Collapse of the Petrodollar looming

This will be a recurring theme in the geopolitical future, so it deserves getting a full understanding of it.  Wider use of currencies other than the Dollar avoids oil-buyers holding a stash of Dollars (usually parked temporarily in US Treasury bonds) to buy oil and a whole host of other commodities, and trading on US-controlled FX markets to get them (with the inevitable fees for the transaction), and the SWIFT system for handling the paperwork for moving the money around the international banking world.

This will considerably reduce the demand for Dollars and hence its FX conversion rate.  A weaker Dollar will in turn make US imports more expensive and exports less valuable.  Since the US already has a trade deficit with the rest of the world, this will make it harder to trade their way out of trouble.  At some point everyone will see that the US can never repay its debts and their bonds will become worthless.

Of course since the world is past the Peak Oil point (it probably happened in 2010), a future world without oil is not going to be viable long term, but the resulting collapse is not going to be evenly spread.  The US will collapse first, and then the world will switch to trading in Yuan (backed by Gold).  As the US struggles to hold its Empire together, the world economy will break into two currency blocs, and the potential for WW3 to break out will get even stronger.

https://dollarcollapse.com/currency-war/suddenly-de-dollarization-thing/

Suddenly, “De-Dollarization” Is A Thing

For what seems like decades, other countries have been tiptoeing away from their dependence on the US dollar. China, Russia, and India have cut deals in which they agree to accept each others’ currencies for bi-lateral trade while Europe, obviously, designed the euro to be a reserve asset and international medium of exchange.

These were challenges to the dollar’s dominance, but they weren’t mortal threats.

What’s happening lately, however, is a lot more serious. It even has an ominous-sounding name: de-dollarization. Here’s an excerpt from a much longer article by “strategic risk consultant” F. William Engdahl:

Gold, Oil and De-Dollarization? Russia and China’s Extensive Gold Reserves, China Yuan Oil Market

(Global Research) – China, increasingly backed by Russia—the two great Eurasian nations—are taking decisive steps to create a very viable alternative to the tyranny of the US dollar over world trade and finance. Wall Street and Washington are not amused, but they are powerless to stop it.  So long as Washington dirty tricks and Wall Street machinations were able to create a crisis such as they did in the Eurozone in 2010 through Greece, world trading surplus countries like China, Japan and then Russia, had no practical alternative but to buy more US Government debt—Treasury securities—with the bulk of their surplus trade dollars. Washington and Wall Street could print endless volumes of dollars backed by nothing more valuable than F-16s and Abrams tanks. China, Russia and other dollar bond holders in truth financed the US wars that were aimed at them, by buying US debt. Then they had few viable alternative options.

Viable Alternative Emerges

Now, ironically, two of the foreign economies that allowed the dollar an artificial life extension beyond 1989—Russia and China—are carefully unveiling that most feared alternative, a viable, gold-backed international currency and potentially, several similar currencies that can displace the unjust hegemonic role of the dollar today.

For several years both the Russian Federation and the Peoples’ Republic of China have been buying huge volumes of gold, largely to add to their central bank currency reserves which otherwise are typically in dollars or euro currencies. Until recently it was not clear quite why.

For several years it’s been known in gold markets that the largest buyers of physical gold were the central banks of China and of Russia. What was not so clear was how deep a strategy they had beyond simply creating trust in the currencies amid increasing economic sanctions and bellicose words of trade war out of Washington.

Now it’s clear why.

China and Russia, joined most likely by their major trading partner countries in the BRICS (Brazil, Russia, India, China, South Africa), as well as by their Eurasian partner countries of the Shanghai Cooperation Organization (SCO) are about to complete the working architecture of a new monetary alternative to a dollar world.

Currently, in addition to founding members China and Russia, the SCO full members include Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and most recently India and Pakistan. This is a population of well over 3 billion people, some 42% of the entire world population, coming together in a coherent, planned, peaceful economic and political cooperation.

Gold-Backed Silk Road

It’s clear that the economic diplomacy of China, as of Russia and her Eurasian Economic Union group of countries, is very much about realization of advanced high-speed rail, ports, energy infrastructure weaving together a vast new market that, within less than a decade at present pace, will overshadow any economic potentials in the debt-bloated economically stagnant OECD countries of the EU and North America.

What until now was vitally needed, but not clear, was a strategy to get the nations of Eurasia free from the dollar and from their vulnerability to further US Treasury sanctions and financial warfare based on their dollar dependence. This is now about to happen.

At the September 5 annual BRICS Summit in Xiamen, China, Russian President Putin made a simple and very clear statement of the Russian view of the present economic world. He stated,

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”

To my knowledge he has never been so explicit about currencies. Put this in context of the latest financial architecture unveiled by Beijing, and it becomes clear the world is about to enjoy new degrees of economic freedom.

