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Latest US sanctions on Russia: incitement to a coup and a new form of protectionism

The latest sanctions seem concerned as much with protecting the US’s economic positions as punishing Russia

Alexander Mercouris

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The latest round of sanctions the US Treasury has imposed on Russia are a strange affair.

Earlier rounds of sanctions have been linked to specific acts of real or alleged Russian misbehaviour e.g. the death of Sergey Magnitsky, the Crimean crisis, the war in the Donbass, the shooting down of MH17, and the alleged Russian meddling in the 2016 US Presidential election.

This latest round of sanctions is different in that it is not directly linked to any Russian action – real or alleged – at all.  Nor are the people sanctioned – for example the Russian businessman Oleg Deripaska – directly accused of anything.

In place of any specific accusation against Russia or any of the individuals concerned, here is how a statement from US Treasury Secretary Steven Mnuchin justifies the latest sanctions

The Russian government operates for the disproportionate benefit of oligarchs and government elites.  The Russian government engages in a range of malign activity around the globe, including continuing to occupy Crimea and instigate violence in eastern Ukraine, supplying the Assad regime with material and weaponry as they bomb their own civilians, attempting to subvert Western democracies, and malicious cyber activities.  Russian oligarchs and elites who profit from this corrupt system will no longer be insulated from the consequences of their government’s destabilizing activities.

(bold italics added)

In other words Russia is a bad corrupt country which does lots of bad things around the world of which the US disapproves.  Anyone in Russia who is rich (“an oligarch”) and is therefore “profiting from this corrupt system” is in some way responsible and risks being sanctioned irrespective of anything they do unless this changes.

The implication is that if they do not want to be sanctioned the “oligarchs” must overthrow Russia’s government.

The latest sanctions are therefore an incitement to a coup.  All other steps the US has taken having failed, Russia’s businessmen (“oligarchs”) are now being told that unless they engineer the overthrow of Russia’s government they will be sanctioned.

The first thing to say about this policy is that it is decades out of date.

There was a time in the 1990s when a small group of stratospherically wealthy and corrupt individuals really did control Russia’s government.

By way of example, most of the people who met in the Kremlin during the 1998 financial crisis to decide whether or not to devalue the rouble were not members of the government or even officials, and the meeting during which the decision was finally taken to devalue the rouble was chaired not by a government minister but by the former Acting Prime Minister of Russia Yegor Gaidar, who at the time was neither a member of the government nor an official, but who was merely an adviser of Russia’s President, Boris Yeltsin, who was at the time away reviewing the fleet.

The decision was in fact made by the same small group of wealthy and corrupt individuals who at that time really did control Russia’s government, meeting informally under Gaidar’s chairmanship, and not through the official structures.

It is not a misconception to call these individuals “oligarchs”.  In the 1990s that is exactly what they were.  The most politically powerful amongst them – Boris Berezovsky – was not even properly speaking a businessman.

That is not the situation in Russia today.  A person like Oleg Deripaska – the aluminium magnate whose name appears on the latest sanctions list – may be a person of great influence and power.  However he does not control Russia’s government, and has no means to do so.

I should say that I first came across the suggestion that the “oligarchs” could be mobilised to overthrow President Putin or force him to reverse his policies by imposing sanctions upon them in early 2014 at the start of the Ukrainian crisis.

As I recall reports appeared in the media that the German intelligence agency the BND was advising Chancellor Merkel that if the EU imposed sanctions on Russia the “oligarchs” would either force President Putin to change course or would overthrow him in order to save their fortunes.

Many rounds of sanctions later one might suppose that that theory had been tested to destruction.  However Steven Mnuchin’s statement suggests that faith in it dies hard.

The latest round of sanctions the US has imposed on Russian businessmen and their companies will not weaken President Putin’s position or that of the Russian government, and will not affect Russia’s economy.

As China’s semi-official English language newspaper Global Times has recently pointed out, Russia – unlike countries like Iran – has a big largely self-sufficient continental sized economy possessing immense scientific, technological and natural resources, making it therefore largely immune to sanctions.

As for the wealthy Russian individuals who the latest sanctions are targeting, the reason so many of them keep money abroad is not because they control Russia’s government, but because they do not control it, and do not wholly trust it.

