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De–dollarization of the BRICS

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What might be behind the well-orchestrated attack on leaders of the BRICS countries?

Gold is one of the most fascinating of all rare metals. Throughout all history it has been given a special, at times sacred or spiritual value, since six thousand years ago when the Egyptian Pharoahs’ tombs were filled with it to accompany the dead on their journey.

In times of world financial crisis as in the 1930’s, gold is preferred by central banks and ordinary citizens as a store of value when paper money loses value.

We are approaching another of those times when the accumulated paper debt of the dollar system is debasing the worth of paper dollars. What’s highly significant in this light is to see which central banks are buying all the gold they can get.

The dollar today is no longer backed by gold. That has been so since Nixon unilaterally abrogated the 1944 Bretton Woods Treaty and took the dollar off its statutory gold backing to float free in August, 1971. He did so at the insistence of then Under Treasury Secretary Paul Volcker and Volcker’s patron, David Rockefeller at Chase Manhattan Bank.

Nixon took that desperate measure, simply said, because the Federal Reserve vaults of reserve gold were disappearing as France, Germany and other trading partners of the United States demanded gold in exchange for their accumulated trade dollars, as was allowed under the Bretton Woods rules.

Since 1971, with no gold backing it, other than the carefully-guarded fiction that the Fed still has the world’s largest stock of gold reserve in its deep vaults, alleged by the Fed to exceed 8,000 tons, the fiat dollars in world circulation have expanded without limit.

This is the source of the Great Inflation the world economy has undergone over the past forty five years, as dollars in circulation have expanded exponentially by some 2,500% since 1970. The confidence in holding dollars, still the world’s leading reserve currency, has been maintained by Washington through various tricks and deceptions.

After the oil shock of October, 1973 Secretary of State Henry Kissinger spoke of a “petrodollar.” The dollar value was backed not by gold but by oil, everyone’s oil.

The price of oil had been manipulated by Kissinger and others in 1973, as I detail in my Gods of Money book, to increase by 400% in a matter of months, forcing Germany, France, Latin America and much of the world to buy dollars.

Washington made certain as well in 1975, when Germany, Japan and other nations tried to buy OPEC oil in their own national currencies, that Saudi Arabia and OPEC countries would accept only dollars for their black gold, the oil.

Since September, 2014 the world dollar price of oil has collapsed. It has gone from levels of $103 a barrel down to close to $30 today. That’s a collapse of 70% in demand for dollars for the world’s largest commodity measured in dollars.

In this political and financial context, the central banks of Russia and China are buying gold for their central bank reserves at a fever pace.

Not only that, the Peoples’ Bank of China recently announced it has abandoned its peg to the US dollar and diversify into a basket of currencies led by the Euro. However the moves of Russia and China central banks to gold are far more strategic.

Russia’s heart of gold

While all eyes are on the oil price and the ruble to dollar rate, the Central Bank of Russia has quietly been buying huge volumes of gold over the past year.

In January, 2016, the latest data available, the Russian Central Bank again bought 22 tons of gold, around $800 million at current exchange rates, that, amidst US and EU financial sanctions and low oil prices. It was the eleventh month in a row they bought large gold volumes.

For 2015 Russia added a record 208 tons of gold to her reserves compared with 172 tons for 2014. Russia now has 1,437 tonnes of gold in reserve, the sixth largest of any nation according to the World Gold Council in London.

Only USA, Germany, Italy, France and China central banks hold a larger tonnage of gold reserves.

Notably also, the Russian central bank has been selling its holdings of US Treasury debt to buy the gold, de facto de-dollarizing, a sensible move as the dollar is waging de facto currency war against the ruble. (As of December, 2015, Russia held $92 billion in US Treasury Bonds down from $132 billion in January 2014.)

More significantly, after the Russian Central Bank Governor Elvira Nabiullina declared in May 2015 that she saw no need to buy all domestic gold production as the bank’s gold needs could easily be satisfied on the open market internationally, something that would drain ruble reserves, there has been an apparent about face.

The Central Bank of Russia is now buying all domestic Russian gold output. Only after that is exhausted in terms of meeting their monthly targets does she import. Nabiullina stated recently, “We believe it is necessary in terms of creating additional financial cushion for the state in the face of such externaluncertainties.”

That’s very significant as Russia, whose central bank gold reserves were robbed during the Yeltsin years in the early 1990, has grown to become the world’s second largest gold mining country after China. It’s a major support to her gold mining industry and to the ruble.

China and Kazakhstan too

Only slightly smaller volumes of gold are being bought in past months by China. And a significant monthly addition to its gold reserve is being made as well by Kazakhstan.