China Yuan Oil Futures

According to a report in the Japan Nikkei Asian Review, China is about to launch a crude oil futures contract denominated in Chinese yuan that will be convertible into gold. This, when coupled with other moves over the past two years by China to become a viable alternative to London and New York to Shanghai, becomes really interesting.

China is the world’s largest importer of oil, the vast majority of it still paid in US dollars. If the new Yuan oil futures contract gains wide acceptance, it could become the most important Asia-based crude oil benchmark, given that China is the world’s biggest oil importer. That would challenge the two Wall Street-dominated oil benchmark contracts in North Sea Brent and West Texas Intermediate oil futures that until now has given Wall Street huge hidden advantages.

That would be one more huge manipulation lever eliminated by China and its oil partners, including very specially Russia. Introduction of an oil futures contract traded in Shanghai in Yuan, which recently gained membership in the select IMF SDR group of currencies, oil futures especially when convertible into gold, could change the geopolitical balance of power dramatically away from the Atlantic world to Eurasia.

In April 2016 China made a major move to become the new center for gold exchange and the world center of gold trade, physical gold. China today is the world’s largest gold producer, far ahead of fellow BRICS member South Africa, with Russia number two.

Now to add the new oil futures contract traded in China in Yuan with the gold backing will lead to a dramatic shift by key OPEC members, even in the Middle East, to prefer gold-backed Yuan for their oil over inflated US dollars that carry a geopolitical risk as Qatar experienced following the Trump visit to Riyadh some months ago. Notably, Russian state oil giant, Rosneft just announced that Chinese state oil company, CEFC China Energy Company Ltd. Just bought a 14% share of Rosneft from Qatar. It’s all beginning to fit together into a very coherent strategy.

Meanwhile, in Latin America:

De-Dollarization Spikes – Venezuela Stops Accepting Dollars For Oil Payments

(Zero Hedge) – Did the doomsday clock on the petrodollar (and implicitly US hegemony) just tick one more minute closer to midnight?Apparently confirming what President Maduro had warned following the recent US sanctions, The Wall Street Journal reports that Venezuela has officially stopped accepting US Dollars as payment for its crude oil exports.

As we previously noted, Venezuelan President Nicolas Maduro said last Thursday that Venezuela will be looking to “free” itself from the U.S. dollar next week. According to Reuters,

“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in a multi-hour address to a new legislative “superbody.” He reportedly did not provide details of this new proposal.

Maduro hinted further that the South American country would look to using the yuan instead, among other currencies.

“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.

The state oil company Petróleos de Venezuela SA, known as PdVSA, has told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner.

This first step towards one or more gold-backed Eurasian currencies certainly looks like a viable and — for a lot of big players out there — welcome addition to the global money stock.

Venezuela, meanwhile illustrates the growing perception of US weakness. It used to be that a small country refusing to take dollars could expect regime change in short order. Now, maybe not so much.

Combine the above with the emergence of bitcoin and its kin as the preferred monetary asset of techies and libertarians, and the monetary world suddenly looks downright multi-polar.

Advertisements

China and Russia Warn the U.S.

Russia and China make it quite clear: No regime change, regime collapse, accelerated reunification or military deployment north of the 38th parallel dividing the Korean Peninsula.

https://www.bloomberg.com/news/articles/2017-09-12/in-sanctioning-kim-china-and-russia-warn-u-s-no-regime-change

China and Russia Warn the U.S.

By Ting Shi and David Tweed

Beijing, Moscow worked to weaken sanctions on North Korea
China says it will never allow war on Korean peninsula.

September 13, 2017 “Information Clearing House” – In supporting a watered-down version of North Korea sanctions, China and Russia had a stern warning for the U.S.: Don’t try to overthrow Kim Jong Un’s regime.

The measures passed on Monday at the United Nations Security Council included reducing imports of refined petroleum products, banning textile exports and strengthening inspections of cargo ships suspected of having illegal materials. U.S. envoy Nikki Haley called them the “strongest measures ever imposed on North Korea” even though they ended up dropping demands for an oil embargo and freeze on Kim’s assets.

More worrisome for China and Russia was Haley’s remark that the U.S. would act alone if Kim’s regime didn’t stop testing missiles and bombs. The UN representatives of both countries on Monday reiterated what they called “the four nos“: No regime change, regime collapse, accelerated reunification or military deployment north of the 38th parallel dividing the Korean Peninsula.

“The Chinese side will never allow conflict or war on the peninsula,” Foreign Ministry spokesman Geng Shuang said in a statement on Tuesday.

