“There Will Be Blood”: Petrodollar Death Means A Liquidity And Oil-Exporting Crisis On Deck

Zero Hedge

Recently we posted the following article commenting on the impact of USD appreciation and dollar circulation among oil exporters, as well as how the collapsing price of oil is set to reverberate across the entire oil-exporting world, where sticky high oil prices were a key reason for social stability. Following today’s shocking OPEC announcement and the epic collapse in crude prices, it is time to repost it now that everyone is desperate to become a bear market oil expert, if only on Twitter…

How The Petrodollar Quietly Died, And Nobody Noticed

Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company – the end of the system that according to many has framed and facilitated the US Dollar’s reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop.

The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance themselves from the US-led, “developed world” status quo spearheaded by the IMF, global trade would increasingly take place through bilateral arrangements which bypass the (Petro)dollar entirely. And sure enough, this has certainly been taking place, as first Russia and China, together with Iran, and ever more developing nations, have transacted among each other, bypassing the USD entirely, instead engaging in bilateral trade arrangements, leading to, among other thing, such discussions as, in today’s FT, why China’s Renminbi offshore market has gone from nothing to billions in a short space of time.

And yet, few would have believed that the Petrodollar did indeed quietly die, although ironically, without much input from either Russia or China, and paradoxically, mostly as a result of the actions of none other than the Fed itself, with its strong dollar policy, and to a lesser extent Saudi Arabia too, which by glutting the world with crude, first intended to crush Putin, and subsequently, to take out the US crude cost-curve, may have Plaxico’ed both itself, and its closest Petrodollar trading partner, the US of A.

As Reuters reports, for the first time in almost two decades, energy-exporting countries are set to pull their “petrodollars” out of world markets this year, citing a study by BNP Paribas (more details below). Basically, the Petrodollar, long serving as the US leverage to encourage and facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove itself into irrelevance.

A consequence of this year’s dramatic drop in oil prices, the shift is likely to cause global market liquidity to fall, the study showed.

This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling.

But no more: “this year the oil producers will effectively import capital amounting to $7.6 billion. By comparison, they exported $60 billion in 2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations.”

In short, the Petrodollar may not have died per se, at least not yet since the USD is still holding on to the reserve currency title if only for just a little longer, but it has managed to price itself into irrelevance, which from a USD-recycling standpoint, is essentially the same thing.

According to BNP, Petrodollar recycling peaked at $511 billion in 2006, or just about the time crude prices were preparing to go to $200, per Goldman Sachs. It is also the time when capital markets hit all time highs, only without the artificial crutches of every single central bank propping up the S&P ponzi house of cards on a daily basis. What happened after is known to all…

At its peak, about $500 billion a year was being recycled back into financial markets. This will be the first year in a long time that energy exporters will be sucking capital out,” said David Spegel, global head of emerging market sovereign and corporate Research at BNP.


Spegel acknowledged that the net withdrawal was small. But he added: “What is interesting is they are draining rather than providing capital that is moving global liquidity. If oil prices fall further in coming years, energy producers will need more capital even if just to repay bonds.”

In other words, oil exporters are now pulling liquidity out of financial markets rather than putting money in. That could result in higher borrowing costs for governments, companies, and ultimately, consumers as money becomes scarcer.

Which is hardly great news: because in a world in which central banks are actively soaking up high-quality collateral, at a pace that is unprecedented in history, and led to the world’s allegedly most liquid bond market to suffer a 10-sigma move on October 15, the last thing the market needs is even less liquidity, and even sharper moves on ever less volume, until finally the next big sell order crushes the entire market or at least force the [NYSE|Nasdaq|BATS|Sigma X] to shut down indefinitely until further notice. 

So what happens next, now that the primary USD-recycling mechanism of the past 2 decades is no longer applicable? Well, nothing good.

Here are the highlights of David Spegel’s note Energy price shock scenarios: Impact on EM ratings, funding gaps, debt, inflation and fiscal risks.

Whatever the reason, whether a function of supply, demand or political risks, oil prices plummeted in Q3 2014 and remain volatile. Theories related to the price plunge vary widely: some argue it is an additional means for Western allies in the Middle East to punish Russia. Others state it is the result of a price war between Opec and new shale oil producers. In the end, it may just reflect the traditional inverted relationship between the international value of the dollar and the price of hard-currency-based commodities (Figure 6). In any event, the impact of the energy price drop will be wide-ranging (if sustained) and will have implications for debt service costs, inflation, fiscal accounts and GDP growth.

Have you noticed a reduction of financial markets liquidity?

Outside from the domestic economic impact within EMs due to the downward oil price shock, we believe that the implications for financial market liquidity via the reduced recycling of petrodollars should not be underestimated. Because energy exporters do not fully invest their export receipts and effectively ‘save’ a considerable portion of their income, these surplus funds find their way back into bank deposits (fuelling the loan market) as well as into financial markets and other assets. This capital has helped fund debt among importers, helping to boost overall growth as well as other financial markets liquidity conditions.

Last year, capital flows from energy exporting countries (see list in Figure 12) amounted to USD812bn (Figure 3), with USD109bn taking the form of financial portfolio capital and USD177bn in the form of direct equity investment and USD527bn of other capital over half of which we estimate made its way into bank deposits (ie and therefore mostly into loan markets).

