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Daily Archives: April 28, 2022

Music Video: Honky Tonk Women

The Rolling Stones

Watch video at You Tube (2:59 minutes) . . . .

The American Economy Contracted an Annualized 1.4% on Quarter in Q1 2022

Source : Trading Economics

Shanghai Lockdown Brings Back Memories of China’s Past

Wu Peiyue wrote . . . . . . . . .

Since Shanghai got locked down, the local government has taken on the responsibility of uniformly distributing food and necessities. Many people online say it feels like a return to the planned economy era.

So Sixth Tone asked a Shanghai resident who remembers the planned economy.

Born in 1965, Hua, who only gave his surname for privacy reasons, has witnessed China’s transition from a planned economy to an open market.

In 1989, Hua quit a factory job in Shanghai and stepped into the business world. In the 1990s, Hua sold various things in Wuhan, such as engraving machines and jeans, and later worked as a technology transfer agent for a variety of small machinery such as cigarette lighters. He also acted as a salesperson for imported factory machines in central China.

Hua achieved financial freedom in 2001, and became interested in solar-heating technology. He filed several patents. In 2019, Hua became interested in sociology after reading Yuval Noah Harari’s “Sapiens: A Brief History of Humankind.” Recently, alone in his apartment, Hua told Sixth Tone he’s reading “Making Things Work: Solving Complex Problems in a Complex World” by Yaneer Bar-Yam.

This interview has been edited for brevity and clarity.

Pork and rice

In our neighborhood WeChat group, one of the residents complained that the community had only given out pork, and the meat is too fatty.

I felt just the opposite. Pork has always had a strong appeal to me. It was always short during my childhood. When I was growing up, meat was a rare commodity and had to be purchased with a ration ticket. At that time, fatty meat was worth more than lean meat, because we could also render it to make cooking oil, which was also scarce back then.

These days, people who run out of oil at home also have to use the method of rendering lard. It feels like going back in time.

What we are experiencing now definitely cannot be called a “planned” economy… But with scarce supplies and limited variety, our relationship with food has changed. It’s gone from eating whatever comes to mind, to requiring some planning ahead of time.

When I was growing up, my parents were the ones who planned what the family ate. I don’t have many memories of how they planned the food. The time I started to plan for myself was when I went to college in the north. Each student was given a certain amount of ration tickets every month, and 40% of them were for coarse food — cornmeal and millet. As a southerner, I hate coarse food, but if I didn’t eat them, I’d starve. So I forced myself to eat the coarse food by cooking it as porridge for breakfast, so I didn’t have to deal with it the rest of the day.

Now I am doing something similar. I don’t like the noodles our community is giving us, so I eat them for lunch, rather than for dinner.


I grew up in a shipyard’s work unit, where everyone worked for the same factory. At that time, the factory issued ration tickets to families every month based on how many people they had, and some families might exchange some extra rice with their neighbors for eggs.

It was the natural thing to do, to swap goods with each other in an “acquaintance society.” Families were close-knit and everyone knew each other intimately.

Now, I live in a high-rise apartment complex built in 1996. I don’t know any of my neighbors. And I think modern buildings don’t foster an intimate atmosphere.

Last week, I took a whole day to make tofu from soybeans. It was a huge batch, more than I can eat alone. I posted a picture on WeChat, and a friend suggested that I should give some to my neighbors.

I did give it some thought. But I’m feeling a bit sensitive, because my recent attempts to make friends with my neighbor failed. I have a habit of playing badminton. Last week I saw two young people downstairs playing, but not very skillfully. I volunteered to join and helped them to play better. The next day, I brought an outdoor shuttlecock, meaning to give it to them. However, when I stood there, they acted as if they didn’t know me. And the previous time, when the game was over, they neither suggested that we could be WeChat friends, nor took the initiative to ask me to play with them again.

I gave up on giving tofu to my neighbors. I didn’t know which neighbor I should give it to. “If I asked in the WeChat group, and a lot of people wanted it, it would be a very embarrassing decision to make,” I told myself. I just put it all in the fridge.

Group buying is the only group activity I participate in. I force myself to participate, because the food supplies given by the community are totally insufficient. But community group buying only works for those who actively follow the group chat, so if you miss the message, you miss the group buy.

One elderly person in our community called the head of the neighborhood committee, and said he was about to run out of food. The leader said they would report upwards, and also suggested he call 12345.

In the acquaintance society of the past, people would help the old man during the group purchase, not just throw the responsibility of taking care of the old man to the neighborhood committee.

Reform and opening

I lived my young adulthood during the transition from the planned economy to the opening of the market.

Reform and opening up began to take shape in Shanghai in the late 80s. After I graduated from college, I was assigned to work at the Shanghai Machine Tool Factory in 1986. I soon felt that the atmosphere was changing. People around me were getting out of the system and going all over the country to look for business opportunities. Before, it was a crime — “speculation” — to take something from a place where it was abundant to a place where there was scarcity.

In 1989, I took a leave of absence from my job and went to Shenzhen to experience the business atmosphere, and then started to go around the country, trading sand, cement, and rebar, and later trying to sell computers, stereos, and printers in Shanghai.

At that time, each city had its own food specialty, and these things could only be bought when you went to the local area. Each city had its own brand of milk. Beer too. Now, you can buy any local food brand you want online.

