Going from Freeze–to Seize Damage to Collateral
Get out your pens and mark this down. February 17th. This will be a historic turning point in the future of the global monetary system when we look back. It is evident that the sanctions against Russia have tremendously back-fired as they decided to use the dollar as a weapon against Russia. The problem with doing this, is the weaponization of the dollar works best when you do it against a country with few resources, no alternative payment system and no large trading partners–all of which do not apply to Russia of course.
Want to know what the sanctions are all about? Read my Interview with a Russian on the ground!!
Now, to the keen perception of all countries, even friendlies, they have seen what happens when you may do anything that disturbs the tyrannical global boss in the US government. Of course, many had begun unloading treasuries, causing interest rates to rise to entice more buyers of the debt.
According to the Department of Justice:
Deputy Attorney General Lisa Monaco and Estonian Secretary General Tõnis Saar announced today at the Munich Security Conference the transfer of nearly $500,000 in forfeited (interesting way of putting it) Russian funds for the purpose of providing aid to Ukraine. The funds were “forfeited” by the United States following the breakup of an illegal procurement network attempting to import into Russia
It’s already the case (although not fully appreciated) that the USA defaulted on their coupon payments to Russia (they just didn’t pay them when they came due) but they hadn’t touched the principal on the bond till now.
This transfer is the first of its kind from the United States to a foreign ally for the express purpose of assisting Ukraine, and the second time the Justice Department’s Task Force KleptoCapture has made confiscated Russian assets available for Ukraine—having provided $5.4 million in forfeited funds last year to the State Department for the support of Ukrainian war veterans. The confiscated funds are being transferred to Estonia since under current authorities, the facts of this case do not allow for a direct transfer to Ukraine. Estonia will use the funds for a project to expedite damage assessments and critical repairs to the Ukrainian electrical distribution and transmission system, which have been purposefully targeted by Russian forces.
Today’s announcement demonstrates the unwavering resolve of the United States and our Estonian partners to cut off President Putin’s access to the western technologies he relies on to wage an illegal war against Ukraine,” said Deputy Attorney General Lisa Monaco
The whole DOJ document is really something to behold. It is a whole essay of propaganda and complete ignorance to the fact that consequences have actions.
All of this is besides the fact that the US are using Russian assets against themselves. That just adds a little more salt in the wound but the big picture is what they’re signalling to the rest of the world. They’re effectively crushing the confidence in really what is the only standing item holding the American Empire together–> The Dollar.
The counter-party risk may have just exploded. Treasuries carry a new risk component damaging the quality of the collateral, now which other entities’ are willing to lend against collateral that could be seized on a whim?
Markets likely won’t act on this given the fact that treasuries are merely a way to support a portfolio via diversification and to gain access to liquidity or long-term credit. In other words, no large players are buying treasuries for the yields–they’re using it as a precursor to receive funding for a nice opportunity with much higher yields. However, the cat is out of the bath in my mind–the USA won’t stop at Russia. Soon they’ll treat their allies in Europe the same way who refuse to play proxy in their foreign affairs.
News:
Closing
I believe this is a major event that economist and investors looking back for clues on “what went wrong” will invariably come to this date as being a yet again another breaking point in the US hegemony in global markets. It will only seem apparent when we begin to see the USA deliberate flexing against it’s allies who refuse to cave to foreign policy demands & when investors elect to find new forms of collateral (perhaps gold?).
Who is going to want to hold treasuries if they know there’s a risk that other’s won’t accept it or lend against it–similar to real estate bonds in 2008. It begs the question if money managers and banks aren’t going to be happy with this as collateral, then who is? Will the USA have to “pull a Japan” where the central bank owns almost all of the countries’ debt? It seems like they have already started…
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With the US fiscal & current account deficit at lows never even imaginable 15 years ago and spending literally out of control, the US are in major trouble if nobody is willing to finance their spending addiction. Like a drug addict, they require more and more stimulus just to keep the economy running. Coupled with a reduction of confidence in the item that supports stimulus causes everything to come crashing down with Americans holding the monopoly bag of money. Expect more seizures of Russian assets to progressively grow to fund the war machine.
Inflation & interest rate risk aside, investors, banks and funds will begin to find new collateral to support their lending–& If they don’t lend, than there’s a whole new problem to manage!
#StayOnTheBall
