Russian supply pipelines for oil (green) and gas (red) to Europe

US establishment politicians have a perverse tendency to take initiatives in International Relations that usually end in blowback (meaning getting the opposite of the intended goals). Such is the case of the recent approval at the US Congress of a new set of sanctions against Russia, which seem to be an example of such failure. US congressmen seem to be unaware of the fact that the US has ceased to be the axis of the World Economy. The US is not anymore the World Creditor or the place where everybody wants to invest. Since the beginning of the XXI Century, the US, because of a chronically adverse Trade Balance, has a deficit that has been paid, since 1971, with the emission of inorganic money and inorganic financial papers. Such a policy drove the US to be today in the uncomfortable position of being the Most Indebted nation on Earth.

In the US, people are often unaware that the US economic prosperity started during the XIX Century, when the US reached the Pacific Coast. It was the materialization, helped by a military victory, of the US expansionist theory known as US Manifest Destiny: which meant that the 13 British Colonies perched on the East Coast of North America were called by unavoidable fate to expand over French and Mexican territories, until they reached the Pacific Ocean. When that goal was reached, that fact became the axis of world economic growth, during the whole of the rest of the XIX Century. The development of the necessary infrastructure to link the East Coast with the West Coast required an enormous amount of money. So the US became the main destination for all financial capital in search of safe placement and high dividends. It was the epic time of the Robber Barons, immortalized by Hollywood. Everything had to be built: railroads, steam locomotives, telegraph lines, roads. Such a gigantic construction effort attracted financers from all over the world, mainly British. It is since this time that British and American financial institutions became tangled in a financial web that united the City of London with Wall Street, in New York. In the course of the XIX Century New York became the world’s most important financial centre, after London.

While this infrastructure development was taking place in the US, the American population at that time was made up mainly of farmers and peasants, which were quite the right type of people to move into the empty space that was adequately known then as the New Frontier. It also happened that at the same time, good Old Europe was suffering the political post-traumatic consequences of the French Revolution and the Napoleonic Wars, combined with the Labour instability caused by the Industrial Revolution. The juxtaposed addition of all those factors created a chain of socio-political convolutions that stimulated a massive European migration towards the new America that was proposing fresh opportunities in an ambience of formal freedom. In this way, European migrants, usually technically well qualified, started repopulating the East Coast cities. This demographic movement accentuated the tendency towards industrialization in the North Eastern part of the US. In this manner, many new industrial centres were born in order to supply the ever growing demand required to build the necessary infrastructure to fill the enormous space between the new cities in the West and the old cities in the East.

This was how the US become one of the World Powers by the time the First World War exploded. When the war was over; the US was by then already the most powerful financial centre of the world and all the other world powers (victorious or defeated) found themselves to be in financial debt with the US.

Afterwards, once the Second World War was over, the US remained as the sole big financial power; so much so that at the Bretton Woods Conference, the US Dollar was adopted as the universal currency. This uncontested supremacy lasted until around 1970, a date when the US stopped being the main oil exporter to become the main oil importer and so started to have problems with its trade balance. In order to face an enormous trade deficit in 1971, the US abandoned the US dollar gold standard negotiated at Bretton Woods that had been set at 35US$/oz.  From the moment the US abandoned the gold standard, it wisely reached an agreement with OPEP countries (cartel of oil exporters) by which oil would be sold only against the US$; the practical consequences of that deal amounted to an abandonment of the gold standard to replace it with a sort of oil standard which at the time was known as the Petrodollar. Since then, the repayment of the US trade deficit was solved by the emission of inorganic money, which is distributed through the private banks of the US financial system since the most important private banks were part of the group which in turn manages the Federal Reserve.  The US financial system was doomed to end up placing the financial prosperity of US private banks above the wellbeing of the US people. The Cold War was the pretext which, in the name of free-market economics and the general solvency of the so called Free World, allowed for taking measures that weakened unions and all sorts of other working people’s associations.  It was the Thatcher & Reagan Era, when State owned public service monopolies were privatized in order to become private monopolies, usually owned by bank consortiums.

When the Cold War was over, in 1991, US finances, even after the arms race with the URSS, were in good health. The US public debt, at the time, was only US$36.665 billion, which was only 58% of the US GDP.  Everybody thought that once the arms race and the Cold War were over, there would be a Peace Dividend. Moreover, after a while it became clear that instead of making socio-economic investments, perhaps because of the absence of the Soviet threat, US public policies became completely subservient to the financial wellbeing of Wall Street. Such types of policies necessarily brought a very unequal wealth distribution which has impoverished the US working classes, meaning anybody employed on activities other than financial services. As is always the case, in every country, the debts of the productive part of the population end up being reflected in the Public National Accounts.

We will begin by looking at the debt in education, because is of the foremost importance since it represents a social investment in the future of a nation. Shortly after the end of the Cold War (1997), the US household debt related to education loans was a little under 30 billion. After 20 years (2017) it had grown to be an unmanageable 1.3 trillion; an amount which once it is divided among the US 14 million students means that each student owes US$ 48000 -- a demonstrative detail of the American unequal social system, which is very telling, especially when we see that upper education is free of charge in much poorer countries, like Russia or all of the European Union countries. Upper education is free of charge even in the much disregarded Latin American countries. Ironically, it is the US educational model that claims to be one to be imitated by the rest of the world.

