Sovereign Finance

Going to Tehran

Rob’s comments below are in italics.Derek’s comments below are in normal font. You were telling me before we hit record that you’ve been reading a book called ‘Going to Tehran’. You were saying that if the people in the American establishment had read it, it would have saved everyone a lot of heartache! Yes, it’s called ‘Going to Tehran’. It’s by Flynt Leverett and Hillary Mann Leverett, obviously a married couple. They were policy advisors or analysts in both the Bush and Clinton administrations. When was this book written? The book came out in 2013, with a slightly updated edition since. It gives a very detailed, impartial description of what the Islamic Republican government of Iran has been through since it was created 47 years ago. It explains a lot about the experiences it’s had and why it’s taken the position that it does. It totally undermines the prevailing Western narrative that they’re all lunatics, fanatics and extremists. The religious regime may not be one we would choose, but it does seem that a large majority of the population are very happy with it. The events of the last year or so have led many younger people — particularly those who didn’t live through the Shah’s rule — to reassess. The Shah, of course, was installed by American and British intelligence services in 1953, overthrowing the democratically elected Mossadegh government. He then ran a very brutal tyranny with a great deal of torture and assassination of anyone who rose up against it. Didn’t the Shah go to boarding school in Switzerland or something? He was groomed and then put back into position. He was totally a Western puppet. He was installed because Mossadegh wanted to nationalise the oil extraction processes. Mossadegh wasn’t even going to restrict its use; he just didn’t want it sold off at a knockdown price. He wanted a fair return to the country for the resources being extracted. It’s the same old story. The recent events have caused many people who were looking to the West, thinking the grass might be greener, to reassess. Anyway, well worth a read. I’m only about 20% of the way through it myself at the moment. Just while we’re on books — you obviously read a lot. Do you read 20% of a book and then dip back into it later, or what’s your preference? Usually, if I decide it’s worth reading, I stick with it until I’ve got right through. How about you? I’m trying to get better at giving up on books that aren’t excellent. So I’m trying to get a bit smarter about it. I very often read the first page or so and the last page or so of each chapter to get an instant summary. It obviously depends on how they’re written, whether that’s a useful exercise. A lot of writers do open each chapter by giving a rough idea of what they’ll cover. A lot of them also finish with a brief summary of what they’ve covered, which is good presentation practice anyway. If they do that, you can get a pretty good idea of whether you want to go into the full depth and detail. Sometimes I do that exercise and conclude I’ve pretty much got the drift. Anyway, very interestingly, Robert Kagan — it’s very difficult to label him. I was inclined to say “right-wing,” but “right-wing” and “left-wing” no longer make much sense. ‘Right-wing’ just means he says things the establishment doesn’t agree with, doesn’t it? Not in this case — he is the establishment. He’s the husband of Victoria Nuland, who was Assistant Secretary of State at the time of the 2014 overthrow of the Ukrainian government. So he’s a militarist, a warmonger. I remember her. He’s part of the swamp. In this article, he actually says that the Iran conflict is the biggest defeat in US history. So you’ve got somebody from the core of the American establishment effectively taking it for granted that the conflict is lost, whatever happens from now on. He says the only way it could be resolved is by a land invasion and occupation. I don’t know whether he’s saying this to strengthen the military’s resolve to go ahead and do that. It seems blindingly obvious that any attempt to do that would result in an even more humiliating defeat — and a more decisive one. Of course, Trump was probably hoping, with this visit to China, to get some sort of support in getting the Strait of Hormuz reopened. They gave a very polite reply without actually suggesting they do anything. Have you been following the China trip at all? I saw that he was there. To be honest, if something is really meaningful, I rely on you to tell me about it! Well, I’m glad I’m doing something useful. I don’t know what he expected. As somebody suggested, it was partly about stroking his ego — I’m sure it did that to some extent. There was a reception, flag-waving, bands, 21-gun salutes, a huge ceremonial banquet, and sycophantic speeches praising each other. What actually happened in any of the closed-door meetings, we don’t really know. There haven’t been any announcements of grand progress on any front, which is no surprise. China has been as robust as it could while remaining polite in laying out its position. Before it even started, they said they had four red lines: discussions of Taiwan, democracy and human rights, their political system, and any interference with China’s right to development. So if Trump had thought he was going to make any assertions about any of those, they were off the list to start with. In fact, Xi made a very coded reference to Taiwan and to the necessity of avoiding conflict. There are clearly very strong elements in the American political establishment that want some sort of proxy war against China to restrict its future prosperity and its ability to rival the United States, which is almost too late, I would say. Taiwan is to do with semiconductors, right? Well, the history of Taiwan is that the Kuomintang retreated there after losing the civil war against the communists in 1948. For quite a long time, the United States took the position that this rump of non-communist politicians in Taiwan was the actual legitimate government of China. At some point — possibly around Nixon’s visit — they had to abandon that and accept that mainland China was the real China. The position since has been what they call the “one-China” policy — that Taiwan is actually part of China. There are strong elements within Taiwan that want a clear separation. It’s quite a muddled situation. As long as they don’t cause any trouble, the Chinese are perfectly happy to sit it out and wait. Meanwhile, America has been selling increasing quantities of arms to Taiwan. In one light, that might be regarded as yet more profit for the military-industrial complex. By doing that, however, they’re plainly playing up to the separatist factions — there’s no point otherwise. Taiwan’s not going to have a fight with anybody except mainland China, so selling them weapons can definitely be seen as an invitation to pursue that. The American position is that they would intervene to protect the democracy of Taiwan if China attempted to take it over by force. I can’t see there’d be much appetite on either side for armed conflict, because there’s a great deal of kinship between them — literally. There are many mainland families with relatives in Taiwan, and many Taiwanese families with relatives on the mainland. It would really take something to stir things up to that point. But of course, this is the playbook we’ve seen everywhere. It’s too big a fish, basically. Xi’s message was that we should be careful not to fall into the Thucydides Trap, which surprised me. You don’t expect Chinese leaders to be versed in classical Greek history. What Thucydides was referring to was that when one powerful state was growing to the point of becoming comparable to another, war would be inevitable. Xi