The recycling of petro-dollars has benefited financial markets liquidity conditions. However, this year, we expect that incremental liquidity typically provided by such recycled flows will be markedly reduced, estimating that direct and other capital outflows from energy exporters will have declined by USD253bn YoY. Of course, these economies also receive inward capital, so on a net basis, the additional capital provided externally is much lower. This year, we expect that net capital flows will be negative for EM, representing the first net inflow of capital (USD8bn) for the first time in eighteen years. This compares with USD60bn last year, which itself was down from USD248bn in 2012. At its peak, recycled EM petro dollars amounted to USD511bn back in 2006. The declines seen since 2006 not only reflect the changed  global environment, but also the propensity of underlying exporters to begin investing the money domestically rather than save. The implications for financial markets liquidity – not to mention related downward pressure on US Treasury yields – is negative.

* * *

Even scarcer liquidity in US Capital markets aside, this is how BNP sees the inflation and growth for energy exporters:

Household consumption benefits: While we recognise that the relationship is not entirely linear, we use inflation basket weights for ‘transportation’ and ‘household & utilities’ (shown in the ‘Economic components’ section of Figure 27) as a means to address the differing demand elasticities prevalent across countries. These act as our proxy for consumption the consumption basket in order to determine the economic benefit that would result as lower energy prices improve household disposable income. This is weighted by the level of domestic consumption relative to the economy, which we also show in the ‘Economic components’ section of Figure 27.

Reduced industrial production costs: Outside the energy industry, manufacturers will benefit from falling operating costs. Agriculture will not benefit as much and services will benefit even less.

Trade gains and losses: Lost trade as a result of lower demand from oil-producing trade partners will impact both growth and the current account balance. On the other hand, better consumption from many energy-importing trade partners will provide some offset. The percentage of each country’s exports to energy producing partners represents relative to its total exports is used to determine potential lost growth and CAR due to lower demand from trade partners.

Domestic FX moves are beyond the scope of our analysis. These will be tied to the level of openness of the economy and the impact of changed demand conditions among trade partners as well as dollar effects. Neither do we address non-oil related political risks (eg sanctions) or any fiscal or monetary policy responses to oil shocks.

GDP growth

The least impacted oil producing country, from a GDP perspective, is Brazil followed by Mexico, Argentina, Tunisia and Trinidad & Tobago. The impact on fiscal accounts also appears lower for these than most other EMs.

Remarkably, the impact of lower oil for Russia’s economic growth is not as severe as might be expected. Sustained oil at USD80/bbl would see growth slow by 1.8pp to 0.6%. This compares with the worst hit economies of Angola (where growth is nearly 8pp lower at -2%), Iraq (GDP slows to -1.6% from 4.5% growth), Kazakhstan and Azerbaijan (growth falls to -0.9% from 5.8%).

For a drop to USD 80/bbl, it can be seen (in Figure 27) that, in some cases, such as the UAE, Qatar and Kuwait, the negative impact on GDP can be comfortably offset by fiscal stimulus. These economies will probably benefit from such a policy in which case our ‘model-based’ GDP growth estimate would represent the low end of the likely outcome (unless a fiscal policy response is not forthcoming).


Global growth in 2015? More like how great will the hit to GDP be if oil prices don’t rebound immediately?

On the whole, we can say that the fall in oil prices will prove negative, shaving 0.4pp from 2015 EM GDP growth. The collective current account balance will fall 0.58pp to 0.6% of GDP, while the budget deficit will deteriorate by 0.61pp to -2.9%. This probably has the worst implications for EM as an asset class in the credit world.

Energy exporters will fare worst, with growth falling by 1.9pp and their current account balances suffering negative pressure to the tune of 2.69pp of GDP. Budget balances will suffer a 1.67pp of GDP fall, despite benefits from lower subsidy costs. The impact of oil falling USD 25/bbl will be likely to put push the current account balance into deficit, with our analysis indicating a 0.3% of GDP deficit from a 2.4% surplus before. Fortunately, the benefit to inflation will be the best in EM and could help offset some of the political risks from reduced growth.

As might be expected, energy importers will benefit by 0.4pp better growth in this scenario. Their collective current account will improve by 0.6pp to 1.1% of GDP.

The regions worst hit are the Middle East, with GDP growth slowing to 0.3%, which is 3.8pp lower than when oil was averaging USD105/bbl. The regions’ fiscal accounts will also suffer most in EM, moving from a 1.7% of GDP surplus to a 1.8% deficit. Meanwhile, the CAB will drop 5.3pp, although remain in surplus at 3.9%. The CIS is the next-worst hit, from a GDP perspective, with regional growth flat-lined versus 1.91% previously. The region’s fiscal deficit will worsen from 0.7% of GDP to -1.8% and CAB shrink to 0.7% from 3% of GDP. Africa’s growth will come in 1.4pp slower at 2.8% while Latam growth will be 0.4pp slower at 2.2%. For Africa, the CAB/GDP ratio will fall by 2.4pp pushing it deep into deficit (-2.9% of GDP).

Some regions benefit, however, with Asia ex-China growing 0.45bpp faster at 5.5% and EM Europe (ex-CIS) growing 0.55pp faster at 3.9%, with the region’s CAB/GDP improving 0.69pp, although remain in deficit to the tune of -2.4% of GDP.

* * *

And so on, but to summarize, here are the key points once more:

  • The stronger US dollar is having an inverse impact on dollar-denominated commodity prices, including oil. This will affect emerging market (EM) credit quality in various ways.
  • The implications of reduced recycled petrodollars has significant ramifications for financial markets, loan markets and Treasury yields. In fact, EM energy exporters will post their first net drain on global capital (USD8bn) in eighteen years.
  • Oil and gas exporting EMs account for 26% of total EM GDP and 21% of external bonds. For these economies, the impact will be on lost fiscal revenue, lost GDP growth and the contribution to reserves of oil and gas-related export receipts. Together, these will have a significant effect on sustainability and liquidity ratios and as a consequence are negative for dollar debt-servicing risks and credit ratings.