The comments in the wake of the sanctions signaled that both China and Russia are only willing to go so far in pressuring Kim to abandon his attempts to secure the ability to strike the U.S. with a nuclear weapon. Both nations have called for dialogue, something President Donald Trump has resisted.

China and Russia realize their combined effort “works better than individual action,” said Wang Xinsheng, a history professor at Peking University. “Both oppose North Korea to become a full-fledged nuclear state, and both think parallel action from the U.S. is needed to affect any change in the situation.”

China and Russia — the biggest economic patrons of North Korea — both share the view that North Korea won’t give up its nuclear weapons without security guarantees, and they don’t see the point in fomenting a crisis on their borders that will benefit American strategic goals. At the same time, they don’t want Kim provoking the U.S. into any action that could destabilize the region.

“Sanctions of any kind are useless and ineffective,” Russian President Vladimir Putin told reporters earlier this month at a summit in Xiamen, China. “They’ll eat grass, but they won’t abandon their program unless they feel secure.”

Russia and China were singled out at a U.S. House Foreign Affairs Committee hearing Tuesday on financing for North Korea’s nuclear program. Republican Chairman Ed Royce said the U.S. should target Chinese banks, including Agricultural Bank of China Ltd. and China Merchants Bank Co., for aiding Kim’s regime. Assistant Treasury Secretary Marshall Billingslea said in prepared remarks to the committee that North Korean bank representatives “operate in Russia in flagrant disregard of the very resolutions adopted by Russia at the UN.”

U.S. officials said the new UN sanctions — combined with earlier measures — would cut North Korean exports by 90 percent, pinching the regime’s ability to get hard currency. The textile export ban alone would cost North Korea about $726 million a year, the U.S. said.

Still, analysts saw the efforts to dilute the original proposal as successful.

“The stiffer sanctions won’t change anything in the near-term,” said Stuart Culverhouse, head of macro and fixed income research at specialist frontier markets investment bank Exotix Capital. “The new embargoes are incrementally tougher, but diplomacy meant they had to be compromised to an extent that they are very unlikely to change minds in Pyongyang.”

Tactical Nukes

North Korea has said it will never give up its nuclear weapons unless the U.S. drops its “hostile” policies toward the regime. Kim has claimed the ability to fit a hydrogen bomb onto an intercontinental ballistic missile, but the U.S. military says he has yet to master re-entry and guidance systems that would allow him to target an American city.

Many analysts think Kim will wait until he’s mastered his weapons before negotiating, as it would strengthen his hand. It might take tactical nuclear weapons in South Korea — something President Moon Jae-in has opposed — to bring Kim to the negotiating table earlier, according to Lee Ho-ryung, chief of North Korean studies at the Korea Institute for Defense Analyses.

“If South Korea, Japan, or both could have the U.S. deploy tactical nuclear weapons, that’ll put pressure on Kim to come to dialogue,” Lee said. “When competition to have better weapons escalates, it’s always the poorer one who gives up.”

George Lopez, a former member of the UN Security Council panel of experts for sanctions on North Korea, said that the U.S. should seek unity of message with China and Russia in addition to a unanimous vote on sanctions. The U.S. should look to engage diplomatically to find a level of security that North Korea and its neighbors will be happy with, he said.

“We did it against powers that have thousands of nuclear weapons,” Lopez said. “We certainly should be able to do this against a power that has less than two dozen.”

Venezuela Stops Accepting Dollars For Oil Payments

Another oil supplier implies it will de-petrodollarise.  As mentioned in the article, Iran is a prime candidate to go this way too, although shouting about it like Maduro is doing is perhaps not wise.  And when Libya gets itself sorted out, it would too.  And Sudan.  Then you’ve got the oil buyers currently on the US disapproval list – North Korea, Myanmar, Zimbabwe.

http://www.zerohedge.com/news/2017-09-13/de-dollarization-spikes-venezuela-stops-accepting-dollars-oil-payments

De-Dollarization Spikes – Venezuela Stops Accepting Dollars For Oil Payments

Did the doomsday clock on the petrodollar (and implicitly US hegemony) just tick one more minute closer to midnight?

Source: The Burning Platform

Apparently confirming what President Maduro had warned following the recent US sanctions, The Wall Street Journal reports that Venezuela has officially stopped accepting US Dollars as payment for its crude oil exports.

As we previously noted, Venezuelan President Nicolas Maduro said last Thursday that Venezuela will be looking to “free” itself from the U.S. dollar next week. According to Reuters,

“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in a multi-hour address to a new legislative “superbody.” He reportedly did not provide details of this new proposal.

Maduro hinted further that the South American country would look to using the yuan instead, among other currencies.

 “If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.

