External Expansion Limited

Wednesday, 14 January 2015

EFFECTS ON WORLD TRADE... WHERE WILL IT ALL END?


Although in this article we will discuss today focusing primarily on Russia, before we do a review of previous records that have a lot to do with the current reality. Also worth mentioning, that the facts could happen faster than anyone could imagine and it is therefore important to review past events. Do not forget to read the integrity of the article and leave your opinions which will surely be of great contribution.

At Bretton Woods (1944), the United States imposed its hegemony in the monetary system for their supremacy on the rest of the world. They had full control of Europe as an ally and for help them to recovery. The dollar is made strong and it is no possible maintain its convertibility because they have made a bad use of the system and gets out of their hands maintain the exchange gold-dollar (1970). Shortly later, they propose to make free all exchange rates leading to depreciate the dollar against other currencies, but already had gained ground by spreading it for the rest of the world, become the currency of official exchange rate of the main foods of the world and especially of oil before the development of world society would continue to increase their consumption and consequently the dollar demand. Previously, US had managed to get a strong industry through tariffs but it also, they managed to get a strongly weight in the major international monitoring organizations such as the IMF, World Bank and WTO those who advocated policies and recommendations favoring American interests. Through these institutions have managed to disrupt and delay the major Latin American economies that were embedded in countless crises (1960-2008). Also, there were several isolated incidents crisis during successive years that affected other countries in Asia (1990) for example, but in turn, speculative capital continued to roam freely in the international monetary system and have gone on to have their own autonomy independent of the governments interests.

Iraq as oil exporter considered the option of exporting its
resources in a different currency other than the US dollar and since then, it was generated a speculation of possible use of weapons of mass destruction in turn, which led to the US to declare war and invade them, getting the absolute control of oil in the country (2003). From that moment, speculative capital have been intervening, making the price of a barrel of oil increases considerably and meanwhile, increased demand for currency dollar, the currency with which this resource is traded (2003-2008). This favored that both other Arab countries (major oil producers), and other countries unfriendly to the US as Russia and Venezuela, prosper economically though very differently one another, because while the Russians made some specific investments in its country and elsewhere, Venezuelans spent on social benefits for the population and focusing on that resource, they neglected other potential sectors, which is leading today to a difficult social situation.

Russia was not much after the dissolution of the USSR
demonstrating later with the fall of the Berlin Wall, but the increase of oil prices and prosperity of world trade, took themselves to an economic boom, having some strategic control over some countries of the former USSR that are now important with regard to food resources. This is where Ukraine enters play, a major food producers in the world and very close to the European Union. Russia, before the initial destabilization of this country (2007), helped to maintain it, but US interests jointly with the EU, caused a rupture in the majority of this country with the problems that we all know, in which Russia intervened annexing Crimea and supporting certain pro-Russians forces in some areas (2014). As a military war would be very drastic worldwide, these countries have been locked in a cold economic war that starts heating up. Russia already had other plans and gone over to the side of China, who has been plotting to impose a transaction system of oil in currencies other than the dollar. Europe and the US began by sanctioning Russia and this one banning imports, both situations that led to some changes at the level of world trade: a greater commitment to dispense with the dollar, new trade between Latin America and Russia, some worsening of the Russian economy and increased boom the Chinese economy. Now go down oil prices quickly, which leads to further asphyxiation on the Russian economy. Meanwhile, demand falls dollars because not so many now needed to buy this cheaper resource. It is essential that the United States should immediately reduce its monetary base to avoid adverse effects because the surplus of that currency would move to the purchase of food and other goods that go down prices by lower production costs, being able to increase food prices later if the monetary surplus does not shrink as the result of acting from speculative capital seeking to maximize their profitability.

It is clear that different actors
pull the strings in order to have an effect in your favor, but things are so out of control from one to another, and interrelated in turn, that the effects could be bad for everyone. Impossible to predict the future. Sometimes things are done with a purpose for personal gain resulting in something unwanted for whom facilitated to do so. We can only hope What will the way of the world after the global crisis that seems not have brake at the complex point that will not be easy to arrange with a war (as was done after the great depression of 1930) because there are no a hegemonic US position (economic or military) and the future trend should be more global.

Focusing on our core analysis
of Russia, given current events, we highlight that Russia immediately following the annexation of Crimea to Ukraine in March 2014, began to be economically sanctioned by Western governments initially on banks (World Bank proceeded to block all the Russian banking financial loans) and Russian corporations in international capital markets also face restrictions on high-tech imports mainly aimed at the exploitation of its oil in the Arctic.