Zero Hedge

Oil Market: Lower Gas Prices not the Only Reason to be Thankful

The New American
by Bob Adelmann

gas prices

When news from Vienna arrived on Wall Street early Thanksgiving morning that OPEC wasn’t going to cut its production quotas to stabilize crude oil prices, those prices immediately fell even further, touching lows not seen in four years. West Texas Intermediate briefly touched $70 a barrel while Brent crude was close behind, at $73.

Oil hit a high of $147 a barrel in July 2008, so Thursday’s drop represents an astonishing 52-percent decline in just over six years. This coincides with an 80-percent increase in crude oil production by the United States over that same period. As economies around the world struggle to regain their footing, thanks to failing Keynesian policies, the demand for crude remains about where it was 10 years ago. With flat demand and increasing supply, it was only a matter of time before prices started to fall.

American consumers are benefitting enormously, with gas prices dropping significantly below $3 a gallon, which is saving them an estimated $150 million every day. But that’s just one reason to be thankful this day.

The drop is exposing OPEC for the ghost of Thanksgiving past that it is. Years ago its crude oil production of 30 million barrels per day gave it clout in the world market, enough to influence oil prices worldwide. During the oil crisis in the mid-70s, speed limits were reduced to 55 mph, and drivers waited hours in line to fill up their cars on odd- or even-numbered days. The government put in place regulations forcing power plants to use coal rather than oil, and prohibited the sale of American crude oil abroad.

Oil producers in OPEC have engaged in straight-line thinking in a curvilinear world for years, planning their state budgets around a predictable flow of revenues from the sale of their crude reserves. But some of the more unfriendly producers in that cartel are facing overwhelming budget deficits, and it’s highly likely that they will get worse for the foreseeable future.

For instance, Libya — headed until recently by the terrorist Moammar Gadhafi — needs crude prices at $185 a barrel to fund itself. Iran — presided over by Supreme Leader” Ali Khamenei — needs $133 a barrel to fund itself.

Vladimir Putin’s Russia isn’t in much better shape, needing (according to Goldman Sachs) $101 a barrel to fund its militarist adventures around the Black Sea. With crude near $70 a barrel, Russia’s budget deficit is running $100 billion a year, not including the $40 billion it is spending in the Ukraine. Reflecting those deficits, the Russian ruble has lost nearly 40 percent of its value so far this year.

The benefits to the American consumer continue to build:

• Plastics cost less, reducing food packaging costs and hence food prices. Electric bills are continuing to decline, reflecting the shrinking cost of energy.

• The American dollar continues to strengthen against foreign currencies, allowing consumers to purchase more for less from foreign companies.

• The cost of living continues to decline for the consumer as well, while interest rates remain low. This is showing up in increased auto sales and the home building sector, to say nothing about the economic explosions taking place in oil-producing states such as North Dakota and Texas.

One would be hard-pressed to find any disadvantage to the current decline in the price of oil. On Wednesday, however, a small Norwegian oil drilling company, SeaDrill, which concentrates in off-shore drilling, lost nearly one-quarter of its market value after it announced it was suspending its dividend to conserve cash. It’s a highly-leveraged company whose strategy often works well if prices for oil advance, allowing loans to be paid down out of those increased revenues. But leverage, as SeaDrill and possibly other highly-leverage companies in the American oil patch are finding out, is a two-edged sword. If oil prices drop too far and stay down too long, the effect on marginal producers with high costs could be fatal.

That’s the other half of any bubble: Eventually reality sets in, prices revert to the mean, and the market stabilizes. While investors are focused on the nose-bleed prices of stocks, few are looking for a bust in the oil patch. Most are happy to see lower oil prices benefiting consumers while giving America’s enemies serious heartburn. More to be thankful for this Thanksgiving Day.

The New American

Big Banks Take Huge Stakes In Aluminum, Petroleum and Other Physical Markets … Then Manipulate Their Prices

Washington’s Blog


Giant Banks Take Over Real Economy As Well As Financial System … Enabling Manipulation On a Vast Scale

Top economists, financial experts and bankers say that the big banks are too large … and their very size is threatening the economy.  They say we need to break up the big banks to stabilize the economy.  They say that too much interconnectedness leads to financial instability.

But – as shown below – the big banks are getting bigger and bigger … and getting into ever more interconnected markets.

Indeed, big banks aren’t even really acting like banks anymore.  Big banks do very little traditional banking, since most of their business is from financial speculation. For example, we noted in 2010 that less than 10% of Bank of America’s assets come from traditional banking deposits.

The big banks are manipulating every market.   They’re also taking over important aspects of the physical economy, including uranium mining, petroleum products, aluminum, ownership and operation of airports, toll roads, ports, and electricity.

And they are using these physical assets to massively manipulate commodities prices … scalping consumers of many billions of dollars each year. More from Matt Taibbi, FDL and Elizabeth Warren.

A 2-year bipartisan probe by the Senate Permanent Subcommittee on Investigations has shined a light on this problem, culminating in a new 400-page report.

Senator Levin – the Chair of Subcommittee – summarizes the findings from the investigation:

“Wall Street’s massive involvement in physical commodities puts our economy, our manufacturers and the integrity of our markets at risk,” said Sen. Carl Levin, D-Mich., the subcommittee’s chairman. “It’s time to restore the separation between banking and commerce and to prevent Wall Street from using nonpublic information to profit at the expense of industry and consumers.”

“Banks have been involved in the trade and ownership of physical commodities for a number of years, but have recently increased their participation in new ways,” said Sen. John McCain, R-Ariz. “This subcommittee’s hearing is an opportunity to examine that involvement, determine whether it gives rise to excessive risk, and identify potential causes for concern that warrant further oversight by Congress and financial regulators.”

