The Birth of a Eurasian Century: Russia and China Do Pipelineistan

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Yves here. I’m a big fan of Pepe Escobar’s work at Asia Times, so I’m delighted to have the opportunity to run one of his posts here. Astute readers will no doubt point out that some of the elements of the Russia-Chinese emergent plan, such as reliance on gold-backed currencies, are sorely misguided. But the bigger point is that the two nations are looking hard for ways to undermine the US economic hegemony. And in any struggle, plans seldom survive first contact with the opposition. Much depends on how well each side adapts to and exploits changing conditions.

By Pepe Escobar, a roving correspondent for Asia Times/Hong Kong, an analyst for RT, and a TomDispatch regular. With a chapter on Iran, he is a contributing editor to The Global Obama: Crossroads of Leadership in the 21st Century. Follow him on Facebook. Cross posted from TomDispatch

HONG KONG — A specter is haunting Washington, an unnerving vision of a Sino-Russian alliance wedded to an expansive symbiosis of trade and commerce across much of the Eurasian land mass — at the expense of the United States.

And no wonder Washington is anxious.  That alliance is already a done deal in a variety of ways: through the BRICS group of emerging powers (Brazil, Russia, India, China, and South Africa); at the Shanghai Cooperation Organization, the Asian counterweight to NATO; inside the G20; and via the 120-member-nation Non-Aligned Movement (NAM). Trade and commerce are just part of the future bargain.  Synergies in the development of new military technologies beckon as well. After Russia’s Star Wars-style, ultra-sophisticated S-500 air defense anti-missile system comes online in 2018, Beijing is sure to want a version of it. Meanwhile, Russia is about to sell dozens of state-of-the-art Sukhoi Su-35 jet fighters to the Chinese as Beijing and Moscow move to seal an aviation-industrial partnership.

This week should provide the first real fireworks in the celebration of a new Eurasian century-in-the-making when Russian President Vladimir Putin drops in on Chinese President Xi Jinping in Beijing.  You remember “Pipelineistan,” all those crucial oil and gas pipelines crisscrossing Eurasia that make up the true circulatory system for the life of the region.  Now, it looks like the ultimate Pipelineistan deal, worth $1 trillion and 10 years in the making, will be inked as well.  In it, the giant, state-controlled Russian energy giant Gazprom will agree to supply the giant state-controlled China National Petroleum Corporation (CNPC) with 3.75 billion cubic feet of liquefied natural gas a day for no less than 30 years, starting in 2018. That’s the equivalent of a quarter of Russia’s massive gas exports to all of Europe. China’s current daily gas demand is around 16 billion cubic feet a day, and imports account for 31.6% of total consumption.

Gazprom may still collect the bulk of its profits from Europe, but Asia could turn out to be its Everest. The company will use this mega-deal to boost investment in Eastern Siberia and the whole region will be reconfigured as a privileged gas hub for Japan and South Korea as well. If you want to know why no key country in Asia has been willing to “isolate” Russia in the midst of the Ukrainian crisis — and in defiance of the Obama administration — look no further than Pipelineistan.

Exit the Petrodollar, Enter the Gas-o-Yuan

And then, talking about anxiety in Washington, there’s the fate of the petrodollar to consider, or rather the “thermonuclear” possibility that Moscow and Beijing will agree on payment for the Gazprom-CNPC deal not in petrodollars but in Chinese yuan. One can hardly imagine a more tectonic shift, with Pipelineistan intersecting with a growing Sino-Russian political-economic-energy partnership. Along with it goes the future possibility of a push, led again by China and Russia, toward a new international reserve currency — actually a basket of currencies — that would supersede the dollar (at least in the optimistic dreams of BRICS members).

Right after the potentially game-changing Sino-Russian summit comes a BRICS summit in Brazil in July. That’s when a $100 billion BRICS development bank, announced in 2012, will officially be born as a potential alternative to the International Monetary Fund (IMF) and the World Bank as a source of project financing for the developing world.

More BRICS cooperation meant to bypass the dollar is reflected in the “Gas-o-yuan,” as in natural gas bought and paid for in Chinese currency. Gazprom is even considering marketing bonds in yuan as part of the financial planning for its expansion. Yuan-backed bonds are already trading in Hong Kong, Singapore, London, and most recently Frankfurt.

Nothing could be more sensible for the new Pipelineistan deal than to have it settled in yuan. Beijing would pay Gazprom in that currency (convertible into rubles); Gazprom would accumulate the yuan; and Russia would then buy myriad made-in-China goods and services in yuan convertible into rubles.

It’s common knowledge that banks in Hong Kong, from Standard Chartered to HSBC — as well as others closely linked to China via trade deals — have been diversifying into the yuan, which implies that it could become one of the de facto global reserve currencies even before it’s fully convertible. (Beijing is unofficially working for a fully convertible yuan by 2018.)