During this lockdown, all of a sudden there is less choice of food brands. It does seem like a return to the old days. Shanghai’s local food brands are easier to find in group buying groups. Of course, there are also some food brands that we’ve never seen before. I think these brands are hard to notice in the free market by high-spending Shanghai citizens, with competition from all over the country, and even from imported brands.

I’ve heard that now it’s all companies with good relations with the Shanghai government that are on the guaranteed supply list, and big private companies like JD.com are not on the list, so it leads to very poor transportation.

If we were still in the era of the planned economy, this might not feel so jarring. At that time all the enterprises were all state-owned and it would all be down to the government to coordinate.

But then again, the recent phenomenon is actually quite understandable. China’s economy was slowly opening up into a free market, but it has never been entirely free. Any regional business that wants to enter the market in another area will encounter top-down resistance. Like Wahaha — after it captured almost all of the national market with the strategy of “encircling the city with the countryside,” it still took a long time to enter Shanghai.

In China, the free market has always been carried out in a macro-controlled way by the government. So I think we shouldn’t dichotomize and say that a free economy is better suited to solve the current situation or a planned economy. Rather, we should reorganize the relationship between these two methods and use them in an optimal combination.

Through this time, I’ve realized that lots of us, including myself, our thinking has been stuck in the past, in the ways of industrial mass production — a much more standardized system.

Now it’s the internet era. The complex logistics within the city are built with a lot of reliance on algorithms to distribute things individually. Now this system is not working, so we’re going back to top-down distribution, and supply is inadequate. Now the self-initiated community group buying is supplementing this.

There needs to be a new management solution for this state of abundance. It’s a state of rapid change for everyone. This lockdown of the city is a good test. It forces us to ask how to manage things with a complex system.

We shouldn’t do nothing ourselves and just complain about being managed in a one-size-fits-all manner. We, the citizens and community leaders, should take the initiative to discuss with people close to us and come up with a solution that works for us, but also meets the “dynamic zero-COVID” requirements from the government.

Source : Sixth Tone

New Research Identifies Blood Biomarker for Predicting Dementia Before Symptoms Develop

New research from NUI Galway and Boston University has identified a blood biomarker that could help identify people with the earliest signs of dementia, even before the onset of symptoms.

The study was published in the Journal of Alzheimer’s Disease.

The researchers measured blood levels of P-tau181, a marker of neurodegeneration, in 52 cognitively healthy adults, from the US-based Framingham Heart Study, who later went on to have specialised brain PET scans. The blood samples were taken from people who had no cognitive symptoms and who had normal cognitive testing at the time of blood testing.

The analysis found that elevated levels of P-tau181 in the blood were associated with greater accumulation of ß-amyloid, an abnormal protein in Alzheimer’s disease, on specialised brain scans. These scans were completed on average seven years after the blood test.

Further analysis showed the biomarker P-tau181 outperformed two other biomarkers in predicting signs of ß-amyloid on brain scans.

Emer McGrath, Associate Professor at the College of Medicine Nursing and Health Sciences at NUI Galway and Consultant Neurologist at Saolta University Health Care Group was lead author of the study.

“The results of this study are very promising — P-tau181 has the potential to help us identify individuals at high risk of dementia at a very early stage of the disease, before they develop memory difficulties or changes in behaviour,” Professor McGrath said.

The research team said the identification of a biomarker also points to the potential for a population screening programme.

Professor McGrath said: “This study was carried out among people living in the community, reflecting those attending GP practices. A blood test measuring P-tau181 levels could potentially be used as a population-level screening tool for predicting risk of dementia in individuals at mid to late-life, or even earlier.

“This research also has important potential implications in the context of clinical trials. Blood levels of P-tau181 could be used to identify suitable participants for further research, including in clinical trials of new therapies for dementia. We could use this biomarker to identify those at a high risk of developing dementia but still at a very early stage in the disease, when there is still an opportunity to prevent the disease from progressing.”

Source: National University of Ireland Galway

How the West Was Lost: A Faltering World Reserve Currency

Matthew Piepenburg wrote . . . . . . . . .

The Western financial system and world reserve currency is now in open decline.

From Rigged to Fail to Just Plain Failing

Just two years ago, I wrote a book warning that Western markets in general, and US markets in particular, were Rigged to Fail.

Well, now, in real time, they are failing.

This hard reality has less to do with COVID or the war in the Ukraine and more to do with one simple force, which euphoric markets and clueless leaders have been ignoring for decades, namely: Debt.

As I wrote then, and will repeat now: Debt destroys nations, financial systems, markets, and currencies.

Always and every time.

As we see below, the inflationary financial system is now failing because its debt levels have rendered it impotent to grow economically, react sensibly or sustain its chronic debt addictions naturally.

The evidence of this is literally everywhere, from the Fed to the Petrodollar and the bond market to the gold price.

Let’s dig in.

The Fed: No Best-Case Scenarios Left

The Fed has driven itself, and hence the U.S. markets and economy, into an all-too predictable corner and historically dangerous crossroads.

If it turns to the left (i.e., more money printing/liquidity) to protect a record-breaking risk asset bubble, it faces an inflationary flood; if it turns to the right (and raises rates or tapers UST purchases), it faces a market inferno.

How did we get to this crossroads?

Easy: Decades of artificially suppressed rates, cheap credit and a $30T sovereign debt pile of unprecedented (and unsustainable) proportions.

The Dying Bond Bull

With so much of this unloved debt on its national back, no one but the Fed will buy Uncle Sam’s IOUs.