was saying as clearly as he could — without spelling it out further — that it would be far better if the US and China could avoid going to war with one another. He then went on to give a very diplomatic warning against any interference or provocation regarding Taiwan. We’ll see whether we get any more concrete announcements. The other thing is that not only have we got the Strait of Hormuz closed, but Ansar Allah — generally referred to in the Western press as the Houthis — have effectively closed the strait at the mouth of the Red Sea to US shipping. Most Western shipping companies have more or less abandoned the Suez Canal route because they simply can’t afford the very real possibility of losing a ship and its cargo. The insurance premiums for passing through that route for a fully laden container ship are now up to three-quarters of a million dollars. How much is the cargo worth if the insurance premium is three-quarters of a million dollars? A figure I heard was around 10 million. But that three-quarters of a million represents pretty much the entire net profit of the voyage, so it makes paying the premium uneconomical. Routing around the Cape of Good Hope adds an extra 14 days to the journey and an extra three and a half thousand dollars in fuel. All of that will feed through to the costs of anything imported into the Western world, which of course is most consumer goods and appliances from China, Vietnam, and various other places in that region. So there’s another front which has been somewhat eclipsed by Ukraine and Iran — the North African states: Mali, Chad, Niger, collectively referred to as the Sahel. These are all former French colonies, and there’s been considerable realisation in those areas of the extent to which they’ve still been economically subjugated even since nominal independence. Those governments are standing up to the French. They’re making their own currency arrangements rather than ones controlled by the French central bank, and they’ve been supported in that by the Russians. Now there’s been considerable agitation — so-called separatists, so-called freedom fighters — breaking out and striking against the government. This is almost certainly agitated by the French and also, of course, by the CIA. It’s a further rupture point in the international order that has held for the past seven or eight decades. All of these things seem more obvious than they used to be. Exactly. The short answer is that control of the narrative — which has been taken for granted, particularly by the US and the Western world in general — is breaking down. They could do these things and get away with them. Now it’s becoming clear. What else has happened this week? There was an Israeli attack on yet another freedom flotilla trying to provide humanitarian supplies to Gaza. Israel attacked the flotilla 1,000 kilometres from the Israeli coast, so completely in international waters. They used planes, drones, and warships, and even included a prison ship in their attack force. Some of the operators of that flotilla had been arrested and brutally treated by the Israelis. This is all in full view of the world. Everything Israel is doing reduces whatever respect the world as a whole has for them. The same applies to US actions — it can no longer sugarcoat the reality of what’s going on. Meanwhile, our own governments are demonstrating that they’re increasingly out of touch. Labour got an absolute hammering in the local government elections and in the Welsh and Scottish elections. Starmer has resolutely refused to resign, but there’s growing pressure on him. It’s ironic — I saw a clip of what Starmer said when the Conservatives were in power and he was in opposition. Did you see that? I’ve seen the meme that’s based on it, yeah. He gave a very pompous speech. I can’t remember which Conservative Prime Minister was in office at the time of that dismal local election performance — was it Cameron? David Cameron, yeah. Starmer pompously said he should recognise the will of the people when it’s been expressed as clearly as that and do the decent thing. Now the boot’s on the other foot. Of the people within the parliamentary Labour Party being touted as conceivable replacements, they all seem totally implausible to me. I did not know anything about this Wes Streeting fellow, but I cannot imagine him as prime minister. I thought it was Tommy Robinson at first — he’s got a very similar physiognomy, a very similar haircut, and a very similar accent and mode of expression. The interesting development today is that Josie Simon has resigned her seat in parliament, which means there’ll have to be a by-election. Andy Burnham could stand in that, become a member of parliament, and then stand as a credible candidate. Not that I hold much hope for conventional politics, regardless of who’s in charge — it’s 99% theatre. It’s a matter of time until Big Nige gets in as PM, and he’s a corporate-captured person as well, isn’t he? Maybe. Maybe all of the Reform candidates who’ve gone on to local councils will make it abundantly clear what a bunch of incompetents they are, and people will think twice about voting for them where it’s really going to count. That’s all I could hope for. It’s clear we’re not going to vote our way out of this. My stance is that if it made any difference, we wouldn’t be allowed to do it. Okay, so that covers the things that have stuck out for me this past week. As we were saying, we’ll try to get back to some of the core topics we started this podcast to talk about — the nature of finance. Obviously, all of this will affect our finances one way or another. At least for the next couple of years, we’re going to have to get by consuming far less energy than we’ve been accustomed to. That might not be a bad thing; it might be a worthwhile focus on the measures we’ll need to take and the adjustments we’ll need to make to live in a world no longer awash in fossil fuels. I’d be more on board with that if our leaders were leading by example and not flying halfway across the world to have a cup of tea in China. Fair enough. Let’s call it a day for this week. All right, thanks Derek. Over the next few episodes, we’ll revisit certain topics we’ve covered in the past — like bonds and interest rates — but look at them through the lens of what’s happening now. We’ll cover that over the next few weeks. Thanks for reading Sovereign Finance! Subscribe for free to receive new posts. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com [https://sovereignfinance.substack.com?utm_medium=podcast&utm_campaign=CTA_1]

Some Things The BBC et al Aren't Telling You