The Russia-China gas deal is inextricably tied up with the energy relationship between the European Union (EU) and Russia. After all, the bulk of Russia’s gross domestic product comes from oil and gas sales, as does much of its leverage in the Ukraine crisis. In turn, Germany depends on Russia for a hefty 30% of its natural gas supplies. Yet Washington’s geopolitical imperatives — spiced up with Polish hysteria — have meant pushing Brussels to find ways to “punish” Moscow in the future energy sphere (while not imperiling present day energy relationships).

There’s a consistent rumble in Brussels these days about the possible cancellation of the projected 16 billion euro South Stream pipeline, whose construction is to start in June.  On completion, it would pump yet more Russian natural gas to Europe — in this case, underneath the Black Sea (bypassing Ukraine) to Bulgaria, Hungary, Slovenia, Serbia, Croatia, Greece, Italy, and Austria.

Bulgaria, Hungary, and the Czech Republic have already made it clear that they are firmly opposed to any cancellation.  And cancellation is probably not in the cards.  After all, the only obvious alternative is Caspian Sea gas from Azerbaijan, and that isn’t likely to happen unless the EU can suddenly muster the will and funds for a crash schedule to construct the fabled Baku-Tblisi-Ceyhan (BTC) oil pipeline, conceived during the Clinton years expressly to bypass Russia and Iran.

In any case, Azerbaijan doesn’t have enough capacity to supply the levels of natural gas needed, and other actors like Kazakhstan, plagued with infrastructure problems, or unreliable Turkmenistan, which prefers to sell its gas to China, are already largely out of the picture. And don’t forget that South Stream, coupled with subsidiary energy projects, will create a lot of jobs and investment in many of the most economically devastated EU nations.

Nonetheless, such EU threats, however unrealistic, only serve to accelerate Russia’s increasing symbiosis with Asian markets. For Beijing especially, it’s a win-win situation. After all, between energy supplied across seas policed and controlled by the U.S. Navy and steady, stable land routes out of Siberia, it’s no contest.

Pick Your Own Silk Road

Of course, the U.S. dollar remains the top global reserve currency, involving 33% of global foreign exchange holdings at the end of 2013, according to the IMF. It was, however, at 55% in 2000. Nobody knows the percentage in yuan (and Beijing isn’t talking), but the IMF notes that reserves in “other currencies” in emerging markets have been up 400% since 2003.

The Fed is arguably monetizing 70% of the U.S. government debt in an attempt to keep interest rates from heading skywards. Pentagon adviser Jim Rickards, as well as every Hong Kong-based banker, tends to believe that the Fed is bust (though they won’t say it on the record). No one can even imagine the extent of the possible future deluge the U.S. dollar might experience amid a $1.4 trillion Mount Ararat of financial derivatives.  Don’t think that this is the death knell of Western capitalism, however, just the faltering of that reigning economic faith, neoliberalism, still the official ideology of the United States, the overwhelming majority of the European Union, and parts of Asia and South America.

As far as what might be called the “authoritarian neoliberalism” of the Middle Kingdom, what’s not to like at the moment? China has proven that there is a result-oriented alternative to the Western “democratic” capitalist model for nations aiming to be successful. It’s building not one, but myriad new Silk Roads, massive webs of high-speed railways, highways, pipelines, ports, and fiber optic networks across huge parts of Eurasia. These include a Southeast Asian road, a Central Asian road, an Indian Ocean “maritime highway” and even a high-speed rail line through Iran and Turkey reaching all the way to Germany.

In April, when President Xi Jinping visited the city of Duisburg on the Rhine River, with the largest inland harbor in the world and right in the heartland of Germany’s Ruhr steel industry, he made an audacious proposal: a new “economic Silk Road” should be built between China and Europe, on the basis of the Chongqing-Xinjiang-Europe railway, which already runs from China to Kazakhstan, then through Russia, Belarus, Poland, and finally Germany. That’s 15 days by train, 20 less than for cargo ships sailing from China’s eastern seaboard. Now that would represent the ultimate geopolitical earthquake in terms of integrating economic growth across Eurasia.

Keep in mind that, if no bubbles burst, China is about to become — and remain — the number one global economic power, a position it enjoyed for 18 of the past 20 centuries. But don’t tell London hagiographers; they still believe that U.S. hegemony will last, well, forever.

Take Me to Cold War 2.0

Despite recent serious financial struggles, the BRICS countries have been consciously working to become a counterforce to the original and — having tossed Russia out in March — once again Group of 7, or G7. They are eager to create a new global architecture to replace the one first imposed in the wake of World War II, and they see themselves as a potential challenge to the exceptionalist and unipolar world that Washington imagines for our future (with itself as the global robocop and NATO as its robo-police force). Historian and imperialist cheerleader Ian Morris, in his book War! What is it Good For?, defines the U.S. as the ultimate “globocop” and “the last best hope of Earth.” If that globocop “wearies of its role,” he writes, “there is no plan B.”     