*  *  *

And today, as The Wall Street Journal reports, in an effort to circumvent U.S. sanctions, Venezuela is telling oil traders that it will no longer receive or send payments in dollars, people familiar with the new policy said.

Oil traders who export Venezuelan crude or import oil products into the country have begun converting their invoices to euros.

The state oil company Petróleos de Venezuela SA, known as PdVSA, has told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner.

The new payment policy hasn’t been publicly announced, but Vice President Tareck El Aissami, who has been blacklisted by the U.S., said Friday, “To fight against the economic blockade there will be a basket of currencies to liberate us from the dollar.

There is no major market reaction for now – a modest bid to Bitcoin and some weakness in EUR and Gold (seems someone wants this to look like nothing).

However, as Nomura debt analyst Siobhan Morden warns:

“You can say whatever you want for your domestic propaganda and make it look like you’re retaliating against the U.S…. This political posturing will only be to their detriment.”

So what happens if Europe also sanctions Venezuela? Will Rubles or Yuan… or Gold be the only way to buy Venezuela’s oil?

*  *  *

This decision by the nation with the world’s largest proven oil reserves comes just days after China and Russia unveiled the latest Oil/Yuan/Gold triad at the latest BRICS conference.

It’s when President Putin starts talking that the BRICS reveal their true bombshell. Geopolitically and geo-economically, Putin’s emphasis is on a “fair multipolar world”, and “against protectionism and new barriers in global trade.” The message is straight to the point.

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”

“To overcome the excessive domination of the limited number of reserve currencies” is the politest way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar.

Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan and convertible into gold.

This means that Russia – as well as Iran, the other key node of Eurasia integration – may bypass US sanctions by trading energy in their own currencies, or in yuan.

Inbuilt in the move is a true Chinese win-win; the yuan will be fully convertible into gold on both the Shanghai and Hong Kong exchanges.

The new triad of oil, yuan and gold is actually a win-win-win. No problem at all if energy providers prefer to be paid in physical gold instead of yuan. The key message is the US dollar being bypassed.

RC – via the Russian Central Bank and the People’s Bank of China – have been developing ruble-yuan swaps for quite a while now.

Once that moves beyond the BRICS to aspiring “BRICS Plus” members and then all across the Global South, Washington’s reaction is bound to be nuclear (hopefully, not literally).

Washington’s strategic doctrine rules RC should not be allowed by any means to be preponderant along the Eurasian landmass. Yet what the BRICS have in store geo-economically does not concern only Eurasia – but the whole Global South.

Sections of the War Party in Washington bent on instrumentalizing  India against China – or against RC – may be in for a rude awakening. As much as the BRICS may be currently facing varied waves of economic turmoil, the daring long-term road map, way beyond the Xiamen Declaration, is very much in place.

*  *  *

Having threatened China today with exclusion from SWIFT, we suspect Washington is rapidly running out of any great ally to sustain the petrodollar-driven hegemony (and implicitly its war machine). Cue the calls for a Venezuelan invasion in 3…2..1…!

The End is Nigh for the Dollar

If the Chinese knew that this was part of the UNSC deal, and agreed to it anyway, then they would have been ready for this. But if the US didn’t let on, then this will be seen as a dirty trick deserving of retaliatory sanctions.

Either way, this  will be a catastrophic disruption for the world economy, and the US economy in particular – within 3 weeks the Walmart shelves will be empty of cheap Chinese manufactured goods, and US manufacturers will have to gear up for a massive load of production.  Then we will see if they are as dynamic and entrepreneurial as Trump believes.  I very much doubt that they are.

So the shelves will soon be empty of all sorts of cheap Chinese products, or full of expensive US stuff, if you’re lucky.

China is ready to withstand being “cut off” from SWIFT, having written the software for its own SWIFT system (CIPS). The SWIFT system’s interface is internationally standardised, so they only have to write the equivalent code and issue their own set of credentials for accessing the system.  Russia also has had its own system (RosSWIFT) up and running for Russian banks for months, and is ready to internationalise.

China also has the potential to crash the US Treasury bond market, being the biggest foreign investor in them.  Of course they will take a financial loss if they just dump them on the market, but these bonds are never going to be paid back with real money anyway, so what the hell. Alternatively, they could slowly sell them down, day by day depressing the price unless the Fed tries to buy them all at the support price, and adding a trillion dollars to their debt.  This will scare Japan and other big investors out of the bond market, with unknown consequences.

This is likely backfire on the US Empire, and is indicative that The End is Nigh for the Dollar.

https://www.rt.com/usa/403118-usa-china-sanctions-north-korea/

US threatens to ‘cut China off’ from dollar if it does not uphold sanctions against N. Korea

The US could impose economic sanctions on China if it does not implement the new sanctions regime against North Korea, the US Treasury Secretary has warned. Steven Mnuchin said the restrictions could involve cutting off Beijing’s access to the US financial system.