Rob’s comments below are in italics.Derek’s comments below are in normal font. Today is the first of May — the Celtic festival of Beltane. We’re at the halfway point between the spring equinox and the summer solstice. I mention it because, amid all the dark stuff going on, we need to remember to pay attention to what’s in front of us and around us. Right. I’ve made a similar adjustment myself. George Orwell wrote in one of his essays that whatever the bureaucrats, politicians and militarists do, spring is still spring and the earth is still going round the sun. The sun will still come up. Having said that, there’s been a lot going on over the last five days, and we feel like there’s plenty to talk about. There are many different threads, and they’re all interrelated. The first thing to note is that, despite the demonisation of Putin in the Western media, he is far more accommodating than any leader likely to replace him, as far as I can see. Something people must wake up to soon is that he is talking to everybody prepared to have a dialogue with him. The most notable example is the Iranian foreign minister, Arachi, who visited him. Putin gave him a substantial meeting and has since come out publicly saying they are standing with Iran. That’s pretty notable in itself. Apparently, Trump is now saying he had a 90-minute conversation with Putin. Given everything, it would be understandable if Putin had decided it was a waste of time talking to Trump. The criticism he’s getting from within Russia runs along the lines that he’s not proceeding fast enough in Ukraine and should be far more aggressive. There are also plenty of people inside Russian politics and the military saying that Germany, France and Britain — who are openly bragging about supplying Ukraine with drones attacking Russia — are effectively waging war and Russia should strike back. It’s an act of aggression, surely. We’ve been very lucky over recent years that the Russian leader appears to have a couple of brain cells to rub together, which cannot be said of our so-called leaders. Certainly not of anyone in the West, as far as I can see. The leaders of Britain, France, Germany, the Baltic States and probably Poland are all actively trying to talk their populations into contemplating war with Russia in the not-too-distant future. They seem to be actively promoting this. They’ve not read the room. It’s not going to happen. Well, Merz has just said he aims to rebuild the German military to a strength of 480,000. Who he thinks will sign up, I can’t imagine. If they try to conscript people on that scale, my reading is that there would be open refusal. Certainly, anyone of military age just doesn’t buy into it at all. These look like acts of desperation, but I also don’t think these leaders make their own decisions. They seem to take their orders from above. Keir Starmer has not made a single independent decision. You can see when something happens — he waits to be briefed and then sticks to that line. Somebody must have an enormous hold over them. One wonders what they’ll do with all those elderly pensioners the police were picking up for holding a placard. This is another thing, though. If you think they’ll stop at arresting pro-Palestine protesters, just wait until it’s something you do care about, because it’s coming. Yeah. Another thing: Kazakh oil has now stopped flowing to Russia. Not only are they not getting oil from the Gulf states, but they’re also not getting any from Kazakhstan, either, which has been a significant portion of their supply. The reason for the stoppage isn’t entirely clear. Germany has been in continuous economic and industrial decline for four years, arguably since the Nord Stream pipeline was blown up. What they’ve had to pay for energy since then — largely from the United States — is far more than before. We’re getting an object lesson in how much we depend on the energy sources and prices we’ve taken for granted. Did you see the Chris Hedges interview with Richard Wolff [https://chrishedges.substack.com/p/how-the-iran-war-is-accelerating]? Wolff was essentially saying this is the price of globalisation. He was talking about car manufacturing. In the early seventies, it was all based in Detroit; the supplier companies were small- to medium-sized firms located within about 50 miles. Everything was done within America. Whereas today production is spread across different parts of the world, so you rely on these shipping networks. As soon as those networks are disrupted, the whole thing becomes very fragile. Yeah. The population of Detroit has fallen from 2 million to 700,000, which is pretty dramatic. There’s an enormous degree of social unrest there as well. There’s a famous photo of the old railway station in Detroit — a huge building you can see from miles around. It’s a monument to what once was. Image: Derek Gauci [https://commons.wikimedia.org/wiki/File:Detroit_Train_Station.jpg], CC BY-SA 4.0 [https://creativecommons.org/licenses/by-sa/4.0], via Wikimedia Commons That’s interesting. The other thing about Kazakhstan is that many of the Ukrainian drone attacks on the Russian heartland have been routed through Kazakhstan. There must be intense diplomatic activity, with Russia pointing out that this constitutes a de facto act of war. If further drones come over and the Kazakh government doesn’t take responsibility for shooting them down, Russia will respond, which means a certain amount of debris will land in Kazakh territory. Getting back to failure to read the room: in Germany you wouldn’t have to try very hard. The AfD, Alternative für Deutschland, is now running at 28% to 30% in opinion polls — higher than the governing party. In the Western press they’re portrayed as far right, sometimes even accused of Nazi affiliations. I have reservations about whether party politics can solve any of this. These movements tend to get infiltrated. But it’s still an interesting read of public perception. Yeah, so do I. If you look at their manifestos and publications, one clear position is that they strongly favour renormalising relations with Russia, which seems only elementary common sense. You have to judge them by what they do, not what they say. That’s the proof of the pudding. Yeah. They’re also calling for cooperation rather than confrontation. Meanwhile, Zelensky keeps touring Europe, saying Ukraine should be the bulwark between Russia and aggression towards the rest of Europe. That’s not going to happen. Now that Orbán has lost the premiership in Hungary, the obstacle to the EU providing the 90-billion-euro loan to Ukraine is out of the way. However, apparently Zelensky will only receive 20 billion of it, and Ukraine’s economy is already 20 billion in deficit. The remaining 70 billion is supposedly being directed to European arms manufacturers, which clearly indicates what’s driving this. Yeah, just what we need. Meanwhile, Bulgaria has just had an election with a landslide victory for a party that wants to re-normalise relations with Russia. Once again, I share your scepticism about party politics and about what actually happens when people get into power versus what they promised. All political parties of any size get hollowed out by corporate interests. Those corporate interests are largely invisible in the background. Yeah. The United States has been shipping increasing numbers of troops and equipment into the Middle East. They’re now talking about deploying hypersonic missiles — the first time we’ve seen those from the United States. We’ll see how well they perform in reality and what difference they actually make regarding Iran. They’ll probably still get shot down by a hundred-dollar drone or something. That seems to be the pattern. Who knows? Anyway, I had a quick check on the BBC website yesterday, and I listened to Radio 4 news. None of those items I’ve mentioned so far were on the main one o’clock bulletin. Do you still pay a licence fee, by the way? I do, because we watch quite a bit on iPlayer. I really feel I should cancel it. It’s only the family that keeps me paying, but we really ought to stop funding them. There’s something in that. I’ll talk it over with Gina. Now, whatever you think of Trump, Putin is still prepared to talk to him. They recently had a 90-minute conversation. I have no idea what was said or agreed, or how much agency Trump actually has. Apparently, they discussed both Iran and Ukraine. One way or another, this will affect how things unfold, though exactly how is unclear. Apparently, all this movement in oil prices involves heavily manipulated futures contracts on paper. Anyone trying to buy real oil for delivery now is paying between $150 and $230 a barrel. The prices going up and down to placate American public opinion have nothing to do with what anyone in the real world is doing. With shale oil and fracked gas, it’s true that current US consumption is covered