As a result, long-dated Treasuries are falling in price and rising in yield as Bloomberg reminds us of the worst drawdown for global bonds in 20 years.

In short, the central-bank created bond bull of the last 40-something years is now falling to its knees.

Ironically, the only path to more demand for otherwise unloved bonds is if the stock market fully tanks and stock investors flee blindly back into bonds like passengers looking for lifeboats on the Titanic.

Bonds & Stocks—They Can Fall Together Unless Saved by Debased Dollars

But as the “Covid crash” of March 2020 painfully reminded us, in a world of central-bank-driven bubbles, historically over-valued stocks and bonds can and will fall together unless the Fed creates yet another multi-trillion-dollar QE lifeboat, which just kills the inherent strength of the dollar in your wallet.

Hence and again: There’s no good options left. It’s either inflation or a market implosion.

Fantasy & Dishonesty—The New Policy

But this never stops the Fed from pretending otherwise or using words rather than growth to cover its monetary sins.

Despite almost a year of deliberately lying about “transitory inflation,” the Fed has swallowed what little pride it has left and admitted to a real inflationary problem at home.

In short, and as bond legend Mohamed El-Erian recently observed, the increasingly discredited Fed has no “best case” scenarios left.

The Fed, along with its economically clue-less politicians, have essentially devolved the once-great US of A from developed country into one that resembles a developing country.

In other words, the “American dream” as well as American exceptionalism, is being downgraded into a kind of tragi-comedy in real time—i.e., right now.

Nevertheless, the always double-speaking Powell is doubling down on more fantasy (lies) about rising US labor participation and growth to help “produce” the USA out of the debt and inflationary hole which the Greenspan shovel initiated many “exuberant” years ago.

But once again, Powell is wrong.

Labor Participation—The Latest Fantasy

Based on simple demographics, lack of love for US IOU’s, growing trade deficits (alongside rising deficit spending), and an over-priced USD, the US labor force participation will not be going up in time for the land of the world’s reserve currency to grow itself out of the 122% debt to GDP corner which the Fed has driven into (after decades of low-rate drunk driving).

Without increased labor force participation, the only DC option left to fight inflation is to either 1) raise rates to induce a killer recession (and market implosion) or else 2) slash government deficits by at least 10%.

Unfortunately, cutting deficits by 10% will also kill GDP by at least an equivalent amount, which weakens tax receipts and thus make it nearly impossible for Uncle Sam to pay even the interest alone on his national bar tab, as we’ve shown elsewhere.

Addicts Are Predictable Creatures

So, what will this cornered and debt-drunk Fed do?

Well, what all addicts do—keep drinking—i.e., printing ever-more increasingly debased USD’s—which just creates more tailwinds for, you guessed it: Gold. (But also hard asset commodities in general, industrial equities and agricultural real estate.)

In the meantime, the Fed, the US Government and its corporate-owned propaganda arms in the U.S. media will blame all this new money printing and continued deficit spending on Putin rather than decades of financial mismanagement out of DC.

No shocker there.

But Putin, even if you hate him, sees things the headlines are omitting.

De-Dollarization and Petrodollar Rumblings—Uh Oh?

There are increasing signs of “uh-oh” in the world of the once-mighty Petrodollar.

From Trigger Happy to Shot in the Foot

As we’ve been warning in our most recent reports, Western financial sanctions in response to the war in Ukraine have a way of doing as much damage to the trigger-puller as to the intended target.

In simplest terms, freezing one county’s FX reserves and SWIFT transactions has a way of frightening other counter-parties, and not just the intended targets.

Imagine, for example, if your bank accounts were frozen for any reason. Would you then trust the bank that froze your accounts down the road once the issue was resolved? Would you recommend that bank to others?

Well, the world has been watching Western powers effectively freeze Putin’s assets, and regardless of whether you agree or disagree with such measures, other countries (not all of which are “bad actors”) are thinking about switching banks—or at least dollars…

If so, the US has just shot itself in the foot while aiming for Putin.

As previously warned, the Western sanctions are simply pushing Russia and China further together and further away from US Dollars and US Treasuries.

Such shifts have massive ripple effects which Biden’s financial team appears to have ignored.

And as everyone from Jamie Dimon to Barack Obama has previously warned, that’s not a good thing and is causing the broader world to re-think US financial leadership and US Dollar hegemony as a world reserve currency.

Saudi Arabia: Re-Thinking the Petro-Dollar?

Take that not-so-democratic “ally” of the US, Saudi Arabia, who Biden had called a “Pariah State” in 2020…

As of March, the news out of Saudi is hinting that they would consider purchases of oil in CNY as opposed to USD, which would signal the slow end to the Petrodollar and only add more inflationary tailwinds to Americans suffering at home.

One simply cannot underestimate (nor over-state enough) the profound significance of a weakening Petrodollar world.

It would have devastating consequences for the USD and inflation, and would be an absolute boon for gold.

Already, Xi is making plans to negotiate with Saudi Arabia, which is China’s top oil supplier. Meanwhile, Aramco is reaching out to China as well.

What Can Saudi Do with Chinese Money?

Some are arguing that the Saudi’s can’t purchase much with CNY. After all, the USD has more appeal, right?


Considering the fact that US Treasuries offer zero to negative real yields, perhaps “all things American” just aren’t what they used to be…

Saudis have now seen that the US is willing to seize US Treasuries as a form of financial warfare.

Saudis (like many other nations—i.e., India and China) are certainly asking themselves if a similar move could be made against them in the future.