Well, there is a plan BRICS — or so the BRICS nations would like to think, at least. And when the BRICS do act in this spirit on the global stage, they quickly conjure up a curious mix of fear, hysteria, and pugnaciousness in the Washington establishment. Take Christopher Hill as an example. The former assistant secretary of state for East Asia and U.S. ambassador to Iraq is now an advisor with the Albright Stonebridge Group, a consulting firm deeply connected to the White House and the State Department. When Russia was down and out, Hill used to dream of a hegemonic American “new world order.”  Now that the ungrateful Russians have spurned what “the West has been offering” — that is, “special status with NATO, a privileged relationship with the European Union, and partnership in international diplomatic endeavors” — they are, in his view, busy trying to revive the Soviet empire. Translation: if you’re not our vassals, you’re against us.  Welcome to Cold War 2.0.   

The Pentagon has its own version of this directed not so much at Russia as at China, which, its think tank on future warfare claims, is already at war with Washington in a number of ways. So if it’s not apocalypse now, it’s Armageddon tomorrow. And it goes without saying that whatever’s going wrong, as the Obama administration very publicly “pivots” to Asia and the American media fills with talk about a revival of Cold War-era “containment policy” in the Pacific, it’s all China’s fault.

Embedded in the mad dash toward Cold War 2.0 are some ludicrous facts-on-the-ground: the U.S. government, with $17.5 trillion in national debt and counting, is contemplating a financial showdown with Russia, the largest global energy producer and a major nuclear power, just as it’s also promoting an economically unsustainable military encirclement of its largest creditor, China.

Russia runs a sizeable trade surplus. Humongous Chinese banks will have no trouble helping Russian banks out if Western funds dry up. In terms of inter-BRICS cooperation, few projects beat a $30 billion oil pipeline in the planning stages that will stretch from Russia to India via Northwest China. Chinese companies are already eagerly discussing the possibility of taking part in the creation of a transport corridor from Russia into Crimea, as well as an airport, shipyard, and liquid natural gas terminal there. And there’s another “thermonuclear” gambit in the making: the birth of a natural gas equivalent to the Organization of the Petroleum Exporting Countries that would include Russia, Iran, and reportedly disgruntled U.S. ally Qatar.

The (unstated) BRICS long-term plan involves the creation of an alternative economic system featuring a basket of gold-backed currencies that would bypass the present America-centric global financial system. (No wonder Russia and China are amassing as much gold as they can.) The euro — a sound currency backed by large liquid bond markets and huge gold reserves — would be welcomed in as well.

It’s no secret in Hong Kong that the Bank of China has been using a parallel SWIFT network to conduct every kind of trade with Tehran, which is under a heavy U.S. sanctions regime. With Washington wielding Visa and Mastercard as weapons in a growing Cold War-style economic campaign against Russia, Moscow is about to implement an alternative payment and credit card system not controlled by Western finance. An even easier route would be to adopt the Chinese Union Pay system, whose operations have already overtaken American Express in global volume.   

I’m Just Pivoting With Myself

No amount of Obama administration “pivoting” to Asia to contain China (and threaten it with U.S. Navy control of the energy sea lanes to that country) is likely to push Beijing far from its Deng Xiaoping-inspired, self-described “peaceful development” strategy meant to turn it into a global powerhouse of trade.  Nor are the forward deployment of U.S. or NATO troops in Eastern Europe or other such Cold-War-ish acts likely to deter Moscow from a careful balancing act: ensuring that Russia’s sphere of influence in Ukraine remains strong without compromising trade and commercial, as well as political, ties with the European Union — above all, with strategic partner Germany. This is Moscow’s Holy Grail; a free-trade zone from Lisbon to Vladivostok, which (not by accident) is mirrored in China’s dream of a new Silk Road to Germany.

Increasingly wary of Washington, Berlin for its part abhors the notion of Europe being caught in the grips of a Cold War 2.0. German leaders have more important fish to fry, including trying to stabilize a wobbly EU while warding off an economic collapse in southern and central Europe and the advance of ever more extreme rightwing parties.

On the other side of the Atlantic, President Obama and his top officials show every sign of becoming entangled in their own pivoting — to Iran, to China, to Russia’s eastern borderlands, and (under the radar) to Africa. The irony of all these military-first maneuvers is that they are actually helping Moscow, Tehran, and Beijing build up their own strategic depth in Eurasia and elsewhere, as reflected in Syria, or crucially in ever more energy deals. They are also helping cement the growing strategic partnership between China and Iran. The unrelenting Ministry of Truth narrative out of Washington about all these developments now carefully ignores the fact that, without Moscow, the “West” would never have sat down to discuss a final nuclear deal with Iran or gotten a chemical disarmament agreement out of Damascus.