by domestic production, with a little left over. But even without that factor, the price of diesel there has doubled. The US companies will sell it abroad first, ahead of selling domestically at a lower price. Exactly. That was another point Richard Wolff made in the Hedges interview. The price has gone up anyway, and it’s going to go up a lot more. I wonder how much pain the average American will bear before it erupts into real trouble, bearing in mind the population is heavily armed. The problem both the Russians and the Iranians face is that any restraint on their part is interpreted by the Americans and their allies as weakness, rather than as an opening for more constructive dialogue. One thing that’s contributed to European complacency is that for the past 300 years, Russia has been trying to integrate itself into Europe and has largely been rebuffed or left in a weaker negotiating position. What Europeans don’t seem to have grasped is that Russia has progressively taken the view: if you don’t want to engage, fine — there’s a whole world to deal with that’s more convenient and more congenial. Russia’s got plenty of options given where it sits in the world. Yes. The post-Second World War independence movement across colonial territories gave those countries a nominal political break from their imperial oppressors, but in practice, it made far less difference than they had hoped. Many of the leaders installed were Western puppets, so even political independence wasn’t what it seemed. More to the point, those countries remained under Western economic control. What appears to be happening now is that the countries known as the Global South are slowly regrouping. The global financial system is definitely changing. The key question is whether the transition can be reasonably smooth or will result in a catastrophic breakdown. With the latest disruption to traffic through the Arabian Gulf, the likelihood of something cataclysmic, abrupt and violent is increasing. Yeah, it’s very concerning. Those are the key headlines from the last two or three days. I’ll leave it there unless you have further observations. I think maybe you should apply to BBC News as the kind of journalist they clearly don’t have at the moment! The only reference they had to the Middle East was a brief word from their economics correspondent, stating the blindingly obvious. Just to reiterate — we’re not all deep in gloom. There is a world that can work for everyone, and it’s worth fighting for. Hang tight. Keep standing in the light. Thanks, Derek. Right. Exactly right. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com [https://sovereignfinance.substack.com?utm_medium=podcast&utm_campaign=CTA_1]

Time to Stock Up?

Rob’s comments below are in italics.Derek’s comments below are in normal font. It’s been about 10 days since we last spoke on the show. We thought we’d do a bit of a catch-up on what’s going on. We’ve had a ceasefire of dubious intent, some negotiations that were clearly theatre. What do we need to update people on? Well, let’s start with that. A lot of people breathed a sigh of relief when Trump said Iran had agreed to a ceasefire, that it was going to last a fortnight, and that they were going to reopen negotiations. He said that the Iranian 10-point plan seemed like a good starting point for discussion, though that sounded almost surreal to me. The Iranians’ 10-point plan is nothing new — it’s more or less what they’ve been saying from the outset: essentially a flat rejection of everything the Americans have suggested. It’s the same with Russia, isn’t it? If you look at the Russian demands, they’re just not compatible with the demands of the Empire. Yeah. Every single one of those 10 points is something it’s inconceivable to imagine America agreeing to without looking ridiculous, apart from any other considerations. Anyway, there were even public suggestions — in the Wall Street Journal, I believe — that the Iranian negotiating team should be assassinated. Mohammed Marandi said they fully expected to be sent to paradise on their journey back home. I hope they weren’t too disappointed to arrive in Iran instead! I’ve got the words of Hillary Clinton ringing in my ears, where she once said, “Can’t we just drone this guy?” Who was that in connection with? I’ve lost the specifics, but she was caught out saying something like that. Well, it’s fairly consistently what they’ve been doing anyway. I’m pretty sure everybody outside the US and its vassal states can see quite clearly that - although Iran was almost certainly not expecting anything useful to come out of the discussions - they did go into them seriously. They had quite a large negotiating team with specialists in all kinds of areas. They turned up fully briefed and fully authorised by the Supreme Leader to reach agreements. The first thing that happened, of course, was that Israel continued its absolutely brutal attacks on Lebanon, destroying whole blocks of apartment buildings in a dense city-centre area of Beirut. The BBC had the gall to describe these as Israeli strikes on Hezbollah command centres. That’s highly unlikely. Israel then said Hezbollah wasn’t part of the agreement. Trump said it wasn’t. The Pakistani mediators said it was. That immediately drew a question mark over whether the Iranian negotiators were going to leave the hotel in Islamabad and go to the actual negotiations. But, they got there. It turned out there were no face-to-face discussions at all. They sat in separate rooms while mediators carried messages back and forth. It went on for 21 hours. The US team consisted of JD Vance, who clearly had not been given the authority to decide anything or any clear briefing, because he had to keep ringing Donald Trump — and, according to some accounts, Benjamin Netanyahu too. He was accompanied by Witkoff and Kushner, both Zionists with no training as diplomats and not part of the US government. It’s not exactly the diplomatic dream team, is it? No. They’d already destroyed whatever credibility they might have had — not only in connection with Iran, but also in connection with Ukraine. So it was really doomed from the start. It was no great surprise when Vance came out and said they’d made progress on several points, but Iran had not agreed to their proposals, so it had gone nowhere. Which was entirely predictable. Then, as soon as they got back, Trump announced a blockade. He was not allowing any ships to pass through the Straits that had docked at Iranian ports. Quite apart from the fact that there’s no basis in international law to unilaterally make such a distinction, the Straits of Hormuz are of course territorial waters — either Iran’s or Oman’s. Territorial waters extend 12 miles from the coast. 