Here's to the crazy ones, the misfits, the rebels, the troublemakers, the
round pegs in the square holes... the ones who see things differently -- they're
not fond of rules... You can quote them, disagree with them, glorify or vilify
them, but the only thing you can't do is ignore them because they change
things... they push the human race forward, and while some may see them as the
crazy ones, we see genius, because the ones who are crazy enough to think that
they can change the world, are the ones who do.

Steve Jobs
US computer engineer & industrialist (1955 - 2011)

Thursday, December 18, 2014

Putin Plays the West

It's early days in the battle I often refer to as the "Gold War". Russia and China, having announced their intention to form a new Eurasian economic order, inclusive of India and other BRIC nations, are now fending off blows from the West. The Russian ruble, currently pegged to the US dollar, has been taking a hammering as the US and more specifically its ally Saudi Arabia, glut the world oil market forcing a massive decline in the price per barrel. One has to assume it's part of the "price" Obama said Russia would pay for its intervention to materially support Eastern Ukraine (Novorossyia) separatist forces. That's just on the face of it though.

Consider and remember that China is the bank and Russia is the sword of the new Eurasian alliance. The goal of that alliance is not to do well under the US dollar, but to replace the US dollar as the world's reserve currency with either a new currency or the Chinese yuan. That is important. Both China and Russia have large reserves of foreign currency - in Russia's case nearly $500 billion.

Then consider Russian President Putin. He rose through Russia's power ranks as an intelligence officer. That is one of three important pieces of the pie. That means: he uses deception and part truths to achieve an end; he is disciplined and demands the same of others in his circle; he is ruthless and flexible in achieving his goals; and he will never crack. Secondly, he is a judo master. That means he uses movement and blocking to defend against blows, but most importantly he uses the energy of his enemy as his own to defeat an attack. That part is critically important to remember. Finally, he is Russian. Russians have a proud place in world history due to the massive and brutal sacrifices they have made along the way. The most recent of which was the 25 million Russians who died during World War Two while ensnaring most of Hitler's armies, and giving the other allies time to organize and become engaged. Russians are used to sacrifice, and are super sensitive about the "Motherland" being prosecuted by foreigners.

Putin is using all three of these elements. He is using the Motherland as the force behind him, that will hold him upright in battle. He is using judo to block, move, and use the energy of his foes. He remains disciplined to his cause while apparently allowing his foe to walk into, no run into, his trap.

Why did Putin move into Crimea, and then support (with deniability) Eastern Ukraine separatists? What purpose does a "frozen conflict", as some call it, serve? Well, it's simply a means to an end. On the one hand it's defensive as the US took over influence of Ukraine, on Russia's border. On the other hand it's reason to invite economic conflict with the US. Putin had to know the US would not go to physical war with Russia over Ukraine - especially the quasi occupation of just a part of Ukraine. So the natural deduction would be financial sanctions to try and remove Russia from the US's new ally's territory. The territory of Ukraine being it's only real strategic value. However, its real value to Putin is to not let the US and to a lesser extent Europe escape from a financial battle.

When Obama rushed in to "make Russia pay" for its actions in Ukraine, Putin must have been smiling. Every sanction the US placed against Russia was matched by Western Europe. Western Europe is dependent on Russia for economic survival. The US can't replace the European loss of market in Russia, so anything other than a very short sanction period means severe financial harm for Europe - especially Germany. As Europe slides into recession and worst, Russia can now sit by and watch as Europeans blame US sanctions for destroying their markets. While the US projects strength in Europe with sanctions and military posturing, Europeans suffer the effects. Not dissimilar to the US of Europe as battlegrounds of past wars.

With every new economic sanction waged against Russia, Putin can turn to his own people and make the case that "Western partners" are too unstable and immature to have trading relations with. All the more need for an Eurasian alliance of like-minded, stable countries who want peace and brotherly love. The more the US pushes the faster it loses. Like quick sand.

Today Putin announced that Russia has $500 billion in foreign currency. Enough, according to him, to defend the ruble for two years. However, this is the intelligence officer's half truth. While it may be true that the reserves will defend the ruble, is the purpose to defend the ruble, or is the purpose to use up the foreign currency before Russia and China switch to a gold based currency standard, thus making the US dollar irrelevant as the world reserve currency. I suggest they're using up what they have while it still has a value to them. It gives them 2 years, as Putin partially said, to transform their monetary systems to gold based. After that, they don't care.

Lastly, the US and Saudi flooding of the oil market is also working for Putin and China. China gets to stock its strategic oil reserves on the cheap. Saudi and other major oil producers are losing massive revenue that they can't replace, and they are not meant to transition into the new Eurasian/BRIC alliance - meaning they won't have anywhere of significance to sell their oil in 2 years, and will be infighting with the US and other partners for market share. Meanwhile, in the Eurasian/BRIC alliance Russia, Iran and Venezuela will be selling their oil to China, South America and Africa in a stable market which has no competitors, and controls three quarters of the world's population.

So, the best way to view the events of today is to remember that the intelligence officer's mantra is "kill at least two birds with one stone". Cheap oil hurts Russia in the interim, but it solidifies the need for a stable market place in people's minds. Russian peoples minds. Chinese peoples minds. Etc. Where is the stable market? Well obviously not the US as they "ride like cowboys into the China shop", or US allies that let them. As the US proverbially throws a punch at it, Russia proverbially uses that energy to reach its final goal. For the rest of us, it means be prepared to be the collateral damage. Protect yourself, and your investments as best you can, because when big powers fight the little guy is not on the radar.  

1 comment:

  1. I have followed your blog for some time and share many if not most of your perspectives on the events of our world. In my mind the greatest unintended help the West gave to Russia was the clarity of mind that allowed Putin to confront and dominate the competing factions for power and push forward this process of re-orientation. Every system has those competing factions. Sadly though, it appears that "Putin" has become (by design?) the rallying point for increasingly desperate measures in the West to support the failing empire. This does not bode well for Canada or the Canadian economy. The flailing desperation of a drowning man can pull under even the most experienced rescuer - and there is no way that either Canada or Mexico have the resources to re-float such desperation. Does anyone envision a soft landing?


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