One focus for the subcommittee is the management of Detroit-area metal warehouses run by Metro Trade Services International, the largest U.S. warehouse company certified to store aluminum warranted by the London Metal Exchange for use in settling trades. Since Goldman bought Metro in 2010, Metro warehouses have accumulated up to 85 percent of the U.S. LME aluminum storage market.

Since Goldman took over the warehouses, the wait to withdraw LME-warranted metal has increased from about 40 days to more than 600 days, reducing aluminum availability and tripling the regional premium for storage and delivery costs.

The investigation revealed a number of previously unknown details about these deals: that Goldman’s warehouse company paid metal owners to engage in “merry-go-round” deals that shuttled metal from building to building without actually shipping aluminum out of Metro’s system; that the deals were approved by Metro’s board, which consisted entirely of Goldman employees; and that a Metro executive raised concerns internally about the appropriateness of such “queue management.”

Goldman didn’t just store aluminum; it was involved in massive trades of aluminum at the same time its warehouse operations were affecting aluminum availability, storage costs, and prices. After Goldman bought Metro, it accumulated massive aluminum holdings of its own, and in 2012, added about 300,000 metric tons of its own aluminum to the exit queue at its warehouses.

The Subcommittee investigation also examined other instances of Wall Street bank involvement with physical commodities. The Subcommittee report details how JPMorgan amassed physical commodity holdings equal to nearly 12 percent of its Tier 1 capital, while telling regulators its holdings were far smaller; and that at one point it owned an amount equal to more than half the aluminum used in North America in a year. The report also discloses that, until recently, Morgan Stanley controlled 55 million barrels of oil storage capacity, 100 oil tankers, and 6,000 miles of pipeline, while also working to build its own compressed natural gas facility and supply major airlines with jet fuel.

Details are also provided about Goldman’s ownership of a uranium trading company and two open pit coal mines in Colombia. When one of the mines was shut down last year due to labor unrest, Goldman’s Colombian subsidiary requested military and police assistance to end a human blockade — before paying the miners with $10,000 checks to end the protest.

The findings and recommendations from the bipartisan report are as follows:

Findings of Fact

(1)        Engaging in Risky Activities. Since 2008, Goldman Sachs, JPMorgan Chase, and Morgan Stanley have engaged in many billions of dollars of risky physical commodity activities, owning or controlling, not only vast inventories of physical commodities like crude oil, jet fuel, heating oil, natural gas, copper, aluminum, and uranium, but also related businesses, including power plants, coal mines, natural gas facilities, and oil and gas pipelines.

(2)        Mixing Banking and Commerce. From 2008 to 2014, Goldman, JPMorgan, and Morgan Stanley engaged in physical commodity activities that mixed banking and commerce, benefiting from lower borrowing costs and lower capital to debt ratios compared to nonbank companies.

(3)        Affecting Prices. At times, some of the financial holding companies used or contemplated using physical commodity activities, such as electricity bidding strategies, merry-go-round trades, or a proposed exchange traded fund backed by physical copper, that had the effect or potential effect of manipulating or influencing commodity prices.

(4)        Gaining Trading Advantages. Exercising control over vast physical commodity activities gave Goldman, JPMorgan, and Morgan Stanley access to commercially valuable, non-public information that could have provided advantages in their trading activities.

(5)        Incurring New Bank Risks. Due to their physical commodity activities, Goldman, JPMorgan, and Morgan Stanley incurred multiple risks normally absent from banking, including operational, environmental, and catastrophic event risks, made worse by the transitory nature of their investments.

(6)        Incurring New Systemic Risks. Due to their physical commodity activities, Goldman, JPMorgan, and Morgan Stanley incurred increased financial, operational, and catastrophic event risks, faced accusations of unfair trading advantages, conflicts of interest, and market manipulation, and intensified problems with being too big to manage or regulate, introducing new systemic risks into the U.S. financial system.

(7)        Using Ineffective Size Limits. Prudential safeguards limiting the size of physical commodity activities are riddled with exclusions and applied in an uncoordinated, incoherent, and ineffective fashion, allowing JPMorgan, for example, to hold physical commodities with a market value of $17.4 billion – nearly 12% of its Tier 1 capital – while at the same time calculating the market value of its physical commodity holdings for purposes of complying with the Federal Reserve limit at just $6.6 billion.

(8)        Lacking Key Information. Federal regulators and the public currently lack key information about financial holding companies’ physical commodities activities to form an accurate understanding of the nature and extent of those activities and to protect the markets.

Of course, the Federal Reserve – instead of regulating the banks, encouraged them to buy all of these physical assets. As Reuters notes:

[The Senate report] also points the finger at the Federal Reserve, saying the central bank has taken insufficient steps to address the risks taken by financial holding companies gathering physical commodities. The Fed in some cases was unaware of the growing risk, the report said.

Pam Martens points out:

Adding to the hubris of the situation, the Wall Street banks’ own regulator, the Federal Reserve, gave its blessing to this unprecedented and dangerous encroachment by banking interests into industrial commodity ownership and has effectively looked the other way as the banks moved into industrial commerce activities like owning pipelines and power plants.


One would think that the mega banks’ regulator, the Federal Reserve, would be the first line of defense against this type of dangerous sprawl by banks. According to the Levin Subcommittee report, the Federal Reserve was actually the facilitator of the sprawl by the banks. The report notes:

“Without the complementary orders and letters issued by the Federal Reserve, many of those physical commodity activities would not otherwise have been permissible ‘financial’ activities under federal banking law. By issuing those complementary orders, the Federal Reserve directly facilitated the expansion of financial holding companies into new physical commodity activities.”