The result is that they have been squirrelling away much of their money abroad, beyond their government’s reach.

Now what they are discovering is that their money is at far greater risk of being seized by the US government than by their own – something the Russian government has been telling them for years – so that it is in fact safer kept at home than it is squirrelled away abroad.

In other words the latest sanctions and Steven Mnuchin’s statement could not have played more completely into the Russian government’s hands.

With Russian businessmen being told that the money they have squirrelled abroad may be seized irrespective of what they do unless they overthrow the Russian government – something which Russian businessmen know is beyond their power and is therefore impossible – they have no realistic option if they want to keep their money safe than to bring it home.

It seems that even before Mnuchin’s statement and the latest round of sanctions that is what some of them were doing.

A few weeks ago – before the Skripal crisis – a group of Russian businessmen in London wrote to President Putin asking for permission to return home with their money because of the threats they were facing; whilst the Russian government’s latest eurobond sale, which was specifically addressed to Russian businessmen, was heavily oversubscribed as they rushed to buy bonds issued by their own government.

The latest sanctions and Mnuchin’s statement will only accelerate the process.

A policy which only strengthens Putin’s position – forcing Russian businessmen to repatriate their money to Russia and increasing their dependence on the Russian government – looks completely counterproductive, and on the face of it that is what the US’s sanctions policy is.

However there may be more than one agenda at work.

The Russians are complaining that one of the purposes of the sanctions is to block Russian arms exports, a field in which Russia has recently been encroaching on US markets, such as Turkey and Saudi Arabia, and even farther afield, to countries like Indonesia.

There is of course a political dimension to this in that arms sales tend to bring closer political ties, and the US may be especially leery of US allies like Turkey and Saudi Arabia buying arms from Russia because of the danger that this might increase Russian influence there.

However attempts to block the arms sales of a major competitor on the international arms market does have something of a look of protectionism about it, which is not altogether surprising given the recent protectionist steps being taken by the Trump administration – especially with respect to China – and the importance of arms sales not just for the US economy but for individual US companies.

With China and Russia now increasingly cooperating in aircraft development, including their planned wide body airliner, with both China and Russia producing advanced and competitive narrow body airliners (the Comac C919 and the Irkut MC-21), and with Russia advancing with its development of the new Perm family of civil aircraft engines, which are capable of powering all these aircraft, it is also understandable that the US might wish to sanction Russian arms makers given the strong linkage between arms manufacturing and the civil aircraft industry.

Just as the latest US tariffs on China seem intended – at least in part – to obstruct development of China’s artificial intelligence industry, so the latest sanctions on Russian arms makers may be intended to obstruct development of the Chinese and Russian aviation industries – and especially of Russia’s civil aircraft engine industry – given the threat these industries pose to the position of the US in the international aviation market where the US has long enjoyed market dominance, and which accounts for a significant part of its exports.

If Russia’s and China’s nascent aviation industries are one of the ultimate targets of the latest sanctions, then that might also explain the sanctioning of Oleg Deripaska, the chief executive of RUSAL – Russia’s giant aluminium conglomerate – aluminium being of course a key material used in aircraft building.

It should be said however that there may be multiple other reasons why Deripaska – one of the most powerful and toughest of all Russian businessmen – has been targeted for sanctions.

If sanctions really are evolving into a tool to protect US positions in key industries such as artificial intelligence, arms manufacturing and civil aviation, then that I suspect will surprise no-one.

All I would say about that however is that in that case the US has missed the bus.  The sort of protectionist measures the US is imposing on China, and the sort of sanctions the US is imposing on Russia, would have devastated both the Chinese and Russian economies two decades ago.

By now – as Russia’s resilience in face of sanctions shows – both the Chinese and the Russian economies have achieved a level of sophistication and size that makes them essentially impervious to these sort of actions.

By way of example, though China’s exports peaked at over 37% of its GDP in 2006, by 2016 that had fallen to under 20%.  Today the major driver of China’s economy is internal demand, just as the main driver of Russia’s economy after 2020 will be investment.  Neither can be affected by the protectionist actions or sanctions the US is taking.

