Featured

Comments on “Grandmaster Putin”

7-4-16

David L Goldman

On 6-17-16 “Grandmaster Putin (Grandiose multi-step operation lasting 16 years)” appeared the web site The Vineyard of the Saker.  It was written by a Russian blogger.  It covers a lot of contemporary issues involving the Russian economy, its military and its recent history of relations with the western powers, especially the US.  It has been of great interest to me and inspired me to make the following observations.

Russian/Soviet GDP history

GDP comparisons are fraught with problems because GDP is a kitchen sink of data that fails to properly distinguish its constituent elements according to their genuine wealth-generating or use values.  Anatoly Karlin addressed this subject in his June 22, 2012 article with regard to the Soviet economy.  Alexander Mercouris’s comments following Karlin’s article added great value to the discussion regarding, among other things, the need to assign value to Soviet-era social benefits such as housing, medical care and education in order to make meaningful comparisons with western economies.  In the US all bank bailouts and bank fraud are included in calculating GDP.

With the decade long rise in oil prices beginning in 1999 the Russian energy industry provided critical support to the federal budget that allowed Putin et al to finance and stabilize the Russian state.  Thane Gustafson’s “Wheel of Fortune: The Battle for Oil and Power in Russia” identifies several essential factors that made it possible for a significant renationalization of the energy industry, among which was the enforcement of the underlying state title to energy resources which had only been leased to various oligarchs.  Gustafson asserts that Gorbachev had dismembered the party-apparatchik glue that held together the non-vertically integrated energy industry, which ungluing led to a race to the export markets while mostly private entities vertically integrated the industry.  The export profits accrued to the oligarchic entities until the state reasserted its title and control.  The revenue to the state then increased by a factor of about 10.  The overreach for power and control by Khodorkovsky et al, after having been warned to desist, provided Putin with the opportunity to reassert the national interest.

The resurrection of the Russian military

Clearly there existed a legacy of Soviet-era resources and talent that could be called upon once leadership was restored following the Yeltsin debacle, with the fiscal ability to support key programs. The conflicts in Chechnya and Georgia demonstrated the will and the ability to respond effectively to challenges.  Both conflicts exposed deficiencies in military capacity, with at least one disaster in Chechnya and failures to coordinate air with ground forces in Georgia.  Western analysts provide valuable insights regarding Chechnya, but ultimately have underestimated the ability of the Russian military to overcome its deficiencies.

NATO began moving east during Clinton’s second term beginning 1996.

The Russian Ministry of Defense is closely supervising military operations, exemplified by the recent suspension of the Baltic fleet commander and some of his command staff.

Russian military doctrine 101

Reduced to the most simple formula for non-experts like me, the Russians historically rely on surprise and the exploitation of breakthroughs.  The formulation of redlines is also said to be crucial. The real significance of the latter is that some may believe Russia would tolerate another invasion rather than strike first following a violation of a “red line.”  This belief may not be well founded.

The two recent campaigns in Crimea and Syria present instances where these principles appear to have been applied.  Some western observers have contended in recent memory that Russia is a paper tiger.  NATO officials have a different take: “Anti-access/area denial, or A2/AD, is a growing problem,”

The events in Crimea appear especially to exemplify the employment of surprise.  The Russian deployment of air assets in Syria and the intensive use of same appear to have caught the US et al completely by surprise in speed of deployment and effectiveness.

While the Russians seem to have been themselves surprised in several cases, these events reflect what arguably amounts to be misplaced confidence in agreements with adversaries rather than military failures per se.  In the Ukraine in February 2014, the French, German and Polish on-site signatory witnesses to the 2-21-14  agreement regarding an organized “constitutional” process to replace the elected government walked away within days from the agreement they brokered.  The Turkish shoot down of the Russian jet it claimed had violated its territory appears to have been an ambush orchestrated by the US when the US disclosed to the Turks the flight information provided by Russia to the US in a Russian effort to coordinate air activity over Syria.

Time may be Russia’s (and China’s) most strategic advantage in what now amounts to WW3: western economic weakness will likely be fatal to western interests

The US now lives off the theft of domestic and foreign resources, not the wealth generated by economic growth (see “Deflation in the Casino”). Post WW2 theft of Axis booty used to finance intelligence agencies (see Seagrave: “Gold Warriors: America’s Secret Recovery of Yamashita’s Gold”) and the transfer of control over the Asian heroin trade (see: McCoy: “The Politics of Heroin: CIA Complicity in the Global Drug Trade”) has been used to finance off-budget operations of intelligence agencies worldwide.  The western deep state’s object is to capture the resources of eurasia and prevent a geopolitical alignment of Russia and Germany, formulated by MacKinder: “The Geographical Pivot of History” and the modern exponents of western hegemony, such as George Friedman  (and Brzezinski, of course).  With regard to Russia, didn’t we seen a version of this movie in 1918? Massive US federal deficits, drug cartel money-laundering by the too-big-to-fail-too-big-to-jail banks, banks whose survival depends on borrowing at zero-interest rate and collecting interest on their reserves at US Federal Reserve, corporations borrowing to repurchase their own stock (details in “Deflation” above) and negative interest rates in Europe (and coming to the US?) that doom the insurance industry and pension funds (see California’s projected shortfall) militate in favor of a joint Russia-Chinese economic “hold the barbarians off at the gate” strategy and the avoidance whenever possible of shooting wars.

If Russia and China play for time and build genuine wealth through economic development while modernizing their defence industries, then the economically flailing hegemon is going to become increasingly desperate and belligerent and of course, ironically, this strategy may well accelerate the very shooting wars Russia and China seek to avoid.  For this reason, I suspect electronic warfare may play a very big role, what with NATO missile bases being established in Romania and Poland.  Shutting these bases down electronically and rendering them useless would be the most desireable outcome, all things considered.  CERN isn’t the only very high tech physics project being tested as we speak.  The history of advanced weapons development goes back to the German Nazis deeply secret weapons programs.  See Nick Cook’s “The Hunt for Zero Point: Inside the Classified World of Antigravity Technology.”

Still, there are facts on the ground in Syria and the Ukraine that need to be addressed: ceasefires undermined, Plan Bs, Iranian treaty non-compliance by the US and possible Georgian safe-havens should Islamic militants be forced to retreat from Syria.  July 2016 could well be a month to remember.

And speaking of surprises, Sibel Edmonds has predicted that the airport attacks in Paris, Brussels and now Istanbul presage a possible “October surprise” in the UK or the US that will be used as an excuse to commit substantial US ground troops to Syria.

Russian domestic politics

The story of the 2012 Presidential election, following the Duma election in December 2011 remains to be told in some detail.  The suggestion that the 5th column’s activities and plans were anticipated and effectively countered deserves a stand-alone treatment in the context of color-revolution phenomena.

The 2016 Duma election doesn’t attract very much comment.  Neither does the on-going effort in Syria to conclude agreements with local communities and armed contingents.  It’s understandably more fun to play armchair general and speculate on geopolitical machinations than to engage on getting agreement on the ground.  But at the end of the day these efforts build the foundation for political solutions.  

The run up to the Duma election this year includes corruption investigations in Vladivostok and Kirov.  Perhaps of more interest is the on-the-ground political work of the parties to build their slates of candidates with a focus on developing a consensus to adopt federal legislation they support and for some to address what they perceive to be the 5th column establishment in government agencies, including the Russian Central Bank.  

Now comes the eye-glazing stuff.  The Russian Constitution, Chapter 3, Article 75, establishes that the Central Bank shall fulfill its responsibilities independent of other state authorities. Chapter 9, Article 136 establishes that amendments to Chapters 3 and 6 require approval of legislative bodies that represent two-thirds of the subjects of the Russian Federation after adoption as a “federal constitutional law” (Chapter 5, Article 108) by three-fourths of the Council of the Federation (members defined: Chapter 5, Article 95 (2)) and two-thirds of the members of the State Duma (members defined: Chapter 5, Article 95 (3)). Got that?  This is constitutional stuff and making it happen requires real day-to-day consensus building.

There are many people who object to the way that the Russian Central Bank has conducted itself during the sanctions regime imposed on Russia and who want a central bank that is more responsive to the president of the Russian Federation and his executive team. Those  who advocate subordination of the Russian Central Bank to and all Russian economic policy formally under the office of the president ( see: Engdahl: Russia’s Achilles Heel – Reflections from St. Petersburg) rather than under the prime minister (the Chairman of the Government of the Russian Federation (Chapter 6, Articles 111 & 112)) face the need to amend the Russian Federal Constitution.  That requires concerted political action at the local and regional levels to ensure that candidates sympathetic to such changes get elected to the Duma.

There are other views of this election. See: 2.0 RESTRUCTURING BEGAN

The Putin team and the politics of virtue

The political establishment in the United States has long claimed the US is the “exceptional” nation and is therefore entitled to operate beyond its shores without respecting other nations and their cultures and indeed without adhering to international agreements it signed. There are eras in Russian history when Russians believed the Russian nation to have a special destiny.  Some may believe that now.

Political cynicism runs rampant today and many of us believe some version of the following:

All politicians are the same:

  • They are all untrustworthy.  
  • They are all crooks stealing whatever they can.
  • They are all conniving with the money power everywhere.

I am persuaded that Vladimir Putin and his closest allies in power in Russia are citizens of character with values based on a variety of religious and spiritual beliefs. Perhaps this means I am naive, but at every turn I see Putin et al promoting what I understand to be some modern version of Westphalian principles, including respect for exclusive national sovereignty, meaning the right to conduct domestic affairs without outside interference, taking responsibility for acts of the state’s agents abroad and respect for the choice of religion within a state accompanied by recognition of the right of religious minorities within a state to practice their beliefs without interference.

While members of the Russian leadership now directing foreign policy and national security concerns may be people of this or that “book,” at the end of the day they fully honor their agreements with all parties to these agreements in spite of any possible personal objection to the beliefs of the other parties.  It appears this team has occasionally extended trust to parties who couldn’t be trusted and has paid the price for that.

I call what I have described above the politics of virtue. It’s inconceivable to me that this could become routine any time soon for the majority of the current members of the western political class.  What’s more, given the present cynicism about politicians in general, leaders acting virtuously may render their acts beyond the imagination and therefore beyond the understanding of their opponents.

Featured

Deflation in the casino: central banks play their last chips to no avail

Deflation in the casino: central banks play their last chips to no avail

By David L Goldman

March 2016

rev’d 12-5-16

  1. This is not your grandfather´s capitalism
  2. A global $US short squeeze
  3. Negative Interest Rate Policy (NIRP): a perverse incentive to hold non-productive yield free cash
  4. Central banks approach end-game while fighting the last monetary war

Deflation today is a consequence of debt piled on more debt accompanied by failure to generate sufficient wealth, growth and employment resulting in an inability to service the debt. The dollar has risen against other currencies, not because it is strong, but because the lack of global economic growth has exposed the weakness of a petrodollar money-as-debt monetary system. The gaming of the monetary system by all the controlling players is the essence of 21st century capitalism. The failure of this capitalism will mark the end of the American century.

This is not your grandfather´s capitalism

The zero interest rate policies of the US Fed no longer encourage savings as a significant source of funds for private capital expenditure on productive assets.  With unlimited money printing costumed as ¨qualitative easing,¨ QE, and ¨qualitative and quantitative easing,¨ QQE, the US Fed and other central banks have purchased trillions in debt issued by major banks and corporations in recent bubbles at face value rather than market value, supplying the financial sector, some of the largest constituents of which actually failed in 2007-8, with funds to lend to corporations at historically extremely low rates.  Many corporations are collectively spending hundreds of billions  buying back their stock and issuing dividends rather than expanding their operations. This is a direct consequence of and a rational response to Fed policy.  Former Fed governor Richard Fisher confirmed that the Fed injected ¨cocaine and heroin” into the system to boost the stock markets in furtherance of, among other things, the ¨wealth effect¨: the belief that rising stock markets generate confidence that translates into more consumer spending.  The US SEC acknowledged the buybacks and asserted that buybacks under Rule 10b-18 are “voluntary safe harbor[s]” that preclude market manipulation charges.  In another context this was called ¨dumbing deviancy down.¨  The result is a churning of liquidity to create the appearance of an economy producing wealth rather than the actual creation of wealth. And the creation of mountains of debt.

Further consequences of these policies unroll as global liquidity falls

Source: Bloomberg

and a certain amount of quarter-ending corporate book cooking is required to make this new capitalism presentable.  Large end-of quarter Fed reverse repo data suggest that the need for cash on the books on important accounting dates correlates with monetary base changes and stock index movements.  US Treasury fails-to-deliver, at an average of $50 billion per day figure in this scenario as a way to address a shortage of money-good collateral.

