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The Geopolitical Year Ahead

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2024 will see a quickening pace for geopolitical developments, with the influence of the US waning while that of China and Russia waxes.

As a lost cause, the war in Ukraine will be abandoned by America and NATO in the next few months. The dangers in the Gaza situation are likely to escalate, with the US being played by Iran acting in collusion with Russia through the Houthis.

Russia has taken over the presidency of BRICS, and in his New Year speech President Putin stated there will be over 200 meetings and events planned. The final definitive meeting will be in Kazan in October. It seems reasonable to assume that Russia will ensure that all current members will be educated towards the merits of adopting a gold-backed trade settlement arrangement instead of the dollar.

The new currency is likely to replace the dollar as the intermediate step between non-dollar currency transactions. And it also makes compelling sense for Russia to put the rouble on a gold exchange standard as well, because it is one of the few economies that won’t require cuts in public spending to facilitate it. And as the dollar slides, China must follow in order to prevent the yuan going down with it.

And finally, 2024 is the year of the presidential election in America, which means pork barrels for all. And with the debt limit in place until January 2025, it is in both parties’ interests to maximise spending before the new cap in spending is agreed.

Could this be the year the dollar dies? Read on!

The world is a’changing…

On British TV, the days between Christmas and New Year are a time of old films, and David Lean’s iconic Lawrence of Arabia was shown for the umpteenth time. Like all films based on true events, its connection with reality is somewhat elastic. But it did remind us of the duplicity and arrogance of Britain and France drawing the Sykes-Picot line to divide up the Ottoman lands in Palestine over the heads of the inhabiting tribes, without regard to their territorial rights and Lawrence’s successful Arab Revolt which united the Bedouin tribes for the first time.

That political reality notwithstanding, Lawrence’s legacy and his role in uniting Bedouin tribes into the Arab nations gave Britain enduring influence in the region, certainly until long after the Second World War. But the Sykes of Sykes-Picot wasn’t the only interfering busybody in London. Prime Minister Balfour with his Declaration in 1917 opened the Pandora’s box which today is the modern state of Israel. However, sense in Westminster did occasionally prevail.

When Harold Macmillan made his winds of change speech at Cape Town in 1960, Britain was acknowledging that it could no longer resist the rising tide of nationalism flooding into Africa and elsewhere. Months earlier, he had appointed my uncle, Iain Macleod, as Colonial Secretary to accelerate the transition to independence for many of Britain’s colonies. And later in the 1960s when Harold Wilson was Labour Prime Minister, he abandoned British military presence “East of Suez”. Britain’s politicians in both parties had accepted the reality of Britain’s declining influence. Today, America’s permanent establishment takes a different view, not prepared to even consider the decline in its influence. If only the US was more pragmatic, perhaps the world would have fewer wars.

Despite extremely costly post-war campaigns in Korea, Vietnam, and up to the present day America’s victories have only been pyrrhic in nature, ruinous to the nation and the dollar. And despite the decline of its fading empire, this statist version of Don Quixote is still tilting at imaginary Asian windmills. But pyrrhic victories are now turning into outright defeats. Afghanistan, and now Ukraine which is still a disaster in progress.

Recent intelligence is that Valery Zaluzhny, commander in chief of the Ukrainian army has been talking to Valery Gerasimov, chief of the general staff of Russia’s army, and Russia’s first deputy minister of defence about a truce/peace settlement.[i] Crucially, President Zelensky has been bypassed. In response he is redoubling his efforts to recruit more soldiers in a depleted male population. But he faces increasing apathy from his NATO backers.

Seymour Hersh’s information is that while the White House is still against peace proposals, it will happen without Biden’s agreement. To summarise, the politicians in Ukraine and Washington are now out of the loop.

This is the second time we know of that the West has turned down peace talks, the first brokered by Turkey. Since then, it is reported in the West that there have been 70,000 needless Ukrainian military casualties. But these figures are based on government propaganda, so the true figure is almost certainly considerably higher.

It is against this background that the Russians are stepping up their missile attacks on public buildings as far west as L’viv close to the Polish border. They know that the Ukrainian army has had enough, and they know that Zelensky’s support is fading, both in Ukraine and NATO. It looks like Ukraine’s war will be abandoned by its own army and therefore its NATO backers in the coming months.

Israel goes rogue

The US and UK will struggle to hold the line on Ukraine. And now there is a far trickier problem to deal with in Israel. It has all the potential for the chaos that turned the assassination of Archduke Ferdinand into the First World War.

