Global equity markets rallied and were reassured after President Obama decreed sanctions on Russia because they were seen as “weak” or soft sanctions. Mr. Putin has been seen by the markets as “satisfied” by annexing Crimea and that no further push into Ukraine will be undertaken (good luck on this one as oil and gas are involved). Meanwhile, Israel has also used the word “weak” in describing U.S. negotiating skills over Iran’s nuclear program and Syria. The phrase used was “projecting weakness.” The portrayal of weakness was underscored by Drudge Report as they had a main headline yesterday that said the Russians were calling President Obama “a prankster” by sanctioning 11 individuals (7 Russian and 4 Ukrainians).
I want to look at this from a couple of different standpoints and angles. First, how do our “allies” see what has transpired so far? Do they have a warm and fuzzy “secure” feeling that the U.S. has their backs? Probably not, they probably feel like they’ve just left a huddle where the quarterback just called the “hidden ball” play.
How about “non allies” or outright foes? How do you think they are viewing the U.S. in recent times? Do they fear our wrath? Have they been “swayed” to obey our wishes “or else?” In years gone by, the U.S. could call all the shots where our allies would rally around us and our foes would shrink into obeisance. This is no longer happening.
Looking at this from a financial standpoint, what “used to” happen hasn’t happened this time around. The dollar has gotten no bid at all and in fact has weakened to the low 79 levels. Gold had been bid until the last 2 days. I have a theory on this with no proof to back it up but it does make some sense. We had heard stories that Ukraine’s gold was airlifted out of the country about a week ago, this may have been true. We have seen sudden price weakness and the GOFO rates that went positive last week which argues for a sudden shot of new supply…the new supply very well might be of Ukrainian origin.
My point to writing this piece is that a weak foreign policy will invite “tests.” Just as a small child (or immature adult) will “push” to test the limits of parental resolve, this is also the case with foreign policy. If we are seen as weak, not resolved or even “confused,” we will lose the support of allies and increase the boldness of our foes. This is a very big problem because no matter how you’d like to look at it, the bottom line is that “confidence” is at stake.
Think back to your early days in grade school. Can you remember an instance when the school bully got his butt whipped? Do you remember what happened AFTER the butt whipping? This in reality was the important part because even small and weak kids would at a minimum snicker at the bully and in some cases even stand up to him. “We” are close to this now in my opinion as the world looks to move away from us…and our dollar.
I know, some will tell me that the U.S. military is the strongest in the world and this very well may be so but… you must look forward and I assure you that our allies and foes are doing just this. They know that a large and standing military must be “funded.” They know that “funding” our military is no longer a possibility from an “internal” standpoint. I say “internal” because unless we borrow …we cannot make ends meet and part of those “ends” includes our military.
I have recently noted that the Saudis have met with the Chinese while Mr. Putin “does what he does and (wants).” The Israelis have been boisterous that they must “go in alone and even the Indians have chimed in as well as the Brazilians regarding and alternate clearing system to SWIFT. My point is this, there is a growing “murmur” that is getting much louder around the world that is voicing discontent with U.S. foreign (and financial dealings) policy. Showing any weakness now could be disastrous because as I’ve said many times before…we are running on “faith” and not much of anything else.
I would say that “if President Obama isn’t careful he will misstep and we will end up isolated” but I won’t, I won’t because we are so far down the “path” that whoever you believe the best president in our history was, even this could not reverse the position we are in. The world sees us as a financially lame horse. Forget about the “shady” dealings, the breakdown in the rule of law, the false reporting of economic facts, the lack of transparency (and gold), the state of our manufacturing etc. etc. The world knows that even IF our national debt were only $17 trillion as we say and not the $100-$200 trillion that they know it is, we cannot pay it back…ever. They know that a “new world order” will come where the U.S. may not even be allowed to “sit at the table” as “punishment” for past “nonpayment” of debts and promises.
This will be seen in our national “stock price.” This will be seen in the dollar finally breaking down. In my opinion, the dollar has not broken down versus foreign currencies because the game has been a “race to devalue” by all involved. Yes it has lost value over the long term but over the last 5 or more years, foreigners have tried to devalue just as quickly. They have ALL devalued versus gold however.
I think it is obvious that China is in the process of a financial crash. I suspect that they are fully aware of this. They do have an “out” however and they also know that this “out” will allow them to sit at the head of the table when the new rules or “order” is decided upon. They will revalue gold to whatever level necessary to make them “whole” again. From a foreign policy standpoint they have not been very “public,” they have spoken softly but only those listening carefully have heard their message. They instead have been running around the world making business deals and planning their future. Contrast this to U.S. foreign policy where we have been squandering our past. Like I said, this is like a schoolyard fight for “pecking order” though the importance will affect the lives of billions around the globe.
Before finishing I do want to point out that the Ukraine situation is far from over and there are other “targets” out there. This is not about Mr. Putin “saving” Russian nationals; it is about oil and gas. It is about the recent discoveries of oil and gas on Ukraine land. It is about the transport of Russian gas through pipelines over Ukrainian territory. Our current foreign policy of “words and sanctions” will do nothing. In fact, though it is not our business and no action should be taken, our foes will smell weakness and become more aggressive. Please remember, finance and foreign policy are joined at the hip and affect each other directly.
As I finished this piece, news came in that we have broken diplomatic relations with Syria and ordered their diplomats out of the country. This presumably to show Mr. Putin just how “serious” we are. Instead, I believe it shows our shortsightedness. Syria is a member of the UN, yet their diplomats have been ordered out of the country. Do you think that the rest of the world may look at this and desire the UN to relocate to a land where diplomats are allowed to “negotiate?” Is this foreign policy?