Vladimir Putin,
face of economic sanctions on his country for the Crimean Peninsula annexation and its role in the Ukrainian conflict, decided in August 2014 respond to those who seconded the sanctions, banning imports from these countries as a reprisal, mainly from foods like meat, fruits, vegetables and dairy products among other agricultural products and raw materials. These sanctions on certain companies, investors and the Russian state itself that led the government to make the ban on certain products of all the countries that supported the sanctions have caused internally that shortages commodities domestically, others no longer have and others increase their price.

Some businesses are already running out of some essential elements and
upon being the idea of this prohibition boost domestic agriculture and consumption of domestic product, as Grechka which is a type of buckwheat, it has increased its demand by more than 27%, reaching the exhaustion at many stores. Russian supermarket chains have traveled the world in search of food to replace many from EU countries, acquiring now the salmon in Chile, apples in China as well as fruits and vegetables in Turkey, among others. The Russian health authorities have even approved the import of crocodile meat from the Philippines in order to replace the European pork and beef. There are plenty of trade missions of most Latin American countries to Russia to get their products and increase their exports. The increase in trade relations between Russia, China and other Latin American developing countries could be described as positive for these, but not to the liking of those who now hold the reins of the world. The latest move by the Russian government in December 2014 has been the imposition of a tariff on wheat exports that ensure and maintain stocks for their own citizens of this resource, which has boosted primarily a slight fall in grain prices in commodity futures markets but will soon manifest undoubtedly strong increases by the reduction of the international offering and because possibly, speculative capital before the falling price of oil, will turn to speculation in food markets.

When we look back o
f all this conflict we see that the Kremlin had set down inflation to 5% in 2014 and are already calculating due to this new situation, an inflation close to 9% putting the Russian middle class against the ropes, since according to Minister Alexei Ulyukalev comments, continue to rise during 2015. The prices of basic foods have been shot, one of the reasons why the national product Grechka consumption increases. Everything is acting in spiral against the interests and goals of the Russian government, as the depreciation of the ruble leads many producers of Grechka to delay delivery of the product in hopes of stabilizing the currency. Although there is no real alarm to food shortages, due to situations of deprivation in the recent past in time, the Russians have begun to take stock of some products, which tightens further inflationary pressure and urges the government Russian.

Many wonder if they are wrong about this decision to ban imports. The answer seems to be yes initially; however, it is very difficult to predict the economic future of any country and there is evidence that despite how bad is Russia today, the trade war against
them can become a boomerang for Europe and return it to recession, as well as to the United States, given that both Europe and the United States seem to deny the growing importance of China and the growing rise of yuan in international trade. China and Russia have agreed to negotiate energy prices in yuan and this implies a heavy blow to the petrodollars. Europe remains far from having a strong recovery from the entrance of the crisis. It seems that everything depends on the endurance and the suffering of their people, as is usual, so the final outcome is unpredictable.

Is already known by all about secret meetings during 2014 among central bankers and ministers of Russia and China to realize a ruble exchange system yuan, a process to which were invited the other BRICS countries in order to break the hegemony of the dollar, and those are the reason Why things happen. Following these meetings the BRICS plan to create a monetary system similar to the IMF, without the high costs and without the power structure of this one that primarily favor the United States. China has long who wants to be more involved in IMF decisions without being able achieve it and being achievable in this bank of the BRICS that pretend to compete with the World Bank and focus on the problems that is not interested in like the development of emerging countries and cooperation between them, running backs of institutions like the World Bank or the IMF dominated by the United States (both institutions resident in Washington have always defended the interests of the United States in detriment of the rest of world since they were created with the Bretton Woods agreements). In our opinion, Europe should have sided with the BRICS because we believe that Europe and the United States run a more uncertain future as they become giving the different outcomes of all the facts in this case.

Moreover, in response to the
antecedents that defy US interests, currently the international oil prices have plummeted emerging some interesting questions to answer:
Which countries are most affected? First, Russia and Venezuela.
Whose interests does respond the Arab countries maintaining constant levels of oil production? First we could think of the US, but in reality to theirs own and we will show later, and it's something that USA did not count.
Why now should be keep oil prices low? The main responses would speculate that because the price of a low barrel limited the investments on exploitation of the oil resource by fracking. However, the drop in oil prices generate less foreign exchange earnings in Russia that support the Russian currency, currently weakened by Western sanctions and bans for their share of certain Western imports consequently the Russian ruble weakens further, therefore, foods that should buy the Russians in third countries (to replace those from the EU) mostly traded in dollars, also getting more expensive (it raises the cost of imports), further eroding the purchasing power of people and generating even more pressure on the weakened balance of payments of the Russian nation, and in addition causing other detrimental impacts on the rest of Latin American countries who wanted increase its food exports to Russia.