For the past forty months, Kazakhstan, has been increasing its central bank gold reserves. Kazakhstan along with Russia is a member of the Eurasian Economic union along with Belarus, Armenia and Kyrgyzstan. Belarus has also been increasing its bullion reserves.

China bought another 17 tons of gold in January and will buy a total of another 215 tons this year, approximately equal to that of Russia. From August to January 2016 China added 101 tonnes of gold to its reserves.

Annual purchases of more than 200 tons by the PBOC would exceed the entire gold holdings of all but about 20 countries, according to the World Gold Council. China’s central bank reserves of gold have risen 57% since 2009 acording to data the PBOC revealed in July, 2015.

Market watchers believe even that amount of gold in China’s central bank vaults is being politically vastly understated so as not to cause alarm bells to ring too loud in Washington and London.

Kyrgyzsan, Russia and China are also members of the Shanghai Cooperation Organization.

These Eurasian countries are all of them part of China’s mammoth One Belt, One Road Great Project, sometimes called the New Economic Silk Road project to criss-cross all Eurasia with networks of high-speed rails and to develop major new ports in the region to change the economic map of Eurasia.

Last year China announced it was mapping the rail lines of the Silk Road to enable the Central Asian and Russian gold reserves now lacking infrastructure for development to become economically attractive to those countries.

The currencies of Russia, China and other Eurasian countries are moving to become as “good as gold,” a term applied to the US dollar some six decades ago.

The fact that Russia also has an extremely low debt-to-GDP ratio of some 18% compared to 103% for USA and that of the EU Eurozone countries of 94%, of Japan more than 200% of GDP, is a fact that Western rating agencies engaged in the US Treasury’s financial warfare against the Russian Federation conveniently ignore.

Russia has a far more healthy economy than most of the West that is declaring her a failed state.

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Economy

Turkish Economy as the Reset Button of Turkish Politics

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Democracy has a robust relationship with economic growth.  Barrington Moore can be seen as one of the leading scholars focusing on the relationship between political development and economic structure with his book titled “Social Origins of Dictatorship and Democracy” first published in 1966. According to Moore, there are three routes from agrarianism to the modern industrial world. In the capitalist democratic route, exemplified by England, France, and the United States, the peasantry was politically impotent or had been eradicated all together, and a strong bourgeoisie was present, and the aristocracy allied itself with the bourgeoisie or failed to oppose democratizing steps. In Moore’s book, you can find out why some countries have developed as democracies and others as dictatorships.

It can be argued that economic development facilitates democratization. Following this argument, this article is an attempt to address the Turkish case with the most recent discussions going on in the country. One of the most powerful instruments used by the political opposition today is the rhetoric of “economic crisis” that has also been supported by public opinion polls and data. For instance, the leader of İYİ Party Meral Akşener has organized lots of visits to different regions of Turkey and has been posting videos on her social media account showing the complaints mostly centering around unemployment and high inflation. According to Akşener, “Turkey’s economic woes – with inflation above 15%, high unemployment and a gaping current account deficit – left no alternative to high rates.”

Another political opposition leader, Ahmet Davutoğlu raised voice of criticism via his social media account, saying “As if monthly prices hikes on natural gas were not enough, they have introduced 15% increase on electricity costs. It is as if the government vowed to do what it can to take whatever the citizens have.”

A recent poll reveals that about 65 percent think the economic crisis and unemployment problem are Turkey’s most urgent problems. Literature on the relationship between democracy and economic well-being shows that a democratic regime becomes more fragile in countries where per capita income stagnates or declines. It is known that democracies are more powerful among the economically developed countries.

The International Center for Peace and Development summarizes the social origins of democracy in global scale as the following:

“Over the past two centuries, the rise of constitutional forms of government has been closely associated with peace, social stability and rapid socio-economic development. Democratic countries have been more successful in living peacefully with their neighbors, educating their citizens, liberating human energy and initiative for constructive purposes in society, economic growth and wealth generation.”

Turkey’s economic problems have been on the agenda for a long time. Unlike what has been claimed by the Minister of Interior Affairs Süleyman Soylu a few months ago, Turkish economy has not reached to the level which would make United States and Germany to become jealous of Turkey. Soylu had said, “You will see, as of July, our economy will take such a leap and growth in July that Germany, France, England, Italy and especially the USA, which meddles in everything, will crack and explode.”

