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by Alastair Crooke.
Accelerating inflation is everywhere – that’s obvious. Fiat currencies are collapsing in real terms. And currencies backed by commodities, which have an implicit real value, are sought after (for example, the ruble).
Biden is due to visit Saudi Arabia in July. However, the US administration is clearly feeling the effects of the onslaught of criticism (including from the mainstream in the US) over its upcoming trip to the Middle East, which will include Saudi Arabia. Clearly, the killing of Jamal Khashoggi remains as painfully sensitive for Biden as a busted light bulb.
Understandably, the Western mainstream assumes that Biden’s visit is to get Saudi Arabia and OPEC to turn on the tap of oil supplies for the United States and a desperate Europe.
So Biden will have to go home with at least some token gestures in that regard. Earlier, he had tried to downplay the oil price aspect of the trip: “A bigger meeting happens to be in Saudi Arabia. That’s why I go there. And it has to do with national security for them – for the Israelis.” He continued, “I have a program, anyway. It concerns far more important issues than the price of energy”.
Well…I believe it. It’s about Israel’s security (sort of). Israel, facing heart-rending internal divisions, will resolve its domestic discontents with a tussle over which leader is tougher on the “Iranian threat.”
This does not mean that Iran represents a “clear and present danger” (except for the predictable Iranian responses to Israeli provocations). It’s just that Israeli policy “is what it is”: Israel’s security services explicitly state that the “threat to Israel” comes from within. And that’s absolutely true. Yet Israel’s elections are not fought on an “enemy within” platform: That would be tantamount to civil war.
Therefore, the threat of the “pot of Iran” must be warmed up. The dynamics of Israeli politics demand it, as such. Bennet and the Lobby in Washington are busy raising the level of the flames. And Biden needs to go to the region to bang on the table on Iran, and to cut the ribbon on another Gulf security pact that no one takes very seriously (except for a few military men). business in the technology sector). As did to remark a former senior adviser to several Israeli foreign ministers and the prime minister last week, “there is no real ‘Sunni-Israeli coalition’ and talks of an Israeli-Saudi-Emirati front to deal with the Iran is more strategic fiction than practical reality”.
So what are the “big questions” Biden is thinking about? Not so much oil perhaps, but the US dollar.
Last week, the Fed not only raised its interest rate by 0.75%, but unexpectedly even Switzerland, which is very cautious, raised it by 0.50%.
What does Biden’s trip have to do with it? Largely. The Swiss decision was a big flashing amber light. Indeed, the SNB not only moved its key rate closer to positive territory, but also pointed out that the Swiss franc was “no longer highly valued”. Due to inflation. This last point implies that the franc must be valued more to fight inflation, which suggests that the SNB will sell, not buy, US stocks and other assets (now that buying assets is no longer necessary to keep the value of the franc low (the old Swiss headache)) .
Accelerating inflation is everywhere – that’s obvious. Fiat currencies are collapsing in real terms. And commodity-backed currencies that have an implied real value are sought after (i.e. the ruble).
The same goes for the dollar: its value is no longer as high (compared to real assets in an inflationary context). And if it is no longer highly valued, many, many – like the Swiss – will sell US assets and not buy them. The Fed is therefore raising rates.
It won’t kill US inflation. No chance. But it’s probably enough to generate some global demand for dollars. Whether or not that will be enough remains to be seen.
But… the United States also has $30 billion in debt to pay off, but at much higher interest rates. They must finance this debt service by selling US Treasury bonds to the world. But who will buy Treasury bills when in real terms their yield is almost negative 10%?
So Biden’s trip is to ask the Saudis to keep buying US Treasuries with the profits accrued from high oil prices. Indeed, if the United States were to lose the power of the dollar as a global collateral – in favor of commodities – their economy and markets would quickly follow.
Biden’s trip is a repeat of Kissinger’s visit to the kingdom in 1974: That year, the oil crisis hit the United States. An embargo by the Arab nations of OPEC – in retaliation for US military aid to the Israelis during the 1973 war – quadrupled oil prices. Inflation soared, the stock market crashed, and the US economy collapsed.
The objective then was surprisingly simple. Find a way to persuade a hostile kingdom to fund America’s growing deficit with its new petrodollar wealth. President Nixon made it clear that returning from this trip empty-handed was out of the question. A failure would not only jeopardize the financial health of the United States, but could also give the Soviet Union the opportunity to make further inroads into the Arab world. The more it changes… ?
Times are changing: Russia has made energy producers aware of the power of high commodity prices as the basis for future international trade, instead of the depreciation (in real terms) of the fiat dollar. At the time, US Treasury bonds were considered tamper-proof: today they can be discarded as not good money on a whim (eg confiscation of Afghan government reserves). At the time, American security guarantees seemed plausible; they are much less today. At the time, NATO was unchallenged; This is no longer the case today. At the time, the geopolitical wind was still filling the sails of the United States; today, these Western sails hang limply from the masts. The wind is blowing east. And the Saudis know it.
Will Biden succeed? In fact, will the trip even take place?
source : Al Mayadeen
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