KW: At a time when our media is full of how to punish Russian ‘talk’ much of it warranted in these times of conflict we hear aboout cutting off Russia from trade especially using SWIFT. Her Jeff Thomas sheds some light on how this might not really punish Russia . The Russian invasion of Ukraine enters its sixth day as talks between Russian and Ukrainian delegates took place in neighboring Belarus today. Ukraine has reportedly demanded an immediate ceasefire, something they did not honour via the Minsk Agreements treaty, continuing bombing the Donbass regions for 8 years unanswered murdering of Russian people there. There’s been no formal announcement yet. Either way, the U.S. and the West have escalated the sanctions regime against Russia.
Joe Biden crossed a critical red line on Saturday, and the world will never be the same. Biden and other Western powers agreed to kick certain Russian banks out of the SWIFT message system. This is like cutting off oxygen to someone in intensive care. What is SWIFT?
SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. Contrary to what you may hear, SWIFT is not a financial institution and it’s not a payment channel. It’s a message system.
But the messages are of the utmost importance. It’s how one major bank confirms to another major bank that a large payment is being made by specifying the sender, receiving bank, amount, currency, date and other details. Once the message is sent, the receiving bank becomes the legal owner of the amount in question.
The actual payment may go through various payment systems such as Fedwire, but that’s mechanical. The SWIFT message is what sets the legally binding terms for both sides.
The only major country that has been “deSWIFTed” in the recent past was Iran in 2011 and that was devastating to their economy. The Russian economy will slowly suffocate without access to SWIFT. Still, Biden went further. They not only kicked Russian commercial banks out of SWIFT, but also kicked the Central Bank of Russia out of the system except for certain transactions that may be approved on a case-by-case basis.
Here’s what Biden’s team of amateurs don’t understand. Every payment, every trade, has two sides. When you blow up one side (Russia) you also blow up the other side (world banking system). Linkages are dense and immensely scaled. For example, French Finance Minister Bruno Le Maire warns that the ban would hinder Europeans’ ability to recover payments on nearly $30 billion in debt owed them by various Russian entities.
This will spill over into a global liquidity crisis within days. Count on it. It could be the worst liquidity crisis ever. Is that what Biden wants? He may get a global depression before he knows it. Be careful what you wish for. Here’s something else to consider: If you look at the memberships of the EU, NATO and the SWIFT executive committees there’s a huge degree of overlap. Now that SWIFT has kicked out Russian banks, I’m not sure that Russia will care about legalistic distinctions.
They’ll see SWIFT as NATO.
| The Next Empire |
| by Jeff Thomas |
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Throughout history, political, financial, and military leaders have sought to create empires. Westerners often think of ancient Rome as the first empire. Later, other empires formed for a time. Spain became an empire, courtesy of its Armada, its conquest of the New World, and the gold and silver extracted from the West. Great Britain owned the 19th century but lost its empire due largely to costly wars. The US took over in the 20th century and, like Rome, rose as a republic, with minimal central control, but is now crumbling under its own governmental weight.
Invariably, the last people to understand the collapse of an empire are those who live within it. As a British subject, I remember my younger years, when, even though the British Empire was well and truly over, many of my fellow Brits were still behaving in a pompous manner as though British “superiority” still existed. Not so, today. (You can only pretend for so long.)
But this does suggest that those who live within the present empire—the US—will be the last to truly understand that the game is all but over. Americans seem to be hopeful that the dramatic decline is a temporary setback from which they will rebound.
Not likely. Historically, once an empire has been shot from its perch, it’s replaced by a rising power—one that’s more productive and more forward thinking in every way. Yet the US is hanging on tenaciously, and like any dying empire, its leaders are becoming increasingly ruthless, both at home and abroad, hoping to keep up appearances.
Warfare is often the death knell of a declining empire—both in its extreme financial cost and in its ability to alienate the peoples of other countries. In the new millennium, the US has invaded more countries than at any other time in its history and appears now to be in a state of perpetual warfare. This is being carried out both militarily and economically, as the US imposes economic sanctions on those it seeks to conquer.
This effort has become so threatening to the world that other major powers, even if they do not have a history of being allies, are now coming together to counter the US.
The US is encouraged in its effort by an unnatural alliance between the countries of Europe. Although Europe is made up of many small countries, often with dramatically differing cultures, who have bickered with each other for centuries, the European Union has cobbled them together into an ill-conceived “United States of Europe.”