Washington’s Blog

Soros: The European Union is a “Failed” Experiment In “International Governance”

New Eastern Outlook
by Steven MacMillan

34534532Is the Western elite’s brainchild – the European Union – disintegrating? Due to persistent economic problems, the rise of “popular resentment” across the continent, the political fallout after the illegal coup in Ukraine and the subsequent unpopular economic war on Russia, the EU is on the verge of crumbling.

In an interview with France 24, the hedge fund manager, billionaire and founder of the Open Society Foundation, George Soros, reveals that the European Union has failed to achieve the desires of the elite and many within Europe now see “Russia as a role model”:

“We have to recognise that the [European] Union itself, which is a noble, well-intended experiment in international governance, has failed, and has not delivered what it promised, and there is such a degree of disappointment that even Russia can offer an alternative.” (3.21 into the interview)

Soros then asserts that many in Europe – including the UK Independence Party (UKIP) leader Nigel Farage, Front National President Marine Le Pen in France, as well as “a lot of people in Germany” – find the idea of “closer cooperation with Russia rather attractive”.

Europe has been in crisis for years now and the outcome of this latest flare up with Russia could determine the future of the EU itself. In an article featured in The New York Review this month titled: Wake Up, Europe, Soros notes that since the financial crisis of 2008 and the subsequent austerity policies imposed by the nefarious troika, “popular resentment” and support for anti-European parties has risen:

“The European Union in general and the eurozone in particular lost their way after the financial crisis of 2008.The fiscal rules that currently prevail in Europe have aroused a lot of popular resentment. Anti-Europe parties captured nearly 30 percent of the seats in the latest elections for the European Parliament but they had no realistic alternative to the EU to point to until recently. Now Russia is presenting an alternative that poses a fundamental challenge to the values and principles on which the European Union was originally founded…. It is also high time for the European Union to take a critical look at itself… The bureaucracy of the EU no longer has a monopoly of power and it has little to be proud of.”

The elite have become increasingly fearful of popular uprisings across the West which they seek to “co-opt and channel”, as Paul Joseph Watson reported for Infowars in September. As anger continues to mount in the West at the ineptitude and immorality of government, the elite will attempt to “co-opt” organic movements and even create artificial political movements to guide and neutralize “popular passions”.

The EU: An extension of the Anglo-American Elite

The EU is the brainchild of an international elite who have been in the process of building an empire for over a century, with the EU serving as “a bold experiment in international governance and the rule of law, aimed at replacing nationalism and the use of force”. The EU is an experiment in replacing national countries with a union which is to be amalgamated with emerging sovereignty-usurping unions across the planet, including the North American Union and a possible Middle Eastern Union, into a global empire. The executive body of the EU – the European Commission – is a corporate partner of the Royal Institute of International Affairs (RIIA), the parallel British government which strives for global conquest.

Étienne Davignon, a former European Commissioner and an influential architect of European integration, revealed that the annual Anglo-American conference – the Bilderberg group – helped create the Euro in the 1990’s.” Soros himself is hugely entrenched within the shadow world empire, as he heads up the European Council on Foreign Relations in addition to being heavily involved with the Council on Foreign Relations in the U.S.

Blowback from Economic Warfare on Russia

Europe has been the home of protests by irate farmers who have been hit hardest by the nonsensical political decision to impose sanctions on Russia following the illegal Western coup in Kiev. In response to Western sanctions, Russia imposed a ban on food imports in August from countries backing the sanctionsresulting in lower food prices in Europe as produce floods the market yet demand has dropped from a major importer in the East. This ban would never have been applied if the West did not overthrow the government in Kiev, and then further antagonise Moscow by implementing sanctions on the country. The loss of trade due to lower food exports is set to cost the EU an estimated $6.6 billion a year, yet the social blowback from the agricultural sector in an already sensitive and potentially volatile continent could be unquantifiable.

France has been gripped by numerous protests over the past few months as living standards continue to fall and the prohibition of exporting certain foods to Russia takes effect. Farmers in Brittany torched tax officesin addition to dumping cauliflower, artichokes and manure outside government offices during a protest in mid September, due to frustration with government policies. An estimated 36,000 people participated in a nation-wide protest in France earlier this month where they again dumped manure and rotten vegetablesoutside local government buildings, partly due to being unable to export food to Russia.

Spain has also seen protests by the farming sector over Russian sanctions, as agricultural unions dumped surplus potatoes outside the French multinational retailer Carrefour in Granada. The unions were protesting against the price Carrefour pays for their crops as well as the European Commission’s Emergency Fund not covering the loss potato farmers are experiencing due to reduced food exports. The fund purchases surplus stock from certain products produced to compensate farmers unable to export food to Russia, but it does not cover superfluous potato stocks.

Dissent and opposition to the policies of the EU is much broader than just the blowback from imposing sanctions on Russia however, as “it could be argued that the majority of citizens are opposed to the current conditions” on the continent. Austerity has decimated Southern Europe and anti-austerity rallies have become a fixture of life for many Europeans. In October, Naples witnessed thousands of people taking to the streets outside a European Central Bank (ECB) meeting held in Italy, where protestors demanded an end to austerity and high unemployment.

Unemployment and contempt towards the political class has soared across the European continent since the financial crisis of 2008, and this could trigger a revolution in Europe in the coming years. There is no question that the elite will do everything in their power to prop up the EU and attempt to “co-opt” any movement challenging the established order, but this may prove ineffective at containing the imminent uprising…

Steven MacMillan is an independent writer, researcher, geopolitical analyst and editor of  The Analyst Report, especially for the online magazine “New Eastern Outlook”.

