Russia China and Iran Are Being Patient…
Alasdair Macleod

The background to the developing war

It has become clear that with the lack of response from Iran (so far) over the assassination of Ismail Haniyeh the political leader of Hamas, that in conjunction with Russia and China a common approach has been taken not to be responsible, or even seen to be responsible in the West, for precipitating an all-out military conflict.

We see this approach with Russia’s Special Military Operation as well. Russia is careful to contain it between Russia and Ukraine, despite NATO’s involvement in the provision of modern equipment and personnel to Ukraine, and Ukraine’s deep strikes into Russian territory.

Russia is completely surrounded on her western flank by NATO forces, threatening Russia with a full-scale attack and invasion. All that’s needed is an excuse. To ensure the western border coverage is total, America leaned heavily on Finland and Sweden to join NATO, breaking their long-standing policies of neutrality. Who knows what threats the Americans made to force them to accept and provide weapons and military bases targeting Russia from their territories.

Europeans should be extremely concerned about this, because the Americans don’t care much about collateral damage so long as it is not in America. It was the US’s determination to punish Sadam Hussein, Gaddafi, Assad, and the Taliban in the wake of 9/11 which led to a flood of refugees in Europe. But that’s not America’s problem, and presumably nor will it be if the Europeans get nuked. So long as it’s not US civilians.

That the Europeans, including formally neutral Swedes and Fins have fallen for it says more about their pusillanimity in the face of US diplomatic aggression than anything else. They are cannon fodder for the US’s determination to break up Russia. But in Putin, America has an adversary who demonstrates statecraft and strategic cunning over impetuousness.

In the Middle East, Israel is frightened for its very existence. Netanyahu wants to provoke Iran and her proxies into a confrontation to bring America into direct conflict on her side. Officially, the US is resisting involvement but is reported to have sent a naval fleet to the Eastern Mediterranean signalling that she will back Israel against Iran if necessary.

But the Asian partnership is playing a different game. They are acutely aware that America is looking for excuses for military action in Europe. As the pressure mounts, Russia, Iran, China and even North Korea will have to find alternatives to military action designed to cripple the western alliance.

Non-military tactics

The obvious non-military attack is cyber. Russian actors particularly have been detected disrupting corporate and government intranets, and some analysts have suggested that the Crowdstrike problem which closed down banks, supermarkets, airports, and rail networks around the world was not a coding error but a dummy run by Russian cyber-warriors.

Whether this is true or not, we can be sure that Russia’s technical experts have invested considerable resources into cyberwarfare and electronic disruption potential, including already arranging software pathways into power generation facilities and financial markets. But that sort of attack would be quickly blamed on Russians, even if there is no evidence of their involvement. It would make sense for this to be a response only if the Ukraine proxy war spreads.

Surrounding Russia’s western border was the basis of a possible Plan B for America, given the complications in Ukraine. If she can provoke Russia into attacking a NATO member, or perhaps by using a false flag operation, then a wider invasion of Russia would have been on the cards. But since Finland and Sweden joined NATO Russia, China, North Korea, and Iran have initiated an agreement to support each other with military supplies, and separately Russia and Iran are novating and updating a 2001 comprehensive military cooperation agreement.

These agreements are not far short of NATO’s comprehensive binding together of its members in the event that one of them is attacked. The fact that Asian agreements have been hastily put together in recent months suggests that the risk of outright war against NATO has increased materially.

At the same time, the US without full NATO support is being drawn into a separate conflict in the Middle East, which nevertheless is part of a bigger geopolitical picture. Starting with the Saudis under MBS, the Arab deck has been reshuffled with the court cards aligning with the Asian axis, which must have made the Israelis concerned for their future given the decline in US regional influence. The October 7 action by Hamas exposed this raw nerve, leading to the virtual destruction of Gaza and uniting Iran’s proxies in counterattacks.

America does appear to be cautious when it comes to backing Israel against Iran. But this is a conflict Israel would almost certainly lose, because Iran now possesses the Russian Murmansk BN electronic warfare jamming system, capable of putting all Israeli telecoms including its Iron Dome out of action and leaving the nation defenceless.

Russia’s partnership with Iran could allow her to make it clear to the US through back channels that unless it backs off in Europe, Iran will wipe out Israel — a credible threat which may have already been made. There’s also the possibility, as Gilbert Doctorow on his Substack points out, for Russia to send a warning to the West by using limited tactical nuclear weapons to eliminate F-16 bases in Romania and Moldovia, which has apparently been discussed in Russian government circles. That would be intended to be a political message to the Americans, drawing a line in the sand.

My guess is that by beefing up Iran with the Murmansk BN jamming system, which with a range of between 5,000—8,000 kilometres would also take out naval fleets in the East Mediterranean, plus potential deployment by Iran of hypersonic missiles would make it clear to the Americans that a false move on their part would result in the end for Israel. Furthermore, this pressure could also be applied to get America to back off from Ukraine.

If they are not currently the subject of back-channel discussions between Moscow and Washington, some of these tactics are likely to be tried before upping the ante with an economic war. By far the most effective action would be for Russia to pre-empt publicly known plans for a new gold-backed BRICS trade settlement currency and put the rouble on a credible gold standard instead. Given that western economists in both the Fed and the US Government turned their backs on gold over fifty years ago, we can be sure that they will be slow to understand the implications for the dollar. And even then, they will have difficulty blaming Russia’s move as an attempt to destabilise the dollar and other fiat currencies without drawing attention to the fatal flaws in the fiat currency system laid at America’s door and undermining the dollar’s credibility even more.

