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Page added on May 23, 2014
Who Needs The United States? Not Russia And China
Russia and China have just signed what is being called “the gas deal of the century”, and the two countries are discussing moving away from the U.S. dollar and using their own currencies to trade with one another. This has huge implications for the future of the U.S. economy, but the mainstream media in the United States is being strangely quiet about all of this.
For example, I searched CNN’s website to see if I could find something about this gas deal between Russia and China and I did not find anything. But I did find links to “top stories” entitled “Celebs who went faux red” and “Adorable kid tugs on Obama’s ear“. Is it any wonder why the mainstream media is dying? If a particular story does not fit their agenda, they will simply ignore it. But the truth is that this new agreement between Russia and China is huge. It could end up fundamentally changing the global financial system, and not in a way that would be beneficial for the United States.
Russia and China had been negotiating this natural gas deal for ten years, and now it is finally done. Russia is the largest exporter of natural gas on the entire planet, and China is poised to become the world’s largest economy in just a few years. This new $400 billion agreement means that these two superpowers could potentially enjoy a mutually beneficial relationship for the next 30 years…
Russia reached a $400 billion deal to supply natural gas to China through a new pipeline over 30 years, a milestone in relations between the world’s largest energy producer and the biggest consumer.
President Vladimir Putin is turning to China to bolster Russia’s economy as relations sour with the U.S. and European Union because of the crisis in Ukraine. Today’s accord, signed after more than a decade of talks, will allow state-run gas producer OAO Gazprom (GAZP) to invest $55 billion developing giant gas fields in eastern Siberia and building the pipeline, Putin said.
It’s an “epochal event,” Putin said in Shanghai after the contract was signed. Both countries are satisfied with the price, he said.
Of course countries sell oil and natural gas to each other all the time. But what makes this deal such a potential problem for the U.S. is the fact that Russia and China are working on cutting the U.S. dollar out of the entire equation. Just check out the following excerpt from a recent article in a Russian news source…
Russia and China are planning to increase the volume of direct payments in mutual trade in their national currencies, according to a joint statement on a new stage of comprehensive partnership and strategic cooperation signed during high-level talks in Shanghai on Tuesday.
“The sides intend to take new steps to increase the level and expansion of spheres of Russian-Chinese practical cooperation, in particular to establish close cooperation in the financial sphere, including an increase in direct payments in the Russian and Chinese national currencies in trade, investments and loan services,” the statement said.
In my recent article entitled “De-Dollarization: Russia Is On The Verge Of Dealing A Massive Blow To The Petrodollar“, I warned about what could happen if the petrodollar monopoly ends. In the United States, our current standard of living is extremely dependent on the rest of the world continuing to use our currency to trade with one another. If Russia starts selling natural gas to China without the U.S. dollar being involved, that would be a monumental blow to the petrodollar. And if other nations started following the lead of Russia and China, that could result in an avalanche from which the petrodollar may never recover.
And it isn’t just the national governments of Russia and China that are discussing moving away from the U.S. dollar. For example, the second largest bank in Russia just signed a deal with the Bank of China “to pay each other in domestic currencies”…
VTB, Russia’s second biggest lender, has signed a deal with Bank of China, which includes an agreement to pay each other in domestic currencies.
“Under the agreement, the banks plan to develop their partnership in a number of areas, including cooperation on ruble and renminbi settlements, investment banking, inter-bank lending, trade finance and capital-markets transactions,” says the official VTB statement.
The deal underlines VTB Group’s growing interest in Asian markets and will help grow trade between Russia and China that are already close trading partners, said VTB Bank Management Board Vasily Titov.
You can almost feel the power of the U.S. dollar fading.
A few months ago, when I wrote about how China had announced that it no longer planned to stockpile more U.S. dollars, I speculated that it may be evidence that China planned to start making a big move away from the U.S. dollar.
Well, now China’s intentions have become even more clear.
The Chinese do not plan to allow the United States to indefinitely dominate the globe financially. In the long run, the Chinese plan to be the ones calling the shots, and that means that the power of the U.S. dollar must decline.
These days, instead of piling up mountains of U.S. currency, China has started accumulating hard assets instead. In the past, I have written about how China is rapidly stockpiling gold, and it turns out that the Chinese have also been very busy stockpiling oil as well…
China is stockpiling oil for its strategic petroleum reserve at a record pace, intervening on a scale large enough to send a powerful pulse through the world crude market.