12 plus 12 is 24, and they’re 21 miles wide. Every part of the Straits falls within the territorial waters of one or the other. Any stretch large enough for a ship to navigate is quite likely to be within 12 miles of the Iranian coast. So they’re entirely within their rights. There are many places in the world where a narrow waterway exists, and the adjacent sovereign state exacts some form of payment for passage through it under various pretexts. It’s not a particularly unusual situation. The Americans can’t bring warships close to the actual Straits because they’d almost certainly be attacked by Iran. The closest they could get is somewhere out in the mouth of the Gulf of Oman, which is far too large a stretch of water to supervise, even with the largest navy in the world. It’s completely impractical. We’re just about to start feeling the impact throughout the world of the shipping constraints that have been in place for the last six weeks. Yeah. It feels like the summer of 1940, doesn’t it? Exactly. I was just refreshing my memory of the Phoney War. The Second World War started when Germany invaded Poland on 1st September. Britain and France declared war on Germany on 3rd September 1939, in view of their treaty with Poland. It wasn’t until the following May that there was any actual fighting between the Allies and Germany. We were technically at war, but there wasn’t a war happening. The situation here — I’m amazed there haven’t yet been far more severe price rises than we’ve seen. The last time I looked, diesel was back to the two pounds per litre range. Petrol is considerably more expensive than it was six weeks ago. There’s been virtually nothing in the way of shortages, and people don’t seem to be taking it seriously. The reason there haven’t been any effects so far is that all current supplies were already en route when hostilities broke out. There’s been almost no passage through the Straits since then, and most of what has passed has been bound for China. China has issued some pretty robust warnings — couched in the usual general terms — against interference with its shipping on the high seas. A considerable amount of the ships allowed by Iran to transit have been bound for China, so it’s quite clear what they’re referring to. Incidentally, France actually joined China and Russia in vetoing the Bahrain proposal at the UN Security Council. The proposal was to censure Iran without providing any context whatsoever. I take at face value their position that they didn’t want this war in the first place. They didn’t start it. They’ve responded in a measured fashion, and the escalations have come entirely from the United States and from Israel. It’s how it gets framed in the media, isn’t it? All of these places “just happen to be under attack”. Yeah. So we’re about to start feeling the effects of that. The most immediate one is petrol shortages. Most of the world’s nitrogen fertiliser is either shipped from that region or dependent on natural gas shipped from there. There are going to be enormous price hikes in fertiliser, which are already occurring. We’re in the planting season in the Northern Hemisphere. This will feed through to food shortages and price rises in six to 12 months. That’s already baked in, regardless of what happens in the next few weeks. Regardless of the effectiveness of any naval action the United States takes, the major restriction on traffic in that area will be driven by insurance implications. London, European, and American-based insurers will either refuse to insure ships making those passages or vastly inflate the premiums for doing so. That alone will throttle the traffic, regardless of any naval action. Countries outside Western control won’t face the same restrictions — China, I’m sure, has its own insurance arrangements. The difficulty is that Trump’s ego won’t let him come out of this looking like a loser. He’s now put himself in a position where it’s very difficult to see how he can arrange anything else. He seems past the point of being able to provide any kind of window dressing. After all, the Vietnam War started with a contingent of 3,000 to 4,000 Marines landing. They were stuck with it for 10 years, suffered a catastrophic defeat, and lost over 50,000 American servicemen. This feels like Vietnam 2.0. It does indeed. That’s enough to be going on with, I think. The main message is: there’s a lot of chatter across various groups about prepping and being mindful of what’s likely coming, including potential price hikes and food and fuel shortages. So now’s a good time. Yeah. Stock up. Make sure you’ve got a few tins of beans as well. All right, thanks Derek. Thanks for reading Sovereign Finance! Subscribe for free to receive new posts. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com [https://sovereignfinance.substack.com?utm_medium=podcast&utm_campaign=CTA_1]

Keep Standing In The Light

Rob’s comments below are in italics.Derek’s comments below are in normal font. It’s the 27th of March as we record. We’re going to discuss what’s going on and what the likely impact will be. We’re now just at the end of the fourth week of the conflict in the Middle East — or Western Asia, as it’s increasingly being called. ‘Middle East’ is a funny term anyway, isn’t it? It was obviously coined when London was the centre of the universe. So, we’re now at the end of the fourth week. The events of this week: last weekend, Trump gave a 48-hour ultimatum to Iran to open the Strait of Hormuz. He threatened to start attacking their power stations one by one if they didn’t comply. Iran replied that if he did that, they would systematically attack all the energy installations of the Gulf states — nominally American allies. Then, on Monday, he announced he was delaying the ultimatum for a further five days. Oil prices dropped on the markets at that point. It appears that a small number of people made hundreds of millions of dollars in profit on the trading that morning. There has been no attempt whatsoever to find out who was making those trades and how. Catch them and put them in prison. That would definitely be too much to hope for. That revised deadline was due to expire this evening. We were wondering whether there would be an invasion, given that these five days were enough for the marine contingents from the Singapore area to reach the Gulf of Persia. We were wondering whether there would have been dramatic events between recording this and its publication early next week. But apparently, this morning Trump extended the deadline by a further 10 days. This may or may not mean anything. Whatever Trump announces in any area, as we’ve all noticed by now, he’s quite likely to do something entirely different the very next minute — or even contradict himself. It seems that every time there’s any escalation from the Israelis or the Americans, Iran responds in a very measured way with an exactly similar answering strike. There’s some speculation that when the Marines arrive, they’ll try to invade Karg Island — Iran’s principal export terminal. If they do, they seem almost certain to be obliterated. They’d have to go through the Strait of Hormuz to get to Karg Island, which strikes me as the very least likely scenario. They’d almost certainly be sunk before they got there. That seems completely hypothetical, though there’s a great deal of speculation about it. Certainly, there have been attacks on Iranian refining and storage facilities. Both this war and the Ukrainian conflict are wasting incredible proportions of the limited petroleum stocks we have, along with processing facilities. Petrol prices around here have gone up 20 pence in the past four weeks — about a 15% rise. We’re going to see a lot more of that, and also supply difficulties. We have a much bigger problem with diesel than with petrol, certainly in Britain — and probably in the world as a whole. On the way here, at least two service stations on the motorway are now out of diesel. We’re going to be seeing shortages of pretty much everything. It’s a good time to make friends with your local farmer... A good time indeed — and not only that, to stock up on as many things as you can. The Ukrainians seem to be having rather more success with their missile and drone strikes on Russia, although they’re taking a pounding themselves as well. They’ve had substantial attacks on Russian refineries, storage facilities, and shipping facilities. Both of these events will substantially affect the global energy and delivery situation. This is also going to have a substantial effect on mining, because all mining machinery and haulage is diesel-powered. One way or another, this is going to torpedo the world economy in a completely unprecedented way. This underscores that you can’t disentangle energy