Worse than that, entities–some of whom are central bank primary dealers–such as HSBC (drug money laundering), Standard Chartered (falsifying records of transactions with sanctioned countries, RBS (Libor rate fixing), BNP (transactions with sanctioned countries), Barclays (Libor rate fixing), Bank of America (mortgages), Citibank (forex rigging), Wachovia (drug money laundering) and JP Morgan Chase (take your pick) pay fines for criminal activity and recover the ¨losses¨ with more, uh, business.  And by the way, the fines are tax deductible as a cost of doing business.

In 2009, according to the UN Office on Drugs and Crime, there was plenty of drug cartel liquidity supplied to banks in need, and the City of London now seems to be a major center of drug-cartel money laundering.

The Fed´s preservation of failed banks and corporations negates Joseph Schumpeter´s ¨creative destruction¨ that made the capitalism-that-was the dynamic engine that could.  Richard Duncan calls a monetary system that continually issues more debt until the debt can no longer be serviced ¨creditism.¨  Unregulated derivative markets permit the gaming of all the debt in a manner that furthers the ability of the financial sector of the economy to operate as a profit center instead of a cost of doing business.

The FIRE components of the financial sector: finance, insurance and real estate, grew from 10.5% of GDP in 1947 to 21.5% in 2009.  They do so at the expense of what most understand as the benefits of yesterday´s capitalism to have been: the generation of wealth, growth, employment and the capacity to sustain a consumer middle class.  There was a time when the dominant oligarchs understood the need to reel in the worst excesses of capitalism.  F. William Engdahl provides an excellent history in his ¨Gods of Money¨ detailing how the Rockefeller combination successfully lobbied in 1933 for the prohibition of commercial banking and securities transactions in the same bank, via the Glass-Steagall Act, against the wishes of Morgan & Co. Glass-Steagall was repealed in 1999 during the Clinton administration.

The fiat currency created by the money-as-debt monetary system is not generating inflation, with monetary velocity in the dog house and the global struggle to service increasing debt.  Deflation today is a consequence of debt piled on more debt accompanied by failure to generate sufficient wealth, growth and employment resulting in an inability to service the debt. The major central banks are working in the service of what are essentially banks operating as hedge-funds when the Bank of Japan engages in infinite QE or the ECB increases its failed QE program from 60 billion euros per month to 80 billion per month.  The financing utilities–the banks–have become the tail wagging what used to be the capitalist dog engine of growth.  

A global $US short squeeze

As a result of the low price of oil, diminished petrodollar flow results in a decrease in global $US liquidity and a reduction in sovereign wealth funds which then must liquidate assets to meet domestic needs:  

Sovereign Wealth Funds, Oil, and Markets

2-9-16

The total assets of sovereign wealth funds, as of last March, were estimated at $7.3 trillion by the International Monetary Fund. That figure has doubled just since 2007. The IMF adds that at least $4.2 trillion of this wealth was energy-related.

A nice chunk of this accumulated oil wealth was placed into global financial markets by countries like Saudi Arabia.

But now plunging oil and gas prices have pushed these countries into budget deficits.

For example, Bank of America estimates that $30 per barrel oil will balloon the Saudis’ 2016 budget deficit to $180 billion. Add to that more than $100 billion in reserves spent in trying to defend its currency (riyal) peg to the U.S. dollar.

So it’s no surprise that the Saudi Arabian Monetary Authority (SAMA) says their foreign assets fell by a record $108 billion in 2015. SAMA owned $423 billion in overseas securities as of November.

. . .

In the Gulf region alone, the IMF estimates the fiscal surplus of $200 billion in the 2015-20 period will now turn into a $145 billion deficit over the same period.

Draining Liquidity

The deficits are pushing the oil-producing countries to liquidate some of their holdings and free up monies. Even Norway was forced to tap into its massive $820 billion sovereign wealth fund – the Government Pension Fund Global – for the very first time last October.

. . .

The Royal Bank of Scotland’s Head of Credit Macro Research, Alberto Gallo, estimated that the gross flow of petrodollars into the global economy fell to a mere $200 billion last year from $800 billion in 2012. [emphasis added]

Source: Tim Maverick, Wall st daily

In the US, Alaska is literally a failing petrodollar state:

¨With oil prices down along with oil production, the state is facing an Alaska-size shortfall: Two-thirds of the revenue needed to cover this year’s $5.2 billion state budget cannot be collected.¨

Source: The New York Times

A second aspect of the squeeze may seem counterintuitive at first glance.  The oil-based $US is in an inverse relationship to oil prices.  The lower the price of oil the higher the $US:

How the strengthening US dollar is impacting crude oil prices

This relationship suggests that when the petrodollar tide went out the $US is seen to have been swimming naked.

Another factor squeezing the $US is dollar credit issued to borrowers outside the US which now totals $9.8 trillion, of which $3.3 trillion is owed by borrowers resident in emerging markets.  Debt financed with commodities/trade denominated in non-$US currencies makes for a continued demand for $US liquidity as the $US rises and the debt-servicing costs rise for entities using other currencies.

Yet another squeeze on liquidity for investment in the US especially has been the requirement that counterparties to US energy producers´ hedges cover their obligations as the price of oil has fallen. In April 2015 the estimate was that this liability was $26 billion as of December 2014.  The price of oil has dropped further since that figure was published.  Then there´s the increasing damage to energy loan portfolios of possibly $1 trillion.  Or more.  Moral hazard anyone?

The dollar has risen against other currencies, not because it is strong, but because the lack of global economic growth has exposed the weakness of a petrodollar debt-fueled monetary system.  An otherwise small difference between world supply and demand for oil, about 1-2% more supply during 2014-2015, facilitated a major price decline–exacerbated no doubt by derivative trading in the casino–and revealed the critical shortage of dollar liquidity to service global debt.  

Negative Interest Rate Policy: a perverse incentive to hold non-productive yield free cash

Negative interest rates in Europe and Japan represent the final frontier–to boldly go where no monetary policy has gone before–and the amounts involved are beginning to add up: ¨By February, more than $7 trillion of government bonds worldwide offered yields below zero.¨  The long-term consequences are unknown.  In the short run, what could be better calculated actually to result in a run on safes in Japan, ¨lockers¨ in Germany and to stimulate banks in Germany to stack cash?

It doesn´t take much imagination to see NIRP might mean to the 20 Organisation for Economic Co-operation and Development country pension funds that have an ¨unstated $78 trillion in retirement-related debt.¨  In the long run how will pension funds finance payouts going forward? Throw in insurance companies and the situation becomes even harder to understand and to manage:

Munich Re, the world’s second-biggest reinsurer, expects profit to decline this year as falling prices for its products and low interest rates weigh on investment earnings.

Source: Insurance Journal

Speaking of insurance, in a negative interest rate environment, gold shines more brightly: as the prospect of a monetary reset a la Bretton Woods (BW) that reintroduces gold into the mix as a brake on unlimited fiat money creation increases in thinkability, gold looks more and more like insurance and less risky than stacking cash.  Germany´s Munich Re seems to agree as it proceeds to stack both cash and gold.

Central banks approach end-game while fighting the last monetary war

Central bank machinations amount to fighting the last monetary war.  In 1944 the Bretton Woods agreement formalized the geopolitical reality of the 20th century: US world domination. The tools appropriate to that monetary world will not address today´s deflation. The central banks refuse to purge debt from the systems they ¨manage¨ and that dooms their policies to failure. None of the current dominant stakeholders will lead this purge because all their assets and control positions depend on continuing the money-as-debt based system.  Upton Sinclair said: ¨It is difficult to get a man to understand something when his salary depends upon his not understanding it.¨

Central banks use QE, QQE and NIRP and never eliminate any of the overhanging debt that plagues the global monetary system.  These policies eliminate the possibility of real-price discovery in all markets and therefore render the gaming of the system by all the major players the essence of 21st century capitalism.  Drug cartels provide liquidity, corporations buy-back their own shares with borrowed low-interest loans, major banks commit fraud and pay fines as a normal course of business, the ECB faces an Italian bank crisis that dwarfs the Greek crisis and the European Commission (the executive branch of the European Union) is working its way to requiring Germany to insure a new eurozone-wide bank deposit insurance system–an idea anathema to the Germans, one of the few wealth-producing nations in the EU.

The 1973 petrodollar replacement for the BW agreement–oil became the basis for the $US– has run its course now that the diminished oil-export nation surplus liquidity is insufficient to provide liquidity to service the massive global debt.  The loss of this increment of $US liquidity flow is crucial. The abandonment of the BW gold standard in 1971 marked the beginning of the end of the American century.  The adoption of the petrodollar system and the emergence of industrial China after 150 years of western imperialist domination delayed the finale of the American century as China accumulated several trillion in $US denominated paper.  The US dollar enjoyed a ¨dirty float¨: no nation could afford to operate without otherwise unredeemable $US reserves (Bernanke´s global savings glut?) that would allow them to transact international trade in that one reserve currency.  In this casino the US was the house and no one could turn in their chips for anything but more of the same debauched chips.

On October 1, 2016 the Chinese yuan became an International Monetary Fund Special Drawing Rights currency. The Chinese yuan will become an International Monetary Fund Special Drawing Rights currency.  In spite of China´s economic and banking excesses, note that China has

This could be China´s century. A monetary reset will upset all international geopolitical relations.

Conclusion

The world monetary system needs a governor on the creation of money-as-debt because excessive money-as debt creation has debauched currencies. Gold, the traditional governor on the global monetary system, has been deemed to be an anachronism largely because it has been more than a generation since any currency was redeemable in gold. The major decision makers have been schooled in a fiat system and have no experience with any other system and no incentives to curb monetary excesses. It´s the only system they know.  In hindsight, those countries that increase their physical gold reserves will be deemed to have made obvious choices in an environment ripe for a reset, but now look anachronistic.

When will the reset occur and when will gold be reintegrated into the global monetary system?  Not before nations begin steadily reducing the US dollar component of their national monetary reserves–now approximately 60%— well below 60% and not before the proportion of world trade conducted in the US dollar–now approximately 43%— falls significantly below 40% of the total amount of currencies used in trade.  When these trends are understood to be irreversible, economic confidence in the current fiat system will erode because capital flows to where its owners deem it is safest. Loss of that confidence will trigger the reset.

Until then, it´s rational to stack cash and gold in secure places and to hedge holdings in sufficiently varied asset classes such that some will rise as others fall. For instance, one might invest in real estate and art as well as the war industries. It looks like the $US and US Treasury bond prices will continue to rise with the continued short squeeze on the dollar until the balloon bursts somewhere in high atmosphere black swan flight lines.

 

THE DEEP STATE

THE DEEP STATE: A Brief Bibliographical Sketch

In his book The Secret Team: The CIA and Its Allies in Control of the United States and the World, Col. Fletcher Prouty, who was the briefing officer to the President of the US from 1955-1963, writes about “an inner sanctum of a new religious order.” By the phrase Secret Team he means a group of “security-cleared individuals in and out of government who receive secret intelligence data gathered by the CIA and the National Security Agency (NSA) and who react to those data.” He states: “The power of the Team derives from its vast intra-governmental undercover infrastructure and its direct relationship with great private industries, mutual funds and investment houses, universities, and the news media, including foreign and domestic publishing houses.” He further adds: “All true members of the Team remain in the power centre whether in office with the incumbent administration or out of office with the hard-core set. They simply rotate to and from official jobs and the business world or the pleasant haven of academe.”


I have adopted the view outlined by Joseph Farrell in his Nazi International, “The Reich of the Black Sun” and “The Third Way,” by Alfred W. McCoy in his The Politics of Heroin: CIA Complicity in the Global Drug Trade  and by William Engdahl in A Century of War, Anglo-American Oil Politics And The New World Order.  See also Peter Dale Scott´s writings. Essentially I am referring to a consortium of intelligence agencies, their bankers and the drug cartels who finance themselves off money laundering and resource expropriation.

Post WW2 theft of Axis booty was used to finance intelligence agencies (see Seagrave: Gold Warriors: America’s Secret Recovery of Yamashita’s Gold.  The transfer of control over the Asian heroin trade (see: McCoy above) has been used to finance off-budget operations of intelligence agencies worldwide. The western deep state’s object is to capture the resources of eurasia and prevent a geopolitical alignment of Russia and Germany, formulated by MacKinder: The Geographical Pivot of History and the modern exponents of western hegemony, such as George FriedmanKissinger and Brzezinski, of course. With regard to Russia, didn’t we seen a version of this movie in 1918

In pertinent point:

    London is now the global money-laundering centre for the drug trade, says crime expert

     Gomorrah author Roberto Saviano says ‘the British treat it as not their problem’

     “The City of London is the money-laundering centre of the world’s drug trade, according to an internationally acclaimed crime expert.”

