Hey There Income Hunter,
You know there has to be more than meets the eye in the Ukraine invasion.
I mean Russia is really only strong militarily and the sanctions were always going to be the US response.
It really doesn’t make sense for Putin to have gone at this alone. If this invasion is drawn out, the sanctions will cripple Russia and most likely crush Putin’s regime.
However, there may be a bigger plan for Putin …
That would be a closer relationship with China and a way around the sanctions by way of China’s currency and settlement system.
Plus, total trade between China and Russia jumped 36% last year to a record $147 billion, with Russia serving as a major source of oil, gas, coal and agriculture commodities, running a trade surplus with China.
I am sure that was by design because China is incredibly strategic and is probably using Russia as a pawn to weaken the US.
This invasion is hurting the US by distracting from issues at home. The US market is already walking back Fed hikes because of the credit stress inflicted on the banks.
China can now sit back and watch the US economy go into recession just as Beijing is heading into a reflation cycle and 5%+ growth this year.
Today, I’ll show you the red flags to look for that signal a rising risk of a larger war and the potential that this leads to a war between the US and China.
Energy Deals
China is already buying a lot of oil and gas from Russia, but could certainly buy more.
And check this out …
Almost half of the oil flows through the East Siberian Pacific Ocean pipeline that was financed by $50 billion in Chinese loans.
But there’s more.
Today, Russia also supplies China with about 5% of its natural gas. That partnership will expand rapidly under a 30-year contract worth $400 billion, and Russia is already building a second pipeline to add capacity for further increases.
Russia is also China’s No. 2 coal supplier, and last month Putin unveiled new deals with China worth an additional $117 billion.
Investment Deals
China state banks have helped Russia finance everything from infrastructure to oil and gas projects under China’s Belt and Road Initiative.
Russia is by far Beijing's largest recipient of state sector financing, securing 107 loans and export credits worth $125 billion from Chinese state institutions between 2000 and 2017.
China and Russia began using their own currencies to settle bilateral trade in 2010 and opened their first currency swap line in 2014, which they renewed in 2020 for 150 billion yuan over three years.
Yuan settlements accounted for 28% of Chinese exports to Russia in the first half of 2021, compared with just 2% in 2013, as both countries seek to ease reliance on the dollar while developing their own respective cross-border payment systems.
Russia also prepared for this by reducing Moscow’s dollar holdings to 16.4% from 46.3% just four years ago.
So, China will cushion the fall of Russia for their own benefit. This relationship is impacting the US’s role in the world order in three major ways …
1. Economically
The US is spending much more money than it earns, which has led to borrowing a lot and printing a lot to buy the debt.
This creates a vicious, never-ending process that reduces the value of the debt and money relative to the value of goods, services and investment assets.
Historically, once a government reaches this point, financial weakness is near, which creates even more printing of money and political reactions to inflation.
2. Internal Conflict
The US is suffering from a tremendous wealth and values gap that has caused a great divide between the extreme right and left.
Politicians have taken a win-at-all costs mentality, which has created gridlock at a time when the country needs real change.
Remember: empire decline often starts from within.
3. External Conflict
When a rising power becomes comparable to the leading one, it leads to power struggles, typically external wars, that determine which power will be in control and what the power structure will be.
As professional wrestling legend would say, “To be the man, you got to beat the man.”
Woooo!
Bring It Home
It is so important to understand how these issues played out in history because we are rapidly proceeding to the end-game of the changing world power structure.
The Russia sanctions actually raise a major red flag about the potential for a hot war between the US and China.
Russia is a pain in the global economy’s neck, however, it is a military force. If they have China’s back, then the US is in real trouble if China invades Taiwan and a hot war breaks out in the East China Sea.
While we’re not there yet, the final stage of changing world power structure historically is … a war between the major powers.
Retaliation by Russia on NATO countries would be a big step in that direction.
Among many other implications, that would mean even more money printing and a certain US recession in 2022.
Live and Trade With Passion My Friend,
Griff