from finance. We’ve talked a lot about energy on this podcast, and it’s for these reasons. One way to look at it: this appears to be a warning shot across the bow of the world economic community. Although this is a highly artificial shortage, the best way to see it is as a preview of what is coming over the next decade or two — or three at the outside — as we no longer have the bonanza of fossil fuels that has given us a couple of centuries of extraordinary economic growth and development. I still maintain some optimism that, before the century is out, the human race will have made the necessary adjustments to power society with solar energy. There are plenty of technologies available to capture that. China is, of course, leading the way, with about 50% of its energy needs coming from renewable sources. Have they localised the generation of electricity from solar? I don’t know the details of their structure, but they have enormous solar energy capacity. Because there’s such an enormous geographical area, it’s widely distributed — so when conditions aren’t conducive in one part of China, they will be in another. These feed into the Chinese grid. When you said ‘localise’, were you thinking in terms of what we’ve discussed before about distributed generation to supply the immediate area? Yes — so the electricity would have been generated closer to your home, with more of these facilities dotted around. I don’t know the details of how they’ve done it in China, but I would imagine they’ve covered as many possible bases as could be imagined. Otherwise you get the situation where entire woodlands are being chopped down to make way for solar panels. It’s mind-melting. Attaching these things to a building is something else entirely. As far as the Middle East conflict goes, there seems to be no way this ends other than as a complete humiliation for the United States. Every conflict it has had — which has been continuous since the end of the Second World War — has ended that way. In fact, for the entire period of its history, apart from a handful of years, the United States has been in some form of armed conflict. Same for Israel. The two sides have both publicised their terms for ending the conflict, and there’s absolutely no overlap whatsoever between them. Iran has made it clear over and over again that it doesn’t want a cessation which is going to be started up again in another six or twelve months — understandably so. Even if the United States said it was giving up, it would be up to Iran whether to reopen the Strait of Hormuz. All the signs are that it won’t. Even if it opened tomorrow, it would apparently take at least four months to restore fuel shipments to pre-war levels — and that might not be possible at all, depending on how badly the refining and distribution facilities have been damaged. The Gulf states have been paying enormous sums to the United States for weaponry, and have been providing them with bases on the grounds that the United States would protect them. It must be obvious to everybody that it’s had exactly the opposite result. Not only has there been no attempt whatsoever to protect the Gulf monarchies from Iran’s attacks, but the fact that the bases are there has simply made them a target. Bahrain appears to be on the verge of a revolution. Bahrain and Qatar have said they’re not getting any more involved in the conflict, for what it’s worth. The United Arab Emirates and Saudi Arabia both appear to be cooperating with any forthcoming American strike. If they do, I’m sure they’ll live to regret that decision. Meanwhile, the annual production of Patriot missiles is 750, and Israel has used 800 in the last month — or perhaps even the last week, I’m not sure. That has evidently not prevented a great deal of Iranian missiles from getting through. In many cases, they fired three or four Patriots — at somewhere well north of a million dollars each — at one incoming missile, and they haven’t even hit it. We don’t know the scale of the damage in Israel. They have hit the town near the nuclear development site. They didn’t actually hit the nuclear installation itself, but they’ve shown that even one of the most heavily fortified sites in the country cannot defend itself. More American aircraft are getting shot down, so they clearly don’t have the control over the skies they pretended to have. Iran has also made it absolutely clear that they’re in for the long haul and will continue to pursue this as long as it takes. Aside from the use of a nuclear weapon — which is a truly horrifying possibility — it seems that absolutely nothing can be done about it. Interesting times, indeed. It’s like Vietnam 2.0. It will be interesting to see what the reaction of the American public is once we start getting significant numbers of military casualties. There have probably been far more than have been publicly admitted, as it stands. That’s my outline summary of where we stand. The other development in the Ukraine-Russia conflict: in the attacks last night, or the night before, they routed their flights — presumably cruise missiles — over Poland, Estonia, and Latvia, on the way to attack Russian ports in the Baltic Sea. This puts Russia in a dilemma. If it shot them down, the debris would fall on those countries, and they would likely claim it as a Russian attack. If it doesn’t, those countries are co-belligerents in the conflict. That’s another alarming expansion of the conflict. Any further thoughts? My main thought is that it’s pretty obvious we live in a highly militarised society with a thin veneer of civilisation papered over the top — and you’ve only got to scratch it. The veneer has been ripped back. The mask has dropped, and the Freddy Krueger face is now fully visible. The policies are no different than they have been for the past 70 years. The difference is that there’s no longer any pretence of subscribing to civilised values. The nakedness of it is striking. The cost of defending against the most sophisticated, expensive armaments has dropped dramatically. War has never truly been a winning proposition, but now it would be very hard to make a case that it even pretends to be one. This happened in the First World War as well, didn’t it? All the tactics that had worked previously were suddenly nullified, and everyone ended up either going over the top or lobbing shells at each other. It’s not completely new. Perhaps the technology goes in cycles. The other thing that’s apparent is how incredibly poor value America has got from its privatised arms manufacturers, given that it’s spending more than the next seven nations combined, including those involved in these two conflicts. It’s clearly not achieving any significant superiority in return for that. It doesn’t benefit regular humans either. The trickle-down effects simply aren’t there. That goes without saying. We’re all going to be paying the price. The net effect is that a great many people who haven’t been giving much thought to these matters suddenly question the validity of the ruling élites — or even their sanity. There will be an opportunity to co-create the future we do want for everyone. We have to focus on that as well, because it’s very easy to focus on the doom, the bombs, and the explosions. That is the most important thing to take away. It’s time to continue to speculate on how human beings could live well with the technology we have at the moment. We’ll continue to do that as far as we can. It’s up for discussion with everyone. Thanks for reading Sovereign Finance! Subscribe for free to receive new posts. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com [https://sovereignfinance.substack.com?utm_medium=podcast&utm_campaign=CTA_1]

Revolutions Always Seem Impossible Before They Happen...