In my view, any attempt to analyse geopolitical machinations that doesn’t recognize the everyday efforts of the entities alluded to above will lack depth. I’m not referring to the holdover, identifiable bureaucrats who survive from one political administration to the next. I’m referring to those who administrate the funds laundered by the too-big-to-fail-too-big-to jail banks as well as the funds disappearing into the black holes of the defense department and the intelligence agencies: see:

Pentagon Claims That It Has “Lost” Over $18 Trillion, Which Probably Paid Foreign Army Payrolls

“The Defense Finance and Accounting Service, the behemoth Indianapolis-based agency that provides finance and accounting services for the Pentagon’s civilian and military members, could not provide adequate documentation for $6.5 trillion worth of year-end adjustments to Army general fund transactions and data.

The DFAS has the sole responsibility for paying all DOD military and personnel, retirees and annuitants, along with Pentagon contractors and vendors. The agency is also in charge of electronic government initiatives, including within the Executive Office of the President, the Department of Energy and the Departing of Veterans Affairs.

There’s nothing in the new IG’s report to suggest that anyone has misplaced or absconded with large sums of money. Rather, the agency has done an incompetent job of providing written authorization for every one of their transactions – so-called “journal vouchers” that provide serial numbers, transaction dates and the amount of the expenditure.”

9/10/2001: Rumsfeld says $2.3 TRILLION Missing from Pentagon

“Cynthia Mckinney questions Rumsfeld and Myers about 9/11 War Games [and accounting]”

8:16 min


As they say, follow the money.

Comments on the Saker’s Risks and Opportunities for 2017

Comments on the Saker’s Risks and Opportunities for 2017, and in particular, comments addressed to a response to the Saker by “proper gander”

The Saker’s article addresses his expectations of the Trump presidency and reviews events from 2016:

This article was written for the Unz Review: http://www.unz.com/tsaker/risks-and-opportunities-for-2017/

Just a few days into 2017 and we can already say with a great degree of confidence that 2017 will be a historical year. Furthermore, I submit that 2017 will be the “Year of Trump” because one of roughly three things will happen: either Trump will fully deliver on his threats and promises, or Trump deliver on some, but far from all, his threats and promises or, finally, Trump will be neutralized by the Neocon-run Congress, media, intelligence community. He might even be impeached or murdered. Of course, there is an infinity of sub-possibilities here, but for the purpose of this discussion I will call the first option “Trump heavy”, the second one “Trump light” and the third one “Trump down”. Before discussing the possible implications of these three main options, we need to at least set the stage with a reminder of what kind of situation President Trump will be walking into. I discussed some of them in my previous analysis entitled “2016: the year of Russia’s triumph” and will only mention some of the key outcomes of the past year in this discussion. They are:

  •        The USA has lost the war against Syria.       
  •        Europe is in a state of total chaos.       
  •        Russia is now the most powerful country on the planet.       
  •        China is now locked into a strategic alliance with Russia       
  •        Iran is too powerful to be bullied or submitted. [sic]

How will Trump deal with these fundamentally new challenges? [He elaborates at length].

Conclusion:

  •         First, I think that there is a good chance that Russia, Iran and Turkey         will succeed in stopping the war against Syria.
  •         Second, I think that Poroshenko will lose power this year.
  •         That leaves me with one area of great concern to me: Latin America.

Proper gander’s response is the first comment that follows the Saker article:

proper gander on January 12, 2017  

This [the Saker’s] is a very naive article.

Good counter-propaganda has made it look like the geopolitical points of the article are bigger than they are:

that the US lost in Syria

that Russia is super powerful

that Iran is bold and free

that Europe is failing from its own ineptitude

and the China Russia alliance is convenient and healthy.

In fact, looking at the whole picture, the USA beat the planet up very successfully and comes out the winner 10 to 1 between 2000 and 2016.

The issue at stake is that the USA (and to a lesser extent UK, EU, Aus, Jap, Can) survives only by being able to force the planet to trade in dollars, which allows it to issue debt risk free and skim 60+% of world trade through its correspondent and Swift banking system. In 2008 nations that must exchange their real cash and services for that stinking pile of paper started to move away from the dollar. This is what the BRICS etc are about. The USA had to destroy this system rising against it, or die.

To that end it endeavored to tear up the competition and remain with the dollar on top. In the 15 years since 9/11 the USA has successfully:

1. destroyed the oil producers that wanted to trade oil in other than the dollar by bombing them into the stone age (Iraq Libya)

2. torn the heart out of the BRICS

3. taken over the governments of S America.

4. Crushed commodities and sunk South africa

5. Crushed emerging economies by ever strengthening the dollar as it did before in the late 90s

6. Spread military bases into 46 of 52 African nations.

7. Ringed the S periphery of Russia and China with long range missiles and drones.

8. Broken the growing relationship between Eu and Russia by a coup in Ukraine, placing mass military hardware into Eu, continually removing Eu strength with financial and political subterfuge, including Brexit, flooded it with US sponsored migrant

9. extended NATO right up to the Russian border, including Afghanistan and Kazakhstan

10. Made merry hell with Russian economic cooperation with the EU

11. Smashed Syria to pieces and illegally built more military bases inside the country than Russia has, all on oil fields

12. etc etc etc.

All of this during the US’s ‘pivot to Russia’. It’s successes were huge, against which the winning of Allepo, Crimea and Donbas by Russia were bold, necessary but minor rear-guard actions that also gave live training to Russian troops and weapons testing.

What does 2017 bring? The US have achieved nearly everything they wanted from the pivot to Russia. Trumps ‘china bashing’ will do the same: while the world concentrates on a minor spat between China and some regional territory (what do you think the talk of Taiwan, S Korea, etc is about?), instigated and funded by the US, behind the scenes they will rip through the rest of Asia buying up and tearing governments to pieces and planting their military everywhere. And then the scene will be set for the big war.

I think proper gander did an excellent job making his case. No one should underestimate the ability of the US to wreak destruction globally. But then, Rome did a good job of building an empire as well.

It reminds me of a situation with some friends of mine who had been renting for many years. Out of the blue the owner decided to end their tenancy and rent the house to his daughter. Upon inspection, it turned out the reason my friends had allergic reactions that couldn’t be sourced was that there was rot under the siding and in the ceiling of the house. No one knew about it. And my friends had been prepared to buy that house.

My comments focus on the following issues:

  • The US economy is rotten and collapsing
  • Trump has enemies who have a number of tools to remove him as president
  • Brzezinski and Kissinger will promote divide and conquer in US relations with Russian and China, but that will fail because these countries have combined themselves in a manner that is fundamental and substantial
  • The US military-industrial complex can’t break out of its arms development stagnation short of the imposition of martial law in the US
  • The likely outcome is a serious sustained political war on Trump and perhaps a hot war initiated by the US itself or by its proxies

Economic rot that has no fix

Rumor has it Rome actually progressively weakened to the point of collapse because of its pension system. When it stopped settling its citizen soldiers on the land that over time was concentrated in the hands of its oligarchy, it had to pay pensions in currency. Eventually, with debasement of the currency the army wound up auctioning off the emporership to the highest bidder. Martin Armstrong details that history here: What Destroyed Rome was its Unfunded Government Employee Pensions

The pension rot in the US and the developed world is staggering in its enormity: OECD countries facing $78 trillion in pension liabilities — Citi report This is the economic canary in the economic mine that quit singing some time ago. It is the real time indicator that industrial economies that don’t generate wealth anymore. (see: Deflation in the casino: central banks play their last chips to no avail)

 

Trump removed via surgical strike

The US Constitution allows for the removal of the president in a rather simple fashion, and without an impeachment process. Let’s examine the 25th Amendment to the US Constitution:

Section 4:

Whenever the Vice President and a majority of either the principal officers of the executive departments or of such other body as Congress may by law provide, transmit to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office, the Vice President shall immediately assume the powers and duties of the office as Acting President.

Thereafter, when the President transmits to the President pro tempore of the Senate and the Speaker of the House of Representatives his written declaration that no inability exists, he shall resume the powers and duties of his office unless the Vice President and a majority of either the principal officers of the executive department or of such other body as Congress may by law provide, transmit within four days to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office. Thereupon Congress shall decide the issue, assembling within forty-eight hours for that purpose if not in session. If the Congress, within twenty-one days after receipt of the latter written declaration, or, if Congress is not in session, within twenty-one days after Congress is required to assemble, determines by two-thirds vote of both Houses that the President is unable to discharge the powers and duties of his office, the Vice President shall continue to discharge the same as Acting President; otherwise, the President shall resume the powers and duties of his office.[emphasis added]

There are 15 cabinet officers, therefore:

Trump needs to own:

8 cabinet officers (would checkmate the process of removal)

35 Senators and/or

145 Reps

Pay attention to the positions his cabinet nominees take. Danger Will Robinson!!  We could wake up one morning and discover Vice President Pence and the majority of the cabinet have decided to remove Trump because he is “is unable to discharge the powers and duties of his office.” Whatever that means.

 

The geopolitical elders speak, but . . .

Brzezinski thinks the US should do it in the road with China: Brzezinski: America’s Global Influence Depends On Cooperation With China and thereby divide China from Russia and work out global hegemony with China:

The danger I see is provoking antagonism [by Trump with China] in this foremost relationship of American foreign policy without any significant strategic accomplishment. It is not in our interest to antagonize Beijing. It is much better for American interests to have the Chinese work closely with us, thereby forcing the Russians to follow suit if they don’t want to be left out in the cold. That constellation gives the U.S. the unique ability to reach out across the world with collective political influence.

Kissinger thinks the US should do it in the road with Russia: Primakov Lecture by Henry A. Kissinger at the Gorchakov Fund in Moscow and thereby divide Russia from China and work out global hegemony with Russia.

In the 1960’s and 1970’s, I perceived international relations as an essentially adversarial relationship between the United States and the Soviet Union. With the evolution of technology, a conception of strategic stability developed that the two countries could implement, even as their rivalry continued in other areas. The world has changed dramatically since then. In particular, in the emerging multipolar order, Russia should be perceived as an essential element of any new global equilibrium, not primarily as a threat to the United States.

I have spent the greater part of the past seventy years engaged in one way or another in U.S.-Russian relations. I have been at decision centers when alert levels have been raised, and at joint celebrations of diplomatic achievement. Our countries and the peoples of the world need a more durable prospect.

I am here to argue for the possibility of a dialogue that seeks to merge our futures rather than elaborate our conflicts. This requires respect by both sides of the vital values and interest of the other. These goals cannot be completed in what remains of the current administration. But neither should their pursuits be postponed for American domestic politics. It will only come with a willingness in both Washington and Moscow, in the White House and the Kremlin, to move beyond the grievances and sense of victimization to confront the larger challenges that face both of our countries in the years ahead.

In not too far a reach analogically, if you can’t figure out who’s the patsy at the table, it’s you. The likelihood that Russia and China can be subjected to divide-and conquer is essentially nil. I refer readers to Larchmonter 445’s Vineyard of the Saker White Paper: the China-Russia Double Helix

Introduction by Larchmonter 445:

Saker asked me if I could provide an article regarding China and Russia. I told him that I thought the entwining of the two was far deeper and meaningful than ‘deals’ for commodities and weapons. He added that the two militaries had gone through highly unique, for the two nations, training and had scheduled more for next year to push their integration capabilities.

I felt that what I had learned studying China for over a dozen years, the relationship was qualitatively unique in international history, far from just a special partnership category. There was a bonding in process. Double Helix was, to my mind, an ideal metaphor. Thus, the article became a large presentation. But the two nations are two of the largest and the bonding in process is comprehensive.

 

Finally, can the US MIL get its act together?

The following is a very good description of the problem and likelihood of failure to solve the problem.

Future Foundry:

A New Strategic Approach to Military-Technical Advantage

12-14-16

Theory of Change

In June 2014, the Center for a New American Security released “Creative Disruption: Technology, Strategy and the Future of the Global Defense Industry.” The paper argued that the United States military risks losing its technological advantage if the Department of Defense and its industry partners do not adapt to widely recognized strategic, technological, and business trends.

Concerns over the United States’ military-technical superiority are not new, and criticisms of the Department of Defense’s acquisition system are long-standing. As Senator John McCain (R-AZ), Chairman of the Senate Armed Services Committee, has noted, “Acquisition reform has been a perennial topic in defense circles for years.” Despite near-annual attempts to address acquisition problems since the Packard Commission in 1986 – including recent reform efforts, such as the Better Buying Power initiatives launched by the Office of the Under Secretary of Defense for Acquisitions, Technology, and Logistics (USD (AT&L)) and major Congressional reforms through 2016 and 2017 National Defense Authorization Acts (NDAA) – there have been relatively few improvements to the system’s outcomes. Clearly, this failure to change is not due to a lack of proposed solutions but is the consequence of inadequate political will and ineffective execution. Given broad acceptance among acquisition and industry professionals that the current system is flawed, endless recommendations for reforms, persistent bureaucratic intransigence, and a lack of meaningful change, how can the Department of Defense establish a reliable approach to generating and maintaining technological superiority in the 21st century?