To make a long story short, it can be said that the coronavirus pandemic has exerted a major pressure on the already fragile economy of Turkey and this leads to further frustration among the Turkish electorate. The next elections will not only determine who will shape the economic structure but will also show to what level Turkish citizens have become unhappy about the ongoing “democratic politics.” In other words, it can be said that, Turkish economy can be seen as the reset button of Turkish politics for the upcoming elections.

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Economy

Finding Fulcrum to Move the World Economics

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Domenico Fetti / Wikimedia Commons

Where hidden is the fulcrum to bring about new global-age thinking and escape current mysterious economic models that primarily support super elitism, super-richness, super tax-free heavens and super crypto nirvanas; global populace only drifts today as disconnected wanderers at the bottom carrying flags of ‘hate-media’ only creating tribal herds slowly pushed towards populism. Suppose, if we accept the current indices already labeled as success as the best of show of hands, the game is already lost where winners already left the table. Finding a new fulcrum to move the world economies on a better trajectory where human productivity measured for grassroots prosperity is a critically important but a deeply silent global challenge. Here are some bold suggestions

ONE- Global Measurement: World connectivity is invisible, grossly misunderstood, miscalculated and underestimated of its hidden powers; spreading silently like an invisible net, a “new math” becomes the possible fulcrum for the new business world economy; behold the ocean of emerging global talents from new economies, mobilizing new levels of productivity, performance and forcing global shifts of economic powers. Observe the future of borderless skills, boundary less commerce and trans-global public opinion, triangulation of such will simply crush old thinking.

Archimedes yelled, “…give me a lever long enough and a fulcrum on which to place it, and I shall move the world…”

After all, half of the world during the last decade, missed the entrepreneurial mindset, understoodonly as underdog players of the economy, the founders, job-creators and risk-taker entrepreneurs of small medium businesses of the world, pushed aside while kneeling to big business staged as institutionalized ritual. Although big businesses are always very big, nevertheless, small businesses and now globally accepted, as many times larger. Study deeply, why suddenly now the small medium business economy, during the last budgetary cycles across the world, has now become the lone solution to save dwindling economies. Big business as usual will take care of itself, but national economies already on brink left alone now need small business bases and hard-core raw entrepreneurialism as post-pandemic recovery agendas.

TWO – Ground Realities:  National leadership is now economic leadership, understanding, creating and managing, super-hyper-digital-platform-economies a new political art and mobilization of small midsize business a new science: The prerequisites to understand the “new math” is the study of “population-rich-nations and knowledge rich nations” on Google and figure out how and why can a national economy apply such new math. 

Today a USD $1000 investment in technology buys digital solutions, which were million dollars, a decade ago.Today,a $1000 investment buys on global-age upskilling on export expansion that were million dollars a decade ago.  Today, a $1000 investment on virtual-events buys what took a year and cost a million dollars a decade ago. Today, any micro-small-medium-enterprise capable of remote working models can save 80% of office and bureaucratic costs and suddenly operate like a mini-multi-national with little or no additional costs.

Apply this math to population rich nations and their current creation of some 500 million new entrepreneurial businesses across Asia will bring chills across the world to the thousands of government departments, chambers of commerce and trade associations as they compare their own progress. Now relate this to the economic positioning of ‘knowledge rich nations’ and explore how they not only crushed their own SME bases, destroyed the middle class but also their expensive business education system only produced armies of resumes promoting job-seekers but not the mighty job-creators. Study why entrepreneurialism is neither academic-born nor academic centric, it is after all most successful legendary founders that created earth shattering organizations were only dropouts.  Now shaking all these ingredients well in the economic test tube wait and let all this ferment to see what really happens.

Now picking up any nation, selecting any region and any high potential vertical market; searching any meaningful economic development agenda and status of special skills required to serve such challenges, paint new challenges. Interconnect the dots on skills, limits on national/global exposure and required expertise on vertical sectors, digitization and global-age market reach. Measuring the time and cost to bring them at par, measuring the opportunity loss over decades for any neglect. Combining all to squeeze out a positive transformative dialogue and assemble all vested parties under one umbrella.

Not to be confused with academic courses on fixing Paper-Mache economies and broken paper work trails, chambers primarily focused on conflict resolutions, compliance regulations, and trade groups on policy matters.  Mobilization of small medium business economy is a tactical battlefield of advancements of an enterprise, as meritocracy is the nightmarish challenges for over 100 plus nations where majority high potential sectors are at standstill on such affairs. Surprisingly, such advancements are mostly not new funding hungry but mobilization starved. Economic leadership teams of today, unless skilled on intertwining super-hyper-digital-platform-economic agendas with local midsize businesses and creating innovative excellence to stand up to global competitiveness becomes only a burden to growth.