The move comes as tensions mount in the South China Sea and the West prepares possible oil sanctions against Russia over the crisis in eastern Ukraine. Analysts believe China is quietly building up buffers against a possible spike in oil prices or disruptions in supply.
The International Energy Agency (IEA) said in its latest monthly report that China imported 6.81m barrels per day (bpd) in April, an all-time high.
Once upon a time, China was extremely dependent on the United States economically. The same was true with most of the rest of the world.
But now economic power has shifted so dramatically that nations such as Russia and China are realizing that they don’t really need to be dependent on the United States any longer.
And with each passing year, the relationship between Russia and China is becoming stronger. As Pepe Escobar recently observed, this emerging alliance is causing quite a bit of consternation in Washington…
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.
Meanwhile, the relationship that the U.S. has with both nations is quickly going sour. The crisis in Ukraine has caused relations with Russia to drop to the lowest point since the end of the Cold War, and now China is deeply offended by charges that Chinese military officers have been involved in cyberspying on the United States…
China on Tuesday warned the United States was jeopardizing military ties by charging five Chinese officers with cyberspying and tried to turn the tables on Washington by calling it “the biggest attacker of China’s cyberspace.”
China announced it was suspending cooperation with the United States in a joint cybersecurity task force over Monday’s charges that officers stole trade secrets from major American companies. The Foreign Ministry demanded Washington withdraw the indictment.
The testy exchange marked an escalation in tensions over U.S. complaints that China’s military uses its cyber warfare skills to steal foreign trade secrets to help the country’s vast state-owned industrial sector.
The divide between the East and the West is growing.
But the Obama administration has not figured out that we need the East more than they need us.
Right now, the number one U.S. export is U.S. dollars. Our massively inflated standard of living is very heavily dependent on the rest of the world using our currency to trade with one another and lending it to us at super low interest rates.
If the rest of the world quits playing our game, our debt-based financial system will quickly fall apart.
Unfortunately, nobody in the Obama administration seems to have much understanding of global economics, and they will probably continue to antagonize Russia and China.
In the end, the consequences for antagonizing them could end up being far greater than any of us ever imagined.
24 Comments on "Who Needs The United States? Not Russia And China"
Plantagenet on Fri, 23rd May 2014 10:30 am
Putin has just shown how to do a strong “pivot to Asia”. Obama, not so much.
HARM on Fri, 23rd May 2014 11:41 am
Obama is not a dictator, or even a Russian oligarch. He can’t do much without Congressional budget or Congressional approval. Last time I checked, most Red State conservative politicians were *extremely* reluctant to do any business with “Commie-Marxist” states like Russia and China.
So what are all your Tea Party heroes doing to address your concerns?
Davy, Hermann, MO on Fri, 23rd May 2014 11:51 am
This article is the usual MSM simplistic and unsophisticated look a global reality that is not understood. You can’t decouple from the US just as the US cannot decouple from the BRICS. What we can see happening is the end of the current global BAU through a global financial civil war. In the past this has eventually lead to a hot war. A trade war and or a hot war is the end of the stability that is keeping the current BAU system stable. This BAU system is far out into disequilibrium territory characterized by a dangerous lack of resiliency of all locals because of global dependence. Throw in WMD’s and industrial poisons that must be manage and basically we are looking at an untenable position. Usually in human political structures eventually bad blood will destroy bad blood. So in the next year or two watch as TPTB destroy each other. It would be nice if we could watch this without being destroyed along with them but that is not the case. They will sink the BAU ship and everyone will sink along with global TPTB cabal. So few have any kind of life boats. Good luck BRICS with you game of “Russian Roulette”. BRICS, if you want a little more BAU time then don’t disturb the system. It is set to break up as it is but your pride and hubris will bring it down sooner. This is no compliment in any way for the US which has reach its peak of absurdity. But please propagandists don’t force feed me a new BRICS world order. It “aint gonna happin”. Brics are nothing more than basket cases each in their own way definitions of what a basket case is.
penury on Fri, 23rd May 2014 4:14 pm
Perhaps if it were just China and Russia the problem would be containable for a while. However, during the next few weeks the Chinese and Russians are going to be doing test currency swaps with India, Brazil and S.Africa. Russia is already doing currency trades with Iran and Syria, It appears that Kazastan (sp) is willing to sell natural gas to China for Yuan. China announced that they will no longer accept dollars from N. Afganistan banks. Perhaps the snowball is rolling down the steep slope and problems may become evident sooner than most are aware.