When the disputes between China and its neighbors in the South China Sea and between that country and Japan over the Senkaku/Diaoyou islands meet the Ukraine crisis, the inevitable conclusion will be that both Russia and China consider their borderlands and sea lanes private property and aren’t going to take challenges quietly — be it via NATO expansion, U.S. military encirclement, or missile shields. Neither Beijing nor Moscow is bent on the usual form of imperialist expansion, despite the version of events now being fed to Western publics.  Their “red lines” remain essentially defensive in nature, no matter the bluster sometimes involved in securing them.

Whatever Washington may want or fear or try to prevent, the facts on the ground suggest that, in the years ahead, Beijing, Moscow, and Tehran will only grow closer, slowly but surely creating a new geopolitical axis in Eurasia. Meanwhile, a discombobulated America seems to be aiding and abetting the deconstruction of its own unipolar world order, while offering the BRICS a genuine window of opportunity to try to change the rules of the game. 

Russia and China in Pivot Mode

In Washington’s think-tank land, the conviction that the Obama administration should be focused on replaying the Cold War via a new version of containment policy to “limit the development of Russia as a hegemonic power” has taken hold. The recipe: weaponize the neighbors from the Baltic states to Azerbaijan to “contain” Russia. Cold War 2.0 is on because, from the point of view of Washington’s elites, the first one never really left town.

Yet as much as the U.S. may fight the emergence of a multipolar, multi-powered world, economic facts on the ground regularly point to such developments.  The question remains: Will the decline of the hegemon be slow and reasonably dignified, or will the whole world be dragged down with it in what has been called “the Samson option”?

While we watch the spectacle unfold, with no end game in sight, keep in mind that a new force is growing in Eurasia, with the Sino-Russian strategic alliance threatening to dominate its heartland along with great stretches of its inner rim. Now, that’s a nightmare of Mackinderesque proportions from Washington’s point of view.  Think, for instance, of how Zbigniew Brzezinski, the former national security adviser who became a mentor on global politics to President Obama, would see it.

In his 1997 book The Grand Chessboard, Brzezinski argued that “the struggle for global primacy [would] continue to be played” on the Eurasian “chessboard,” of which “Ukraine was a geopolitical pivot.” “If Moscow regains control over Ukraine,” he wrote at the time, Russia would “automatically regain the wherewithal to become a powerful imperial state, spanning Europe and Asia.”

That remains most of the rationale behind the American imperial containment policy — from Russia’s European “near abroad” to the South China Sea. Still, with no endgame in sight, keep your eye on Russia pivoting to Asia, China pivoting across the world, and the BRICS hard at work trying to bring about the new Eurasian Century.

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42 comments

  1. Jim

    This seems to be a lot of hype, especially given the Potemkin nature of all of that cited Chinese development. Now, no one would love to see the neoliberal religion finally be sacrificed on the altar of global reality, more than me, especially given the recent fecklessness of its adherents recently, but I’m not sure to whom Russia is going to sell all of that gas to in China. All of the “new Middle Class” living it up in those high-rise apartments? OK, sure.

    And the article about the Pentagon’s anxiousness about a new Cold War was a link to Fox News…’Nuff said. Further telling, the quote:

    “Keep in mind that, if no bubbles burst…”

    That’s a big assumption, like an Economics-class-sized assumption. Clearly, these deals between China and Russia are an effort to keep the music playing in that game of musical chairs. I think that Neoliberalism will fall on its own petard, on its own lack of merits, and bring everyone down with it, because, unlike the assertion made in this post, Russia & China bought into it just as much as everyone else.

    1. sd

      The 1% are bored and have run out of places to steal from. They want a new war even if it’s just a cold one. This will not end well.

    2. David Lentini

      Don’t forget: Pentagon “anxiety” = Weapons sales = $$$ for those in the revolving door known as the Military-Industrial Complex.

      When I was growing up in the suburbs of Washington, I realized one day that any real war would only destroy those who profit most from the threat of war. And if they were really worried, the Army Corps of Engineers would spend less time building gold bunkers and more time building reinforced bunkers.

      1. Banger

        Yes David, Cold Wars are required for the national security state to maintain its domination of the U.S. government. In my view most of the threats the U.S. has face are mainly fraudulent. Cold War #1 was convenient for both US and USSR military establishments to maintain their domination of their respective governments and the end of the Cold War required another “threat” to keep that establishment in power and it was dutifully manufactured and this one actually officially pushed the Bill of Rights and habeas corpus off a cliff. Now that this GWOT seems to have run out of gas the national security state has to manufacture more conflict.

    3. Ben Johannson

      Just looking at the monetary mistakes in the piece:

      1) the Fed can’t go bust

      2) interest rates are not going to go “skyhigh”

      3) the IT derivatives market Is in the range of $1 quadrillion not $1.4 trillion. I suspect Escobar is referring to excess reserves and got them confused with derivatives.

      As you say, lots of hyperbole but not much useful info.

      1. MRW

        Exactly, Ben Johannson. Too bad Escobar’s knowledge of monetary systems is 100 years old, and dead.