. . .

The DoD must view military-technical challenges as a strategic issue requiring fundamental change. Defining military-technical superiority in terms of acquisition reform, process, procedures, and organizational structure – even though those are critical elements for success – undersells the importance of the challenge and may fail to drive action at the highest decisionmaking levels. Moving forward will demand sustained attention from the most senior leaders in the department, Congress, and industry, who must push change down into the middle levels of their bureaucracies while also enabling innovation to advance from the bottom up.

. . .

To execute such an ambitious strategy, the DoD must foster a high level of cooperation among DoD components, Congress, and its partners. The department must take the lead in creating the vision, strategy, systems, and incentives necessary for change, but it will require external support to implement and fully realize the benefits of a new strategy. If the DoD works in concert with its colleagues on the Hill, Congress will be able to remove political, legislative, and budgetary roadblocks. A joint effort between the DoD and defense industry will strengthen that market sector, allowing companies to plan for their futures in a way that is financially viable, shape their long-term planning and investment strategies, and make the case for change to their shareholders.

While a reframing of strategy is the optimal solution, there is no recent historical evidence to suggest it is likely. In the absence of effective DoD leadership, Congress likely will continue to act as a change agent, attempting to force reform through legislation as seen in the 2016 and draft 2017 NDAA bills. Such efforts will be better than no change at all, but Congress could better facilitate progress by dictating the outcomes it desires, rather than assigning specific solutions.

In the absence of effective change from either the executive or legislative branches of government, the defense industry must explore ways in which it can adapt independently.[emphasis added]

The US technological advantage edge is relatively simple to maintain: . . . the defense industry must explore ways in which it can adapt independently. How about a declaration of martial law?–as the Congress was threatened with back in 2008 over a matter of a few trillion here and there of banking losses–Bush threatened Congress with Martial Law!

My thought is that keeping this empire from going off the rails is not a no-brainer. I’m in substantial agreement with most of proper gander’s conclusions that follow below (his comment is the first comment that follows the saker article linked at the top), except that business about SDRs, which amounts to more fiat toilet paper:

Why war? Because interest bearing debt requires an ever-expanding market in order for interest on past debt to be paid. If it fails to aggressively expand into virgin markets and populations (which Ru and China clearly intend to stop), it needs the fog of war to cover the quiet and massive deleveraging of banks and deflation of bubbles. That is why debt is not inherently, but always leads to evil.

Trump is no friend of anyone. He has just elbowed his family onto the top table. The war he is having with the media is just about getting it in line with his message and loosing off its old alliances

You will see China and Russia back to back against the militarized vampire that is dollar debt.

They will continue to prepare for war.

They will continue to attempt to extinguish the coming fire by trying to shove the world institutions towards a new international currency basket (the SDR).

The issuers of debt will continue winning until the game is complete or they are all dead.

Whither Wahhabism: Saudi Arabia, America’s Exceptional Ally

Whither Wahhabism: Saudi Arabia, America’s Exceptional Ally

2-2-2016

This article is is devoted to Saudi Arabia’s history as a Wahhabist Islamic state.

  • Saudi Arabia has been a major US ally since the 1940s
  • Wahhabism, allied with the House of Saud, is an 18th century reaction to the “heresy” of Sufism and Shia Islam
  • The Ottoman Turks crushed the Wahhabist/House of Saud alliance in 1815
  • 1921, the Al-Saud called on the tradition of Wahhabist jihad to consolidate Al-Saud control over the Arabian peninsula and then turned on its most fervid Wahhabist allies
  • Saudi Arabia, with a continued Wahhabist orientation, has been a major source of financing to rebel and terrorist organisations since the 1970s
  • The alliance between the Kingdom of Saudi Arabia (SA) and the United States began with a meeting on the USS Quincy on February 14, 1945, between President Franklin D. Roosevelt–returning home after the Yalta Conference in Soviet Crimea–and the first Saudi king, Abdul Aziz ibn Saud.

SA is one of the largest oil export nations and the US is the largest oil consumer.  The alliance has weathered Middle Eastern Wars, is the foundation for  the petrodollar system, and brings together the two countries that their supporters often claim makes these countries exceptional in their own ways: SA enjoys a special status as the protector of Islam via its custodianship of the Islamic holy sites in Mecca and Medina; the United States is frequently deemed to be the global champion of democracy and freedom in the world because it has a unique ideology and mission which makes the US a superior nation.

Events in Syria and Iraq have highlighted the importance of the alliance and the tensions inherent to the claims made for such very different states:

. . . the alliance persists, kept afloat on a sea of Saudi money and a recognition of mutual self-interest. In addition to Saudi Arabia’s vast oil reserves and role as the spiritual anchor of the Sunni Muslim world, the long intelligence relationship helps explain why the United States has been reluctant to openly criticize Saudi Arabia for its human rights abuses, its treatment of women and its support for the extreme strain of Islam, Wahhabism, that has inspired many of the very terrorist groups the United States is fighting.

Source: The New York Times

  1. Wahhabi History 101

Ibn Abd al-Wahhab was born  c.1702 to a religious family in the town of Al-Uyaynah in the Najd region of the Arabian peninsula.

                        Map: SALAFI AQEEDAH

At an early age he memorized the Koran and made his first pilgrimage to Mecca. He preached an extreme fundamentalist, intolerant version of Islam earning him followers and enemies:

. . .[H]e wanted to return to the earliest teachings of Islam and eject all later medieval accretions. To achieve such ambitions he opposed Sufism and Shia Islam, labelling them as heretical innovations (bidah) [forbidden by God] as both opposed tyranny in faith. He went on to urge all Muslims to reject the learned exegesis developed over the centuries by the ulema (scholars) and interpret the texts for themselves, or rather under his guidance. [Emphasis added]

This naturally incensed the clergy and threatened local rulers, who believed that interfering with these popular devotions would cause social unrest.

    Source: Catherine Shakdam:Wahhabism, Al Saud and ISIS –the Unholy Trinity

He gained and lost political patronage, eventually allying in 1744 with Muhammad ibn Saud, the founder of the modern House of Saud. The Al-Saud family saw in this violent and reactionary school of thought a grand opportunity to claim and retain power. They entered into a pact of convenience: Ibn Abd Al-Wahhab provided Ibn Saud with the religious rationale to use extreme violence against other Muslims from the Arabian Peninsula to Mesopotamia.

Ancient Mesopotamia

In 1801, Abd Al-Aziz Ibn Muhammad, Ibn Saud’s son and successor sacked the Shia holy cities of Karbala and Najaf (now in Iraq) and in 1803 and 1804 he captured Mecca and Medina and subjected them to Wahhabist depredations.  In 1815 the Ottoman Turks

   Map: [Ottoman]  Egypt under Muhammad Ali Dynasty     (Wikipedia)

dispatched their governor of Egypt, Muhammad Ali Pasha, to crush and destroy the Wahhabi forces.

2. THE REVIVAL OF WAHHABISM

The Saudi chieftain Ibn Saud (Abdulaziz ibn Abdul Rahman ibn Faisal ibn Turki ibn Abdullah ibn Muhammad Al Saud) expanded the domain of the Al-Saud in 1902 by recapturing their ancestral home, Riyadh. The Al-Saud were contesting for control of the Arabian Peninsula with the ruling family to the north, the Al-Rashid.  The Al-Rashid were allied with the Turks. The Al-Saud allied with British in 1915 against the Turks and Al-Saud lands became a British protectorate. Ibn Saud managed to use British support to outmaneuver and defeat the Al-Rashid in a series of wars. The 1916 Arab Revolt, led by the Sharif of Mecca, Hussein bin Ali, was a revolt against the Turks supported by the British and the French.

 

Map I

            Map Source: Lawrence: “Seven Pillars of Wisdom

The Al-Saud did not play a significant role in the Arab Revolt.

By late 1921, the Al-Saud called on the tradition of Wahhabist jihad using their allies, an army called the Ikhwan, a “Brotherhood” of Bedouin fighters (the “Muslim Brotherhood,” a separate movement, emerged in Egypt in the 1920s; see here as well) and continued to consolidate Al-Saud control over the peninsula.

The Ikhwan allies–good Wahhabists that they were–understood all non-Wahhabists, Arabic, Islamic or otherwise, to be infidels. They attacked British protectorates such as Kuwait, Iraq and Transjordan. In order to maintain British support Ibn Saud called on the Ikhwan to cease their attacks, but they refused. Open war broke out in 1928 between the Al-Saud and the Ikhwan. Known as the Ikhwan Revolt, it ended in victory for the Al-Sauds in 1929.

The Kingdom of Saudi Arabia was established in 1932. It was recognised quickly by the western world. In 1938 oil was discovered along the coast of the Persian Gulf and development of the oil fields began in 1941 by the Arabian American Oil Company (Aramco).

  1. RECENT HISTORY

In 1979 a grandson of Ikhwan warriors, Juhaiman Al-Utaibi seized the great mosque in Mecca in an attempt to overthrow the Al-Saud regime. The seizure lasted two weeks, the effort to overthrow the ruling family failed and Juhaiman was beheaded. This led to an increased Islamic-surveillance state and simultaneous promises of reform by the de-facto ruler, Crown Prince Fahd.

In 2002, according to Gwenn Okruhlik, the House of Saud recognized the continued need for reform of the most extreme aspects of its Wahhabist legacy:

Most significantly, Crown Prince Abdullah [King: 2005–2015], Saudi Arabia’s de facto ruler since King Fahd’s illness [King: 1982–2005]. . . apparently will respond to Islamists in a way that grants concessions to the opposition and protects the ruling family. Specifically, Abdullah has begun to address the grievances, allowing a popular clergy to voice opinions and by reining in the more ostentatious behavior of princes. . . .In summer 1999, he released the sheikhs who had been jailed. He has allowed the press a bit more leeway than before. He has publicly criticized United States policy toward Israel and Palestine. . . .

The good news is that Abdullah has the capability and the personal legitimacy to initiate such change.

Source: Social Science Research Council: Networks of Dissent: Islamism and Reform in Saudi Arabia (Jan 2002)

But by January, 2012, Stephen Schwartz was reporting that Crown Prince Neyef [2011-2012; died in office] was an ardent adherent of Wahhabism, in contrast to the reining King Abdullah.

On December 28, [2011] however, now-Crown Prince Nayef opened a conference on “Salafism” – the cover name used for Wahhabism . . .

Nayef inaugurated the seminar. He declared that “Saudi Arabia would continue to follow the Salafist ideology,” and “denounced those who create doubts about” the doctrine.

In Saudi media coverage of Nayef’s theological summit, the customary praise for King Abdullah was missing. The aim of the convocation was clear: to reinforce the power of the Wahhabi clerics, their control of religious affairs, their influence on all other aspects of public life in Saudi Arabia, and their loyalty to Nayef.

Source: the weekly Standard

4. SAUDI ARABIA FUNDS WAHHABISM AND TERRORISM

It seems the efforts to reform have failed.

A study titled: “THE INVOLVEMENT OF SALAFISM/WAHHABISM IN THE SUPPORT AND SUPPLY OF ARMS TO REBEL GROUPS AROUND THE WORLD” for the European Parliament’s Committee on Foreign Affairs concluded in June 2013 that:

Saudi Arabia has been a major source of financing to rebel and terrorist organisations since the 1970s. These were some of the conclusions of a 2006 report issued by the U.S. Department of State titled International Narcotics Control Strategy Report – Money Laundering and Financial Crimes (U.S. Department of State, 2006). Since the invasion of Afghanistan by the Soviet Union, Saudi Arabia and Saudi-based private actors (i.e. wealthy businessmen, bankers, charitable organisations) have been providing financial and relief assistance to Muslim communities affected by natural calamities or conflicts. It has been estimated that Saudi Arabia has invested more than $10 billion to promote its Wahhabi agenda through charitable foundations. Some of the most influential charitable organisations operating in South and Southeast Asia are: the Islamic International Relief Organisation (IIRO), the Al Haramain Foundation, the Medical Emergency Relief Charity (MERC) and the World Assembly of Muslim Youth (WAMY). These organisations have provided funds to build educational and religious facilities, as well as hospitals, in countries like Afghanistan, Pakistan, Indonesia and the Philippines, just to mention some. [Emphasis added]

Zacarias Moussaoui, who pleaded guilty to conspiring to kill US citizens as part of 9/11, testified on October 21, 2014 regarding the direct involvement of Saudi clerics and royals in the funding of al-Qaeda, saying he

was the bookkeeper for Al Qaeda, but the U.S. intelligence services have been keeping this fact secret as much as they can, because what he knows about the crucial financial backers of Al Qaeda can be very damaging to the U.S. aristocracy, which is heavily oil-based and closely allied with the Saudi royal family, which created Al Qaeda in order to please the Saudi clerics, who are Wahhabist Muslims who constantly threaten the royals with exposure of their economic and sexual corruption unless the royals finance the spread of the Wahhabist sect (such as by Al Qaeda), and thereby finance the spread of those clerics’ own international influence and power.