Jeff O. on Fri, 23rd May 2014 4:35 pm
I’m a poor frenchie reader.
Who can explain me these acronyms:
WMD, TPTB, MSM, LOL. It will help me understand what is said over there.
thanks
Perk Earl on Fri, 23rd May 2014 4:59 pm
“You can’t decouple from the US just as the US cannot decouple from the BRICS.”
Maybe, but there can certainly be less exchanges in USD’s. I think what we are seeing is a natural progression of globalism. Initially trade expanded t connect more countries globally, and now many of those countries want to make exchanges in currencies other than the USD.
J-Gav on Fri, 23rd May 2014 5:25 pm
The title is misleading as China obviously needs the U.S. to sell its products. Is there a concerted move away from the dollar? Yes, and we’ll see where and how fast that goes.
Jeff – Weapons of mass destruction; The powers that be; Mainstream media; Laughing out loud (Mort de rire).
GregT on Fri, 23rd May 2014 6:38 pm
Jeff O,
A quick google search should answers your questions.
But here you go.
WMD weapons of mass destruction
TPTB the powers that be
MSM main stream media
LOL laughing out loud
GregT on Fri, 23rd May 2014 6:45 pm
Oops, missed your post J-Gav.
Makati1 on Fri, 23rd May 2014 7:58 pm
J-Gav, I think the US needs China’s products more than China needs US customers. The idea is that trade between countries is cutting the USD out of the loop and that will drop it’s value to somewhere under 40% of today’s value. Some do not see the end of the USD as the world’s reserve currency as the real catastrophe it is for the US economy. The rest of the world is anxious to switch and get out of the USD clutches. The arrangements are already in place for the use of many currencies, and even the Euro, in place of the dollar for trade.
What would happen if China decided it would only accept rubles for it’s exports to the US? That is the same as requiring them to use US dollars to buy oil in Saudi Arabia.
Davy, Hermann, MO on Fri, 23rd May 2014 8:59 pm
Mak, you fail to see that China is an export economy it needs every customer. The US could use less Chinese trash and maybe start making some of the junk here in the US. In fact we would be better off without most of the plastic consumer junk. When I see a “made in China” tag I see junk.
Mak, you need financial education your very unsophisticated comments should be on a high school board. A 40% drop in a currency value of the largest economy is the end of the global economic system. Please turn your propaganda lenses off and see reality for a change. Nor is your crowing about the world is anxious to dump the dollar valid. The world investors could give a rat’s ass about currencies so long as the currencies are making them money. Mak, you are drinking the MSM kool Aid you complain about constantly but draw upon when it suits your propagandist needs. Your Ruble example is hilarious. The Russian economy is a pimple on the global economies butt. Tell me how and where the rubles are going to appear? You amaze me Mak with your constant and insistent bend towards anti American propaganda and glowing support of China and Russia.
GregT on Fri, 23rd May 2014 11:54 pm
Davy,
Ten years ago in Canada, we routinely saw products that were ‘Made in the USA’. This was always an assurance of a quality product. Today, all of those ‘Made in the USA’ products have tiny little stickers on them somewhere, that say ‘manufactured in China’. The American logos, manuals, and quality assurance tags are still there, but nothing that I have seen in any store, anywhere, in the last 3 or so years, has been manufactured in the US. Nothing.
GDP measurements as an indicator of economic well being, are absolute crap. The US manufactures absolutely nothing that I have seen anywhere in Canada for a very long time. American companies have off shored technology, labour, and trillions of dollars in infrastructure to turn bigger profits. They have sold America, to China. American GDP is largely a reflection of American companies capitalizing on cheap foreign labor.
The Chinese have a population 4 times that of the US. Their population is starting to consume just like our populations have. If the Chinese were to cut out the American middlemen, they have every possibility of continuing on with economic growth by selling their products in China at a fraction of what they are being sold for here.
The Chinese don’t need us in North America, other than for the resources, and energy that they already own.