If Russia puts the rouble onto a gold standard, China will have little option but to quickly follow, and other Shanghai Cooperation Organisation members would also have to consider their position. The destruction of fiat currencies from the dollar downwards would make it virtually impossible for the Americans to pursue their plans to destroy Russia, which is why I have always referred to it as the financial equivalent of a nuclear war.

It would also be overwhelmingly in Russia’s economic interests to reintroduce a gold standard for the rouble, giving through economic transformation Putin’s legacy as the great Russian leader which he is said to desire.

Tying the rouble to gold

For the rouble to become a credible gold substitute, the central bank must make it fully exchangeable for the rouble at a fixed weight of gold. Because the rouble is a small currency unit, for practical purposes the weight should perhaps be for 10,000 roubles, which is the equivalent of $110. In round numbers 10,000 roubles would be fixed at current levels of 1.4 grammes.

It is here that the current level of rouble interest rates at 18% is advantageous. A Russian bank, for example, can buy gold in western markets where the lease rate is about 2%, and deliver it to the Russian central bank for an arbitrage return of 16%. Paid in roubles, it is the equivalent of being paid in gold so long as the arrangements permit the free interchange of roubles and gold at the fixed weight.

The central bank will have to carve out its relationship with the commercial banking system by creating a currency issuing department which would have total responsibility for the gold reserves. Control of interest rates must also be vested in the issue department with a simple mandate to use them to manage gold reserves. The 40% minimum ratio to currency in circulation was originally set by Sir Isaac Newton and has been adopted in draft proposals for the UNIT trade settlement currency intended for the October BRICS summit agenda. That should apply for the rouble as a gold substitute.

The essential modification to the currency rule is to include commercial bank balances held in both central bank departments through which all bank deposits qualify, an unexpected omission by the drafters of Britain’s 1844Bank Charter Act which wrongly assumed that only notes would be encashed for gold.

Furthermore, the issue of gold chervonets as legal tender should be stepped up, exchangeable for cash roubles and bank deposits at the fixed conversion rate with only a small premium to cover seigniorage. It should be emphasised that the rouble must be freely exchangeable for gold at the official rate to allcomers, otherwise the standard will not enjoy the necessary domestic and international credibility.

This is a particularly good time for Russia to introduce a new gold standard, because due to western sanctions rouble balances in foreign hands are strictly limited, mostly possessed by foreign governments in the Shanghai Cooperation Organisation and BRICS. While theoretically offshore rouble credit can be created by banks in the Western Alliance for encashment, they can only do this if there is access to a working interbank market in roubles, which there is not due to sanctions.

There is a common misunderstanding that a gold standard requires a substantial devaluation of a fiat currency. Some analysts, for example, are guessing a US dollar rate of $10,000 or even $20,000 would be necessary if the US was to put the dollar onto a gold standard today. This is not so. The reason gold is valued at current levels is simply that it reflects the loss of the dollar’s purchasing power so far. Suggestions that gold’s value should be far higher if an exchange standard is introduced today are incorrect.

It should be further understood that it is the declining purchasing power of fiat currencies which lead to exceptional price volatility, while the purchasing power of gold remains remarkably stable. This is the lesson of history, and is clearly demonstrated in the chart of oil since 1950, priced in dollars and gold grammes:

This is not to say that a higher rate of exchange for gold will not occur before the dollar is fixed, assuming the US Treasury actually possesses the official reserves as stated. Indeed, for western economies, budgets will have to be sustainably balanced, preferably with a reduction in state activities to create the room for private sectors to progress their activities, thereby allowing government finances through enhanced revenues to maintain a better footing. And the political hurdles appear to be insurmountable, which is not the case for Russia.

Russia has a surplus on the balance of trade, its budget in rough balance despite the Ukraine conflict, low government debt (about 22% of GDP), and low income taxes (13%—15% flat). Therefore, Russia is well placed to return to sound money. The same cannot be said of the US with a trade deficit last year of $773bn, a budget deficit of $2 trillion and rising, high government debt (130% of GDP), and federal income tax rates of up to 37%. The remedial action required for US Government finances effectively rules out the necessary adjustments to protect the dollar if Russia goes onto a gold standard, as does the higher interest rates to secure gold arbitrage from other sources.

It amounts to an open goal for Russia. But aside from financial war considerations, it is in her clear economic

interests to introduce a gold standard as soon as possible.

Not only does a proper gold exchange standard stabilise domestic prices, but because stable prices permit interest rates to decline from their current high levels, economic conditions would improve substantially. Bank credit can expand without fuelling price inflation, always making the reasonable assumption that it doesn’t finance excess government and consumer spending.

Importantly, a Russian gold standard would call time on the entire global fiat currency system and the dollar itself. It would force the US Government to face up to the sheer cost of its defence budget and its attempts to defeat Russia. It would be the final nail in the coffin of American imperialism.

 

 

Alasdair became a stockbroker in 1970 and a Member of the London Stock Exchange in 1974. His experience encompasses equity and bond markets, fund management, corporate finance and investment strategy. After 27 years in the City, Alasdair moved to Guernsey. He worked as a consultant at many offshore institutions and was an Executive Director at an offshore bank in Guernsey and Jersey.

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