The US is waging a new kind of Cold War against Russia where the weapons are financial instead of kinetic. The corporate media won’t tell you this but the US and all its imperial member states are attempting to strangle Russia’s economy in response to a war they provoked because Putin threatens US unipolar planetary domination and the supremacy of American global capitalism.
These financial weapons exist in tandem with the US empire’s other tools. Narrative management constructs like Silicon Valley, Hollywood and the oligarchic corporate media play an even greater role in upholding the US-centralized empire than the US military.
The basic neocon plan was to sanction and seize the assets of the Russian oligarchs so that they would rise up and overthrow Putin and replace him with a more compliant comprador along the lines of a Navalny-like puppet. The US also froze $300 billion in Russian central bank assets and seized an undetermined amount of gold that the Russian had stored in western banks.
However, it’s become clear that our foreign policy and economic elite have made a serious miscalculation in thinking economic sanctions on Russia would bring them to their knees. The opposite is true. Russia is largely self-sufficient and is not dependent on imports. Meanwhile, its exports are critical to the economic well-being of the West. If they withhold wheat, potash, gas, oil, palladium, finished nickel and other key minerals from the West, the European and U.S. economies will be savaged.
The unprecedented sanctions against Russia have pushed energy costs higher in Europe and the US, driving record inflation and making it ever more expensive for farmers and truckers to fuel their machinery, afford fertilizer or keep up with other costs. In Europe, which is dependent on Russian energy and minerals, the sanctions have worsened an energy supply crunch that has driven up costs for households and businesses. And now Russia launched what amounts to a counter-sanction by mandating that all payments for Russian gas from “unfriendly countries” be made in rubles.
All of this has officials in western countries worried. “Global economies will be rethinking how safe it is to rely on the US dollar in their foreign currency holdings”, the deputy head of the International Monetary Fund, Gita Gopinath, said on Tuesday. The statement comes after half of Russia’s forex holdings were effectively confiscated by international financial institutions amid sanctions placed on Moscow following the launch of its military operation in Ukraine. The IMF isn’t the only institution to highlight this trend. Just the other day, Goldman Sachs released a note warning that “the twilight of the US dollar’s global hegemony could be at hand”, citing the possibility of Saudi Arabia accepting yuan for oil instead of dollars–“leading to deep fissures in the edifice of the petrodollar”– as evidence.
Warning such as these are hardly unprecedented. For more than a generation the most prominent U.S. diplomats have warned about what they thought would represent the ultimate external threat: an alliance of Russia and China dominating Eurasia.
Watching all of this unfold one senses an air of desperation in Washington. There is fear that the U.S. “financial leadership” is under threat–fears that have been magnified by the way US and EU sanctions against Russia, particularly the confiscation of a large chunk of Russia’s foreign currency reserves have backfired, encouraging not just Russia but countries like China to seek out an alternative to the US dollar as the world reserve currency. Perversely, America’s economic sanctions and military confrontation have driven these two countries together, and are driving other countries into their emerging Eurasian orbit.
A little history is probably in order. The United States maintained the dollar as the worlds reserve currency after WWII by being the largest holder of gold and the key creditor. When the US went off the gold standard in 1971 due to the balance of payments deficits, thanks to Vietnam war spending, the new US Treasury bill standard freed the economy from having to do what other debtor countries must do when they run payment deficits–raise their interest rates and impose austerity to balance their international payments.
Heterodox-economist Michael Hudson’s Super Imperialism, published in 1973, described how this came about. “Foreign central banks no longer are able to hold America to account by cashing in their surplus dollars for gold or for appropriation of US assets. As America’s balance-of-paymets deficit widens, foreign central banks simply add the surplus dollars to their reserves, mainly in the form of US Treasury IOUs. Other countries monetary assets are thus America’s monetary debt. Instead of undercutting America’s economic power, the US deficit has siphoned off other countries surpluses, exploiting them financially–as a debtor, not as a creditor as in times past. This unique American strategy is still not widely understood, mainly because it seems to at odds with most peoples ideas of what is fair and equitable. And, of course, it’s not in American interests for it to be widely understood.”
The key to this financial control is the petrodollar that came into existence in 1973 in the wake of the collapse of the international gold standard which was created in the aftermath of WWII under the Britton Woods agreements. These agreements also established the US dollar as the reserve currency of the world. The Nixon Administration thought that the collapse of the gold standard system would cause a decline in the global demand for the US dollar. So, the United States under Nixon struck a deal in 1973 with Saudi Arabia, essentially substituting oil for gold to help maintain demand for the dollar, because other countries who wanted to purchase oil had to purchase dollars first.
Under the terms of the deal, the Saudis would agree to price all of their oil exports in US dollars exclusively and be open to invest their surplus oil proceeds in US debt securities. In return, the United States offered weapons and protection of Saudi oil fields from neighboring countries including Israel. For the Americans, the petrodollar increases demand for the US dollar and also for US debt securities and allows the US to buy oil with a currency it can print at will. In 1975, all of the OPEC nations agreed to follow suit.
Maintaining the petrodollar, as Saddam Hussain and Mu’ammar Al-Qadhdhāfī could attest, is one of the absolutely crucial pillars of US foreign policy.
But now, thanks to the sanctions crazy foreign policy elite, all that is turning to dust.
No wonder US officials are freaking out.
Hudson lays out the future: “To escape from an intrusive world financial order based on the current US free lunch, China, Russia and other countries are moving to create alternative regional currency blocs so as to de-dollarize their trade and payments. America’s response has been to impose punitive sanctions to deter such moves. This has brought about precisely what its diplomats most feared. For instance, threats to starve Russians by blocking food exports to them, and to cut them off from the SWIFT bank-clearing system, have obliged them to become self-sufficient in these areas. Avoidance of reliance on imports from the US and its allies is now an irreversible trend.”
Can you say–cutting off your nose to spite your face?
I have stated this before but it’s more evidence that we have a decadent and decaying feral-elite feebly attempting to manage complex systems they don’t understand.