Countries Form Bloc To Challenge US Dominance

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With public hugs and backslaps among its leaders, a new political bloc was formed yesterday to challenge the global dominance of the United States.

The first summit of heads of state of the BRIC countries — Brazil, Russia, India and China — ended with a declaration calling for a “multipolar world order”, diplomatic code for a rejection of America’s position as the sole global superpower.

President Medvedev of Russia went further in a statement with his fellow leaders after the summit, saying that the BRIC countries wanted to “create the conditions for a fairer world order”. He described the meeting with President Lula da Silva of Brazil, the Indian Prime Minister, Manmohan Singh, and the Chinese President, Hu Jintao, as “an historic event”.

The BRIC bloc brings together four of the world’s largest emerging economies, representing 40 per cent of the world’s population and 15 per cent of global GDP. The leaders set out plans to co-operate on policies for tackling the global economic crisis at the next G20 summit in the US in September.

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Russia - World Needs New Reserve Currency

Russian President Dmitry Medvedev said Tuesday the world needs new reserve currencies.

Medvedev told a regional summit that the creation of new reserve currencies in addition to the dollar is needed to stabilize global finances.

Medvedev has made the proposal before. It reflects both the Kremlin’s push for greater international clout and a concern shared by other countries that soaring U.S. budget deficits could spur inflation and weaken the dollar.

Airing it at a summit meeting underlined the challenge to U.S. clout.

Medvedev spoke at a summit of the Shanghai Cooperation Organization, which includes China and four Central Asian nations.

Later Tuesday he hosts a summit of the BRIC group of leading emerging economies — Brazil, Russia, India and China.

The Kremlin’s top economic adviser said Russia may put part of its currency reserves in bonds issued by Brazil, China and India.

Arkady Dvorkovich said Russia could make the move if the other three nations reciprocate. Brazil, Russia, India and China are the members of the BRIC group of leading emerging economies.

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Federal Reserve Puzzled By Yield Curve Steepening

The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank’s strategy to combat the country’s recession.

But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields.

Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money supply by buying more U.S. Treasuries.

Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases.

Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities.

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Russia to Test Fire at Least 5 New Ballistic Missiles

Russia will conduct at least five test launches of a new-generation intercontinental ballistic missile this year, the deputy defense minister was quoted as saying Tuesday.

Col. Gen. Vladimir Popovkin said the Bulava missile needs thorough testing because “the reliability of all aspects of the rocket needs to be achieved” in comments carried by state news agency RIA Novosti.

The submarine-launched Bulava missile has a reported maximum range of about 6,200 miles and capacity for up to six individually targeted nuclear warheads. It has been hailed as a key future component of Russia’s nuclear forces, although mixed results in testing have tempered enthusiasm.

Popovkin, speaking in Istanbul, said if the test launches were successful another five would be scheduled, the agency said.

The Bulava is to be test-fired from the Dmitry Donskoi nuclear submarine this year, Navy Admiral Oleg Burtsev told RIA Novosti separately.

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Russias Nuclear Attack On U.S. May Start With Major Banks

While US scientists put forward the new doctrine of the Minimum Nuclear Deterrence (targeting missiles against Russia’s 12 key enterprises), Bigness.ru decided to draw a map of a limited strike that could paralyze the US economy. It turns out that the United States is much more vulnerable than Russia at this point. An attack against only five targets in the USA will throw the US economy back into the Stone Age.

US scientists put forward an idea to focus targets on 12 key objects of the Russian economy: enterprises of Gazprom, Rosneft, Rusal, Nornikel, Surgutneftegaz, Evraz and Severstal. The suggestion became an absolutely new approach to the deterrence doctrine. The USA currently has the Mutual Assured Demolition Doctrine, which stipulates an attack of some 200 targets on Russia’s territory.

According to various estimates, Russia’s doctrine stipulates attacks against about 100 targets on the territory of the United States. The destruction of those targets will cause critical damage to the USA.

There is no need to destroy the whole planet in order to paralyze a country and push it back into the Stone Age. The IMF can serve a very good example at this point: the organization pushed several countries into the economic abyss without the use of military force.

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Russia Backs Return to Gold Standard

Mr Dvorkevich said it was “logical” that the new currency should include the rouble and the yuan, adding that “we could also think about more effective use of gold in this system”.

The Gold Standard was the anchor of world finance in the 19th Century but began breaking down during the First World War as governments engaged in unprecedented spending. It collapsed in the 1930s when the British Empire, the US, and France all abandoned their parities.

It was revived as part of fixed dollar system until US inflation caused by the Vietnam War and “Great Society” social spending forced President Richard Nixon to close the gold window in 1971.