This is all the more so as China and Russia – and especially China – press ahead with constructing their own alternative international financial architecture (eg. the so-called “petro-yuan“) to underpin their economies, and the trading systems which they are constructing

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It’s Official: ‘Britain’s Democracy Now At Risk’

It’s not just campaigners saying it any more: democracy is officially at risk, according to parliament’s own digital, culture, media and sport committee.

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Via True Publica, authored by Jessica Garland – Electoral Reform Society:


Britain’s main campaign rules were drawn up in the late 1990s, before social media and online campaigning really existed. This has left the door wide open to disinformation, dodgy donations and foreign interference in elections.

There is a real need to close the loopholes when it comes to the online Wild West.

Yet in this year’s elections, it was legitimate voters who were asked to identify themselves, not those funnelling millions into political campaigns through trusts, or those spreading fake news.

The government trialled mandatory voter ID in five council areas in May. In these five pilot areas alone about 350 people were turned away from polling stations for not having their papers with them — and they didn’t return. In other words, they were denied their vote.

Yet last year, out of more than 45 million votes cast across the country, there were just 28 allegations of personation (pretending to be someone else at the polling station), the type of fraud voter ID is meant to tackle.

Despite the loss of 350 votes, the pilots were branded a success by the government. Yet the 28 allegations of fraud (and just one conviction) are considered such a dire threat that the government is willing to risk disenfranchising many more legitimate voters to try to address it. The numbers simply don’t add up.

Indeed, the fact-checking website FullFact noted that in the Gosport pilot, 0.4 per cent of voters did not vote because of ID issues. That’s a greater percentage than the winning margin in at least 14 constituencies in the last election. Putting up barriers to democratic engagement can have a big impact. In fact, it can swing an election.

In the run-up to the pilots, the Electoral Reform Society and other campaigners warned that the policy risked disenfranchising the most marginalised groups in society.

The Windrush scandal highlights exactly the sort of problems that introducing stricter forms of identity could cause: millions of people lack the required documentation. It’s one of the reasons why organisations such as the Runnymede Trust are concerned about these plans.

The Electoral Commission has now published a report on the ID trials, which concludes that “there is not yet enough evidence to fully address concerns” on this front.

The small number of pilots, and a lack of diversity, meant that sample sizes were too small to conclude anything about how the scheme would affect various demographic groups. Nor can the pilots tell us about the likely impact of voter ID in a general election, where the strain on polling staff would be far greater and a much broader cross-section of electors turns out to vote.

The Electoral Reform Society, alongside 22 organisations, campaigners and academics, has now called on the constitution minister to halt moves to impose this policy. The signatories span a huge cross-section of society, including representatives of groups that could be disproportionately impacted by voter ID, from Age UK to Liberty and from the British Youth Council to the Salvation Army and the LGBT Foundation.

Voters know what our democratic priorities should be: ensuring that elections are free from the influence of big donors. Having a secure electoral register. Providing balanced media coverage. Transparency online.

We may be little wiser as a result of the government’s voter ID trials. Yet we do know where the real dangers lie in our politics.

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Corrupt Robert Mueller’s despicable Paul Manafort trial nears end (Video)

The Duran – News in Review – Episode 79.

Alex Christoforou

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Paul Manafort’s legal team rested its case on Tuesday without calling a single witness. This sets the stage for closing arguments before the judge hands the case to jurors for a verdict.

Manafort’s defense opted to call no witnesses, choosing instead to rely on the team’s cross-examination of government witnesses including a very devious Rick Gates, Manafort’s longtime deputy, and several accountants, bookkeepers and bankers who had financial dealings with Manafort.

Closing arguments are expected on Wednesday. Jurors may begin deliberating shortly after receiving their final instructions from judge Ellis.

Manafort case has nothing to do with Mueller’s ‘Trump-Russia collusion witch-hunt’ as the former DC lobbyist is accused of defrauding banks to secure loans and hiding overseas bank accounts and income from U.S. tax authorities.

U.S. District Judge T.S. Ellis III denied a defense motion to acquit Manafort on the charges because prosecutors hadn’t proved their case.