“North Korea economic warfare works,” Mnuchin said Tuesday at the Delivering Alpha Conference in New York City. “We sent a message that anybody who wanted to trade with North Korea – we would consider them not trading with us.”

The Treasury Secretary echoed the words of the US envoy to the UN, Nikki Haley, by calling the fresh round of sanctions against Pyongyang “historic.” Mnuchin added “if China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the US and international dollar system.”

Washington has, so far, been reluctant to impose economic sanctions on China over concerns of possible retaliatory measures from Beijing and the potentially catastrophic consequences for the global economy.

Washington runs a $350 billion annual trade deficit with Beijing. China also holds $1 trillion in US debt, which amounts to 28 percent of US Treasury bills, notes and bonds held by a foreign government.

US lawmakers, however, seemed to be more inclined to exert pressure on Beijing and other countries striking deals with Pyongyang as they demand a “supercharged” response to North Korea’s nuclear tests, including imposing sanctions on companies from China and any other country doing business in North Korea.

“I believe the response from the United States and our allies should be supercharged,” said Ed Royce, chairman of the House of Representatives Foreign Affairs Committee during a hearing Tuesday.

“We need to use every ounce of leverage… to put maximum pressure on this rogue regime,” he said, adding that “time is running out.” Royce also called on Washington to target major Chinese banks, including the Agricultural Bank of China and the China Merchants Bank for dealing with Pyongyang.

He also said China was apparently reluctant to follow through on the sanctions adopted by the UN Security Council (UNSC) against the North. “It’s been a long, long time of waiting for China to comply with the sanctions that we pass and, frankly, with the sanctions that the United Nations passed,” he said.

The committee chair went on to say the US could give Chinese banks and companies “a choice between doing business with North Korea or the United States.” He added that the US should also “go after banks and companies in other countries that do business with North Korea the same way.”

Committee members also expressed unease over the fact that the sanctions imposed on North Korea have so far been ineffective in preventing Pyongyang from developing its nuclear and missile programs.

“We’ve been played by the Kims for years,” Republican Representative Ted Poe said, referring to North Korean leader Kim Jong-un and his predecessors, as reported by Reuters.

President Donald Trump also downplayed the role of the newly adopted sanctions later Tuesday. ”We think it’s just another very small step, not a big deal. I don’t know if it has any impact,” he told reporters at the start of a meeting with Malaysian Prime Minister Najib Razak.

Trump also said he already discussed the issue with his State Secretary of State Rex Tillerson. He ominously added that “those sanctions are nothing compared to what ultimately will have to happen” without specifying what he meant by that.

The UNSC unanimously approved a new resolution on sanctions against Pyongyang on September 11. Following a series of behind-the-scenes negotiations Sunday, diplomats agreed not to ban oil exports into North Korea. Instead, the ninth set of restrictive sanctions against Pyongyang authorized an annual cap of 2 million barrels of refined petroleum products to North Korea.

It also banned the North’s textile exports – the second-biggest export for the country, which totals $752 million – according to data from the Korea Trade-Investment Promotion Agency. Chinese and Russian negotiators managed to persuade the US delegation not to impose a travel ban or asset freeze on North Korea’s leader Kim Jong-un.

On Tuesday, the North Korean ambassador to Moscow said sanctions will not make his country change its policies. Pyongyang’s nuclear program helps it to deter the “hostile policy of the US,” Kim Yong-jae added.

More NK sanctions on China and Russia

How to win friends and influence people – sanction them until they drop out of the WTO and form their own trade grouping.  I can foresee the world splitting into 2 trade blocs, and many of the countries like Australia being forced to choose between its main export markets and its main military alliances.

http://www.zerohedge.com/news/2017-08-22/treasury-slaps-sanctions-china-russia-entities-and-individuals-over-north-korea

Treasury Slaps Sanctions On China, Russia Entities And Individuals Over North Korea

In a move that is certain to infuriate China further and result in another deterioration in diplomatic relations between Washington and Beijing, moments ago the United States slapped both Chinese and Russian entities and individuals with new sanctions in the Trump administration’s escalating attempts to pressure North Korea to relent and stop its nuclear program and occasional missile launches.

