Unprecedented Action
The Fed, likely acting on orders from the Biden administration, froze the US dollar reserve assets of Russia.
Some may cheer this others not, but perhaps by the time I finish this post, those cheering now may have second thoughts.
The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
Click on the link for the complete act. Nowhere does the act give the Fed the right or power to confiscate the reserves of sovereign nations.
But that is exactly what the Fed did.
In one quick order the Fed electronically rendered Russia’s foreign dollar reserves worthless, or at least unusable for now.
Did the Fed Do This On Its Own?
It’s possible, but doubtful.
More likely, the Fed was pressured by the Biden administration because of huge holes in SWIFT.
What is SWIFT?
SWIFT stands for Society for Worldwide Interbank Financial Telecommunications
In So Many Holes in SWIFT Sanctions on Russia, those Sanctions are Useless I inadvertently described SWIFT as an international payment system. That’s incorrect.
SWIFT does not send or process payments. Through SWIFT, one communicates money that is about to be sent, who gets credited, etc. The actual money is transferred between banks.
Think of SWIFT as something like an economic Twitter. @Russia I am sending $$$ to the account of #GAZPROM for April Natural Gas.
When the US prohibited Russia from using SWIFT there were ways around it. Banks were reluctant to use those ways out of fear of sanctions.
Then the Fed stepped in and said Hello Russia all of your $$$ assets are frozen.
I described the result on March 6 in Russia Bond Default Coming Up and What It Means
Russia could not even pay creditors money it owed them. Some people cheered this event, but European and US creditors who just got defaulted on certainly didn’t.
The amount was small, but what’s the global message?
Hello China, We Can Do This To You Too!
The Fed just gave China a big advance warning about what reserves to hold.
And what about Senator Marco Rubio?
I am working on legislation that would impose sanctions on #China if we catch trying to use their Cross-Border International Payments System (CIPS) to help #Russia get around SWIFT sanctions
— Marco Rubio (@marcorubio) March 8, 2022
Great Idea Senator! Let’s halt global trade altogether!
What Rubio notes is Russia, ousted from SWIFT, started using China’s CIPS system instead.
CIPS is outside of the Fed’s reach and Rubio doesn’t like it.
Now, if you were in China’s shoes do you hold dollars or gold as reserves? What about metals?
Palladium, Lead, Tin, Zinc
Spot #Palladium stands above $3200 per ounce, up 7% intraday.
LME #lead extends rally to $2,700 per ton, up 10%.
LME #Tin above $51,000 per ton, up 9%.
LME #Zinc pares gain to $4,557 per ton, up 10.84%.Another day for #commodities.
— CN Wire (@Sino_Market) March 8, 2022
Team Biden Begs Venezuela
Meanwhile, team Biden crawled to Venezuela begging for oil instead of producing more in the US.
This is so stupid you could not make it up.
U.S. Officials Meet With Regime in Venezuela, to Discuss Oil Exports to Replace Russia’s
Biden team in Venezuela as U.S. seeks to split country from Russia
What a hoot.
Embargo. In Aug 2019, Trump imposed additional sanctions on Venezuela, ordering a freeze on all Venezuelan government assets in the US and barred transactions with US citizens and companies.
— Mike “Mish” Shedlock (@MishGEA) March 7, 2022
Biden Begs Saudi Arabia Too
Flashback Feb 17, 2021: President Joe Biden early on promised to take a harder line on the oil-rich Islamic monarchy than his predecessor Donald Trump did.
Flash Forward March 8, 2022: Saudi, UAE leaders ignore Biden when he calls to talk gas prices.
Saudi Crown Prince Mohammed bin Salman and the UAE Sheikh Mohammed bin Zayed al Nahyan declined Biden’s attempted outreach, the Wall Street Journal reported Tuesday.
Saudi Arabia would not even take the call!
ZeroHedge noted that In an interview with the Atlantic magazine published last week, Prince Mohammed said when asked if Biden misunderstood him: “Simply, I do not care,” adding that the US president shouldn’t have alienated Saudi leaders. “It’s up to him to think about the interests of America,” he said, adding “Go for it.”
Ukraine Bans Exports of Several Grains, Sugar, Salt, Meat
US News reports Ukraine Bans Exports of Several Grains, Sugar, Salt, Meat
Yesterday, I noted Oil Irony: US and UK to Ban Russian Oil, Russia Threatens the Same
- US Bans Russian Oil
- Russia Threatens to Ban Russian Oil and Natural Gas
- Ukraine bans food exports
Anything else?
Yes, the Wall Street Journal reports Russia Set to Ban Commodity Exports Following Western Sanctions
We see that list later today or tomorrow.
Russia and Ukraine Exports
- Russia and Ukraine are key exporters of C4F6 and neon gas. Ukraine produces about 25% of the neon used in global semiconductor production.
- Russia produces about 12 percent of platinum and 40 percent of palladium used in automotive catalytic converters.
- Russia produces 3.9 metric tons of aluminium (6% of world supply). Russia and Ukraine together account for about 10% of global steel exports, according to SteelMint.
- Russia is the third-largest producer of petroleum after the U.S. and Saudi Arabia, exporting almost 5 million barrels a day of crude oil in 2020, according to the U.S. Energy Information Administration.