Regarding the fracking should be mentioned that the 7,300
billion cubic feet of shale gas recognized by the EIA (Energy Information Administration), 15.5% (1,130 billion cubic feet) rests in China; 802 billion cubic feet in Argentina (reason why George Soros doubled its investment in YPF from Argentina); 707 billion cubic feet in Algeria, while the United States stands in fourth place with reserves of 650 billion although has an advantage in exploiting this resource compared to other countries. So it is clear that China has the largest deposits of shale gas in the world and now would be willing to dare to remove them by way of fracking. However, the Asian giant is facing economic and environmental challenges in developing hydro bill in a complex geology and expensive. But this option would allow them to leave the coal resource by which it blames China being the biggest polluter on the planet because it is the world's largest consumer of coal and therefore most polluting source of carbon dioxide. So it is thought that the extraction of shale gas could overturn the curb climate change and environmental degradation. However, still nobody knows for sure the real risks involved in resource extraction to 3000 or more feet deep that requires the use of highly toxic and carcinogenic elements and the inevitable contamination of groundwater. In a way, this would initially be good for the planet but as far as pollution is concerned, can be perfectly falling from the pan into the fire. At the same time, shale gas has become the new energy source in the US and this has much to do with the Iraq war in 2003. Until that conflict, a barrel of oil was trading near $30. Since then, a barrel of oil has not stopped rising gradually, reaching it set a record in July 2008 when it reached $147 a barrel; then it has been stabilizing slowly, but today it is rapidly coming trading near $50 after these record prices, affecting American investments for the extraction of this resource by fracking.

The dollar was the big winner with every rising oil prices, since all up this important energy resource raises the demand for dollars, therefore, with the falling price of this resource dollar will initially be harmed and thus, all international trade relations. Although this drop in oil prices affect resource exploitation by fracking, America has much more to lose if the
resource finally starts to be traded in other currencies, but also allows them circumstantially to acquire resource for collect to a relatively low value as they have no self-sufficient. In turn, given that China has surpassed the United States as the largest oil importer in the world, and that Saudi Arabia is moving away from the US and closer to China, this drop in price enables China to acquire resource more cheap, leaving aside the idea of carrying out the exploitation of the fracking that now would be unprofitable (obviously of interest from Arab countries). For its part, Russia is dependent on raw materials and natural resources having been its potential and problem at a time, get exploit and export them. With the previous situation of high prices in the oil barrel, Russia and China, were about to close this issue shortly for Russian raw materials over the coming years. There is an intention agreement that takes more than a decade under negotiation and seemed to come out as Russia sold to China 38.000 million cubic meters of natural gas over the next thirty years, all with an option to increase the amount to 60.000 million and requiring a pipeline that Gazprom is planning to build whose cost can reach 40.000 million dollars. The agreement was before furthest due to the price, but it seems that Russia would cede due to sanctions imposed by Western powers and currently the sudden drop in the price of the resource. If Europeans are riased the pipeline interconnect with Algeria through connections via Spain as a way to show that they can find another supplier, the Russians can sell to China through a pipeline as a way to demonstrate that they can find another buyer. USA has clearly propitiated the initial drop in oil prices, but did not count that the Arab countries maintain production aiming at eradicating investments in resource extraction via fracking, leading to price falls abruptly, so things although do not look as good in principle for Russia can it be, implicitly generating a new world order. In turn, sanctions against Russia could have a most frightening collateral effect if Russia intends to accelerate the collapse of the dollar hegemony. If Russia accepts payment for oil and gas in any currency other than the dollar (the euro, the yuan, yen, rupee or gold), the petrodollar system would collapse and with it the hegemony imposed by the United States with the dollar.

This will
entail that the slowdown in global trade will continue as the fall in demand will configure the global trend of declining trade. The impact that unemployment has on demand proves disastrous for the entire global economy. With this in view, the fall in global demand for goods not only affect industrial production, but also to the global demand for maritime trade and demand for currencies with which this global trade works. In the current circumstances, the dollar falls by the significant decline in world trade and also by the substitution effect that starts generating in other countries supporting to other currencies like the Chinese yuan, Russian ruble or the Indian rupee, to perform transactions. The future is even more uncertain and frightening if world elites who pull the strings lead us to a third world war, so we should expect that this never happens and the world's citizens express ourselves contrary to any absurd attempt of such madness. It is well expected that the proposals of the current famous economist Piketty become more relevant, whether or not we agree entirely with his analysis, it is evident that we must ask an obstacle to the growth of speculative capital which projects us into a kind of barbarism human.

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services related to this article or foreign trade services, please contact through our website at www.externalexpansion.net or directly on our email info@externalexpansion.net.

Until the next article, and this time,
theirs are the conclusions...

Leonardo Dufau.

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