Thus, it’s no coincidence that they too are looking East rather than West for future deals, and Russia could use its new Chinese currencies to buy everything from nuclear plants to gold bars in Shanghai—just saying…

Oil Matters

Meanwhile, and despite the media’s attempt to paint Putin as Hitler 2.0, the Russian leader knows something the headlines are ignoring, namely: The world needs his oil.

Without Russian oil, the global energy and economic system implodes, because the system has too much debt to suddenly go it alone and/or fight back.

See how sovereign debt cripples options and changes the global stage?

Meanwhile Russia, which doesn’t have the same debt to GDP chains around its ankle as the EU and US, can start demanding payment for its oil in RUB rather than USD.

As of this writing, Arab states are in private discussions with China, Russia and France to stop selling oil in USD.

Such moves would weaken USD demand and strength, adding more inflationary fuel to a growing inflationary fire from Malibu to Manhattan.

I wonder if Biden, Harris or anyone in their circle of “experts” thought that part through?

Given their strength in optics vs. their weakness as to math, geography and history, it’s quite clear they did not and could not…

Not to Worry?

Meanwhile, of course, the WSJ and other Western political news organizations are assuring the world not to worry, as USD FX trading volumes dwarf those of Chinese (Russian) and other currencies.

The USD still reigns in trading volume as a world reserve currency.

Fair enough.

But for how long?

Again, what many politicians and most journalists don’t understand (besides basic math), is basic history.

Their myopic policies and smooth-tongued forecasts are based on the notion that if it’s not raining today, it can’t rain tomorrow.

But it’s already raining on the US as well as US global financial leadership.

Meanwhile, Russia’s central bank is now in motion to increase gold purchases with all the new RUBs (not USDs) it will be receiving from its oil sales.

Investors must track these macro events very carefully in the coming weeks and months.

A Multi-Currency New World

The bottom line, however, is that the world is slowly moving away from a one-world-reserve-currency era to an increasingly multi-currency system.

Once the sanction and financial war genie is out of the bottle, it’s hard to put back. Trust in the West, and its USD-led currency system, is changing.

By taking the chest-puffing decision to freeze Russian FX reserves, sanction Russian IMF SDR’s and remove its access to SWIFT payments systems, the US garnered short-term headlines to appear “tough” but ushered a path toward longer term consequences which will make it (and its Dollar) weaker.

As multi-currency oil becomes the new setting, the inflationary winners will, again, be commodities, industrials and certain real estate plays.

Gold Matters

As for gold, it remains the only true neutral reserve asset of global central bank balance sheets and is poised to benefit the most over time as a non-USD denominated energy market slowly emerges.

Furthermore, Russia is allowing payments in gold for its natural gas.

And for those (i.e., Wall Street) who still argue gold is a “pet rock” and “barbarous relic” of the past, it may be time to rethink.

After all, why has the Treasury Department included an entire section in its Russian sanction handbook on gold?

The answer is as obvious as it is ignored.

Chinese banks (with Russian currency swap lines) can act as intermediaries to help Russia use the gold market to “launder” its sanctioned money.

That is, Russia can and will continue to trade globally (Eurasia, Brazil, India, China…) in what boils down to a truly free market of “gold for commodities” which not even those thieves at the COMEX can artificially price fix—something not seen in decades.


Stated simply: The mighty dollar and “globalization” dreams of the West are slowly witnessing an emerging era of inflationary de-globalization as each country now does what is required and best for itself rather than Klaus Schwab’s megalomaniacal fantasies.

The cornered US, of course, will likely try to sanction gold transactions with Russia, but this would require fully choking Russia energy sales to the EU, which the EU economy (and citizens) simply can’t afford.

In the meantime, a desperate French president is considering stimulus checks for gas and food. That, by the way, is inflationary…

History Repeating Itself

Again, the debt-soaked, energy-dependent West is not as strong as the headlines would have you believe, which means gold, as it has done for thousands of years, will rise as failed leaders, debt-soaked nations and world reserve currencies fall.

History, alas, is as important as math, price-discovery and supply and demand. Sadly, the vast of majority of modern leaders know almost nothing of these forces or topics.

If gold could speak in words, it would simply say: “Shame on them.”

But gold does speak in value, and it’s getting the last laugh on the currencies now weakening in our wallets and the debt-drunk leaders now squawking in our headlines.

Source : Gold Switzerland

Edging Towards a Gold Standard

Alasdair Macleod wrote . . . . . . . . .

Commentators are trying to make sense of Russian moves. However, there is a back story which differs from much of the speculation, which this article addresses.

The Russians have not put the rouble on some sort of gold standard. Instead, they have repeated the Nixon/Kissinger strategy which created the petrodollar in 1973 by getting the Saudis to agree to accept only dollars for oil. This time, nations deemed by Russia to be unfriendly will be forced to buy roubles – roughly 2 trillion by the EU alone based on last year’s natural gas and oil imports from Russia — driving up the exchange rate. The rouble has now doubled against the dollar from its low point of RUB 150 to RUB 75 yesterday in just over three weeks. The Russian Central Bank will soon be able to normalise the domestic economy by reducing interest rates and removing exchange controls

The Russians and Chinese will be acutely aware that Western currencies, particularly the yen and euro, are likely to be undermined by recent developments. The financial war, which has always been in the background, is emerging into plain sight and becoming a battlefield between fiat currencies, and it is full on.