Or, so says the former bookkeeper of Al Qaeda, who was selected by Al Qaeda’s military chief, Abu Hafs (also known as “Mohammed Atef”), to serve Osama bin Laden in that capacity: Zacarias Moussaoui. This is his testimony, in brief.

Source: Eric Zuesse, “Washington’s Blog”

Alastaire Crooke reported in 2014 that

With the advent of the oil bonanza — as the French scholar, Giles Kepel writes, Saudi goals were to “reach out and spread Wahhabism across the Muslim world … to “Wahhabise” Islam, thereby reducing the “multitude of voices within the religion” to a “single creed” — a movement which would transcend national divisions. Billions of dollars were — and continue to be — invested in this manifestation of soft power.

Source: THEWORLDPOST

but like the Ikhwan, ISIS represents a rebellion against the official, insufficiently pure and non-jihadi Wahhabism of modern Saudi Arabia:

The ISIS allusions to Abd Al-Wahhab and Juhayman [Juhaiman above] (whose dissident writings are circulated within ISIS) present a powerful provocation: they hold up a mirror to Saudi society that seems to reflect back to them an image of “purity” lost and early beliefs and certainties displaced by shows of wealth and indulgence.

. . .

This is the ISIS “bomb” hurled into Saudi society. King Abdullah — and his reforms — are popular, and perhaps he can contain a new outbreak of Ikwhani dissidence. But will that option remain a possibility after his death?

. . .

The Saudi Ikhwani history is plain: As Ibn Saud and Abd Al-Wahhab made it such in the 18th century; and as the Saudi Ikhwan made it such in the 20th century. ISIS’ real target must be the Hijaz — the seizure of Mecca and Medina — and the legitimacy that this will confer on ISIS as the new Emirs of Arabia.

      Source: THEWORLDPOST (part 2)

King Salman, installed on January 23, 2015, is reviving the traditional conservative politics of modern Saudi Wahhabism:

“I [Robert Lacey] think Salman felt that Abdullah sacrificed too much of the conservative base [and] one factor in his becoming more conservative is to try and mend that breach […].”

It is not all political. King Salman is known to be more pious than his late brother, and was far more likely to be in the company of clerics than the business elites Abdullah forged alliances with in his 10-year push for development in the kingdom. While Salman has overseen a crackdown on both financing and recruitment by IS in Saudi, he is close to Islamist figures and groups in the kingdom.

“King Salman [has built] on his extensive contacts with various groups in the kingdom which he had forged as governor of Riyadh since 1963, including with Islamist forces. Indeed, he and the new administration that he installed very rapidly seemed to be closer to the Saudi Islamists including to those deemed part of the Muslim Brotherhood,” said [Toby] Matthiesen.

Source: International Business Times

On December 7, 2015 Sigmar Gabriel, Germany’s vice-chancellor accused Saudi Arabia of financing terrorism and spreading Wahhabist beliefs:

“Wahhabi mosques all over the world are financed by Saudi Arabia.

“Many Islamists who are a threat to public safety come from these communities in Germany.”

Source: “Independent” (UK)

Wahhabism is a legacy issue not only for Saudi Arabia, but also for the Mesopotamian Middle East.   

David L Goldman, author

How Quickly Will The Price Of Oil Climb With The Death Of The Petrodollar?

9-22-16

I wrote this article for exclusive publication on Seeking Alpha on 10-29-15 and it was intended for investors.  I based my prediction of increased oil prices on reputable oil industry insiders, but oil prices did not increase as I expected, but instead declined as predicted by Art Berman, who is cited below.  This article provides some details about the history of the petrodollar and its relationship to the inability of the US to redeem dollars for gold in the early 1970s.  It also looks forward to the impact of Russia on affairs in the Middle East.  I hope readers find some value in it.

 

First published 10-29-15

Summary

  • It’s not the risks posed by oil price fundamentals that’ll get you, it’s the demise of the petrodollar.
  • On September 30, 2015, Russia inaugurated a new geopolitical reality.
  • The major non-US oil producers have every reason to collaborate on a price rise, and sooner rather than later.

The demise of the petrodollar reflects a global geopolitical shift and the genesis of a successor to the Bretton Woods world monetary system that came to an end under Nixon in 1971. These changes transcend concerns about the fundamentals of oil market pricing and constitute a risk that investors must take into account in trading any aspect of the world oil markets.

In his speech on September 28, 2015 at the UN Vladimir Putin implied that major geopolitical changes are upon us :

However, it’s not about Russia’s ambitions, dear colleagues, but about the recognition of the fact that we can no longer tolerate the current state of affairs in the world. [emphasis added]

     SOURCE: Washington Post

The key geopolitical financial arrangement underlying Russia’s concerns is the petrodollar oil pricing scheme, inaugurated in 1973 by the US and Saudi Arabia (SA) and with the rest of OPEC in 1975. This scheme followed the US refusal in 1971 under Nixon to redeem US dollars for gold. The agreement called for the sale of SA oil only in US dollars in return for investment in western institutions of oil export sales proceeds not necessary for domestic consumption. The Carter Doctrine was proclaimed in 1980 closing whatever loops remained open: the US would provide security for Persian Gulf nations as a matter of US national security. US Treasury paper and a broad spectrum of securities as well as weapons purchases found ready buyers. A veritable military-industrial-congressional-complex dream come true: the petrodollar scheme created a global demand for dollars, fostered a ready market for US debt and securities and freed the US to print paper at will.

MANAGING THE RISK OF THE DEMISE OF THE PETRODOLLAR

The lure of the fundamental case

Oil prices have been falling for over a year from $90+ per barrel to under $50. The conventional analysis of oil prices, such as Moody’s and Barclays is that prices will not exceed $65 in 2017. Art Berman consistently argues that oil prices must stay low and go even lower.

This is based primarily on the following:

  • SA has sufficient central bank reserves and a large enough sovereign wealth fund so that it can maintain production at current prices in an effort to damage the US shale oil industry as well as Russia.
  • Low global economic growth will hold down demand for oil.
  • The implementation of the nuclear weapons accord with Iran will lead to the lifting of sanctions and headlines suggest Iran will flood the market with oil.
  • World oil supply exceeds demand such that it will be several years before demand rises sufficiently to force a rise in prices.

There are people who disagree with the idea that oil prices will stay low for years, among whom are David Demshur, CEO of Core Labs (NYSE:CLB) and Steve Kopits of Princeton Energy Advisors. Their views are based on fundamental factors like depletion rates, declining US production, lower than reported inventories and increased demand. Demshur believes US oil production will fall from 9.5mbd in 2015 to under 8.5 mbd in 2016 because there will be a decline of 50k-100k barrels per month starting in 2H 2015 and WTI will be between $70 and $80 by the end of 2015. (See Demshur here also.) Kopits believes that world inventories are not as high as reported and China’s consumption is rising.

THE WORLD ORDER OF THE 1970s IS NO LONGER RELEVANT, BUT THE BAND PLAYS ON

The world financial and geopolitical alignments of the 1970s have been left far behind. We can quantify developments today that require a reassessment of assumptions that may be driving our investment decisions.

All the premises of the petrodollar world financial and security arrangements have been superseded:

1. China has reemerged as a leading world economy.

  • It is the fourth most used trading currency.
  • It is party to currency swap arrangements around the world.
  • It has founded the Asia Infrastructure and Investment Bank which major US allies, such as England, have rushed to join.
  • It will become an IMF SDR currency within the next 2 years.

2. The BRICS nations have established SWIFT alternatives, a foreign exchange reserve pool, a development bank, Eurasian security/cooperation organizations, economic trading blocks and high-speed rail linkages across pan-Asia that will link as well to Europe.

3. As of September 30, 2015 the Carter Doctrine Persian Gulf security system assurances have been shattered by Russia’s military action in Syria.

4. The US has ceased generating wealth:  [see Deflation in the Casino]

5. Oil exporting nations now fail to generate recyclable petrodollars.

The success of the petrodollar oil pricing scheme depends on recycling of proceeds not needed for domestic use by the producing country. This scheme succeeded for a long time, but it looks like there is now a shortfall of at least $500 billion per year without a rise in oil prices:

Source: RBS Macro Credit Research, Bloomberg, Global Fire Power, Knoema

If sovereign wealth funds are added to central bank reserves the

estimate for the amount at stake referred to above could be as much as $2.5 trillion.

Source: Credit Suisse, UK City Sovereign Wealth Fund Reports, the BLOOMBERG PROFESSIONAL service

The IMF report (p. 25) of October 15, 2015 estimates most oil exporters have insufficient reserves at present oil prices to cover domestic fiscal demand more than a few years and their breakeven price for fiscal balance is much higher than at present.

Zerohedge reports the ability of the Saudis to continue purchasing US debt securities has diminished greatly:

Even if you’d assume Saudi Arabia would be able to raise $30B per year in government debt, it still has a $120B gap to cover and the only decent solution would be to start selling US debt. This could put additional pressure on the financial markets as it won’t be easy to absorb this kind of selling.

And then there’s another global debt berg: Christine Hughes of Otterwood Capital reported that global borrowing of $US 9+ trillion must be paid back by borrowers who contract business in their own currencies. Lower global economic growth diminishes borrowers’ income and they must pay back their borrowings in increasingly more expensive $US. It’s the bonfire of the margin clerks! As the US$ rises with this increased demand US exporters bear the additional burden of a higher currency.

FACTORS MILITATING TOWARD HIGHER OIL PRICES SOON

1. WORLD OIL SUPPLY & DEMAND

Except for US shale oil production, world oil supply was barely keeping up with demand. Shale oil production declines at a rate of 70% the first year and declines significantly for several years thereafter. Continued new drilling is necessary year after year as Berman and Demshur point out. It appears that with put options entered into in 2014 rolling off now the only wind at the back of the shale oil industry is low interest rates.

2. SAUDI ARABIAN HEADACHES

  • Saudi Arabia and other export countries appear to have diminishing financial endurance to maintain maximum production at present prices, as detailed above. SA produces almost nothing but oil, so unlike Russia, which is far more diversified, it has nothing to fall back on that can sustain it.
  • Saudi princes want regime change:

A senior member of Saudi Arabia’s royal family has circulated a letter expressing fear that the monarchy may collapse unless the king is urgently replaced and the position of deputy crown prince scrapped, Middle East Eye can reveal.

On 4 September, a grandson of the late King Abdulaziz Ibn Saud wrote a four-page letter calling on the royal family to hold an emergency meeting to address concerns that the House of Saud may be losing its grip on power.

“We [have] got closer and closer to the fall of the state and the loss of power,” the letter read.

. . .

It argues the need to bring back older members of the Saud dynasty by criticising “totally miscalculated” military decisions in Yemen, Syria and Iraq, claiming that these choices have “weakened the trust of our people and [incited] other peoples against us”.

. . .

The scale of the country’s problems – both militarily and financially – led to the grandson of the country’s founder writing that change at the top may be necessary to protect al-Saud’s future as rulers.

“We will not be able to stop the draining of money, the political adolescence, and the military risks unless we change the methods of decision making, even if that implied changing the king himself,” the letter read.

SOURCE: Middle East Eye

The Guardian reports

The letters in Arabic calling for the overthrow of the king have been read more than 2m times. The letters call on the 13 surviving sons of Ibn Saud – specifically the princes Talal, Turki and Ahmed bin Abdulaziz – to unite and remove the leadership in a palace coup, before choosing a new government from within the royal family.

. . .

The prince behind the letters claims to have received widespread support from both within the royal family and society at large.

3. Can the US protect the Persian Gulf nations pursuant to the Carter Doctrine? On September 28, 2015, the day of Putin’s speech at the UN (remember: “. . .we can no longer tolerate the current state of affairs in the world.”) NATO’s top commander Gen. Philip Breedlove addressed the NATO dimension of this issue:

“Anti-access/area denial, or A2/AD, is a growing problem,” Gen. Breedlove told the German Marshall Fund this afternoon, speaking just hours before Putin’s teeth-clenched meeting with President Obama on the sidelines of the UN General Assembly.

“Kaliningrad is a large platform for A2/AD capability,” Breedlove said. His subordinates Gen. Frank Gorenc and Lt. Gen. Ben Hodges have warned that Kaliningrad-based missiles reach well into Polish airspace and could shut down NATO reinforcements to the Baltics in a crisis.

“[Since] their occupation of Crimea, Russia has developed a very strong A2/AD capability in the Black Sea,” Breedlove said. “Essentially, their [anti-ship] cruise missiles range the entire Black Sea, and their air defense missiles range about 40 to 50 percent of the Black Sea.”