Rob’s comments below are in italics.Derek’s comments below are in normal font. Today is the 20th of March — the spring equinox, halfway between the shortest day and the longest day. I like to mark these things. Lots are going on in the world, and we thought we’d do a bit of an update. Yes. In the last couple of days, I came across a couple of quotes that, in different ways, were very pertinent to the current moment. One was J.P. Morgan — the original J.P. Morgan, founder of the banking dynasty. He’s credited with the remark that “The only real money is gold and everything else is credit.” We’ll see how that relates to the current situation, if it’s not blindingly obvious. The other was from Hannah Arendt, who said “Revolutions always seem impossible before they happen and inevitable afterwards.” Ain’t that the truth. Because I don’t know what shift is going to happen, but it’s plain that the current way of dealing with affairs at a global level is becoming more and more obviously untenable as the days go by. In this context, I thought I’d have a quick review of the book I wrote four years ago. It’s almost exactly four years this month since I published it — The Letter from 2100 — which is obviously a work of imagination. The first bit I’d like to share is from page 25, the beginning of the second chapter, which I called ‘Unravelling’. What I wrote then was: As the era of domination drew to a close, it became increasingly obvious to growing numbers of people that the entire global system was about to unravel. The only question was what form this unravelling would take. Would it be possible to preserve the positive accomplishments of human progress, or would it all be lost? Would the generation currently passing from childhood to adulthood live to a comfortable old age, still able to enjoy the comforts and amenities of industrial civilisation? Or would they — the small proportion who survived at all — see a return to the harsh feudal lifetime of back-breaking toil to scratch a bare meagre living from the soil? If the knowledge of our technology were to be lost, would it be possible to regain and reconstruct it, even in a dozen generations, or ever? As the multiple crises escalated, people reacted in various ways. Most commonly, it was denial. Many simply refused to acknowledge that the life they’d been born into really could vanish utterly, and immersed themselves in the daily struggle to get by. Many sought certainty in the dogmatic embrace of simplistic belief systems. It’s almost like you’re looking over my shoulder, Derek! Well, there we go. Then, towards the end of the book, on page 68, after running through various pillars of activity in the world as it stands — plainly not going to be sustained for very long — I asked: If none of these are possible, what are the options for human society? Other than something along the lines of the optimistic scenario I laid out, the previous seven chapters or so sketch a world that would truly serve humanity and which is, I assert, physically attainable by the end of the century. So, if that didn’t work out, what are the alternatives? One would be a complete collapse of the industrial technological system and the loss of the knowledge and know-how to create our machines and global communication systems. This would entail an order-of-magnitude drop in world population and a return to a more primitive and onerous lifestyle. Perhaps this would take the form of feudal agrarian communities governed by local warlords, rather like European society in medieval times. If some isolated communities of scholars managed to preserve enough of our scientific and technological knowledge, perhaps an eventual rebuilding of systems providing abundance, comfort and convenience would be possible — maybe in the course of a thousand years or so. If the collapse were more drastic, the fall in population more extreme and the loss of literacy total, the reversion might be to the level of Neolithic village life 12,000 years ago. Because we’ve now exhausted the easy pickings of minerals and energy, a reconstruction of technological civilisation would be far more challenging than it has been this time, even over the course of several millennia. A still more depressing possibility is the actual extinction of the human race. Finally, there’s the fantasy of a new world order envisaged by the World Economic Forum, where a global elite of a few thousand billionaires preside over the rest of the population, reduced to penury. Does that seem like an exhaustive list of possibilities — unless we can manage to navigate a return to sanity in pretty short order? Unless we take the reins fairly promptly. I wonder as well if this loss of knowledge hasn’t happened before. If you look at sites like Göbekli Tepe in Turkey, or ask how Stonehenge was built? We can only speculate. Yes, even Stonehenge or the pyramids. Or Great Zimbabwe, or Angkor Wat. Angkor Wat was built during this era. But the various pyramidal structures are plainly difficult to explain on conventional timelines. Yeah, it feels like the timelines are wrong, or the history is wrong. Something’s not right. So I wouldn’t rule out that this is something that has happened before — and could happen again, but on a bigger scale. That’s a whole other topic. We need to prepare for a proper discussion on that. Human beings appear to have been anatomically and cerebrally pretty much as they are now for two or three hundred thousand years. That’s possibly time for several cycles, considering it’s only taken 12,000 years to get from the Neolithic Stone Age to present technology. The fact that we’ve managed to exhaust the geological capital so thoroughly is a real challenge when considering whether possible high-tech societies have arisen and declined. Because if they’d done it the same way we have, there wouldn’t be any oil, coal, or readily accessible copper and other minerals. We’ve taken all the easy pickings. That’s another whole story. The relevance of the J.P. Morgan quote about gold is underscored by the fact that central banks have bought around 1,000 tons of gold in each of the last three years. That’s what is available on the public record — there are probably far larger figures below the counter. Against this backdrop, the Fed has been quietly creating $40 billion per month out of nowhere to buy short-term Treasury bonds that are either expiring or being dumped onto the market. That’s