  2. John

    One form of oligarchich hegemony replacing another. Each still leaves it’s Main Street behind to prop up a handful of super rich — at great costs.

    Take China for instance. Is getting ahead at any cost worth it? They consistently produce more CO2 than anyone, choking off huge swaths of their people. Asthma is a huge problem. Because China allowed Western fast food interests to come in, they have a diabetes epidemic that deserves increasing attention. In fact, the government tries to address the problem but they realize they don’t have the money (can’t tax the rich) to tackle their healthcare problems. People line up at the doctor’s door for days, weeks, but only to die waiting. I saw a doctor get beat up because he could not get to his patients in a timely manner. India is in the same mess. Passing through Mumbai or New Delhi these days is a site to behold in terms of girth.

    Is yesterday’s gas guzzling days a way forward for political and economic dominance? The elites sure think so. There may not be a future to actually see if it is not addressed and action taken in a serious way.

    No one talks about the underlying healthcare problems facing the BRICS. It is a serious threat to their economic well being. A threat also to everyone else for that matter.

    BRICS dominance, yes, but at what ungodly cost?

    1. EoinW

      It must be a great challenge to run a country of a billion people. Here in Canada, I witness governments who can’t even run a very wealthy country of 30 million for the benefit of all. Not meaning to excuse the Chinese but when has any country produced a Utopia for all? We had as good a chance as any in the West, yet all the money went flowing to the top. At least the Chinese and Russians are not warmongers, like the western nations have become. War is a more immediate and ungodly cost than anything else.

    2. Banger

      I think you are right but, on the other hand, the U.S. has been solidly against action to do anything substantial about climate change and power being what it is requires China and India to do precisely what they are doing. The path the U.S. has set out has, at present, no possibility of changing while in China, for example, the government can turn almost on a dime–compared to the cumbersome U.S. system which is stuck in maintaining the status quo at all costs.

      Any alliance that undermines U.S. power is, at this point in history, essential. The U.S. government and the Wall Street/City of London alliance are, together, the most toxic forces in the globe and must be opposed or there is no future for any of us. This alliance thrives on conflict and maintenance of a highly corrupt oligarchy that seeks to maintain itself without any interest in the future of people. Ukraine along with Afghanistan, Iraq, Syria, Libya and so on shows the madness of the current regime in Washington (Obama is not in charge of that regime and neither was Bush the Younger) that has been, with a few moments of difficulty, in power since 1963.

    3. jrs

      I’m with you, at what ungodly cost? I think among some there is a kind of triumphialism that at least it’s the end of western dominance. Well U.S. imperalism all over the world is horrible in it’s consequences. So I understand that TO A DEGREE. But at the same time power goes to countries that are producing massive environmental catastrophe (even much of the farmland is now toxic in China) and that aren’t even nominally democratic (I still think if anything could turn back catastrophe it’s true democracy, but in theory the right kind of dictatorship could do it I guess – of course we only seem to get the wrong type).

      Mostly it just hurts like crazy that western nominal democracies totally blew their chance to have any impact on creating the world of the future in a positive direction. And instead it’s basically capitalist totalitarianism that will have it’s day (capitalism with the iron fist of state oppresion fully unveiled – of course that’s what the U.S. stands for now too – but they don’t bother with useless elections in China). Oh humanity might have a *slightly* (only slightly) better chance if it was say Latin American hard left socialism that dominated the planet rather than this. But that’s unlikely. So democracy is a total failure (it never was ours to begin with I guess). Any attempt to regulate captialism to take into account something minor like the survival of the planet dead as an idea. Actually attempts at socialism that is anything more than an accomadation to captialism only a slight flicker (latin america). Anarchy nowhere likely but always the underground hope of mankind, but enough by itself considering how screwed the environment is at this point? Geez.

      That’s why who cares about who even dominates the pipelines at this point, like it’s some economic game when more uncontrolled fossil fuel exploitation just means local environmental poisoning and global extinction.

  3. Andrew Watts

    The answer to the Eurasian Century is Washington’s dream of ‘Saudi America’. This plan assumes that large scale fracking will remain viable and politically feasible enabling the US to export energy. Essentially it revolves around the Keystone pipeline and the LNG export terminal in Oregon. Anybody that has looked into the staggering depletion rates of the fracked wells and the current level of North American consumption of energy knows that this plan has no long-term viability.

    The export of energy will raise domestic energy prices but that’s a small price to our would be imperial overlords inside the Beltway. Such is the folly of a declining empire.

    1. EoinW

      The assumption one makes is that the West’s ruling elites are acting in ways to benefit their countries long term. I’m not sure that’s the case. Fracking only makes sense in that it makes money for certain corporations which, may or may not, own certain politicians. The BIG difference between western leadership and the rest is that many of their countries are working to make their nations stronger, while ours seem to just be plundering what loot is left before the jig is up. Gold, I think, is the best indicator as to who has short term and long term goals.