Although the relatively new EU is already clearly stumbling and is on the verge of fragmenting, their leaders are desperately attempting to hold the unlikely alliance together with the help of the US. Meanwhile, the other major powers of the world are going full steam ahead to ensure that, when the US and EU reach their Waterloo, the rest of the world will carry on independently of the dying empire.
They are not merely waiting along the sidelines for the collapse to come, awaiting their turn at the top of the pecking-order. They are actively preparing their position to, as seamlessly as possible, take the baton at a run.
The End of Dollar Hegemony
Since the Bretton Woods Conference in 1944, the US dollar has reigned supreme as the world’s default currency. In 1944, the US held more gold than any other country, but in 1971, the US went off the gold standard, and since then, the dollar has been a fiat currency. The US has become increasingly cavalier in its abuse of the dollar—often at the expense of other countries.
Russia and China dealt with the latest round of strong-arm tactics by the US to adhere to the petrodollar by creating the largest energy agreement in history. This and all trade between the two countries will be settled in the ruble and the yuan. Russia has since been active in creating agreements with other fuel customers, also bypassing the petrodollar.
In creating these agreements, the Asian powers have unofficially announced the demise of the petrodollar. For decades, the US has applied its muscle to other countries, using the petrodollar. So, the Sino-Russian agreement stands, not only to end the petrodollar monopoly, but to create a decline in US power over the world, generally.
A New SWIFT System
Presently, the vast majority of economic transfers in the world pass through the SWIFT system, located in Brussels but controlled by the US. In recent years, the US has barred, or threatened to bar, other countries from the SWIFT system, effectively making it impossible for banks to transfer money and, by extension, causing the collapse of their banking systems. Russia has responded by creating its own SWIFT system.
It’s entirely likely that, if Russian trading partners, such as Iran, are barred from the use of the Brussels SWIFT (or even threatened to be barred), Russia would extend the use of its SWFT to them.
The creation of a second worldwide SWIFT would effectively remove the SWIFT threat from the US bag of tricks as an economic weapon. As long as Russia provides an effective money transfer service and does it without the intimidation that the US employs, it’s predictable that other countries would flock to the new system, in preference to SWIFT. Once other countries are fully on board, the US would have no choice but to interface with the new system or lose trade with those countries.
A New Central Bank
In recent decades, China and Russia have been expanding their economic powers dramatically and have periodically complained that their seats at the IMF table are unrealistically low, considering their importance to world trade. In 2014, China officially replaced the US as the world’s largest economy, yet the IMF has consistently sought to minimise China’s place at the table.
It would seem that the West believes that it’s holding all the cards and that the Chinese and other powers must accept a poor-sister position, if they are to be allowed to sit at the IMF table at all. The West somehow does not seem to recognise that, if frozen out, the other powers have the ability to create alternatives. As with the SWIFT system, the Asian powers have reacted to US overreach, not by going away licking their wounds, but by creating a second IMF.
The Russian State Duma (the lower house of the Russian legislature) have now created the New Development Bank. It will have a $100 billion pool, to be used for the BRICS countries. Its five members will contribute equally to its funding. It will be centered in Shanghai, India will serve as the first five-year rotating president, and the first chairman of the board of directors will come from Brazil. The first chairman of the board of governors is likely to be Russian Finance Minister Anton Siluanov. It’s therefore structured to be truly multinational.
In creating all of the above entities, the BRICS will, in effect, have created a complete second economic world.
In the latter days of the British Empire, we Brits seemed to be under the illusion that, even as our power base crumbled, we might somehow retain control by threats and bluster. The UK was utterly wrong in this and only succeeded in alienating trading partners, colonies, and allies by doing so.
The same is happening again today. China, Russia, and the rest of the world, when faced with American threats and bluster, will not simply fold their tents and accept that the US must be obeyed. They will, instead, create alternatives. And they are doing so exceedingly well and quickly. At this point, the overreach of the US is not only enabling other powers to rise, it is forcing their hand to literally create the next full-blown empire.
Editor’s Note: If you want to navigate the complicated economic and political situation that is unfolding, then you need to see this newly released dispatch from legendary speculator Doug Casey and his longtime friend David Stockman, the “father of Reaganomics.”
It reveals what you need to know as the crisis deepens, and how these dangerous times could impact your wealth.
Click here to see it now.