The Rubber Band Theory…..Part One

123On December 25, 1991 Mikhail Gorbachev stepped down as leader of the Soviet Union, thus ending the communist experiment in Russia and eliminating America’s arch enemy of the Cold War.

Many hailed it as a victory of freedom over totalitarianism, capitalism over communism, etc….yet in the end it wasn’t anymore complex than the demands of the state exceeded the productive capacity of the populace.

The Rubber Band Theory: stretch a rubber band far enough no matter how big or strong the rubber band is………… it will break.

The United States has stretched it’s rubber band to the point that it is ready to break and old foes of the United States are hoping to give it the one last turn needed to make it snap.  Russia in concert with China have laid the ground work for hastening the demise of the United States’ run on top.

Since even before 9/11 and most certainly after, the United States has been in terror threat crisis mode.  With this war on terror, military spending has increased dramatically placing an ever growing strain on the American taxpayer and our economy.

  • 2001 the US spent $290.2* billion dollars  on national defense
  • 2011 that number has climbed to $705.5* billion dollars
  • 243% real increase spending on national defense

* adjusted for inflation using 2009 dollars table 3.2

Spending as a percentage of GDP has been skyrocketing, debt to GDP is beyond any sustainable measure, economic growth in the US is stagnate at best, the US welfare system consumes every single dollar the Federal government takes in from taxes and the world is noticing.  I have long been warning that the USD is in real danger of losing its world reserve status and the world now is actively participating in its demise.

Vladimir Putin has become very embolden in vocalizing the de-dollarization of world trade and with his new found partnership with China.  Mr. Putin is actively pursing actions that are stretching the US to point of snapping the preverbal rubber band.  From Ukraine, Iran, Syria to Iraq, Vladimir Putin’s finger prints are all over the actions we see.vd

The events you are seeing in the news have zero to do with terrorist beheading journalist, killing Christians, and possibly attacking the United States directly by the organization know as ISIS.  It has everything to do with who will control the flow and financial settlement of trade accounts on energy and beyond for the remainder of this century. Think I am crazy?  These are some headlines from the UK Guardian, AP etc.. from the last year.

  • China fires first shot across PetroDollar bow: Shanghai Exchange May price oil futures in Yuan
  • From Petrodollar to Petroyuan: Coming Proxy War
  • The Rise of the Petroyuan and the Slow Erosion of Dollar Hegemony

Some events you may or may not be aware have happened and this is just the tip of the iceberg.

  • The British government has announced it will issue British debt denominated in renminbi (yuan).  It is the first non-Chinese controlled government to do so.

“And let me be clear, as China becomes a bigger and bigger share of the worlds economy, their currency is going to be used around the world. We here in Britain understand that, and we want us to be the first country in the west to seize the opportunities that it will bring….” George Osborne, Chancellor of the Exchequer

  • China and Russia agree to 30 year $400 billion natural gas deal which will be settled without using USD.  Largest energy agreement not priced in US dollars.
  • China establishes direct currency swaps with EU, Australia, the UK, and most of Asia for trade settlement on non-energy exports and imports.
  • Over the weekend….”A Chinese destroyer has docked in a southern Iranian port in the first such visit to the country by the Chinese navy……Last year a Russian naval group docked in the same port on its way back from a Pacific Ocean mission.  The move is also seen part of efforts by Iran to strike a balance among foreign navies present in the area near the strategic Strait of Hormuz, the passageway at the mouth of the Persian Gulf through which a fifth of the world’s oil is shipped. U.S. Navy’s 5th Fleet is based in nearby Bahrain, on the southern coast of the Gulf.

China and Russia weren’t strong allies prior to the events unfolding in the Ukraine, but sometimes one only needs a forced introduction to make friends.  The deals struck on natural gas and other trade agreements coupled with joint military exercises were born out of necessity meets opportunity.

China had actively been engaging in pushing the Yuan towards reserve status as their economy is set to over take the United States as the largest in the world and Russia was in need of a new trade partner as the west imposed countless sanctions on the Russian economy, but what led us to these events?

Simple, natural gas!  China has a pollution problem that is stifling growth in its major cities.  China as it evolved economically had a great need for power so, it approached it with the one resource it had plenty of, coal, well now they need to address the growing pollution problem to continue growth.  The cheap and easy way, lots-and-lots of clean burning natural gas.

Enter the Ukraine, Iraq, Iran, Syria, and others…..till tomorrow.

 

 

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