The winner by default is almost certainly gold, now the only reliable reserve asset for those not aligned with Russia’s “unfriendlies”. But it is still a long way from backing any currency.

Putin is losing the battle for Ukraine

President Putin is embattled. His army as let him down — it turns out that his generals lack the necessary leadership qualities, the squaddies are suffering from lack of food, fuel, and are suffering from frostbite. It is reported that one brigade commander, Colonel Yuri Medvedev, was deliberately run down by one of his own men in a tank, a measure of the chaos at the front line. And Putin is not the first national leader to have misplaced his confidence in military forces.

Conventional wisdom (from Carl von Clausewitz, no less) suggested Putin might win the battle for Ukraine but would be unable to hold the territory. That requires the willingness of the population to accept defeat, and a lesson the Soviets had learned in Afghanistan, with the same experience repeated by America and the UK. But Putin has not even won the battle and word from the Kremlin is of accepting a face-saving fall-back position, perhaps taking Donetsk and the coast of the Sea of Azov to join it up with Crimea.

There was little doubt that if Putin came under pressure militarily, he would probably step up the commodity and financial war. This he has now done by insisting on payments in roubles. The mistake made in the West was to believe that Russia must sell commodities, and even though sanctions harm the West greatly, the strategy is to put maximum pressure on the Russian economy for a quick resolution. It is obviously flawed because Russia can still trade with China, India, and other significant economies. And thanks to rising commodity prices the Russian economy is not in the bad place the West beleived either.

Besides nations representing 84% of the world’s population standing aside from the Western alliance’s sanctions and with some like India sorely tempted to buy discounted Russian oil, we would profit from paying attention to some very basic factors. Russia can certainly afford to sell oil at significant discounts to market prices, and there are buyers willing to break the American-led embargoes. The non-Western world is no longer automatically on-side with American hegemony; that is a rotting hulk which the Americans are desperately trying to keep afloat. Observing this, the Kremlin seems relaxed and has said that it is willing to accept currencies from its friends, but Western enemies (the “unfriendlies”) would have to pay for oil in roubles or, it has also been suggested, in gold.

On 23 March the Kremlin drew up a list of these unfriendly countries, which includes the 27 EU members, Switzerland, Norway, the United States, the United Kingdom, Canada, Australia, New Zealand, Japan, and South Korea.

Payment in roubles is easy to understand. We can assume that all oil and natural gas long-term supply contracts with the unfriendlies have force majeure clauses, because that is normal practice. In the light of sanctions, the Russians are entitled to claim different payment terms. And it is this that the Russians are relying upon for insisting on payment in roubles.

Germany, for example, would have to buy roubles on the foreign exchanges to pay for her gas. Buying roubles supports the currency, and this was the tactic that created the petrodollar in 1973 when Nixon and Kissinger persuaded the Saudis to take nothing else but dollars for oil. It was that single move which more than anything confirmed the dollar as the world’s international and reserve currency in the aftermath of the temporary suspension of the Bretton Woods Agreement. That’s not quite the objective here; it is to not only underwrite the rouble, but to drive it higher relative to other currencies. The immediate effect has been clear, as the chart from Trading Economics below shows.

Having halved in value against the dollar on 7 March, all the rouble’s fall has been recovered. And that’s even before Germany et al buy roubles on the foreign exchanges to pay for Russian energy.

The gold issue is more complex. The West has banned not only Russian transactions settling in their currencies but also from settling in gold. The assumption is that gold is the only liquid asset Russia has left to trade with. But just as ahead of the end of the cold war Western intelligence completely misread the Soviet economy, it could be making a mistake again. This time, intel seems to be misled by full-on Keynesian macro analysis, suggesting the Russian economy is vulnerable when it is inherently stronger in a currency shoot-out than even the dollar. There is no need for Russia to sell any gold at all.

The Russian economy has a broadly non-interventionist government, a flat rate of income tax of 13%, and a government debt of 20% of GDP. There are flaws in the Russian economy, particularly in the lack of respect for property rights and the pervasive problem of the Russian Mafia. But in many respects, Russia’s economy is like that of the US before 1916, when the highest income tax rate was 15%.

An important difference is that the Russian government gets substantial revenues from energy and commodity exports, taking its income up to over 40% of GDP. While export volumes of energy and other commodities are being hit by sanctions, their prices have risen substantially. But it remains to be seen what form of money or currency for future payments will be used for over $550bn equivalent of exports, while $297bn of imports will be substantially reduced by sanctions, widening Russia’s trade surplus considerably. Euros, yen, dollars, and sterling are ruled out, worthless in the hands of the Central Bank. That leaves Chinese renminbi, Indian rupees, weakening Turkish lira and that’s about it. It’s hardly surprising that Russia is prepared to accept gold. Putin’s view on the subject is shown in Figure 1 of stills taken from a Tik Tok video released last weekend.

Furthermore, Russia’s official reserves are only a small part of the story. Simon Hunt of Simon Hunt Strategic Services, who I have found to be consistently well informed in these matters, is convinced based on his information that Russia’s gold reserves are significantly higher than reported — he thinks 12,000 tonnes is closer to the mark.

The payment choice for those on Russia’s unfriendly list, if we rule out gold, is effectively of only one — buy roubles to pay for Russian energy. By sanctioning the world’s largest energy exporter, the effect on energy prices in dollars is likely to drive them far higher yet. Additionally, market liquidity for roubles is likely to be restricted, and the likelihood of a bear squeeze on any shorts is therefore high. The question is how high?