The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris discuss the circus trial of Trump’s former Campaign Manager Paul Manafort, and how crooked cop Robert Mueller is using all his power to lean on Manafort, so as to conjure up something illegal against US President Donald Trump.

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Via Zerohedge

Prosecutors allege he dodged taxes on millions of dollars made from his work for a Ukrainian political party, then lied to obtain bank loans when cash stopped flowing from the project.

The courtroom was sealed for around two hours Tuesday morning for an unknown reason, reopening around 11:30 a.m. with Manafort arriving around 10 minutes later.

The decision to rest their case without calling any witnesses follows a denial by Judge T.S. Ellis III to acquit Manafort after his lawyers tried to argue that the special counsel had failed to prove its case at the federal trial.

The court session began at approximately 11:45 a.m.:

“Good afternoon,” began defense attorney Richard Westling, who corrected himself and said, “Good morning.”

“I’m as surprised as you are,” Judge Ellis responded.

Ellis then heard brief argument from both sides on the defense’s motion for acquittal, focusing primarily on four counts related to Federal Savings Bank.

Federal Savings Bank was aware of the status of Paul Manafort’s finances,” Westling argued. “They came to the loans with an intent of doing business with Mr. Manafort.”

Prosecutor Uzo Asonye fired back, saying that that even if bank chairman Steve Calk overlooked Manafort’s financial woes, it would still be a crime to submit fraudulent documents to obtain the loans.

“Steve Calk is not the bank,” Asonye argued, adding that while Caulk may have “had a different motive” — a job with the Trump administration — “I’m not really sure there’s evidence he knew the documents were false.”

Ellis sided with prosecutors.

The defense makes a significant argument about materiality, but in the end, I think materiality is an issue for the jury,” he said, adding. “That is true for all the other counts… those are all jury issues.”

Once that exchange was over, Manafort’s team was afforded the opportunity to present their case, to which lead attorney Kevin Downing replied “The defense rests.

Ellis then began to question Manafort to ensure he was aware of the ramifications of that decision, to which the former Trump aide confirmed that he did not wish to take the witness stand.

Manafort, in a dark suit and white shirt, stood at the lectern from which his attorneys have questioned witnesses, staring up at the judge. Ellis told Manafort he had a right to testify, though if he chose not to, the judge would tell jurors to draw no inference from that. – WaPo

Ellis asked Manafort four questions – his amplified voice booming through the courtroom:

Had Manafort discussed the decision with his attorney?

“I have, your honor,” Manafort responded, his voice clear.

Was he satisfied with their advice?

“I am, your honor,” Manafort replied.

Had he decided whether he would testify?

“I have decided,” Manafort said.

“Do you wish to testify?” Ellis finally asked.

“No, sir,” Manafort responded.

And with that, Manafort returned to his seat.

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One more step toward COMPLETE de-dollarization

Over the past several months, sitting here in Moscow, it has become increasingly obvious that while the US Dollar is unquestionably the world’s leading and liquid reserve currency, it comes with an ever increasing high price (of sovereignty and FX) if you are not the USA.

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I have opined and written about the trend towards de-dollarization before, but with the latest US –Turkish spat it has hit the wallets, mattresses and markets of a number of countries, be they aligned with Washington or not. One thing they all have in common was that in this recent era of low cost available money, many happily fed at the US dollar trough.

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This serves as a further albeit loud example to many nations for the need to diversify to an extent away from the greenback, or risk being caught up in its volatile, sudden and unpredictably risky increasingly politicized directions.

The Dollar and the geopolitical winds from Washington are today as never before openly being used as policy, which can be called the “carrot and stick”, a distinctly Pavlovian approach. Sadly, few if any can make out where or what the carrot is in this recent US worldview branding.

Tariffs, sanctions, pressured exchange rates, the Federal Reserve loosening or tightening, trade agreements and laws ignored or simply trashed… there is a lot going on which seems to democratically affect America’s allies as well as those on Washington’s politically popular and dramatic “poo-poo” list.

Just now from a press conference in Turkey, I watched Russia’s foreign minister Lavrov say that through the actions shown by the US, the role of the US dollar as a secure global reserve currency for free trade will diminish as more countries switch to national currencies for international trade.