New Eastern Outlook

Closer to Citizenship: Illegal Immigrants Might Get Social Security

The New American
by Warren Mass


Viewers who watched President Obama’s November 20 speech outlining his plan to grant amnesty (though he denied it is amnesty) to illegal immigrants may have wondered if his plan would enable those immigrants to collect Social Security benefits. There is good reason to believe that these newly legalized illegals might very well be eligible for Social Security and other federal benefits such as Medicare.

In a report in the Washington Post for November 25, the paper’s national political correspondent, Karen Tumulty, first looked at the president’s words for a clue about what might lie ahead. Obama had stated:

We’re going to offer the following deal: If you’ve been in America more than five years, if you have children who are American citizens or illegal residents, if you register, pass a criminal background check and you’re willing to pay your fair share of taxes, you’ll be able to apply to stay in this country temporarily without fear of deportation. You can come out of the shadows and get right with the law.

In a commentary on the president’s reference to his newly legalized benefactors, Rachel Bade, a writer for Politico, provided her best interpretation of what the ramifications of Obama’s statement, “pay your fair share of taxes,” will be. She noted that a White House outline on the president’s program doesn’t provide much detail beyond that statement. She wrote:

Most experts, however, assume the 5 million will pay everything that a typical U.S. citizen would pay: payroll, income, sales and property taxes. But they’ll also likely get to claim the child tax credit and the earned income tax credit, although the Obama administration said they won’t get Obamacare tax credits or certain welfare benefits.

The Post’s Tumulty added:

Federal law says that people who pay the [payroll] taxes and are deemed “lawfully present in the United States” can collect benefits under those programs when they become eligible. They may also receive survivor and disability benefits.

“If they pay in, they can draw,” White House spokesman Shawn Turner said by e-mail.

Turner noted, however, that the estimated 5 million immigrants granted protection from deportation will not be eligible for other federal benefits such as student financial aid, food stamps or housing subsidies. Nor are they eligible to purchase health insurance through the federal health-care exchange under the Affordable Care Act.

This last point will create a very serious dilemma for American workers, however. As we noted in our earlier article, “Under ObamaCare, Businesses Can Save $3,000 By Hiring Illegals,” “Since these illegal immigrants granted the right to remain in America under the Obama executive action are ineligible to buy insurance through the federal Health Insurance Marketplace, employers who hire them are exempted from paying the fines.”

The fines of $3,000 a year are imposed on larger employers who fail to provide “affordable, adequate” healthcare coverage for each full-time worker getting a premium tax credit. Since employers face paying fines for not covering eligible (legal) employees but will not be fined for failing to provide coverage for newly legalized aliens not eligible for ObamaCare coverage, this provides a $3,000 incentive for them to hire those who came here illegally.

ObamaCare and the presidential executive actions are combining to create an ever-worsening situation for American job hunters and those relying on a financially tenuous Social Security program. The Obama administration has just made it financially more advantageous for employers to hire illegal aliens who have been granted amnesty — and now will enable those same illegals to become eligible to collect Social Security and Medicare benefits.

One might argue that illegal immigrants, if they work and pay FICA taxes, should be eligible for the benefits just as an American citizen who pays into the system is eligible. While it is true that they will be “paying in,” the real problem with this scenario goes much deeper. This is one more step to offering illegal immigrants de facto citizenship. People who came into this country illegally will, by virtue of the fact that they have been here for a number of years and are working, be paying taxes and receiving benefits just as any American citizen. The logical next step would be to say, “why not just make them all citizens.”

This entire concept erodes the idea of borders, immigration laws, and national citizenship. It is one step closer to a North American Union acheived by stealth and inertia rather than by decree, as the distinction between nations becomes less and less obvious.

The New American

US at Crossroads Between Russia, Middle East, and China

New Eastern Outlook
by Kurt Kolbert


Washington officials have recently announced that the United States is going to increase its military presence in Iraq, at the same time a number of US troops have been deployed in the Iraqi Kurdistan. Simultaneously, the White House is applying a lot of pressure pressure on Iran in the negotiations on the Iranian nuclear program. The US is trying to force as many concessions from the Iranians as it possibly can, including the reduce in support Tehran has been providing to Damascus. Yet, Washington refuses to decrease the tension around the situation in eastern Ukraine, claiming that Russia had been sending military equipment and troops there. Europeans have found themselves in a position similar to Iran, since the US officials have been twisting their hands in order to force them into adopting a new package of anti-Russian sanctions. Therefore, it’s no coincidence that Russia and China have made a number of major steps lately to increase their efforts in the fields of energy and economic cooperation. The question then arises as to what is the ultimate goal of the US foreign policy – Ukraine, the Middle East or China? Should the Washington think-tanks be presented with such a question, one would definitely hear an answer that the Obama administration can handle the a number of different matters simultaneously. However, should you persist, the outcome of your inquiry can prove to be rather peculiar.

It is a general belief in Washington now that, if chosing between the two recent crises - in the Middle East and Ukraine – the Middle Eastern one is by far the most important to American interests. There’s a number of indicators that prove this statement. Firstly, the Middle East is now torn apart by a full-scale war, especially in Iraq and Syria, and the United States carrying out air strikes on a daily basis against the positions of ISIL militants in these two countries. Secondly, under the US national security doctrine the protection of the US population at home and overseas is imperative and the Islamist jihadists present by far a more pressing threat to US citizens than Russia. Finally, Washington think-tanks believe that the regional structure of the Middle East is now going down in flames, and it will take several decades to build a new one, while the European structure has been “slightly shaken” by the events in Ukraine.

