capitalism that erupted in mid-2007 now enters its fifth year. It grew out of excessive debts of US households and enterprises (especially financial enterprises) that their underlying incomes and wealth could not sustain. Key to the crisis was real wage stagnation since the mid-1970s. As the cost of the American Dream kept rising while real wages did not, households borrowed (mortgages, credit cards, student and car loans). Debts accumulated on the basis of stagnant real wages. That unsustainable credit bubble blew in 2007. Nothing since has significantly relieved or alleviated that basic contradiction. With high unemployment, total wage incomes have fallen and little extra credit will flow to already over-indebted workers. The crisis deepens as US demand remains hobbled.
Since the 1970s, banks, insurance companies, and hedge funds invented new speculations on the rising debts of US households (asset-backed securities, credit default swaps, etc.). Those financial speculations were even more profitable than the soaring profits of non-financial corporations who could keep their workers’ real wages flat even as rising productivity delivered ever more product per worker to those corporations. Huge speculative profits prompted financiers to borrow in a self-reinforcing spiral ever further removed from the household debts on which it was based. When that base collapsed as millions of US workers could not longer sustain their debts, so too did the financial speculations built upon it.

And US household debt keeps rising.

Posted by: somebody | Aug 9 2014 7:05 utc | 164

“…Russia’s oil giant Rosneft and Texas-based ExxonMobil Corporation are due to start drilling in the Kara Sea off Russia’s northern coast in mid-August”In our opinion, this is a truly responsible business approach, and only such an approach can be productive. We definitely welcome this position, and in turn we are open for widening cooperation with our partners,” Russian leader added…”
http://en.ria.ru/business/20140809/191869443/Western-Companies-Determined-to-Cooperate-With-Russia-Despite-Sanctions.html
Exxon Mobil is considering saying, “we don’t give a flying fuck about EU AND US sanctions against russia. Our patriotism lies with the dollars. Sanctions…we don’t care about no stinking sanctions….”

Posted by: really | Aug 9 2014 13:26 utc | 165

I think Germany is going to end the crisis in the Ukraine by reneging on the sanctions. I have a feeling the german citizens and small to medium businesses will start to sour on the idea of prolonged sanctions past the 3 months Merkel has agreed to.
I think as Germany goes so does the EU. Germany must take the lead in the Ukrainian crisis since they have the most skin in the game. Merkel has had good relations with Putin and I don’t see shy they can’t hammer out a sensible resolution regarding Ukraine. Maybe Ukraine should be split in two or the east joins the Russian federation. I know that sounds simplistic but sometimes the solution is just that. This way it would give Russia a little more breathing space from Nato encroachment.
The way it is being played out now is an all or nothing game. I feel that Germany will be the biggest loser if the US or Russia gets total influence in Ukraine.
http://m.theglobeandmail.com/report-on-business/international-business/european-business/german-companies-start-to-feel-pain-of-crisis-in-russia/article19959226/?service=mobile
“…The German Chamber of Industry and Commerce said on Thursday that the possible effects of tighter sanctions were causing uncertainty amongst companies, especially the Mittelstand – the small to medium sized firms central to the country’s economy .
That view was echoed by Anton Boerner, head of the BGA trade association that represents around 120,000 wholesalers, exporters and service providers. He said firms were already investing less and placing fewer orders due to the crisis.
Tobias Baumann, head of the Chamber’s Russian department, estimates that German exports to Russia could fall by 20 per cent this year, with engineering firms being hit the hardest…”

Posted by: really | Aug 11 2014 20:29 utc | 166

@166. And you know how that will be greeted by the msm. “Germany only cares about business”

Posted by: dh | Aug 11 2014 20:50 utc | 167

@167
Yeah Germany cares about taking care of business regarding its finances as well as the globes general well being. Let us not forget that this US manufactured crisis is about business. This is about energy supplies and nato encroachment against Russia. This crisis is also killing people and if Merkel can shake the US hypnotics and squash a Nato-Russia shooting war, maybe she can come out of this smelling like a rose.

Posted by: really | Aug 11 2014 21:11 utc | 168

@168 really.. that is a nice thought at the end of your post.. anyone who can come out smelling like a rose is doing good.. the msm is good are turning things upside down too whereby those who look one way, are often the exact opposite.. just saying.. thanks for your comments.

Posted by: james | Aug 11 2014 21:20 utc | 169

are = at

Posted by: james | Aug 11 2014 21:21 utc | 170

@169
“…However these attempts by Ms Merkel to act as a broker between President Putin and Ukraine’s President, Petro Poroshenko, were put on the back-burner following the shooting down of the MH17 plane in eastern Ukraine.
But insiders who are party to the discussions said yesterday that the “German peace plan is still on the table and the only deal around. Negotiations have stalled because of the MH17 disaster but they are expected to restart once the investigation has taken place.”…
http://www.independent.co.uk/news/world/europe/land-for-gas-secret-german-deal-could-end-ukraine-crisis-9638764.html
Someone tell me who benefited from the mh17 tragedy? Who is benefiting from the stalled investigation of mh17? If mh17 was a false flag, I am having a hard time thinking Merkel was in on it….this is a good f’ing plan.

Posted by: really | Aug 11 2014 23:18 utc | 171

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