Connect with us

Latest

RussiaFeed

Analysis

Here’s why the latest anti-Russian sanctions will actually HURT the US economy

US sanctions on Oleg Deripaska and Rusal create chaos in world aluminium market, hurt US pension funds, force US Treasury to backtrack

Alexander Mercouris

Published

on

3,188 Views

In the immediate aftermath of the US Treasury Department’s extraordinary decision to impose sanctions on the Russian businessman Oleg Deripaska and by extension his Rusal group, a very interesting article penned by the financial analyst Tim Ashe appeared in the Financial Times.

Discussing the sanctions imposed on Deripaska and Rusal, Ashe made this highly interesting comment

The sharp drop in Russian markets over the past few days and the limited contagion to global markets will have been noted by the US sanctions team. I think they have previously been very nervous over this idea of backdraught from their actions, hurting US institutional investors and causing systemic risks to other emerging markets and indeed global markets. The fact that the April 6 sanctions designations only really impacted Russian markets raises the prospect that the US can roll out asymmetric sanctions against Russia, that officials can be less worried about their actions having a more global impact. This means the Treasury is more likely to follow on from its April 6 actions, assuming no improvement in the relationship with Russia.

(bold italics added)

Rarely have comments spoken with such confidence been proved wrong so quickly.  In fact they provide a classic case study of why when analysing events it is essential to hold back and see how they will develop before rushing to give dogmatic opinions about them.

Since Ashe wrote those words on 10th April 2018 Russian markets have stabilised as has the rouble, which has proved resilient in face of the pressure which is hitting hard the currencies of other so-called ’emerging market’ economies and which is coming from the stronger dollar and from talk of more interest rate hikes in the US.

The rouble at least for the time being appears to have stabilised at a rate of 62 to 64 roubles to the dollar – an exchange rate which I consider healthy – despite the Russian Central Bank refusing to take steps to support it, and refusing to raise interest rates.

By contrast the currencies of other so-called ’emerging market’ economies have taken a hammering, with the worst performer being the Argentinian peso, which is coming under exceptionally heavy pressure, forcing the Argentinian Central Bank to raise interest rates to an eye-watering 40% to support it.

In the meantime, as Russian markets have stabilised, the world aluminium market in which Rusal – the world’s second biggest aluminium producer – is a major player, has descended into chaos.

Aluminium prices at one point surged up 30%, with the hike in aluminium prices and general shortages of aluminium caused by the sanctions impacting on industrial users of aluminium worldwide, including the US and German car industries.

It is only a matter of time before the instability in the world aluminium market also hits the other major industrial consumer of aluminium: the aircraft building industry, in which the US is a major player.

Meanwhile the sudden increase in risk for holders of Russian debt caused by the US Treasury Department’s implicit threat to impose sanctions on any and every Russian businessman (“oligarch”) perceived as too close to the Kremlin irrespective of what they do, has hurt Western institutional investors including US pension funds.

The result is that the US Treasury Department is – without of course admitting the fact – beating a retreat.

Investors have been given more time to unwind their positions in Rusal – though that does not explain how they are supposed to do that if the sanctions remain in place – US Treasury Secretary Steven Mnuchin has said that the US has no wish to destroy Rusal, and – following not so secret negotiations between the US and the Kremlin which are known to have taken place – a compromise is being sought whereby Deripaska will sell some but by no means all his stake in Rusal’s parent company in return for the sanctions on Rusal being lifted.

Meanwhile Bloomberg is calling the sanctions a mess

I remain convinced that Deripaska was chosen because his company deals in aluminum — the target of Trump’s import tariffs, which are meant to revive domestic production. The opportunity to kill two birds with one stone — punish Russia and get a major foreign player off the U.S.  aluminum market — must have looked too good to pass up.

But no one in the Treasury Department appeared to have considered the consequences for the global aluminum market, where Rusal was included in international value chains.

Aluminum prices jumped (which can only be bad for U.S. buyers), Australian-British Rio Tinto was forced to search frantically for new buyers for its alumina (a raw material for aluminum production), and a Rusal plant in Ireland was threatened with closure, creating the potential for job losses and an alumina shortage throughout Europe.

These problems, reported to Treasury, appeared to soften Mnuchin’s heart. “The U.S. government is not targeting the hardworking people who depend on Rusal and its subsidiaries,” his department quoted him as saying. The U.S. government’s problem, Mnuchin said, was limited to Deripaska himself.

The new edition of the Rusal sanctions gives the company an extra six months, until October 23, to wind down its U.S. operations, but Mnuchin has clearly indicated that if Deripaska divests Rusal shares, the company could be taken off the sanctions list.

Business partners will still be leery of dealing with Rusal, and they’ll still work on contingency plans, but at least there’ll be less urgency about it. That’s been reflected in an aluminum price drop almost as sharp as the spike after the original sanctions announcement.

