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One man’s view of the relative strengths between Russia and the West

December 19, 2014

… and why he thinks 2015 will be the “crash year”

[ It’s a long read but worth the time and effort. ]

Noted:
* The end game for the US dollar … it will rise and rise and just before IT CRASHES, … it crashes
* The US Is Practically Begging for Global War 
* 10 Things Banksters Don’t Want You to Know
* Monsanto: science and fraud are the same thing
* UK oil industry ‘close to collapse’ as price plunges below $60 per barrel
* Gerald Celente – Trends In The News – “Top Trend: Bankism” – (12/11/14) 

Source here.

Let me explain something to you about Russia and their ruble

First, you must realize that all the mainstream financial news outlets are propaganda organs for the west. The lie about most every financial number coming out of the USA to try to con the world into trusting in the US economy, and thus the hegemony of the US dollar.

Second, you have always heard that a country is in better shape when its currency is relatively weak compared to its trading partner, causing its exports to be cheaper and imports more expensive, and so it can export more and import less. This causes a country’s trade balance to be positive.

However, in the case of the USA, its financial condition has deteriorated to the point where increasing its trade balance is less important than reducing its debt payments to a manageable number. The USA is in so much debt at this point that it must try to keep a strong dollar, even at the expense of its trade balance. If the dollar were to lose strength, the US bonds would have to fall in price and so the interest earned, or yield, would go up. This yield, or interest, whatever level it is any particular moment, is transferred to the US treasury because the treasury is constantly creating new bonds to replace maturing bonds, and also creating new bonds to cover the continuously rising deficit, which is about a trillion dollars per year now.

In summary, the USA has reached the end game of its business life cycle. Its debt burden is so great there is no mathematical way to escape it. It is an Enron. It is a ship that has struck an iceberg and the band is playing but the ship is sinking and the deck is awash … it won’t be long now until it slips below the surface forever. It is an airplane that has lost all engines and is in a flat spin accelerating towards the earth and complete obliteration. The odds of saving the USA financially now would be like trying to save a person that has jumped off the empire state building and is half-way to the ground before anyone even noticed. There is no chance to save the US economy at all, and if you understand economics to any appreciable degree, you will have embraced this eventuality as fact. The US will default on its debt, and this is not an opinion, it is a fact based on math. The politicians know this, the only question is when it will happen. If the dollar can be maintained strong, the cost of the interest will be low, however should the interest the US treasury have to pay on its debt ($18 trillion) rise by just one percent, the US debt market would break because of math … it simply cannot afford to pay any more debt. The rate the treasury pays on its debt cannot even go back to its historical norm, nor no where near it or collapse would be immediate. Incidentally, $18 trillion equates to $56,000 per person and $154,000 per person that actually pays taxes (about one in three). What chance do you think there is that every single person in the USA will ever be able to pay $56,000 more dollars to the treasury so the treasury can pay off the debt? The work force of the USA is down to under 50% of the population …

Before looking at Russia, note that the European economy is about in the same shape as the USA economy. The debt to GDP ratio is on the same order of magnitude … the debt itself is about the same value … give or take a few trillion.

Now let’s look at Russia. Russia does not have a lot of debt (way less than one trillion dollars). Although it has a smaller economy than the USA or Euroland, its debt to GDP ratio is only 17%, which compared to the USA and Euroland is quite low … by a actor of 4 or more. Another way to put it is that Russia is a smaller business that has only ¼ the debt-to-revenue ratio of its bigger competitors. In an economic downturn, would you rather be an employee of which of these businesses? Russia of course.

But more to the point, if you don’t already know what the definition of “Current Account” is, you need to educate yourself before making a one-off comment or shallowly thought-out opinion of what “Pain” Russia is currently experiencing.

Here is a link to what Current Account is:
[link to www.investopedia.com]

Before I get into details, just look at the following details of Russia’s Current Account, and pay attention to the list of countries and their respective Current Accounts:
[link to www.tradingeconomics.com]

Do any of the countries in the list with positive Current Accounts have something in common? Hmm … seems that most of them are accumulating or repatriating gold. Why?

When a country has a positive Current Account, it is selling more than it is buying, so it is accumulating foreign currency/bonds in its banking system, also referred to as foreign reserves. China is by far has the most positive Current Account. Germany is a biggie, along with Saudi Arabia, Japan, the Netherlands, a host of other oil exporting countries, and also Russia. Upon actually studying the situation, instead of listening to propaganda being released by the Wall Street Journal, and other financial presstitutes, you will see that Russia has had a very nice Current Account for a long time.

When a country has a positive Current Account, not only is it building foreign reserves, it is actually fulfilling the “Savings” side of the banking equation. Or in other words, it is “Loaning” money to its trading partners. Another way to word it is to say, we will sell you our merchandise in exchange for your bonds.

Ask yourself, if Russia has a disproportional amount of other countries’ currency, what happens if its own currency goes down a little … or even a significant amount? Remember, on balance, Russia is taking in other countries’ money, not paying rubles out. So until/unless the Current Account goes negative, Russia continues to accumulate other nations currency/debt.

As I stated in the outset of this post, a relatively weaker currency will strengthen exports to your trading partner and lower imports from your trading partners. This has the effect of moving your Account Deficit in the positive direction. Look what has happened to China in the past several years. China’s Current Account is so strong that with its level of US foreign reserves only, it has the power to collapse the dollar overnight if it decided to sell all that US debt at once … or even just threatened to do so.