Last year, the EU imported 155 billion cubic meters of natural gas from Russia, valued at about $180bn at current volatile prices. Oil exports from Russia to the EU were about 2.3 million barrels per day, worth an additional $105bn for a combined total of $285bn, which at the current exchange rate of RUB 75.5 is RUB 2.15 trillion. EU Gas consumption is likely to fall as spring approaches, but payments in roubles will still drive the exchange rate significantly higher. And attempts to obtain alternative sources of LNG will take time, be insufficient, and serve to drive natural gas prices from other suppliers even higher.

For now, we should dismiss ideas over payments to the Russians in gold. The Russian gold story, initially at least, is a domestic issue. Though it might spill over into international markets.

On 25 March, Russia’s central bank announced it will buy gold from credit institutions at a fixed rate of 5,000 roubles per gramme starting this week and through to 30 June.[i] The press release stated that it will enable “a stable supply of gold and smooth functioning of the gold mining industry.” In other words, it allows banks to continue to lend money to gold mining and related activities, particularly for financing new gold mining developments. Meanwhile, the state will continue to accumulate bullion which, as discussed above, it has no need to spend on imports.

When the RCB’s announcement was made the rouble was considerably weaker and the price offered by the central bank was about 20% below the market price. But that has now changed. Based on last night’s exchange rate of 75.5 roubles to the dollar (30 March) and with gold at $1935, the price offered by the central bank is at a premium of 7.2% to the market. Whether this opens the situation up to arbitrage from overseas bullion markets is an intriguing question. And we can assume that Russian banks will find ways of acquiring and deploying the dollars to do so through their offshore facilities, until, under the cover of a strong rouble, the RCB removes exchange controls.

There is nothing in the RCB’s statement to prevent a Russian bank sourcing gold from, say, Dubai, to sell to the central bank. Guidance notes to which we cannot be privy may address this issue but let us assume this arbitrage will be permitted, because it might be difficult to stop. And if Russia does have undeclared bullion reserves more than those allegedly held by the US Treasury, then given that the real war is essentially financial, it is in Russia’s interest to see the gold price rise in dollars.

Not only would Eurozone banks be scrambling to obtain roubles, but the entire Western banking system, which takes the short side of derivative transactions in gold will find itself in increasing difficulties. Normally, bullion banks rely on central banks and the Bank for International Settlements to backstop the market with physical liquidity through leases and swaps. But the unfortunate message from the West to every central bank not on Russia’s unfriendly list is that London’s or New York’s respect for ownership rights to their nation’s gold cannot be relied upon. Not only will lease and swap liquidity dry up, but it is likely that requests will be made for earmarked gold in these centres to be repatriated.

In short, Russia appears to be initiating a squeeze on gold derivatives in Western capital markets by exploiting diminishing faith in Western institutions and their cavalier treatment of foreign property rights. By forcing the unfriendlies into buying roubles, the RCB will shortly be able to reduce interest rates back to previous policy levels and remove exchange controls. At the same time, the inflation problems faced by the West will be ameliorated by a strong rouble.

It ties in with the politics for Putin’s survival. Together with the economic benefits of an improving exchange rate for the rouble and the relatively minor inconvenience of not being able to buy imports from the West (alternatives from China and India will still be available) Putin can retreat from his disastrous Ukrainian campaign. Senior figures in the Russian army will be disciplined, imprisoned, or disappear accused of incompetence and misleading Putin into thinking his “special operation” would be quickly achieved. Putin will absolve himself of any blame and dissenters can expect even greater clampdowns on protests.

Russia’s moves are likely to have been thought out in advance. The move to support the rouble is evidence it is so, giving the central bank the opportunity to reverse the interest rate hike to 20% to protect the rouble. Foreign exchange controls on Russians can shortly be lifted. Almost certainly the consequences for Western currencies were discussed. The conclusion would surely have been that higher energy and other Russian commodity prices would persist, driving Western price inflation higher and for longer than discounted in financial markets. Western economies face soaring interest rates and a slump. And depending on their central bank’s actions, Japan and the Eurozone with negative interest rates are almost certainly most vulnerable to a financial, currency, and economic crisis.

The impact of Russia’s new policy of only accepting roubles was, perhaps, the inevitable consequence of the West’s policies of self-immolation. From Russia’s failure in Ukraine, Putin appears to have had little option but to go on the offensive and escalate the financial, or commodity-currency war to cover his retreat. We can only speculate about the effect of a strong rouble on the international gold price, but if Russian banks can indeed buy bullion from non-Russian sources to sell to the RCB, it would mark a very aggressive move in the ongoing financial war.

China’s position

China will be learning unpalatable lessens about its ambition to invade Taiwan, and Taiwan will be encouraged mightily by Ukraine’s success at repelling an unwelcome invader. A 100-mile channel is an enormous obstacle for a Chinese invasion that Russia didn’t have to navigate before Ukrainian locals exploited defensive tactics to repel the invader. There can now be little doubt of the outcome if China tried the same tactics against Taiwan. President Xi would be sensible not to make the same mistake as Putin and tone down the anti-Taiwan rhetoric and try the softer approach of friendly relations and economic integration to reunite Chinese interests.

That has been a costless lesson for China, but another consideration is the continuing relationship with Russia. The earlier Chinese description of it made sense: “We are not allies, but we are partners”. What this means is that China would abstain rather than support Russia in the various supranational forums where the world’s leaders gather. But she would continue to trade with Russia as normal, even engaging in currency swaps to facilitate it.

