Replacing the Western Financial System BRIC by BRICS

by Kevin D. Freeman on July 25, 2014

CHINA-RUSSIA-DIPLOMACY

By now it should be no secret that Russia and China have teamed to create a full replacement for the Western financial system. They have seen the economic weapons unleashed by the United States and determined to not be subject to such attacks. Nearly 15 years ago, the Russians were talking about replacing the financial system and unseating the dollar. About the same time, the Chinese PLA published Unrestricted Warfare that makes the case for Financial Warfare along the same lines. Six years ago, the Russians tested an attack against Fannie Mae and Freddie Mac. Shortly after that, Vladimir Putin set in motion a scheme to have the BRICS nations create a full alternative system that would no longer depend on the United States or the U.S. dollar. That process is in full swing now, hastened by the Ukrainian crisis and threatened Russian retaliation against any sanctions we impose. This could be the beginning stages of World War III.

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The BRICS are an economic coalition birthed under the auspices of an investment strategy but in reality the result of a plan for Russia and China to lead emerging nations in a strategic bloc against the West. BRICS stands for Brazil, Russia, India, China, and South Africa. The coalition includes a huge chunk of the world’s population, access to massive resources, tremendous foreign currency reserves, and lots of economic growth. In so many ways the BRICS rival the United States and Western Europe in economic clout but without the burdens of a social welfare apparatus, slower growth and excessive reported foreign debt levels (although the BRICS have lots of hidden debt). Using current exchange rates, the BRICS look smaller than the Western economies. But, when you adjust to purchasing power parity (PPP), the BRICS get close and China may be ahead of the United States. [Here is an article that explains PPP.]

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We told you in this blog that the BRICS were being used by Putin and China. We warned that a global cyber-economic war was already underway even if unrecognized. We shared that there was a substantive effort to replace the dollar as reserve currency and in fact to replace the global economic system itself. The latest BRICS summit in Brazil July 15-17 confirmed all of this.

Unfortunately, many have their head in the sand. They say it would be too complex to replace the system. While it would require work, it is certainly doable. Here are a few of the steps required:

  1. First, you’d need to build up excess financial/currency reserves. You might start with American dollars and Euros but you would want to include a lot of gold and hide your accumulation from the world as much as possible.
  2. You would need to rapidly advance a foreign currency to rival the dollar/Euro for global payments. This would require a sudden advance in the use of the new currency.
  3. You would need to establish alternatives to the Western-dominated World Bank and IMF.
  4. You would need control of new ratings agencies to review the debts of major countries and corporations from your view rather than that of the West.
  5. You would need alternative payment mechanisms for transfers and purchases.
  6. You would need new trade agreements to conduct transactions in your own currencies rather than the American dollar. Even with major Western allies.
  7. You would need to invest in potentially neutral countries, galvanize support, and peel away Western ties.
  8. You would need control of substantive natural resources including energy.
  9. You would need some sort of scandal to erode confidence in the United States and Western allies (can you say NSA?).
  10. You would need to develop strategic cyber warfare capabilities that could paralyze opposition.
  11. You would need to develop an alternative Internet to prevent cyber retaliation or spying.
  12. Ultimately, you would wait for a financial crisis (or be prepared to cause one) in the West and stand ready to step into it as rescuer, handing down terms and replacing the dollar.

You will note that we included hyperlinks to each of the 12 items indicating where this is already underway. We could have shown multiple examples for each point. The beauty of this is that it all appears to be the result of natural trends even though in reality these are all strategic decisions. It is no accident that China is poised to surpass the U.S. economy as Russia passes Germany. And, even our allies have been focused on replacing the dollar. The only question is “How soon?”

Now, consider the following excerpts from The Corbett report:

The Ratings Game: Rating agencies as weapons of economic warfare

by James Corbett corbettreport.com July 24, 2014

This article originally appeared in The Corbett Report Subscriber newsletter on June 28, 2014. To subscribe to the newsletter and become a member of The Corbett Report website, please sign up for a monthly or annual membership here.

If it is true that we are entering an era of “new cold war” between the NATO powers and their BRICS-affiliated resistance bloc counterparts – and it is true according to all the usual globalist think tanks and media mouthpieces – then this war will not be fought with armies on battlefields but with corporations and pipelines and contracts. And if economic warfare is the new normal for the 21st century, then Russia and China have just revealed one of their key weapons in this fight. It is neither a missile nor a tank, not a stealth fighter nor an electromagnetic weapon. No, it’s something altogether more fearsome: a credit rating agency.