The magnifying glass of mind will find the fulcrum: High potential vertical sectors and special regions are primarily wide-open lands full of resources and full of talented peoples; mobilization of such combinations offering extraordinary power play, now catapulted due to technologies. However, to enter such arenas calls for regimented exploring of the limits of digitization, as Digital-Divides are Mental Divides, only deeper understanding and skills on how to boost entrepreneurialism and attract hidden talents of local citizenry will add power. Of course, knowing in advance, what has already failed so many times before will only avoid using a rubber hose as a lever, again.  

The new world economic order: There is no such thing as big and small as it is only strong and weak, there is no such thing as rich and poor it is only smart and stupid. There is no such thing as past and future is only what is in front now and what is there to act but if and or when. How do you translate this in a post pandemic recovery mode? Observe how strong, smart moving now are advancing and leaving weak, stupid dreaming of if and when in the dust behind.

The conclusion: At the risk of never getting a Nobel Prize on Economics, here is this stark claim; any economy not driven solely based on measuring “real value creation” but primarily based on “real value manipulation” is nothing but a public fraud. This mathematically proven, possibly a new Fulcrum to move the world economy, in need of truth

The rest is easy  

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Economy

Evergrande Crisis and the Global Economy

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China’s crackdown on the tech giants was not much of a surprise. Sure, the communist regime allowed the colossus entities like Alibaba Group to innovate and prosper for years. Yet, the government control over the markets was never concealed. In fact, China’s active intervention in the forex market to deliberately devalue Yuan was frequently contested around the world. Ironically, now the world awaits government intervention as a global liquidity crisis seems impending. The Evergrande Group, China’s largest property developer, is on the brink of collapse. Mounding debt, unfinished properties, and subsequent public pressure eventually pushed the group to openly admit its financial turmoil last week. Subsequently, Evergrande’s shares plunged as much as 19% to more than 11-year lows. While many anticipate a thorough financial restructuring in the forthcoming months, the global debt markets face a broader financial contagion – as long as China deliberates on its plan of action.

The financial trouble of the conglomerate became apparent when President Xi Jinping stressed upon controlled corporate debt levels in his ongoing drive to reign China’s corporate behemoths. It is estimated that the Evergrande Group currently owes $305 billion in outstanding debt; payments on its offshore bonds due this week. With new channels of debt ceased throughout the Mainland, repayment seems doubtful despite reassurances from the company officials. The broader cause of worry, however, is the impact of a default; which seems highly likely under current circumstances.

The residential property market and the real estate market control roughly 20% and 30% of China’s nominal GDP respectively. A default could destabilize the already slowing Chinese economy. Yet that’s half the truth. In reality, the failure of a ‘too big to fail’ company could bleed into other sectors as well. And while China could let the company fail to set a precedent, the spillover could devastate the financial stability hard-earned after a strenuous battle against the pandemic. Recent data shows that with the outbreak of the delta variant, the demand pressure in China has significantly cooled down while the energy prices are through the roof. Coupled with the regulatory crackdown rapidly pervading uncertainty, a debt crisis could further push the economy into a recession: a detrimental end to China’s aspirations to attract global investors.

The real question, therefore, is not about China’s willingness to bail out the company. Too much is at stake. The primal question is regarding the modus operandi which could be adopted by China to upend instability.

Naturally, the influence of China’s woes parallels its effect on the global economy. A possible liquidity crisis and the opaque measures of the government combined are already affecting the global markets: particularly the United States. The Dow Jones Industrial Average (DJIA) posted a dismal end to Monday’s trading session: declining by more than 600 points. The 10-year Treasury yields slipped down 6.4 basis points to 1.297% as investors sought safety amid uncertainty. The concern is regarding China’s route to solve the issue and the timeline it would adopt. While the markets across Europe and Asia are optimistic about a partial settlement of debt payments, a take over from state-owned enterprises could further drive uncertainty; majorly regarding the pay schedule of western bondholders amid political hostility.

Economists believe that, while a financial crisis doesn’t seem like a plausible threat, a delayed response or a clumsy reaction could permeate volatility in the capital markets globally. Furthermore, a default or a takeover would almost certainly pull down China’s economy. While the US has already turned stringent over Chinese IPOs recently, a debt default could puncture the economic viability of a wide array of Chinese companies around the world. And thus, while the global banking system is not at an immediate threat of a Lehman catastrophe, Evergrande’s bankruptcy would, nonetheless, erode both the domestic and the global housing market. Moreover, it would further dent Chinese imports (and seriously damage regional exchequers), and would ultimately put a damper on global economic recovery from the pandemic.

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