The Treasury Department’s Office of Foreign Assets Control said it would target 10 entities and six individuals who help already sanctioned people who aid North Korea’s missile program or “deal in the North Korean energy trade.” The U.S. also aims to sanction people and groups that allow North Korean entities to access the U.S. financial system or helps its exportation of workers, according to the Treasury:

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated 10 entities and six individuals in response to North Korea’s ongoing development of weapons of mass destruction (WMD), violations of United Nations (UN) Security Council Resolutions, and attempted evasion of U.S. sanctions.  Today’s sanctions target third-country companies and individuals that (1) assist already-designated persons who support North Korea’s nuclear and ballistic missile programs, (2) deal in the North Korean energy trade, (3) facilitate its exportation of workers, and (4) enable sanctioned North Korean entities to access the U.S. and international financial systems.

As a result of the latest action, “any property or interests in property of the designated persons in the possession or control of U.S. persons or within the United States must be blocked, and U.S. persons are generally prohibited from dealing with them.”

Speaking on today’s sanctions, Steven Mnuchin who, or rather whose wife today is in the news for an entirely different reason, made the following statement:

“Treasury will continue to increase pressure on North Korea by targeting those who support the advancement of nuclear and ballistic missile programs, and isolating them from the American financial system,” said Treasury Secretary Steven T. Mnuchin.

“It is unacceptable for individuals and companies in China, Russia, and elsewhere to enable North Korea to generate income used to develop weapons of mass destruction and destabilize the region.  We are taking actions consistent with UN sanctions to show that there are consequences for defying sanctions and providing support to North Korea, and to deter this activity in the future.”

Among the companies sanctions in regards to North Korea’s “WMD program” are the following:

OFAC designated China-based Dandong Rich Earth Trading Co., Ltd. for its support to UN- and U.S.-designated Korea Kumsan Trading Corporation, an entity OFAC previously designated for being owned or controlled by, or acting or purporting to act for or on behalf of, directly or indirectly, the UN- and U.S.-designated General Bureau of Atomic Energy, which is responsible for North Korea’s nuclear program.  Dandong Rich Earth Trading Co., Ltd. has purchased vanadium ore from Korea Kumsan Trading Corporation.  UNSCR 2270 prohibits North Korea’s exports of vanadium ore, and requires member states like China to prohibit the procurement of vanadium ore from North Korea.

OFAC designated Gefest-M LLC and its director, Russian national Ruben Kirakosyan, for support to the UN- and U.S.-designated Korea Tangun Trading Corporation, also known as Korea Kuryonggang Trading Corporation, which is subordinate to the UN- and U.S.-designated Second Academy of Natural Sciences, an entity involved in North Korea’s WMD and missile programs.  Gefest-M LLC, a company based in Moscow, has been involved in the procurement of metals for Korea Tangun Trading Corporation’s Moscow office.

OFAC also designated China- and Hong Kong-based Mingzheng International Trading Limited (“Mingzheng”).  Mingzheng acts as a front company for UN- and U.S.-designated Foreign Trade Bank (FTB), and it has provided financial services to FTB by, among other things, conducting U.S.-dollar denominated transactions on behalf of FTB.  FTB is North Korea’s primary foreign exchange bank; it was designated by the United Nations on August 5, 2017 as part of UNSCR 2371.  OFAC designated FTB in 2013 for facilitating transactions on behalf of North Korea’s proliferation network, including for UN- and U.S.-designated Korea Mining Development Corporation and Korea Kwangson Banking Corporation.  On June 29, 2017, OFAC designated Mingzheng’s owner, Sun Wei.

The Treasury also designated three Chinese coal companies collectively responsible for importing nearly half a billion dollars’ worth of North Korean coal between 2013 and 2016.  Dandong Zhicheng Metallic Materials Co., Ltd. (“Zhicheng”), JinHou International Holding Co., Ltd., and Dandong Tianfu Trade Co., Ltd. have sold, supplied, transferred, or purchased coal or metal, directly or indirectly, from North Korea, and the revenue may have benefitted the nuclear or ballistic missile programs of the Government of North Korea or the Workers’ Party of Korea.  JinHou International Holding Co., Ltd. and Dandong Tianfu Trade Co., Ltd. also were designated for operating in the mining industry in the North Korean economy.

Meanwhile, top U.S. officials have said they do not want to take military action against North Korea unless it is a last resort, and as a result getting China to cooperate is seen as a key part of a diplomatic solution.

Of course, what this latest round of sanctions will achieve, is to further anger Beijing and the local population, in the process making a diplomatic solution even more unlikely and “forcing” America’s ruling Generals, Kelly and McMaster to launch the first “preemptive” shot against Pyongyang.

China speaks on real war

Global Times, the Chinese Communist Party’s mouthpiece, is often used to speak on behalf of the Government on sensitive topics. This piece is saying that if the US strikes North Korea first, China will prevent them (presumably by attacking the US B-1 bombers), whereas if North Korea strikes Guam first, they will not intervene.