The sanctions the US Treasury Department imposed on Deripaska and Rusal were the most ambitious and far reaching sanctions that the US has imposed on Russia since the sectoral sanctions which the US and the EU imposed on Russia in July 2014.

What this episode has illustrated is a point which I have repeatedly made: the 2014 sanctions were carefully calibrated to cause the maximum hurt to the Russian economy, and the minimum hurt to the US economy and to the world economy upon which the US depends.

Any sanctions that go significantly beyond the sanctions which were imposed in 2014 risk hurting the US as much or even more than Russia in that, even if their economic effect is less their political effect risks being greater.

Certainly no US President is going to risk a cost crisis in the US car and aircraft building industries simply out of some juvenile desire to spite Russia.

A US President like Donald Trump, whose electoral success depends heavily on the votes of blue collar workers with jobs in the US manufacturing industries, which he has set out to revive, is going to be even less willing to risk such a crisis.

Trump’s decision to refuse to impose the further sanctions on Russia that people like Nikki Haley and Steven Mnuchin were pressing him to impose following the Syrian missile strike illustrates the point.

The big question is whether following the Rusal debacle the US will now draw back, finally accept that the sanctions route of pressuring Russia has been exhausted and has failed, and starts looking instead for other ways of dealing with Russia.

Given the pathological hatred of Russia of so much of the US political class a further sanctions offensive against Russia is not impossible, with officials in the US Treasury Department possibly hunting around for targets against whom sanctions would cause less disruption to the US and world economies than the sanctions against Deripaska and Rusal did.

My own view is that so long as Donald Trump remains in the White House that is unlikely to happen, not because Trump is some sort of stooge of Russia but because he has now seen the hurt further sanctions on Russia can cause to the people who make up his electoral base.

If so then with the Rusal debacle ‘peak sanctions’ has passed.

Liked it? Take a second to support The Duran on Patreon!
Advertisement
Click to comment

Leave a Reply

avatar
  Subscribe  
Notify of

Latest

Watch: Democrat Chuck Schumer shows his East Coast elitism on live TV

Amazing moment in which the President exhibits “transparency in government” and shows the world who the Democrat leaders really are.

Seraphim Hanisch

Published

on

One of the reasons Donald Trump was elected to the Presidency was because of his pugnacious, “in your face” character he presented – and promised TO present – against Democrat policy decisions and “stupid government” in general.

One of the reasons President Donald Trump is reviled is because of his pugnacious, “in your face” character he presented – and promised TO present – in the American political scene.

In other words, there are two reactions to the same characteristic. On Tuesday, the President did something that probably cheered and delighted a great many Americans who witnessed this.

The Democrats have been unanimous in taking any chance to roast the President, or to call for his impeachment, or to incite violence against him. But Tuesday was President Trump’s turn. He invited the two Democrat leaders, presumptive incoming House Speaker Nancy Pelosi, and Senate Minority Leader Chuck Schumer, and then, he turned the cameras on:

As Tucker Carlson notes, the body language from Schumer was fury. The old (something)-eating grin covered up humiliation, embarrassment and probably no small amount of fear, as this whole incident was filmed and broadcast openly and transparently to the American public. Nancy Pelosi was similarly agitated, and she expressed it later after this humiliation on camera, saying, “It’s like a manhood thing for him… As if manhood could ever be associated with him.”

She didn’t stop there. According to a report from the New York Daily News, the Queen Bee took the rhetoric a step below even her sense of dignity:

Pelosi stressed she made clear to Trump there isn’t enough support in Congress for a wall and speculated the President is refusing to back down because he’s scared to run away with his tail between his legs.

“I was trying to be the mom. I can’t explain it to you. It was so wild,” Pelosi said of the Oval Office meet, which was also attended by Vice President Pence and Senate Minority Leader Chuck Schumer (D-N.Y.). “It goes to show you: you get into a tinkle contest with a skunk, you get tinkle all over you.”

This represented the first salvo in a major spin-job for the ultra-liberal San Francisco Democrat. The rhetoric spun by Mrs. Pelosi and Chuck Schumer was desperate as they tried to deflect their humiliation and place it back on the President:

With reporters still present, Trump boasted during the Oval meeting he would be “proud” to shutdown the government if Congress doesn’t earmark cash for his wall before a Dec. 21 spending deadline.

Pelosi told Democrats that Trump’s boisterousness will be beneficial for them.

“The fact is we did get him to say, to fully own that the shutdown was his,” Pelosi said. “That was an accomplishment.”

The press tried to characterize this as a “Trump Tantrum”, saying things like this lede:

While “discussing” a budgetary agreement for the government, President Donald Trump crossed his arms and declared: “we will shut down the government if there is no wall.”

