Pipeline Sabotage and the Assassination of Archduke Ferdinand

 

In the course of history there sometimes occurs events that are monumentally important yet were hardly noticed by much of the world at the time. The assassination of Archduke Ferdinand in Sarajevo in 1914 went almost un-noticed at the time, yet it started a war that killed millions of people and ended four empires within four years--the Ottoman Empire, the German Empire, the Austro-Hungarian Empire, and the Russian Empire. Eventually even the British Empire succumbed.

 

The sabotage and what now appears to be the irreparable destruction of the Nord Stream Pipelines has every indication of being such an event.

 

The Attack Upon the Pipelines Is an Attack Upon Germany

 

The American political establishment has been railing against the pipelines for years, claiming that Germany will become so dependent upon Russian natural gas that it will be easily blackmailed in the future to do Russia's bidding or suffer a cutoff of natural gas. This is ludicrous from the start, because Germany can prevent this contingency by diversifying its energy sources. The fact that Germany has not chosen to do so is an indication that its leaders do not view a cutoff of Russian gas as credible. Is Germany wrong? Perhaps. But Germany is a sovereign country with its own constituency to which its political leaders must pander. The Green energy movement, which opposes nuclear, coal, and even natural gas exploitation on German soil is supported by a substantial segment of the German people and cannot be ignored by its political leaders. Some American leaders, such as California Governor Gavin Newsom, are building careers by following the same political winds. Since German industry and the comfort of the German people are dependent upon Russian natural gas, the attack upon the pipeline is an attack upon Germany itself.

 

Cui Bono?

 

Asking "Who Benefits" suggests that those responsible for a certain event are those most likely to gain from it. Logically there are only three possible culprits to the attacks. (The difficulty of the attacks rules out terrorist organizations, I think.) That leaves Germany itself, Russia, or the United States. Germany probably has the capability and, of course, access to the pipelines, but no motive to destroy it. Sure, Germany may shun Russian gas now, but why destroy something that it may desire in the future under a more favorable geopolitical climate? As for the Russians, could there be some deep geopolitical game to destroy the pipelines that took years to build and cost eleven billion dollars? After all, if Russia wanted to shut off gas to Germany, all it had to do was stop the flow at its end. That leaves the US.

 

Occam's Razor is a principle that "The simplest explanation is preferable to one that is more complex." America has been opposed to the pipelines long before the Ukrainian war. See here, here, and here. Watch this video clip of an exchange between Senator Ron Johnson and Russophobe State Department official Victoria Nuland, starting at the 2:52 mark. In separate public statements, President Biden and Ms Nuland said respectively that "there would no longer be a Nord Stream 2" and "Nord Stream 2 will not go forward". Furthermore, America is an exporter of liquefied natural gas to Europe. Russia claims that American gas costs 30% to 40% higher. As for deeper, geopolitical reasons to destroy the pipeline, it is entirely possible that America does not want peace in Europe. It may not want actual war, but it's actions indicate that it wants a permanent, armed presence in Europe and needs a reason to keep the NATO nations tied to its apron strings. If Russia is just another commercial nation, vying for natural gas contracts in Europe, who needs the American military? Thus, the incessant vilification of the pipelines.

 

The Lessons from Sarajevo

 

Getting back to the lesson to be derived from the assassination of Archduke Ferdinand, let us consider consequences of sabotaging the Nord Stream Pipelines between Russia and Germany. Eventually the culprits will be identified. I highly doubt that placing the blame on anyone except America is feasible. There is no motive for those who had access and capability, and there is no access and capability to those who might have motive (such as terrorist organizations). That leaves America. America may deny involvement, but Occam's Razor tells us otherwise. That means that America attacked either Russia, Germany, or both. The legal issue is irrelevant. If Russia feels that America attacked its property, we may see a tit-for-tat escalation similar to what happened in Europe a month after the assassination of Archduke Ferdinand. If Germany feels that its sovereignty was violated and its industry and people permanently harmed, it will break with America, leave NATO, and most likely take all of Europe with it. Who knows what the repercussions will be around the world, especially as our other allies see us in an entirely new light. Furthermore, our enemies will be emboldened to exploit our perfidy to the political maximum.

 

If there is any beneficial consequence to this heinous act, it would be that the American people rid themselves of these interventionist elites who treat the world as toys to be broken with no consequences. As a people we can rid ourselves of the hubris that we are the indispensible nation with a moral right to intervene in the affairs of friends and foes alike. How a nation of 330 million can assume such hubris in a world of almost eight billion people borders on political megalomania. It is past time to face reality.