As far as Western media are concerned, it all started with Hamas’s raid into Southern Israel on 7 October when they killed a number of Israelis and took hostages. But from the Palestinian point of view, the justification for their raid against Israeli settlements was the desecration by Israelis of the Al Aqsa Mosque, Islam’s third holiest site, and increasing settler violence against the Palestinians. And Hama’s viewpoint is shared by two billion Muslims, one quarter of the world’s population. The Muslim world increasingly sees the Israelis as committing ethnic cleansing, taking historically owned Arab territory into their possession. And the existence of significant oil prospects off the Gaza shore is suspected of giving the Israelis a further reason to eliminate not just Hamas, but Gaza as well.

America’s initial reaction was to back the Israelis, and as the BBC continually reminds us, the UK government designates Hamas as a terrorist organisation. In the past, Israel’s actions would probably have had unqualified support from NATO members kowtowing to the American line. But that was before Arab unity lined up against Israel and its supporters — unity that now embraces the Saudis and Iran with her rebellious Houthis in Yemen. And that is a major difference today: American action in the region has always had Arab backing from at least some of the major players. The days of America’s divide and rule policies in the Middle East are now over.

With a divided Muslim world, two years ago the US Fleet could have attacked Iran under whatever pretext and probably got away with it. Instead, what is thought by many to be little more than a rag-bag army of Houthi tribesmen at the Bab El-Mandeb Red Sea pinch point opposite Djibouti, armed with some cheap drones and basic missiles are threatening the largest, most expensive fleet in the world. We are not sure yet whether the US Fleet has plucked up the courage to fully counter this outrage, given that its so-called Operation Prosperity Guardian has seen three of America’s European allies back out already — Spain, France, and Italy.

It would be a grave mistake to underestimate the Houthis, who, it appears, can even pilot helicopters having been videoed landing them on oil tankers and container vessels entering the Red Sea. Yemen’s civil war and their subsequent attacks against the mighty Saudis appear to have melded them into a formidable guerrilla force. Now that Iran is driving them into peace talks with the Saudis, no doubt the Houthis are itching for a new cause.

Anyway, it is Round One to the Houthis: Red Sea shipping transits are now uninsurable, which appears to be Iran’s objective-by-proxy.

There is little doubt that the Houthis will escalate their actions even further, despite the US, UK, Norway, Netherlands, Greece, Canada, and Australia sending warships to the area as their part in Operation Prosperity Guardian. Direct action against the Houthis is likely to inflame their anti-Israeli zeal even more. If words are followed by actions against the Houthis, we can be certain that the objective of protecting safe passage through the Red Sea will not be achieved and the Arab world will be further antagonised. Yet again, America could discover that deterrence becomes provocation.

The wider Middle East picture

While the Houthis are independent, like Hezbollah they are backed by Iran, dancing to the latter’s tune. But belying its extremist reputation, Iran is playing a calculated game, trying to put sufficient pressure on the Israelis to back down over Gaza. For now, they appear to be restraining Hezbollah to relatively minor attacks in Northern Israel, with the threat that Hezbollah’s involvement could increase if Israel doesn’t back down.

Meanwhile, the Israelis appear to be trying to provoke America into direct action against Iran. It could be that the Israelis fear that with the Arab world uniting, their very existence as a nation is more directly threatened and that drawing in American protection is their best option. But without Saudi, Egyptian, and Turkish support the Americans and her western alliance are understandably reluctant to be drawn into a new war. Arab/Iranian unity neutralises the possibility of a deal between Israel and America giving greater protection against Iranian hostility, which presumably involves not just eliminating Hamas but seizing control of Lebanon and/or Syria and eliminating Hezbollah as well.

Not only has the ground shifted for America, but it has for the Iranians as well. From being seen as an extreme theocracy issuing fatwas against westerners, Iran has become an integral part of the Asian hegemons’ plans. Russia has secured her partnership in energy, and China her access to the Persian Gulf. Through her membership of the Shanghai Cooperation Organisation — she became a full member last July — Iran is now directly involved in Asia’s wider future. Not only does she enjoy greater protection under the SCO umbrella, but her geopolitics have become aligned with its objectives as well.

This explains her tacit backing of Houthi action in the Red Sea, which is considerably more subtle than closing off Hormuz: that remains a backstop in event of a direct threat from America and her NATO partners.

For the Gulf Cooperation Council, representing all the oil and gas producers in the Middle East, the West’s climate change agenda has eliminated itself as a source of long-term energy demand. The GCC’s future is now focusing on Asian markets, dominated by industrialising China and India, who pay lip service to saving the planet but show no signs of reducing demand for fossil fuels.