- Russia produces about 12 percent of the world’s oil and 17 percent of its natural gas, according to estimates from J.P. Morgan.
- Russia and Ukraine account for about one third of global wheat exports.
- Russia supplies about half of Airbus titanium needs, while a U.S. industry source said Russia provided a third of Boeing’s requirements.
- Caspar Rawles, chief data officer at specialist consultancy Benchmark Mineral Intelligence (BMI), said that while Russia accounts for 5% of global nickel production, it supplies about 20% of the world’s high-grade nickel.
What might be on Russia’s export ban list?
I will take a guess at titanium, palladium, nickel, and neon gas.
How long before we have enough common sense to ban bans?
— Mike “Mish” Shedlock (@MishGEA) March 8, 2022
Toilet Paper
On the lighter side, Toilet paper prices rise as product sizes shrink
Got TP?
Unmistakable Message
Team Biden just sent unmistakable message to China, Saudi Arabia, Russia, well actually everyone
- We can make your fiat reserves worthless overnight
- Buy gold
- Buy base metals.
- Hoard things you have everyone needs.
I bet China starts hoarding rare earth elements after this unmistakable message.
US Sanction Policy Drives China Into Russia’s Loving Arms
Recall Trump’s ban on Hauwei 5G technology and chips to support it.
The US lost out on chip sales and android phones sales. China is now making chips and phones and supplying Russia.
For details, please see US Sanction Policy Drives China Into Russia’s Loving Arms
Independent Fed?
By the way, if the Fed did this on its own accord, under what authority?
If it did this under orders or pressure from Biden, where is central bank independence.
Currency Crisis
Over the past several years I would occasionally make a statement that were headed for a currency crisis. Every time people would ask “What will that look like?” I would answer, “I don’t know.”
Today, I have a different answer: “Read this post and understand what’s going on.” A derivatives blowup of some sort is another possibility.
We are not at a full blown crisis stage yet. And perhaps we do not get there this time.
But when trade wars like these start, history suggests major wars often follow.
Make no mistake, the US is at already war right now, but it’s economic. These trade actions and central bank sanctions are the electronic equivalent of a naval blockade.
We put one on Venezuela and no one cared (except all the innocent people we killed). We put one on Iran and no one cared (except all the innocent people we killed).
We stood by and watched Saudi Arabia crucify Yemen and no one even looked.
Right now the war is economic. It will only take another mistake or two to start a global catastrophe.
At the risk of repeating myself too often
Buy Gold
The unmistakable message from the Fed to individuals is buy gold. Buy some silver too.
The message to foreign governments is more complex: Gold reserves cannot be wiped out at the push of a Fed pen. Neither can silver, copper, titanium, nickel, and rare earths. Hoard what you have that others need.
But guess what happens if everyone starts hoarding things that others need?
This post originated on MishTalk.Com.
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Mish
“Freedom” . . .yes we have the “freedom” for little boys to wack off their privates, take hormone blockers and become a “girl”, or have adult men say they are a “woman” and beat all the women in sports.Yeah that’s real freedom there . . .
– no other country pours money into US elections
– no other party takes any foreign money
– there is no other way to launder money than direct donations
The finishing touches have been applied to shape the economy into a completely centrally controlled system, giving new meaning to the phrase “Political Economy.” In this brave new world of Command and Control, the only thing that matters is, the central planner’s agenda.
For analogous purposes, open the history books to around 1917, and the Bolshevik period of the formation of the Soviet Union, but you might also take a peek at the events that took place around 1933 in Germany, just for a contrary perspective.
The Kremlin on Wednesday said that the U.S.has declared an “economic war” on Moscow with its actions in response to the Russian invasion of Ukraine.
The comments by Kremlin spokesman link to thehill.com came after link to thehill.com announced on Tuesday that the U.S. would no longer import Russian oil, link to reuters.com.
March 8 (Reuters) – Chinese companies that defy U.S. restrictions against exporting to Russia may be cut off from American equipment and software they need to make their products, U.S. Commerce Secretary Gina Raimondo told the New York Times.
The U.S. could “essentially shut” down Semiconductor Manufacturing International Corp link to reuters.com or any Chinese companies defying U.S. sanctions by continuing to supply chips and other advanced technology to Russia, Raimondo said in an interview published on Tuesday.
The Federal Reserve is only doing what it did just before and during World War II. During that conflict the Fed cut off the ability of the Axis powers to use their currency reserves in the same manor and made working with Axis banks and companies everywhere in the unoccupied countries “toxic”. It also manipulated the metals and precious metals markets to that end. After the war the Fed reverted to its normal practices. The Fed today is on a war footing and are using the tools it has used before and more to help win it. That’s all.
BESPOKE, BILATERAL SYSTEMS
A more suitable SWIFT alternative for Russian banks would be to set up bespoke, bilateral systems using phones, faxes or messaging Apps with an overseas partner who would take payment from importers of Russian goods and make payments to exporters to Russia.
Such a system was created by one foreign lender when Iran was cut off from the SWIFT network by sanctions tied to its nuclear programme, a former SWIFT executive familiar with the matter said.
“Just to be clear, a financial contribution either through a
crowdsourced platform or directly, could result in their bank account
being frozen?” Lawrence asked.
“Yes,” Jacques answered.”