Meanwhile Australia’s Prime Minister, Malcolm Turnbull, says the US-Alliance (ANZUS Treaty) means that if Australia is attacked the US will come to Australia’s aid. This is incorrect as the Treaty only requires there to be consultations, and who knows what Trump would do under such circumstances? Turnbull has not yet got the Australian Government’s permission to go to war, so presumably Australia has been encouraged to say this by a phone call from VP Pence, obedient little Australia (militarily) immediately obeys.


Global Times10 August 2017

http://www.globaltimes.cn/content/1060791.shtml

Reckless game over the Korean Peninsula runs risk of real war

2017/8/10

The US and North Korea have both ramped up their threatening rhetoric. The Pentagon has prepared plans for B-1B strategic bombers to make preemptive strikes on North Korea’s missile sites. US Secretary of Defense James Mattis issued an ultimatum to North Korea on Wednesday to “cease any consideration of actions that would lead to the end of its regime and destruction of its people.”

Meanwhile, North Korea issued plans to fire four intermediate-range missiles to land 30-40 kilometers from Guam and claimed it would finalize the plan by mid-August.

Some people in Guam have already expressed panic for the first time after the end of the Cold War. The US has already got the worst of the confrontation with North Korea.

Many people believe the possibility of war is very low. If war really breaks out, the US can hardly reap any strategic harvest and North Korea will face unprecedented risks. North Korea aims to propel the US to negotiate with it, while the US wants to put North Korea in check. Neither can achieve its goal, so they compete to escalate tensions, but neither wants to take the initiative to launch a war.

The real danger is that such a reckless game may lead to miscalculations and a strategic “war.” That is to say, neither Washington nor Pyongyang really wants war, but a war could break out anyway as they do not have the experience of putting such an extreme game under control.

In the near future, it would be highly sensitive if US B-1B fighter jets fly over the Korean Peninsula or North Korea launches missiles in the direction of Guam. Both sides would upgrade their alert to the highest level. The uncertainty in the Korean Peninsula is growing.

Beijing is not able to persuade Washington or Pyongyang to back down at this time. It needs to make clear its stance to all sides and make them understand that when their actions jeopardize China’s interests, China will respond with a firm hand.

China should also make clear that if North Korea launches missiles that threaten US soil first and the US retaliates, China will stay neutral. If the US and South Korea carry out strikes and try to overthrow the North Korean regime and change the political pattern of the Korean Peninsula, China will prevent them from doing so.

China opposes both nuclear proliferation and war in the Korean Peninsula. It will not encourage any side to stir up military conflict, and will firmly resist any side which wants to change the status quo of the areas where China’s interests are concerned. It is hoped that both Washington and Pyongyang can exercise restraint. The Korean Peninsula is where the strategic interests of all sides converge, and no side should try to be the absolute dominator of the region.

Trump threatens China with new trade war

Not content with this week’s sanctions against Russia, North Korea, Iran, and Venezuela, Trump is also going for China, although the expected announcement didn’t materialise this week. The claim is partly that China is a currency manipulator, although the US is the biggest currency manipulator in the world, courtesy of the Federal Reserve interventions in bonds and equities. It should be noted that China’s stated objective is to hold its currency stable against a trade-weighted basket of currencies that is basically all major currencies, excluding the US. Meanwhile as Foreign Exchange (FX) gamblers play their games with currencies, the US Dollar has seen a massive 7% devaluation in the last 3 months:

This, of course, puts pressure on Japan, Europe, UK to maintain their exports against this US currency manipulation, meaning more stimulus in the form of Central Bank support for bonds and equities, and round we go again. This is called “circling the toilet” or “race to the bottom” or “making America great again”.

One reasonable response to this by China could be a month long boycott of trade with the US, which would see the shelves in Walmart stores empty and protests on the steets (see the current state of Venezuela to see what that is like).

https://www.rt.com/news/398746-trump-china-trade-war/

Trump threatens China with new trade war, Beijing appears unmoved


5 Aug, 2017

Amid expectations of the US launching investigations into China’s alleged theft of American intellectual property as well as unfair trade practices, Beijing appears unmoved by the imminent probe while US businesses fear reprisals in case the row unintentionally escalates.

Washington is expected to soon announce investigations into how China tackles copyright protection, protectionism and market access. President Donald Trump reportedly intents to use a provision in the Trade Act of 1974, which would allow him to slap tariffs and other barriers on Chinese products while circumventing the World Trade Organization (WTO) mechanisms for redressing grievances.

A White House announcement of the measures was expected Friday but has been postponed.

US ‘bullying tactics’

The Chinese reaction to the anticipated investigations was calm. Beijing’s commerce ministry said Thursday that China was willing to work with the US to settle their differences, saying trade benefited both parties.

