The Failure of the American Perspective

by Kevin D. Freeman on March 31, 2014


World War may well be underway just as surely as it was on 26 November 1941 when Japanese Admiral Nagumo set sail for Pearl Harbor two weeks before the formal attack. Then, like now, Americans seemed blissfully unaware that their lives were about to change forever.

Now, it is even worse, as American arrogance assumes we will always be the world’s sole superpower. We tend to look at the world exclusively from our own perspective and that can be very dangerous. A variety of headlines demonstrate this, all of which assume American supremacy. One example, now obvious in hindsight, is when the President’s spokesman Jay Carney warned against buying and actually suggested shorting Russian stocks in light of U.S. sanctions on March 18. From the time of his comments until the end of the month, Russian stocks increased over 6%, far ahead of the U.S. stock market over the same period. Even as the Administration was warning against buying Russian shares, some very successful investors have recommended them.

The common perception is that Russia is finished. There is a belief that the only game to be played is American capitalism where accumulation of American dollars determines the victor. This is a rigged game, of course, as the same elites believe that we can print all the dollars we want without global consequence. It’s sort of like being the banker in Monopoly with an unlimited bank under the assumption that the other players will simply go along. Consider these excerpts from a recent Politico article:

Why Russia No Longer Fears the West


The West is blinking in disbelief – Vladimir Putin just invaded Ukraine. German diplomats, French Eurocrats and American pundits are all stunned. Why has Russia chosen to gamble its trillion-dollar ties with the West?

Western leaders are stunned because they haven’t realized Russia’s owners no longer respect Europeans the way they once did after the Cold War. Russia thinks the West is no longer a crusading alliance. Russia thinks the West is now all about the money.

Putin’s henchmen know this personally. Russia’s rulers have been buying up Europe for years. They have mansions and luxury flats from London’s West End to France’s Cote d’Azure. Their children are safe at British boarding and Swiss finishing schools. And their money is squirreled away in Austrian banks and British tax havens.

Putin’s inner circle no longer fear the European establishment. They once imagined them all in MI6. Now they know better. They have seen firsthand how obsequious Western aristocrats and corporate tycoons suddenly turn when their billions come into play. They now view them as hypocrites—the same European elites who help them hide their fortunes.

Once Russia’s powerful listened when European embassies issued statements denouncing the baroque corruption of Russian state companies. But no more. Because they know full well it is European bankers, businessmen and lawyers who do the dirty work for them placing the proceeds of corruption in hideouts from the Dutch Antilles to the British Virgin Islands.

The problem is, what seems “almighty” to us is beginning to look just like slips of paper with IOU’s written on it to most of the rest of the world. We threaten to cut Russia off from the SWIFT system and they threaten to create an alternative system with China and India. We say no more MasterCard and they decide to create their own plastic payment mechanism. We downgrade Russian debt and they look to retaliate.

We pressure the Ruble and they threaten the dollar. In fact, their threat used an interesting term, one that matches our 2012 bestseller which warned against an economic attack from Russia to crash the dollar. From Voice of Russia:

28 March 2014

Russia can collapse the United States, prominent US trader Jim Sinclair believes. The economist, famous for his forecasts, explains that the strength of the dollar is based on the US agreement with Saudi Arabia that all contracts for fuel deliveries be in the US dollars. Now, Moscow can collapse the petrodollar in one moment. The slapping of sanctions on Russia is tantamount to a shot in the foot. The expert explains that the only true value in the world today is the petrodollar. But Russia can collapse it by demanding Euros or Yuan for its oil.

Russia is fully in control of the petrodollar and could cause the Dow Jones industrial average to plummet as it has never done before. One can wave the Stars and Stripes as long as one likes, but it’s a fact that the Russians can turn the US economy upside down . . .

So far, Moscow has been in no rush to resort to extreme measures. Russia is going to react in a mirror-like way, – to retaliate with a blacklist of US officials for a US list of Russian officials. The West’s economic bans have thus far failed to prove too grave, so they rather cause Russians to mobilize themselves. For instance, when Visa and MasterCard boycotted some Russian banks for a short while recently, the Russian authorities took the decision to set up Russia’s own payment system shortly. Meanwhile, serious partners with a long history of cooperation, such as Siemens, are signing new contracts and are not about, or so it seems, to shoot themselves in the foot.

