Make Europe Poor

In 1971 US Treasury Secretary Connolly went to Rome and told G-10 government officials that the United States dollar is “our currency and your problem”.

Using one nation's currency as the global reserve creates many problems: one of them is that, when having economic difficulties, the United States can create extra demand for dollars by making energy more expensive for the rest of the world.  

Overly simple, but accurate explanation:

1. Most of the world's oil is traded for dollars
2. That means every nation needs dollars to buy oil, regardless of who they buy from.
3. To get dollars, foreigners must work to create real goods and services to sell to the US.
4. US agencies and banks can pay for these goods by typing dollars into existence — at almost no cost.
5. This means that the United States gets some percentage of its imports and maybe 10% of the world's oil completely free of charge, every year.

That is an incredible deal for the US and a lot less good for everyone else.

The international role of the US dollar also creates very bad incentives.

Luke Gromen of FFTT christened the 'State Department Oil Market' and points out a grisly pattern: when rival oil exporters' output reaches certain thresholds, their production is swiftly taken offline — by sanctions, direct military action, or terrorists who target energy infrastructure.

This means the 'success' of a military adventure need not be defeating some enemy, it could be destroying the ability of rival exporters to get their energy to market.

In that context, the destruction of Iraq, Syria, and Libya could be counted as major successes.

Now, Eurasia's latest energy war is in Ukraine. Whoever you think is to blame, it's clear that powerful interests have a lot to gain from prolonging the war. Here, some tech-billionaire types discuss who might want the war to continue:

Further, Mike Green of Simplify Asset Management — who has connections in the US State Department — explains the overall strategy:

“What's happening in Ukraine between the United States and Russia is not so much about Ukraine or Russia, as much as it is about the US reasserting its control over Europe … Making it energy dependent on us.”

Germany minus industry

If you live in the EU and you like your standard of living, you can thank a minority of hyper-productive Germans for their support.

They make cars and chemicals and the machines that make machines. And their efforts have created a huge financial surplus which made the euro viable.

According to Zoltan Poszar of Credit Suisse:

For Germany, $27 billion worth of energy imports supports a whopping $2 trillion worth of economic activity!  

Not for much longer. Economic war looms between the US and China — and two key pieces on the chessboard are Russian energy exports and Europe's energy markets.

Chinese industry needs all the cheap energy it can get and Western sanctions have gifted them Russian gas at a huge discount. In response to war, sanctions, and a new Iron Curtain, Russia and China are building a new gas pipeline at breakneck speed.

This will change the direction of global gas flows, cutting off Europe, maybe forever.  

Switching dependency to US liquefied natural gas (LNG) means Europe is now paying five times more for a lot less gas. The result is that German industry can no longer provide the standard of living the EU has enjoyed.

Also, EU energy sanctions are largely a PR stunt for western audiences: 90% of the world is not following the western line on Ukraine — and that creates an opportunity for India and others to buy discounted Russian oil to sell to Europe at a huge profit.

As China and the US gain the most from European sanctions, businesses in the EU face worsening conditions: slow economic growth, soaring energy prices, rising wages, and higher inflation.

This has pushed bankruptcies across the EU to rise to record highs, reaching 27% in late 2022.

And that leaves the US and China to scoop up as much of Germany's industry as they can get their hands on.

• BASF, a pillar of German industry for 157 years, announced that it would escape high energy costs by 'permanently' moving European operations to China.
• Biden's Inflation Reduction Act (IRA) takes aim at German manufacturing by bringing electric car and battery production to the US.    

The eurocrats, realizing that they have been bamboozled, have started to yip and whine to media outlets:

• Oilprice.com: 'European leaders are unhappy'
• Bloomberg: French President Macron accuses US of ‘double standards’
• Modern Diplomacy: 'EU leaders accuse US natural gas producers of profiteering'

That is all easy to ignore. And there is not that much an ambitious eurocrat can do, because talking openly about Europe's position between rival powers is only for crackpots and those on the fringes.

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More success

Back in 2020, I wrote of Trump's efforts to prevent completion of Nord Stream 2.

Germany and Russia could not be allowed to bypass the dollar in their gas dealings, as that could loosen the US grip on global energy markets, and create an economic super-rival.

Three weeks ago, Sy Hersh reported that the CIA and State Department had plotted the destruction of the Nordstream pipelines — going into great detail about how it was done with Norway's help.

I can believe his tale (although I also heard a convincing account of how Liz Truss had a British submarine do the deed).

But we hear nothing from the German government and key investors in the project: Uniper (Germany) Engie (France), Shell (Anglo-Dutch), and OMV (Austria).

This extreme lack of curiosity indicates that the attack on the Nord Stream pipelines was another successful measure to prevent a free market in Eurasian energy.

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The exit

I began writing about finance to understand the end of the Western debt Superbubble and whatever replaces it.

The story has had incredible twists, but I could never have predicted how skillfully the EU could be conscripted into keeping the wheels on the failing US economy.

Since the late 1960s, US government agencies have found 'astonishing and remarkable' ways to get foreigners to fund the US lifestyle. Now:

• Europe buying overpriced US LNG and weapons will help.
• Sacrificing Europe's industrial base will also help.

But not for long: As the BRICS+ nations conspire to bypass the dollar, there are no entities big enough or rich enough to fund the biggest debt load in human history.

The United States is going broke. It is adding to its $32 trillion load faster than any economy could grow, so Ursula and Olaf's determination to support the US consumer will be futile.

We are heading for a global dollar crisis – one that Europe and Germany could largely evade — but the window for EU leaders to act is closing.

Sadly, the reaction to Nord Stream 2 shows that is little reason to expect any change of direction until things get a lot worse.

Expect the slow grind of economic decline for as long as EU leaders continue to work against the economic interests of European people.  

The return of Superinflation through 2023 will be a key signal we are on the way.

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