“The China-US trade relationship is… mutually beneficial. Cooperation would benefit both sides and fighting would hurt both,” ministry spokesman Gao Feng told journalists.

He added that conflicts over trade practices should be resolved through the WTO and downplayed the concern over China’s handling of intellectual property rights of foreign companies.

Chinese state media, which often relays Beijing’s position in more strong terms, was more forthcoming. In an editorial, the China Daily warned the US against politicizing bilateral trade, addressing the connection made by Trump between the economy and what he called Beijing’s failure to help in solving the North Korean question.

“Imposing tariffs and restrictions on Chinese imports would serve the interests of neither side, since China will have no choice but to take retaliatory measures, thus paving the way for a trade war,” the newspaper cautioned. “Both sides should work hard to avoid that damaging eventuality.”

The Global Times, the tabloid off-shoot of the official People’s Daily, ran expert commentary which called the US’ tactics “bullying”.

“This is bully negotiating tactics from Trump, trying to pressure China into meeting its unreasonable demands that only benefit the US,” Mei Xinyu, an associate researcher at the Chinese Academy of International Trade and Economic Cooperation under the commerce ministry, told the newspaper.

“China is not what it was two decades ago. Today, we are the world’s second-largest economy and largest trading nation. There are many tools we can use to deal with the US.”

Huo Jianguo, vice chairman of the China Society for World Trade Organization Studies, which is also affiliated with the Chinese commerce ministry, suggested that the US president is picking a fight with China “to make good on campaign promises and ease pressure”.

On his campaign trail, Trump threatened to slap a 45 percent tariff on all goods from China while branding Beijing as a currency manipulator.

After his election, there was much speculation in the Chinese media of an ensuing trade war with the US. Some outlets ran extensive explanations of how China would be invulnerable in such a conflict and could hit back at the US with certain measures, such as buying Airbus aircraft instead of Boeing or placing tariffs on US soybeans and maize.

However the economic tit-for-tat between world’s two largest economies failed to materialize. After meeting China’s President Xi Jinping in April, Trump made it clear that he would rather pressure Pyongyang together with Beijing than threaten Chinese trade.

Meanwhile American companies are worried about how the Trump administration would handle the promised investigations, Reuters reported.

“Companies, I think, are rightly concerned about how this administration will handle any sort of enforcement action or investigation given that we have not seen this administration be particularly nuanced or strategic in its approach,” a technology industry source who asked not to be identified before an official announcement of the probes, told Reuters.

“We’ve been talking with (National Security Council) but frankly for us even, it’s difficult to determine exactly who are the decision makers,” the source said. “We just don’t know exactly what the mentality will be or… the decision making or calculus.”

Concern over potential fallout from the US move was also expressed by the head of WTO, the organization risking to be undermined as a global arbiter of trade conflicts.

“It is easy to see where such chain reactions begin… Should a trade war break out, countries will in the end be worse off than when the dispute begins,” Roberto Azevedo told a trade forum Wednesday.

Beijing’s restrained response to Trump’s trade policy makes sense when you consider the inner workings of the Chinese economy, investor Charles Ortel explained to RT, since it would not be in a position to ‘win’ any kind of trade war with the United States.

“The situation inside China is not as monolithic as some suggest – there are wide gaps between economic reality for the top and then for the bottom 80-90 percent. And I would not and do not presume how to ‘instruct’ the Chinese leadership how best to manage their local realities,” Ortel wrote in an email.

“But, I do believe, fighting with the US is not a winning economic strategy because the internal Chinese market will take many years to hold realistic prospect of absorbing the goods and services presently exported to America.

So, if China wished to move forward, I believe the government could take steps that promote world peace – [such as] truly helping with North Korea, standing down against India [and] pulling back from external expansion in disputed territory – and that are in the interest of many nations, including Russia and the US.

And, if the Trump Administration saw solid evidence of such steps, I believe the rising trade frictions might cool, to an extent.”

However, Hong Kong-based investment and banking specialist Andrew Leung believes that Trump’s measures are an attempt to distract the public from his inability to resolve the problem with North Korea.

“The souring of relations with China is typical of Donald Trump’s capricious and short-wired temperament,” Leung told RT.

“As he appears to be ineffective in resolving the North Korean crisis, he is venting his anger on and trying to divert public attention to China, as if China alone can solve what basically is a deep-seated mistrust problem between Pyongyang and Washington.”

Leung also warned not to underestimate the level of economic damage China could cause the US.

“China has an arsenal of big ticket items of American imports into China which are likely to hurt American businesses very seriously,” he said. “So on the one hand China will continue to urge caution and point out a proper way to address the North Korean issue, on the other hand, China will sound clear warnings targeting big American businesses.”