The announcement was made early this month by Russian Finance Minister Anton Siluanov. “In the beginning, the agency will assess Russian-Chinese investment projects with a view to attracting of [investors from] a number of Asian countries,” the minister said on a recent trip to Beijing. “Gradually, based on the progress and authority of such an agency, we believe it will rise to a level where its opinions will attract other countries.”

In the modern age of economic warfare, that’s the equivalent of a shot across the bow. But in order to understand the importance of this announcement and the potential good that it can do in bringing competition to a market dominated by three US-based firms, it’s helpful to re-examine what credit ratings agencies are and what they do, as well as how they have functioned in the past as tools of geopolitical leverage for Washington over its political rivals.

Ratings agencies assign credit risk ratings to large-scale borrowers, whether corporate or governmental, from AAA prime rating status all the way down through “D” for “in default.” Anything below BBB- is considered junk bond status and governments are especially keen to avoid being assigned such a rating to stave off a stampede of sellers in their bond market and rocketing interest rates on their sovereign debt.

Although the agencies like to give the air of mathematical or statistical certainty in their assessments, the ratings are actually highly subjective, based on each agencies’ judgement of information about debtors’ risk of default. Neither do ratings represent any particular probability of default. Instead, the letter grading scale represents relative risk of default and are generally characterized in lengthy descriptive phrases. When the subjectivity of these ratings are combined with the fact that the credit ratings market is overwhelmingly dominated by just three agencies-Moody’s, Standard & Poor’s and Fitch Ratings-all of which are American agencies which derive much of their income from the very Wall Street banks they claim to be impartially evaluating, the potential for abuse is rampant. It should be no surprise, then, that the historical record is rife with examples of the “Big Three” agencies’ corruption.

For years critics have made the argument that the entire 2008 financial crisis would never have happened without the active collusion of the ratings agencies in giving their AAA prime rating to the toxic mortgage-backed securities that were at the heart of the subprime meltdown. After all, as Matt Taibbi pointed out in an article on the subject last year:

“A triple-A rating is to the financial world what the USDA seal of approval is to a meat-eater, or virginity is to a Catholic. It’s supposed to be sacrosanct, inviolable: According to Moody’s own reports, AAA investments ‘should survive the equivalent of the U.S. Great Depression.’”

In that article, Taibbi published the details of a trove of internal emails from within the Big Three agencies themselves, uncovered as part of an investigation brought about by a pair of lawsuits. The emails confirmed the suspicions of the agencies’ critics in the starkest possible terms. One senior S&P analyst confides that “I had difficulties explaining ‘HOW’ we got to these numbers since there is no science behind it,” while a senior S&P executive calls the agencies’ dealings a “f***ing scam” and another warns ominously that he hopes “we are all wealthy and retired by the time this house of card[s] falters.” …

For Russia, the final straw appears to have come in April (in the midst of the Kremlin’s dual with the White House in the Ukrainian proxy region) when S&P downgraded the country’s sovereign debt from BBB to BBB-, just one notch above junk status. This was, in fact, the very point at which Russia went full nuclear in its own financial war with Wall Street. Directly after the announcement, Russian presidential advisor Sergei Glazyev announced a new plan for economic disengagement from the US and the dollar, including the possibility of withdrawing all dollar and Euro-denominated assets from NATO countries to neutral ones, reducing Central Bank holdings of dollar assets, selling sovereign bonds of NATO member countries and any country that supports sanctions on Russia, and using national currencies rather than the dollar in bilateral trade. Then, days later, the Russian government made it even more explicit, announcing that they would formally push for their BRICS partners and Eurasian Union counterparts to establish their own rating agency to avoid Washington’s political influence over international debt markets.

This is the context in which we have to understand this latest proposal to found a joint Russian-Chinese agency. The proposed agency, the Universal Credit Rating Group, would combine the already-existing Russian RusRating agency, China’s Dagong Global Credit Rating Co, and the American non-Big Three Egan-Jones Rating. To CONTINUE READING at CORBETTREPORT.com….

Corbett does grasp that the move to establish an alternative ratings agency is intentional and strategic. He documents how Russia and China see American dominance in the ratings game as both corrupt and malevolent. He then points out how Russia and China will use this new ratings agency to fight back.

Now, the West has a lot in its arsenal as well and if we act properly, we might be able to avoid all-out economic conflict. Or we could win if forced to fight. The problem is that too few recognize that we are in a war or have any idea in regard to how to fight it. Putin and his allies are playing for keeps and we have to understand that.

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