While the Democrats and the mainstream media in the US are sure to largely buy these interpretations of the event, the fact that this matter was televised live shows that the matter was entirely different, and this will be discomfiting to all but those Democrats and Trump-dislikers that will not look at reality.

There appears to be a twofold accomplishment for the President in this confrontation:

  1. The President revealed to his support base the real nature of the conversation with the Democrat leadership, because anyone watching this broadcast (and later, video clip) saw it unedited with their own eyes. They witnessed the pettiness of both Democrats and they witnessed a President completely comfortable and confident about the situation.
  2. President Trump probably made many of his supporters cheer with the commitment to shut down the government if he doesn’t get his border wall funding. This cheering is for both the strength shown about getting the wall finished and the promise to shut the government down, and further, Mr. Trump’s assertion that he would be “proud” to shut the government down, taking complete ownership willingly, reflects a sentiment that many of his supporters share.

The usual pattern is for the media, Democrats and even some Republicans to create a “scare” narrative about government shutdowns, about how doing this is a sure-fire path to chaos and suffering for the United States.

But the educated understanding of how shutdowns work reveals something completely different. Vital services never close. However, National Parks can close partly or completely, and some non-essential government agencies are shuttered. While this is an inconvenience for the employees furloughed during the shutdown, they eventually are re-compensated for the time lost, and are likely to receive help during the shutdown period if they need it. The impact on the nation is minimal, aside from the fact that the government stops spending money at the same frenetic pace as usual.

President Trump’s expression of willingness to do this action and his singling out of the Dem leadership gives the Democrats a real problem. Now the entire country sees their nature. As President Trump is a populist, this visceral display of Democrat opposition and pettiness will make at least some impact on the population, even that group of people who are not Trump fans.

The media reaction and that of the Democrats here show, amazingly, that after three years-plus of Donald Trump being a thorn in their side, they still do not understand how he works, and they also cannot match it against their expected “norms” of establishment behavior.

This may be a brilliant masterstroke, and it also may be followed up by more. The President relishes head-to-head conflict. The reactions of these congress members showed who they really are.

Let the games begin.

Liked it? Take a second to support The Duran on Patreon!
Continue Reading

Latest

French opposition rejects Macron’s concessions to Yellow Vests, some demand ‘citizen revolution’

Mélenchon: “I believe that Act 5 of the citizen revolution in our country will be a moment of great mobilization.”

RT

Published

on

By

Via RT…


Macron’s concessions to the Yellow Vests has failed to appease protesters and opposition politicians, such as Jean-Luc Mélenchon, who called for “citizen’s revolution” to continue until a fair distribution of wealth is achieved.

Immediately after French President Macron declared a “social and economic state of emergency” in response to large-scale protests by members of the Yellow Vest movement, promising a range of concessions to address their grievances, left-wing opposition politician Mélenchon called on the grassroots campaign to continue their revolution next Saturday.

I believe that Act 5 of the citizen revolution in our country will be a moment of great mobilization.

Macron’s promise of a €100 minimum wage increase, tax-free overtime pay and end-of-year bonuses, Mélenchon argued, will not affect any “considerable part” of the French population. Yet the leader of La France Insoumise stressed that the “decision” to rise up rests with “those who are in action.”

“We expect a real redistribution of wealth,” Benoît Hamon, a former presidential candidate and the founder of the Mouvement Génération, told BFM TV, accusing Macron’s package of measures that benefit the rich.

The Socialist Party’s first secretary, Olivier Faure, also slammed Macron’s financial concessions to struggling workers, noting that his general “course has not changed.”

Although welcoming certain tax measures, Marine Le Pen, president of the National Rally (previously National Front), accused the president’s “model” of governance based on “wild globalization, financialization of the economy, unfair competition,” of failing to address the social and cultural consequences of the Yellow Vest movement.

Macron’s speech was a “great comedy,”according to Debout la France chairman, Nicolas Dupont-Aignan, who accused the French President of “hypocrisy.”

Yet many found Melanchon’s calls to rise up against the government unreasonable, accusing the 67-year-old opposition politician of being an “opportunist” and “populist,” who is trying to hijack the social protest movement for his own gain.

Furthermore, some 54 percent of French believe the Yellow Vests achieved their goals and want rallies to stop, OpinionWay survey showed. While half of the survey respondents considered Macron’s anti-crisis measures unconvincing, another 49 percent found the president to be successful in addressing the demands of the protesters. Some 68 percent of those polled following Macron’s speech on Monday especially welcomed the increase in the minimum wage, while 78 percent favored tax cuts.

The Yellow Vest protests against pension cuts and fuel tax hikes last month were organized and kept strong via social media, without help from France’s powerful labor unions or official political parties. Some noted that such a mass mobilization of all levels of society managed to achieve unprecedented concessions from the government, which the unions failed to negotiate over the last three decades.