. . .”As we see these very capable air defense [systems] beginning to show up in Syria, we’re a little worried about another A2/AD bubble being created in the Eastern Mediterranean,” Breedlove said. [emphasis added]

This talk was two days before the Russian air strikes in Syria and ten days before the Russian cruise missle strikes on Syria were launched from the Caspian Sea. The Persian Gulf used to be an American lake, but it appears this is no longer a no-brainer. It will be interesting to see if the US brings a carrier back to the Gulf- “The Pentagon has a formal military requirement to keep at least one carrier in the gulf region at all times”– this winter.

4. Iran is unlikely to flood the world with oil nor will it work directly against Russia interests, being Iran’s most critical ally.

Iran’s Petroleum Minister addressed the first issue:

While Iran’s Petroleum Minister Bijan Zangeneh and the Russian counterpart, Alexander Novak, are discussing ways to strengthen bilateral cooperation, Iran confirmed its resolve to cooperate also with other countries, explaining that the next summit of the Gas Exporting Countries Forum will take place in Teheran on November 23.

“Russians know how to do business in Iran and we hope the visit will bear positive results,” Deputy Petroleum Minister for Commerce and International Affairs Amir-Hossein Zamaninia told Shana, the news agency linked to the Oil Ministry.

Zamaninia spoke mainly about oil, saying it aims at restoring balance in the market at 70 to 80 dollars per barrel, working together with OPEC countries.[emphasis added]

SOURCE: Natural Gas Europe

In addition, Iran has an excess of condensate that it is struggling to sell, according to Jeffrey Brown in an interview with Chris Martenson:

Well, if you look at liquids production, I think a critical issue is to separate crude oil from crude condensate, natural gas liquids and biofuels. …

But, the crucial issue, I think, to understand about what has happened after 2005 is that . . . .actual crude oil production has basically flatlined while the liquids associated with natural gas production-condensate and natural gas liquids-have continued to increase. . .

. . .

Reuters had in their article earlier this year where refiners are actually rejecting what they call these “dumbbell crudes.” . . .So, refiners are basically increasingly rejecting condensate, 50% condensate, 50% heavy crude volumes.

. . .

There are widespread reports that Iran’s got tens of millions of barrels in oil flooding offshore, but it turns out that the bulk of that is reportedly condensate, and they’re actually having difficulties getting rid of it. [emphasis added]

SOURCE: PeakProsperity

This understanding of what Iran has to sell the world is reiterated here:

Traders and company officials say Iran has little choice but to target China to buy the crude known as condensate . . .However, China as well may not be keen on taking more condensate.. . .

The National Iranian Oil Company (NIOC) has stored some 40 million to 50 million barrels of oil onboard ships…

. . .Iranian officials said last week the oil in floating storage is either fuel oil or condensate, with the latter accounting for around 30 million of the barrels.[emphasis added]

SOURCE: Reuters

With regard to Iran’s Russian ally, Iran has applied for membership in the Shanghai Cooperative Organization and will probably be admitted as a full member in 2016 now that the nuclear weapons deal has been finalized. It has also plans to join the BRICS New Development Bank. Russia’s support was crucial to Iran in making the weapons deal so it’s barely conceivable that Iran will betray Russia as it resumes its role as an unsanctioned major global energy seller. The ties between the two countries continue to grow, such as in banking.

5. OPEC and other energy exporters need higher prices as detailed above. The next OPEC meeting will be December 4, 2015 in Vienna and the financial pain for the exporters has only increased since Dalan McEndree wrote this on August 20, 2015:

The December 2015 OPEC Meeting

. . . it is possible, perhaps even likely, the Saudis will face an OPEC outsider revolt at the December 4 OPEC meeting.

The Saudis and their Gulf Arab allies would seem to have three possible approaches, should a revolt occur:

Reconciliation, as Saudi Arabia acquiesces in the wishes of OPEC’s weaker members to bring price increases forward through OPEC production cuts, Saudi Arabia bearing the brunt;

Separation, as the Saudis and their Gulf Arab allies ignore their fellow members’ entreaties and force them to wait for “market” forces to balance supply and demand; or

Divorce, as the Saudis and their Gulf Arab allies decide to exploit their financial wealth and go their own way, therefore forcing their fellow OPEC members, unable to finance their domestic oil industries, unwillingly to bear the brunt of global production cuts.

SOURCE: OILPRICE.com

6. EU energy demand will most likely be met by Russia in one way or another. Continued sanctions against Russia are problematic.

The IAE GAS 2015 Midterm Market Report summary held:

Against this backdrop, Europe’s gas import dependency will continue to increase. … By 2020, OECD Europe gas production is expected to stand 25% below its 2010 level. . . . European gas import requirements are set to increase by almost one-third between 2014 and 2020. . . . Russian gas is not set to be meaningfully displaced. [emphasis added]

The EU’s energy needs appear to be inelastic, so it will be very interested in seeing established some semblance of stability in energy markets. The Nord Stream II deal seems to confirm this, but it isn’t clear the Western partners are able to follow through. This also means the EU will be looking to find a way to end the sanctions it imposed against its own trade with Russia which are a very serious burden on European trade as well as on Russia’s.

7. There will be major future demand for commodities by the Eurasian market as China’s One Belt One Road/Silk Road projects get up to speed. The amounts involved are eye catching (see here, here and here) and explain why England was amongst the founding members of the Asia Infrastructure Investment Bank. These projects tying Eurasia together with Europe are China and Russia’s approach to Great Game geopolitics. The ramifications for energy demand in Eurasia are obvious.

THE FACTORS CITED ABOVE ARE NOW NEAR TERM ENERGY INVESTMENT RISKS

BACK TO THE FUTURE

The current crisis began on September 30, 2015.

Martin Armstrong of Armstrong Economics is either very smart, very lucky or both when his prediction of a major move in his economic confidence model called for a massive change on September 30 or October 1, 2015:

The unleashing of Russian firepower in Syria in support of the Syrian government came precisely on the day of the Economic Confidence Model. I have come to learn from observing this model that major world events, whatever the major focus may be, appear to line up with the ECM.

The recent financialization of global markets traces its roots back to 1971 with the flow of petrodollars in the post-Bretton Woods world following the inability of the US to honor its commitment to redeem gold at $35/oz., described by Benjamin Cohen in the article linked in the summary at the top of page one above:

The Bretton Woods system had come to rely on U.S. deficits to avert a world liquidity shortage. . . . The resulting erosion of America’s net reserve position was bound in time to undermine confidence in the dollar’s continued covertibility. In effect, therefore, states found themselves caught on the horns of a dilemma. . . the *Triffin dilemma.To forestall speculation against the dollar, U.S. deficits would have to cease. But this would confront the system with a liquidity problem. To forestall the liquidity problem, U.S. deficits would have to continue. [emphasis added]

US Treasury Secretary John Connally is reported to have said just before Nixon closed the gold window: “the dollar is our currency but your problem.” (Wikipedia)

A generation has passed since gold acted as a brake on the printing of fiat currency. The US liquidity/gold problem cited above was solved in 1971 when the US refused to redeem gold at any price, the petrodollar scheme was launched in 1973 and the US formalized the protection racket called the Carter Doctrine in 1980. The actions taken beginning in 1971 presaged what may now be the end of the American century that began around 1898 with the Spanish-American War under McKinley.  The pace of the petrodollar demise runs neck and neck with the need to address global financial fiscal problems of not only the oil exporting nations but also with the need to relieve the borrowers of US $9 trillion in debt who trade in currencies falling against the US dollar.  A higher oil price and a lower US dollar versus other currencies would help address these problems. Russia has incentives and the means to lead such a course:
  • it has the demonstrated military capacity
  • the leverage of a major oil/gas producer
  • a growing number of allies and fellow travelers (Iran, Iraq, Syria, and now Jordan) in the Middle East two of which are also oil exporters
  • a suite of BRICS financial institutions that form a nucleus for a new world trading order
  • the fear of terrorism spreading into the Caucasus and Central Asian regions abutting its borders
  • it is in a recession due to western trade sanctions accompanied by economic blowback on the sanctioning countries
  • Russia now seeks to eliminate the $US as the world trade currency

The Saudis also have the incentive to address a number of very serious problems:

  • The princes perceive there is sand in the gears of their kingdom
  • Saudi finances deteriorate by the day
  • The US Persian Gulf security shield is under challenge
  • The end of sanctions on Iran are near pursuant to the nuclear weapons deal
  • The Chinese have turned to Russia as their top supplier for oil

Under the circumstances, it should not come as a great surprise that the Saudis are finding reasons to talk to the Russians:

On 11 October, a meeting between Saudi Defence Minister Prince Salman and Vladimir Putin took place for the second time in 4 months, this time in Sochi.

. . .

Another indication suggesting a shift away from Washington appeared three days after the Sochi talks between Putin and Prince Salman.  Alexander Novak, the Russian Energy Minister, announced that a November meeting to discuss the global oil market with Saudi and Iranian representatives is being planned.

“The meeting together with Saudi Arabia and Iran will take place in November,” according to Novak.

. . .

These Saudi and Arab OPEC-country overtures, toward Russia and potentially also Iran, open the possibility for their participation in the largest global infrastructure project, namely China’s “One Belt, One Road” initiative for Eurasia, in which the Russian Federation and Eurasian Economic Union member states (Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia) are already fully integrated.[emphasis added]

SOURCE: Russian Insider

There are enough countries with sufficient fundamental national interests tied intimately to the price of oil and burdened by and enmeshed in the highly debt-laden global currency system, which is the legacy of the petrodollar and US domination, which have the incentive to do the unthinkable:

  • raise the price of oil soon (December 4?)
  • accept currencies other than the US dollar for oil
  • signal their intention to cease subordinating their vital interests to those of the US out of fear of US military and financial power
  • make common cause with their enemies

THE PETRODOLLAR COMPLEX STRIKES BACK

Parallel to all these developments are the negotiations to conclude a series of trade deals, e.g., the TTP, TTIT, TISA, AEC and the RCEP. Pepe Escobar on OEN addresses all but TTIT and TISA here. Eric Zuesse describes TTP and TTIT as assaults on national sovereignty:

These ‘trade’ deals are set up, far more fundamentally, to transfer the power over the decisions concerning such matters, away from democratically accountable national governments, to, instead, panels of ‘arbitrators’ consisting of three lawyers, each one of whom is appointed by international corporations . . .

The system in these ‘trade’ deals does not allow nations to sue international corporations, but it does allow international corporations to sue any signatory nation . . . that has applied or instituted a standard higher than the international treaty allows.

. . .

. . .what’s really at issue here is a transfer from national democratic sovereignty to, instead, international-corporate sovereignty, in which international corporations will have locked-in an international dictatorial control over a large portion of what it is that national governments do, and necessarily must do, in order to serve the public good. [emphasis added]

SOURCE: RINF

The petrodollar complex seeks to secure its future by subordinating national sovereignty to global corporate capital. Remember what Putin said at the UN:

However, it’s not about Russia’s ambitions, dear colleagues, but about the recognition of the fact that we can no longer tolerate the current state of affairs in the world.

This statement was largely in the context of adhering to the UN Charter and respecting the sovereignty of nations:

What is the state sovereignty, after all, that has been mentioned by our colleagues here? It is basically about freedom and the right to choose freely one’s own future for every person, nation and state. . . .

. . . We are all different, and we should respect that. No one has to conform to a single development model that someone has once and for all recognized as the only right one. [emphasis added]

SOURCE: Washington Post

The risk of a steep rise in oil prices in the near term is rising. There is, however, another risk that can’t be measured: the petrodollar complex may leave with a bang and not with a whimper.

 

A Teutonic Paneuropa? Will Angela Merkel Jump the Shark?

I wrote the following article in early March 2016.  Since then Angela Merkel’s political fortunes have declined precipitously.  John Helmer writes in great detail on Russian issues at Dances With Bears.  He has demonstrated an ability to drill deeply into whatever he focuses on. Several days ago he wrote:

HELLO RAPALLO! THE INEVITABILITY OF THE NEW GERMAN TREATY ON ECONOMIC COOPERATION WITH RUSSIA

Secret negotiations have been under way for some time between high German and Russian officials, to which Chancellor Angela Merkel has been excluded. Warned by US Assistant Secretary of State Victoria Nuland, and in a recent coded communication from outgoing President Barack Obama that she must act to save her authority, and enforce European Union sanctions against Russia, Merkel has also received an ultimatum from her cabinet and party. This watruth of the matters delivered in the form of a page torn out of an Old German bible in which a large black spot had been inked. Either she step aside in secret, Merkel understood the signal, or she will be forced to resign in public.

. . .

Excerpts of the new treaty, which has been drafted by ministry-level officials Merkel has been unable to stop, have been leaked by sources close to the two sides in the secret talks.