More recently, a small crack has appeared in this relationship, with China concerned that US and EU sanctions might be extended to Chinese entities in joint ventures with Russian businesses linked to sanctioned oligarchs and Putin supporters. The highest profile example has been the suspension of a joint project to build a petrochemical plant in Russia involving Sinopec, because of the involvement of Gennady Timchenko, a close ally of Putin. But according to a report from Nikkei Asia, Sinopec has confirmed it will continue to buy Russian crude oil and gas.

As always with its geopolitics, we can expect China to play its hand with great care. China was prepared for the consequences of US monetary policy in March 2020 when the Fed reduced its funds rate to zero and instituted quantitative easing of $120bn every month. By its actions it judged these moves to be very inflationary, and began stockpiling commodities ahead of dollar price rises, including energy and grains to project its own people. The yuan has risen against the dollar by about 11%, which with moderate credit policies has kept annualised domestic price inflation subdued to about 1% currently, while consumer price inflation in the West is soaring out of control.

China is not therefore in the weak financial position of Russia’s “unfriendlies”; the highly indebted governments whose finances and economies are likely to be destabilised by rising energy prices and interest rates. But it does have a potential economic crisis on its hands in the form of a collapsing property market. In February, its response was to ease the credit restrictions imposed following the initial pandemic recovery in 2021, which had included attempts to deleverage the property sector.

Property aside, we can assume that China will not want to destabilise the West by her own actions. The West is doing that very effectively without China’s assistance. But having demonstrated an understanding of why the West is sliding into an inflation crisis of its own making China will be keen not to make the same mistakes. Her partnership with Russia, as joint leaders in the Shanghai Cooperation Organisation, is central to detaching herself from what its Maoist economists forecast as the inevitable collapse of imperial capitalism. Having set itself up in the image of that imperialism, it must now become independent from it to avoid the same fate.

Gold’s wider role in China, Russia, and the SCO

Gold has always been central to China’s fallback position. I estimated that before permitting its own people to buy gold in 2002, the state had acquired as much as 20,000 tonnes. Subsequently, through the Shanghai Gold Exchange the Chinese public has taken delivery of a further 20,000 tonnes, mainly through imports from outside China. No gold escapes China, and the Chinese government is likely to have added to its hoard over the last twenty years. The government maintains a monopoly on refining and has stimulated the mining industry to become the largest national producer. Together with its understanding of the West’s inflationary policies the evidence is clear: China is prepared for a world of sound money with gold replacing the dollar’s hegemony, and it now dominates the world’s physical market with that in mind.

These plans are shared with Russia, and the members, dialog partners and associates of the Shanghai Cooperation Organisation — almost all of which have been accumulating gold reserves. Mine output from these countries is estimated by the US Geological Survey at 830 tonnes, 27% of the global total.

The move away from pure fiat was confirmed recently by some half-baked plans for the Eurasian Economic Union and China to escape from Western fiat by setting up a new currency for cross-border trade backed partly by commodities, including gold.

The extent of “off balance sheet” bullion is a critical issue, because at some stage they are likely to be declared. In this context, the Russian position is important, because if Simon Hunt, quoted above, is correct Russia could have more gold than the US’s 8,130 tonnes, which it is widely thought to overstate the latter’s true position. Furthermore, Western central banks routinely lease and swap their gold reserves, leading to double counting, which almost certainly reduces their actual position in aggregate. And if fiat currencies continue to decline we could find that the two ringmasters for the SCO have more monetary gold than all the other central banks put together — something like 30,000-40,000 tonnes for Chinese and Russian governments, compared with perhaps less than 20,000 tonnes for Russia’s adversaries (officially ,the unfriendlies own about 24,000 tonnes, but we can assume that at least 5,000 of that is double counted or does not exist due to leasing and swaps).

The endgame for the yen and the euro

Without doubt, the terrible twins in the major fiat currencies are the yen and the euro. They share much in common: negative interest rates, major commercial banks highly leveraged with asset to equity ratios averaging over twenty times, and central bank balance sheets overloaded with bonds which are collapsing in value. They now face rising interest rates spiralling beyond their control, the consequences of the ECB and Bank of Japan being trapped under the zero bound and being in denial over falling purchasing power for their currencies.

Consequently, we are seeing capital flight, which has accelerated dramatically this month for the yen, but in truth follows on from relative weakness for both currencies since the middle of 2021 when global bond yields began rising. Statistically, we can therefore link the collapse of both currencies on the foreign exchanges with rising bond yields. And given that rising interest rates and bond yields are in their early stages, there is considerable currency weakness yet to come.

Japan and its yen

The Bank of Japan has publicly stated it would buy an unlimited amount of 10-year Japanese Government Bonds at a 0.25% yield to contain the bond sell-off. A higher yield would be more than embarrassing for the BOJ, already requiring a recapitalisation, presumably with its heavily indebted government stumping up the money.

As avid Keynesians, the BOJ is following similar policies to that of John Law in 1720’s France. Law issued fresh livres which he used to prop up the Mississippi venture by buying shares in the market. The bubble popped, the venture survived, but the livre was destroyed.

Today, the BOJ is issuing yen to prop up the Japanese government bond market. As the issuer of the currency, the BOJ is by any yardstick bankrupt and in desperate need of new capital. Since it commenced QE in 2000, it has accumulated so much government and corporate debt, and even equities bundled into ETFs, that the falling value of the BOJ’s holdings makes its liabilities significantly greater than its assets, currently to the tune of about ¥4 trillion ($3.3bn).