  4. David Lentini

    “Now, that’s a nightmare of Mackinderesque proportions from Washington’s point of view. Think, for instance, of how Zbigniew Brzezinski, the former national security adviser who became a mentor on global politics to President Obama, would see it.”

    Just think: Our 21st Century geopolitical strategy—you know, the ones who are pushing for all sorts of public education reforms like the Common Core, because they fear our children (not theirs) won’t have 21st Century “skills”—is run by an aging has-been whose ideas stem from a nearly 19th Century imperialistic theory built on a flat-Earth metaphor.

  5. margot izard

    “After all, the only obvious alternative is Caspian Sea gas from Azerbaijan, and that isn’t likely to happen unless the EU can suddenly muster the will and funds for a crash schedule to construct the fabled Baku-Tblisi-Ceyhan (BTC) oil pipeline, conceived during the Clinton years expressly to bypass Russia and Iran.”

    Oops, Pepe. The BTC was completed in 2006. Despite concerns in Georgia over a water source it was to pass through, more concerns about dodgy plastic seals, it went through. A continuation to Ashkalon and/or Eilat was proposed etc., and why Israel was represented at the celebrations when it was completed.

  6. EoinW

    Excellent article! Most disturbing is the obvious fact that, while the Asians are making economic pivots, all America has to counter with is its military.

    1. Jim Haygood

      And all we hear from the Depublicrat duopoly is ‘more of the same, piled higher and deeper.’ An example from yesterday:

      NEW YORK (AP) — Courting powerful Jewish donors for the second time in two months, New Jersey Gov. Chris Christie called Sunday for a more aggressive foreign policy that defends American values abroad — even in “in some very messy, difficult places.”

      “The rest of the world watches in desperation and hope that America will realize and act upon once again its indispensable place in the world,” Christie, a prospective Republican presidential contender, said in a keynote address Sunday at the Champions of Jewish Values International awards gala in New York. “We must lead.”

      He charged that America must represent the strongest military and economic power, but also “the strongest moral power for what is good and what is right in the world.”

      http://news.yahoo.com/christie-calls-more-aggressive-foreign-policy-005146068–election.html

        1. Jim Haygood

          As the AP story notes, Christie is struggling to regain trust after committing the unpardonable sin of referring to Israel’s occupied territories as ‘occupied territories,’ shocking and dismaying all present.

          Obviously the solution is not to end the occupation, but rather to invent better euphemisms.

          Israel, whose OECD membership application described the West Bank as a booming hinterland with 9% GDP growth, might well take a leaf from Imperial Japan and rebadge the area as the Greater Eretz Israel Co-Prosperity Sphere.

  7. Dino Reno

    And on deck, madame war herself, Hillary Clinton. Right now, it’s lies and bluster. Soon, it will be the real thing. Even Bill is talking tough and itching for a fight. Her election will secure their dynastic vision of an America that can’t be denied.

  8. washunate

    Great read. These are the fruits of NATO expansion, militarism more generally, and the idiotic use of sanctions and other stupid finance and criminal justice policies.

    I have been looking forward to the multipolar world for some time. The US has proven quite a craptastic leader these past couple decades.

  9. Vanga

    The Golden Army has not done what the NATO emblem was supposed to do. USA Police World Earth Gulag is failing and the failure does impact PARTNERS’, the east and west are partners and the partnership is not working. There will be what Vanga said, the way the history has always been and this time is no exception to the rule. The rule is those that finally get mad enough make a big white light happen and then, bang, the whimper.

    America isn’t going to be new other than five land masses to not do again what was done to the Indians and other people that were in earth, too, living life as nature intended.

  10. Jim Haygood

    ‘It’s no secret in Hong Kong that the Bank of China has been using a parallel SWIFT network to conduct every kind of trade with Tehran … Moscow is about to implement an alternative payment and credit card system not controlled by Western finance. An even easier route would be to adopt the Chinese Union Pay system, whose operations have already overtaken American Express in global volume.’

    From a foreign perspective, the problem with the USD is that it’s now a politicized (and therefore unreliable) currency. Stuart Levey, the first Undersecretary for Terrorism and Financial Intelligence at US Treasury, got his start isolating Gaza from international wire transfers to help Israel ‘put the Arabs on a diet without starving them.’ Then he upped his game by coordinating comprehensive global sanctions against the Lobby’s bête noire, Iran.

    From the standpoint of countries unaligned with the U.S., these arbitrary punishments are utterly alarming. The U.S. and its European poodles can freeze bank accounts and block access to correspondent banking and trade settlement facilities for America’s ennemis du jour (whose offense may have been merely resisting a U.S.-sponsored color revolution). Governments have a duty to defend their citizens against such unacceptable risks imposed by foreign hegemons.