Davy, Hermann, MO on Sat, 24th May 2014 1:25 am
Greg, there is plenty of US manufactured goods and generally value added and higher value or low value. There are industries where the US excels and has comparative advantage. I might add Canada mirrors the US. In many cases items that are higher value have a variety of sources in their design. My girlfriend is a designer who cad designs fashion items that are then produced in China. What you see coming out of China generally here in the US is American designed and Chinese produced. This is most often consumables, furniture, cheap gadgets, and cheap electronics. China does have plenty of heavy industrial products from steel to AltE products. Unfortunately the US is the largest military producer. That is nothing to be proud of. Greg, I don’t like copy and paste but in this case here you go:
Did You Know…
In 2013, manufacturers contributed $2.08 trillion to the economy, up from $2.03 trillion in 2012. This was 12.5 percent of GDP. For every $1.00 spent in manufacturing, another $1.32 is added to the economy, the highest multiplier effect of any economic sector.1
Manufacturing supports an estimated 17.4 million jobs in the United States—about one in six private-sector jobs. More than 12 million Americans (or 9 percent of the workforce) are employed directly in manufacturing.2
In 2012, the average manufacturing worker in the United States earned $77,505 annually, including pay and benefits. The average worker in all industries earned $62,063.3
Manufacturers in the United States are the most productive in the world, far surpassing the worker productivity of any other major manufacturing economy, leading to higher wages and living standards.4
Manufacturers in the United States perform two-thirds of all private-sector R&D in the nation, driving more innovation than any other sector.5
Taken alone, manufacturing in the United States would be the 8th largest economy in the world.6
GregT on Sat, 24th May 2014 12:12 pm
Davy,
I’d be very curious to see those manufacturing numbers broken down. I suspect that a good percentage would be the auto, steel, heavy equipment, and construction industries.
I would agree with you that Canada mirrors the US. Other than natural resources and tourism, most peoples’ jobs are in the service sector. Off of the top of my head, I can’t think of any meaningful products manufactured here in Canada, other than automobiles, heavy equipment, ships, and construction.
J-Gav on Sat, 24th May 2014 5:23 pm
Makati – I think you may be underestimating the degree of interconnected trade the world has arrived at.
Maybe it’s true that the U.S. needs China more than vice -versa – but it wouldn’t be by very much. Granted, things are changing and could accelerate (away from the dollar). Still, there is, as yet, no system-wide substitute for it. Will the play go towards SDRs, gold, a basket of currencies? None of them look particularly ‘stabilizing’ IMO. I guess we plebes don’t have a lot to say about it, do we? Batten the hatches.
Makati1 on Sat, 24th May 2014 7:30 pm
J-Gav, what does the US really produce without foreign materials/help? Not much if anything. Even the cost of oil would go up if the US had to buy it in Yuan or Rubles or SDRs.
I see SDRs being the trade method of choice before 2025. Why? Because the 1/10% want a world currency and that one is the quickest to adopt. It is already in use and accepted everywhere.
The US is the stumbling block in the way of it happening. Therefore, the US has to go down. The elite don’t give a damn about the US or you. You are a number that they play with. American or African or Chinese. No difference to them. Just power and profits. The US is already on the way gown. They will just push the decent along, like Obama is already doing.
Davy, Hermann, MO on Sat, 24th May 2014 8:37 pm
Mak, What does any other country produce without foreign help? Mak, why would Yuan or Rubles be used for oil purchases? You are ignorant of basic economics. Your fixation on SDR’s are another sign of ignorance.
GregT on Sat, 24th May 2014 11:12 pm
Davy,
Mak is hardly the only one fixated on SDRs.
Not to be condescending, but why do you think that the Russians and the Chinese would prefer to trade oil in currencies other than the USD? Why do you think that Saddam was taken out when he talked of trading oil in Euros, or Ghaddafi when he talked of using gold?
Which also begs the question, whatever did happen to both of their vast stores of gold?
bob on Sat, 24th May 2014 11:16 pm
I always skip past Makati posts…it is such a waste of time when someone is so emotionally tied to things they start to spout of nonsense. Yes we all get it, you hate the United States and you pine for its demise even if it means your own country and family goes down!… you can’t argue with crazy…..
GregT on Sat, 24th May 2014 11:32 pm
Bob,
Maybe you should be paying a bit more attention to Makati’s posts. The international community has been saying much of the same for the last decade. What is occurring within the BRICS nations right now, is exactly what I discussed with my coworkers five years ago. The talk of a new reserve currency has been mainstream for a long time. Just because it upsets you does not mean that Mak is crazy, and it definitely does not mean that he should be nuked. That kind of talk IS crazy.
