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Buy Gold on Putin's Next Move

Putin Eyes Dollar Destruction

Written by Geoffrey Pike
Posted March 14, 2014

One of the tools of control for U.S. politicians is sanctions.

If another country is not behaving the “right” way, then it is common for Congress and the president to threaten economic sanctions, and sometimes go as far as implementing them.

In today’s world, it really is the U.S. government that is calling the shots. The U.S. has the military and economic power to make good on its threats. Usually, most of Western Europe will go along with it.

Another country’s government could threaten sanctions, but they might not carry much weight. If the government of Ecuador didn’t like something that the Canadian government was doing, then Ecuador could threaten sanctions. It could prevent its own people and businesses from doing any business directly with anyone in Canada. But it would have absolutely no influence on the U.S. trading with Canada.

When we think of sanctions put on by the U.S., we think of tyrannical regimes. There are sanctions on North Korea and Cuba. There are sanctions on Iran. The latest call is for sanctions against Russia for its intervention in Ukraine.

This is a divisive issue. If you look at Cuba and the tight restrictions against Americans doing business there, you will get a lot of differing opinions, even amongst Cuban-Americans.

If you really want to understand just how divisive this issue can be, there is a recent example that I find particularly interesting...

Rand Paul, the senator from Kentucky and one of the Republican presidential hopefuls for 2016, is calling for visa bans and economic sanctions against Russia because of Putin’s actions in Ukraine.

Meanwhile, former congressman Ron Paul, the father of Rand Paul, has spoken strongly against sanctions, even calling them an act of war. I wonder if this topic comes up much at family reunions.

Generally, I think economic sanctions are bad for a series of reasons, but not just because they don’t work.

The U.S. Government is Pointing Out the Bad Guys

There is a verse from the Bible (English translation) that says,

“First remove the beam out of your own eye, and then you can see clearly to remove the speck out of your brother’s eye.”

While I love America, I think we have to live in the reality that the U.S. government itself hasn’t exactly been the model of honesty and righteousness, particularly in the last couple of decades.

It is ironic that the U.S. government is now suggesting sanctions against Russia for its involvement in Ukraine.

First, there's quite a bit of evidence showing up, unsurprisingly, that the U.S. government is playing a hand in the formation of a new government there. We have to remember that the Ukrainian president who was just ousted was democratically elected. We also have to remember that many people in Ukraine speak Russian and generally side with Russia.

It is also quite ironic given the recent history of U.S. involvement everywhere. It is far more reasonable to expect some kind of action by Putin and the Russian government to be involved in Ukraine, which is right next door, than it is for the U.S. government to be involved in places such as Libya, Iraq, Afghanistan, Pakistan, Syria, and Somalia, just to name a few. And Russia is not bombing and destroying cities in Ukraine like what was done in Iraq.

So for the U.S. government to be calling for sanctions and dictating what is considered right and wrong is really beyond belief right now.

John Kerry recently said, referring to Putin, that

“You just don’t in the 21st century behave in 19th century fashion by invading another country on completely trumped up pre-text.”

I think the only thing that could have been more absurd than this comment is if Barack Obama or George W. Bush had said it instead.

If Russia should have sanctions on it for intervening in Ukraine, then should the U.S. put sanctions on itself for intervening in Libya, Iraq, etc.?

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Individuals vs. the Collective

Even if the U.S. government had a squeaky clean record and there were valid criticisms of other countries, would sanctions then be the right course?

The problem here is that the people favoring sanctions are looking at collective groups instead of individuals. Even if Putin is the worst guy on the earth, does that make the whole Russian population bad?

When economic sanctions are imposed on another country, it isn’t hurting the lifestyle of the president. It is mostly hurting the general population, giving them less access to food, medicine, and other consumer goods.

It is not the fault of the Russian people that Putin is acting the way he is. You might be able to blame it on the collective, but how can you hold any one individual responsible other than the actual individuals who are making the decisions?

I wouldn’t want to be punished for the actions taken by Obama. Believe me, I feel like I’ve been punished enough his actions, and I never supported the guy.

I’m sure there are many Russians who don’t support Putin. And I’m sure there are some that support him only because he is the lesser of evils, just the same as what happens in U.S. politics.

While it is possible that economic sanctions could sway the people of the country to oppose their government in order to get the sanctions lifted, it often works the other way. It often unites the country behind its government in opposition to the U.S. and other countries that are imposing the sanctions.

What if Sanctions are Imposed on Russia?

I don’t think either side wants any kind of direct military conflict, especially when both sides have nuclear weapons.

A more likely scenario is that we will see an economic war of sorts, particularly if the U.S. does impose stiff sanctions against the Russian people.

But this in itself could be a dangerous move for U.S. politicians. It seems that the big news, economically speaking, is that with the trouble in Ukraine, natural gas may not flow to parts of Europe, leaving them with a drought in energy. Ukraine serves as a transit area for natural gas going from Russia to other parts of Europe.

But if Putin wants to play hardball, he can step up to a microphone and announce that Russia will be selling off all of its U.S. government debt.

While Russia’s holdings of about $140 billion in U.S. Treasuries is small compared to Japan's and China's, it is still significant enough that it could make waves. If Putin and the Russian government do take this action, it could mean a significantly weaker dollar. It would depend if some of the heavier hitters were to follow suit.

Regardless of what happens here, it is likely to be bullish for gold, silver, and maybe oil. This will be even more pronounced if the Russians really do start selling U.S. government debt.

U.S. politicians are trying to act tough and show Putin who's boss. But they are forgetting that the Russians are paying for part of their deficit spending. It may not be much, but it doesn’t take much to start a new trend. In this case, the trend would be getting away from using the dollar as the world’s reserve currency.

Maybe everything will die down and things will stay peaceful, but we can’t count on it.

Until next time,

Geoffrey Pike for Wealth Daily

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