Economic system

Implications for the global economic system

– New Eastern Perspectives

THE war in Ukraine is drawing to its inexorable conclusion with a Ukrainian defeat that is only a matter of time. Yet this truth did not enter the mind of the Ukrainian President who recently issued the absurd demand that the Ukrainians talk about peace, but only after the Russians withdrew from Donbass and Crimea. It is obviously impossible to have rational talks with this man when he persists in making impossible demands.

It seems that even Americans have recognized the futility of war. For all the belly of the roughly $40 billion recently voted by the United States Congress, it turns out that only a small fraction of that sum will actually be provided to Ukraine. Most of the money will be used to re-equip the Americans to replace weapons that have already been supplied.

The fate of these supplies, which are quickly destroyed or captured by the Russians, is yet another reason for the Americans to be cautious about bringing in this supply of armaments. However, the message does not penetrate the Ukrainian consciousness of the realities they face. We are now hearing claims that in August there will be a major counter-offensive that will undo all the losses of the past four months.

The Ukrainians have completely failed to provide any evidence as to the origin of these forces. When challenged, they explain that this mysterious army is currently being trained in Germany. This claim obviously came as a surprise to the Germans who singularly failed to provide any evidence to support these claims. The only really unknown question that remains about this war is how far will the Russian advance go? The complete reconquest of Donbass is certain, as is the capture of part of Ukraine stretching along the coast. If completed, it will remove all Ukrainian access to the sea, with obvious implications for its ability to ship its grain to foreign ports.

Amid all the hysteria and misrepresentations made, there was at least a glimmer of realism in Ukraine. They fired a minister who had been responsible for repeatedly asserting the false claim that Russian soldiers had systematically raped Ukrainian women. There has never been any evidence to back up this outrageous claim and the dismissal of the main author of these lies reveals at least a small glimmer of realism in the Ukrainian narrative of the war.

The chain of events unfolding in Ukraine represents a blow to Americans. Just two weeks ago, the United States Secretary of Defense was making absurd claims about Russia’s imminent defeat in the war. The Russian economy was apparently, according to American and European claims, on the verge of collapse. This does not happen. If an economy is in great danger of collapse, it is that of Europe. Absurd claims about withdrawing Russian oil from their imports are confronted with the sad truth that there is no other source of supply to fill the gap that would be created, and that the Europeans face the best reality of a very cold winter without the means to warm up.

A fundamental part of the European problem is that they seem to have completely lost the ability to think independently. They continue to make decisions that are meant to please Americans, but that totally ignore the fundamental obligation to protect the well-being of their own citizens. The moves to freeze Russian energy supplies are a classic example of shooting yourself in the foot. It is not surprising in this context that a number of European Union countries are entering into separate agreements with the Russians to ensure that their own people do not freeze this winter.

Any remaining Russian sympathy for their position was effectively destroyed when the Europeans seized about $300 billion of Russia’s foreign exchange earnings, in addition to a similar amount frozen by the Americans. It is an amazing act to commit, in fact without any legal basis. The results of this act of economic vandalism will be multiple.

First, he persuaded the Russians to demand that payment for their goods be made in rubles. This caused initial shock and the refusal of some members of the European Union, notably Poland, to comply with the new conditions. It is the Polish people who will suffer.

Second, and perhaps more importantly in the longer term, the theft of Russian foreign income has sent an unequivocal message to the rest of the world. They could be next. The net effect of this decision is to hasten the day when the rest of the world, outside of the smug European coterie, decides that it no longer needs to use the dollar, pound or euro for its transactions. international.

The implications of this decision are profound. Effective US control over the global surveillance system rests on the willingness of nations to use the US dollar for their international transactions. Remove that from the financial edifice and much of America’s ability to bully the world is removed. The implications are profound. The Saudis, who account for a large share of global oil sales, negotiated with China to accept payment for their oil in terms other than the dollar.

Russia and China have been working for some time on the creation of an alternative system of global payments for goods received from each other. A number of other countries, particularly in the so-called third world, have expressed their willingness to join the new system. Europeans and Americans have only themselves to blame.

One cannot abuse a system that was put in place for one’s own convenience, and let’s face it, the exercise of enormous power, without consequences. These consequences appear now and the old system will never be maintained or restored.

The Chinese have seen what the Europeans and Americans have done to Russian currency holdings. They realize they could be next and have already taken serious steps to reduce their foreign holdings held in dollars. This will also have the effect of reducing the attractiveness of the US dollar with a further consequent reduction in its value and international appeal.

Europeans and Americans are unlikely to have realized the long-term consequences for their own financial situation when they embarked on their anti-Russian moves earlier this year. They will now have plenty of time to reflect on the consequences of their economic arrogance. Sympathy from most countries in the world will be noticeably lacking. They have only themselves to blame.

New Eastern Outlook, June 6. Australia-based former lawyer James O’Neill.