Davy, Hermann, MO on Sun, 25th May 2014 6:41 am
Greg, I do not deny the diminishment of the Petro dollar. China and Russia should make arrangements to trade in currencies other than the US dollar. SDR are not practical without many changes to the current foreign exchange arrangements. The dollar will be a significant participant in any case. The dollar will not be destroyed without taking down the global system. The US is the largest global economy along with China. You don’t decouple from that. The Brics are basket case economies that are G7 want-a-bees and all have huge problems. China being the most significant is in a dangerous debt unwind:
http://www.zerohedge.com/news/2014-05-24/i-will-never-sell-my-gold-marc-faber-warns-chinas-gigantic-credit-bubble-unwind-just
Systematically the global system is at a cycle peak. It is in disequilibrium for many reasons I constantly harp on and will spare you the repetition now. This system cannot change except by a collapse. There is no transition for BAU in the cards. There will be no movement from one dominant powers or power to another. All locals rely on the global for vital support structures. We will all collapse together. To elaborate on the currency issues again I saved a very good post by Pops.
Pops on Thu, 15th May 2014 12:38 pm
I’ve said this before, there is not enough currency in circulation from any other country to replace the dollar, that’s number one.
Number 2 is no one is going to hold a manipulated currency as a reserve. Russia said they would let the Ruble float next year but it began to crash so I doubt that will happen, China won’t let the Yuan float outside the range they set.
No 3 is China and Russia are both acting really aggressive toward their neighbors, I doubt other countries will be looking forward to holding their cash.
No 4 I don’t know about Russia but china is holding lots of dollars and they aren’t going to just burn that value willey nilley.
The US$ may not stay the standard forever but I’m pretty sure it won’t go away overnight as every gold & gorp dealer wants you to believe.
Davy, Hermann, MO on Sun, 25th May 2014 6:55 am
Greg, I know you and Gav have a soft spot in your heart for Mak. I echo what Bob said. Mak is a joke on this board. I am not saying he is not intelligent. He thinks he is more intelligent then he is. To be honest many here do the same including me. Mak is a joke because he is not concerned with the truth. His concern is with anything that can be construed to be the end of the US. “ALL” Mak posts are anti-American and include glowing praise for the opposition usually China and Russia. Mak has this inflated sense of righteousness in this pursuit. His critique is often personal on my part in that he comments on my people and my culture in ways that are biased and unfair. Then he includes glowing praise for his adopted Philippians and or some other Basket case country he in love with de jure. These posts are not occasional like dingbat NOOB they are daily. Greg, do you see me harp on anyone other MAK like I do. Most everyone else I am fair and accommodating with. Mak, will have my constant and undivided attention from here on out with rebuttals. I am American and I will defend my people and my culture. I am one of the most outspoken here in contempt and criticism of my country and culture but it is fair and balanced. I see many here who engage in American bashing but they spare their own country the same criticism. Mak is the worst and I will bash him any chance I get. He is a fake and coward.
GregT on Sun, 25th May 2014 11:22 am
Davy,
I think that it’s pretty safe to say, that with the end of cheap oil, will come the end of globalization. The end of globalization will go a long way to levelling the playing field, or people’s standards of living.
As I go about my daily life, I am surrounded by millions of people that are completely reliant on cheap oil, and all of the cheap ‘goods’ that globalization and the exploitation of cheap foreign labour have afforded them. There are no sustenance farmers, oxen, goats, chickens, pigs, or local manufactures of textiles. All of the necessities of life come from far away places, and much of those places are in Asia, half way around the world.
Most folks here are two or more generations away from a life of sustenance. They no longer have the means, the knowledge or the wherewithal needed to keep themselves alive. When globalization comes to an end, the people that will be the most affected, will be the people that are most reliant on globalization. Most people in developing countries still have ties to the family farms, many young people are working in western factories to send money home to their families, in an attempt to raise their standards of living. When globalization comes to a grinding halt, many will simply go home.
I am not for one second implying that the BRICs will not also face unimaginable horrors, because they will. What I am saying is, that we in the west have much farther to fall, and a greater percentage of our populations will have no clue how to survive, when we do.
I also believe that with the end of globalization, there will no longer be a need for a global reserve currency. Nations will trade between nations. I shouldn’t need to go into the details of the implications for the USD. I am quite sure you are very well aware of the implications.
Davy, Hermann, MO on Sun, 25th May 2014 12:39 pm
Greg, we are definitely on the same page