He clearly spoke for many nations when he said; “It will make more and more countries that are not even affected by US sanctions go away from the dollar and rely on more reliable, contractual partners in terms of currency use.” Putting the situation in a nutshell he went on to say “I have already said this about sanctions: they are illegal, they undermine all principles of global trade and principles approved by UN decisions, under which unilateral measures of economic duress are unlawful.”

Turkey, a long-standing NATO ally and a key line of western defense during the long cold war years fully agreed with his Russian counterpart. The Turkish foreign minister Mr. Cavosoglu openly warned that US sanctions or trade embargoes can and are being unilaterally imposed against any country at any time if they do not toe DC’s political line.

He said at the same press conference; “Today, sanctions are imposed on Turkey, and tomorrow they can be used against any other European state. If the United States wants to maintain respect in the international arena, then it is necessary for it to be respectful of the interests of other countries.”

What is happening in Turkey is symptomatic of the developed and emerging markets globally. When trillions of dollars of newly issued lucre was up for grabs, thanks to several developed country central banks, it was comparatively easy for governments and companies just like Turkey’s to borrow funds denominated in dollars and not their national currencies.

Turkey has relied on foreign-currency debt more than most EM’s. Corporate, financial and other debt denominated mostly in dollars, approximates close to 70% of it’s economy. Therefore as the Turkish lira plunges, it is very costly for those companies to repay their dollar-denominated loans, and even now it is patently clear many will not.

The concern rattling around the underbelly of the global markets is what can be reasonably expected for assets and economies that were inflated by cheap debt, the United States included. All this points not so much to a banking crisis as has happened eight years ago, but a systemic financial market crisis.

This is a new one, and I doubt if any QE, QT, NIRPs, or ZIRPs will make much of a difference, despite the rocket-high equity markets the US has been displaying.

One financial trader I spoke to, whom I have known since the early 1980’s (and I thought him ancient then) muttered to me “we’re gettin’ into the ecstasy stage, nothing but the high matters, everything else including the VIX is seen as boring denial, and not the warning tool it is. Better start loading up on gold.”

Meanwhile, de-dollarization is ongoing in Russia and is carefully studied by a host of countries, especially as the Russian government has not yet finished selling off US debt; it still has just a few billion to go. The Russian Finance Minister A. Siluanov said this past Sunday that Russia would continue decreasing holdings of Treasuries in response to sanctions.

The finance minister went on to say that, Russia is also considering distancing itself from using the US dollar for international trade, calling it an unreliable, conditional and hence risky tool for payments.

Between March and May this year, Russia’s US debt holdings were sold down by $81 billion, which is 84% of its total US debt holdings, and while I don’t know the current figure it is certain to be even less.

The latest round of tightening sanctions screws against Russia were imposed by the State Department under a chemical and biological warfare law and should be going into effect on August 22. This in spite of the fact that no proof was ever shown, not under any established national or international law, or with any of several global biochemical conventions, not even in the ever entertaining court of public opinion.

Whatever Russia may continue to do in its relationship with US debt or the dollar, the fact of the matter is that Russia is not a heavyweight in this particular financial arena, and the direct effects of Russia’s responses are negligible. However, the indirect effects are huge as they reflect what many countries (allied or unallied with the US) see as Washington’s overbearing and more than slightly unipolar trade and geopolitical advantage quests, be they Mexico, Canada, the EU, or anyone else on any hemisphere of this globe.

Some of the potential indirect effects over time may be a similar sell-off or even gradual reduction of US debt exposure from China or any one of several dozens of countries deciding to reduce their exposure to US debt by reducing their purchases and waiting for existing Treasuries to mature. In either case, the trend is there and is not going away anytime soon.

When Russia clears its books of US dollarized debt, then who will be next in actively diversifying their US debt risk? Then what might be the fate of the US Dollar, and what value then will be the international infusions to finance America’s continually growing debt, or fuel the funds needed for further market growth? Value and the energy of money has no politics, it ultimately trends towards areas where there is a secure business dynamic. That being said, looks like we are now and will be living through the most interesting of disruptive times.

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