The world’s fiat paper currencies have lacked any external anchor ever since. It is widely argued that the financial excesses and extreme debt leverage of the last quarter century would have been impossible - or less likely - under the discipline of gold.

Russia is a major gold producer with large untapped reserves of ore so it has a clear interest in promoting the idea. The Kremlin has already instructed the central bank of gradually raise the gold share of foreign reserves to 10pc.

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UN Panel Welcomes Debate Over New Global Reserve Currency

Editors Note - For those keeping score… This makes it 3. Russia, China and now the UN have each announced  advocating a move to a global currency at the  upcoming  G20 conference.

The head of a United Nations expert panel discussing solutions to the financial crisis on Thursday welcomed the debate over a new global reserve currency and said it would be best managed by a brand new institution.

Just days ahead of the Group of 20 heads of state meeting in London, several key players have weighed in with solutions to resolve the current financial crisis and to prevent future recurrences. One of the most sensitive subjects is the creation of a new de facto global reserve currency to replace the U.S. dollar.

The debate has shot to the forefront as officials from Russia and China have spoken up, lending weight to the discussions. While the G20 meeting isn’t expected to address it directly, it’s a topic that will continue to be discussed over the longer term.

The U.N. panel’s report published last week said a new global reserve system would “contribute to economic stability and equity,” and would reduce the deflationary effects of the massive reserve accumulations that countries have found necessary to protect them against the high level of global instability.

The International Monetary Fund is often cited as the most obvious choice to run a global reserve system, as it already uses its own currency, known as special drawing rights, or SDRs, in its dealings with member countries.

Joseph Stiglitz, economist and head of the U.N. panel, said Thursday in a teleconference with journalists that, although the IMF might be the fastest route, there’s a stigma associated with it among some developing countries, and there’s also frustration with the way that SDRs are allocated.

“My own longer-term preference is to create a new institution to do this,” Stiglitz said. “That’s a trade-off. I would rather face up to these deeper questions and get the system right.”

via Article - WSJ.com.

China Proposes One Global Currency

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

Although Mr Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system.

“The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Mr Zhou wrote.

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Russia To Call For New World Currency At G20 Talks

Russia yesterday published its list of demands for upcoming discussions at the next G20 talks, and top of the list was a new “superreserve currency”. Angered by the dominance of the US dollar as the global reserve currency, the Kremlin said in a statement issued on its website that the IMF should look into the creation of an alternative “accepted by the whole of the international community”.

But according to ‘The Moscow Times’, the idea would receive little support outside of Russia. “This is all in the realm of fantasy,” said Sergei Perminov, chief strategist at Rye, Man and Gore. “There was a situation that resembled what they are talking about. It was called the gold standard, and it ended very badly.”

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Official: Cuba, Venezuela May Host Russian Strategic Bombers

A Russian Air Force chief said Saturday that Venezuelan President Hugo Chavez has offered an island as a temporary base for strategic Russian bombers, the Interfax news agency reported.

The chief of staff of Russia’s long range aviation, Maj. Gen. Anatoly Zhikharev, also said Cuba could be used to base the aircraft, Interfax reported.

The Kremlin, however, said the situation was hypothetical.

“The military is speaking about technical possibilities, that’s all,” Alexei Pavlov, a Kremlin official, told The Associated Press. “If there will be a development of the situation, then we can comment,” he said.

Zhikharev said Chavez had offered “a whole island with an airdrome, which we can use as a temporary base for strategic bombers,” the agency reported. “If there is a corresponding political decision, then the use of the island … by the Russian Air Force is possible.”

Interfax reported he said earlier that Cuba has air bases with four or five runways long enough for the huge bombers and could be used to host the long-range planes.

Two Russian bombers landed in Venezuela last year in what experts said was the first Western Hemisphere touchdown of Russian military craft since the end of the Cold War.

via FOXNews.com - Official: Cuba, Venezuela May Host Russian Strategic Bombers - International News | News of the World | Middle East News | Europe News.

Is Russia Biggest Risk To US Security

While all eyes are on the Gaza crisis, the major threat that Russia poses to U.S. security is being overlooked.

Neither the outgoing nor the incoming administrations have effectively addressed the Russia problem. And with President-elect Barack Obama only weeks away from taking office, he must remember Joe Biden’s warning that the incoming president will face an international test within six months of taking office. Russia is that international challenge, and it’s imperative we start paying attention now–because the test has already begun.

The most obvious evidence of this risk came straight from President Dmitry Medvedev’s mouth during an end-of-the-year interview. Medvedev made it clear that military force will continue to be an option for Russia. “Russia’s interests must be secured by all means necessary,” he said. “First of all, by international and legal tools … but, when necessary, by using an element of force.”