In partnership with China, Russia has played her energy cards well by reeling in the GCC to her sphere of influence. The reality so far as the western alliance is concerned is that the outcome of any action against the Houthis or in Lebanon and Syria to protect Israel’s northern flank will be determined by Russia and China, deploying regional support. It is no longer a matter confined to just the Middle East.

BRICS and Russia’s presidency

From this week, Russia takes over the BRICS presidency from South Africa and membership expands from five to ten. It was to be eleven. But having applied and been granted membership from 1 January, Argentina withdrew its application on 30 December, leaving a total of ten nations in the organisation whose combined population is estimated at 3.3 billion, about 44% of the world’s population. And of the 30 nations which have expressed an interest last year, a further 15 countries have formally applied to join BRICS. As pro tempore president, Russia will probably authorise further membership applications in a quest to expand BRICS and Russia’s own sphere of influence. My guess is that fossil fuel production and consumption will rank with respect to Putin’s selection.

President Putin in his New Year speech outlined Russia’s objectives for BRICS in the coming year. The following is extracted from the English translation:[ii]

“In general, Russia will continue to promote all aspects of the BRICS partnership in three key areas: politics and security, economy and finance, and cultural and humanitarian contacts.

“Naturally, we will focus on enhancing foreign policy coordination among the member countries and on jointly seeking effective responses to the challenges and threats to international and regional security and stability. We will contribute to the practical implementation of the Strategy for BRICS Economic Partnership 2025 and the Action Plan for BRICS Innovation Cooperation 2021–2024 for ensuring energy and food security, enhancing the role of BRICS in the international monetary system, expanding interbank cooperation, and expanding the use of national currencies in mutual trade.

“Our priorities include promoting cooperation in science, high technology, healthcare, environmental protection, culture, sports, youth exchanges, and civil society.

“In total, over 200 events of different levels and types will be held in many Russian cities as part of the chairmanship. We encourage representatives of all countries interested in cooperating with our organisation to take part in them. The BRICS Summit in Kazan in October will be the culmination of our chairmanship.”

With over five events planned on average every week, Russia has put considerable detail into her agenda for BRICS which will run alongside her military and energy strategies. Clearly, the objective must be to cement hard support from all current and future BRICS members for Russia’s strategic objectives, which must include isolating the dollar as the foreign exchange and trade settlement medium.

Readers will recall that Russia wanted to put a gold backed trade settlement currency on the Johannesburg agenda but failed to secure the required unanimous backing of the then members. With the benefit of hindsight, we can view the early leaking of her proposal as a device to put pressure on the dissenters. But Keynesian India was dead against it, and China was lukewarm. But now Russia will have a more considered and timely opportunity to achieve her gold currency objectives, and the programme of over 200 events is likely to be heavily skewed to achieving this end.

BRICS and gold

Last year central banks around the world accumulated substantial quantities of gold. There are two obvious reasons for this development. The first is a realisation that reserves held in sovereign currencies bear increasing credit risk due to high government debt to GDP ratios and the threat of confiscation. And the second is an assessment of America’s geopolitical decline. While central bank gold reserves are reported by the IMF and distributed more widely by the World Gold Council, these statistics are only part of the total, with governments feeding bullion into national wealth funds and other accounts hidden from public view. Therefore, the IMF’s statistics are not the whole picture.

What we cannot know is how many central bankers truly understand the legal distinctions and differences between money and credit. One can only conclude that if they did the dollar would have already been widely rejected relative to gold, because the former is supported only by belief in it while the latter has proved to be constant over history, replacing fiat regimes every time they eventually fail.

Nevertheless, the strategic accumulation of bullion reserves by central banks has been quietly growing over the last decade. But with the US’s insistence that the dollar is money and gold is money no longer, any neutral nation which is probably indebted in dollars anyway is unlikely to provoke the Americans and the IMF into retaliatory action by publicly dumping dollars for gold. The only exceptions are powerful players, such as China and the Saudis, or those already sanctioned, like Russia and Iran. China has been selling US Treasuries and buying gold with the proceeds while Russia continues its anti-dollar rhetoric.