I can’t vouch for the truth of Helmer’s report, and it may be just an instance of confirmation bias on my part, but something about it intrigues me so I’m prefacing my blog from last March on Merkel with it.

A Teutonic Paneuropa? Will Angela Merkel Jump the Shark?

March 3, 2016

David L Goldman

  • Angela Merkel’s ratings are way down in Germany
  • Germany faces banking, refugee, foreign policy and economic growth crises
  • The European Central Bank is looking for more German banking/sovereign debt sharing
  • Germany is looking to Russia for more gas via Nord Stream 2
  • The German Constitutional Court will rule on a case bearing on ECB debt sharing that would fall on Germany

Angela Merkel is not only the German chancellor, but is the ruling politician in the European Union. She has controlled through her party, the Christian Democratic Union (CDU), the appointment or election of Jean-Claude Juncker, the president of the EU Commission (enforces all EU legislation), Donald Tusk, the president of the European Council (head of state), Martin Schultz, the president of the European parliament and Elmar Brok, the chairman of the EU parliament’s Committee on Foreign Affairs.  (See Doctorow at min 6) The latter 2 men are members of the German CDU.

There’s a German election coming up in late 2017.  Maybe it’s her time to exercise all her political acumen to catch her opponents by surprise and to resurrect her popularity in Germany.  When ratings decline it’s time to do something very different to get and keep attention . . .and power.  In US televison land this has become known as jump the  shark: do something utterly outlandish to save the show.  Merkel’s Europe faces banking, refugee, economic and foreign policy challenges that have geopolitical ramifications.  Merkel has taken firm stands on these issues that are increasingly unpopular.  She is capable of juggling the complexity of what faces her and has proven in the past that she is the smartest politician in Germany.  She is also enough of a power-loving opportunist for one to believe she might reconsider her positions and change course.

This article addresses whether Angela Merkel can address Germany’s difficulties at a time when her ratings are declining:

In the Infratest Dimap poll for public broadcaster ARD and newspaper Die Welt, released on Wednesday night, 46 percent of respondents said they were satisfied with Merkel’s performance — down from 75 percent less than a year ago, in April 2015.

Source: Politico 2-4-16

A Portrait of Angela Merkel

Angela Merkel the politician has been seriously underestimated.  That opinion has ended a number of German political careers.  The following are quotes from a 12-1-14 New Yorker portrait of her: The Quiet German:

According to Karl Feldmeyer, the political correspondent for the Frankfurter Allgemeine Zeitung, what drove Merkel was “her perfect instinct for power, which, for me, is the main characteristic of this politician.”

John Kornblum, a former U.S. Ambassador to Germany, who still lives in Berlin, said, “If you cross her, you end up dead. There’s nothing cushy about her. There’s a whole list of alpha males who thought they would get her out of the way, and they’re all now in other walks of life.”

Critics and supporters alike describe her as a gifted tactician without a larger vision. Kornblum, the former Ambassador, once asked a Merkel adviser about her long-term view. “The Chancellor’s long-term view is about two weeks,” the adviser replied. The pejorative most often used against her is “opportunist.”

“People say there’s no project, there’s no idea,” the senior official told me. “It’s just a zigzag of smart moves for nine years.” But, he added, “She would say that the times are not conducive to great visions.”

Merkel, at sixty, is the most successful politician in modern German history. Her popularity floats around seventy-five per cent—unheard of in an era of resentment toward elected leaders.

A political consensus founded on economic success, with a complacent citizenry, a compliant press, and a vastly popular leader who rarely deviates from public opinion—Merkel’s Germany is reminiscent of Eisenhower’s America.

Source: The New Yorker

Germany’s shark infested political seascape

 

 

Refugees and Teutonic Europe

I was inspired to put this article together by a series of articles by Adam Whitehead devoted to both the European refugee and the European banking/sovereign debt issues. The chief players mentioned are:

Jeroen Dijsselbloem, Minister of Finance, Netherlands; President, Eurogroup, euro currency area finance ministers

Jean-Claude Juncker, President, European Commission

Dr. Jens Weidmann, President of the Deutsche Bundesbank; Member of the Governing Council of the European Central Bank; Governor of the International Monetary Fund for Germany; Chairman of the Board of Directors of the Bank for International Settlements

Wolfgang Schaeuble, German Finance Minister

Mario Draghi, President of the European Central Bank

The mini-Schengen zone

Very briefly, in response to the refugee issue there has been a very serious discussion going on for the past several months about the creation of a mini-Schengen Zone, named after an agreement of the same name that abolished passport and border controls amongst 26 European countries, as summarized here on 12-6-15 by Whitehead:  

Under Dijsselbloem’s plan, a new mini-Schengen Zone comprised of the trusted nations of Sweden, Austria, Belgium and Germany may need to be formed. This new “Core European” gang of four could loosely be called “Teutonic Europe” [Whitehead’s term]. Its formation therefore implies the creation of a parallel economic and political zone in which the Euro is used. By logical extension, other nations will then have to apply to join it; although the official criteria for membership as yet remain unknown.

[11-30-15, German chancellor Angela Merkel held a surprise mini-summit in Brussels on Sunday with seven refugee-positive EU countries aiming to create a “coalition of the willing”. Sweden, Finland, Austria, the Netherlands, Luxembourg, Belgium and Greece were present at the talks, held two hours before Sunday’s summit with Turkey]

https://euobserver.com/tickers/131303

Building on Dijsselbloem’s platform, Angela Merkel extended membership of the “Teutonic Zone” to the nine nations who have accepted the most immigrants from Syria. The “Teutonic Zone” therefore has both economic and political drivers of unification, based on current conditions.. . .Its first tactical political step will be the fast tracking of an immigration deal with Turkey. This will then serve as the platform for the creation of all foreign policy for the new Eurozone. As the wider Eurozone disintegrates, there is therefore a substitute ready to take its place. [emphasis added]

Source: Seeking Alpha

Mutualizing EU bank deposit insurance

On 12-20-15, Whitehead connects the refugee issue via a new Schengen zone consolidation to the intra-European fight over a proposal to mutualize bank deposit insurance, i.e., two transitions for the price of one?

[The European Central Bank] . . .has degenerated into a platform, through which differing factions fight for control of the monetary system and governing policy of the Eurozone, at a time when the pressure for it to split up has become extreme. The previous report [Whitehead’s of 12-6-15 above]. . . observed Jeroen Dijsselbloem’s proposal for what was termed “Teutonic Europe” to replace the current degenerating system. The latest revelations of skulduggery, in the corridors of power at the ECB, provide further credibility to this thesis of a “Teutonic Europe” alternative to the current status quo.

. . .

The ECB, which owns Spanish sovereign debt, must be getting very nervous. Presumably this is one reason why the ECB is so keen on mutualising the debts and deposits of Eurozone nations. The ECB is now facing a systemic failure which will translate into its own insolvency and forced liquidation.

. . .

Germany on the other hand, with trade and budget surpluses, is ready and able to foreclose on the ECB and the whole Eurozone by converting its debt claims on these counterparties into political equity. When faced with this recapitalization, some countries will no doubt walk away from the Eurozone, leaving those remaining in something similar to “Paneuropa” [one united European state].

. . .

Jens Weidmann signalled that Germany is now turning its intentions and capabilities in this direction. He was unapologetic for the German current account surplus, which now stands at 8% of GDP. In fact he blamed this number on the falling oil price and the weakness of the Euro. . . . Germany’s surplus, in his opinion, is not as dangerous as other nations’ reciprocal deficits. Germany is therefore not the problem. Indeed it is the solution, if only other Eurozone nations would follow its example of economic management. [emphasis added]

Source: Seeking Alpha

Whitehead notes on 2-4-16 that the debate regarding the Eurozone monetary system has now expanded into a contest between Mario Draghi et al and those who have apparently tied their political future and their vision of Europe to their commitment to German monetary models:

Italian Prime Minister Renzi transformed the country’s position on its banking crisis into a sovereign debt crisis issue. By so doing, he opened up a can of worms, inside of which Jean-Claude Juncker could be seen squirming with embarrassment. Juncker has been recently noticed booking his seat at the “Paneuropa” Last Supper event for the Eurozone. He hopes to enjoy life in the hereafter of a new Eurozone run more closely along the German lines of thinking. Matteo Renzi reminded Juncker that his position in the here and now is predicated upon his ability to mutualise bank deposit insurance and sovereign debt across the Eurozone.

In a joint press conference with Angela Merkel, Renzi opined thatwe are asking that the rules are applied without any misunderstandings over the fact that for us, flexibility was a necessary part of the accord that led to the election of Jean Claude Juncker,” and also that “I have not changed my mind on flexibility, I hope that Jean Claude Juncker has not changed his mind.”

Juncker has been reminded that his political survival is tied to the issues of flexibility and mutualisation. This is a signal of the deal-breaker that finally splits the Eurozone. Germany sees combined flexibility and mutualisation as essentially sanctioning the monetization of state deficits in one nation by another. This move conflicts directly with the Stability Pact rules that Germany wishes all Eurozone nations to adhere to.

. . .

Jens Weidmann’s behaviour highlights the growing trend amongst ECB Governing Council members to talk their own national central bank’s book when it comes to opining in general on Eurozone matters. This trend underlies the larger systemic degenerating trend towards partisanship along national sovereign lines within ECB policy making in general.[emphasis added]

Source: Seeking Alpha

This is truly a very very brief summary of Adam Whitehead’s work. The refugee and monetary/banking situations change daily, what with the problems of Germany’s Deutsche Bank making headlines of late.  See here and here.  I urge those of you with a bent for banking esoterica and who are devoted to the arcana of European monetary frolic and detours to read Whitehead’s articles.  The reason I have cited all the above is to give an hint of how far-reaching the results of addressing just the refugee and monetary issues could be.  Two more things to be aware of: in this 2-12-16 article from Germany’s Spiegel Online, “Turkish-German Pact: EU Split by Merkel’s Refugee Plan,” there is no mention of a mini-Schengen zone.  Too sensitive to trot out to a German audience? In addition, there is another player yet to weigh in on the monetary issues above, the German Constitutional Court, but I’ll get to that below.

 

GERMANY: THE EXPORT NATION PAR EXCELLANCE

Source: World Bank via Malden Economics

Germany is the leading export nation in the world as a percent of GDP. George Friedman sums up the problem he sees facing Germany quite succinctly in this short (5:43 min) video:  

The real problem in Europe and the stress that people are feeling is not simply immigration. . . .southern Europe has unemployment rates of 20%, some 25%.  This is Spain. This is Italy.  This is the Balkans.  This is all of Mediterranean Europe.  These unemployment rates are the same rates that the US had in the Great Depression.  . . .[Immigration] is the biggest problem [northern Europe] thinks they’re facing. But there’s a bigger one.  [There is] a crisis of exports . . .[Germany] derives 50% of its GDP from exports.  It can’t expand those exports. . .The biggest problem in Europe now is Germany. An extraordinarily vulnerable, insecure country. It knows it is living in a bubble.  On top of that you put the immigrants and you’ve got an explosive situation.

. . .

This is a country that simply can’t sustain this kind of export rate at this level of its economy. . . It’s going to wind up in a financial crisis and an economic crisis of the first order. . . . Germany has so far dodged all the bullits being fired at it.  That can’t go on forever.  

Source: Business Insider 1-14-16

What makes this export “dependency” even more compelling are the sanctions imposed on Russia by the EU pursuant to the Ukrainian conflict and Russia’s purported responsibility for it.

These sanctions are hitting German exporters hard:

Sanction Spiral Successful: German Exports to Russia Plunge

by Wolf Richter • July 29, 2014

The German economy lives and dies by its exports. While Russia isn’t Germany’s largest trading partner, not anywhere near, it is important. In 2013, German exports to Russia had already dropped over 5% to €36.1 billion, triggered by the economic downturn in Russia. So the 17% plunge this year on top of last year’s drop would amount to a 22% swoon from the halcyon days of 2012. And now there are worries about the 300,000 jobs in Germany that depend on this trade with Russia.

“The German-Russian economic relations are currently heavily burdened,” Volker Treier, foreign trade chief of the DIHK, told the Handelsblatt. Many German companies in Russia are fretting that Russian companies are going to walk away from the relationship. “In part that has already happened,” he said. “Russian customers fear evidently that German companies would be unable to fulfill their delivery and maintenance obligations because of the threat of economic sanctions.” This fear is particularly widespread in the mechanical engineering sector, Germany’s forte.

