Putin: "there are not so many countries that have the privilege of sovereignty."
This past February I wrote about the predictions of an elderly Russian woman who many here call a “znakhar” (a combination of seer + sorcerer + healer). As it so happened, yesterday I was passing by the local church and spotted her again—this time seated on a bench close by.
As opposed to February, it is now a comfortable 20 degrees Celsius in Moscow, with a balmy breeze and a sunny to partly cloudy sky.
“Hello foreigner!” she called out with a smile, “I see you are still here among us. I knew that you would be”.
Not being in any hurry I decided to stop and chat about this and that—the usual natter between foreigners and znakhars.
When we spoke back in February she offered me some unsolicited financial advice: “Better you get rid of your ‘valyuta’ (hard currencies) and turn them into rubles or better; best to buy some gold St. George the Conqueror coins with your dollars today. Very big changes are now predestined to happen and our world will turn topsy-turvy, so be ready”.
At that time the unknowns before us economically were the real value of the dollar, Euro, central banks, Federal Reserve tinkering, QE, ZIRP’s, NIRP’s, historically unprecedented growing debt and a brand new Trump administration intent on establishing America first in everything.
“I tell you young man—the big changes have already started back in March. We do not see them yet, but know that they are happening. Tell me honestly if you can, why America that lives on its own continental island wants to tell everyone everywhere how they must live in their own countries, even to the Europeans? This is not how reasonable or mannered people behave. If we talk about Europeans or this EU, it just makes no sense to me that a Finn, a Greek, an Irishman, Bulgarian or Frenchman have much culturally or historically in common with a Cypriot, German, or a Portuguese. The Bible described such a place that was called Babel. Believe me this will not last, it is anathema to God’s wondrously individual souls among mankind”.
What could I say? She had a point. After all, the EU is a construct of 28 culturally and linguistically disparate nations all supposedly towing a supranational line in Brussels. The tug-of-war strains are apparent from the Brexit example to the recent election results in France, not to mention the simmering resentments being kept in check within Greece and Hungary. Perhaps it is the stark choice between globalism and sovereignty among so many peoples that rubs the body politic raw in painful places.
So what has changed from this past winter to this early summer that this ‘znakhar’ says she is seeing? On reflection: quite a bit.
The American role as leader of the world is undergoing a rather significantly deep branding change. This as evidenced by the foreign minister of Canada who said the other week, “The fact that our friend and ally (USA) has come to question the very worth of its mantle of global leadership, puts into sharper focus the need for the rest of us to set our own clear and sovereign course.”
Whether one thinks this is positive or negative is not really the issue. What is relevant as America eases away from the role of chief evangelist of the “world order”, are what the long-term consequential effects may be? Keep in mind that for these past several decades, America was the sole world superpower and the US Dollar has been the foundation of the global economy.
Any changes or disruption to this status quo will result in some instability, to a greater or lesser extent depending from where you sit as realignments happen. It will mean engagement in some areas and disengagement in others. The ongoing diversification worldwide from the dollar will continue for years to come and will mandate changes influencing the fabric of societies across the planet.
For the past 70+ years the USA was the chairman of the board of the first world, it still largely remains so as it has been the major wallet and financier of the United Nations, G7, G20, OAS, APEC, WTO, Arctic Council, NATO, World Bank, the IMF, and a gaggle of others. We have seen declarative changes placed on the table by the USA that question what have occified into accepted norms, like countries not fully paying to play in NATO.
We see this with funding dis-balances that have become entrenched within member states participating in the “collective” social, political and economic fabric of these institutions. Recently the president stated: “I am skeptical of international unions that tie us up and bring America down… We will never enter America into any agreement that reduces our ability to control our own affairs. The nation-state remains the true foundation of happiness and harmony.”