We don’t know what Russia was going to propose with respect to using gold in connection with trade settlement in Johannesburg, but the most likely plan would have been to replace the dollar as the common medium between foreign exchange settlements. Other than intergovernmental dealings, the normal procedure for trade settlement is for an importer to sell its national currency for dollars, and either pay dollars to the trade counterparty, or sell the dollars to buy the counterparty’s national currency in order to credit its bank. Assuming a trade deal is not settled in dollars but national currencies, the dollar is still involved. At any one time, outstanding foreign exchange transactions with the dollar on one leg amounts to about $85 trillion.

With a growing BRICS organisation together with members, associates, and dialog partners of the Shanghai Cooperation Organisation (SCO) we can see that the majority of the world by population in the Russia/China axis is tied through trade to the dollar because of foreign exchange market conventions. This gives the US a presence in the Russian/Chinese backyard, which is obviously undesirable to the Asian hegemons. Logically, the neutrality of gold is an attractive replacement for the dollar in these trade transactions, with a gold substitute fully redeemable in gold and commercial bank credit created in its denomination acting between currencies. Used for trade settlement, most credit created in the new currency becomes self-extinguishing. Furthermore, as a medium of exchange it can be trusted to hold its value better than an unstable fiat dollar.

Any move towards an official readoption of gold for the replacement of the dollar is bound to undermine the dollar’s credibility. It would amount to the greatest challenge to the post-Bretton Woods status quo. Understandably, there must be serious misgivings even within the BRICS camp about the likely consequences of such an important step. But over the course of 2024, the US Government’s debt trap will almost certainly lead to increasing uncertainty over the future value of dollar reserves and of the dollar’s suitability as a medium of exchange. A further consideration, likely to unfold over time, is of the debasement of dollar debt owed by emerging nations which will surely be welcomed by them, assuming they can stabilise their own currencies.

In other words, over the course of 2024 the conditions for the replacement of dollars with gold as the international measure of value will improve with the dollar’s decline.

Russia is therefore likely to refine the proposals that failed to make the Johannesburg agenda before presenting them again next October at the meeting scheduled to be at Kazan, where they should have a better reception. It will have become obvious to delegates at that meeting that with the US Government entangled in a debt trap it will struggle to find buyers for US Treasuries other than for short-term T-bills. As I argue below, in the current fiscal year the budget deficit could top $3 trillion, half of which will be debt interest. And the dollar is already showing early signs of decline, reflected in both its trade weighted index and the dollar price of gold.

Gold adoption by Russia and China

As well as other members of BRICS and the SCO reviewing their relationship with the dollar, Russia and China will have to consider the relationship between a declining dollar and their own currencies. The Keynesian consensus on trade is that currency relationships for net exporting nations maximise trade benefits “when they are competitive”. It is an argument that favours a faster decline in purchasing power than that of the dollar. This line of reasoning is specious, to say the least. It highlights the logic of lower export prices promoting sales, with the less obvious: that a competitive currency policy erodes national wealth and fails to address the relationships between the trade balance, the government’s own accounts, and private sector savings which actually determine the balance of trade.

Inevitably, there must come a point where this popular line of reasoning will be abandoned. Otherwise, the rouble and renminbi will go down with a sinking dollar ship.

The benefits of putting the rouble on a gold standard are obvious and growing all the time. As a matter of fact, in its soviet days Russia was on a gold standard, separately from the Bretton Woods Agreement (which Stalin endorsed but didn’t join) until Khrushchev abandoned it in 1961. The lesson for critics of the rouble devaluation is that it cured nothing, with the decline in the soviet economy continuing, even accelerating. Tin view of this history, there is an appreciation in Russia at the highest levels of the benefits of securing the rouble’s value to gold, eloquently expressed by Sergei Glazyev, economic adviser to Putin in an article for the Moscow business magazine Vedomosti in December 2022.[iii]

The benefits are clear: a credible gold standard would allow interest rates to settle at a rate closer to the natural rate for gold, adjusted by the credibility of the arrangement. Instead of the central bank’s key interest rate of 16%, it would likely decline towards two or three per cent. The expansion of the central bank’s credit would be tied solely to its function as an issuer of roubles in return for gold coin and bullion, the expansion of commercial bank credit being driven by commercial demand, productive in nature and therefore non-inflationary.

With income tax at 13%—15%(maximum) and government debt estimated at only 22% of GDP, the underlying economic dynamics for the Russian economy do not face the painful readjustment of welfare-driven economies required to make a gold standard stick. The only credible reason Russia has not adopted the obvious gold policy outlined by Glazyev is that for Russia to do so would deliver a death blow to the dollar by comparison, an outcome for which China is not yet prepared. But with the dollar’s debt problem rapidly escalating, China will have to abandon the fallacy that her exports depend on the renminbi weakening with the dollar.