Source: Wolf Street

German Business Sharply Protests EU Sanctions Against Russia

Germany has already lost 6.5 billion euros in trade in 2014, and is expected to lose another 8.5 billion in 2015 : 12-17-15

Original Source: Deutshe Wirtschafts Nachrichten 12-17-15

Senior German Party Leader Seehofer Questions Sanctions on Russia

The deputy chairman of the Christian Social Union, the top party in Bavaria and a cornerstone of Chancellor Angela Merkel’s support, says it’s time to talk about ending the sanctions [emphasis added]

Original Source: Die Welt 12-18-15

German Farmers Association Demands End to Sanctions on Russia

German farmers have lost 1 billion Euros so far – whether German agriculture can even win back the market it has lost in Russia as a result of sanctions is an open question

Original Source: Deutshe Wirtschafts Nachrichten 1-12-16

Die Welt reported that as of June 2015 the Austrian Institute of Economic Research (Wifo) estimated the cost of these sanctions to Europe would run to “more than two million jobs and 100 billion euros in added value at risk.”   Germany was estimated to be facing the immediate (unmittelbar) loss of 175,00 jobs and 290,000 more if

 


In Deutschland sind besonders viele Arbeitsplätze bedroht

Source: Infographics World

sanctions continued (bei anhaltenden Sanctionen).

Often overlooked in the maximization of exports by Germany is the fact that it has exploited its powerful economic engine to “colonize” the former E. European satellites as  sources of manufacturing and cheap labor. The underlying concept is called Mitteleuropa.  In fact this is an idea that figured in the Nazi plans for the Third Reich.  These plans and especially the Nazi legal structures intended for imposition on Europe are detailed by Joseph P. Farrell in his “The Third Way: The Nazi International, European Union, and Corporate Fascism.” Frenchman Emmanuel Todd offered some very useful analysis of this as well:

Germany holds the European continent by Emmanuel Todd (3) 9-8-14

But fundamentally, the new German system is based on the annexation of workforces. First were those used in Poland, the Czech Republic, Hungary, etc. The Germans reorganized their industrial system using their cheap labor. The active population of Ukraine of 45 million inhabitants, with its good level of education inherited from the Soviet era, would be an outstanding decision for Germany, the possibility of a dominant Germany for a long time, and most importantly, with his empire, immediately passing actual economic power over the United States. [Poor] Brzezinski !

Source: Les Crises.fr

Germany’s fast hold on the european continent, by Emmanuel Todd 11-16-14

ET: The recent German power built itself up by putting to capitalist work populations which were formerly communist. This may be a thing of which the Germans themselves are not enough aware of, and maybe that this could be their true fragility: the dynamic of the German economy is not only German. Part of the success of our German neighbours stems from the fact that the Communists were much interested in education. They left behind them, not only obsolete industrial systems, but also populations that were remarkably well educated.

But it must be acknowledged that Germany has substituted itself to Russia as the controlling power in Eastern Europe and that it has succeeded in turning this into a strength. Russia, by contrast, had been weakened by its control over the popular démocracies, as the military cost was not compensated for by economic gain. Thanks to the United States, the cost of military control is, for Germany, close to zero.

Source: Les Crises.fr

For a more comprehensive take on Todd’s views see the article linked below and in this case, do read the comments following it:

Is Berlin Once Again Set On Hegemony in Eastern Europe?

Notable historian and commentator says that while careful not to challenge the US Berlin is using the EU project to transform countries on EU’s periphery into satellites of Germany

Source: Russian Insider 5-11-15

See also McKinsey’s 12/13:    “A new dawn: Reigniting growth in Central and Eastern Europe”

 

GERMANY: NATURAL GAS: NORD STREAM 2: PUTTING THE ENERGY PEDAL TO THE METAL

The second phase of the Nord Stream natural gas pipeline from Russia to Germany, paralleling Nord Stream 1, which supplies Germany with 30+% of its gas, appears to be picking up momentum in spite of what was perceived as Nord Stream 2 inconsistency with the EU’s Third energy package, the same alleged inconsistencies opponents of the South Stream natural gas pipeline relied on to kill that project.

The EU has prevented a project to bring more Russian gas to Southeastern Europe, namely the now defunct “South Stream”, but apparently nothing prevents Germany from helping Russia carry out its project to bypass Ukraine [emphasis added]

Source: EurActiv.com. 9-4-15

Source: Map of Nord Stream 1 and 2, plus planned extensions. [Nord Stream website]

Statements coming out of the December 2015 EU energy summit from European Council’s President Donald Tusk might lead us to believe that Nord Stream 2 is unlikely to be built:

European leaders convened [sic] that any new infrastructure – Nord Stream 2 included – has to comply with European laws and with the objectives presented in the Energy Union, European Council’s President Donald Tusk said on Friday after the meeting.

“We discussed the conditions that need to be met by major energy infrastructure projects. What we have agreed is that any new infrastructure should be fully in line with Energy Union objectives, such as reduction of energy dependency and diversification of suppliers, sources and routes” he said in a statement.

Presenting the outcome of the EU summit in Brussels, Tusk explained that the projects can stumble upon political, legal or financial hurdles.

“All projects have to comply with all EU laws, including the third Energy Package. This is a clear condition for receiving support from the EU institutions or any Member State – be it political, legal or financial.”

Tusk explicitly mentioned the Nord Stream 2, saying it does not meet EU energy rules on supply diversification. He also added that the pipeline extension would undermine Ukraine’s role as a gas transit country. [emphasis added]

Source: Natural Gas Europe 12-18-15

But from the statements made since that meeting by Austria and Italy indications are that (t)he ‘elephant’ at the EU summit  [the issue of Nord Stream 2] will turn out to have been Angela Merkel and that President Tusk didn’t get the interoffice memo from German Vice-Chancellor Sigmar Gabriel: “German authorities should have the final say in all legal issues.” The Germans expect the Russians to be cooperative, so not to worry.  If built, Germany will collect transit fees for gas that flows through and beyond it.  This is likely to be billions of euros.

 

The German Constitutional Court Case

In his 2-4-16 article, Adam Whitehead pointed out that the German Constitutional Court will be hearing a set of cases that reprise an issue that could determine the future of efforts by proponents of debt mutualization in the EU.  This means that Germany could become liable for even more of the debts run up by the other EU nations. Think Italy.  Think Spain.

Germany’s top court next month will rehear five lawsuits alleging that the country should oppose the European Central Bank’s [ECB] 2012 bond-buying program even after European Union judges last year cleared it with minor strings attached.

The Federal Constitutional Court, which will have to make a final ruling in the cases after receiving guidelines from the European Court of Justice, will rehear the lawsuits Feb. 16, the tribunal said in a statement Friday. The German judges will address whether the ECJ’s backing of the Outright Monetary Transactions [OMT] program [ECB purchases in the secondary sovereign bond market of other EU country sovereign debt] and the potential action by the ECB are in line with German constitutional principles.

The hearing is the next step in a long national dispute over the OMT, a program that was never put into action. The German court first heard the case in 2013. In early 2014, the judges sent it to the European Union’s highest tribunal adding a list of demands to curb the program. The Karlsruhe-based court will now look at the guidelines it received and test them under with the national constitution’s democracy principles.

The ECB announced details of the OMT plan in September 2012, as bets multiplied that the euro area would break apart, and after its president Mario Draghi promised to do “whatever it takes” to save the currency. The calming of financial markets produced by the still-untapped OMT program helped the euro area emerge from its longest-ever recession. [emphasis added]

Source: Bloomberg Business 1-15-16

Since the hearing for 2-16-16 was scheduled, the Court issued a ruling on 1-26-16 in another case that has negative implications for the quantitative easing sought by Mario Draghi, the EC Bank president, that the Outright Monetary Transactions program would represent.

Germany’s top court used a ruling in an extradition case to drop hints that it is willing to step in when there are fundamental conflicts between European Union law and the country’s constitution, weeks before it hears a case over the European Central Bank’s bond-buying program.

. . . In the document, the judges cited the argument that the court may declare EU acts inapplicable in Germany if they transgress powers granted under the bloc’s treaties and violate basic principles of the country’s constitution.

Coming three weeks before the court hears a case against the ECB’s Outright Monetary Transactions program, the decision may signal that the judges are sticking to the idea that German constitutional standards can trump EU acts. While the OMT program was cleared by the European Court of Justice last year with minor strings attached, the German judges will hear more arguments in the case. They had never ruled against any EU action, usually relying on the “EU-friendliness” of the German constitution. [emphasis added]

Source: Bloomberg Business 1-26-16

This case constitutes an opportunity to advance the “Teutonic Paneuropa” concepts mooted above: a plausible rationalization–if the Court rules that the German constitution forbids this type of QE [quantitative easing]–for those who want to restructure EU Schengen zone rules, refugee policies, energy policies, economic sanctions and monetary policies on a grand scale. Adherents of restructuring of EU institutions could claim they have no choice but to radically restructure the EU and consider an even more German-centric entity. To split the EU into northern and southern zones and abandon the biggest sovereign debtors to their fate. Without Germany footing any more debts.

On 2-8-16 two of Europe’s leading bankers, Jens Weidmann, President of the Deutsche Bundesbank; and François Villeroy de Galhau, Governor of the Bank of France, have proposed a sharing of sovereignty amongst 19 European countries concurrent with the creation of  a single EU treasury.  That would be a radical restructuring of the EU.

 

Will Angela Merkel jump the shark ?

She appears to me to be the only politician in Europe who could muster the intellect, political acumen and opportunism to put on the skis and make the jump.  But.  She’s not a person of vision and has the burden of some serious personal biases.  Recall from above:

Critics and supporters alike describe her as a gifted tactician without a larger vision. Kornblum, the former Ambassador, once asked a Merkel adviser about her long-term view. “The Chancellor’s long-term view is about two weeks,“ the adviser replied.

A strong visionary leader(s) could lead the way to solve the German export issue by tackling the sanctions against Russia, the refugee issue by reconstituting the Schengen zone regime with a view to realistic internal capacity and security issues and shield Germany from further intra-EU sovereign debt issues while providing the fiscal space to rescue Deutsche Bank, among others.  Relations with Russia figure very large and that is the geopolitical elephant in this room.  Russia has the resources to make a much closer German-Russian relationship one of the most powerful economic combinations in the world.  German leaders in the past have advocated that. It would give Germany the ability to throw off US domination.  The Russians understand the need for a multi-polar world: Russian Foreign Minister Lavrov recently alluded to the possibilty of a permanent seat on the UN Security Council for Japan:

We’re interested in close and friendly relations with Japan.

. . .

After all, we are not asking for something exorbitant. We want only one thing from Japan – to say that it is committed to the UN Charter like all other countries that signed and ratified it, in all of its clauses, including Article 107 that says that the results of WWII are not subject to revision. I don’t think that these demands are too much. Japan has ratified this document.

. . .

To fulfil the agreement of our leaders and develop bilateral relations on an entirely new level across the board, including international activities, we would like to cooperate more closely in foreign policy affairs and see a more independent Japan, all the more so since it hopes to become a permanent member of the UN Security Council. We understand this desire. We’d like those countries that are striving to receive permanent membership in the UN Security Council to bring added value and an additional element of balance in their positions. When a country takes the same position as the United States, it doesn’t contribute much to the political process or adjust the balance in the drafting of decisions. In principle, we would like to see every country (President Putin spoke about this in detail as regards the European Union) to be independent in the world arena and be guided by its own national interests. [emphasis added]

Source: Sergey Lavrov’s remarks and answers to media questions at a news conference on Russia’s diplomacy performance in 2015, Moscow, January 26, 2016

No doubt Germany would like a seat at that table.  Is Moscow worth a mass (compromising on a principle that seems essential for something far more important)?

Angela Merkel came to power in a uni-polar geopolitical world .  What’s more, she became the most successful German political leader in generations at a time and in a country that did not foster female ambitions.  If she were to consider jumping the shark, she’d need to reconsider those parts of her biography that are no longer serviceful for Germany:

The two world leaders with whom Merkel has her most important and complex relationships are Obama, who has won her reluctant respect, and Putin, who has earned her deep distrust.

After Putin’s speech at the Bundestag, Merkel told a colleague, “This is typical K.G.B. talk. Never trust this guy.”

[After Putin’s dog frightened Merkel during a visit with Putin at his residence], Merkel interpreted Putin’s behavior. “I understand why he has to do this—to prove he’s a man,” . . . “He’s afraid of his own weakness. Russia has nothing, no successful politics or economy. All they have is this [macho behavior].”

Soon after the annexation of Crimea, Merkel reportedly told Obama   that Putin was living “in another world.” She set about bringing him back to reality.

           Source: The New Yorker 12-1-14

Putin is the leading actor in today’s geopolitical theater and if Merkel still thinks she can treat him as if he is merely a macho fool she’s definitely not the leader who will achieve for Germany conceivably the status it deserves.

Will Angela Merkel jump the shark ? I don’t think so. Will she overcome her career long habit of waiting to determine if the political winds favor her ability to hold and exercise power? Probably not.  But, make no mistake about it: this is only a brief summary of the challenges facing Germany and the issues I’ve covered would be daunting for any leader at any time in history.

And these are very big skis to wear.