People in Russia are panicking? Sure, they are panicking to BUY things that are imported before they go up in price! Apple stalled sales there … why? Because Apple was losing its shirt on the deal … they were getting less for their computers, by the same ratio as the ruble has depreciated. Obviously over time prices of imports will rise to make up the difference, but the people in Russia are consuming very nicely in response to their currency’s strength, just like the time-tested theory states it will, and that is good for their economy.

As an illustration, Russia’s central bank just raised it’s interest rate on debt from 10% to 17%. Wow, you say, that will break them for sure! Really? 17% on $650 billion of debt is only $45 billion more than the cost of the debt at 10%. In comparison, the USA’s debt is $18 trillion, which by the way is 18,000 billion, or about 28 times Russia’s debt. And the USA’s Current Account is in a serious deficit mode to the tune of $-100 billion per quarter versus Russia’s Current Account surplus of $11 billion per quarter. So over a year the Current Account provides Russia with about $44 billion, or about the same amount of money as will be needed to service the increase in the interest rate they are offering on the debt. Hmm … Russia is so strong they will be able to service their debt with the “extra” money the get from their Current Account surplus?

If a crisis were to hit the USA and the interest rate went up 1 little percent, the US treasury would have to come up with $180 billion dollars more to service the debt. Wait a minute, that is 18% of the current yearly budget deficit. So if some real problem presented itself and the world started to get worried about the value of the dollar, and if that caused the USA to have to raise the interest rate by 5%, that would basically DOUBLE the USA’s deficit. I hope you can see through this illustration why the USA defends the petrodollar with bombs, bullets, and the lives of our young men (and yes, even women … even sacred women-hood, whose very honor would have been defended to the death by men of old, are sacrificed to death or the banking mafia).

Why I think 2015 will be the “crash year”

… let’s start with three very significant issues [that] are combining right now.

(1) Over the past 50 years, the US economy has changed from a manufacturing driven economy to a consumption driven economy. And now the consumer is finally tapped out. The evidence is in the black friday 4-day sales numbers that are already out, which show that in-store and on-line purchasing fell about 11%. This is incredibly important. Several years ago the FED lowered interest rates and eased lending rules so the sub-prime mortgage industry could keep the balloon inflated. Then it busted and we had 2008-style contraction. Then they pumped literally trillions into the system, which DID NOT make its way into the economy but went into the stock market and to bail out banks. So then they tried sub-prime auto loans, which are not in the crash mode. Adding to this is the delinquency rate of student loans … on average, these college kids cannot get jobs so they cannot pay their loans. In summary, its Christmas time and the consumer cannot muster enough appetite to go further in debt to “Consume.”

(2) Oil prices. I am in the midstream sector of the oil business and I will tell you why the drop in prices has not collapsed the production of shale plays yet. The shale wells have a very short life-cycle so it requires constant drilling. While trucking and rail are utilized at first to move the production to markets/refineries, pipeline companies build and lengthen pipelines to follow the drilling. Pipeline companies contract with the shale producers using a contract known as “Take or pay.” This means the producer is obligated to inject their production into the pipeline, or must pay for the pipeline capacity anyway. When you think about, it makes sense … what pipeline company would build a speculative pipeline to the production field? No, first they contract with all the producers and with a known amount of production under contract, they build the pipeline.

So now that the price of crude is down, dragging down all the other associated products too, such as y-grade, propane, butane, pentane, etc., the producer is losing money by continuing to produce, but since he must pay for the pipeline capacity he continues to produce until the point where he loses less money by simply paying the pipeline for doing nothing.

So the danger here is that if crude continues to fall, or stays this low for an extended period of time, most all of the shale plays will dry up and the last big boom to our economy will go down the tubes. The current shale boom has completely consumed every pressurized railcar on the market as well as all the pressurized semi-trailers (I know as I manage these assets). Even the LPG cargo ships are way under built. It will take about 20 years for the ship manufacturers to catch up with VLGC’s and other sized carriers.

Imagine what will happen to the drilling, production, transportation and all other associated business associated with the oil business boom over the next 6 months. Yes, there will be carnage.

(3) Price discovery for precious metals, namely gold and silver, currently happens on the Comex and the LBMA. However, China has set up new hubs in the East where physical metal is traded and paper settlement is not allowed. Whenever China wants to pull the trigger, they simply announce that the are offering $x dollars per ounce for gold, where ‘x’ is some multiple of the price of gold in dollars today. for instance, gold is selling for about $1,200 per ounce currently and tomorrow China announces they will pay $3,600 per ounce for physical delivery. They won’t do this as long as they can get the physical delivered for the “paper” price determined by the Comex and the LBMA, even if they have to pay a 50% premium … but once China has all the gold and the physical delivery mechanisms break down at the LBMA, it’s game over.

Notice how many countries are repatriating their gold? Why is this? What, is 2014 somehow just a coincidental year that several countries just decided out of the blue to get the gold inside their physical borders?

Once the price of gold and silver break out of the control of the “paper” markets, the price will soar like it did in the 80’s and again a few years ago, but it will be a price move that makes the others look like little blips on the screen in comparison. Once the dollar price of gold starts to rise, the debt service the USA will have to pay on its bonds will kill the USA. This will necessarily and mathematically cause a default.

… all coming together now … some suggest we will make it all the way to next October when the market is most vulnerable … I think we will see false flag(s) any moment to take center stage, crash the economy on purpose before it can crash naturally, then blame the false flag perp dejour for the mess.

Have a nice day all!

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