We know from her policies towards gold following the Peoples Bank’s appointment as sole manager of the nation’s gold in 1983, together with global bullion flows into China that both the state and its peoples have accumulated the largest aboveground gold stocks on the planet. This policy would not have been implemented unless far-sighted officials had not foreseen the weaknesses in the dollar-based post-Bretton Woods currency system. The role of gold as money is clearly understood in China.

The gathering pace of the dollar’s problems suggests that the transition of the rouble and renminbi to gold standards further undermining the dollar’s credibility will happen sooner than might be expected — even before this year’s end. As to the timing, there are many variable factors, not just the success with which Russia persuades the BRICS membership under her presidency to do away with the dollar in favour of gold, but also her increasingly likely success at expelling US-led NATO from Ukraine and developments in the Israeli/Gaza conflict going Iran’s way. And then 2024 is also the year of political change in the West, which could have an enormous influence on outcomes.

US elections and borrowing costs

In 2024, the most important election of many will be that of US President on 5 November. Ahead of the US primaries which will determine the two principal contenders, it appears to be between Biden and Trump. In its global impact, it is this election which will matter more than any other.

Last June, Biden signed into law the suspension of the debt ceiling until 1 January 2025. Since then, the Federal Government’s debt has accelerated to $34 trillion, the overriding feature being debt interest, perhaps making up nearly half of the budget deficit in this fiscal year. The level of interest rates and therefore the cost of government funding has become a major issue for the Fed, which while notionally independent from the US Treasury in practice is not.

It is one of a series of issues which have been troubling markets in recent months. Following the last FOMC meeting, markets have taken the view that the Fed is pivoting from control of inflation to addressing a recessionary economy and the cost of government debt. Accordingly, as well as an ambition to reduce interest rates the next policy move is likely to be the abandoning of quantitative tightening in favour of QE.

With the refunding of maturing debt, it will require over $10 trillion to be found. That’s bad enough. But being an election year, the haggling over spending (reductions are never in the frame) will almost certainly take the debt total to at least $37—$38 trillion at the end of the current fiscal year (to end-September) and possibly even within spitting distance of $40 trillion by the year-end.

The inducement to spend, spend, spend while there is no debt ceiling and before negotiations for a new one take place following the installation of the next President, the greater will be the likelihood of outstanding debt hitting $40 trillion before a new ceiling is negotiated. A recession, which is already the true condition, will reduce expected revenue and increase prospective liabilities, potentially driving the budget deficit even higher than $3 trillion. In which case debt hitting $40 trillion in twelve months’ time becomes even more likely.

The optics will not be good. Soaring government debt and subdued or contracting GDP will drive the ratio considerably higher. The pressure on the Fed to keep interest rates as low as possible is bound to increase. But the Fed is unlikely to have much control over interest rates anyway because they will be determined by the fate of the dollar’s purchasing power. The dollar’s exchange rate with other currencies will depend on the degree of foreign investment in the Federal Government’s new debt. But other than captive buyers in offshore centres, reserve demand from foreign central banks is already declining. In fact, the two largest holders, China and Japan have already turned net sellers.

In recent months we have seen evidence of difficulties in longer maturity debt auctions and a growing reliance on short-term funding through the T-Bill market. Largely, this is due to banks adjusting their risk exposure away from corporate lending and longer bond maturities, a process which is time limited. Government funding has also absorbed most of the money market funds’ liquidity, which previously had been parked in the Fed’s reverse repo facility. The ease with which the US Treasury has funded the accelerating budget deficit will shortly come to an end, and a funding crisis is bound to ensue.

Under cover of a gathering recession, the Fed will face mounting pressure to monetise the debt problem as much as possible. For a fiat currency over-owned by foreign interests the inflationary implications are potentially catastrophic for the dollar. The dollar’s suitability as the international medium of exchange is already facing a challenge from gold, to which the Asian hegemons and their growing band of supporters in BRICS and the SCO are turning.

Consequently, with a failing dollar 2024 is set to see a significant decline in the US’s global influence. By wielded her power through the dollar she has created foreign resentment and enemies. This could be the year when America discovers that her grip on the world is ending, and that she should have learned from Britain’s experience and response to the reality of her decline in the 1960s.


[i] See Seymour Hersh’s Substack: General to General 1 December.

[ii] See Putin’s inaugural BRICS speech: http://en.kremlin.ru/events/president/news/73202

[iii] For a translation of Glazyev’s article, see Macleod Finance Substack (subscription required).