World Dollar Hegemony Is Ending

 

The end of world dollar hegemony is coming and hardly anyone in government is taking notice or even understands what this means. Since the Bretton Woods Conference in 1944, the dollar has been the only currency accepted throughout the world for settlement of international trade accounts among nations. Prior to 1944, physical gold was used for international settlement. When an exporter in country A sold goods to an importer in country B, country B would pay with its own currency. But country A would have no interest in allowing country B's currency to build up in its vaults beyond an amount required to settle its own importers' needs. Thus country A would demand that country B redeem its own currency in gold. Sometimes country B would ship physical gold to country A. Or perhaps gold held in safekeeping in a third country would be designated as now belonging to country A, a book entry transaction that is more convenient than physical movement.

 

The Bretton Woods Agreement and Its Demise

 

The Bretton Woods Agreement added the dollar as tantamount to physical gold at $35 per ounce. The reason was simple: at the end of World War II the US had accumulated a preponderance of gold, due primarily to its role as the "arsenal of democracy". Thusly, central banks could exchange dollars for settlement rather than moving or re-designating the ownership of physical gold. The weakness of this system was that the world had to trust the US not to create more dollars than it could redeem for gold at $35 per ounce. But central banks always had the option to demand physical gold from the US and hence ensure that their trust in the measure of $35 per ounce was fully supported.

 

After approximately twenty years of this arrangement the market became concerned that the US was not living up to its obligations. The origin of this concern was centered in France. President Charles De Gaulle himself was a firm proponent of the classical gold standard as was his financial advisor Jacques Rueff. Starting in the late 1960's De Gaulle ordered the Bank of France to redeem eighty percent of its vast dollar reserves for gold. Other central banks followed suit, and a typical bank run developed. As US gold reserves reached critically low levels, President Nixon took the US off the gold exchange standard, as the system of central bank redemption was called, in the fall of 1971. It did NOT devalue the dollar to gold, which it could have done, and promise to stop dollar expansion. Instead the US simply ended dollar redemption for gold, allowing the US to create as many fiat dollars as the world market would accept. It turned out that the world market would accept a lot of fiat dollars. One of the reasons was that Saudi Arabia, the world's largest oil producer, agreed to demand payment in dollars for its oil, thus, creating worldwide demand for dollars.

 

The Petrodollar Era Supplants Bretton Woods, But Its End Is Nigh

 

This "petrodollar" arrangement is now breaking down, due to the ever accelerating debasement of the dollar. The cause of the debasement is the unholy alliance of the Federal Reserve, the US central bank, and the US government.  The Federal Reserve prints, out of thin air, all the dollars that the US government needs to maintain its massive and ever increasing spending deficit. The monetization of these deficits has led to a loss of dollar purchasing power at an accelerating rate.

 

The purpose of explaining all this is to give background to the currently developing situation. For almost eighty years the federal government has been able to spend as much as it desired, knowing that the world either would hold its dollars or that the Fed would monetize whatever the market would not accept; i.e., the Fed would buy the government's debt itself and (figuratively) print the money it would give to the Treasury. The Fed would then hold the debt on its own balance sheet. The sheer scale of its intervention is shocking. In 2008 the Fed's balance sheet what slightly under $.880 trillion. Today it is $8.816 trillion. (See this graph from the Fed's own website.)

 

So, what did the federal government do with all that newly printed money? It spent it on war and welfare, of course. Lyndon Johnson's Great Society welfare state is now firmly entrenched and constantly expanding. The American military has intervened in every corner of the world. It seems that all that is necessary for the US to intervene militarily is for some local disputant on the other side of the world, with its own incomprehensible historical animosities, to claim that its neighbor is invading its sovereign territory and/or committing atrocities. The American people are whipped into a frenzy of righteousness and off we go to Timbuktu. The result is thousands of dead, billions squandered, and the local situation even worse than before.

 

All this mayhem could only be funded by worldwide acceptance of the fiat dollar. But much of the world has had enough. There are several organizations that are cooperating to develop an alternative to the dollar for the settlement of international trade. The BRICS, the SCO, and the Eurasian Economic Union have formed a working group to develop a commodity based medium of exchange to replace the dollar as the premier means for the settlement of international trade. Goldmoney's Alasdair Macleod has written extensively about this project. More countries--especially countries currently using the dollar, such as Saudi Arabia--have announced their intensions to join the project. More, many more, will follow Saudi Arabia.

 

How to convey the importance of this development to the general public? It all seems complicated and probably years away. Plus it may not work. That is the purpose of the next part of my article.

 

The Magic Checkbook

 

Let's break this down to the individual level, so that everyone can grasp its full meaning. Let us assume that you were handed a checkbook and told that you could write as many checks as you wished in any amount you desired and, most importantly, no one would refuse to take your check and no one would cash it because the checking account has no money anyway. Whoever receives the check can only pass it along, via ordinary trade, to someone else. First of all, you can see that once this money is created by you, it will never be destroyed. It will continue to grow every time you write a new check. In other words, the money supply will grow according to your propensity to spend. Now let's assume that when given this magic checkbook, you had been a fairly frugal and responsible person. That's one of the reasons that you were given it in the first place. For some time you continued to live frugally, but over the years your self-control breaks down and you start to spend. To placate your conscience you spend some of the money on others; i.e., the poor, the elderly, the disabled, etc. But eventually you succumb to ever increasing DEMANDS for money to compensate the victims of all kinds of disasters. If you don't send money to the suffering masses, you are condemned by all. So you spend. Then you decide that you should spend money on rehabilitating humanity, exploring the solar system, funding higher education. The DEMANDS for money from your magic checkbook grow and grow. If you try to moderate your spending, you threaten to damage your reputation internationally.

