How the system changed

Column box-John Mangun-Outside the Box

The war in Ukraine has upended what we assumed was cast in concrete. By that I mean in part global financial transactions, sovereign debt payments, and what we considered normal trade between nations.

The old saying “You can’t live with them, and you can’t live without them” used to apply to “The System” and particularly to the United States. But the continuing saga of the 21st century has proven that the system is evolving the way an egg is broken to make an omelet. And too many times the US is making metaphorical phone calls to the world that are being unanswered.

The “System” has evolved by design of the powers that be to keep everything running smoothly. Certainly, it is not 100 percent effective. But it is supposed to function like a fence to keep the bad guys out and protect the interests of the good guys.

The Society for Worldwide Interbank Financial Telecommunication, or S.W.I.F.T., works to efficiently facilitate with both secrecy and security all financial transactions of banks worldwide. Its purpose is also to help track financial transactions between “bad” individuals, corporations, and governments.

It sounds good on paper.

Economic sanctions have been used as an alternative to actual combat and killing to make a nation or a ruler see the light and behave in a responsible manner. Sanctions against Iraq were a comprehensive financial and trade embargo imposed by the United Nations Security Council on Iraq in 1990, four days after Iraq’s invasion of Kuwait. The original stated purpose of the sanctions was to compel Iraq to withdraw from Kuwait.

That sounded good on paper too until the United States, the United Kingdom, and Australia in March 2003 sought to “regime change” Saddam to heaven or whatever.

Here we are in 2022 with Russia as Joe Biden “unveiled a fresh round of what he said would be crippling sanctions on Russia.” That was a month and a half ago. April 6—Biden: “We’re going to keep raising economic costs and ratchet up the pain for Putin.”

April 11, 2022, Oilprice.com: “Russia’s Q1 Trade Surplus Hits Record As Oil And Gas Prices Soar.” Also on April 11: Aljazeera—“Europe buys about $22 million worth of coal from Russia daily (note, which is now under sanctions) and spends a further $928 million on Russian oil and gas.”

People learn at an early age how to get around the rules. If you did not know how to sleep in a lecture class while holding your book and “turning” the pages, you are not really educated.

Governments learned how to avoid sanctions over decades and every time they do, it diminishes the power of the “sanctioners.” Iran was first sanctioned in 1979 and has had other sanctions imposed in 1987, 1995, 2006, 2018, and 2020. Sanction, Un-sanction, Re-sanction, rinse and repeat. And which country was Iran’s best friend during all the sanction times?

The idea is that sanctions are like grounding a misbehaving child and that is silly. “You can’t come out of your room until you learn how to obey.” There is always a little brother or sister to cover for you if you sneak out the window. “India is not violating any sanctions by importing Russian oil, says US after Modi-Biden virtual meet.” That came right after Modi told Biden very diplomatically to go pound sand. Sanctions require almost every other nation to be on board.

Russia has been quietly building relationships for decades. “While the West paid minimal attention, Russia invested time and money to build a global support system in Asia, Africa, and Latin America, especially a development bank, founded in 2015, from which only 18 percent of approved loans went to Russia but 82 percent went to Africa and South America. The motto should be “Making friends with low-interest loans.”

Russia may have some powerful enemies, but it also has friends like China, India, and Brazil. Covid changed the world. The current war may have changed it even more.

E-mail me at mangun@gmail.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.

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