In the US, debt is a way of living, from the very beginning of its existence, since Alexander Hamilton, who was US First Treasury Secretary.  It may be because of that frame of mind there, and the general US disregard for Savings, that the Peace Dividend was not devoted to improving Public Finances, as turned out to be the case in all countries of the former Communist Block, while in the Western Democracies, the prevalence of the so called Neoliberal doctrine eliminated most of the governmental means to control or influence the economy. It was in this self regulated economy climate that the financial sector became de-regulated and the differentiation between savings banks and speculative investment banks was abolished. Very soon the whole financial sector became absorbed by the speculative side of finances, since the biggest banks were also the owners of the US Federal Reserve, which was supposed to supervise the financial system. By 2008, the US-centered world financial system was on the brink of general collapse. In the US and Europe, government intervention was requested by the very same people that criticised government intervention in the economy; but this time, governmental intervention was requested, in order to bail out the troubled private banks with Public money.

Following those events, by 2017, the US is now the most indebted country on Earth, with a 20 trillion public debt, which amounts to 104% of its GDP, which places it in the neighbourhood of those countries that rating agencies consider in risk of default: Greece 179 % of its GDP; Italy with 133% of GDP; Portugal 130% of GDP; Cyprus 107% of GDP; Belgium 106% of GDP. The European Union debt to GDP average is 90%.well above the 60%, permitted by the Maastricht Treaty.

Russia, on the other side, regardless of being the object of the US and EU sanctions since 2014 and low oil prices in the world markets, has increased its reserves to a healthy US$406 billion (2017) a steep ascent from US$385 at the time of the Ukrainian crisis in 2014.

The development of Eurasia

According to the IMF, the two main economic powers at the beginning of the XXI Century are the European Union (GDP 20.7 trillion) and China (GDP 23 trillion). The US is now in a troubled third place with GDP 18 trillion. It is the foreseeable result of trade developments. Both the EU and China are very competitive economies and both are big exporters with a positive trade balance. The US trade balance is in a chronic deficit since the 70’s. The US is the world´s first exporter of services and the biggest exporter of weapons; it is also a big exporter of agricultural products, mainly because of its agricultural subsidies.

There is a physical law by which big economies tend to gravitate towards each other. The first destination of European exports is still the US, but the second one is China, a growing market. For China, the most important export destination is Europe. The space between the European Union and China is called Eurasia. Most of it is linked economically, culturally and politically to the Russian Federation. Eurasia is the place, where the biggest investments in infrastructure, during the XXI Century, are going to happen. There are going to be huge investments in transportation and telecommunications, which for the world economy will be the equivalent of the stimulus it received during the XIX Century by the development of links between the East Coast and the West Coast of the US.

Some of those projects are already underway. It so happens that Russia is the main and safer provider of energy to both China and the European Union, so priority has been given to a net of pipelines to carry gas and oil from the Siberian oilfields to China in the South and to Europe in the West. The one intended for Europe is known as North Stream II and reaches Europe (Germany) through the bottom of the Baltic Sea. It is already under construction and is intended to avoid the risky transport through Ukraine and to guarantee Europe a secure gas supply. The North Stream II pipeline is very much a clear target of the new US sanctions.

There are other projects already under construction which can serve as an example of the dynamic magnitude of the Eurasian area infrastructure developments. We mean the Moscow-Kazan high speed (400km/h) railroad, a 770 kms long journey with stops every 50/70kms, which will reduce travelling time from 14 hrs, to 3:30. This train is part of a high-speed railroad network that will shorten transport time between China and Europe and will ultimately link Beijing and Berlin. The rest of the infrastructure projects in Eurasia are known generically as the New Silk Road. It will cover the dusty ancient caravan tracks with a web of high-speed railroads, optic fibre nets and intermediate industrial factories. The financing will presumably come through the Asian Infrastructure Investment Bank – AIIB, which was recently started with a 60 billion capital supplied initially by China, Russia and other members of the Eurasian Common Market. The US attempted to boycott the participation of other members, but was disregarded by all of its European vassals. Today even Mauricio Macri’s Argentina is part of the AIIB.

The Bill with the new sanctions against Russia, Iran and North Korea, that was approved on July 27 has already been the object of strong European criticism because of its pretended extraterritorial jurisdiction. Claude Junker, President of the European Commission, protested saying that the policy of America First should not mean that Europe is last. The Austrian Chancellor, Christian Kern, claimed the bill was irrational and contrary to common sense; the German Minister of Economics, Brigitte Zypries, said that it could generate countermeasures and start a trade war. Similar objections were made by the German Foreign Minister Sigmar Gabriel. A Russian MP mentioned that the bill was an attempt by the US Congress to force Europeans to buy expensive American shale gas. In fact, soon after Trump’s Warsaw visit, the first American gas shipment has already arrived in Poland a couple of weeks ago.

Since the largest infrastructure projects of this Century are going to happen in Russian territory, sanctions against Russia are in fact depriving US companies of the possibility to participate in the most rewarding infrastructure projects of the XXI Century. If US Congress members intended to distance Europe from Russia, they seem to be managing to do exactly the opposite. Another case of blowback from Congressmen interference in US international policies.

Geneva 28/07/2017