Russia also recently announced a massive increase in the size of its military, and it is commissioning the construction of 700 new strategic nuclear weapons. Further, the deputy secretary of Russia’s Security Council, General Yury Baluyevsky, has already said his work will inevitably lead to a greater role for the military in the country’s foreign policy, as well as “the legitimate use of nuclear weapons as a tool for strategic deterrence.”

This comes on the heels of unconfirmed reports that Russia agreed to supply an S-300 anti-aircraft system to Iran. Although it hasn’t been verified, the rumor must not be taken lightly. Both Russia and Iran tell inconsistent stories. And if this advanced surface-to-air missile system is sold to Iran, it will make any attack by the U.S. or Israel not only dangerous but also more likely to fail.

Magnifying this danger are new reports claiming that Russia is selling other types of missile systems to Syria, Libya and Venezuela.

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Russian Naval Task Force Led By Aircraft Carrier Docks At Syrian Port

The force, which includes the Admiral Kuznetsov aircraft carrier, the Admiral Levchenko destroyer and the Nikolay Chiker salvage tug, was due to call in at the Syrian port of Tartus Monday, Jan. 12 after carrying out joint exercises with the Turkish navy last week.

DEBKAfile’s military sources report that the arrival of the Russian flotilla in wartime is unusual and especially significant given Syria’s role as one of the staunchest backers of Hamas which is embroiled in a war against Israel further down the coast in Gaza.

Our sources believe Moscow may be signaling its disapproval of Israel’s military operation in the Gaza Strip.

DEBKAfile’s military sources report that 50 Russian seamen are permanently based at the Syrian maintenance and resupply facility, the only Russian base in the Mediterranean.

Russia is expanding Tartus port, which has six piers and building a pier at a second Syrian port – Latakia.

During the Russian-Georgian War last August, the Russian government decided to turn the Syrian port into a back-up facility for its Black Sea fleet and its base at the Ukrainian port of Sevastopol.

via DEBKAfile - A Russian naval task force led by aircraft carrier docks at Syrian port.

Russia Uses It’s Most Effective Weapon - Gas Monopoly

Cold War Redux is off to an early start this year. Gazprom, Russia’s state within a state natural gas monopoly, shut the taps to Ukraine this morning after talks broke down over 2009 delivery prices.

When Russia cut supplies to Ukraine two years ago in a similar pricing dispute, it caused tremendous consternation in European capitals. Western Europe depends heavily on energy supplies from Russia — and Ukraine is a key transit route for gas. Forget nukes. Russia has found that energy can be a much more effective weapon.

Bloomberg has an excellent roundup of the situation. The takeaway? “The repeat of an energy standoff between the former Soviet neighbors risks further souring Russia’s ties with the West, months after its war with U.S. ally Georgia,” the article notes.

Gleb Pavlovsky, Russia’s Karl Rove, blamed the Ukrainians for trying to start an “artificial crisis” that would worsen relations between Russia and the European Union. “Ukraine deliberately creates the crisis, blackmailing Russia,” he told Interfax.

Nonetheless, Russia is in a somewhat weaker position than it was two years ago. European supplies have diversified, and the once-mighty Gazprom is reeling from a drop in global energy prices.

via Wired.com.

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Don’t Destabilize Russia, Putin Warns Foes

Prime Minister Vladimir Putin warned Russia’s foes on Friday against trying to destabilize a country facing broadening economic crisis, Russian news agencies reported.

Putin did not specify who might pose a threat to Russia’s stability. But in the past, he has often blamed Western security services of trying to destabilize the country using opposition groups and non-governmental organizations as their instruments.

“Any attempts to weaken or destabilize Russia, harm the interests of the country will be toughly suppressed,” they quoted ex-KGB spy Putin as telling an annual meeting of top spies and security officers ahead of their professional holiday.

Putin, who was the Russian president in 2000-08, has contributed greatly to the growth of influence of Russia’s FSB federal security service, a successor of the Soviet-era KGB.

Many ex-KGB officers became key government and regional officials during his presidency forming his power base, which largely remained intact after Putin handed over powers to his successor Dmitry Medvedev in May.

Critics say that under Putin, security services have become excessively influential and expressed fears Russia could one day become a police state.

Rights campaigners have urged Medvedev to veto a cabinet bill ordering that professional judges rather than juries run trials involving terrorism, civil unrest and several other serious crimes.

They also urged Medvedev to block government attempts to impose high treason charges on people accused of “harming the constitutional order,” which critics believe could lead to a political witch-hunt.

Analysts say the role of the security services is likely to grow even further as Russia plunges into an economic crisis marked by rising unemployment and financial woes that threaten the popularity of the government.

Avoiding civil unrest and maintaining political stability is viewed by the government as a top priority.

via  Yahoo News.

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