    A ‘global reserve currency’ with only a 33% market share (and dropping) obviously is on the way out. As Pepe Escobar correctly observes, this trend is self-imposed. The megalomaniacal yankee mentality just can’t stop itself from trying to teach other people lessons at gunpoint … and is hurt and shocked when they resist.

  11. Deaf Smith

    I’m no gold bug, but don’t dismiss the proposal for gold in the equation for a basket of currencies as an alternative to the US$. It was gold reserves that originally put the dollar where it is today; Nixon came later. M.M.T. alone will not give credibility to a new international currency.

    1. Calgacus

      It was gold reserves that originally put the dollar where it is today; No. The wealth and productivity of the USA is what put the dollar where it is today. Gold reserves, a gold standard, the backing of a not-very useful or valuable metal by valuable US “fiat” money was an obstacle to sound economics and economic understanding, national prosperity and strength, not a cause.

    2. alex morfesis

      gold
      dollar backed by gold ?
      or was it silver ?
      or more like guns and bullets (and a real navy too)

      or nothing since banks back then issued their own
      currencies and licensed the style of us currency
      (look up old numismatic currencies and read the fine print)

      before there was a federal reserve there were the clearing houses

      gold was used when one party went from one section of the country
      to another, into another clearing house of the local banks

      but didnt the russians and chinese trade useless rubbles and yuan from
      1947 until 1987

      that did them well…
      back to stone age they will go…

      does anyone in russia trust the government
      does anyone in china trust the government

      at least in the usa, the lemmings have no clue
      so acceptance of the dollars is useful

      again, if life in the USA was so bad, why are
      not americans paying 30k to 50k to illegally
      migrate to china and russia or brazil for that
      matter…now we know there is a giant waiting
      list of americans looking to get their visas approved to
      live in south africa…there is isn’t there…???

      and the princlings are not sent to american and
      european universities because that would be wasting your time on a failing economic order…

  12. Dan Kervick

    The Fed is arguably monetizing 70% of the U.S. government debt in an attempt to keep interest rates from heading skywards. Pentagon adviser Jim Rickards, as well as every Hong Kong-based banker, tends to believe that the Fed is bust (though they won’t say it on the record). No one can even imagine the extent of the possible future deluge the U.S. dollar might experience amid a $1.4 trillion Mount Ararat of financial derivatives.

    Oh right, collapse and hyperinflation – always just around the corner for the zero hedgies and their Paultardian ilk at Asia Times.

    How hard is it for people to understand that the very concept of a central bank like the Fed “going bust” is meaningless? Whether more money is flowing out of the Fed than is flowing in, or more money is flowing in that flowing out, is a central bank monetary policy choice. The assets minus liabilities total on the central bank’s balance sheet is an accounting fiction, not a real world measure of the institution’s net worth. Where the assets in question are merely commitments for flows of the very currency that the central bank emits, there is no sense in which having more of these assets makes the central bank “richer” or having fewer of them makes the central bank “poorer”. If every single MBS on the Fed’s balance sheet defaulted, it would not impact the Fed’s ability to emit its own liabilities and meet its own financial commitments one whit. It would, however, reduce the amount of money remitted by the central bank to the Treasury each year. And that would be a good thing, because in an economy that was so devastated that all of those securities turned to junk, we would want bigger deficits and certainly wouldn’t want the Fed+Treasury monetary machine to be vacuuming up dollars.

    1. washunate

      Dan, I don’t think hyperinflation is likely either, but I’m pretty sure hyperinflationists are not worried about the ability of the Fed to ’emit its own liabilities’.

      Quite the opposite, they are terrified that this ability is far greater than the rest of us realize.

      1. Dan Kervick

        I understand they are worried about hyperinflation. But that’s a completely different matter from the Fed being “broke” or “bust”.

        1. washunate

          Can you explain your thought process on why are you saying that such a narrow, technical definition is what they mean when they talk about the Fed being broke?

          It seems clear to me that they mean that so long as fiscal policy continues bailing out the criminals, then the Fed will have to continue emitting new liabilities precisely because the printing press is the only asset the Fed owns that can generate positive cash flow.

          That concept – that an organization’s only recourse for operations is the issuance of debt – is colloquially called being broke. I think the layperson usage of broke is all the hyperinflationists are invoking here. They’re not saying the Fed can’t print more money. They’re saying the Fed has to print more money.

      2. ian

        Ok, one thing I don’t get (admit I am not an economist). I know hyperinflation is unlikely. What I can’t figure is this: we pile up public debt at really low interest rates. Given that most debt is rolled over, and not paid off, what happens if the interest rates rise – even a little, by the time that recently issued debt matures? Is this a time bomb waiting to go off?

        1. washunate

          The apocalypse scenarios seem to be what are most exciting to talk about – from hyperinflationary collapse to the changing of the jet stream – but what I think is most likely is what has already been happening for many years and what nobody invested in the system wants to talk about: stagflation. It’s not a ticking time bomb, I’d say; it’s a long, slow process.