per month. These go down in the books under the heading ‘reserve management purchases’ — whatever that means. The point is that, in this year alone, the United States needs to roll over $9.2 trillion in expiring Treasury notes into new loans. That’s almost a quarter of the total of around $40 trillion. Every time we talk about the total US government debt, it seems another trillion has been added. Of course, they won’t be able to replace these at the same interest rates as those that expired. That will put further pressure on. The Federal Reserve has actually lost $245 billion in the last three years. They have various accounting and reporting policies which obscure this fact, but any other organisation with deficits on that scale would obviously be out of business. If you or I arrived with those numbers, we’d be in trouble! Yes, with a lot smaller numbers. Against this background, one can’t help thinking about the way the Iran war is unravelling. Quite apart from anything else, at some point the United States may simply not be able to afford to carry on. It’s a rather frightening prospect — what they might do in desperation, given the stockpiles of various weaponry they hold. Can we just elaborate slightly on how it does appear to be going at the moment, regarding the US potentially not being able to afford to participate in the long term? Well, they’ve got to pay all those servicemen for a start. The arms manufacturers are obviously delighted to be running at full capacity, although that capacity doesn’t seem to be as great as some of their adversaries, as far as we can tell. To do that, they need to be paid. At some point, printing money at an ever-faster rate will reduce its value in real time. We’ll be in a total hyperinflation scenario. So even if they are paying their servicemen and suppliers, they’ll be paying them with increasingly worthless currency. Those wages obviously don’t mean anything in real terms. Across the world, other countries which have been happy to hold US dollars are increasingly unwilling to continue doing so. They’re either dumping their treasuries for whatever they can get now, or simply refusing to repurchase when they mature. That is yet another aspect of the unworkability of the present situation. Plus, of course, there’s the credibility of the US government itself. The rest of the world, aside from its allies — or vassals, whichever you prefer — has obviously been highly sceptical of the US for a long time. As we close the third week of this conflict with Iran, apart from the economic damage inflicted — which we’ll look at in more detail in a moment — this cannot fail to be anything other than a total erosion of the illusion of United States supremacy. To have taken on a smaller third-world country and failed to achieve a quick, strategic, decisive victory is itself a complete failure. The negative consequences are increasingly felt throughout the world. We’ve hardly really started, but another month or so of this and it’s difficult to see how we can avoid enormous price hikes on fuel. We’re already beginning to see that. We’ll also be back to petrol stations running out of fuel, with queues up the street for the limited amount available. The blowback from this is enormous, and it’s not clear what end could be in sight. They’re sending 2,500 Marines from Singapore, which would take at least another week and a half to get there — and who knows what the state of the conflict will be by then. There’s been a very rapid escalation in the last few days, with the attack on the South Pars gas facility in Iran, which caused an immediate response — a strike on Qatar and Saudi Arabia. There’s now been another strike on the largest oil refinery in Kuwait. I don’t know how long it will take to repair the damage to all these sites. Even if the Strait of Hormuz reopened tomorrow, it would probably take months, if not a year or two, for production capacity to return to normal. This is all against the backdrop of many people judging that we’ve passed the peak of global oil production — and that the downward slope will be far steeper than the upward one has been. We’ve just squandered unbelievable amounts. Have you picked up on pictures of all these installations with vast flames shooting up into the sky? I’ve seen images, yeah. It’s mad. The lunatics really are in charge of the asylum at the moment. But at least they’re out in the open. At least we all know they’re lunatics — and we can all see it. Slowly, it’s dawning on the wider population too. Something Caitlin Johnstone was saying was that people are going to feel this soon in terms of inflation and the cost of everything. Perhaps that’s the thing that will change the situation. Yes. Trump does have absolute record-low approval ratings for any American president at any time, with the population at large. This can only get worse as the consequences arrive. There are also hugely embarrassing revelations in the Epstein files, which more and more people are digging into. Even though he’s managed to shrug it off so far, there’s a limit to that. So that was really the relevance of the Hannah Arendt quotation I gave earlier — about revolution seeming impossible. It’s not just America. The fall of the Berlin Wall seemed impossible until it happened. Exactly. The collapse of the Soviet Union seemed impossible until it happened. There are governments in Britain and right across Europe that are completely out of touch with the wishes of their populations and don’t seem to care. Something has to give somewhere. I mentioned the sale of US Treasuries by foreign holders. The petrodollar arrangement seems to be eroding by the week. More and more oil is being traded in other currencies, which is what they’ve been desperate to avoid. When you consider how flagrantly unjust an arrangement it was, it’s incredible they managed to hold it together for 50 years. But the wheels seem to be well and truly coming off now. That’s one of those shifting baseline things, isn’t it? When you’ve grown up with something, it becomes so normal that you don’t question it — why wouldn’t oil be traded in dollars? Anyway, there we go. So as usual, it’s a watch this space — but things are changing. Thanks for reading Sovereign Finance! Subscribe for free to receive new posts. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com [https://sovereignfinance.substack.com?utm_medium=podcast&utm_campaign=CTA_1]