When President Donald Trump traveled to Saudi Arabia, he danced with a sword and sipped coffee with the king, but made not a mention of the country's political oppression or routine beheadings. When sitting with Egyptian President Abdel Fattah al-Sisi in the Oval Office, not a peep was said publicly on jailing dissidents and journalists. Meeting with Chinese leader Xi Jinping in April, Trump declined to raise Beijing's crackdown on opponents of the government.
After those and similar meetings, White House officials said Trump would not let differences over human rights impede upon his efforts to strike deals with leaders of sovereign nations. This is indicative of a departure from what has been an all too predictable norm in America’s approach to foreign policy for the past decades.
Even the former prime minister of Australia John Howard said that Donald Trump’s election and Britain’s decision to quit the European Union demonstrated a global push for greater “national sovereignty”. He went further adding that the election of Trump articulated the resentment many Americans felt towards an “avalanche of political correctness”.
Realignment of the comfort zone in the world order of things is forcing change; it is an economic and a political disruptor that the nations of the world are only now starting to address. Angela Merkel even said: “The times in which we can fully count on others are somewhat over, as I have experienced in the past few days, we need to know we must fight for our own future as Europeans for our destiny.”
It also begs for a traditional “fall guy”, be it Trump, Putin, Merkel or North Korea to redirect some of the political heat which will get much hotter as realignments progress.
Vladimir Putin added his view by saying, "worldwide there are not so many countries that have the privilege of sovereignty." He mentioned India and China, alongside Russia, as nations that had been able to maintain their national sovereignty despite globalized peer group pressures.
Whether one agrees with him or not, Putin has become a symbol of national sovereignty in its battle with globalism. This may turn out to be the big battle of our times and at the end of the day, it is assuredly economic in nature.
As in most things on our green earth, to get to the core of any issue, put on Hercule Poirot shoes and follow the money…, which leads to U.S. debt and the U.S. dollar. Perception in geopolitics and economics are no less drivers of reality than fundamentals.
Therefore, when the commander in chief in discussing the national debt says; "First of all, you never have to default, because you print the money, I hate to tell you, OK?” So, in the event the United States goes overboard with debt we would then “print the money,” or “make a deal”, probably not to the benefit of creditors or bondholders. Add to this the fact that the US debt limit is still unresolvedly lying on the table and has yet to be decided, a very hot potato both in deed and in fact.
I recently read a Bank of America study spanning the past 100 years where the Fed conducted 19 rate hike cycles. Recession has been the result of 16 of them, or 84%, the odds lean towards a recession repeat but with far less elasticity for the US Government and the Fed to tinker. Traditionally, that usually results in printing even more money, or yet further rounds of QE.
The world bond markets today are feeling a creeping nervous tone which today so far only whispers “what is the real cost to keep lending money to a country that might feel no obligation to pay you back?” The United States today is carrying $20 trillion in debt with a debt-to-GDP ratio of 105%.
There is a small yet steadily growing sentiment that perhaps America can no longer be entirely trusted as a debtor, and if so why should it be trusted as the lead player of the globe? The potential for fallout if trust erodes in the U.S. management of its currency is certainly there. Then institutions like the World Bank, WTO, and IMF will lose their credibility to the same degree, further widening the already opening the door for new players on the world stage.
Brazil, Russia, China, India, and South Africa have already launched a group of similar institutions like the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA). China has started the Shanghai Gold Exchange competing with London and Wall Street.
More and more countries throughout the world have booked billions in dollar equivalent currency swaps, allowing for trade without using the U.S. dollar with its regulatory limitations and controls as a proxy. This trend will only grow over time as currency diversification and the principles of unfettering trade become a key to common sense business and risk management.
I snapped out of my reverie and looked at the Znakhar woman, who said, “You were far away with your thoughts. Never mind all will be, as it should. You will feel better if you go inside the church and light a candle, which always works for me”.
Who am I to argue? I thanked her, did as she suggested, and walked along the Moscow river esplanade on my way home wondering what global changes this week’s sequel will bring.