Moreover, American politicians, lawmakers and analysts believe that the United States, while focusing on Russia and the Ukraine crisis, is not paying enough attention to Iraq, Syria and Iran. Therefore, accusations are being voiced against Obama’s administration on the grounds that Washington’s obssession with Ukraine allowed ISIL militants to establish control over large parts of Iraq and Syria.

However, for those concerned with Vladimir Putin‘s actions aimed at restoring Russian influence in the post-Soviet space, the Middle East looks more like a dangerous distraction. Supporters of this approach fear that the United States may once again be drawn into the “war on terror” in the Middle East, while the main security threat to US interests is growing in Europe. This position is based on the premise that the US has not fully realized how serious are the actual challenges that are associated with the strengthening of Russia. The supporters of this approach are sure that the return of the Crimea along with a de facto secession of the south-east territories from Ukraine is just the beginning of redistribution of the world at the expense of the United States. Moreover, they are convinced that Russia will become a threat to the rest of Ukraine, and even the Baltic states.

The fact that Washington dismisses the possibility of its direct military involvement in the Ukraine crisis makes it pretend that it is not as tense as it could be, but in fact it is indirectly raising the stakes in the game called “the creation of a new world order.” The worst case scenario, that is being discussed behind closed doors in the White House, is the alleged possibility of Moscow putting its tactical nuclear weapons to actual use. This, of course, would be the biggest crisis in the field of international security since the Cuban missile crisis, and it would be by far more grave and dangerous than the next phase of war in Iraq that has been going on for 35 years now, with a certain degree of Iran’s involvement.

Naturally, the vast majority of sensible and sane politicians and experts in the US do not believe in the nuclear scenario, although many of them still fear that Moscow will start a full-scale conventional assault in Ukraine or provoke a “rebellion” of the Russian-speaking population in the Baltic states, that are NATO members. Should Russia invade the Baltic States and should NATO fail to react, they argue, Moscow will show the world that the Western military alliance is in fact a “paper tiger.”

This part of the US political elite hopes that the ever increasing pressure on the Russian economy will persuade Putin to abstain from escalating the Ukrainian conflict. Although their opponents are convinced that the economic crisis may instead push Russia to take a number of unpredictable steps by switching to “brute force” scenario.

Against this background Obama flew to the APEC summit in China. For supporters of the American ‘pivot’ to Asia, the ever growing Chinese influence is the main challenge in the long term. A handful of think-tanks is convinced that while the US will try to deal with the two above mentioned crises, China will be able to establish control over East Asia and the Asia-Pacific region, which is slowly being transformed into a major center of the world economy. These think-tanks insist that the Obama administration must take steps to prevent China from growing even more stronger in military, political and economic terms. As for the recent Russia‘s turn to China in search for a new major energy market, it can only make China stronger by providing it with gas and modern weapons. Americans are increasingly nervous about the formation of a new alliance between China – Russia in Asia. These think-tanks, apparently, are closer to the actual understanding of the processes that affect the formation of a new world order.

Time will tell how well the Obama administration is able to set the US strategic priorities straight, since it seems to be a turning point in the new world order creation process, and it will be too late to change anythings once the bets are made. It looks like the major challenge the United States is facing today is China, not Russia or the Middle East. The rapid rise of China is truly a significant development, though it may look deceptively long-term from the outside, therefore one may get the impression that it is not leading to a possibility of an immediate conflict between China and the United States.

Though, the collapsing states in the Middle East and the possible spread of radical Islamic terrorism are the threats that are now should be dealt with one way or another. The first occupation of Iraq and the consequent actions of Washington has unleashed a chain of color revolutions that led to the events that cannot be controled anymore. The supporters of the US in the region – Riyadh and Doha, that assisted the White House with its plan of redrawing the regional map, are now facing the threat of an imminent collapse due to the rise of Islamists.

Iran will only benefit from this course of events, China and, to some extent, Russia, will benefit too. But it’s now imperative for the US to find a balanced approach to China, Russia and the Middle East, since a failure to achieve this goal may not only endanger the international peace, but would affect the very survival of the United States as a super power. Otherwise, America will have to settle for a role of a regional power, with no real influence whatsoever over the situation in Europe and Asia. It seems, that this will be the most likely scenario since the recent actions of Barack Obama are showing that he has realized his miscalculations and now he’s desperately trying to get out of trouble he has created himself. Still, he has no clue what to do.

Kurt Kolbert, is a Munich-based frelance researcher and journalist, exlusively for the online magazine “New Eastern Outlook”. 

New Eastern Outlook

US Police State Violence Behind Ferguson Protests

Strategic Culture

US President Barack Obama and other American leaders are swift to condemn the widespread street violence that has erupted following a grand jury decision to not prosecute a white police officer for the killing of black teenager Michael Brown.

«We are a nation based on the rule of law, so we need to accept that this was the special jury’s decision to make», said Obama.

Police officers this week reportedly came under heavy gunfire in the town of Ferguson, Missouri, and many businesses and vehicles were torched overnight after a panel of jurors concluded that there was no case against officer Darren Darren over the fatal shooting of 18-year-old Brown on August 9. 

The town – a mainly black suburb of St Louis – has been rocked by protests over the past three months, with protesters complaining that the police have routinely used heavy-handed tactics to clear the streets. Now following the grand jury ruling on Monday, frustrations have boiled over into arson, looting and other attacks on private property. 

Across America there have been large demonstrations in support of the Brown family in cities from New York to Los Angeles, including Washington DC, Chicago, Philadelphia, Oakland and Seattle. So far, these protests outside Ferguson have remained peaceful, but there is a fear among authorities that violence could flare up elsewhere.

Last week, Missouri governor Jay Nixon declared a state of emergency and called in National Guard troopers to back up local police in anticipation of civil unrest. 

