Notes From Underground: Sanctions Are Sanctimonious

In today’s world of DOLLAR domination it is easy for the U.S. Treasury — under the guidance of the president — to place sanctions on many different global actors as they strive to use the conduit of SWIFT and other banking facilities to move money around the globe. The U.S. likes to beat its chest and proclaim that it is operating in a rules-based system and therefore sanctions are an appropriate tool in response to the malevolent actions of autocratic-oriented nationalistic actors. But whose rules? And the invocation of sanctions leads to those subject to the whims of U.S. policy to find ways to operate in international grey areas of commerce.



Cuba has been sanctioned for 60 years and to what avail? More importantly, the U.S. has attempted to sanction Russia (read: Putin and his cronies) for its autocratic actions against some of its citizens who have demonstrated against Putin and his repressive tendencies — as well as military actions in the Crimea and Eastern Ukraine.

The same impulse exists as the Biden administration threatens sanctions on Chinese communist party officials for Hong Kong, Taiwan and of course the Muslim minority in Xinjiang. But as Deng Xiaoping warned in 1989 after the West imposed sanctions on China for the horrendous response in the Tiananmen Square Massacre, sanctions by the western powers elevated nationalism and helped the Communist Party rise above its supreme act of political repression.

In November 1990 the sanctions were relaxed as the Bush administration (directed by James Baker and Brent Scowcroft needed a bargaining chip to garner China’s support for the removal of Iraq from Kuwait. Remember, Russia and China both have veto power in the U.N. Security Council so how are sanctions bargaining chips? Either the U.S. is a sanctimonious hypocrite or the U.N. is an atavistic remnant of the golden age of U.S. hegemonic power.

In an effort to circumvent the sanctioning impulse of the global hegemon the Chinese are pursuing a central bank digital currency (CBDC) in an effort to undermine the influence of the U.S. dollar’s exorbitant privilege. This is no easy task as the U.S. military might, innovative capitalist economy, academic powerhouses and most importantly a rock solid bastion of the rule of law have maintained the credibility of the dollar. It can be argued that the last decade has called into question the economic policies of each administration to sustain the DOLLAR as a store of value.

The perpetual use of NEGATIVE REAL YIELDS to continually support DEMAND has forced the global financial system to seek alternatives to the DOLLARS, such as precious metals, art, stocks, real estate and most recently BITCOIN. The Chinese have made noise about a  currency to replace dollar dominance but the Chinese political and judicial systems are too capricious to attract buyers of YUAN  commensurate to percentages of its global trade. If the Chinese are going to have credibility it will need to back its digital currency with a certain percentage of precious metals. A return to SILVER-backed digital currency would be judicial as it would roll back the sordid effects of the Opium Wars  and the debasenment of Chinese currency.

As was discussed in detail in the Atlantic Council’s “The LONGER TELEGRAM” published anonymously six weeks ago China is going from a status quo power to a revisionist power. Pay attention to the value of the YUAN as it is the linchpin to an attack of the sanctimonious nature of U.S. power and influence. I have opined for three months that it was the strengthening YUAN that was leading the rally in global commodity prices.

***Janet Yellen was on MEET THE PRESS this morning and her appearance was once again a reminder that her and FED CHAIR JEROME POWELL are connected at the “hip.” She said, “I don’t believe that inflation will be an issue. But if it becomes an issue ,we have the tools to address it.”

There’s no follow-up question as to what those tools are and in her role as Treasury Secretary does that imply wage and price control. Unlike when Yellen was FED chair she has no power to enforce monetary policy.

Also, the White House economic team has been noting that inflation is transitory and all price rises reflect bottlenecks, which will prove short-lived. Warren Buffet has joined the chorus of those concerned about inflation. Watch the bonds, currencies and precious metals to see how the market is reacting to Yellen and Buffet. A drop in BOND futures will have the ALGOS selling myriad asset classes initially. Will it be able to sustain the effect of rising long term yields for we know that short rates are subject to the FED and the Treasury on Thursday sold four-week bills at 0%. Be patient as the markets unfold.