          Wage stagnation combined with price increases is the very mechanism of the looting (designed and enforced, of course, by a very active authoritarian police state). Interest rates can’t go up; it’s a one way street. To raise interest rates and re-institute rule of law (ie, reduce the currency price of financial assets) is antithetical to the looting.

  13. john c. halasz

    The 33% U.S. $ share of FX reserves is off. The figures have about 45% of FX reserves “unallocated”, which presumably means “unknown”. The U.S.$ share of allocated reserves is still 60%.

  14. James Levy

    I understand that the Fed cannot technically “go broke”, although there are certain situations under which I can imagine nobody accepting their payments in Federal Reserve Notes could occur. What I don’t understand is the idea that issuing trillions of dollars ex nihilo isn’t a terrible thing. It seems to blow asset bubbles and make the rich richer and more powerful vis-à-vis the rest of us.

    1. ian

      Exactly. Fat lot of good the recent debt has done _me_.
      I know the economists hate comparisons with household finances, but, as in a household, doesn’t it depend _what _ you spend the money on, not the fact that you are taking on debt by itself? – ie, borrowing to buy house, get education good; borrowing to have a blowout weekend in Vegas bad.
      My own sense is that we haven’t spent the borrowed money on much of lasting value.

    2. Dan Kervick

      With QE, the Fed doesn’t just issue dollars and inject them into the economy. It uses the dollars to buy financial assets. Each of those assets has a cash flow attached, and once the Fed owns those assets, then dollars that would have flowed from one private sector entity to another, now flow from the private sector back to the Fed. In the end, it’s a virtual wash. The Fed injects more dollars than usual up front, but then over the maturity span of the assets that are purchased, more dollars than usual are absorbed by the Fed. The Austrians keep saying the purchased assets are trash, but that doesn’t seem to be the case at all, since the Fed keeps realizing big profits on their SOMA portfolio and remitting those profits back to the treasury.

  15. jfleni

    RE:The Birth of a Eurasian Century: Russia and China Do Pipelineistan

    To quote from the article [China is] “building not one, but myriad new Silk Roads, massive webs of high-speed railways, highways, pipelines, ports, and fiber optic networks across huge parts of Eurasia”

    Meanwhile, we and our neocon morons, like “Sewer-mouth Vicky” fervently sponsor “Pussy Riot” and much even more nutty and unproductive nonsense, while our most sensible astronauts and thinkers shout in vain about mining meteorites (many very valuable, rare elements), space and scientific research, building our own fiber networks, essential infrastucture, etc, etc.

    It’s almost as if we, following the Roman dictum “Whom the gods would destroy, they first make mad”, are following the delusionary Rupublicans and Democrats to the path of national destruction, and make no mistake, we and they are to blame, not Eurasia!

    But that’s OK Bubba, Barry will gargle his favorite mixture of olive oil and Channel #5, make a speech, and everything will be saved. Sure!

  16. Chauncey Gardiner

    Thought provoking post. “Pipelineistan” with Russian gas appears to be Putin’s trump card. Little wonder German transnational corporations like Siemens AG and former senior German government officials are emphasizing the importance of longstanding ties to Russia.

  17. Roland

    On the whole a good analysis, but it ignores that the PRC gov’t, like most gov’ts, has been willing to wave the flag and rattle the sabre for its own internal political purposes. It’s a way to distract Chinese workers from the fact that they have not enjoyed a fair share of the national growth that has resulted from their efforts.

    How else to understand some of the absurd confrontations with neighbours? Given the scale of Chinese energy demands, why should China bother quarreling over the Spratly Is.? Why abet anti-Japanese demonstrations? Why clash with the Vietnamese over a few lousy drill holes? \

    Why do anything to remind all these Asian countries of reasons why they might want to keep getting ripped off by the hegemon they already know?

    I can’t figure out any concrete reason why China shouldn’t pursue a “charm offensive” WRT to all unresolved territorial/EEZ issues. Obviously China isn’t in the business of building an empire–these quarrels are too trivial to constitute aggrandizement, even if the ill-feeling with neighbours is real enough.

    The only explanation that seems to fit is that the sabre rattling by Chinese politicians is focused on the perceptions of a domestic constituency rather than on any foreign policy outcome.

    “Lookit, the flag! Isn’t it great that we’re all Chinese! China yay! Now, please don’t touch my Mercedes!”

    1. Susan Pizzo

      My sentiments precisely. If you turn off the sound and just look at the picture – cui bono? At a time when we should be leaving as much fossil fuel in the ground as possible, the great race for petroleum products and planetary destruction intensifies. Ditto militaristic tensions, requiring more social austerity to fund the corporate security state. And across the board ordinary people are the losers while a global class of oligarchs flourishes. Just the conditions needed to undermine democracy generally and life in these United States in particular. Which, if you’ve been following the Greek experiment, just might be the real point the present exercise. At any rate, at the end of the day the 1% all go home to the same neighborhood in London, no?

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