Don’t be fooled. The Russians have been planning this confrontation for several years, stockpiling gold and making alliances. They have recently strengthened alliances with China, India, and even Egypt. The Russians are forging huge deals, almost unprecedented and designed as a threat to the Western system. They are playing to win.

Even a recent “admission” by former treasury Secretary Paulson to the BBC documents what we have long said. The Russians have been agitating other nations, including China, to move against the U.S. They even attempted to crash our system in 2008 at the height of the financial crisis.

Russia ‘planned Wall Street bear raid’

BBC News, Robert Preston, March 17, 2014

There is a cynicism in the relationship between Russia and the US, being played out in the Crimean crisis, which is deep, rooted in history and shows that the triumph of capitalism over communism wasn’t the end of the power game between these two nations.

The depth of mistrust between the two was highlighted in the interview given by Hank Paulson, the former US treasury secretary, for my recent BBC Two documentary, How China Fooled The World . . .

For me this is pretty jaw-dropping stuff – the Chinese told Hank Paulson that the Russians were suggesting a joint pact with China to drive down the price of the debt of Fannie and Freddie, and maximize the turmoil on Wall Street – presumably with a view to maximizing the cost of the rescue for Washington and further damaging its financial health . . .

The bottom line is that our arrogance has led to sloppy strategy. Have we “counted the cost” of sanctions and considered the likely outcomes? For example, noted investor Mohamed El-Erian makes it clear that sanctions have blowback risks:

El-Erian: Sanctions on Russia Could Cause Recession — for Western Europe

March 27, 2014  By Dan Weil
While intensified sanctions could create serious problems for Russia, they could boomerang back to damage the West as well, says Mohamed El-Erian, former CEO of Pimco. Sanctions are supposed to be “a means to an end”—moderating Russia’s behavior in Ukraine, he writes on The Huffington Post. “By potentially also pushing Western Europe back into recession, stepped-up sanctions could also be an end in themselves.”
Why would Western Europe suffer? It accounts for about 40 percent of Russia’s trade, El-Erian notes.  Even under the unlikely assumption that Russia doesn’t retaliate over Western sanctions, “its weaker economy would quickly translate into lower sales by Western European companies to the world’s eighth largest economy, as well as less certain input supplies from there,” he writes.

Of course, it’s almost certain that Russia will retaliate, and there’s a good chance it would cut off energy supplies to Western Europe, El-Erian says. The region can’t easily erase its dependence on Russian energy supplies. “Yes, deeper sanctions would hurt Russia,” El-Erian says. “But likely at a considerable cost for Western Europe, too. Under most scenarios, a back-and-forth escalation in sanctions would push both Eastern and Western Europe into recession.”

George Soros even suggests that sanctions could boost Russia even as they harm the West. So far, it seems as if Putin has been one step ahead at every turn. His popularity is soaring–now resting at 80% in his home country, almost double the favorability of President Obama at home.

Certainly we have the technical capability to win the economic war. The problem is that we don’t yet recognize it for what it is, a truly global economic war. Until we recognize it for what it is, we remain unnecessarily vulnerable.

The final thought for today comes from Jim Rickards, author of Currency Wars. He points out that while we have the capacity to severely damage Russia, they have a great potential for retaliation. And, in an interesting twist, because we are more developed, we have more to lose. When you combine cyber and financial efforts, it can get pretty scary:

Russia could bring down the financial markets in the US with a bunch of hackers. Rickards says that although the US could also attack the Russian market with hackers, who do you think has more to lose?

The Russian market shutting down would hurt some investors…however the US market closing down would be catastrophic for the American economy.

Of course, we haven’t even mentioned Russian threats that they could reduce our nation to radioactive ash. What’s a little nuclear threat between friends?

Bottom line:  The global economic war is underway as we have been warning. It is heating up. Isn’t it time you got a Game Plan to deal with it?


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