The tense situation has similarities to the Rodney King case. The beating up of African-American King as he lay on a street by four white police officers sparked the LA riots back in 1992, which led to over 50 deaths, thousands of business premises being razed and up to $1 billion in property damage before US Marines and the National Guard finally restored order.

This week the Mayor of St Louis, Francis Slay, deplored the surge in street violence. Like Obama, the mayor called for people to protest peacefully and to advocate for political change with their voices alone. 

Such advice of respecting the rule of law and non-violence sounds hollow to many across America, particularly among the black community. For too many Americans, there is no rule of law when police forces can use excessive lethal violence with impunity. 

The circumstances of Michael Brown’s killing are hotly disputed. Several witnesses say the youth was gunned down by officer Wilson while he had his hands up during an altercation on a street in broad daylight. The St Louis County prosecutor Robert McCulloch acknowledged those witness accounts when he read out the jury’s decision earlier this week not to press charges.

«Some witnesses maintained their original statement that Mr Brown had his hands in the air and was not moving toward the officer when he was shot», McCulloch said. «Several witnesses said Mr Brown did not raise his hands at all or that he raised them briefly and then dropped them and then turned toward Officer Wilson, who then fired several rounds.»

The policeman’s account is markedly different. He claims that Brown first assaulted him and was trying to grab his gun. Wilson says he fired his weapon because he felt his life was in danger. 

However, what is not in dispute is that Brown was unarmed and the officer fired off a total of 12 rounds, hitting the teenager at least six times. The victim’s body was left lying in the street for nearly five hours before being taken away. 

To many observers those circumstances at least deserve a criminal trial to ascertain whether the homicide was justified. 

But the bigger picture is that this case is seen as just one more in a litany of lethal violence used by police or armed vigilantes against black men. 

Two years ago, another black teenager, Trayvon Martin was shot dead in Miami, Florida, by a white self-styled neighbourhood security man. His killer was acquitted in court on the grounds that he was acting in self-defence, even though the victim was unarmed.

A month after Brown’s death in Ferguson, 43-year-old Eric Garner was killed when he was accosted by police officers in New York City on suspicion that he was selling cigarettes illegally on the streets. Garner died after he was manhandled in a banned chokehold position. His death was captured on a cell phone video and caused public outrage at the police barbarity.

Then last weekend, two days before the grand jury announced its verdict not to charge the police officer in the Brown case, a 12-year-old black youth was shot dead in Cleveland, Ohio. Tamir Rice was playing with his sister and friends in a playground with a toy gun when armed police arrived following a 911 call from a bystander. The officers shot the boy after he reached into his trouser waistband in an innocent attempt to hand over the fake pistol. 

US federal figures show that on average two black men are killed every week by police violence. While the African-American community represents 13 per cent of the US population, nearly 25 per cent of all police homicides are perpetrated against blacks. Civil rights campaigners point out that the official figures probably underestimate the actual death rate.

Obama acknowledged the deep racial issue of these killings. «This is not just an issue for Ferguson; this is an issue for America. We have made enormous progress in race relations over the course of the past several decades – I have witnessed that in my own life – and to deny that progress is to deny America’s capacity for change», he said. «But what is also true is that there are still problems and that communities of colour are not making these problems up.»

Michael Brown’s family said in a statement: «We are profoundly disappointed that the killer of our child will not face the consequence of his actions.» Their attorney added: «They want the police to be held accountable, to treat us like Americans, too, so we can get equal justice. This system always allows police to hurt and kill our children.»

Police racism against American blacks is an undoubted part of the problem of lethal violence by law enforcement agencies. In Ferguson, where two-thirds of the 21,000 population are black, more than 90 per cent of the local police force is made up of white officers.

But the problem is not just white cop violence on African-Americans. It is part of a bigger concern of increasing police violence and militarisation of American law enforcement across the country. Again, federal figures show that the ratio of police homicides to overall crime incidents has increased by 75 per cent over the period from 1992 to 2012.

This is manifested in American police forces being increasingly armed with heavier and deadlier weapons, with many of the munitions being recycled from US military deployments overseas, in Afghanistan and Iraq. Police SWAT teams ride around in Humvees in US inner-cities as if they were in Kandahar or Sadr City.

In addition, American policing methods have increasingly taken on the form of military operations, responding to law enforcement encounters with excessive violence and draconian actions. The lockdown of Boston City and the blanket suspension of civil rights, such as no use of warrants for house raids, following the bombing of the marathon in April 2013 signalled a major shift towards police state powers. These draconian police powers, which can be traced to the post-9/11 invocation of anti-terror laws, have become replicated and routinised across the country.

Black communities are indeed bearing the brunt of this militaristic style of American policing, and there is an unequivocal racist element to it. 

Nevertheless, the wider issue is one of America being transformed into a fully-fledged police state, which goes hand in hand with deteriorating social conditions, rising poverty, racism and the generalised erosion of civil liberties, including state surveillance of private communications. 

The public concern is not just limited to the African-American community, but affects all ethnic groups. The protests underway across the US this week as a result of the Michael Brown case are notable for the multi-ethnic character of the protesters. Whites, as well as African-Americans and Latinos, are evidently galvanised by what they see as a particular gross miscarriage of justice in Ferguson. The skin colour of the victim is a factor, but a more general factor is how America has increasingly taken on the form of a police state, where police brutality and authoritarianism against all citizens is an ever-present, disturbing reality.

Obama and other civic leaders may be calling for restraint, rule of law and non-violence. To many American citizens such exhortation does not apply to them. Rather, as they see it, it should apply to the US state and its growing police powers.

Strategic Culture


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