They See It Coming …Ready or Not?

Tuesday, January 6, 2015
By Paul Martin

By Bill Holter
GoldSeek.com
Tuesday, 6 January 2015

2014 was a year of posturing. The U.S. “postured” by trying to lure Mr. Putin and Russia into a war. First it was over Syria and then later over Ukraine. The Russians postured by not taking the bait and buying time. Yes, Russia has suffered with a devaluing currency, lower oil revenues, and an economy running on less than eight cylinders. China has stayed out of the public spotlight during this period but privately stood behind Russia, I will explain this a bit later.

I mentioned “buying time”, by necessity, Russia has done this as a tactic I believe to slow down the implosion of the Western financial system. On the face of it, I know this sounds ridiculous …why would Russia want to prolong the Western system. The answer is very simple, they, nor China were ready. They may not even be fully “ready” now but at least the financial infrastructure is in place for when it does happen.

Over the past year and as a result of sanctions by the U.S., Russia set up their own alternative to the SWIFT clearing system. This was being tested for the last two weeks. The original start date was May 15, 2015, this seems to have been advanced by months as the system may go live without any notice or if Russia were to be isolated from the SWIFT system. The important things I see from this are basically threefold. First, the U.S. has not had enough political capital to kick Russia out as several European nations refused to go this route (it’s cold and they need Russia’s nat gas). Secondly and maybe more importantly, SWIFT can no longer be held as a potential hammer over the head of Russia since they have an alternative. Lastly, the alternative clearing system will at a minimum bleed liquidity and thus more velocity out of the West. In a worse case scenario, the new clearing system may become very attractive and lure a majority or even a supermajority of trade participants to abandon the West’s game. Were this to result, the dollar will lose its usefulness and thus its de facto reserve currency status.

We also heard of another announcement over the holidays between Russia and China. They performed “currency forwards and swaps”. This was done I believe to support Russia and her ruble more than any other reason. You will notice the ruble immediately strengthened nearly 40% on this announcement. The sanctions along with “Mr. Obama” cutting the price of oil in half will not cause Russia to default as they have nearly as much cash foreign reserves as they do debt outstanding. This is very important, Russia has a pristine balance sheet where their debt is only 14% of GDP, compared to the West’s understated debt amounts equaling 100% or more of GDP.

The Rest…HERE

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