Liked it? Take a second to support The Duran on Patreon!
Continue Reading

Latest

Soros Mimics Hitler’s Bankers: Will Burden Europeans With Debt To ‘Save’ Them

George Soros is dissatisfied with the current EU refugee policy because it is still based on quotas.

The Duran

Published

on

Via GEFIRA:


After the Second World War, many economists racked their brains to answer the question of how Hitler managed to finance his armament, boost the economy and reduce unemployment.

Today his trick is well known. The economic miracle of Führer’s time became possible thanks to the so-called Mefo promissory notes.

The notes were the idea of the then President of the Reichsbank, Hjalmar Schacht, and served not only to finance the armament of the Wehrmacht for the Second World War, but also to create state jobs, which would otherwise not have been possible through the normal use of the money and capital markets, i.e. the annual increase in savings in Germany.

The Reich thus financed the armaments industry by accepting notes issued by the dummy company Metallurgische Forschungsgesellschaft GmbH (hence the name Mefo) rather than paying them in cash. The creation of money was in full swing from 1934 to 1938 – the total amount of notes issued at that time was 12 billion marks. The Reichsbank declared to the German banks that it was prepared to rediscount the Mefo notes, thus enabling the banks to discount them.

Because of their five-year term, the redemption of notes had to begin in 1939 at the latest. This threatened with enormous inflation. Since Schacht saw this as a threat to the Reichsmark, he expressed his doubts about the Reich Minister of Finance. But it did not help, and Schacht was quickly replaced by Economics Minister Walther Funk, who declared that the Reich would not redeem the Mefo notes, but would give Reich bonds to the Reichsbank in exchange. At the time of Funk, the autonomous Reichsbank statute was abolished, the Reichsbank was nationalized, and inflation exploded in such a way that Mefo notes with a circulation of 60 billion Reichsmark burdened the budget in post-war Germany.

George Soros also proposes such a money flurry in the style of Schacht and Funk.

Soros is dissatisfied with the current EU refugee policy because it is still based on quotas. He calls on the EU heads of state and governments to effectively deal with the migrant crisis through money flooding, which he calls “surge funding”.

“This would help to keep the influx of refugees at a level that Europe can absorb.”

Can absorb? Soros would be satisfied with the reception of 300,000 to 500,000 migrants per year. However, he is aware that the costs of his ethnic exchange plan are not financially feasible. In addition to the already enormous costs caused by migrants already in Europe, such a large number of new arrivals would add billions each year.

Soros calculates it at 30 billion euros a year, but argues that it would be worth it because “there is a real threat that the refugee crisis could cause the collapse of Europe’s Schengen system of open internal borders among twenty-six European states,” which would cost the EU between 47 and 100 billion euros in GDP losses.

Soros thus sees the financing of migrants and also of non-European countries that primarily receive migrants (which he also advocates) as a win-win relationship. He calls for the introduction of a new tax for the refugee crisis in the member states, including a financial transaction tax, an increase in VAT and the establishment of refugee funds. Soros knows, however, that such measures would not be accepted in the EU countries, so he proposes a different solution, which does not require a vote in the sovereign countries.

The new EU debt should be made by the EU taking advantage of its largely unused AAA credit status and issuing long-term bonds, which would boost the European economy. The funds could come from the European Stability Mechanism and the EU balance of payments support institution.

 “Both also have very similar institutional structures, and they are both backed entirely by the EU budget—and therefore do not require national guarantees or national parliamentary approval.“

In this way, the ESM and the BoPA (Balance of Payments Assistance Facility) would become the new Mefo’s that could issue bills of exchange, perhaps even cheques for Turks, Soros NGOs. Soros calculates that both institutions have a credit capacity of 60 billion, which should only increase as Portugal, Ireland and Greece repay each year the loans they received during the euro crisis. According to Soros, the old debts should be used to finance the new ones in such a way that it officially does not burden the budget in any of the EU Member States. The financial institutions that are to carry out this debt fraud must extend (indeed – cancel) their status, as the leader of the refugees expressed such a wish in his speech.

That Soros is striving to replace the indigenous European population with new arrivals from Africa and Asia is clear to anyone who observes its activities in Europe. The question is: what does he want to do this for and who is the real ruler, behind him, the real leader?

Liked it? Take a second to support The Duran on Patreon!
Continue Reading

JOIN OUR YOUTUBE CHANNEL

Your donations make all the difference. Together we can expose fake news lies and deliver truth.

Amount to donate in USD$:

5 100

Validating payment information...
Waiting for PayPal...
Validating payment information...
Waiting for PayPal...
Advertisement

Advertisement

Quick Donate

The Duran
EURO
DONATE
Donate a quick 10 spot!
Advertisement
Advertisement

Advertisement

The Duran Newsletter

Trending