 

Things get out of hand. But this isn't the end of the story. The spending from the magic checkbook has created massive price increases and has funded a class of sycophants, deadbeats, and megalomaniacs. A splinter group decides to spurn accepting checks from the magic checkbook and develop a new medium of exchange. It isn't easy, and it takes quite a while. There are advances and retrenchments, but eventually honest money re-emerges. Now more and more people refuse to accept your checks from the magic checkbook.

 

Rise of a Competing Reserve Currency

 

This is where the world is headed, because the US cannot force sovereign nations to accept the dollar, especially if there is another and better choice. The US has not lived up to its responsibility to protect the purchasing power of the dollar via controlling its supply. Lord Acton's warning is as important today as ever; i.e., "Power tends to corrupt, and absolute power corrupts absolutely." The new SCO currency will supplant the dollar as the world's premier reserve currency primarily because it will be backed to a large extent by commodities and it will not be under the control of one sovereign country but a number of sovereign countries, all dedicated to its monetary health in ensuring the free flow of international trade and payments. It will be a loss for the dollar, of course, and for the US, but frankly the world will benefit overall.

The Missing Factor in Liz Truss' Economic Recovery Plan

 

Despite much anticipation the economic recovery plan proposed by Britain's new prime minister, Liz Truss, is missing one key ingredient that will ensure its failure--spending cuts. The new "temporary budget" presented by her Chancellor of the Exchequer, Kwasi Kwarteng, proposed tax cuts and regulatory reform but not spending cuts. According to the Spectator of London on October 12, 2022:

 

"Liz Truss told PMQs there would ‘absolutely’ not be any cuts to public spending. Downing Street clarified that ‘government spending will continue to rise,...

 

This exposes a serious misconception of the real impact of government spending on the economy. Of course, Keynesians see nothing wrong and lots that is right about increasing government spending, especially if the goal is to spur the economy to create more "aggregate demand".

 

The problem is a complete misunderstanding of the nature of government spending. Here's the key takeaway: Government spending consumes societal resources rather than increasing them.

 

Any supposed increase in economic performance is nothing more than an increase in monetary inflation. Resources that had been directed to satisfying private demand now are satisfying government demand. If these were one and the same--i.e., that government spending was just as effective in meeting private needs as private spending--then logic tells us that there would be no reason for government to increase spending at all. Therefore, government spending pulls resources out of the economy and wastes them to some unknown extent. Overall, the economy retreats in its ability to satisfy real needs.

 

Nobel Laureate Milton Friedman had a wonderful explanation about the difference between government spending your money and you spending your own money. If you spend your own money on yourself, you will spend it wisely. If you spend your own money on someone else, a Christmas present perhaps, you will spend it somewhat less wisely. If you spend someone else's money on yourself, you will spend it even less wisely. If you spend someone else's money on someone else, you really cannot know what other people want and you really don't care how the money is spent. The last is what government does.

 

In his magnum opus Man, Economy and State with Power and Market, Murray N. Rothbard discredits the whole idea that government spending contributes something to satisfying consumer needs. Where does government get this money that it uses to satisfy the needs of "fill in the blank" (the military, welfare recipients, corporate handouts, etc.) if not from the productive economy? On page 940 of the Scholar's Second Edition, Rothbard says that "...we must conclude that the government's productive contribution to the economy is precisely zero." Further down the page he elaborates on this theme by pointing out that "...private consumers would have done something...more productive...". Therefore, "...the government's spending is not simply zero, but negative for it has imposed a loss in productivity upon society."

 

Perhaps using an individual actor's dilemma would be more helpful to understand Rothbard's very important point. Private homes deteriorate over time. They require constant upkeep just to keep them in the same functional condition. Private homes need new roofs every few decades, repainting, re-stuccoing, repairs to the driveway, plumbing, etc. If government raises taxes for any reason the homeowner has fewer resources with which to maintain his property in good condition. If the government prints money instead of raising taxes, the result is approximately the same, because maintenance costs will increase in dollar terms. Economists refer to this phenomenon as "the inflation tax".

 

Conclusion

 

Government spending destroys economies, whether taxes increase or not. It is the spending itself that sucks real, productive resources from the economy. Ms. Truss and her followers will be bitterly disappointed that the British economy does not recover and may actually regress due to their unwillingness to cut spending and their willingness to increase it.