Ignoring the cynic’s definition of madness, the BOJ is doubling down on its commitment, announcing on Monday further unlimited purchases of 10-year JGBs at a fixed yield of 0.25%. In other words, it is supporting bond prices from falling further, echoing Mario Draghi’s “whatever it takes” and confirming its John Law policy. Last Tuesday’s Summary of Opinions at the Monetary Policy Meeting on March 17 and 18 had this gem:

“Heightened geopolitical risks due to the situation surrounding Ukraine have caused price rises of energy and other items, and this will push down domestic demand while raising the CPI. Under the circumstances, it is necessary to improve labour market conditions and provide stronger support for wage increases, and therefore it is increasingly important that the bank persistently continue with the current monetary easing.”

No, this is not satire. In other words, the BOJ’s deposit rate will remain negative. And the following was added from Government Representatives at the same meeting:

“The budget for fiscal 2022 aims to realise a new form of capitalism through a virtual circle of growth and distribution and the government has been making efforts to swiftly obtain the Diet’s approval.”

A virtuous circle of growth? It seems like intensified intervention. Meanwhile, Japan’s major banks with asset to equity ratios of over twenty times are too highly geared to survive rising interest rates without a bank credit crisis threatening to take them down. It is hardly surprising that international capital is fleeing the yen, realising that it will be sacrificed by the BOJ in the vain hope that it can continue to maintain bond prices far above where they should be.

The euro system and its euro

The euro system and the euro share similar characteristics to the BOJ and the yen: interest rates trapped under the zero bound, Eurozone G-SIBs with asset to equity ratios of over 20 times and market realities forcing interest rates and bond yields higher. Furthermore, Eurozone banks are heavily exposed to Russian and Ukrainian debt due to their geographic proximity.

There are two additional problems for the Eurosystem not faced by the BOJ and the yen. The ECB’s shareholders are the national central banks in the euro system, which in turn have balance sheet liabilities more than their assets. The structure of the euro system means that in recapitalising itself the ECB does not have a government to which it can issue credit and receive equity capital in return, the normal way in which a central bank would refinance its balance sheet by turning credit into equity. Instead, it will have to refinance itself through the national central banks which being insolvent themselves in turn would have to refinance themselves through their governments.

The second problem is a further complication. The euro system’s TARGET2 settlement system reflects enormous imbalances which complicates resolving a funding crisis. For example, on the last figures (end-February), Germany’s Bundesbank was owed €1,150 billion through TARGET2, while Italy owed €568 billion. It would be in the interests of a recapitalisation for the Italian government to want its central bank to write off this amount, while the Bundesbank is already in negative equity without writing off TARGET2 balances. Germany’s politicians might demand the balances owed to the Bundesbank be secured. This problem is not insoluble perhaps, but one can see that political and public wrangling over these imbalances will only serve to draw attention to the fragility of the whole system and undermine public trust in the currency.

With Germany’s CPI now rising at 7.6% and Spain’s at 9.8%, negative deposit rates are wildly inappropriate. When the system breaks it can be expected to be sudden, violent and a shock to those in thrall to the euro system.


For decades, a showdown between an Asian partnership and hegemonic America has been building. We can date this back to 1983, when China began to accumulate physical gold having appointed the Peoples’ Bank for the purpose. That act was the first indication that China felt the need to protect itself from others as it ventured into capitalism. China has navigated itself through increasing American assertion of its hegemony and attempts to destabilise Hong Kong. It has faced obstacles to its lucrative export trade through tariffs. It has been cut off from Western markets for its advanced technology. China has resented having to use the dollar.

After Russia’s ill-advised invasion of Ukraine, it now appears that the invisible war over global financial resources and control is intensifying. The fuse has been lit and events are taking over. The destabilisation of the yen and the euro are now as certain as can be. While the yen is the victim of John Law-like market-rigging policies and likely to go the same way as France’s livre, perhaps the greater danger is for the euro. The contradictions in its set-up, and the destruction of Germany’s sound money principals in favour of the inflationism of the PIGS was always going to be finite. The ECB has got itself into a ridiculous position, and no amount of conjuring and cajoling of financial institutions can resolve the ECB’s own insolvency and that of all its shareholders.

History shows that there are two groups involved in a currency collapse. International holders take fright and sell for other currencies and assets they believe to be more secure. They drive the exchange rate lower. The second group is the public in a nation, those who use the currency for transactions. If they lose confidence in it, the currency can rapidly descend into worthlessness as ordinary people accelerate its disposal for anything tangible in a final crack-up boom.

In the past, an alternative currency was always the sounder one, one backed by and exchangeable for gold coin. That is so long ago that we in the West have mostly forgotten the difference between money, that is gold and silver, and unbacked fiat currencies. The great unknown has been how much abuse of money and credit it would take for the public to relearn the difference. Cryptocurrencies have alerted us, but they are not a widely accepted medium of exchange and don’t have the legal standing of gold and gold substitutes.

War is to be our wake-up call — financial rather than physical in character. Western central banks and their governments have been fiddling the books, telling us that currency debasement is good for us. That debasement has accelerated in recent years. But by upping the anti against Russia with sanctions that end up undermining the purchasing power of all the West’s major currencies, our leaders have called an end to the reign of fiat.

Source : Gold Money